Summer 2016


April 18 Is History! Is It Over?

It’s Not, Now What?

Your return or Request for Extension has been filed.  BUT, you may not be able to relax quite yet.

Extension Filed?

October 17 is the return filing deadline but April 18 was the deadline for payments.  Continue to gather documents that were missing earlier and search for any items necessary to verify Schedules with incomplete information.  Let’s file as soon as we have all of your information.  If you owe any additional tax, the IRS will add some interest and penalty to the bill.

Still Searching For That Refund?

You may contact the IRS Website at the “Where’s my Refund?” link to check the status of your refund.  Another option is calling the IRS Tax Hotline at 800-829-1954.  Both the Website and Hotline are updated every 24 hours.  Note that E0Filed returns are now tracked by the IRS in hours, however paper filed returns can take as long as 4-6 weeks.  You will need to have your social security number, filing status and refund amount available when inquiring through the IRS about your refund status.

Still Owe?

The IRS will send a bill.  The bill will show your balance plus any interest and/or penalty.  Pay as soon as possible to avoid additional charges.

  • Installment Plans.  IRS offers installment plans with set-up fees of up to $120 if the amount owed for tax, penalties and interest is $50,000 or less and all tax returns have been filed timely.  I can help.
  • Credit Card Payments.  A “convenience fee” up to 2.25% applies plus any interest until the balance is paid off.  Call 1-888-PAY 1040 to set up plan.

Oh No! I Forgot…

If you forgot some key information, I can file an amended return.  You have 3 years after the filing deadline to change your return.  Most 2012 & earlier returns have passed their deadline for filing an amendment.  Call me if you have discovered tax documents or information that you originally omitted from a previously filed Tax Return.

  • Uh-Oh… An IRS Letter!  If you get a letter from the IRS, try not to panic, just call me. The letters can be confusing.  Don’t risk making an even bigger mess!  We can handle it together.
  • Will I Be Audited?  There’s no sure-fire way to know.  Your chance of an audit is less than 1%.  That 1 in 100 chance is reduced to 1 in 250 if your return doesn’t include income from a business, rental real estate or employee business expenses.  Almost 70% of all “audits” are really done by a computer.  The IRS compares various forms like W2s and 1099 forms from your employer, banks and brokers with what’s on your return.  When they spot enough of a discrepancy, an IRS letter is generated that appears to be a bill.  Don’t pay it yet!  Send it to me and we will assess the situation.  The IRS is not always right!
  • Keep Me Posted!  We won’t be doing your 2016 return for several months but we can stay alert for changes that could create a tax surprise.  Let me know about any new income items or changes in the members of your household.

Affordable Care Act (ACA) Tax Increases Are Now Locked Through 2016

Here’s a quick refresher on the Affordable Care Act tax increases that could affect you.

 Tax Penalties Related To Affordable Care Act Are Going Up Again

The Affordable Care Act imposed penalties for those not having qualifying health care coverage.  Those penalties started at $95 per adult or 1% of income above the filing threshold in 2014, but they rose to $285 per adult or 2% of income above the filing limit in2015.  For 2016, penalties will rise again, hitting $695 per adult or 2.5% of income.  A family maximum will apply to the per-person amount, but the $2,085 amount will be substantially higher than the $975 in 2015, and the $285 in 2014.

Additional 0.9% Medicare Tax On Salaries and Self-Employment Income Earned By “Wealthy” Folks

Before ACA, the Medicare tax on salary and/or self-employment income was a flat 2.9%.  If you’re an employee, 1.45% was withheld from your paychecks, and the other 1.45% was paid by your employer.  If you’re self-employed, you paid the whole 2.9% yourself.

After ACA, an extra 0.9% Medicare tax is charged on: (1) salary and/or self-employment income above $200,000 for an unmarried individual, (2) combined salary and/or self-employment income above $250,000 for a married joint-filing couple, and (3) salary and/or self-employment income above $125,000 for those who use married filing separate status.  For self-employed individuals, the additional 0.9% Medicare tax hit comes in the form of a higher self-employment bill.

Additional 3.8% Medicare Tax On Investment Income Collected by “Wealthy” Folks

Before ACA, investment income was not subject to any sort of Medicare tax.  After ACA, all or part of your net investment income, including long-term capital gains and dividends, can get socked with a 3.8% Medicare surtax (the so-called net investment income tax).  Therefore, the maximum federal rate on long-term gains and qualified dividends is actually 23.8% (20% for the “regular” capital gains tax plus 3.8% for the net investment income tax) versus the IRS advertised 20% maximum rate.

Fortunately, the 3.8% surtax will not hit you unless your adjusted gross income exceeds (1) $200,000 if you’re unmarried, (2) $250,000 if you’re a married joint-filer, or (3) $125,000 if you use married filing separate status.

If you are affected, the 3.8% surtax applies to the lesser of your net investment income or the amount of adjusted gross income in excess of the applicable threshold.  For example, a married joint-filing couple with adjusted gross income of $325,000 and $100,000 of net investment income would pay the 3.8% surtax on $75,000 (the amount of excess adjusted gross income).  If the same couple has adjusted gross income of $400,000, they would pay the 3.8% surtax on the $100,000 (the entire amount of their net investment income).  Confusing?  You bet!  Can I help make send of this?  Absolutely!

Higher Threshold For Itemized Medical Expense Deductions

Before ACA, you could claim an itemized deduction for medical expenses paid for you, your spouse, and your dependents, to the extent that those expenses exceed 7.5% of your Adjusted Gross Income.  After ACA, the hurdle is raised to 10% of adjusted gross income.  However, if you or your spouse is age 65 or older at year-end, the more favorable 7.5%- of adjusted gross income threshold remains in force for this year.  For 2017 and beyond, however the 10%-of-adjusted gross income deduction threshold will apply to everybody, regardless of age.  Medical deductions are becoming much more difficult to claim since the percentage was increased.

Affordable Care Act’s Reporting Requirements

  1. Do I need to have my Form 1095-A from the Marketplace before I have my return prepared for filing?
  2. Yes.  If you were expecting to receive a Form 1095-A, you should have waited to have me file your 2015 income tax return (or file an extension) until you receive that form.  Form 1095-A provides information that I will need to complete Form 8962, Premium Tax Credit, and reconcile advance payments of the premium tax credit or – if you are eligible – to claim the premium tax credit on your tax return.  If you have questions about the information on Form 1095-A, or about receiving Form 1095-A, you should contact your Marketplace directly.  Neither I nor the IRS will be able to answer questions about the correctness of information on your Form 1095-A.  We also cannot offer comments on missing or lost forms.  If you receive a corrected Form 1095-A after I filed your 2015 Tax Return, we will need to file an amended return.
  3. What happens if I don’t reconcile my advance payments of the premium tax credit when I file my return?
  4. Filing your return without reconciling your advance payments will delay your refund and may affect future advance credit payments.  The IRS will send you a letter with instructions about what you need to do to resolve this issue, which may include submitting Forms 1095-A and 8962.  This may require filing an amended Tax Return if you did not have the Form 1095-A when your Return was prepared.
  1. Must I file an amended Tax Return if I received health care tax forms (Forms 1095-B or 1095-C) after having my Return originally filed?
  2. It is not necessary to wait for Form 1095-B, Health Coverage, or Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, in order to file.

Major Tax Strategies… Revisited

Roth Conversion – Is It Right For You Now?