Tag Archives: Financial Strategies

Achieving a Better Life Experience Act – first look

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President Barack Obama recently signed the Achieving a Better Life Experience Act (ABLE Act). The ABLE Act allows individuals and families to open tax-free savings accounts to save for long-term needs associated with an individual’s disability.

These accounts are modeled after 529 college savings accounts. To qualify, a person must be diagnosed with a disability resulting in “marked and severe functional limitations” by the age of 26. An account can be established for an individual without jeopardizing that person’s eligibility for federal programs such as Medicaid. The funds saved in these accounts can be used for a variety of expenses including transportation, housing, employment support and health care.

Like 529 plans, earnings in these accounts grow tax-free, but contributions are made with after-tax dollars. Accounts can be set up at financial institutions and the annual contribution limit is $14,000. ABLE accounts are allowed to accrue up to $100,000 in savings without affecting a person’s eligibility for government aid such as Social Security. This is a great improvement for ABLE account holders over the current asset limit of $2,000. Medicaid coverage would continue no matter how much money is in the accounts.

These accounts can be a useful planning tool for those living with or caring for someone with a physical or developmental disability.

Plan now to avoid surprises from the Affordable Care Act when filing 2014 taxes

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2014 was the first year Americans had access to health insurance options through the Affordable Care Act (the “ACA”). With this new access to insurance came the obligation to purchase it or face new tax consequences. If you opted not to buy health insurance in 2014, you may be faced with a penalty when you file your 2014 tax returns. Even if you did buy insurance through one of the insurance marketplaces, you may have new tax forms to complete and some surprises when it comes to your refund or tax bill.

For most taxpayers, the impact on their tax filing will be minimal, requiring those who were covered to simply check a box indicating they had insurance throughout the year. Those who received subsidies to purchase insurance and who later had increases in their 2014 salary may be required to pay back some of that subsidy. Those whose salary decreased may receive a larger than expected refund.

As these provisions are new to everyone, there may be confusion for taxpayers and tax preparers alike. Unfortunately, due to recent budget cuts, the IRS expects to be able to speak with only half of the people who call in for assistance.

While gearing up for the 2014 tax season, it’s helpful to understand some the most important provisions of the ACA:

  • 1. Exemptions: The ACA provided some exemptions that allow taxpayers to opt out of purchasing insurance without any penalties, including hardship, affordability and religion. There are different methods for applying for an exemption depending on the type of exemption you are requesting. To learn more, go to: https://www.healthcare.gov/fees-exemptions/apply-for-exemption/
  • 2. Penalties: Those who do not qualify for an exemption, were insured for only part of the year, or remain uninsured will be required to pay a penalty called “The Individual Shared Responsibility Payment.” The penalty is set to increase over the coming years, so compare not to see if it is more beneficial for you to pay the penalty or buy insurance. The Tax Policy Center has designed a calculator to help you determine your penalty is you opt to remain uninsured: http://taxpolicycenter.org/taxfacts/acacalculator.cfm.
  • 3. Reconciling: Those who purchased subsidized insurance on the exchanges received an advance on a tax credit. At the time of requesting the subsidy for insurance in 2014, the amount of the subsidy was calculated based on the taxpayer’s 2012 income. The amount of the subsidy granted will be reconciled in the taxpayer’s 2014 filing using the taxpayer’s actual 2014 income and that will affect the taxpayer’s refund or bill. Changes in an individual’s personal circumstances, such as divorce, marriage or a new child can also impact those numbers.

    • There’s still time to plan. Taxpayers facing a loss in premium subsidies because of an increase in income can reduce their income to qualify for the credits. For example, they can contribute to an IRA by April 15, 2015, for the 2014 tax year.

    Identiy Theft – financial planning tips on protecting your computer

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    On line usage is up, but so is identity theft.

    One example we hear of often is an e-mail purporting to be from the IRS regarding a refund. The IRS has said categorically that they do not send out e-mails, so this is clearly a scam to get personal information.

    So, as a financial planning matter, what do to protect your computer and your personal information?

