Are you ignoring this new tax credit?

Health care legislation passed in 2010 included a tax credit for small businesses that provided health care coverage for their employees. Recent surveys have shown that the majority of small companies that could qualify for the credit have failed to take it. The reasons given for ignoring the credit ranged from being unaware of it to finding the credit too complicated to compute.

If your business or nonprofit organization might be eligible, perhaps you should take another look at the requirements and be sure you're taking advantage of this tax break. If you qualify, you can use this tax credit to offset your federal income tax liability by up to 35% of the cost of health insurance premiums you pay for employees. Since this is a tax credit, not a deduction, it will reduce your tax bill dollar-for-dollar.

In general, the credit is available to employers that have fewer than 25 full-time equivalent (FTE) employees paying average annual wages of less than $50,000 per employee. Eligibility is based partially on FTEs, not the number of employees; therefore, an employer with fewer than 50 half-time workers could qualify for the credit. The maximum credit goes to those employers with ten or fewer employees who pay annual average wages of $25,000 or less.

When you're self-employed, either as a partner or a sole proprietor, or if you own more than 2% of an S corporation, you're not considered an employee for purposes of the credit.

Tax-exempt organizations can use the credit to offset payroll tax liability (up to 25% of qualified premiums paid).


As required by the United States Treasury Regulations, you should be aware that this communication (including any attachments unless expressly stated otherwise) is not intended by the sender to be used, and it cannot be used, for the purpose of avoiding penalties under the United States federal tax laws.

What Should I Keep and How Long Should I Keep It?

You're probably getting ready to sort out last year's financial records and prepare for this year's recordkeeping. But what should you keep and what can you throw away? Here are some suggestions.

Keep records that directly support income or expense items on your tax return. For income, this includes W-2s, 1099s, and Form K-1s. Also keep records of any other income you might have received from other sources. It's also a good idea to save your bank statements and investment statements from brokers.

For expense items, keep documentation that supports any itemized deductions you claim. This includes acknowledgments from charitable organizations and backup for taxes paid, mortgage interest, medical deductions, work expenses, and miscellaneous deductions. Even if you don't itemize, keep records of expenses for child care, medical insurance if you're self-employed, and any other expenses that appear on your return.

The IRS can audit you routinely for three years after you file your return. But in cases where income is underreported, they can audit for up to six years. To be safe, keep your tax records for seven years.

Keep certain other records even longer. These include records relating to your house purchase and any improvements you make. Also keep records of investment purchases, dividends reinvested, and any major gifts you make or receive.


As required by the United States Treasury Regulations, you should be aware that this communication (including any attachments unless expressly stated otherwise) is not intended by the sender to be used, and it cannot be used, for the purpose of avoiding penalties under the United States federal tax laws.

Foreign Investments = New Filing Required

If you own foreign investments, you may have an additional federal tax filing requirement this year.

Form 8938, "Statement of Specified Foreign Financial Assets," is due April 17, 2012, and is filed as part of your individual tax return. You'll use Form 8938 to disclose interests in certain foreign financial accounts when your ownership exceeds the reporting requirements.

What are the reporting requirements? They vary depending on where you live and your filing status. For example, say you’re married and live in the United States, and you'll file a joint tax return for 2011. You'll include Form 8938 with your tax return when the total value of your reportable assets on the last day of 2011 is more than $100,000, or if the value exceeds $150,000 at any time during the year.

Reportable assets include investment accounts you own that are held in foreign financial institutions, interests in foreign entities, and stocks or securities issued by foreign individuals or companies.

Penalties for failure to file Form 8938 start at $10,000.

As required by the United States Treasury Regulations, you should be aware that this communication (including any attachments unless expressly stated otherwise) is not intended by the sender to be used, and it cannot be used, for the purpose of avoiding penalties under the United States federal tax laws.

Economic Turmoil

With the markets in another period of turmoil, there are many things you can’t control. However, you may be able to control the fees that are charged to manage your investment account.


Although this may seem relatively insignificant in light of current economic events, a 1% reduction in fees can provide a substantial difference in your retirement lifestyle. For example, if you save $800 per month beginning at age 35, a 1% reduction in fees can increase your portfolio value by $230,000 at age 65.

You may not be able to control the fees in your 401(k) plan because the decision of investment choices and plan administration is made by the plan trustee. To make it even more challenging, you may not be able to actually determine the fees charged by the 401(k) plan. That will change, however. Beginning in 2012, plans are required to clearly disclose the fees.

For investments that you do control, be sure you understand the fee structure including those charged in any underlying investments. With that knowledge, you can make an informed decision about the value of the investment advice you are receiving.





As required by the United States Treasury Regulations, you should be aware that this communication (including any attachments unless expressly stated otherwise) is not intended by the sender to be used, and it cannot be used, for the purpose of avoiding penalties under the United States federal tax laws.

Airline Tax Refund??

If you purchased an airline ticket before July 22, 2011 for travel after that date, you may be entitled to a refund of the federal tax.  On July 22, the laws authorizing the airline ticket tax expired at midnight.  Obviously, Congress has been engaged in other issues.  Until these excise taxes are reinstated, the 7.5% tax on the base ticket price, the $3.70 domestic segment tax and the $16.30 international travel tax (among others) do not apply.

So, under the law as it now stands, you are entitled to a refund.  However, many airlines are refusing to refund the tax and are telling passengers to obtain the refund from the IRS.  Meanwhile, the IRS wants the airlines to issue the refunds. 

New Tax in 2013

A year has passed since my last posting on this subject and 2013 is now only 18 months away.  The new "Medicare Tax" is still in the tax code and will be part of your 2013 income tax return. 

This tax, targeted at "wealthier" taxpayers, is imposed at a rate of 3.8%.   Wealthier, in this case, refers to taxpayers with adjusted gross income over $250,000 if married filing joing and $200,000 if single.  The impact on estates and trusts is more severe.  For those entities, the tax is imposed on nearly all of the undistributed income.

The extra tax is on the smaller of your AGI over the threshold amount or your investment income.  Investment income is broadly defined and includes interest, dividends, stock sale profit, rents, annuities and income flowing from S Corporations, LLCs and partnerships in which you do not actively participate. It does not include distributions from qualified plans such as IRAs and 401(k) plans. 

There are some planning opportunities to consider and some steps you should take during 2012.  Put this on your list of topics to discuss with your tax advisor this year.  

June 15 Payment Date

Tomorrow is June 15 and the due date for the 2nd federal and state personal estimate payments.  This is the one I consistently forget.  So, if you are scheduled for estimated tax payments for your 2011 personal taxes, and like me have forgotten, this is the time to pull out your envelope from Acuity, write the checks and get them in the mail tomorrow.  And... happy Flag Day!!