Affordable Care Act Are you going to be penalized?

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1 Annual Tax Newsletter December 2014 A Family Owned and Operated Accounting Firm since 1957 For information about Day s & Associates LTD, tax planning tips, newsletters, client tax organizers and more, please visit our website: TAX APPOINTMENTS If there is a yellow appointment card enclosed, please call to confirm your appointment after January 12th (419) If you do not have an appointment and would like to schedule one please call after January 12th For your convenience you can also request and/or confirm an appointment on our website. Go to and click on the buttons on the bottom of the home page. Our Office will be Closed on December 25 & 26 and January 1 & 2 for the Holiday Season Affordable Care Act Are you going to be penalized? Over the last four years one of the largest pieces of legislation in modern history has been slowly taking effect and after surviving Congressional hearings, Supreme Court Appeals and even a Government Shutdown the Affordable Care Act (ACA), affectionately called Obamacare, is starting to have an effect on tax returns. The ACA, at its core, is a healthcare reform that is meant to ensure that all persons obtain and maintain health insurance. This insurance can be obtained through employer sponsored health programs, privately obtained insurance, Medicare, Medicaid, or obtained through the numerous state and federal exchange programs. In an effort to relieve some of the financial burden that carrying health insurance can cause for persons, the ACA allows for a refundable Premium Tax Credit (PTC) for those falling within certain income levels. Those income levels are 133% - 400% of the Federal Poverty Level (FPL), which is currently $11,690 - $46,680 for an individual, and $23,850 - $95,400 for a family of four. Those who are below the thresholds typically qualify for Medicaid, and are thus ineligible for the refundable credit. Conversely those who earn more than the threshold are ineligible as they are seen to be financially sound enough to afford healthcare premiums without assistance. The PTC is not a set dollar amount, but rather is on a sliding scale dependent upon income, cost of insurance, and other criteria. Another important characteristic of the credit is that it is an estimate, as you are receiving the credit a year in advance. In essence, the 2014 income is being used to estimate what your credit will be for the 2015 year so that you can utilize the credit to pay for your 2015 insurance premiums. This further complicates the premium tax credit as the credit will most likely be a different dollar amount each year as incomes and insurance costs change. So, if it was estimated that you were eligible for a $1,000 credit and in actuality you were eligible for a $500 credit you will have to pay the difference back. On the other hand if you received a $1,000 credit and you were eligible for a $1,500 credit you may be able to take the additional credit on the following year s tax return. Continued on page 3

2 Medical Expenses - The Medical Expense threshold for itemized deductions is increasing from 7.5% to 10% for those under age 65. Those over age 66 in 2014 will increase to 10% in Standard Mileage Rates - Business = $.56 Charitable = $.14 Medical/Moving = $.235 Tax Exempt Interest All tax-exempt interest must be reported. This effects the taxation of your social security. Tax Rates - Tax Rates & Capital Gains/Dividend Rates for 2014 are: TAXABLE INCOME TAX RATE SINGLE MARRIED FILING JOINT HEAD OF HOUSEHOLD ORDINARY INCOME SHORT TERM CAPITAL GAIN LONG TERM CAPITAL GAIN QUALIFIED DIVIDENT 0-9, , ,950 10% 10% 0% 0% 0% 9,075-36,900 18,151-73,800 12,950-49,400 15% 15% 0% 0% 0% 36,901-89,350 73, ,850 49, ,550 25% 25% 15% 15% 0% 89, , , , , ,600 28% 28% 15% 15% 0% NIT TAX 186, , , , , ,100 33% 33% 15% 15% 3.8% 405, , , , , ,200 35% 35% 15% 15% 3.8% 406,751 and up 457,601 and up 432,201 and up 39.6% 39.6% 20% 20% 3.8% NIT Tax - New last year in 2013 Net Investment Tax (NIT) is a 3.8% surplus tax imposed on persons with capital gains and/or dividend income who fall within the high income designations. (see table above) IRA and ROTH IRA - The eligible