Obamacare Individual Mandate
• Requires that most Americans obtain health insurance by 2014 or pay a tax penalty. The individual mandate went into effect on January 1st 2014. There is a 3 month grace period until March 31st 2014. The penalty will be applied to your annual taxable income for each month you do not have health insurance. The fee for not having insurance in 2014 is $95 per adult and $47.50 per child or 1% of your taxable income (up to $285 for a family), whichever is greater. In 2015 the fee is $325 per adult and $162.50 per child or 2% of your taxable income (up to $975 for a family), whichever is greater. In 2016 the fee is $695 per adult and $347.50 per child or 2.5% of your taxable income (up to $2,085 for a family), whichever is greater. In 2017 the tax penalty will increase by the rate of inflation going forward, or 2.5% of your income.
Capital Gains and Dividends
• For tax years 2013 and later, the top rates for capital gains and dividends will increase from 15% to 20%. This applies to taxpayers with incomes exceeding $400,000 (Single), $425,000 (HOH), $450,000 (MFJ) and $225,000 (MFS). These rates apply for regular tax and AMT. For 2014 the thresholds have been indexed for inflation.
Additional Medicare tax on Earnings
• For tax years 2013 and later. Additional Medicare tax is 0.9% of wages over $200,000 (Single) (HOH), and ($250,000 if MFJ; $125,000 if MFS). Self-employment (SE) earnings are also subject to the additional Medicare tax when SE earnings exceed these thresholds, except that the thresholds are reduced by wages counted for FICA tax. The additional Medicare tax is not deductible for income or SE tax.
Net Investment Income (NII) Tax
• For tax years 2013 and later. Individuals with modified AGI over $200,000 ($250,000 if MFJ; $125,000 if MFS) are subject to a 3.8% additional tax on their NII. NII generally includes interest, dividends, royalties, rents, gross income from a passive trade or business and net gain from property dispositions (other than most property held for use in a non-passive trade or business). NII is reduced by deductions allocable to such income. The tax also applies to estates and trusts.
Same-Sex Married Couples
• Effective 9/16/2013, individuals in a legally recognized same-sex marriage are treated as married for federal income tax purposes. Note: Individuals who were in a same-sex marriage before 2013 can choose to amend prior year returns. However, Georgia (and many other states) do not currently allow same-sex couples to file joint state income tax returns.
Health Flexible Spending Account (FSA)
• For tax years 2013 and later. The amount an individual can contribute to an employer provided health flexible spending arrangement (FSA) is limited to $2,500 per year. This amount will be indexed for inflation. For 2014 the amount remained unchanged at $2,500.
Personal Exemption Deduction Phase-Out
• For tax years 2013 and later. The deduction for personal exemptions is reduced for taxpayers with AGI in excess of $250,000 (Single), $275,000 (HOH), $300,000 (MFJ) and $150,000 (MFS). This is indexed for inflation each year.
Itemized Deduction Phase-Out
• For tax years 2013 and later. A phase-out of certain itemized deductions applies to taxpayers with AGI in excess of $250,000 (Single), $275,000 (HOH), $300,000 (MFJ) and $150,000 (MFS). This is indexed for inflation after 2013. For 2014 the limitation is increased to $254,200 (Single), $279,650 (HOH), $305,050 (MFJ) and $152,525 (MFS).
Medical Expense Deduction Increased Threshold
• For tax years 2013 and later. Medical expenses are deductible as an itemized deduction only to the extent that they exceed 10% of AGI. Exception: For 2013 through 2016, if the taxpayer (or spouse) turns 65 before the end of the year, the threshold remains at 7.5% of AGI. The AMT deduction threshold is unchanged at 10% of AGI.
Standard Mileage Rates
• Multiply the following rates by the number of miles driven:
Business- 56.5 cents per mile
Charitable- 14 cents per mile
Medical- 24 cents per mile
Job related move- 24 cents per mile
• For 2014 the mileage rates are:
Business- 56 cents per mile
Charitable- 14 cents per mile
Medical- 23.5 cents per mile
Job related move- 23.5 cents per mile
Note: the rates for 2014 are subject to change if fuel prices increase dramatically
Annual Gift Tax Exemption
• For 2013 and unchanged for 2014 a taxpayer can give $14,000 to any number of recipients in a calendar year without paying federal estate and gift tax. The federal estate and gift tax exclusion is $5.25 million for 2013 and $5.34 million for 2014.
