Premium Tax Credit: Upcoming Tax Surprise?
Here is a quick quiz to see if you are at risk

Based upon a recent report given to the Federal government evaluating data inconsistencies with the new health insurance market exchanges, over a million taxpayers could owe the government money at tax time. Here is a quick quiz to see if this risk applies to you.

Q1. Did you apply for health care insurance on either the new Federal Marketplace or a state run insurance exchange?

Retirement attitudes are subject of recent survey

A recent study conducted by Harris Interactive of 1,000 middle class individuals aged 25 to 75 revealed some interesting statistics about retirement attitudes.

Among the survey's findings:

* 37% of respondents say they don't expect to retire; instead they expect to work until they are too sick or die.

Know the tax rules for selling online

Selling items on eBay and other online auction Web sites has become a very popular way to get rid of unwanted household stuff, as well as a way to turn a little profit. Many users have even started full-time businesses auctioning merchandise on the Web. But like any business venture, selling items in the virtual world has tax implications that are all too real.

From a tax standpoint, casual selling on eBay is essentially the same as holding a garage sale. If you sell an item for less than you paid for it, you cannot deduct the loss. When you sell something for a profit, however, you must report it on your tax return. Long-term gains on the sale of collectibles, such as artwork, antiques, or rare coins, are taxed by as much as 28%.

Profit is the difference between the selling price and your "basis" in the item. In most cases, basis is simply the amount you paid for it. Inherited items generally have a basis equal to their fair market value at the time of receipt. If the basis cannot be documented, it becomes zero, and you pay tax on the entire selling price.

Selling vacant land could bring a tax break

You probably know that you can exclude up to $250,000 of gain ($500,000 for most joint filers) when you sell your principal residence. IRS regulations may now allow you to apply this gain exclusion when you sell vacant land that is adjacent to your home.

Employee attitudes affect customer service

The quality of the customer service your company provides will have an effect on the net profit of your business.

Even with the best of intentions, many companies only give lip service to this very critical area. It is necessary that every employee be tuned in to how he or she can contribute to outstanding customer service – the kind of customer service that keeps customers coming back again and again.

The Child & Dependent Care Credit provides a reduction in taxes to offset the cost of daycare when you are employed. The maximum amount of the credit is $3,000 for one dependent or $6,000 for two or more qualifying persons.*

To take advantage of the credit here is what you need to know.

1. Qualified dependent(s). Your dependent must be under the age of 13. A spouse or older dependent who is physically or mentally unable to care for themselves can also qualify.
2. Earned Income. You must have earned income to support the credit.
3. Qualified daycare expenses. You must actually incur the care expense for the qualified dependent.
4. Financial support requirement. You must maintain the home and financial support for the qualified dependent (more than half the cost and more than half the year).

Here are some tips;

• Partial expense coverage. The credit only covers a percentage of your qualified care expenses. The amount depends on your income with a high of 35% of qualified expense down to a low of 20% of the daycare expense.
• Obtain proper ID. Most daycare organizations will provide you with an expense summary at the end of each tax year. This form will tell you how much you spent in care and will provide you with the proper tax id for their organization. If you have someone else caring for your dependent, make sure you receive their tax information. It will be needed when you file for the credit on your tax return.
• Not equal. If you have two or more qualified dependents, the daycare expenses do not have to be equal for each of them. For example, you could use $5,000 for one dependent and $1,000 for the rest of them.
• Education expenses. Pre-school, nursery and other educational programs can qualify if levels are lower than kindergarten. Full-day kindergarten fees DO NOT qualify.
• Leverage summer. Summer day camps and similar activities can qualify for the credit. So too can hiring a nanny to care for the kids while you are at work and the kids are out of school.

Other details apply. Please ask for help if you wish to review your situation.

*Note: If your employer provides daycare reimbursement as a benefit on your W-2, the employer benefit is limited to $5,000 or $2,500 if married filing separate or single. You can still use excess daycare expenses to maximize your credit to the full $3,000/$6,000 amount.

Call us if you have questions about the tax consequences of employing family members.

DiSabatino CPA
Michael DiSabatino
651 Via Alondra Suite 715
Camarillo, CA 93012
Phone: 805-389-7300
ww.sharpcpa.com

This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here.  All rights reserved.

Don't overload on company stock

Don't invest too much of your 401(k) plan contributions in your company's stock. Remember, even if the company is doing well now, things can change. And if the worst happens and you lose your job, you don't want to lose your retirement savings too. If your employer used company stock for the matching contribution, you may have no choice. But at least you can select other investments for your own contributions.

Hiring family in the family business can cut taxes

As the summertime school vacation season approaches, young family members may be looking for a job - and having a hard time finding one. Hire them in your family business, and you get a double benefit: helping the kids gain valuable experience and garnering tax breaks for your company.

Here's what you need to know.

Classify workers properly

Don't subject your business to tax penalties by misclassifying an employee as an independent contractor. The IRS is aware that employers prefer to treat workers as independent contractors to avoid paying fringe benefits and payroll taxes. If you're not absolutely sure how to treat a given worker, contact us.

Age (not death!) and Taxes
Age does matter, when it comes to tax obligations
One of the elements that make our Federal Tax Code so hard to follow is that different laws apply to you based on your or your dependents’ age. To help you navigate through some of this maze here is a chart that outlines key ages and how it applies to your tax obligation.

A Tip on Tip Reporting
If you are like millions of taxpayers in the service industry, you may receive tips. The tax code is clear; if you receive tips you must report them as income. Some employers have systems to make this easy, while others do not. Here are some suggestions:

Think 1 2 3

Proper tip reporting has three components.

