No Health Coverage? How to Know if You Qualify for an Exemption

Posted on November 20 2014 by admin

Most people must have health insurance coverage in 2014 or pay a penalty fee with the 2014 income tax return. The fee (also known as “the penalty,” the “individual shared responsibility payment,” or the “individual mandate”) is based on your income for 2014.

Under some circumstances, you won’t have to make this penalty fee payment. This is called an “exemption.” You will need to apply to receive most exemptions. See Apply for Exemption at for additional information.

You may qualify for an exemption from the penalty for not being insured if:

  • You’re uninsured for less than 3 months of the year
  • The lowest-priced coverage available to you would cost more than 8% of your household income
  • You don’t have to file a tax return because your income is too low
  • You’re a member of a federally recognized tribe or eligible for services through an Indian Health Services provider
  • You’re a member of a recognized health care sharing ministry
  • You’re a member of a recognized religious sect with religious objections to insurance, including Social Security and Medicare
  • You’re incarcerated (either detained or jailed), and not being held pending disposition of charges
  • You’re not lawfully present in the U.S.
  • You qualify for a hardship exemption – there are 14 specific hardship exemptions and you must apply using an exemption form. Some of these require approval from the state’s healthcare exchange so be sure to apply early.

Even if you are unemployed, you must have minimum essential coverage under a health plan or pay a penalty fee unless you qualify for an exemption.

Additional information about the Exemptions from the penalty fee payment is available at Fees & exemptions, an overview.

By Melinda Nelson, CPA

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Don’t Pay Obamacare Penalty: Plans that Count as Health Coverage

Posted on November 19 2014 by admin

To avoid the 2014 penalty fee (also known as “the penalty,” the “individual shared responsibility payment,” or the “individual mandate”) for being uncovered, you must have health insurance that qualifies as minimum essential coverage.

Certain health plans qualify as minimum essential coverage. If you’re covered by any of the following types of heath care plans in 2014, you’re considered covered under the health care law and don’t have to pay a penalty.

  • Any Marketplace plan, or any individual insurance plan you already have
  • Any employer plan (including COBRA plans, with or without “grandfathered” status
  • Retiree health plans
  • Medicare
  • Medicaid
  • The Children’s Health Insurance Program (CHIP)
  • TRICARE (for current service members and military retirees, their families, and survivors)
  • Veterans health care programs (including the Veterans Health Care Program, VA Civilian Health and Medical Program (CHAMPVA), and Spina Bifida Health Care Benefits Program)
  • Peace Corps Volunteer plans
  • Self-funded health coverage offered to students by universities for plan or policy years that begin on or before Dec. 31, 2014

Other plans may also qualify so be sure to ask your health coverage provider. Additional information is available at and at Plans that-count-as-coverage.

However, certain health plans don’t count as coverage under the health care law. If you have only these types of coverage, you may have to pay the fee. Examples include:

  • Coverage only for vision care or dental care
  • Workers’ compensation
  • Coverage only for a specific disease or condition
  • Plans that offer only discounts on medical services

Before you buy a health plan, be sure that the plan you’re interested in qualifies as minimum essential coverage.

If you don’t have health insurance, see if you qualify for one of the Exemptions from the penalty fee. These can be found at Exemptions from the Penalty Fee.

By Melinda Nelson, CPA

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Coming Oh, So Soon: The Obamacare Penalty Fee

Posted on November 18 2014 by admin

The long awaited and much discussed Obamacare penalty fee (also known as “the penalty,” the “individual shared responsibility payment,” or the “individual mandate”) is coming to your 2014 tax return and will be charged for the months in 2014 that you and your dependents lacked qualifying health insurance coverage.

The penalty fee for not having health coverage is calculated one of two ways. If you or your dependents don’t have insurance that qualify, you’ll pay either a percentage of your household income or a flat fee – whichever is higher.

You won’t owe the penalty if you qualify for one of the many exemptions listed on under Fees & Exemptions.

