Monthly Archives: December 2015

Health insurance decisions will affect your 2016 tax return

December is the midpoint of the 2016 health insurance open enrollment period, which began November 1, 2015, and ends January 31, 2016. As you investigate your options on the government Marketplace, here are two ways the decisions you make could impact your 2016 federal income tax return.

  • Penalty. If you decide not to purchase a health insurance policy for 2016, you’ll pay a penalty for any month you don’t have coverage and don’t qualify for an exemption. You’ll pay the penalty, also known as the shared responsibility payment, on your 2016 federal income tax return (the one that’s due in April of 2017). The penalty is calculated as a percentage of your income or is based on the number of uninsured people in your household. You’ll calculate both numbers and pay the higher of the two.For 2016, the percentage-of-income penalty is 2.5% of your household income, up to a maximum of the total average annual premium of a Bronze plan. The per-person penalty is $695 per adult ($347.50 per child under 18), up to a maximum of $2,085.
  • Premium tax credit. If you purchase a policy on the insurance Marketplace, you may qualify for a federal tax break. The break is in the form of a credit, which reduces your federal income tax dollar for dollar. You can choose to receive the credit monthly in the form of lower premiums on your policy, or claim it on your 2016 federal income tax return.If you get the credit monthly, be sure to update your information with any changes in your family size or income so you receive the correct amount. Also be aware you’ll need to file a tax return, even if you might not otherwise have to, in order to reconcile the amount of the credit you’ve taken with the amount you are eligible for.

Give Carl Heinemann, your Chattanooga CPA, a call if you need help sorting through your health insurance options.

The myRA: No need to wait any longer

Have you started saving for retirement yet? Maybe the answer is no because you’re waiting for an account that costs nothing to open, lets you start saving with any amount that fits your budget, and has no fees. If that’s the case, a myRA may mean your waiting days are over, especially since the Department of Treasury recently added new ways to fund these accounts.

  • What’s a myRA? “myRA” is an acronym for “my Retirement Account.” You can open a myRA even if you have other retirement accounts. myRAs generally follow Roth IRA rules, though there are differences. For example, one difference is the way money you deposit in your account is invested. Contributions to your myRA are invested in a new electronic U.S. Treasury savings bond. The balance in your account earns interest and is guaranteed to retain its value.
  • How much can be contributed each year? myRAs are subject to the same income and contribution limits as regular Roth accounts. That means when you’re single and earn less than $131,000 during 2015 ($193,000 for married filing jointly), you can make a full or partial contribution. The maximum contribution to a myRA for 2015 is $5,500 ($6,500 when you’re over age 50).
  • How can you take advantage of a myRA? You set up your myRA account online at the Treasury Department website, You can choose to fund your account from your paycheck by completing a direct deposit authorization form and giving it to your employer. You also have the option of making direct deposits from a checking or savings account or from your federal income tax refund.

If a myRA sounds like the retirement option you’ve been waiting for, please give Carl Heinemann, your Chattanooga CPA, a call for more details.

Estimate your tax liability before year-end

Under current pay-as-you-go federal income tax rules, you’re generally required to pay taxes as you earn the related income. Failing to pay the correct amount can result in a penalty when you file your tax return. That’s a good reason to estimate your 2015 tax liability now, while you can still make corrections. Here’s what you need to know.

  • The rules. Estimated tax underpayment penalties generally do not apply when the balance due on your 2015 return is $1,000 or less. If you end up owing more than $1,000, you can avoid a penalty by paying “safe-harbor” amounts. For example, your tax payments during the year need to equal 90% of your 2015 tax or 100% of the tax on your 2014 return (110% if you file jointly and your income was over $150,000).
  • Your options. You can pay what you owe by having additional federal income tax withheld from your wages, social security, pensions, and other income. You could also choose to increase your final estimated tax payment or make it early. An important difference between the two is that federal withholding is treated as if you made payments evenly throughout the year. Increasing your withholding, even in December, can help you prevent an underpayment penalty.

    Checking your tax liability is a simple way to avoid surprises when you file your return. There’s another benefit too: If you discover you’ve paid in more than you’re going to owe, you can give yourself an early refund by reducing your payments during the last few weeks of the year.

Need help running the numbers? Give Carl Heinemann, your Chattanooga CPA, a call.

Be generous and wary: Protect yourself from these tax scams

As the traditional season of giving begins, scam artists are stepping up efforts to take advantage of your generosity and compassion. Here are two schemes the IRS has recently issued warnings about.

  • IRS impersonators. The scam: Your phone rings and a caller says, “I’m from the IRS, you owe us money, and we’re going to throw you in jail if you don’t pay immediately with a pre-paid debit card or wire transfer.”