    Here are several good tips from WebRoot, a software company that provides related software, worth applying to your computers:

    1. Keep Your Security Software Up to Date: At a minimum, your PC should have current antispyware, antivirus and firewall protection.
    2. Watch Out for Email Scams: Never click on links sent in unsolicited emails, even if it appears to be from a legitimate source [the IRS example above is but one….].
    3. Use Strong, Unique Passwords: Create passwords that are difficult to guess, and use different passwords for each of your accounts.
    4. Shop and Bank on Secure Connections: Hackers can intercept data sent over unsecure wireless connections, so exercise caution when performing sensitive online transactions in public places.
    5. Erase Cookies: Get in the habit of clearing cookies off your hard drive after you browse the web. Some privacy protection software can automatically do this for you

    Be sure you have applied all of the tips to any computer not already protected. And, let me know if you have questions or concerns

    Thanks,

    Steven

    Tax planning: donations for Haiti

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    Under a new rule, donations for the Haiti earthquake relief made in January and February of 2010 can be deducted on 2009 tax returns. The contributions that count include cash, check, credit card and cell phone text messages. The donation must be made to U.S. charities.

    Be sure to let your tax preparer know if you made a contribution in 2010. The issue will be whether 2009 or 2010 is the best year to take the deduction.

    Let us know if you have questions or comments. Thanks,

    Steven

    Tax planning: 2009 tips and traps, and 2010 changes

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    Tax law changes for 2009 will require you to submit more information to your tax preparer to ensure that you get the most of tax credits and deductions. If the person working on your tax returns does not have all the proper information, you could pay too much or your return could be rejected.

    Here is an overview of tax changes to consider when gathering your information:

    * Making Work Pay Credit (“MWPC”), is a $400 credit to offset a reduction in withholdings enacted early in 2009. It is phased out for higher income and offset by the Economic Recovery Payment, described below. You could end up owing taxes if the credit does fully offset the reduction in withholdings (affects 2009 and 2010).
    * Economic Recovery Payment (“ERP”) is a payment received as part of your social security benefits (for 2009 only), and affects the MWPC so that failing to report it could result in your tax return being rejected. The payment itself is not taxable.
    * Government Retiree Credit (“GRC”) is for those not receiving social security, but affects the MWPC (2009 only). The new Schedule M reconciles the MWPC, ERP and GRC so you need all the information.
    * First Time Home Buyer’s Credit is a $8,000 credit that applies to first time buyers purchasing between certain dates and requires a paper filing (electronic filings will not get the credit). If you buy the home in 2010, you have the option of amending your 2009 taxes for the credit. Note that this credit gets repaid over time on future tax returns beginning in 2010.
    * Tax credit for long term home owners buying a new home, between certain dates, also requires a paper filing to avoid being rejected.
    * American Opportunity Tax Credit (an expanded Hope Credit) allows use of the credit for two year more years than the Hope Credit, covering junior and senior years of college when the Hope Credit was not available.
    * New Vehicle Purchase sales tax deduction (2009 only) is an additional Schedule A item, so long as your are not taking the general sales tax deduction.
    * Energy Credit for solar power, fuel cells and certain energy efficient improvements are Schedule A deductions. There are two types of credit depending on what improvements were made to your home and taking the deductions requires you to have documentation.
    * The Cash for Clunkers voucher is not considered income (2009 only).
    * A tax refund can be used to buy U.S. Series I bonds.
    * There is an AMT patch which helps for 2009, but falls back for 2010.
    * There is an increased casualty and theft loss limit that helps for 2009.
    * Note that a dependent child’s income is taxed when it exceeds $1,900.
    * The Tuition and Fees Deduction applies to 2009.
    * Unemployment Compensation has $2,400 excluded from taxable income (2009 only).
    * Educator’s Expense enhanced for 2009.

    Note that not all states accept the IRS changes, so the information and outcome could be different.

    For 2010, some old provisions return and some new changes require action now:

    * 2010 conversion to a Roth IRA has no income limit and two years to pay the taxes (please see To convert or not traditional IRA to Roth IRA).
    * Certain changes lost for 2010 worth repeating (see What to watch out for in 2010 – investing, taxes and more):
    * AMT patch falls back;
    * Casualty and theft loss limits fall back;
    * Educator and tuition and fees deductions against adjusted gross income are not available;
    * Deduction of state and local sales taxes ends;
    * Exclusion of $2,400 of unemployment income ends; and
    * Exclusion of income from qualified distributions from IRAs to charities ends.
    * The estate tax still has not been enacted retroactively, as expected (see Estate Planning – will we have a new tax law in time).

    As we said before, tax planning involves a multi-year view to optimize what you end up paying (please see More Strategies – Three Year Planning…., Tax Credits and all Continued, and What to watch out for in 2010 – investing, taxes and more)

    Let us know if you have questions or comments. Thanks,

    Steven