The fee for not having coverage in 2014

If you didn’t have coverage in 2014, you’ll pay one of these two amounts when you file your 2014 federal tax return:

  • 1% of your yearly household income. (Only the amount of income above the tax filing threshold, about $10,000 for an individual, is used to calculate the penalty.) The maximum penalty is the national average premium for a bronze plan.
  • $95 per person for the year ($47.50 per child under 18). The maximum penalty per family using this method is $285.

The fee in 2015

If you don’t have coverage in 2015, you’ll pay the higher of these two amounts:

  • 2% of your yearly household income. (Only the amount of income above the tax filing threshold, about $10,000 for an individual, is used to calculate the penalty.) The maximum penalty is the national average premium for a bronze plan.
  • $325 per person for the year ($162.50 per child under 18). The maximum penalty per family using this method is $975.

The fee after 2015

The penalty increases every year. In 2016 it’s 2.5% of income or $695 per person. After that it’s adjusted for inflation.

How you pay the fee

You’ll pay the fee on the federal income tax return you file for the year you don’t have coverage. Most people will file their 2014 returns in early 2015 and their 2015 returns in early 2016.

Be sure to check that you have qualifying health insurance coverage; has additional information available as well as the IRS website at The Individual Shared Responsibility Payment An Overview.

By Melinda Nelson, CPA

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Look Now to Avoid a Tax Surprise Later

Posted on November 13 2014 by admin

If you’re like me, you are finding it hard to believe that 2014 is coming to an end quickly. Taking a few minutes to review certain information today can save you from tax surprises come April. Here are some actions you can take to bring the taxes you pay in advance closer to what you’ll owe when you file your tax return:

  • Adjust your withholding. If you’re an employee and you think that your tax withholding will fall short of your total 2014 tax liability, or if you think you’re having too much tax withheld, you can complete a new Form W-4, Employee’s Withholding Allowance Certificate and give it to your employer. Use the IRS Withholding Calculator tool on to help you fill out the form.
  • Report changes in circumstances. If you purchase health insurance coverage through the Health Insurance Marketplace, you may receive advance payments of the premium tax credit in 2014. It is important that you report changes in circumstances to your Marketplace so you get the proper type and amount of premium assistance. Some of the changes that you should report include changes in your income, employment, or family size. Advance credit payments help you pay for the insurance you buy through the Marketplace. Reporting changes will help you avoid getting too much or too little premium assistance in advance.
  • Change taxes with life events. You may need to change the taxes you pay when certain life events take place. A change in your marital status or the birth of a child can change the amount of taxes you owe.
  • Be accurate on your W-4. When you start a new job you fill out a Form W-4. It’s important for you to accurately complete the form. For example, special rules apply if you work two jobs or you claim tax credits on your tax return.
  • Pay estimated tax if required. If you get income that’s not subject to withholding you may need to pay estimated tax. This may include income such as self-employment, interest, or rent. If you expect to owe a thousand dollars or more in tax, and meet other conditions, you may need to pay this tax.

For more information see Publication 505, Tax Withholding and Estimated Tax.

By Becky Barnett, EA

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How to Deal with Net Investment Income Tax

Posted on November 12 2014 by admin

The Net Investment Income Tax (NIIT) just went into effect last year, starting January 1, 2013. Those who were aware and on top of it, started planning more than a year ago. This is a reminder of what the tax (or surtax, as it is referred to) is, and how to plan around it.

What is the rate? 3.8%

Who is subject to it? Individuals, trusts, and estates

At what income level does it apply? The lesser of

  1. Net Investment Income (NII) or
  2. The excess of Modified Adjusted Gross Income (MAGI) over: $250,000 for married filing joint or surviving spouse; $125,000 for married filing separate; $200,000 for any other filing status
  3. BE AWARE – an estate or trust is subject to the surtax at the income level at which the highest income tax bracket begins, which is only $12,150 for 2014.

Net investment income broad definition: For purposes of the 3.8% surtax, NII is investment income less deductions properly allocable to such income. NII is:

  1. gross income from interest, dividends, annuities, royalties, and rents, unless derived in the ordinary course of a trade or business to which the NII tax doesn’t apply.
  2. “passive income” from a trade or business or a trade or business of trading in financial instruments or commodities (i.e., a “trading activity”); and
  3. “net” gain attributable to the disposition of property, other than property held in a trade or business to which the 3.8% tax doesn’t apply.