    The truth: The IRS will not make initial contact about your tax return over the phone, and will never require you to pay your taxes via debit or credit card or wire transfer.

    Defense: Hang up immediately. Report the scam attempt to the Treasury Inspector General for Tax Administration, the Federal Trade Commission, and the IRS.

  • Fake charities. The scam: You’re approached via telephone call, social media, email, or in-person solicitation, and asked to donate to a newly established charity to help “educate the public” about victims of the floods in South Carolina or other major disaster.

    The truth: Scammers want both your money and to lure you into revealing personal information so they can compromise your financial identity.

    Defense: Find out if the charity is registered in your state by visiting the website of the National Association of State Charity Officials. Also check with the Better Business Bureau, Charity Navigator, GuideStar, or similar watchdog groups.

Protect yourself from scams by calling Carl Heinemann, your Chattanooga CPA, to discuss your tax questions. We’re here to help.

Curb impulse purchases

You’re standing in line at the grocery store, your shopping cart full of necessities for the upcoming week. While waiting, you scan the shelves. That magazine story looks interesting; that bottle of specialty water would certainly quench your thirst; that sparkling ornament would look great on the Christmas tree. You drop the items into your cart.

Your grocery bill has just increased and marketing gurus can chalk up another victory.

Impulse buying has been defined as the act of purchasing something you weren’t planning to buy after feeling a sudden urge to do so. Isolated incidents of buying on impulse can have a relatively small impact on your budget. But left unchecked, the practice takes a toll. Consider the doodads you have stashed in your attic or that are gathering dust in your garage or are tucked away in a storage unit. You may have made the purchases on a whim. But how much of your hard-earned cash is tied up in items you never use?

Advertisers are experts at creating the urge to buy. They sow the dream and make you believe you’ll be happier if you purchase a particular new car, or you’ll look more attractive using a certain expensive brand of cosmetics, or you’ll be a carbon copy of the model with the washboard abs in no time at all when you buy exercise equipment.

Your job as a consumer is to think before you buy. Letting emotions rule is a sure way to break the budget, max out your credit cards, and stuff your home with unnecessary clutter.

Fortunately, a few simple rules can help you restrain impulse buying.

  • Make a list. Then stick to it.
  • Know thyself. The ancient philosophers said it, and the advice still holds. If you’re prone to make impulse purchases every time you darken the door of a shopping mall, consider staying home. That sage counsel also applies to browsing online retail and auction sites.
  • Study the tricks of the trade. Car dealers are eager to keep you at the dealership, smelling the leather upholstery and admiring the shine on new vehicles. Why? Statistics show you’re less likely to buy the car if you leave the lot. Knowing the tactics of advertisers and salespeople can help you make more informed and less impulsive purchasing decisions.

Make exit interviews work for your company

If your promotion or bonus hinged on a supervisor’s stellar recommendation, is it likely you’d be honest about that person’s incompetent management? Would you be eager to share your thoughts about a company’s shortcomings and inefficiencies? Probably not.

Under those circumstances, your employees won’t feel free to communicate negative impressions either. Real or perceived concerns about collateral damage to careers and relationships could prevent an employee from speaking up. As a result, employees may try to make the best of a bad work environment. They might remain silent despite poor treatment, inefficient processes, waste, or dishonesty. The result: Management could be clueless until it’s too late.

On the other hand, if a worker has decided to leave the company for good, he or she may be more willing to provide candid and valuable feedback. Frequently encountered reasons for employee departures include lack of recognition or opportunity for advancement, poor supervision, personality conflicts, or greater income potential at another company. Properly analyzed and compiled, such feedback can provide management with crucial data that can be used to improve operational processes, revamp organizational priorities and management, strengthen employee morale, minimize turnover, and avert legal problems.

Carefully planned and skillfully executed exit interviews can gather the feedback you need. Consider these three suggestions from human resource professionals.

  • Craft a written policy. Make exit interviews a routine and formal part of out-processing. Uniform survey questionnaires covering such topics as benefits and pay, training, management issues, environment and culture, and opportunities for growth can be used as a starting point for guiding interviews toward relevant and sensitive topics.
  • Clarify expectations. Clearly state your reasons for conducting the interview. Inform the outgoing employee that you value his or her contributions and that you’ll seriously consider suggestions for improving the company’s operations and work environment. Also communicate your intention to keep interview answers confidential, except when legal requirements may dictate otherwise (in cases of sexual harassment or discrimination, for example).
  • Pick a skilled interviewer. The person conducting the interview need not be a trained human resources professional. But ideally you’ll select someone trained in interview techniques who will not respond defensively if pent-up emotions rise to the surface.

The exit interview may be your last best chance to obtain forthright suggestions from an employee for improving your company. Take full advantage of the opportunity.