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New Clients: Get $50 Off Preparing Your 2014 Federal Tax Return

January 30, 2015 by admin

Trimble & Company, Certified Public Accountants (CPAs), is one of the leading Accounting Firms in Riverside, California with a highly experienced team of CPAs and support staff to service clients in tax preparation and strategy, accounting, payroll service, consulting, and more. The accounting firm is built on a solid foundation of ethics, which has enabled the company to establish and maintain long lasting business relationships with small and large businesses in the Southern California region for 30 years.

If you’re looking for a new tax firm to handle your taxes this year, we would love the opportunity to serve you!

Call us today at 951-781-2910 and receive $50 off the preparation of your 2014 Tax Return.

Offer valid for new clients only. $50 will be discounted from the preparation fees for your tax return filing and not any amount you owe. Expires April 10th, 2015.

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How Healthcare Reform Will Affect Your Tax Return

January 26, 2015 by admin Leave a Comment

Premium Assistance Tax Credit

The Affordable Care Act created the Premium Assistance Tax Credit to provide governmental assistance to help those individuals who meet certain low-income qualifications, obtain affordable health coverage. In order to qualify for the assistance credit, California residents must purchase health insurance through CoveredCA.com. Nonresidents must purchase coverage through their state’s marketplace (exchange).

Those making less than four times the Federal Poverty Level (FPL) may qualify for reduced premiums through the marketplace. Those with income less than two and a half times the FPL may qualify for insurance with lower deductibles and copayments. For example, the FPL for a family of four is $23,550. If a family of four has household income below $94,200 (400% of the FPL), they may qualify for assistance with their health insurance premiums. If an individual or family’s household income is below 138% of the FPL, they probably qualify for Medicaid. The Federal Poverty Level (see below) is adjusted annually for inflation.

2014 Federal Poverty Level

If a household qualifies for the credit, the insurance exchange can make advance payments to the insurance provider on their behalf. Early in 2015, individuals who bought health insurance through the Marketplace will receive Form 1095-A, Health Insurance Marketplace Statement, which includes information about their coverage and any premium assistance received. Form 1095-A will help individuals complete their return. Individuals claiming the premium tax credit, including those who received advance payments of the premium tax credit, must file a federal income tax return for the year and attach Form 8962, Premium Tax Credit. A taxpayer’s premium tax credit for the year may differ from the advance credit payment amount estimated by the Marketplace because the taxpayer’s family size and household income are estimated at the time of enrollment. The difference between the actual credit and the amount of advance payments will be reconciled on the tax return.

To reconcile on the return, a taxpayer must subtract the advance credit payments for the year from the amount of his premium tax credit calculated on the tax return. If the premium tax credit computed on the return is more than the advance credit payments made on the taxpayer’s behalf during the year, the difference will increase the refund or lower the amount of tax owed. If the advance credit payments are more than the premium tax credit (an excess advance credit payment), the difference will increase the amount owed and result in either a smaller refund or a balance due. This will be entered in the Tax and Credits section of the return.

The repayment limitation only applies to households that actually qualified for the premium assistance credit. The maximum repayment is $2,500 for families and $1,250 for individuals that qualify for the premium assistance credit based on actual household income. If the insurance exchange makes advance payments based on projected income, but the insured fails to qualify for the credit based on actual income, the repayment amount is not limited and 100% of the difference must be repaid.

Individual Shared Responsibility Mandate Penalty

Those who can afford health insurance but did not obtain coverage in 2014 may be required to pay an “individual responsibility penalty”. Additionally, insurance policies must meet minimum essential coverage requirements to avoid assessment of penalties. An insurance policy purchased from CoveredCA.com satisfies minimum coverage requirements.

The penalties for mandatory individual health insurance will be reported on the taxpayer’s 1040. Penalties will not apply to individuals who are not required to file a tax return. Taxpayers are responsible for providing coverage for any individual they are able to claim as a dependent on their tax return (even if not claimed). The penalty will be assessed for any month in which there was no health insurance coverage.

For 2014, the penalty will be the greater of $95 (Flat Dollar amount) per adult plus 50% of the adult amount per uninsured person under the age of 18 or 1% of the household income. For 2015, the penalty increases to $325 per person or 2% of income. In 2016, the penalty is $695 per person or 2.5% of income. The applicable income subject to the penalty is the excess household income above a threshold filing amount. The Flat Dollar amount is capped at 300% of the adult penalty. The maximum penalty is the national average yearly premium for a bronze plan. For 2017 and beyond, the penalties will be adjusted for inflation.

For example, if couple has $150,000 of household income and the threshold filing amount for Married Filing Joint with no dependents in 2014 is $20,000, then their applicable income is $130,000 ($150,000 – $20,000). Their penalty is $1,300, which is the greater of $190 ($95 x 2) or $1,300 ($130,000 x 1%).

Exemptions from Individual Mandate Penalty

There are a few ways an individual may be exempted from paying any penalties. Many of the exemptions must be applied for on the state exchange. There are a couple of exemptions that can be claimed on the individual’s tax return.

Religious reasons
Indian Tribes
Not required to file a tax return
Short coverage gap
Unaffordable coverage
Incarceration
Not a US citizen
Hardship Exemption

Short coverage gap – a continuous period of less than three months in which the individual is not covered under minimum essential coverage. If an individual does not have health insurance coverage for three or more months, none of the months included in the continuous period are treat as included in a short coverage gap and the penalty is assessed. This exemption is claimed on the tax return.

