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You’re bound to run across this number for your 2015 tax returns. For the first time, the Internal Revenue Service is requiring health insurance companies and employers to verify health coverages for their clients or employees. The report comes on Form 1095, and, basically, every insured person in the United States should be listed on one. (There are exceptions, of course, but I’m not going to attempt them here.)

The IRS enforces the federal Affordable Care Act, which enables universal health insurance. Last tax season for the first time, taxpayers verified on their federal returns that they were covered for all or part of 2014.  For many, that amounted just to a check mark on their returns  (although it could get much more complicated).

The 2015 return works much the same, but taxpayers this year also are receiving proof of insurance at tax time. The proof is IRS Form 1095. It has three versions that follow the alphabet.

• 1095-A   It comes to people who were insured through one of the federal or state-created marketplaces for health insurance, such as MNsure in Minnesota. Those clients received the form in 2014, as well, so many will be familiar with it. Form 1095-A (called “Health Insurance Marketplace Statement”) should have arrived by Feb. 1.  But, if it hasn’t, don’t ignore it. The IRS suggests that affected taxpayers wait to file their 2015 returns until they have it in hand because it may contain details important for filing.
• 1095-B   This will come from private health insurance companies or from some small employers, particularly those who are self-insured. Don’t panic if this has not landed yet in your mailbox. The IRS extended the deadline for insurers to give out 1095-Bs until March 31.
• 1095-C   Millions of taxpayers will receive the C version from their employers. People working for companies or organizations with more than 50 employees can expect to see the 1095-C.  But maybe not yet. The IRS also extended the deadline for employers to provide this form until March 31.

Here’s something to note. All the 1095s are information statements, so taxpayers do not submit them to IRS when they file their returns. Also, the IRS says people getting 1095-B and 1095-C forms can file returns before they arrive, using their own records.

In an upcoming post, we’ll provide you with some quick-hit sources for health insurance reporting. As always, EricJohn Ltd. can lead you through the complexities of ACA reporting. See our Website!

MN TAX FORMS: SOME APPEARANCES AND DISAPPEARANCES FOR 2015

Do you use your prior-year tax return as a jumping-off point for this year’s forms?  Minnesota taxpayers generally can match up their 2014 returns with their 2015 forms without many changes – except for the different numbers on the lines, of course.

But Minnesota Department of Revenue and the Legislature did add and subtract items important to some state taxpayers. Here are a few:

 Minnesota Political Contribution Refund.  As we reported earlier, it’s gone, at least through mid-year 2017. Previously, the benefit returned as much as $50 to politically active individuals and $100 to marrieds filing together. But Minnesota taxpayers still can claim contributions they made during the first six months of 2015. They use Form PCR, which has been updated. (See  http://www.revenue.state.mn.us/Forms_and_Instructions/pcr_15.pdf .)  Be prompt. April 18 is the absolute deadline for this form. No extensions or amendments are allowed.

Reading Tax Credit.  This credit was authorized only for the 2014 tax year and is not available for 2015. It was a break to help families with children who showed reading deficiencies and, at the same time, did not qualify for individualized education programs. Parents could take the credit for specialized tutoring or reading-related instruction.

Reporting of Mortgage Insurance Premiums, etc.   Welcome to Form M1NC, which flows into Form M1M, which flows into Form M1. State legislators never adopted federal changes made to tax laws during 2015. So, mortgage insurance premiums that are deducted on federal Schedule A are not deductible and must be added back into Minnesota tax forms. Other deductions, exclusions or depreciation amounts from federal returns also are affected, with some involving recalculations to conform to Minnesota’s rules.

Working Family Credit.  The credit, which is the Minnesota equivalent of the federal Earned Income Tax Credit, still exists for full-year and part-year Minnesota residents. However, non-resident taxpayers – for example, Wisconsin residents who work in Minnesota – no longer qualify for the credit.

We at EricJohn Ltd. are used to dealing with Minnesota’s year-to-year tax changes, big or small. Let us know if we can help this tax season!

Many of us taxpayers now are waiting for something else before filing our tax returns. It’s not the Internal Revenue Service or state tax collectors like the Minnesota Department of Revenue getting a late start. They began accepting 2015 income tax returns on Jan. 19.