What are some items that are not subject to NIIT (this list is not all-inclusive)?

  1. Income subject to self-employment tax
  2. Trade or business income in which you materially participate
  3. Retirement plan distributions (e.g. qualified employer plans and IRAs)
  4. Social Security income
  5. Tax exempt income
  6. Self-charged rents and/or interest
  7. Real estate professionals who meet the participation requirements
  8. Alimony
  9. Worker’s compensation
  10. Life insurance proceeds which aren’t included in gross income & cash surrender “build-up”

How to plan for it?

  1. Observe the material participation rules to avoid the passive income classification. Document your time spent in a trade or business activity. Consider certain grouping elections.
  2. Donate appreciated long-term stock to charity, rather than donating cash
  3. Accelerate deductions & deferring income
  4. “Harvest” capital losses to offset other capital gains that are subject to NIIT
  5. Roth IRAs
  6. Plan around your MAGI. Can you keep it below the above thresholds?
  7. Rebalance your investment portfolio. Do some planning with your CPA and financial adviser together.
  8. Work with a competent adviser who is knowledgeable in this area

The above items are not meant to be all-inclusive. There are many items on your tax return impacted by the surtax, and many ways to plan around it. Please reach out if you need assistance.

By Jeremy Smith, CPA

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2014 Arizona Tax Credits

Posted on November 11 2014 by admin

With 2014’s year-end quickly approaching, it is important to be aware of ways to lower your income tax. The below Arizona tax credits may offset your Arizona tax dollar for dollar and are applicable for 2014 individual tax returns:

  • Credit for Contributions to Private School Tuition Organizations ($528 Single/$1,056 Joint)
  • “Switcher” Credit to Certified School Tuition Organizations ($525 Single/$1,050 Joint): The “Switcher” credit is only available if you have first done the Private School Tuition Organization credit. The combined credits are $1,053 Single / $2,106 Joint. For additional information, click here. For a list of the certified School Tuition Organizations, click here.
  • Credit for Contributions Made or Fees Paid to Public Schools ($200 Single/$400 Joint): More information can be found at the ADOR website here.
  • Credit for Contributions to a Qualifying Charitable Organization (QCO) formerly the Working Poor Credit ($200 Single / $400 Joint).
  • Credit for Contributions to a Qualified Foster Care Organization (QFCO) ($400 Single/$800 Joint): Your maximum allowed credit to a QFCO is lowered by any allowable credit paid to a QCO. See below for additional information regarding the limitations.

More information can be found at FAQs regarding Charitable Tax Credits.

  • Credit for Donations to the Military Family Relief Fund ($200 Single/$400 Joint): The Arizona Military Family Relief fund is administered by the Arizona Department of Veterans’ Services so support goes directly to Arizona families in need.

Don’t forget that Arizona only approves the first $1 million in donations as credits so mail your donation early. The form and more information can be found at the MFRF website.

The above donations will also qualify for a federal charitable deduction if you are not benefiting a family member or designated person.

Applying these credits can result in a larger Arizona refund, or make the amount owed to the IRS decrease at the same time.

By Dan Blackwell

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IRS Announces Leave-Based Donation Program for Ebola Relief

Posted on November 6 2014 by admin

Without a doubt, the major news story over the past few weeks has been the spread of the Ebola virus throughout many African countries and even the United States. Perhaps you’ve been considering making a donation to one of the many relief organizations? Well if you happen to be a bit light on cash at the moment, or if you’re looking for an excuse to back out of that upcoming trip to visit the in-laws, the IRS has the perfect solution for you!

In light of the recent Ebola outbreak in Guinea, Liberia, and Sierra Leone, the IRS has published Notice 2014-68, which covers the treatment of leave-based donations paid to qualifying Ebola aid organizations.

First of all, what is a leave-based donation? Essentially under a leave-based donation program, an employee may donate all or a portion of their vacation days in exchange for a cash payment made by their employer to a qualified tax-exempt organization. In this case, qualified organizations are organizations described in code section 170(c) that are providing relief to victims of the Ebola outbreak in Guinea, Liberia, or Sierra Leone.