1. Keeping a daily tip record
2. Reporting your tips to your employer
3. Recording your tips on your income tax return

2015 Health Savings Account Limits
The savings limits for the ever-popular Health Savings Accounts (HSA) are now set for 2015. The new limits are outlined here with current year amounts noted for comparison purposes.

What is an HSA?

An HSA is a tax advantaged savings account to pay for qualified health care costs. The contributions are made on a pre-tax basis. There is no tax on the funds contributed, the interest earned, or investment gains as long as the funds are used to pay for qualified medical, dental, and vision expenses. To qualify for this tax-advantaged account you must be enrolled in a “high deductible” health insurance program as defined by HSA rules.

Picture this; for the past few years you have picked up your tax return and have had a small but nice refund. Now imagine your surprise, when next year, you are required to send in a fairly big check to settle your tax bill. Believe it or not, this message is almost as hard to deliver to a taxpayer as it is to hear it. Here are some tips to help ensure tax changes do not come as a surprise to you.

The U.S. Treasury Department recently released an audit report revealing a disturbing level of non-compliance in alimony reporting on tax returns. This non-compliance will result in vast increase in tax return reviews now and in the years to come. Here is what you need to know.

The study

The Treasury Inspector General for Tax Administration (TIGTA) recently conducted an Audit of 2010 tax returns that claimed an alimony deduction. What they found:

Camarillo Award Program Honors the Achievement

CAMARILLO June 20, 2014 -- DiSabatino CPA has been selected for the 2014 Best of Camarillo Award in the Certified Public Accountants category by the Camarillo Award Program - the second consecutive year!

Small Businesses: Plan for Lower Section 179 Expense
Top-line: In 2014, the annual expense limit for Section 179 is now $25,000, down from $500,000 in 2013. You will need to plan accordingly.

Background

Section 179 of the tax code allows businesses to immediately expense qualified capital purchases versus depreciating (recovering) their cost over time. Qualified purchases can be new or used equipment and certain software placed in service during the year. This benefit can be maximized as long as total qualified asset purchases by your business do not exceed $200,000 (formerly $2 million) during your 2014 tax year.

Indirect IRA Rollovers. Change is Coming

Background

Many taxpayers have numerous Individual Retirement Accounts (IRAs). You can move funds from one qualifying account to another without paying taxes on the rollover as long as you follow the rollover rules. If the rules are not followed, the funds are deemed a distribution and taxes plus a potential early withdrawal penalty may be owed. There are two primary methods for rolling over the funds from one account to another:

Aggregate once per year rule

In a recent court case, the IRS put their foot down on unlimited INDIRECT transfers of funds.* In their ruling they stated that a taxpayer is entitled to make one indirect transfer per 12-month period regardless of the number of IRA accounts. Any additional transfers are not valid and will be deemed a distribution from your IRA.

Why the rule?

Some taxpayers were using a number of rollovers of the same dollar amount from account to account to give themselves a short-term loan. In the tax case, the defendant removed funds from one IRA. He used the money for a couple of months. He then took the same amount from a second IRA and replaced the money originally removed from the first IRA. He then took the same amount from a third IRA to replace the funds in the second IRA. Finally, the last IRA had its funds replaced. Effectively giving him use of the funds for up to 120 days. The court ruling effectively eliminated the ability to make these kinds of transfers.

Effective change

The court ruling creates a change in the IRA indirect rollover rules beginning on January 1, 2015. Effective that date, you may only conduct one indirect IRA rollover per 12 month period. IRS publications will be revised to reflect this change.

Because of this, it is best to employ a direct rollover of funds from one IRA to another using a qualified financial trustee to avoid any potential problems. This ruling does not apply to all conversions and rollovers. Please contact the financial institution receiving the rolled over funds for details on their process to ensure it is handled correctly.

*Source: T.C. Memo 2014-21 Bobrow vs Commissioner IRS

Please give us a call to discuss these and other profit-boosting ideas for your business.

DiSabatino CPA
Michael DiSabatino
651 Via Alondra Suite 715
Camarillo, CA 93012
Phone: 805-389-7300
ww.sharpcpa.com

This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here.  All rights reserved.

Annual Tax-Exempt Filing Due May 15th

If you are involved in a tax-exempt organization or know someone who is, this is a reminder that the annual filing requirement is quickly approaching.

Please give us a call to discuss these and other profit-boosting ideas for your business.

DiSabatino CPA
Michael DiSabatino
651 Via Alondra Suite 715
Camarillo, CA 93012
Phone: 805-389-7300
ww.sharpcpa.com

This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here. All rights reserved.

Keeping the Tax Underpayment Penalty at Bay

With the 2013 tax year behind you, now is the time to plan appropriately to make sufficient estimated tax payments. An underpayment of estimated tax may apply if you still owe $1,000 or more in additional tax after accounting for withholdings and estimated payments made throughout the year. Remember, to avoid underpayment penalties you are required to prepay either;

• 100% of last year's tax obligation* OR

Leaving a Job? Don't Take a Tax Surprise with You

An inevitable part of life is a changing jobs. Now a recent Supreme Court decision clarifies that severance payments you receive when you leave your job are wages and subject to employment taxes. So how might this impact you?

Background

All employees and employers pay FICA taxes. There are two components;

Many employers who pay a severance check to employees when they leave have classified these checks as other, non-wage, income. This allows both the employer and employee to save on paying these FICA taxes.