Health Care Coverage and Your Tax Return

Since the enactment of the Affordable Care Act, your taxes are now affected by your health care coverage status. The new policy states that all Americans must have qualified health insurance, though there are a few circumstances in which an exception may apply.

Generally, 3/4^ths of the taxpayers who file a return will only be required to check a box on their form that indicates that they have health insurance. This applies to those who are covered under an employee sponsored health plan, or government plans such as Medicare, Medicaid, or military health benefits.

If you purchased health care coverage through the Marketplace, you may have received an advanced tax credit to supplement the cost of your monthly premiums. If you chose to use the tax credit when you purchased your plan, you will have to reconcile the mount you received with the amount you were eligible for on your tax return.

The tax credit is based on your estimated household income, which you supply when you purchase coverage through the marketplace. At tax time, if your actual income is more than you estimated, you may have received a larger tax credit than you are eligible for. If this happens, you may have to pay back the excess credit. You can do so by deducting the amount from any refund you are owed on your taxes, if applicable.

You will receive a document that indicates the amount you received for the credit and other pertinent information in order to file your tax return.

How to Tell If You Should File a Tax Return

Not everyone is required to file a tax return. Most people are, but for those who aren’t, it may still prove beneficial to do so anyway. If you’re not sure if you have to file a tax return, you should familiarize yourself with the rules before tax season approaches.

Income, age, and filing status all factor into determining whether or not you need to file. More requirements apply to those who are self-employed or considered a dependent of another taxpayer. You will need to cover all bases when deciding whether you’re required to file a return.

You’ll need To File If:

You’ll be required to file a return if your employer withheld federal tax from your salary throughout the year, or you are self-employed and made estimated tax payments each quarter. When you file, you may be entitled to a refund if you overpaid, but the only way to know is to file a return.

Also, if you purchased health care through the Health Insurance Marketplace and opted to use the premium tax credit to lower your monthly costs, you’ll need to reconcile the amount you received. To do so, you’ll have to file a return. You’ll receive Form 1095-A, the Health Insurance Marketplace Statement by the beginning of February. This form will have all the information you need to reconcile the credit you received with the amount you are actually allotted.

If you made less than $53,267 last year may be eligible to receive the Earned Income Tax Credit, which can save you up to $6,242 for 2015. Even if you have no qualifying children, there’s a possibility you can still qualify, but you’ll have to file a return to know.

If you qualify for the Child Tax Credit, but don’t receive the entire credit amount, you may be eligible for the Additional Child Tax Credit. Again, the only way to know if to file a return.

The American Opportunity Credit is one other reason you may want to file a return. Each eligible student enrolled in post-secondary education may receive a credit of up to $2,500. You are able to claim yourself or a dependent, but the student has to be enrolled for an entire academic period for at least half-time. You don’t have to owe any taxes in order to claim the credit, but you will have to file Form 8863, Education Credits with a tax return if you wish to claim it.

Dealing with Capital Assets at Tax Time

Anything you own, whether it’s something you use for personal reasons or an investment purpose, is considered a capital asset. Things like your home, furniture, and vehicle, as well as stocks and bonds are all examples of the types of capital assets many people own.

If you chose to sell one of these assets, the result will either be a capital gain or a capital loss, depending on the base cost of the asset and what you sold it for. Selling for a greater amount than you paid for the asset will result in a capital gain, while a capital loss occurs when the sale price is lower. Any loss from the sale of personal use property (a home or vehicle) isn’t eligible for deduction at tax time.

Capital losses and gains are considered either long-term or short-term depending on how long you held the asset in your possession. Anything less than a year is typically a short-term capital loss, while longer times are long-term. The day you acquired the asset from the day you sold it or got rid of it is the period of possession.

You have to report any transactions on capital assets at tax time using Form 8949, Sales and Other Dispositions of Capital Assets. Any capital gains or deductions of losses can be done on a Schedule D or Form 1040. Generally, the taxation rate is 15% or less for net capital gains, determined by your tax bracket. Some net gains are taxed at 20% depending on the income threshold of the asset holder in relation to an ordinary tax rate of 39.6%.

Other rates of taxation of capital gains apply when:

• The gain is from the sale of a section 1202 qualified small business stock. These will be taxed at a maximum rate of 28%.
• Collectible items, such as art or coins, are sold for a net gain. The taxation rate is 28%.
• An uncaptured section 1250 gain results from the sale of a 250 real estate property. The tax is applied at 25% max.

Income graduation rates apply to short-term capital gains, which may require you to make estimated tax payments throughout the year.

During the year, if you’ve encountered more capital loss than gain, you can claim the lesser amount of two options:

1. $3,000 ($1,500 if filing married, separately)
2. your total net loss as reported on line 16 of Form 1040

You can carry forward any additional amounts of your total net loss exceeding $3,000 to the next tax year.

