Tuesday, January 27, 2015

Primer on the Affordable Care Act

Primer on the Affordable Care Act

The Affordable Care Act was passed in 2009 and took effect last year, and can affect your tax return in several ways. 

Individual Shared Responsibility

The “Individual Shared Responsibility” provision (sometimes called the “individual mandate”) is key to understanding the tax implications of the ACA. The law requires everyone in your household to have qualifying health insurance, called “minimum essential coverage,” for each month of the year. “Minimum essential coverage” includes employer (or union) provided coverage, government coverage such as Medicare, private insurance, or insurance purchased through a state or federal exchange, a.k.a. “The Marketplace.”

If your entire household had minimum essential coverage for each month of 2014, you simply check the box on Line 61 of Form 1040 and that’s it.  Easy.  If, however, anyone in your household did not have coverage for any month in 2014, you’ll have to determine if you qualify for an exemption or if you’ll have to make a “shared responsibility payment.” 

Exemptions & shared responsibility payment

There are several kinds of exemptions: some you get from the Marketplace and some you just claim on your tax return.  Some are based on your membership in certain groups, some are based on your income, and some are based on other factors. 

If you didn’t have the required coverage for one or more months and you don’t qualify for an exemption, then you need to make a shared responsibility payment.  You pay either according to a flat dollar amount or a percentage of your income.  This payment is capped at an amount equal to a national average for “bronze” level coverage.

You claim your exemption or figure your shared responsibility payment on Form 8965. 

The Premium Tax Credit

The Premium Tax Credit is an income-based program designed to help eligible taxpayers pay for health insurance premiums.  The program is available only if you purchased your health insurance through the Marketplace.  When obtaining insurance through the Marketplace, you provided an estimate of your income and chose to have all or part of your credit paid in advance to the insurance provider, or to wait and claim the credit on your tax return.  If you got insurance through the Marketplace, you should receive a Form 1095-A from your insurer, giving you the information about your credit. If you had too little of your credit paid in advance, you’ll claim a refund on your tax return.  If you got too large an advance credit, you have to repay the difference.  You use Form 8962 in both cases. 

Getting help

IRS Publication 5187, Health Care Law: What’s New for Individuals & Families covers this material in detail and is reasonably user-friendly.  It’s available at the IRS website, www.irs.gov.
The IRS also suggests using an electronic tax prep program.  I’m sure they realize how intimidating these new rules are for most taxpayers, and the e-file programs can lessen the hassle and confusion.  The program will ask questions about your health coverage, request the information from Form 1095-A (if applicable), and then use your income figures (and those of your dependents) to calculate your exemption, your shared responsibility payment, or your premium tax credit or repayment.

Be sure to assemble all your health insurance information and the income figures for yourself and everyone else in your household before you start work on this part of your tax return.  And if your health coverage situation is particularly complicated, just get your records together and bring them to your tax preparer. 

There is a whole new chapter in the 2015 Actor’s Tax Guide about the Affordable Care Act.  It will be available soon!      

Monday, April 28, 2014

Tips on Filing an Amended Return

Tips on Filing an Amended Return

What should you do if you already filed your federal tax return and then discover a mistake? Don’t worry -- you have a chance to fix errors by filing an amended tax return. Here are 10 tips from the IRS about filing an amended tax return.

1. Use Form 1040X, Amended U.S. Individual Income Tax Return, to file an amended tax return. An amended return can’t be e-filed -- you must file on paper.  Download and print out the form and instructions at www.irs.gov

2. You should consider filing an amended tax return if there is a change in your filing status, income, deductions or credits.

3. You normally don’t need to file an amended return just to correct math errors. The IRS will automatically make those changes for you. Also, do not file an amended return because you forgot to attach tax forms, such as W-2s or schedules. The IRS normally will send a request asking for those.

4. Generally, you must file a 1040X within three years from the date you filed your original tax return or within two years of the date you paid the tax, whichever is later. Be sure to enter the year of the return you are amending at the top of Form 1040X.

5. If you are amending more than one tax return, prepare a 1040X for each return and mail them to the IRS in separate envelopes. You’ll find the appropriate IRS address in the 1040X instructions.

6. If your changes involve the need for another schedule or form, you must attach that schedule or form to the amended return.  You can obtain forms and schedules for past years at www.irs.gov.

7. If you are filing an amended tax return to claim an additional refund, wait until you have received your original tax refund before filing Form 1040X. Amended returns take up to 12 weeks to process. You may cash your original refund check while waiting for the additional refund.

8. If you owe additional taxes with the 1040X, file it and pay the tax as soon as possible to minimize interest and penalties.

9. You can track the status of your amended tax return three weeks after you file with the IRS’s new tool called, “Where’s My Amended Return?” The automated tool is available at www.irs.gov and by phone at 866-464-2050. The online and phone tools are available in English and Spanish. You can track the status of your amended return for the current year and up to three prior years.