Below are some of the Tax Provisions that Expired on December 31, 2013
Qualified Principal Residence Mortgage Debt Relief
• This tax provision expired on December 31, 2013. Homeowners who received forgiveness of the principal amount on their home loans either thru a short sale or foreclosure did not have to pay tax on the debt forgiven; this law may be extended again since there are still millions of Americans who still owe more on their loans than their homes are worth.
Mortgage Insurance Premium Deduction
• Treatment of qualified mortgage insurance premiums as home mortgage interest for taxpayers with AGI up to $109,000 ($54,500 if MFS).
Tuition and Fees Deduction
• Above-the-line deduction for tuition and fees for qualified higher education expenses.
Murphy and McInvale CPA’s 2205 Riverstone Blvd, Suite 105 • Canton, GA 30114
Tel 770.479.1667 • Fax 770.479.2036 • www.mm.cpa.pro
First-time Homebuyers Credit 2011
- Limited Eligibility. For most people, the first-time homebuyer credit is not available for homes purchased in 2011. However, certain members of the uniformed services and Foreign Service and certain employees of the intelligence community can claim the credit for homes purchased in 2011.
Repayment of First-time Homebuyer Credit
- You must continue repaying the credit on your 2011 tax return if you claimed the credit on your 2008 tax return. If you are required to repay the credit because you disposed of a home you purchased in 2008, 2009, or 2010, or that home ceased to be your main home, you generally must repay the entire credit (or the balance of the unpaid credit in the case of a 2008 purchase) with your 2011 tax return.
- The maximum credit is $2,500 per student (100% of the first $2,000 of eligible expenses and 25% of the next $2,000 of expenses). The credit offsets both regular tax and AMT. In addition, 40% of the credit is refundable, unless the taxpayer is a child; under age 18, [or age 18 (or a full-time student age 19-23) and whose earned income is less than or equal to half of his support]. Taxpayers with adjusted gross income of $80,000 or less and married couples that earn $160,000 or less are eligible for full credit.
Student Loan Interest
- Taxpayers can deduct up to $2,500 of interest paid on qualified education loans for college or vocational school expenses as an adjustment to income. The amount of deductible interest is phased out if your modified adjusted gross income is between $60,000 and $75,000 for single filers or $120,000 and $150,000 for married filing jointly.
- Even if you do not itemize, student loan interest is still eligible as a deduction.
Standard Mileage Rates
- Multiply the following rates per mile by the number of miles driven:
Business- 51 cents per mile 1/1 to 6/30; 55.5 cents per mile 7/1 to 12/31
Charitable- 14 cents per mile
Medical- 19 cents per mile 1/1 to 6/30; 23.5 cents per mile 7/1 to 12/31
Job-related move- 19 cents per mile 1/1 to 6/30; 23.5 cents per mile 7/1 to 12/31
- For 2012 the mileage rates are:
55.5 cents per mile for business miles driven
23 cents per mile for medical or moving purposes
14 cents per mile for charitable organizations
Itemized Deductions Phase-Out
- There is no reduction of total itemized deductions based on the taxpayer’s adjusted gross income. The reduction is scheduled to be reinstated in 2013.
Personal Exemption Phase-Out
- There is no reduction of the deduction for personal exemptions based on the taxpayer’s adjusted gross income. The reduction is scheduled to be reinstated for 2013.
Residential Energy Efficient Property Credit
- Taxpayers can claim a credit for certain home improvements placed in service in 2011. The credit is equal to 10% of the cost of qualified energy-efficient property or improvements. The total amount of credit that can be claimed in 2011 is $500 and the property must be installed on or in the taxpayer’s principal residence that is located in the U.S. This amount is reduced (but not below zero) for any credits claimed in 2006-2010. There are no AGI or income limits so all individuals can claim the credit.
