Monthly Archives: December 2013

Health Savings Accounts: An option worth considering

While the way you shop for a health insurance policy may be changing, the tax rules for combining your policy with a savings account remain in place. The combination of a high-deductible health policy and tax-advantaged savings is called a Health Savings Account (HSA).

To qualify for an HSA, you or your employer must first purchase a health insurance plan with a high deductible. The deductible is the portion of health care expenses you’ll pay out of pocket before your policy begins to pick up the bills. For 2014, a high-deductible plan is one with an annual deductible of at least $1,250 for individual coverage and $2,500 for family coverage. With an HSA, the maximum annual expenses you can be required to pay are limited to $6,350 for individual coverage and $12,700 for family coverage.

Once your health insurance plan is in place, you open an HSA with a bank or other custodian. The idea is this: You deposit money in the account to pay health care costs incurred before you satisfy the policy deductible. Maximum contributions for 2014 are $3,300 for individual coverage and $6,550 for family coverage. Catch-up contributions when you’re age 55 or older are $1,000.

Here’s the tax benefit: You put money in your HSA on a pre-tax basis when your employer offers the HSA, or you take an above-the-line tax deduction if you fund the account yourself.

Additionally, any account earnings such as interest or dividends grow tax-free. Amounts you take from the account are also tax-free when you use the withdrawals to pay qualified medical expenses. There’s a 20% penalty for withdrawals you use for nonmedical costs.

Give us a call as you shop for tax-advantaged ways to meet your health insurance requirements. We have the details you need to make an informed

Be aware of the individual penalty in the health care reform law

Are you familiar with the individual shared responsibility payment? This penalty for not obtaining and maintaining a minimum level of health insurance is scheduled to begin in 2014, and is due with the tax return you’ll file in 2015.

That’s a long way off, so why think about it now? One reason: Today’s decisions will affect tomorrow’s penalties. For example, when you choose to buy a policy meeting minimum requirements and you maintain coverage for the entire year, no penalty is due. That’s true even if you experience a gap in coverage of less than three months.

Thinking of not buying health insurance? Unless you qualify for one of nine exemptions, you’ll owe the penalty. For 2014, the minimum per-adult penalty is $95. The actual amount you’ll pay can be higher, and is based on the number of months you’re uninsured, the amount of your income, and the national average premium for a “bronze-level” plan.

If you fail to pay the penalty with your return, the amount you owe can be withheld from any tax refund due. Though the IRS is prohibited from garnishing your wages or filing a lien for an unpaid penalty, interest will accrue on the balance.

The individual shared responsibility payment is scheduled to increase over time. Give us a call to discuss whether the penalty or one of the exemptions will apply to you.

Make preparations for 2013 Form 1099 filing

While you’re wrapping up 2013, give yourself the gift of reduced stress in the new year by getting a head start on January’s information reporting responsibilities. Here are three tasks to tackle.

  • Review your general ledger. Even if you’ve already identified “1099 vendors” in your payables system, review current year expenses to make sure no new or infrequent payments have been overlooked. For example, it’s easy to forget that fees totaling $600 or more paid to your attorney during the year must be reported on Form 1099-MISC, even if the attorney’s practice operates as a corporation.
  • Verify vendor information. Check your files for up-to-date Forms W-9, the form you use to request a vendor’s federal taxpayer identification number (TIN). In general, you should have Form W-9 on file for each vendor who provides services, even if the transaction is a one-time event.Why? Filing “mismatched” Forms 1099 — where the combination of name and TIN do not match IRS records — will result in a notice, and possibly penalties. To avoid problems, consider signing up for the TIN Matching Program, an online service run by the IRS, so you can verify identification numbers prior to filing 1099s.
  • Order forms. If you plan to file paper forms this year, the copy you mail to the IRS must be on forms preprinted with scan-friendly ink. You’ll also need Form 1096, the annual summary, for each type of information return you file.

Call us with your payroll tax questions. We’re here to help.

How to deal with DOMA and payroll tax refunds

Did you pay extra social security, Medicare, and withholding tax on certain fringe benefits during 2013 because of this year’s tax law recognition of same-sex marriage? Whether you’re an employer or an employee, you can claim a refund of the overpaid taxes. Here’s how.

  • Employers. You can correct overpayments for amounts withheld from employee paychecks throughout 2013 by repaying or reimbursing employees before December 31.

    Then, under a special, simplified rule in place for this year, you can include the change on your fourth quarter federal payroll return (Form 941). You do this by reducing the amount of wages (and withholding if applicable) reported on that return. Choosing this option means you won’t have to file amended Forms 941 for the first three quarters of 2013.

