Tax Credit

The New Health Care Reform- What it Means to You (Part 1)

Two major pieces of legislation were recently signed into law, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010.  The provisions of this new legislation and the process that was followed by Congress to make it law have resulted in as sharp a division in public opinion as we have ever witnessed.  The sheer scope of the new legislation is such that few fully understand its impact.  But it will affect nearly every individual and business.  The following is an attempt to summarize some of the more important aspects of the new laws.

Individual mandate. The new law contains an “individual mandate”-a requirement that U.S. citizens and legal residents have qualifying health coverage or be subject to a tax penalty of the greater of: (a) $695 per year, up to a maximum of three times that amount ($2,085) per family, or (b) 2.5% of household income over the threshold amount of income required for income tax return filing. The penalty will be phased in between 2014 and 2016. After 2016, the penalty will be increased annually by a cost-of-living adjustment. Exemptions will be granted in certain situations, including financial hardship, religious objections, American Indians, those for whom the lowest cost plan option exceeds 8% of household income and those with incomes below the tax filing threshold.

Premium assistance tax credits for purchasing health insurance. A key feature of the health care legislation is its provision of tax credits to low and middle income individuals and families for the purchase of health insurance. For tax years ending after 2013, the new law creates a refundable tax credit for eligible individuals and families who purchase health insurance through an Exchange. This credit will be available for individuals and families with incomes up to 400% of the federal poverty level who are not eligible for Medicaid, employer sponsored insurance, or other acceptable coverage.

Higher Medicare taxes on high-income taxpayers. High-income taxpayers will be hit by both a tax increase on wages and a new levy on investments.  Beginning in 2013, single people earning more than $200,000 and married couples earning more than $250,000 will pay an additional 0.9% of their wages over the base amounts. Although employers will collect the extra 0.9% on wages, they won’t be responsible for determining whether a worker’s combined income with his or her spouse made them subject to the tax, so married couples with combined incomes approaching $250,000 will have to keep tabs on their spouses’ pay to avoid an unexpected tax bill. One particularly disturbing aspect of this new tax is that the income thresholds are not indexed for inflation, so it is likely that more and more people will be subject to the higher taxes in coming years.

The new law also provides that for the first time, the Medicare tax be applied to investment income. A new 3.8% surtax will be imposed on investment income of higher income individuals, estates and trusts.  For individuals, the tax is equal to 3.8% of the lesser of (1) net investment income or (2) the amount by which modified adjusted gross income exceeds the threshold amounts specified above.   Net investment income includes interest, dividends, royalties, rents but not retirement plan distributions.

I hope this article provided you with some insight into this complex new law.  I will review additional aspects of the legislation in future issues.

Glenn Schanel, CPA, CFP® is the President of Schanel & Associates, PA, Certified Public Accountants.  The firm provides tax, accounting, and consulting services to clients throughout South Florida and the United States. 

Tax Credit

Improved Education Tax Credit for 2009 and 2010 - Part 2

The American Opportunity tax credit is also 40% refundable, which means that you can get a refund if the amount of the credit is greater than your tax liability. For example, someone who has at least $4,000 in qualified expenses and who would thus qualify for the maximum credit of $2,500, but who has no tax liability to offset that credit against, would qualify for a $1,000 (40% of $2,500) refund from the government.

As noted above, the American Opportunity credit is based on the payment of qualified tuition and related expenses. These are the expenses for tuition and academic fees that are required for enrollment or attendance at an eligible educational institution. Qualified tuition and related expenses do not include student activity fees, athletic fees, insurance expenses, room and board, transportation costs and other personal living expenses. They also don’t include the cost of any course or education involving sports, games, or hobbies unless the course or education is part of the student’s degree program. Books are qualified expenses under the American Opportunity tax credit.

The amount of qualified tuition and related expenses taken into account in computing the American Opportunity credit must be reduced by tax-exempt scholarships and fellowships, certain military benefits, and any other tax-exempt payments of those expenses other than gifts or bequests.