contribution amount is $5,500 (additional $1,000 if age 50 & over). Check with your employer to see if your 401k & 403b plans can be modified to accept Roth contributions. Estate & Gift Tax - The Estate Tax exclusion up from $5.25 million in 2013 to $5.34 million in The annual exclusion from gift tax remains at $14,000. Section 179 Expense - The 179 Deduction was renewed for $500,000 for 2014 with 50% bonus depreciation. In 2015 this is set to reduce to $25,000 with bonus depreciation being eliminated. Business Use of Home - There are now two options to claim business use of home. The traditional method has not changed and can still be utilized. The new method is the Safe Harbor or Simplified Option. This options allows the standard amount of $5 per square foot up to 300 sq. ft. and does not require expense records to be kept. (see us for details) Additional Medicare Tax - An additional.9% in Medicare taxes will be applied to those persons exceeding certain income levels. $250,000 for Married Filing Joint and Qualified Widow, $125,000 for Married Filing Separately, and $200,00 for Single and Head of Household. APPOINTMENT CHANGES APPOINTMENTS HAVE CHANGED! Due to health reasons, familial obligations, and the sheer number of clients we have, the decision has been made to change appointments to ensure that all of our clients receive the best possible service. It is imperative that you check your appointment card as you may have been moved to a different date, different time, or different tax preparer. We thank you for your understanding and cooperation in this matter.

3 (Affordable Care Act...cont. from cover) The refundable aspect of the credit creates a burden on the government in that it must find the funds to pay for the monies being paid. In an effort to be a self-sustaining piece of legislation the ACA has built in fundraising capabilities. These come in the form of penalties for both businesses and individuals alike. To focus on the individual aspect, this is achieved by penalizing those persons that do not obtain and maintain the minimum essential coverage required by the ACA. This brings about the questions What is the Minimum Essential Coverage? and What is the penalty? In order to be considered Minimum Essential Coverage (MEC), a health insurance plan must generally meet the following criteria (though not an exhaustive list): Affordability: Plans must cover at least 60% of out-of-pocket costs on required services. Guaranteed Availability of Coverage: You cannot be denied coverage for any reason other than the ability to pay. Guaranteed Renewability of Coverage: You must be able to renew the policy regardless of health status. Fair Health Insurance Premiums: There are limits to the amount you can be charged based on age, tobacco use, family size, and geography. Medical Loss Ratio (the 80/20 Rule): If an insurance company spends less than 80% (85% in the large group market) of premium on medical care and efforts to improve the quality of care, they must rebate the portion of premium that exceeded this limit. Ten Essential Benefits: Must provide coverage of at least ten essential health benefits. Dollar Limits: Insurers cannot place Dollar Limits on Essential Benefits. The taxpayer will be subject to a penalty if their plan doesn t meet these requirements or if they do not have insurance at all. Like the credit, the penalty is on a sliding scale and determined utilizing income, the cost of that coverage, as well as other factors. The image below depicts the current and future penalty rates. While the window to obtain insurance for the 2014 tax year has long closed, you still have time to obtain coverage for In order to not be subject to the penalty for 2015 you must obtain coverage by February 15, As previously mentioned the ACA is one of the largest pieces of legislation to be enacted in modern history. As a result it is also one of the most complicated and difficult to understand. And while we touched on a couple of the most pertinent aspects of the ACA as it pertains to the individual tax return, it is only the tip of the iceberg. As the legislation continues to be put into effect and it takes on different forms it is essential that the taxpayer stays educated and informed.