Unaffordable coverage– Individuals are exempt from any penalty for any month they lack affordable coverage. Affordability is based on the premium of the lowest cost bronze plan in the market, and reduced by the Premium Assistance Credit. Coverage is unaffordable for any month in which the cost of minimum essential coverage is greater than 8% of adjusted household income. This exemption is claimed on the tax return.

Hardship Exemption – Individuals who are homeless, were evicted in the last six months or facing eviction or foreclosure, or received a shut-off notice from a utility company may qualify for a hardship exemption. Individuals who are a victim of domestic abuse, recently filed for bankruptcy, or suffered the death of a close family member may also be eligible for the hardship exemption.

Tax Benefits of Putting Family Members on the Payroll

December 22, 2014 by admin Leave a Comment

As a business owner, you should be aware that you can save family income and payroll taxes by putting junior family members on the payroll. You may be able to turn high-taxed income into tax-free or low-taxed income, achieve social security tax savings (depending on how your business is organized), and even make retirement plan contributions for your child.

In addition, employing a child age 18 (or if a full-time student, age 19-23) may be a way to save taxes on the child’s unearned income, as explained below.

Here are the key considerations:

Turning high-taxed income into tax-free or low-taxed income. You can turn some of your high-taxed income into tax-free or low-taxed income by shifting some of your business earnings to a child as wages for services performed by him or her. In order for your business to deduct the wages as a business expense, the work done by the child must be legitimate and the child’s salary must be reasonable.

For example, suppose a business owner operating as a sole proprietor is in the 39.6% tax bracket. He hires his 17-year-old daughter to help with office work full-time during the summer and part-time into the fall. She earns $6,100 during the year (and doesn’t have any other earnings).

The business owner saves $2,415.60 (39.6% of $6,100) in income taxes at no tax cost to his daughter, who can use her $6,200 standard deduction (for 2014) to completely shelter her earnings. The business owner could save an additional $2,178 in taxes if he could keep his daughter on the payroll longer and pay her an additional $5,500. She could shelter the additional income from tax by making a tax-deductible contribution to her own IRA.

Family taxes are cut even if the child’s earnings exceed his or her standard deduction and IRA deduction. That’s because the unsheltered earnings will be taxed to the child beginning at a rate of 10%, instead of being taxed at the parent’s higher rate.

Keep in mind that bracket-shifting works even for a child who is subject to the kiddie tax, which causes the child’s investment income in excess of $2,000 for 2014 to be taxed at the parent’s marginal rate. The kiddie tax has no impact on the child’s wages and other earned income.

The kiddie tax doesn’t apply to a child who is age 18 or a full-time student age 19 through 23, if the child’s earned income for the year exceeds one-half of his or her support. Thus, employing a child age 18 or a full-time student age 19-23 could also help to avoid the kiddie tax on his or her unearned income.

For children under age 18, there is no earned income escape hatch from the kiddie tax. But in all cases, earned income can be sheltered by the child’s standard and other deductions, as noted above, and earnings in excess of allowable deductions will be taxed at the child’s low rates.

What about income tax withholding? Your business probably will have to withhold federal income taxes on your child’s wages. Usually, an employee can claim exempt status if he or she had no federal income tax liability for last year, and expects to have none for this year. However, exemption from withholding can’t be claimed if (1) the employee’s income exceeds $1,000 for 2014, and includes more than $350 of unearned income (such as dividends) for 2014, and (2) the employee can be claimed as a dependent on someone else’s return. Keep in mind that your child probably will get a refund for part or all of the withheld tax when he or she files a return for the year.

Social security tax savings, too. If your business isn’t incorporated, you can also save some self-employment (i.e., social security) tax dollars by shifting some of your earnings to a child. That’s because services performed by a child under the age of 18 while employed by a parent isn’t considered employment for FICA tax purposes.

For example, let’s say a sole proprietor who usually takes $120,000 of earnings from the business pays $5,700 to her 17-year-old child. The sole proprietor’s self-employment income would be reduced by $5,700, saving her $165.30 (the 2.9% HI portion of the self-employment tax she would have paid on the $5,700 shifted to her daughter). This doesn’t take into account a sole proprietor’s income tax deduction for one-half of his or her own social security taxes.

A similar but more liberal exemption applies for FUTA (unemployment) tax, which exempts earnings paid to a child under age 21 while employed by his or her parent. The FICA and FUTA exemptions also apply if a child is employed by a partnership consisting solely of his parents.

Note that there is no FICA or FUTA exemption for employing a child if your business is incorporated or a partnership that includes non-parent partners. However, there’s no extra cost to your business if you’re paying a child for work you’d pay someone else to do, anyway.

Retirement benefits. Your business also may be able to provide your child with retirement benefits, depending on the type of plan it has and how it defines qualifying employees. For example, if it has a simplified employee pension (SEP), a contribution can be made for the child up to 25% of his or her earnings but the contribution cannot exceed $52,000 for 2014. The child’s participation in the SEP won’t prevent the child from making tax-deductible IRA contributions as long as adjusted gross income (computed in a special way) is below the level at which deductions for IRA contributions begin to be disallowed. For 2014, that figure is $60,000 for a single individual.

If you have any questions about how these rules apply to your particular situation, please don’t hesitate to call. Also keep in mind that some of the rules about employing children (such as the maximum amount they can earn tax-free) change from year to year, and may require your income-shifting strategy to change, too.

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