    What if you do not make the repayments or reimbursements before year end? You’ll need to complete your fourth quarter federal payroll tax return without making adjustments, and file an amended return later. You can file one amended return for the fourth quarter that includes adjustments or overpayments for the entire year.

    However, be aware that under this method you cannot correct for the federal income tax withheld from employees. You may also need to file amended Forms W-2 when you choose this option.

    Do you need to make adjustments for prior years? For purposes of this change, the rules say you can file a single Form 941-X for each year, instead of the usual four. Remember to amend other affected returns, including Forms W-2.

  • Employees. If you overpaid federal income tax in prior years because your spouse’s fringe benefits were taxable, you may want to file Form 1040X to obtain a refund. You’re not required to amend, so be sure the overall tax effect is beneficial to you.

Contact us for more information.

Should you pay off your home mortgage before retirement?

As Shakespeare put it, “Borrowing dulls the edge of husbandry.” In other words, subsidizing a lifestyle with credit tends to make us financially lazy. When headed into retirement with the prospect of a fixed income, liquidating all your debts — including your mortgage — seems to make a lot of sense. Nevertheless, paying off a mortgage, unlike reducing credit card or installment debt to zero, may not be the wisest choice for everyone. Here are four factors to consider.

  • How’s your emergency fund doing? If you don’t have enough money set aside to cover the unexpected hazards of life, you may end up charging credit cards or raiding retirement accounts to cover those costs. How much should you set aside? Most experts recommend enough to cover three to six months of living expenses. Funding an emergency fund first will keep you from being house-rich and cash-poor.
  • How much can you earn elsewhere? If you’ve refinanced your mortgage and locked in a historically low interest rate, you may want to invest extra money in funds that earn higher returns. Of course, the stock market is notoriously volatile. So if you can’t handle the volatility of the market or can’t sleep at night when your investments take a downturn, paying off the mortgage may be the more prudent choice for you. In other words, know yourself and plan accordingly.
  • Is consumer debt draining your cash flow? If you’re only making the minimum payments on your car loan or credit card balance, attack those debts first. Consumer interest isn’t deductible on your taxes, and the interest rates are probably higher than you’re paying on a mortgage. If you’re heading into retirement with only a few years left on a fixed-rate mortgage, most of your payment is already being applied toward the principal balance.
  • Are you fully funding retirement accounts? As full-time employment winds to a close, be sure to contribute as much as possible to IRAs and 401(k) accounts. Most folks will use those funds to supplement social security payments, pensions, or other savings. Again, having a house that’s paid off may provide little consolation if you run out of cash partway through retirement. True, you might be able to sell the house and use the cash to cover a shortfall. But selling your primary residence should fit into a carefully considered plan. A fire sale doesn’t qualify.

For help in analyzing whether paying off your home mortgage makes sense in your circumstances, give us a call.

Review cost-cutting ideas for your business

The start of a new year is a great time to reassess your business, scrutinizing everything from organizational structure to personnel policies to advertising. Putting company costs under a microscope can also pay huge dividends throughout the year if expense-cutting measures are implemented judiciously and consistently. Here are a few ideas for reducing costs and fortifying your bottom line.

  • Buy in bulk. For some items, such as printer ink and other office supplies that your staff regularly consumes, buy in quantity. By renegotiating supplier contracts, you may be able to generate additional discounts.
  • Trim travel costs. For some business activities, travel is unavoidable. There’s nothing like a face-to-face meeting to clinch a deal or size up a vendor. When you or your staff must travel, check for discounted fares, opt for a smaller rental car, or stay at a hotel that’s closer to the work site. Consider taking some of the work home to reduce travel time.
  • Review insurance policies. It doesn’t hurt to reassess your insurance needs on a regular basis. Circumstances and insurance companies change. The policy you bought five years ago may not be competitive today. Your company may be carrying coverage you don’t need. Discuss existing arrangements with your agent. You may be eligible for trade association discounts or an umbrella policy.
  • Examine the lease. Do the terms of your lease still make sense? Landlords like to keep good tenants, so don your negotiating hat and look for ways to revise lease terms to make them more favorable to your company. If you own a building but don’t use the entire space, consider subletting to another business to generate additional revenue.
  • Take stock of existing technology. An expensive inter-office phone system may have become an expensive luxury, especially if all your employees use cell phones. Laptop computers expend significantly less energy than desktop models, so using laptops may make fiscal sense in the long run.
  • Turn out the lights. Utilities are often one of the largest expenses on a company’s profit and loss statement. Install motion sensor lights to reduce costs. And solicit staff suggestions for additional savings.

Heinemann & Associates PLLC