- The credit applies to improvements such as:
* insulation materials * exterior windows, doors
* skylights * certain metal and asphalt roofs
* central air conditioners * natural gas, oil or propane furnaces
* hot water boilers * electric heat pump water heaters
* biomass stoves * advanced main air circulating fans
Health Insurance Tax Credit for Small Employers
- Qualified small employers can take a credit for up to 35% of the lesser of (1) the amount they contribute to a qualified health insurance arrangement for their employees or (2) the amount that would have been contributed if the applicable premium from the IRS Table (Average Health Insurance Premium for the Small Group Market) were substituted for the actual premium.
- Exception: Self-employed individuals (general partners and sole proprietors), >2% S-Corporation shareholders and >5% owners of other businesses, as well as their family members, are not treated as employees. So premiums paid for their health insurance coverage don’t qualify for the credit.
Section 179 Increased Expensing Limits
- The Section 179 deduction limit is $500,000 and the qualifying property phase-out threshold is $2,000,000 for 2011. In 2012 unless Congress approves new legislation the deduction limit will be $125,000 and the phase-out threshold is $500,000.
Annual Gift Tax Exemption
- For 2011 and 2012, a taxpayer can give $13,000 per person to any number of recipients in a calendar year without paying federal estate and gift tax. The federal gift tax exclusion is $5 million for 2011.
Sale of Stocks, Bonds or Other Securities
- Brokers are required to report for securities acquired after 2010 the customer’s adjusted basis in the security and whether gain or loss with respect to the security is long or short term. Prior law only required the gross proceeds from the sale to be reported.
Shift Income to Children
- You may gift income-producing investments to your children or hire them in your business. Make sure to be aware of the Kiddie Tax limitations.
Gift Appreciated Stock to Children
- You may be able to avoid gain on the sale of stock or other securities by gifting them to grandchildren or children. Your grandchildren or children, over age 17, may be able to sell them tax-free.
The information presented above is meant to be general in nature and does not cover all aspects of the items listed. We would be glad to assist you in determining if you particular situation meets the criteria as defined by the IRS.
THE END OF THE MASTER BUILDER
Checklists seem to provide a kind of cognitive net. They catch mental flaws inherent in all of us – flaws of memory and attention and thoroughness.
There are three different kinds of problems in the world:
1. Simple – ones like baking a cake from a mix. There is a recipe. Sometimes there are a few basic techniques to learn. But once these are mastered, following the recipe brings a high likelihood of success.
2. Complicated – ones like sending a rocket to the moon. They can sometimes be broken down into a series of simple problems. But there is no straightforward recipe. Success frequently requires multiple people, often multiple teams, and specialized expertise. Unanticipated difficulties are frequent. Timing and coordination become serious concerns.
3. Complex – ones like raising a child. Every child is unique. Raising one child may provide experience but it does not guarantee success with the next child. Indeed the next child may require an entirely different approach.
“Forcing Functions”- relatively straightforward solutions that force the necessary behavior – checklists.
When to follow one’s judgment and when to follow protocol is central to doing the job well (Doctor) – or to doing anything else that is hard.
Professionals (electricians, pile drivers, doctors, teachers) regard their jobs as specialized domains in which others should not interfere.
Project Executive. The building industry does not call them field bosses anymore.
Construction schedule. A line-by-line, day-by-day listing of every building task that needed to be accomplished, in what order, and when. There was special color-coding, with red items highlighting critical steps that had to be done before other steps could proceed.
Since every building is a new creature with its own particularities, every building checklist is new too. It is drawn up by a group of people representing each of the sixteen trades.
How are difficulties that could never have been predicted or addressed in a checklist designed in advance be dealt with? The medical way of dealing with the inevitable nuances of an individual patient case is to leave them to the expert’s individual judgment.
Builders use a “submittal schedule”. – A checklist that specified communication tasks – who had to talk to whom by which date and about what aspect of construction. Who had to share (or “submit”) particular kinds of information before the next steps could proceed.
Work is performed by experts. But the assumption is not that everything would work perfectly – quite the opposite. The assumption is that anything could go wrong, that anything could get missed. Who knows what could go wrong? That is the nature of complexity. However, if you get the right people together and have them take a moment to talk things over as a team rather than as individuals, serious problems could be identified and averted.
Everyone meets and reviews the possibilities. The owners and the contractors included. Cleanup is arranged, the schedule is adjusted, and everyone signs off.