But those of us who are employees – who work for someone beside ourselves – probably still are waiting for critical wage reports for their returns. Employers have until Jan. 31 to send out W-2 forms and some 1099 notices, and they often take at least that long.

Taxpayers who have investments likely will wait even longer for their 2015 reports to arrive. In many cases, investment houses, brokers, mutual fund companies, IRA custodians, etc. have weeks longer to assemble last year’s results for clients.

We’re caught in the lag time, but that doesn’t mean we’re stuck on “idle.”  There probably are plenty of last year’s financials to pull together so you’re ready to go when those key documents arrive in your mailbox or online. So, use your lag time!

Here are some essentials you’ll need to prepare for tax filings both before and after Jan. 31:

• Receipts to support deductions and business expenses (if you have self-employment income, too). Place them in distinct categories so that you or your accountant will be able to quickly add them for the return.
• Some specialized items.  Statements of post-secondary tuition payments from schools, if you intend to claim those fairly generous deductions or tax credits involved. In Minnesota, find your auto license fees and figure how much you might be able to deduct on your federal Schedule A. Do the same for home mortgage interest from your lender’s Form 1098.
• Any changes to family status. Have documents if appropriate.

One preparation tip is simple. Pull out the prior year’s tax returns and use them as starting points. Of course, you’ll need to adjust for your 2015 circumstances.

Here at EricJohn Ltd., we send out a “tax organizer” to help clients pull together the ingredients for their 1040s and M1s (Minnesota). It prompts them with pre-filled data from the prior year’s returns. It also speeds up tax preparation!

Organize and prepare your 2015 tax returns by contacting eric@ ericjohnltd.com or (763) 537-3244.

Many taxpayers will be looking backwards to 2015 finances as the filing season for income tax returns gets underway (on Tuesday, Jan. 19). But it’s going to pay to focus forward to 2016 now for one essential chore. If you haven’t locked in health insurance for the coming year, you’ll need to act by Jan. 31 to keep penalties as low as possible.

Remember the Affordable Care Act, also known as Obamacare?  That federal law requires everyone – with few exceptions – to be covered by health insurance and to declare it on federal tax returns. Deadlines for purchasing affordable insurance through the ACA expire by the end of this month.

Most people already have their coverage in place. For example, taxpayers covered by employer-provided health insurance are not affected. The deadlines apply to residents who purchase through a low-cost federal or a state “marketplace” created by the ACA.  The marketplace for Minnesota residents is called MNsure. See https://www.mnsure.org/

Here’s the reason for the rush. MNsure and similar insurance exchanges only accept new enrollments for insurance during a three-month window each year, unless there are special circumstances. We’re close to the end of the open enrollment period on Jan. 31.

Actually, the deadline for full-year coverage for 2016 was Dec. 28 and already has passed. But residents still can obtain 11 months of insurance – from February through December – by signing up with MNsure and selecting a plan through Jan. 15. Enrollment is available online.

Likewise, residents who enroll in MNsure between Jan. 16 and Jan. 31 still can buy 10 months of insurance (March 1-Dec. 31).  Those with part-year plans might pay tax penalties for months in which they did not have insurance.

After Jan. 31, residents won’t be able to buy health insurance through the marketplaces until the open enrollment period for 2017 begins again, probably  in the fall.  Of course, residents always can check to see if they qualify for “special” enrollments.

One important improvement this year is people with insurance will receive notices from their marketplaces or their employers confirming that they are covered.

Health insurance was a new addition, beginning with the 2014 tax return. We at EricJohn Ltd. are ready to help with the new ACA reporting requirements.

 

 

It’s the final day of the year, and many of us still can take one quick tax action before the famous crystal ball drops in Times Square – or actually an hour later here in the Midwest time zone!

Make a cash donation; contribute unneeded clothing, etc. to a favorite charity. After all, it is the season of giving!

If you can mail a check, send an electronic donation or deliver used – but still useful – stuff to your local charity before the stroke of midnight, you can deduct the value of that giving on your 2015 tax return.

 

The key to deducting is fair market value, Eric notes. Cash and credit card donations are obvious. You can take the dollar amount given.

