Monthly Archives: December 2014

Gift-giving tax rules

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation! 

Still looking for a last-minute or belated Holiday gift? Think cash!

Some people shy away from giving money because they think it’s tacky. Others are leery because of possible tax complications.

You’ll have to consult with Miss Manners about the propriety of gifting cash. But I can help allay some of your financial gift giving tax concerns.

People don’t understand monetary gifts, says Dave Du Val, vice president of taxpayer advocacy at Taxaudit.com, largely because in the tax world it’s a nebulous term. Adding to the confusion, adds Du Val, is that there are different requirements for different types of gifts.

However, when it comes to plain old dollar bills (or checks), the Internal Revenue Service rules are pretty straightforward.© staras/Shutterstock.com

This Christmas, you can give up to $14,000 to anyone and neither you nor your gift recipient will face any tax consequences. That amount is adjusted annually for inflation. For 2015 it stays at $14,000.

When you keep your gifts below that amount, you don’t have to report the gift to the Internal Revenue Service and the person who received the money doesn’t have to report it as income.

Breaking the $14,000 gift tax barrier

But what if you want to be even more generous? There are ways to get around the annual gift exclusions amount.

You can give your spouse any amount you wish without worrying about any gift tax as long as your husband or wife is a U.S. citizen.

Your spouse also can help you double the annual exclusion amount, says Du Val. The giving limit applies individually, so a married couple gets a double financial gift option.

You can give your daughter $14,000 and your spouse can give her another $14,000. She banks $28,000 but because the total came from each parent individually, there are no tax issues for generous moms and dads.

Here’s some more good news, especially for potential financial gift recipients. The tax-free giving isn’t limited to family. You can give up to $14,000 to anyone; a friend, a co-worker, any person you wish.

And in a couple of cases, you can exceed the annual gift exclusion limit entirely. This is the case, says Du Val, when your gift covers qualified educational or medical expenses. Just be sure, he notes, to pay the college or hospital directly.

Right about now, you might be wondering why you should think about financial gifts and taxes since you are far from ultra-rich.

That’s OK. Remember that $14,000 is the most you can give without worrying about taxes. But you don’t have to max out the gift. If you want to give $5,000 or $3,000 or $1,000, that’s fine.

Those relatively smaller amounts are still covered under the tax-free giving rules. At holiday time, that makes Uncle Sam a close cousin of good old Santa Claus.

Source: BankRate

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

New Law Creates Tax-Favored Savings Accounts for Disabled Taxpayers

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation! 

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As part of the larger tax extender legislation passed on Tuesday, Congress approved the Achieving a Better Life Experience (ABLE) Act of 2014 (H.R. 647), which will allow disabled individuals to save money to pay for their disability expenses in tax-favored accounts, called ABLE accounts. The House of Representatives passed the measure on Dec. 3, by a vote of 404–17, and it now goes to President Barack Obama for his signature.

The purpose of the bill is “[t]o encourage and assist individuals and families in saving private funds for the purpose of supporting individuals with disabilities to maintain health, independence, and quality of life” and “[t]o provide secure funding for disability-related expenses on behalf of designated beneficiaries with disabilities that will supplement, but not supplant, benefits provided through private insurance,” Medicaid, and other sources (H.R. 647, §101).

The bill adds a new Sec. 529A to the Code, under which a qualified ABLE program will be exempt from taxation (except for unrelated business income tax). A qualified ABLE program is a program run by a state that allows a person to make contributions for a tax year, for the benefit of an eligible individual, to an ABLE account established for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account. A state’s ABLE program must limit designated beneficiaries to one account and must allow accounts to be opened only for residents of that state or a contracting state.

Eligible individuals must file a disability certification with the IRS or meet certain criteria for blindness or disability under the Social Security Act (42 U.S.C. §1382).

Contributions must be made in cash, and the program must limit annual contributions to the amount of the annual gift tax exclusion in effect for that tax year.

The ABLE program must provide separate accounting for each designated beneficiary, and designated beneficiaries and contributors must not be able to direct the investment of contributions or earnings in the account.

Distributions from the account will not be included in the designated beneficiary’s gross income as long as they do not exceed the beneficiary’s qualified disability expenses. If they do exceed the beneficiary’s qualified disability expenses, the amount otherwise includible in gross income will be reduced by an amount bearing the same ratio to that amount as the expenses bear to the distributions.

Funds in ABLE accounts will also be disregarded for purposes of various federal means-tested programs.

Once signed by the president, the bill will take effect for tax years beginning after Dec. 31, 2014

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Small Business Affordable Care Act Reporting Responsibilities

Small business obamacare reporting

Extended deadlines, confusing terms for business sizes and hiccups in the Small Business Health Options Program (SHOP) Marketplace may have small business owners dreading the next steps for IRS forms and coverage reporting. Fortunately, only 4% of small businesses are subject to the Affordable Care Act (ACA) reporting requirements or the employer responsibility provision.

The good news is that reporting for the 2014 calendar year is entirely voluntary, and there will be no negative impact or tax liability for either employers or employees, if small business owners decide to report for this year.

Defining Small Business Sizes:

Small Employer: Generally businesses with fewer than 50 full-time employees.

Large Employer: 50 or more full time or full time equivalent employees.

Not sure how many full time employees or full time equivalent (FTE) employees you have? Head over to the healthcare.gov FTE calculator.

Reporting Start Dates:

100 or more employees: Minimal Essential Coverage (MEC) must start January 1, 2015, with mandatory reporting filed no later than February 29th, 2016 or March 31, 2016 if e-filing.

50 or more employees: While MEC is not required until January 1, 2016, reporting for the 2015 calendar year is required.

25 or less: Reporting is encouraged, but not mandatory. However, small businesses of this size may be eligible for tax credits and other benefits if they voluntarily file reports for 2014 or 2015. Learn more about these tax credits at the IRS website.

What is Reported

Small businesses must report about the coverage (if any) offered, per month, to their full-time employees. This information, reported per employee, must include the lowest cost of self-only coverage offered to employees.

Forms, Forms and More Forms

The IRS has, in an effort to streamline the reporting process for businesses, created single, combined form for information reporting. The forms created (6055 & 6056) will be used by employers to report to both the IRS and to furnish employees with information about their offered coverage.

Simplified Reporting Options

Employers that offer a qualifying offer – minimal value coverage for a full time employee that costs the employee no more than $1,100 and also offers an option family coverage – have an even simpler way to report for 2015. Business owners must inform employees that they may be eligible for premium tax credits and provide standard statements for all reporting.

If the employee receives a qualifying year-round offer, the employer needs to report only that they received the qualifying offer 12 months out of the year and the name, address, and taxpayer identification number of said employee. A copy of this or a statement of the same information must be furnished to the employee.

If the employee receives this qualifying offer for fewer than 12 months out of the year, the IRS accepts reporting that simply indicates an offer was made with a code entered for each month the offer was made.

These simplified options were brought about in a response to feedback from stakeholders, and are the results of the IRS trying to make a difficult and often costly change in the way small businesses are run a little easier on business owners.

W-2 Reporting

If an employer provides coverage under a group health plan, they must report the value of the healthcare provided on employee W-2 forms in Box 12 using the code DD to identify the amount. Find out more about W-2 reporting from the IRS page that also provided a chart on W-2 reporting.

While the IRS has instituted a policy of leniency for employers throughout this transition period, it is always a good idea to find webinars online, local workshops, or work with a small business accountant to better understand the responsibilities of a small business owner.

If you feel overwhelmed or would like more information, contact Paul Herman for a consultation, (914) 400-0300.

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.