The beginning of the year is a good time to check your withholding allowances. Are you perpetually behind, or need more money in your paycheck? Remember that you can claim any filing status and number of exemptions on the W-4 for your regular withholding during the year. Read my article.

Don’t rely on 1099’s to tabulate your income, free-lancers. You are responsible for reporting your income accurately, whether or not you receive a 1099. Business owners, make sure your contractors fill out IRS Form W-9 before you hire them, so you can issue them a 1099 if needed. (Doing someone a “favor” by not issuing them a 1099 means that we’re all paying their taxes.)

Reprinted with permission of AppZen

Insurance: Businesses, do you have a “fidelity bond” or employee dishonesty insurance”?  On my first non-profit audit we discovered embezzlement. One of my first business engagements was investigating fraud at a large medical practice. Appropriate controls are important to reduce the threat of fraud; appropriate insurance is necessary to help you recover in case it does happen.

Elder care planning:  Another relaxing subject! Nevertheless, a necessity for kids and parents to start discussing. Contact me to discuss further and to be directed to appropriate resources.

IRS Letters! Don’t panic if you get them, but don’t sit on them either. Because of the IRS’ woeful budget, errors are plentiful and corrections are slow —  you may be getting bills for $12,000 when I sent in the correction making it a refund months ago, but they have not processed it yet.  But don’t be like the non-profit that passed the envelope around like a hot potato for a year without opening it; as a result they missed deadlines and had to appeal to have several thousands of dollars in penalties waived.

UPCOMING EVENTS

I will be back at the fabulous Artisan’s Asylum makerspace in Somerville, MA on Thursday night January 21, 2016 to discuss Tax and Incorporation issues. Join me at 7pm for a short talk, gathering, and refreshments. Free, register here.

NEW BUSINESS CHECKLIST!

Thinking about establishing a small business in Rhode Island? Check please read this article for a list of essential steps, from deciding on your legal structure to staying in good standing on an annual basis.

While Obamacare has expanded healthcare coverage dramatically, it has also created some new difficulties.

Consider:  “June Cleaver” is a single parent of two boys- Wally and Theodore (“Beaver”).  She just became a real estate broker and made $25,000 in 2015.

JUNE’S HEALTHCARE OPTIONS FOR 2016

Medicaid.  The family’s projected income  for 2016 (based on 2015)  is below $27,724* and thus eligible for premium-free healthcare through Rhode Island.* However, Beaver is a behavioral nightmare and his singularly awesome therapist does not accept Medicaid payments; Dr Bigmun Loyd’s direct billing rate is $125/hour.  So June concludes she will need to purchase private health insurance to get these doctor bills covered.

Private Health Insurance:  June can purchase private health insurance on the Exchange; however, if she goes this route, because she’s otherwise Medicaid eligible, she won’t get a subsidy to bring down the cost of the premiums.** The full cost of the monthly premium is beyond the Cleavers’ reach. So at this point June’s only options are to go on Medicaid and take a chance on a new doctor, or sign up for premiums that are beyond her financial means.

Projecting Higher Income: June is self-employed in succeeding years and her income is hard to predict. She hopes 2016 will be more lucrative and, instead of using her 2015 earnings of $25,000, instead projects $55,000 in net earnings on her application. All family members will now be ineligible for Medicaid*. But June is eligible forsome upfront “premium assistance” in 2016; perhaps she can now afford the premiums and continue with the same doctor for Beaver.

What happens if June’s actual income in 2016  turns out to be closer to $25,000? When her 2016 tax return is prepared, the final premium subsidies will be based on this $25,000 ultimate income and she will recoup the subsidies lost when June was paying for health insurance based on her projected income of $55,000 (The tax system has not been designed to  screen for eligibility when computing the finalsubsidy — it’s solely income-based. However, some state exchanges require substantial changes of income to be reported during the year, and there is no guarantee they won’t take action if there is a continuing pattern of disparity between projected and actual income.)

Confused and overwhelmed? You are not alone; even health insurance brokers and workers at the exchanges have trouble sorting all this out.

*The Affordable Care Act dramatically expanded Medicaid eligibility and raised the income limits (which are based on Federal Poverty Guidelines for different family sizes). Rhode Island participates in the Medicaid expansion; the program is voluntary and some states have declined.  In Rhode Island, the upper limit for Medicaid coverage forminors in 2015 was $53,439 for a family of one adult and two children)

** The same would be true if June were eligible for  health care benefits through other government programs like Medicare or Tricare (for military).

CLASSIFIEDS DEPARTMENT!