Clothing and other goods are valued in current condition – not at the price tag when purchased new. The Internal Revenue Service reminds us that household items and apparel must be in “good, used condition” to be acceptable.

 

There are ways to figure out reasonable value. For example, even sales of comparable items listed online at Ebay can verify current market value; don’t forget to print off that proof.  Just about any acceptable donation can be valued at 10 percent of the original cost, we at EricJohn Ltd. suggest.

Here are a few details about deducting charitable gifts:

• Eligible charities: The IRS maintains a database called “Select check” at https://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check . In addition, churches and government agencies that are not shown also qualify.
• Money donations:  A cancelled check or credit card statement with the name of the charity proves donations up to $249. IRS wants an acknowledgment from the charity from $250 up.
• Household items: The charity’s statement is required for donations starting at $250. It’s best to get some type of acknowledgment slip for any donation.  But, especially, if dropped at an unattended site, make sure to have a written record of the items and their values. Also, Eric suggests taking a cell phone photo of items donated as a back-up. You probably won’t be donating items over $500 at this late date, so contact Eric in 2016 for direction on those large gifts.
• Charity mileage:  You can deduct 23 cents a mile for driving donations to a charity’s store/drop-off site.

Finally, many, but not all, taxpayers can deduct charitable giving. Those who expect to use the standard 1040 will take donations as part of a group of deductions on Schedule A. Those who expect to file short forms 1040A and 1040EZ might or might not benefit from donations.

You’ll find a summary of IRS charitable giving rules at https://www.irs.gov/Credits-&-Deductions/Individuals/Deducting-Charitable-Contributions .

Whether or not you make a last-day donation, Happy New Year and best wishes for 2016 from EricJohn Ltd.!

 

Countless taxpayers can cruise confidently into tax breaks on Jan. 19 – the beginning of the 2015 tax filing season – now that Congress has laid out an extraordinarily expansive PATH.

Yes, that’s an acronym for the “Protecting Americans from Tax Hikes Act of 2015.”  Packed with dozens of deductions, credits and other tax saving devices, it was signed by the President on Dec. 18. So those breaks are ready for your tax return.

Taxpayers should like it, because Congress carved a wide path with this law. It cemented into law some tax cuts that were temporary and due to expire; at the least, it extended popular tax breaks through 2016.

We can’t point out all of them at one time, but here are some that we at EricJohn Ltd.think particularly will benefit you, our clients, as you drive into the 2015 tax season!

Now Permanent

State and local sales tax deduction: Option to itemize state and local sales taxes paid OR income taxes.

• Computer/technology costs:  They qualify as education expenses.
• American Opportunities Act tax credit:  This credit applies to as many as four years of post-secondary education. Its phase-out based on income also was enhanced through 2017.
• Employee mass transit passes:  This fringe benefit from employer now enjoys a permanent exclusion from income to a set limit.
• Tax-free distributions to charities from retirement plans:  Donations made from IRAs and other permanently are excluded from income to a limit of $100,000 per year.

 Temporary Changes Through 2016

Mortgage debt exclusion for primary residence:  Excludes discharge of debt from gross income.

• Mortgage insurance deduction:  Premiums are treated as mortgage interest, subject to a phase-out beginning at $100,000 of adjusted gross income.
• Tuition deduction:  Qualified tuition and related expenses remain deductible to past limits.

Changes in Depreciation, Retroactive To 2015

• Bonus depreciation continues:   Depreciation percentage on qualified property is 50 percent through 2017, with lesser percentage through 2019.
• Section 179 expensing limitations:  A permanent extension of $500,000 allowance with phase out to $2 million, primarily affecting small businesses. The new law also eliminated some caps and embedded computer software as an allowed expense.

These are just a few of the revisions in this new PATH.  Want to delve deeper? Give Eric a call or an email.

Tax season is still a few weeks away, but phishers and con artists steal from us taxpayers year-round.

The Minnesota Department of Revenue this week alerted Minnesotans about a recent phone campaign by thieves masquerading as IRS officials.  Beware of calls claiming that the IRS is suing you or taking other legal action, the agency warns. That’s simply not the way the IRS works.  Scammers will leave voice mail messages as well as live calls.