Now that we know what a leave-based donation is, let’s cover the details and restrictions:

  • Employee’s company must be participating in the leave-based donation program.
  • Employee’s donation of vacation days is not considered a charitable contribution for tax purposes. In other words, it’s a nice thing to do but is not deductible on your tax return.
  • However, the employer may deduct their cash payment to the relief organization as either a charitable donation or as a business expense.

So if you’ve got a few vacation days burning a hole in your pocket, why not donate them to a good cause? Read the full release here for all the details, and enjoy the holiday season!

By Austin Bradley, CPA

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2015 Inflation-Adjusted Figures for Transfer Tax and Foreign Items

Posted on November 5 2014 by admin

The inflation-adjusted figures have come out for 2015 transfer tax and foreign items.

Unified estate and gift tax exclusion amount: For gifts made and estates of decedents dying in 2015, the exclusion amount will be $5,430,000 (up from $5,340,000 for gifts made and estates of decedents dying in 2014).

Generation-skipping transfer (GST) tax exemption: The exemption from GST tax will be $5,430,000 for transfers in 2015 (up from $5,340,000 for transfers in 2014).

Gift tax annual exclusion: For gifts made in 2015, the gift tax annual exclusion will be $14,000 (same as for gifts made in 2014).

Special use valuation reduction limit: For estates of decedents dying in 2015, the limit on the decrease in value that can result from the use of special valuation will be $1,100,000 (up from $1,090,000 for 2014).

Determining 2% portion for interest on deferred estate tax: In determining the part of the estate tax that is deferred on a farm or closely-held business that is subject to interest at a rate of 2% a year, for decedents dying in 2015, the tentative tax will be computed on $1,470,000 (up from $1,450,000 for 2014) plus the applicable exclusion amount.

Increased annual exclusion for gifts to noncitizen spouses: For gifts made in 2015, the annual exclusion for gifts to noncitizen spouses will be $147,000 (up from $145,000 for 2014).

Reporting foreign gifts: If the value of the aggregate “foreign gifts” received by a U.S. person (other than an exempt Code Sec. 501(c) organization) exceeds a threshold amount, the U.S. person must report each “foreign gift” to the IRS. (Code Sec. 6039F(a)) Different reporting thresholds apply for gifts received from (a) nonresident alien individuals or foreign estates, and (b) foreign partnerships or foreign corporations. For gifts from a nonresident alien individual or foreign estate, reporting is required only if the aggregate amount of gifts from that person exceeds $100,000 during the tax year. For gifts from foreign corporations and foreign partnerships, the reporting threshold amount will be $15,601 in 2015 (up from $15,358 for 2014).

Expatriation: For 2015, an individual with “average annual net income tax” of more than $160,000 for the five tax years ending before the date of the loss of U.S. citizenship will be a covered expatriate (up from $157,000 for 2014). Under a mark-to-market deemed sale rule, all property of a covered expatriate is treated as sold on the day before the expatriation date for its fair market value. However, for 2015, the amount that would otherwise be includible in the gross income of any individual under these mark-to-market rules will be reduced by $690,000 (up from $680,000 for 2014).

Foreign earned income exclusion: The foreign earned income exclusion amount will increase to $100,800 in 2015 (up from $99,200 in 2014).

By Pamela Wheeler, EA

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Like-Kind Exchange – Use of Qualified Intermediary

Posted on November 4 2014 by admin

Like-kind exchanges are back! Due to the economic environment over the last five years, there was a period of inactivity, but recently there has been much more activity in this area. For those who are entering into these transactions, it is good to remember who actually qualifies as a “qualified intermediary” (QI).

Before we discuss QI’s, let’s go over the basic rules. In general, no gain or loss is recognized if property held for productive use in a trade or business or for investment (the relinquished property) is exchanged solely for property of a like-kind (the replacement property) that is to be held either for productive use in a trade or business or for investment purposes. In order to be treated as like-kind property, the replacement property must be identified within 45 days from the day on which the taxpayer transfers the relinquished property, and the replacement property must be received before the earlier of: (1) 180 days after the date on which the taxpayer transfers the relinquished property, or (2) the due date for the transferor’s tax return for the tax year in which the transfer of the relinquished property occurs.