The Individual Shared Responsibility Provision for 2015

A special provision of the Affordable Care Act, which requires each taxpayer to have qualifying health care, comes into effect when you file your tax return.

Unless you meet a certain exemption, you are expected to have a health care plan which meets the minimum requirements of the Affordable Care Act. The Individual Shared Responsibility Provision states than any taxpayer who can afford health care and isn’t exempt from purchasing it must make a payment at tax time. This payment is calculated using Form 8965.

Many taxpayers will simply check a box on their return that indicates that they had acceptable health care coverage for the tax year. You are responsible for ensuring both you and your dependents are covered, unless you qualify for an exemption. While some exemptions have to be claimed through the Marketplace, many are claimed directly on your tax return.

Choosing to file your tax return electronically can save you time and ensure you have prepared your return correctly, regardless of your health care coverage status. Electronic filing uses special software that will help you accurately claim an exemption, indicate your coverage, or even make a quick individual shared responsibility payment effortlessly. This year, chose to e-file and learn more about how the Affordable Care Act affects your taxes.

Unemployment Compensation & Taxes

Do you receive unemployment benefits? Depending on which program the benefits are distributed from, you may be responsible for paying taxes on the income. Taxable compensation amounts include money received from any of the following programs:

• State unemployment insurance
• Federal Unemployment Trust Fund
• Railroad unemployment compensation
• Disability compensation
• Allowances paid in accordance with the Trade Act of 1974
• Disaster Relief and Emergency Assistance Act of 1974

If you received benefits from the above programs, you may be required to pay taxes on the income. Some types of income are not considered to be unemployment compensation, such as worker’s compensation payments, or distributions from a private unemployment fund. Private unemployment benefits are taxed as if you received a larger sum than you contributed, and is reported on line 21 on your Form 1040. Supplemental unemployment benefits from a fund that your employer supports are also not considered unemployment compensation, and are subject to income tax, Social Security and Medicare taxes, as per regular income. You will find these amounts reported on your W-2 from your employer.

You should include unemployment compensation amounts in your gross income at tax time. You can either chose to have taxes withheld from your benefits, or you may be required to makes estimated tax payments. If you receive unemployment benefits from the government you should receive a Form 1099-G, Certain Government Payments, which documents the total amount of compensation you received. You should seek advice from a qualified tax assistant in order to correctly report your benefits on your tax form.

Tax Savers for Single Parents

Raising children on your own isn’t easy. Single parents can use any help they can get, which is why, at tax time, there are certain tips that can come as a welcome relief. When filing your tax return as a single parent, consider the following eight points:

1. Head of Household Status – if your children lived with you for over 50% of the year, and you were single by the end of the tax year, you can file using the head of household status. You have to have made a majority of the household income, but it can greatly reduce your tax burden and offer new deductions.
2. Dependent Qualifications – the amount of dependents you claim can change which credits and deductions you may be eligible for. Deductions for one child can’t be split between parents, so usually a written decree (from divorce or separation) is in place to state who can claim the child. Generally, the custodial parent is entitled to the deduction for dependents, as they meet all the requirements on care and household support. A dependent child is one who lived with you for at least six months of the year and has been financially supported by your income during that time.
3. Exemptions – Every taxpayer is entitled to a personal exemption, but you can also claim a dependent exemption for each of your qualified dependents. These exemptions can add up, but if you make over $279,650 a year and claim Head of Household, you can’t claim these exemptions.
4. Dependent Credits –those who earn less than $75,000 are able to claim a $1000 credit per dependent child under the age of 17 on the final day of December.
5. Child Care Tax Credit – paying for someone else to care for your child while you work can net you a $3,000 credit for a single child ($6,000 for two or more). The types of child care that qualify vary, but can include after school programs and day camps.
6. Dependent Spending Accounts – You can contribute up to $5,000 tax free in a special account provided by your employer that allows for dependent expenses.
7. Earned Income Credit – parents who earn less than $46,997 and have three or more dependent children qualify for this credit, which is based on income and dependent amounts. Taxpayers with less children may qualify for a portion of the credit.
8. Adoption credit – Federal tax credits apply to help offset the costs you may have incurred for an adoption throughout the tax year.

The Big 3: Different Types of Businesses

If you sell a service or a product, the money you make is generally defined as business income. Additionally, business income includes real estate rents and any fees for service that is paid to an individual. Business income must be reported at tax time, regardless of the type of business.

There are three different classifications for the type of businesses one can own.

1. Sole Proprietorship is defined as an individual-owned business that has no incorporation. If the owner leaves, the business is no longer active. An important distinction is that all business debts and expenses belong to the individual owner and are considered personal. If your business is registered as a limited liability corporation (LLC), the IRS will consider it a sole proprietorship if you are the only owner. However, you can chose to have your LLC taxed as a Corporation if you chose. Sole Proprietorship businesses will file Form 1040, Schedule C, Profit or Loss from Business (Sole Proprietorship), or Form 1040, Schedule C-EZ when completing a tax return. These types of businesses which make greater than $400 net profit are required to pay Social Security and Medicare taxes, which can be calculated by filing a Schedule SE, Self-Employment Tax.