My wonderful firm needs an experienced tax preparer 5-10 hours a week for the busy season. Must be comfortable with professional tax software.  Will work closely with yours truly. E-mail me.

BECAUSE YOU ASKED

Thank you for the well-wishes for my “frozen shoulder” surgery, to remove “adhesive capsulitis”.  All was smooth and I should be returning to championship weightlifting in no time. As you can see, they successfully unstrapped me from the medieval torture rack they used to manipulate my shoulder after surgically removing the scar tissue.

Because you asked.  And by all means, keep asking,

This issue brings together recent developments and strategies about paying for health care and disability. It’s a complicated — but important — subject. I hope there is something useful for everyone. (And if not, there is a little family anecdote.)

Q: Is there anything GOOD that came out of the last budget bill?
–M. McConnell, Louisville

A: Actually, yes. There is now a special, tax advantaged vehicle for disabled individuals. Modeled after the 529 college plans, eligible ABLE plan participants must have been diagnosed with a disability by age 26. Investments are not tax deductible but grow tax-free and withdrawals must be used for qualifying services or be subject to tax and penalty on the earnings.

Importantly, creation of such accounts would not jeopardize one’s eligibility for social security disability benefits or Medicaid. Nevertheless, an ABLE account will not be accessible to everyone, and is only a small step in addressing the enormous financial challenges of families with special needs. I recently participated in a webinar on this vital subject. E-mail me for information about future webinars.

Q: I am told my company has to buy insurance through the “exchange” to continue receiving business tax credits. Can I hate Obamacare and still love the tax credits?.
–HealthCareForNone.org

A: Yes. Effective January 1, 2014 the tax credits offered to businesses offering health insurance to their employees is increased from 35% to 50% of eligible premiums (from 25% to 35% for non-profits). However, such premiums must be now paid through Obamacare’s state “SHOP” exchanges in order to be eligible for the credit.

ALSD can help you navigate your health insurance options, and we will soon be eligible to be a Rhode Island company’s “broker of record” for the SHOP program through Healthsource R.I.,the state’s exchange. E-mail me for details.

Q: Health insurance is still expensive, and now I must ask employees to contribute a portion. What else can I do? My employer benefits are already meager.
–Google, Palo Alto, CA

A: There is a rare win-win available to employers, called a “Section 125 cafeteria plan”. It allows the employees’ health insurance contributions to be deducted from their pay pre-tax. It therefore reduces the employer’s payroll taxes as well. Your payroll service company should be able to administer this for a small fee.

BECAUSE YOU ASKED DEPT

Q: What does “Streitfeld” really mean?
–Distant relative

A: Family lore has it that my ancestors were traversing Europe around the turn of the century and wanted a militaristic surname because of anti-Semitic activity in Germany. “Streitfeld” may have derived from “Schlachtfeld”, or “battlefield”.

The thread continues with my eldest son, whom we named “Yonah” — in part because of it’s proximity to “Jonasz”, a Polish name his (Polish-born) Mom liked. Yonah is Jonah, Hebrew for “dove”and the symbol of peace. Thus “Yonah Streitfeld” means “peace on the battlefield”!

It gets better. Yonah’s younger brother is Malcolm — we just liked the name. We found out later that Malcolm means “follower of Saint Columba.” And how has Columba been translated? “Dove.”

Because you asked… (and please, keep asking).

You are a busy dentist and your bookkeeper signs the checks.

You are president of a non-profit; the treasurer is supposed to co-sign large checks with the ED. But the treasurer  is out of town, and you trust the ED.

Your Quickbooks password hasn’t been changed in seven years (Oh, you don’t have one.)

The cash part of the business? It’s just too complicated to keep track of.

Years ago I was engaged in my first audit, of a large mental health facility with a walk-in clinic.  We wondered why the income had decreased so much in the current year.  I spot-checked a few weeks of cash receipts and discovered there were several days when no cash had been recorded or deposited; this was highly unusual for such a high-volume facility.

Eventually the State Police were called in and the bookkeeper confessed. She had been there twenty years; the “little old lady” whom everyone trusted had taken over $30,000within a couple of years.

(My company, ALSD, makes recommendations on how to strengthen internal control when it conducts audits.)

Years ago (again!), I was studying to be a Certified Fraud Examiner and traveling overseas. I asked a carpenter friend to house sit; I was also hiring Molly to renovate my attic.  I gave her some cash upfront to buy supplies.  I came back ready to  take my CFE Exam ( Molly knew about this),  and discovered that very little had been accomplished on the attic.  She handed me a receipt for $100 even, with only the word “paint” on it and no sales tax; the receipt number was “001“.  Not a very crafty embezzler but you get the point — embezzlement (as opposed to robbery) by definition is an inside job — stealing bysomeone you trust.