4 Affordable Care Act (Obamacare) Information Sheet WE CANNOT FILE THE TAX RETURN WITHOUT THIS INFOR- MATION! 1) Insurance Card : If you have insurance we must have proof of insurance, your insurance card is the easiest way to prove this. 2) 1095-A, 1095-B, 1095-C : If you obtained insurance through the marketplace you will receive a form 1095-A, we cannot file your tax return without this document. The 1095-B & 1095-C are optional for businesses to send out this year. If you receive one we will need this. Please contact your insurance provider to determine if you will be receiving one of these forms. 3) Exemption? : If you are exempt from the mandatory healthcare coverage we need to know why you are exempt and might need proof of that exemption. To learn more about exemptions and whether or not you qualify you can go to: 4) We will have additional questionnaires for you to fill out at the time of your appointment. Please arrive at least 10 minutes early to allow yourself time to fill these out. Pertinent Information to Keep in Mind QuickBooks Update - If you use QuickBooks 2012 or older, you need to update your file to the new 2015 version. Your version is no longer supported by QuickBooks support and will no longer accept QuickBooks updates. This is extremely important, especially if you complete payroll using QuickBooks. Where s My Refund? - IRS is no longer guaranteeing the date that your refund will be deposited. They are providing general guidelines, but in no way are promising that it will be there by that date, and will not provide a secondary date for your refund to be deposited. You may check the status of your refund on IRS s website (irs.gov) under the Where s My Refund? tab. Check your OHIO refund at Document Checklist - All information must be included Identification (New Clients Only)- Social Security Card(s), Photo Identification (Driver s License, Military ID card, Government ID, etc.) Dependent Records (New Clients Only) - Child Social Security Cards, Birth Certificates or School Shot Records Bank Information - Voided Check for Direct Deposit Purposes Income Documentation - W-2, 1099-B (stock sale), 1099-Div (dividend), 1099-Int (interest), 1099-misc, 1099-R (retirement), 1099-SSA (social security), K-1 (partnership/corporation), Unemployment, Alimony, last paystub of 2012 Business Income & Expenses (please fill out the enclosed worksheet or use the.pdf version on our website) Rental Income & Expenses (please fill out the enclosed worksheet or use the.pdf version on our website) Farm Income & Expenses Itemized Deductions Medical Expenses (Must have Receipts) Medical/Charitable Mileage (Must have a Mileage Log) Real Estate Taxes Mortgage Interest (Form 1098) Charitable Contributions (Goodwill contributions must have a detailed list of items donated) Unreimbursed Employee Expenses (Must have a log for mileage) Education Expenses T (tuition statement), collegiate account summary, receipts for supplies (laptop, books, etc.) Insurance Information 1095-A, 1095-B, 1095-C, Insurance Card, Proof of Premium Payments (MANDATORY)

5 Your Most Frequently Asked Ques ons Do I need to file a 2014 tax return? Only if your gross earnings are greater than: If you are Amount Amount if age 65 Single (S) $10,150 $11,650 Married - joint return (MFJ) $20,300 $21,800 (one age 65) $23,300 (both over 65) Head of Household (HOH) $13,050 $14,550 What are the 2014 standard deductions? Single = $6,200 Married Filing Jointly = $12,400 Head of Household = $9,100 Married Filing Separate = $6,200 If blind or over 65 additional $1,200 to $1,500 What is the exemption amount for myself, spouse or my dependents? $3,950 for 2014 (2015 = $4,000) Can my social security benefits become taxable? Yes, if your provisional income, is more that $25,000 if you are single, or $32,000 if you are married filing a joint return. Provisional Income is your total income, plus certain tax-exempt income and 50% of your social security, before subtracting adjustments to income. Up to 85% of your social security can become taxable. Railroad Retirement Tier 1 Benefits are equivalent to social security benefits. What can I earn before my social security monthly benefit is reduced? For the year 2014, an individual under the full retirement age can earn up to $15,480/year ($1,290/month). $1 in benefits will be withheld for every $2 in earnings above the limit. During the year a person reaches full retirement age, the limit of earning increases to $41,400/year ($3,340/month). There is no limit on earnings beginning the month an