Man is fallible, but maybe men are less so.
Clash detective – software that ferrets out every instance in which the different specs conflict with one another or with building regulations.
ProjectCenter – software that allows anyone who has found a problem to email all the relevant parties, track progress, and make sure a check is added to the schedule.
The major advance in the science of construction over the last few decades has been the perfection of tracking and communication.
The builders of complex buildings know better than to rely on their individual abilities to get everything right. They instead trust in one set of checklists to make sure that simple steps are not missed or skipped and in another set to make sure that everyone talks through and resolves all the hard and unexpected problems.
…. To be continued
….continued from May 31, 2011
THE PROBLEM OF EXTREME COMPLEXITY
Medicine has become the art of managing extreme complexity – and a test of whether such complexity can, in fact, be humanly mastered. In ICU the average patient requires 178 individual actions per day. Remarkably, nurses and doctors were observed to make an error in just 1 percent of these actions. That still amounted to an average of two errors a day with every patient. The reality of intensive care: at any point, we are as apt to harm as we are to heal. Line infections are so common they are considered a routine complication. Infections occur in eighty thousand people per year and are fatal between 5 and 28 percent of the time. There is complexity upon complexity. And even specialization has begun to seem inadequate. What do you do when expertise is not enough? What do you do when even the super-specialists fail?
In 1935 the U.S. Army Air Corps decided flying a new complex airplane was too complicated to be left to the memory of any one person, however the expert. They created a pilots checklist.
In a complex environment, experts are up against two main difficulties.
1. The fallibility of human memory and attention. Especially in all-or-none processes – where if you miss just one key thing, you might as well not have made the effort at all.
2. People can lull themselves into skipping steps even when they remember them. “This has never been a problem before,” people say. Until one day it is.
Checklists help with memory recall and clearly set out the minimum necessary steps in a process.
A challenge is can you get your head far enough above the daily tide of disasters to worry about the minutiae on some checklist. In the medical world it was typically the nurses (with clipboard in hand) who kept things in order.
To roll out checklists a project manager should be used. The PM participated in twice-monthly conference calls with the checklist designer for troubleshooting. A senior executive was assigned to each implementing unit for at least once a month visits to hear the staff’s complaints and help them solve problems.
Success many times requires having an array of people and equipment at the ready. In a case described on page 45, almost routinely someone or something was missing. They tried the usual approach to remedy this – yelling at everyone to get their act together. But still they had no saves. They decided to try something new. They made a checklist. They gave the checklist to the people who had the least power in the whole process (observation: but people who were involved early in the process)- the rescue squads and the hospital telephone operator. In a car accident situation with a victim in cold water the checklist said for the rescue teams were to tell the hospital to prepare for possible cardiac bypass and re-warming. They were to call, when possible, even before they arrived on the scene, as the preparation time could be significant. The telephone operator would then work down a list of people to notify them to have everything set up and standing by. With the checklist in place, the team had its first success – the rescue and successful treatment of a three-year-old girl from an icy river. This was the first of their many subsequent successes.
…. To be continued
Accountants have traditionally used checklists to make sure their work was performed as correctly as possible. Accounting firms normally use checklists (which we call work programs) to perform most of our accounting, auditing, and tax work. We rely on these work programs to make sure we perform our work accurately and consistently.
Therefore, upon hearing about a book titled “The Checklist Manifesto” written by best selling Author/Doctor Atul Gawande (endocrine surgeon and professor at Harvard Medical School) I was very interested in what he might have to say on a subject typically considered too dry to discuss in polite company. It turns out the lowly checklist (with no small amount of whining and complaining) is proving to be very valuable to not only the finance industry but also the medical profession. And, of course, the checklist has always been vital to the airline industry.
The book is very well written and makes many points that likely should be considered for assimilation into the way each of us does business and performs personal tasks.
Below are select points from the book. In some cases, there are observations, paraphrases, mash-ups, and other techniques used to bring-out the point. A full reading of this book is highly recommended.
The nature of human fallibility. Why do we fail?
1. Necessary fallibility. Some things are simply beyond our capacity. Much of the world and universe is – and will remain – outside our understanding and control.