The credit is phased out for higher income taxpayers. For 2009 and 2010, the American Opportunity tax credit is phased out for couples with income between $160,000 and $180,000, or singles with income between $80,000 and $90,000. These higher thresholds will allow more taxpayers to qualify for the credit.

If you have questions about this credit or any other tax issue, please feel free to contact our offices at 561-624-2118.
Glenn Schanel, CPA, CFP® is the President of Schanel & Associates, PA, Certified Public Accountants.  The firm provides tax, accounting, and consulting services to clients throughout South Florida and the United States.  We provides tax, accounting, and consulting services to clients throughout South Florida, North Palm Beach and Palm Beach County.

Tax Credit

Improved Education Tax Credit for 2009 and 2010 - Part 1

The American Opportunity tax credit created a new and improved HOPE credit that may allow you to turn part of the higher education expenses you incur for yourself, your spouse, or your dependents into tax savings.

The maximum credit allowed is $2,500 per student (for both 2009 and 2010) for the first four years of undergraduate education at an eligible educational institution. Generally, eligible educational institutions are accredited schools offering credit toward a bachelor’s or associate’s degree or other recognized post-high school credential, and certain vocational schools.

The American Opportunity tax credit is available only for the qualified tuition and related expenses of an eligible student, i.e., a student who’s enrolled in a degree or certificate program at an eligible educational institution on at least a half-time basis, and who has never been convicted of a federal or state felony drug offense.

A taxpayer may claim an American Opportunity tax credit and exclude from gross income amounts distributed from a Coverdell education savings account (formerly called an education IRA) or 529 plan for the same student, as long as the distribution isn’t used for the same educational expenses for which a credit was claimed.

In order to be eligible for the American Opportunity tax credit for a tax year, qualified tuition and related expenses must be paid during that tax year for education furnished during an academic period (e.g., semester) that starts within that tax year or within the first three months of the following year. Under this rule, taxpayers have a timing option. For example, for a semester beginning in Jan. of Year 2, a taxpayer may pay the expenses in Year 1 or Year 2. The credit will be available in whichever year the payment is made.

If you have questions about this credit or any other tax issue, please feel free to contact our offices at 561-624-2118. We are located in Jupiter, Palm Beach County. Glenn Schanel, CPA, CFP® is the President of Schanel & Associates, PA, Certified Public Accountants. The firm provides tax, accounting, and consulting services to clients throughout South Florida and the United States. We provides tax, accounting, and consulting services to clients throughout South Florida, North Palm Beach and Palm Beach County.

Tax Credit

First-Time Home Buyers’ Tax Credit Improved

First-Time Home Buyers’ Tax Credit Improved
by Glenn Schanel, CPA - Jupiter, Florida

In an effort to revive the real estate market, in 2008 Congress created a tax credit for “first time home buyers.”  In its original form, this “credit” of $7,500 was in reality an interest free loan that the taxpayer had to repay over a 15 year period.  It soon became evident that this credit/loan was not very “stimulative”, so in 2009 Congress created a new plan that included a true credit.

The new law created a refundable federal tax credit of up to $8,000 ($4,000 for a married taxpayer filing separately) for qualifying first- time homebuyers who purchased a home between April 8, 2008, and December 1, 2009. In order to qualify for the credit, the taxpayer must have not owned a qualifying principal residence in the U.S. during the three-year period before the purchase of the new home.  This credit was phased out for individual taxpayers whose modified adjusted gross income was between $75,000 and $95,000 (between $150,000 and $170,000 for married taxpayers filing jointly).

As a result of the continuing weakness in the real estate market, last month Congress enacted the Worker, Homeownership, and Business Assistance Act of 2009.  This Act extends the $8,000 first-time homebuyer credit for contracts to purchase entered before May 1, 2010, and closed before July 1, 2010. The new law also liberalizes the credit by making it available to higher income taxpayers, as well as to those individuals who are not first-time homebuyers.

Generally, existing homeowners who are qualifying “long-time residents” may qualify for the tax credit if they contract to purchase another principal residence before May 1, 2010, and close before July 1, 2010. The Act provides that any individual who has maintained the same principal residence for any five-consecutive-year period during the eight-year period ending on the date of the purchase of a subsequent residence be treated as a “first-time homebuyer”.