1. Partnership is defined as a business venture with two or more individuals responsible for the operation of the business, trade or finances. This type of business is not incorporated, and each “owner” is responsible for the operation of the business in order to gain shares and the rights to losses. LLCs with multiple owners are treated as a partnership, unless the LLC has opted to be taxed as a corporation. Each partner is responsible for a distribution of the taxes, instead of the entire partnership being taxed as a single business. The partners will report on their individual returns the amount of partnership taxes stated on a Form 1065 Schedule K-1.

1. Corporation is defined as its own legal entity that is completely detached from both owners and shareholders. Businesses, such as LLCs, can chose to be taxed under the corporation regulations. In doing so, all businesses taxed as a corporation are required to report their net profits using Form 1120, U.S. Corporation Income Tax Return. Corporations can chose to be taxed as a subchapter S corporation, provided certain regulations are met. S corporations generally are taxed under the guidelines for a partnership, where regular income tax is not applicable. Instead, the shareholders are taxed and need to report the amount individually on their tax returns.

A Notice for Stockholders at Tax Time

Are you a stockholder for any corporations? In some cases, stockholders can receive dividends from the corporation as property distribution. These dividends are generally paid in cash, though they may also be distributed as additional stock or property.

Dividends may also be received through trusts, estates, partnerships, and associations subject to tax as either a corporation, or a subchapter S corporation. If you’re a stockholder in any of those firms, you’ll be able to receive a dividend if the corporation has paid your debt, otherwise you have received services from the corporation or have be granted access to use the property of the corporation. Any services you give for the corporation could also be reciprocated through dividend payments in far more than what a third party would charge for the identical services. Distributions received as stock rights or additional stock within the corporation might not qualify as dividends.

Dividends originate from the profits of the corporation and are the most popular distribution. Dividends are divided into two categories:

1. Ordinary: taxed similarly to regular income
2. Qualified: taxed at a lower rate as long as they meet certain circumstances.

If you receive a distribution that qualifies as a return of capital, it’s not thought of as a dividend. If some or all of your stock is returned by an organization that’s thought of a return of capital, this may cut back your stock holdings during a company. If the corporation you have got endowed in didn’t have any current year earnings or profits, a distribution is usually seen as a come of capital.

Capital gain distributions will return from regulated investment firms (RICs), like mutual funds, exchange listed funds, or securities industry funds, or they’ll return from realty investment trusts (REITs). These long capital gains should be reportable on a Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains.

You will receive a Form 1099-DIV, Dividends and Distributions, for every payment of $10 or additional. Those received through partnerships, trusts, estates or subchapter S firms would require a Schedule K-1 from the entity that states the ratable dividends you have got been paid. Form 1099-DIV will list the breakdown of received dividends into the correct classification. Avoid penalties and backup withholdings, by providing an accurate Social Security number to the remunerator. You’ll wish to think about paying income tax on dividends received in important amounts. The IRS needs you to report all dividends in spite of whether or not or not you receive forms from the payers.

On a Roll to Retirement

If you have money or assets saved in an eligible retirement plan, you may be able to transfer the funds to a different retirement plan without having to pay taxes on the withdrawal, as long as you perform a rollover. In order to be considered a rollover, the transfer has to happen within sixty days, and although it isn’t taxed, the distribution will be shown on your tax return. Not every distribution is eligible for a rollover. Some examples of non-eligible distributions include:

• Post-tax contributions to retirement plans. There are some exceptions to this rule which may allow certain non-taxed distributions to be eligible, so as your financial planner for assistance in determining if your distributions fit the exception.
• Distributions that are a portion of a life-time payment to you or a beneficiary, or any distributions which will be made over a period of ten years or more.
• Distributions made as part of a required minimum statement
• Hardship distributions
• Dividends from employer securities
• Life insurance coverage expenses

As with most rules, there are exclusions and fine print that relates to certain corrective distributions and loans. Any distributions that are not rolled over into a new plan have to be accounted for in your income for the year.

There is a time-sensitive period for which you can roll an eligible distribution into another plan. The sixty day rollover period applies from the day you received the eligible distribution. If your benefit came from an employer sponsored plan, regardless of whether or not you chose to roll it over into a new plan, it will be subject to 20% income tax. However, you can chose to defer that tax, but you will need to add the same amount you withheld from an additional source. You can also opt to have the payer automatically roll your funds into a new account directly, and avoid the mandatory taxation altogether.

Retirement distributions to those under the age of 59 ½ are subject to 10% additional tax. This penalty is applicable unless a specific exemption suits the taxpayer. There are some plans, like a SIMPLE IRA in which the distribution may be subject to a 25% penalty tax.