To make matters worse, Molly had left cooked sweet potatoes in the oven for over a week.  But I passed the exam, and remain a CFE  (the yams had no such luck.).  In future posts I will talk more about how you can prevent fraud in your business and personal affairs.

Don’t leave money on the table.  Lost in the hubbub about the error-plagued website roll-out:  There have been lucrative tax credits available to very small businesses and non-profits since 2010.  And they are about to get more lucrative.

How lucrative?  For 2013, up to 35% of the premiums you paid for your employees.  For 2014, up to 50%. Really! No muss, no fuss, no caveats? No way! Here’s the skinny (no trans-fats allowed in healthcare discussions.):

• The maximum credit is available for companies with 10 or fewer employees who earned an average wage of $20,000 or less. The credit is unavailable if your firm employs 25 or more “full-time equivalent” employees or if the staff’s average wage (excluding the owners) exceeds $50,000. In between there is a sliding scale.
• You must pay at least 50% of your employees’ premiums.
• Starting in 2014 you must purchase the insurance through Obamacare’s “SHOP exchange”, which will require a broker until November, 2014, when it is scheduled to (finally) be available online.
• Your savings may be less than a dollar for dollar credit, for reasons that are beyond the scope of this article and the author’s ability to explain them lucidly in a brief newsletter! It depends on the tax situation of the company or owner who is claiming the credit.
• Non-profits with employees may also claim the credit even if they do not normally file taxes; their maximum credit or refund is 25% (35% in 2014).

Crying Uncle yet?  It IS complicated and you MAY need an ACCOUNTANT (who may need a Tylenol). But your small business or organization may still end up saving thousands of dollars in healthcare costs.

NOTE: Every situation is different and federal and state tax laws are subject to change.  This article is presented exclusively for informational purposes and is not intended to substitute for obtaining tax or financial advice from a tax or other business professional.

Post-DOMA Edition!

Wow! I am still celebrating the demise of the federal “Defense of Marriage Act”. This wonderful news puts married same-sex couples on the same playing field as heterosexual couples when it comes to federal benefits, at least if you are ”in the right state”*. For most situations, this is great – you can file your taxes jointly, your partner reaps Social Security survivor benefits upon your death, and you can automatically sponsor your partner for a green card.

Yet there are hidden complexities and, yes, even disadvantages, to being married when it comes to some tax and financial matters. Maybe not enough to keep you from tying (or untying!) the knot, but these are worth your being aware of. Take health insurance. If you are “in the right state”* then here is:

• The Great news: If you have been fortunate enough to receive employer-paid health insurance benefits for your spouse, you will no longer pay income taxes on this benefit (didn’t you hate that?). And if you were paying for your partner as an employee, you may now use any “tax advantaged” programs the employer offers.
• The Bad News: Under DOMA, the federal government looked at each person in a same-sex marriage autonomously. Now the two of you comprise a household and an individual who used to qualify for Medicaid on an individual basis might no longer, if the total “household income” is too high. This can be especially significant if your partner has dependents receiving Medicaid benefits. In a similar vein, one or both of you may have qualified for the “premium tax credits” that will be available thru “Obamacare” starting October 1, 2013. If married, you may both lose out should your combined income exceed the household income threshold, which is related to federal poverty guidelines. Then Again:
• The Good News: Depending on their respective incomes, a couple might qualify for the tax credits as a couple, thus covering both of them, whereas only the lower wage earner may have qualified if they were single. But:
• The Bad News: Even if you meet the income criteria for the tax credits, either or both of you may be deemed ineligible if your employer offers health insurance on an individual or family basis (even if no contribution is made!)

Such is the complicated state of health care for all families in America in 2013! The DOMA ruling itself is fresh and federal and state agencies will be clarifying procedures over the coming months. Stay tuned.

* It is expected that the IRS will treat you as married based on your residence — if the state you live in recognizes same-sex marriage then you are considered married for federal purposes. However, experts have pointed out that the IRS recognizes common-law marriage for federal taxes no matter where a couple lives as long as their marriage was valid where entered, and INS has also used these criteria for immigration benefits (“place of celebration”—love that term). Again, stay tuned!

NOTE: Every situation is different and federal and state tax laws are subject to change. This article is presented for informational purposes only and is not intended to substitute for obtaining tax or financial advice from a tax or other business professional.

Rich Streitfeld is CPA

Aaronson Lavoie Streitfeld Diaz & Co. in Cranston, R.I.

www.alscpa.com

rich@alscpa.com or 401-223-0205

© 2013 Rich Streitfeld