It is almost impossible to only have two affected parties in a like-kind exchange, where each party has property the other wants, and is of the same value. Therefore, most like-kind exchanges involve multiple parties and have time lags between the transactions. This is where the “deferred exchange” comes into play. And, where the use of a QI becomes extremely important to the exchange.

In order to be a deferred exchange, the transaction must be an exchange (i.e., a transfer of property for property), as distinguished from a transfer of property for money. IRS regulations provide that a transfer of property in a deferred exchange is not within the provisions if, as part of the consideration, the taxpayer receives money or other property. However, there are four safe harbors for taxpayers who don’t meet this requirement. One of those is via the use of a QI. The QI will act as an independent party and take “receipt” of any money or other property, so you are not considered having actual or constructive receipt of it yourself (which would disqualify the transaction).

Be careful though! You better know who qualifies as a QI.

A QI is a person who:

  • Is not the taxpayer or a disqualified person, and,
  • Enters into a written agreement with the taxpayer and, as required by the exchange agreement, acquires the relinquished property from the taxpayer, transfers the relinquished property, acquires the replacement property, and transfers the replacement property to the taxpayer.

A disqualified person is:

  • Someone who is an agent of the taxpayer at the time of the transaction. For example, a person who has acted as the taxpayer’s employee, attorney, accountant, investment adviser, real estate agent or broker within a two year period ending on the date of the transfer.
  • Someone who bears a relationship described in either §267(b) or §707(b) (determined by substituting in each § “10 percent” for “50 percent” each place it appears). These IRC Sections define relationship such as family members and controlled groups of companies.

So, even though you may have a family member or other related person who you think is “qualified”, be careful. Also, don’t ever think you can do this yourself and have it qualify. Adhere to the many rules of §1031, and you won’t be unpleasantly surprised later.

By Jeremy Smith, CPA

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Education Expenses Overwhelming? Try the Lifetime Learning Credit

Posted on October 30 2014 by admin

If you, your spouse, or dependents are currently attending or planning to attend college, you may be able to claim the Lifetime Learning Credit to help offset the cost. Just remember that you cannot claim both the Lifetime Learning Credit and the American Opportunity Credit for the same student in the same year.

Lifetime Learning Credit

There is no limit on the number of years the Lifetime Learning Credit can be claimed for each student.

Eligible institutions. The credit is available for any post-high school education (including graduate-level courses and courses to acquire or improve job skills) at an eligible school. That includes accredited schools offering credit towards a bachelor’s or associate’s degree or other recognized post-high school credential and certain vocational schools. The credit may be available even if only one course is taken.

Qualified tuition and related expenses. This includes tuition and academic fees required for enrollment or attendance. Student activity fees, athletic fees, insurance, books, room and board, transportation costs, or other personal living expenses do not qualify. Courses involving sports, games, or hobbies do not qualify unless they’re part of the student’s degree program.

Maximum credit. You can claim $2,000 per year. The credit is per taxpayer, not per student, which means a family’s maximum credit is the same regardless of the number of students in the family.

Nonrefundable. The credit can reduce your regular tax bill and your alternative minimum tax (AMT) bill to zero, but it can’t result in a refund.

Phase-out ranges for modified AGI. In tax year 2014, for married couples filing jointly: $108,000 to $128,000, and it is unavailable if AGI is $128,000 or more. For single taxpayers or heads of household: $54,000 to $64,000. Married couples who file separately cannot claim the credit.

By Melinda Nelson, CPA

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There is nothing more complex than the world of taxes. We know this and yet we chose careers where we face these issues everyday. We get questions day in and day out about new tax laws, forms and news items and how they affect everyday people and businesses. Well, here at Henry & Horne, LLP we have set out to do what we do best; help everyday people understand what is going on in the world of state, local, federal, estate and international taxation. We will provide these weekly posts and we encourage you to give us feedback on those posts as well as letting us know what else you would like to know more about. Welcome to "Tax Insights." We hope you find this blog informative and worthy of your time.

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