However there are substantial realms in which control is within our reach. In such realms there are two reasons that we may nonetheless fail.
2. Ignorance. We may err because science has given us only a partial understanding of the world and how it works.
3. Ineptitude. In these instances the knowledge exists yet we fail to apply it correctly. The skyscraper is built wrong and collapses. The snowstorm whose signs the meteorologist just plain missed. The stab wound from a type weapon (sword rather than a knife) the doctors forgot to ask about.
The greatest source of our greatest difficulties and stresses in medicine is not money, or government, or the threat of malpractice lawsuits, or insurance company hassles. It is the complexity that science has dropped upon us and the enormous strains we are encountering in making good on its promise.
If the knowledge of the best thing to do in a given situation does not exist we are happy to have people simply make their best effort. But if the knowledge exists and is not applied correctly, it is difficult not to be infuriated.
For those who do the work, however – for those who care for the patients, practice the law, respond when need calls – the judgment feels like it ignores how extremely difficult the job is. Every day there is more and more to manage and get right and learn. We have accumulated stupendous know-how. We have put it in the hands of some of the most highly trained, highly skilled, ..experienced, and hard working people in our society.
Yet that know-how is often unmanageable. Avoidable failures are common and persistent, not to mention demoralizing and frustrating, across many fields – from medicine to finance, business to government. And the reason is increasingly evident: the volume and complexity of what we know has exceeded our individual ability to deliver its benefits correctly, safely, or reliably.
We need a different strategy for overcoming failure. One that builds on experience and takes advantage of the knowledge people have but somehow also makes up for our inevitable human inadequacies. There is such a strategy – though it will seem ridiculous, maybe even crazy to those who have spent years carefully developing ever more advanced skills and technologies. It is a checklist.
. . . To be continued
Taxpayers can claim a credit for certain home improvements placed in service in 2010. The property must be installed on or in your personal residence that is located in the United States. Include any labor costs properly allocable to the onsite preparation, assembly, or original installation of the energy property for most products listed. The improvement must be new property and does not qualify for new construction, vacation and rental homes. Qualified residential energy property is any of the following:
- Certain electric heat pump water heaters; electric heat pumps; central air conditioners; natural gas, propane, or oil water heaters; and stoves that use biomass fuel (anything that can either burn or decompose).
- Qualified natural gas, propane, or oil furnaces and qualified natural gas, propane, or oil hot water boilers.
- Certain advanced main air circulating fans used in natural gas, propane, or oil furnaces.
- Insulation, storm windows & doors, windows and skylights, metal and asphalt roofs
Qualifying property must meet technical requirements related to energy savings. Taxpayers are not required to determine whether these requirements are met. Instead, a manufacturer’s certification statement (that the property meets the technical requirements) generally is required to claim the credit.
The credit is equal to 30% of the cost of qualified energy-efficiency property or improvements. The total amount of credit that can be claimed in 2009 and 2010 combined is $1,500. There are no taxpayer income limits, so all individuals can claim the credit. For 2010, the credit can offset regular tax and the alternative minimum tax.
The credit has been extended for property placed in service in 2011 but, has been significantly reduced to a maximum of $500. The credit allowed can be reduced further based upon any credits that were taken from 2006 through 2010. The credit for windows in 2011 is limited to $200 and also is reduced by any window credits that had been taken from 2006 through 2010.
This credit has been in place since 2006, but not in 2008. The law for 2011 may or may not change and I suspect that Congress will keep this credit around for the future. As you can see for tax years 2009 and 2010 the credit was significant and I suspect that is one reason Congress lowered the maximum credit for 2011. The next time you are in the market for products that qualify for the credits not only can you save on your taxes but also on your utility bills.
The information presented above is meant to be general in nature and does not cover all aspects of the Residential Energy Tax Credits. We would be glad to assist you in determining if your particular situation meets the criteria as defined by the IRS.
We usually discuss tax or accounting topics with this blog, so this one is a slight departure. It’s to be expected that an accounting firm would be a heavy user of technology, so I’d like to discuss one piece of software that we’ve become big fans of recently.