10. To use the online “Where’s My Amended Return” tool, enter your taxpayer identification number (usually your Social Security number), date of birth, and zip code. If you have filed amended returns for more than one year, you can select each year individually to check the status of each. If you use the tool by phone, follow the prompts.

The current Actor’s Tax Guide is available throughout 2014 at www.ActorsTaxGuide.com.  If you need to file a corrected return for a previous year, email me at actorstaxguide@comcast.net to get past editions of the Tax Guide, going back to 2009. 

Monday, April 21, 2014

Plan Now for Next Year!

Plan Now for Next Year!

Even though you may be worn out from working on your 2013 tax return, now is a good time to plan for next year, especially in the area of keeping good records of your business activities. As you go through your records for 2013, what is giving you difficulties? Are there some expenses you forgot to record, or receipts you wish you had saved? While these things are fresh in your mind, use your experience now to make things easier for next time.

If you've had trouble accounting for expenses, maybe you need to figure out a new way to keep track of things. I've always been an advocate of hand-written, on-paper records. Even in this new age of electronic record-keeping, the most compelling evidence of your business expenses is old-fashioned: written in your own hand, and at the time the expense was incurred. If you're audited, that kind of record carries the most weight.

As a tax preparer friend of mine says, "You can't write it off if you don't write it down!"

The process of preparing your tax return also gives you a good opportunity to analyze your business activities and plan for the future. Take another look at your professional expenses. Analyze which expenses were effective in getting work. Are you overspending in some areas that don’t really advance your career? Should you be spending more to promote yourself? 

Now that you’re thinking about what kinds of things qualify as business expenses, you can be on the lookout for deductions. At a SAG Foundation tax seminar in January of 2013, Actor and Tax Practitioner Beth Lynn Kelly said that you should always be thinking, “Is this for my career?” It’s remarkable how many of your regular day-to-day activities are also legitimate business expenses.

Get more ideas from The Actor’s Tax Guide, available at www.ActorsTaxGuide.com

Monday, April 14, 2014

Need More Time? File for an Extension -- Deadline is October 15

Need More Time? File for an Extension  -- Deadline is October 15

Tax returns are due TOMORROW!

Do you need more time to get your stuff together?  If that’s the case, you can request an automatic six-month extension. This year’s extension due date will be October 15. Go to www.irs.gov and find Form 4868, “Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.” It’s a very short form -- only a third of a page. On the left side, you identify yourself and on the right side, you provide an estimate of how much, if anything, you’ll owe when you do file your return. You can file your Form 4868 electronically or on paper. Follow the instructions.

• If you send a payment with Form 4868, you should include that amount on Line 68 when you eventually file your return.

• If you miss the April 15 deadline without applying for an extension (or miss the October extension deadline), there will be penalties, which can be stiff. However, if you can show “reasonable cause” for your failure to file on time, such as serious illness, natural disaster, and the like, the IRS will consider those reasons and may waive the penalty.

This is very important: the extension gives you more time to file your return, but any taxes you owe are still due by April 15! If you delay paying your taxes, you’ll owe interest and may be charged a penalty.

The Actor’s Tax Guide offers last-minute help.  Go to www.ActorsTaxGuide.com.

Monday, April 7, 2014

Eight Tax-Time Errors to Avoid

Eight Tax-Time Errors to Avoid

Tax Day is just over a week away.  As you enter the home stretch, here are some errors to look out for.  If you make a mistake on your tax return, it usually takes the IRS longer to process it. The IRS may have to contact you about that mistake before your return is processed, which will delay the receipt of your tax refund.

The IRS says that e-filing greatly lowers the chance of errors. In fact, you’re about twenty times more likely to make a mistake on your return if you file a paper return instead of e-filing!
Here are eight common errors to avoid.

1. Wrong or missing Social Security numbers.  Be sure you enter SS#s for yourself and others on your tax return exactly as they are on the Social Security cards.

2. Names wrong or misspelled.  Be sure you enter names of all individuals on your tax return exactly as they are on their Social Security cards.

3. Filing status errors.  There are five filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household and Qualifying Widow(er) With Dependent Child. Most people know their status, but if you’re unsure, IRS Publication 501, Exemptions, Standard Deduction and Filing Information, can help you choose the right one. Electronic tax prep programs will also help you choose the correct filing status.

4. Math mistakes.  If you file a paper tax return, double and triple check your math. If you e-file, the software does the math for you, but check it yourself, anyway. 

5. Errors in figuring credits, deductions.  Take your time and read the instructions carefully. Many people make mistakes figuring their Earned Income Tax Credit, Child and Dependent Care Credit and their standard or itemized deductions. 

6. Wrong bank account numbers.  Direct deposit is the best way to receive your tax refund. It’s fast, easy, and safe.  But make sure you enter your bank routing and account numbers correctly.