However, the maximum credit for long-time residents who qualify under the Act is the lesser of $6,500 ($3,250 for married individuals who file separate returns) or 10% of the purchase price of the principal residence.

The credit now phases out for individual taxpayers whose modified adjusted gross income is between $125,000 and $145,000 ($225,000 and $245,000 for married taxpayers filing joint returns).  In addition, for purchases after November 6, 2009, the first-time homebuyer tax credit cannot be claimed for the purchase of a principal residence if its purchase price exceeds $800,000.

If you qualify, you can claim your credit by attaching a Form 5405 to your income tax return in the year of the home purchase and a copy of your settlement statement.  You can also elect to treat any home purchased in 2009 as if it occurred on December 31, 2008 and a purchase in 2010 as if it occurred on December 31, 2009.  If you choose to do this and have already submitted your prior year’s tax return, you can claim your credit by filing an amended tax return.

So if you believe that you would qualify for either the first time home buyer or long-time resident tax credits, this could be the right time to buy a home.

Glenn Schanel, CPA, CFP® is the President of Schanel & Associates, PA, Certified Public Accountants.  The firm provides tax, CPA, accounting, and consulting services to clients throughout South Florida and the United States. Our clients are located in North Palm Beach, Port St. Lucie County, Palm Beach County, West Palm Beach.

The information contained in this communication is intended as general guidance on matters of interest only.  The application and impact of laws can vary widely based on specific facts involved.  Given the changing nature of laws, rules and regulations, and the inherent hazards of electronic communication, there may be delays, omissions, or inaccuracies in information contained in this transmission.  The information contained herein should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisors.  Pursuant to Regulations Governing Practice Before the Internal Revenue Service, any tax advice contained in this communication, unless explicitly provided otherwise, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Tax Credit

IRS Announced 2006 Retirement Limits

IRS ANNOUNCES NEW RETIREMENT SAVINGS
CONTRIBUTION LIMITS FOR 2006

The following is a summary of the annual contribution limits for retirement savings plans for 2006:

Plan Type	Contribution Limit	Age 50 & Older “Catch Up”
Traditional and Roth IRA	$4,000	$1,000
SIMPLE Plans	$10,000	$2,500
401(k) and 403(b)	$15,000	$5,000
SEP Plans	Lesser of 25% of compensation, or $44,0000	N/A
Defined Contribution Plans	Lesser of 100% of compensation, or $44,000	N/A

Please contact our office at (561) 624-2118 if you have any questions.

Tax Credit

June 2007 Tax Alert

TAX ALERT
NEW LAW INCLUDES BUSINESS/PERSONAL TAX CHANGES

A portion of a supplemental spending and minimum wage bill recently signed into law included several tax provisions that may have an impact on you and your business. The Small Business and Work Opportunity Tax Act of 2007 contains $4.8 billion in small
business tax breaks -but also includes $4.4 billion in revenue raisers.

We have briefly summarized below just two of the changes that may affect you

Section 179 Expensing Deduction .The new law increases both the maximum annual expensing amount and the threshold phaseout amount. For tax years beginning in 2007, the practical impact of these changes is to increase the annual expensing limitation from $112,000 to $125,000 and to increase the phaseout amount from $450,000 to $500,000.

Kiddie Tax. In general, the revenue code imposes taxes on a young child’s unearned income in excess of $1,700 at the child’s parents’ tax rate. A 2006 tax law increased the age at which the kiddie tax applies, from under age 14 to under age 18. Now, the new law modifies that change so that the kiddie tax applies generally to children under 19 years old, effective in tax year 2008. More importantly for many taxpayers, the law will also apply the kiddie tax if the child:

• Is over age 18 (but under age 24) and
• Is a full-time student and
• Has earned income that does not exceed one half of the student’s total support.

Summary

With the business tax changes and the new kiddie tax rules, your tax planning may need a tune-up. Why not contact us today to find out more about how the new tax law may affect your situation.