If you’re not familiar with it already, Evernote is a web-based note taking application. That simple explanation doesn’t quite do it justice, though. The feature that makes it so useful and flexible is its ability to synchronize itself across multiple platforms and devices. I have it installed on my office PC, my home PC, my laptop and my Android phone. All these devices have access to the same data. What gets entered on one is visible on all the others automatically. Notes can be tagged and stored in different notebooks. Notes can be text, pictures, or audio files. It’s actually a bit difficult to explain what Evernote is. It’s much easier to discuss how it can be used.
There are a dozens of use cases discussed on Evernote’s website, so I won’t try to duplicate all that here. Rather, I’ll use my own use of it as an illustration.
I use Evernote for my work by clipping content from the internet that I need to read later. I keep a todo list for work related items. While I’m out of the office, Evernote’s audio note taking function allows me to record a note for action when I return to my desk. With Evernote, you get a dedicated email address that will create a note when you send an email to it. This allows me to capture notes from emails quickly. I use Evernote to write these blog posts as well. I use a tagging system that allows a post to move from an “idea” to “work in process” and finally to a “published post”. I can access my unfinished posts anywhere and anytime that I think of something to write about.
In terms of personal use, the note that I use a few times weekly is my grocery list. When I run out of something, I quickly enter that item on my grocery list note. In the grocery store, I pull out the phone and have access to the list. I have another to hardware stores and the warehouse club as well. I keep my personal todo list in Evernote by tagging items with “todo”. I run a search for that tag and can find a list of all those things that I can’t quite get around to doing. I store user manuals in Evernote. When I buy something new, I go to the manufacturer’s website and download the manual in a pdf file and send it to Evernote. I can then discard the paper copy that came with it. On a recent trip, I saved my hotel reservations in Evernote.
I find that I use each device differently. My phone is primarily used to capture data quickly and for simply viewing data. The PC application is better at organization and for clipping content off web pages. I might take a picture of something and put the phone back in my pocket. Later, when I get to a computer, I might enter the details of the item. For example, I recently found a copy of QuickBooks at our warehouse club at a very low price. I quickly took a picture of it. Later, at my PC, I tagged it and posted it on our firm’s intranet to let everyone else in the office know about it so they could tell clients where to find it.
Evernote is free to install and use. They offer a premium service with higher data limits and the ability to save any file. I only recently upgraded to premium. The free account is good enough for the majority of users, as I used it for months before upgrading.
Think twice before you let your S-corporation or partnership tax return due date or extension of time to file lapse because the consequences have steepened. For tax years beginning in 2010, the late filing penalty amount for an S-Corporation or Partnership return has risen from $89 to $195. This penalty is calculated based on the total number of shareholders/partners during any part of the tax year multiplied by each month-or partial month-the return is late (up to 12 months). An example is provided below:
An S-corporation with a calendar-year end (Jan 1-Dec 31) is required to file the 1120S annual tax return on the 15th day of the third month following the close of the tax year—or March 15th of the following year. If the corporation has 3 shareholders, no extension of time to file was submitted and the return was filed on July 16th, the late filing penalty is calculated as follows:
Number of shareholders during the year = 3
Months late = 5 (March 16th – July 16th)
*if submitted on July 15th it’s only 4 months late
$195 penalty x (3 shareholders) x (5 months late) = $2,835
*or $567 per month
All penalties imposed by taxing agencies are non-deductible for income tax purposes, so you’re hit twice by the same penalty. Not only are you required to remit an unnecessary penalty, but you’re also denied the deduction of the penalty on that year’s tax return.
It’s important that documentation is gathered to support the date you submit your return, especially if you’re filing close to a deadline or after a deadline has passed. The taxing agencies may assess a late filing penalty from the date the return was received as opposed to the date it was mailed, which could be up to a 2 week differential.
We would recommend sending your return by registered or certified mail, which documents the official post-mark date and address where items were mailed. This certification will serve as sufficient evidence needed to abate a late filing penalty that is wrongfully imposed.
No penalty will be imposed if the corporation shows that the late filing was due to “reasonable cause”, but what constitutes reasonable cause? This term can be interpreted in many different ways by taxpayers and by the IRS and deserves a blog of its own. It is up to the IRS to determine if your cause is reasonable, so it’s in your best interest to timely file all tax returns.