Year-End Tax Update
We've sent out prior alerts about issues with ObamaCare (the Affordable Care Act, or ACA) because this new law promises to bring many new factors to your tax preparation for 2014. In a nutshell, we will need more data from you, will need to fill out more forms, and it's quite possible this will add to the time it takes to prepare your tax return. While I'm sure this doesn't brighten up your day too much, it doesn't really make us happy either. However, it is what it is, and part of this communication will address what specific data we'll need from you so that you can be ready to go and keep the additional time to a minimum.
There's some other important or useful year-end issues which will be useful either in you protecting yourself (or your business), or help things go more smoothly in regard to preparing your 2014 tax returns. We wanted to bring a few of these to your attention. So, here it goes!
All taxpayers must have been covered by some form of qualifying health insure for all months during 2014. Qualifying health insurance could be insurance you bought yourself, government insurance such as Medicare or Medicaid, or insurance issued through your employer. Failure to be covered could subject you to penalties which start off small for 2014, but ratchet up quickly in 2015 and 2016.
We will need you to be able to tell us who in your household was covered by qualifying insurance and what months they were covered for. You may receive a form such as a Form 1095-A which will be issued to all policyholders who bought insurance through an exchange. Or, you may get a form from your employer if they provided insurance. Failing that, you may need to provide us with a copy of your policy.
If you purchased insurance through an exchange (or “marketplace”) and received or qualified for premium assistance credits, you will get a Form 1095-A which you must provide to us.
If you were not covered at any time during 2014 you may qualify for an exemption from the penalties. We sent out an email a few weeks ago detailing these exemptions and how to apply for them. If you need a copy of that email, please let us know. However, be forewarned that some exemptions must be applied for through an exchange and you must present us with a certificate from the exchange in order to use any of those exemptions. These certificates can take weeks to get, so it's best if you don't wait until the last moment to apply.
Mandatory Sick Days
Effective July 1, 2015, new California law requires that all employees (with very few exceptions) be allowed three paid sick days for every year worked. The law is cumbersome regarding the rate of paid sick day accrual, carryover of used days and such, so let us know if you have specific questions. However, this benefit must be in writing and must be distinguished from other sorts of paid benefits, such as vacation, personal days, etc.
Non-Cash Charitable Donations
The law requires that all non-cash donations (donations of goods) be in good or new condition and that you be able to prove this. Cell phones have cameras and almost everybody has a cell phone, so take a picture of the stuff you're donating, okay?
Foreign Financial Assets
You have probably heard us talk before about the strict reporting requirements surrounding foreign financial assets (bank accounts, brokerage accounts, trusts, etc.). Uncle Sam is serious about this so please don't forget to mention it if you have such an account. Also, be aware these reports now have to be filed not only by owners or beneficiaries of these accounts, but also by any U.S. person who has signature authority over a foreign account. So, if you're a trustee of your Mom's trust, handling a friend's money, have a trust or property left to you in a foreign country, or handle money for a living, you have to report every account or asset over which you have signature authority. Penalties for failure to comply are potentially horrendous.
If you have a business, effective January 1, 2014, the IRS changed the rules about what you can write off and what you must depreciate. Basically, unless you had (note the past tense) a written accounting policy in effect as of January 1st which stipulated that all acquisitions of single assets of up to $500 were to be expensed, you are now stuck with a lower ceiling. Any asset purchases of $200 or more must now be depreciated, both on your books and on your tax return. Of course, Congress may authorize faster depreciation for 2014, but this has not been done yet. If you don't already have an appropriate accounting policy in place, do it before January 1st. We can do this for you – it's quick and easy.
More Mandatory E-filing
Effective for the upcoming tax season, California now requires all business entity returns be e-filed. Opt-outs will be available but they really do want to eliminate the paper.
As you can see, there's a lot going on as we near the end of a another busy year and we promise to keep you up-to-date on all the latest tax developments. Please let us know if you have any questions and have a fantastic holiday season!