7. Paper forms not signed, dated.  An unsigned tax return is like an unsigned check – it’s invalid. Remember both spouses must sign a joint return.

8. Electronic signature errors.  If you e-file your tax return, you will “sign” the return electronically using a Personal Identification Number. For security purposes, the software will ask you to enter the Adjusted Gross Income from your originally-filed 2012 federal tax return. (Don’t use the AGI amount from an amended or corrected 2012 return.) You may also use last year's PIN if you e-filed last year and remember your PIN.

Get tax advice from The Actor’s Tax Guide at www.ActorsTaxGuide.com.

Monday, March 31, 2014

Nine Tips from the IRS on Deducting Charitable Contributions

Nine Tips from the IRS on Deducting Charitable Contributions

Donating to charity makes you feel good and can help you lower your tax bill. The IRS offers nine tips to help ensure your contributions pay off on your tax return.

1. You must donate to a qualified charitable organization. You can’t deduct contributions you make to an individual, a political organization, or a political candidate.

2. You have to file Form 1040 and itemize your deductions on Schedule A. If your total deduction for all non-cash contributions for the year is more than $500, you must also file Form 8283, Noncash Charitable Contributions, with your tax return.

3. If you receive a benefit of some kind in return for your contribution, you can only deduct the amount that exceeds the fair market value of the benefit you received. Examples of benefits you may receive in return for your contribution include merchandise, tickets to an event, a dinner, or other goods and services.

4. Donations of stock or other non-cash property are usually valued at their fair market value. Used clothing and household items generally must be in good condition to be deductible. Special rules apply to vehicle donations.

5. Fair market value is generally the price at which someone can sell the property.  For household items and clothing, think of what they would fetch at a garage sale. 

6. You must have a written record about your donation in order to deduct any cash gift, regardless of the amount. Cash contributions include those made by check or other monetary methods. That written record can be a written statement from the organization, a bank record or a payroll deduction record that substantiates your donation. That documentation should include the name of the organization, the date and amount of the contribution.

7. To claim a deduction for gifts of cash or property worth $250 or more, you must have a written statement from the qualified organization. The statement must show the amount of the cash or a description of any property given. It must also state whether the organization provided any goods or services in exchange for the gift.

8. You may use the same document to meet the requirement for a written statement for cash gifts and the requirement for a written acknowledgement for contributions of $250 or more.

9. If you donate one item or a group of similar items that are valued at more than $5,000, you must also complete Section B of Form 8283. This section generally requires an appraisal by a qualified appraiser.

Bonus tip from yours truly:  Report only those contributions you actually made in 2013. If you pledged $100 to an organization in December, but didn’t actually pay until January, your deduction will be for 2014, not 2013. However, if you paid by credit card in December but didn’t actually pay your credit card bill until January, you can still deduct the $100 for 2013. Same goes for a check mailed in December that didn’t clear your bank until January: you can deduct it for 2013. 

For more information on charitable contributions, see Publication 526, Charitable Contributions, available at www.irs.gov.  For information about noncash contributions, see Publication 561, Determining the Value of Donated Property.

A CPA told me, “Your explanation of the charitable gifts [in The Actor’s Tax Guide] is probably the clearest, most concise explanation I have ever read.”  Get the book at www.ActorsTaxGuide.com.

Monday, March 24, 2014

Business Gifts & Entertainment: Use Limits to Your Advantage

Business Gifts & Entertainment: Use Limits to Your Advantage

If you sent gifts of any kind to your clients, agents, casting directors, etc., including holiday greetings, birthday cards, and so forth, you can deduct them as business expenses. There’s a limit of $25.00 per person (not including shipping) per year, so if you sent your agent a $50.00 basket of flowers, you can’t write off the whole thing. However, if you sent the flowers to the agency (several non-related people as co-recipients and one person would not personally benefit from the gift), the individual limit wouldn't apply. If you sent out inexpensive items that were of an obviously promotional nature, such as mugs or pens with your name on them, those aren’t gifts, they’re advertising, and not subject to the gift rules.

Business entertainment refers to anytime you host a client or potential client, your agent, a casting director, or anyone else who might advance your career, provided that it’s not “lavish or extravagant under the circumstances” (the IRS’s words). It can include things like theatre tickets or taking someone to dinner. A dinner must have a clear, specific business purpose and can't be essentially social in nature. If you treat someone to dinner, you can deduct your own meal (food, drink, tax & tip) as well as your guest’s, and you must have been present at the meal for it to be deductible as entertainment – you can’t discuss business if you aren’t there!

The limit on business entertainment is 50% instead of a dollar amount, so you can use the limits to your advantage. Let's say you bought a ticket for a director to see you in a show. If the ticket was $30, call it a gift and deduct $25. If it was $60, call it entertainment and deduct $30.00.

Chapter 8 of The Actor’s Tax Guide is devoted to travel, transportation, entertainment, and vehicle expenses.  Info at www.ActorsTaxGuide.com