individual attains full retirement age (Age 66 for those born between 1943 to 1954). For those born in 1960 or later full retirement age will increase to age 67. See us for details. Education Expenses - How much is the deduction and what items are deductible? Until the year 2017 the maximum deduction is $4,000. Eligible expenses are tuition, fees and books for college. The deductible amount is sent by the school on form 1098-T. The expenses can be paid by the student, parent, another third party such as a grandparent or by the use of student loans. Room and Board or transportation costs are not deductible. This deduction or credit phases out. You may claim a maximum amount of $2,500 for student loan interest. STATE OF OHIO UPDATE Tax Rate Changes: The tax rates will be reduced over the coming years 8.5% in 2013 and an additional.5% in 2014 and 2015 until it is a full 10% lower than in 2012 and previous years. Personal Exemption: The personal exemption of $20 will only be allowed for persons with Gross Income of less than $30,000 Duplicate Exemptions: Beginning in 2014 personal exemptions will no longer be allowed for persons who are claimed as a dependent on another tax return. For example if a Taxpayer claims their child s exemption on their tax return, the child will not be allowed to claim it on their own tax return. Ohio Earned Income Tax Credit (OEITC): Ohio is adding the OEITC to the tax return. Allowing taxpayers who earn the EITC on their Federal Tax Return to take 5% of the federal tax credit as a credit on the Ohio Return. This is not to exceed 50% of the tax liability. This credit phases out based on income levels. Small Business Investor Income Deduction: In 2013 a Small Business Investor Income Deduction was implemented though not widely advertised. This remains in 2014 and allows a deduction of 75% of an individuals business income attributable to Ohio activities. This deduction is not to exceed $62,500. PAYMENT IS DUE UPON COMPLETION OF YOUR RETURN. TAX RETURNS WILL NOT BE TRANSMITTED TO IRS OR OHIO UNLESS PAYMENT IS MADE. We accept Check, Cash, Visa & MasterCard. Many clients find our drop-off or mail-in tax preparation method very convenient. If you wish to drop-off or mail-in your tax information rather than coming in for an appointment, please do so by March 20th. We ll call you with any questions prior to the completion of your return and also when your return is ready for pick-up.

6 Projected Changes for 2015 & Beyond Check with us for updates Depreciation: Unless congress acts the Section 179 limitation for Depreciable Assets will be reduced to $25,000. Bonus Depreciation completely disappears. Standard Deduction: The standard deduction rises to $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly, up from $6,200 and $12,400, respectively, for tax year The standard deduction for heads of household rises to $9,250, up from $9,150 in Personal Exemption/Itemized Deduction Phase-outs: The personal exemption rises to $4,000, up from the 2014 exemption of $3,950. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $258,250 ($309,900 for married couples filing jointly). It phases out completely at $380,750 ($432,400 for married couples filing jointly.) Expiring Credits/Deductions: Unless Congress acts these credits/deductions are set to expire in Tuition and Fees Deduction - State/Local Sales Tax Deduction - $250 Educator Deduction - Charitable Contributions from IRA s - Mortgage Insurance Premium Deduction - Nonbusiness Energy Property Credit - Special Depreciation Bonus Depreciation - Principal Residence Indebtedness Employer Provided Health Insurance: Beginning in 2015 all employers employing 50+ full-time employees (more than 32 hours a week) will be required to provide health insurance, or their equivalent. Alternative Minimum Tax: The Alternative Minimum Tax exemption amount for tax year 2015 is $53,600 ($83,140 for married couples filing jointly). The 2014 exemption amount was $52,800 ($82,100 for married couples filing jointly). Education Credit - The American Opportunity credit allows for a $2,500 education tax credit for the first 4 years of post-secondary education and up to $1,000 can be refundable. This credit is set to expire in Earned Income Tax Credit - This is not changing but has been extended in its current state until In 2015 the maximum Earned Income Credit amount is $6,242 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,143 for tax year The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs Parker Road, Castalia, Ohio Contact us at