“Phishing” is a scheme designed to deceive people into giving away sensitive personal information, such as Social Security numbers or banking data.  Criminals can reach into bank accounts, set up credit cards and even collect refunds from false tax returns once they have a victim’s name and enough personal info.

Phishers also use emails to dupe their victims.

Check out this IRS Web site for more information on phishers and scammers:  https://www.irs.gov/uac/IRS-Urges-Public-to-Stay-Alert-for-Scam-Phone-Calls

Minnesota Revenue also offers free fraud alerts and email addresses for reporting suspicious calls at http://www.revenue.state.mn.us/use_of_information/Pages/fraud_alerts.aspx.

Identity theft still is a threat, both in and out of tax season!

Are you stumped by employment taxes?

Do you know if Homeland Security reports required for new hires?

Can you use a refresher on your employer responsibilities?

The Minnesota Business Tax Partnership is bringing federal and state experts to Rochester on Dec. 17 for a free seminar that will dig into workforce issues, including employment taxes.

It’s being held at the landmark Plummer House in Rochester from 8:30 a.m. to 4 p.m. that day.  While there’s no charge, the organizers are requiring advance registration. Go to http://www.uimn.org/uimn/employers/help-and-support/educational-seminars/seminar-schedule.jsp  to make them.

Here’s another long, online address where you can see an agenda and find more information: http://www.uimn.org/uimn/employers/help-and-support/educational-seminars/sem-desc.jsp.

I took a glance at the agenda, and you’ll receive plenty of guidance about regular state and federal filings, online reporting systems, labor standards, employment taxes and hiring new employees among other related topics.

Whether or not there’s a seminar in town, you can call us at EricJohn Ltd. for expert advice about business plans, financing and taxes.

 

If you’re prognosticating for 2016 already, you’ll be happy to know the Internal Revenue Service has got your numbers. The tax agency recently set the official limits for IRA, 401(k) and pension contributions. In short, there is some – but not much – change.

This will get a little detailed.  We’ll spare you the complexities of pension plans, which also were announced.

So, here’s a general thumbnail from IRS Central:

401(k), 403(b) AND MOST 457 RETIREMENT PLANS

Contribution limits for 2016 remain the same as for this year at $18,000. The cost-of living index did not reach its trigger point for an upward change under federal law.

• The catch-up contribution for employees who are age 50 or older also remains unchanged at $6,000

TRADITIONAL IRAs and ROTH IRAs

• Annual contribution limits to Individual Retirement Arrangements stay at the 2015 level. $5,500.
• The catch-up contribution likewise doesn’t move. It still will be $1,000 in 2016, again setting the maximum contribution for working 50-year-olds and up at $6,500.
• The starting point for phasing out contributions to a Roth IRA generally will increase $1,000 in 2016. It will begin at $184,000 of  adjusted gross income for married couples filing jointly, and at $117,000 in AGI for single taxpayers and for heads of households
• The phase-out for the deduction allowed for a traditional IRA also will go into effect at $184,000 in income instead of the current $183,000 for a married couple filing jointly in one type of situation. It occurs when one spouse holds another workplace retirement plan in addition to the IRA and one spouse does not.

RETIREMENT SAVER’S CREDIT

This credit also is subject to a limitation, based on adjusted gross income, and the limit will increase a few hundred dollars for most categories of taxpayers in 2016.  The credit applies to low and moderate-income taxpayers who make retirement plan contributions. Here are the AGI levels where the credit disappears:

• Married filing jointly — $61,500, up $500 from 2015.
• Head of household — $46,125, up $375 from this year.
• Single or married filing separately — $30,750, up $250 from current range.

Otherwise, most of the limitations affecting retirement plans won’t change in 2016. For a complete rundown, take a look online at www.irs.gov/uac/Newsroom/IRS-Announces-2016-Pension-Plan-Limitations;-401(k)-Contribution-Limit-Remains-Unchanged-at-$18,000-for-2016.

The IRS even cites the tax codes involved. Of course, if you’d rather not dig into Section 414(v)(2)(B)(i)  for catch-up contributions, EricJohn Ltd. can dig for you!