Starting in 2013, some taxpayers may be subject to the Net Investment Income Tax. You may owe this tax if you have income from investments and your income for the year is more than certain limits. Here are four things from the IRS that you should know about this tax:
1. Net Investment Income Tax. The law requires a tax of 3.8 percent on the lesser of either your net investment income or the amount by which your modified adjusted gross income exceeds a threshold amount based on your filing status.
2. Net investment income. This amount generally includes income such as:
This list is not all-inclusive. Net investment income normally does not include wages and most self-employment income. It does not include unemployment compensation, Social Security benefits or alimony. Net investment income also does not include any gain on the sale of your main home that you exclude from your income.
After you add up your total investment income, you then subtract your deductions that are properly allocable to this income. The result is your net investment income. Refer to the instructions for Form 8960, Net Investment Income Tax for more on how to figure your net investment income or MAGI.
3. Income threshold amounts. You may owe the tax if you have net investment income and your modified adjusted gross income is more than the following amount for your filing status:
Filing Status Threshold Amount
Single or Head of household $200,000
Married filing jointly $250,000
Married filing separately $125,000
Qualifying widow(er) with a child $250,000
4. How to report. If you owe this tax, you must file Form 8960 with your federal tax return. If you had too little tax withheld or did not pay enough estimated taxes, you may have to pay an estimated tax penalty.
For more on this topic visit IRS.gov/aca. You can also get tax forms on IRS.gov or by mail by calling 800-TAX-FORM (800-829-3676).
Additional IRS Resources:
Tax On Wheels, LLC is available to assist you with tax planning and other issues affected by the Affordable Care Act. Please give us a call at 803 732-4288 if we can be of assistance to you.
WASHINGTON — The Internal Revenue Service reminds taxpayers who turned 70½ during 2013 that in most cases they must start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by Tuesday, April 1, 2014.
The April 1 deadline applies to owners of traditional IRAs but not Roth IRAs. Normally, it also applies to participants in various workplace retirement plans, including 401(k), 403(b) and 457 plans.
The April 1 deadline only applies to the required distribution for the first year. For all subsequent years, the RMD must be made by Dec. 31. So, for example, a taxpayer who turned 70½ in 2013 and receives the first required payment on April 1, 2014 must still receive the second RMD by Dec. 31, 2014.
Affected taxpayers who turned 70½ during 2013 must figure the RMD for the first year using their life expectancy on Dec. 31, 2013 and their account balance on Dec. 31, 2012. The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. Worksheets and life expectancy tables for making this computation can be found in the Appendices to Publication 590.
Most taxpayers use Table III (Uniform Lifetime) to figure their RMD. For a taxpayer who turned 71 in 2013, for example, the first required distribution would be based on a life expectancy of 26.5 years. A separate table, Table II, applies to a taxpayer married to a spouse who is more than 10 years younger and is the taxpayer’s only beneficiary.
Though the April 1 deadline is mandatory for all owners of traditional IRAs and most participants in workplace retirement plans, some people with workplace plans can wait longer to receive their RMD. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions. See Tax on Excess Accumulations in Publication 575. Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.
The IRS encourages taxpayers to begin planning now for any distributions required during 2014. An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner. Often, the trustee shows the RMD amount in Box 12b on Form 5498. For a 2014 RMD, this amount would be on the 2013 Form 5498 that is normally issued in January 2014.
More information on RMDs, including answers to frequently asked questions, can be found on IRS.gov or you may contact Tax On Wheels, LLC at 803 732-4288 for tax help with your retirement plan distributions.
Health Care Law Considerations for 2014
For most people, the Affordable Care Act has no effect on the 2013 income tax return they are filing in 2014. However, some people may need to make important decisions by the March 31, 2014 deadline for open enrollment.
Below are five things about the health care law you may need to consider soon.
• Currently Insured – No Change: If you already insured, you do not need to do anything more than continue your insurance.
• Uninsured – Enroll by March 31: The open enrollment period to purchase health care coverage through the Health Insurance Marketplace for 2014 runs through March 31, 2014. When you get health insurance through the marketplace, you may be able to get advance payments of the premium tax credit that will immediately help lower your monthly premium. Learn more at HealthCare.gov.
• Premium Tax Credit To Lower Your Monthly Premium: If you get insurance through the Marketplace, you may be eligible to claim the premium tax credit. You can elect to have advance payments of the tax credit sent directly to your insurer during 2014 so that the monthly premium you pay is lower, or wait to claim the credit when you file your tax return in 2015. If you choose to have advance payments sent to your insurer, you will have to reconcile the payments on your 2014 tax return, which will be filed in 2015. If you’re already receiving advance payments of the credit, you need to do nothing at this time unless you have a change in circumstance like a change in income or family size. Learn More.
• Change in Circumstances: If you’re receiving advance payments of the premium tax credit to help pay for your insurance coverage, you should report life changes, such as income, marital status or family size changes, to the Marketplace. Reporting changes will help to make sure you have the right coverage and are getting the proper amount of advance payments of the premium tax credit.
• Individual Shared Responsibility Payment: Starting January 2014, you and your family have been required to have health care coverage or have an exemption from coverage. Most people already have qualifying health care coverage. These individuals will not need to do anything more than maintain that coverage throughout 2014. If you can afford coverage but decide not to buy it and remain uninsured, you may have to make an individual shared responsibility payment when you file your 2014 tax return in 2015. Learn More.
Tax On Wheels LLC is available to answer your healthcare reform tax questions. Simply give us a call at 803 732-4288.
For most people, the Affordable Care Act has no effect on their 2013 federal income tax return. For example, you will not report health care coverage under the individual shared responsibility provision or claim the premium tax credit until you file your 2014 return in 2015.
However, for some people, a few provisions may affect your 2013 tax return, such as increases in the itemized medical deduction threshold, the additional Medicare tax and the net investment income tax.
Here are some additional tips:
Filing Requirement: If you do not have a tax filing requirement, you do not need to file a 2013 federal tax return to establish eligibility or qualify for financial assistance, including advance payments of the premium tax credit to purchase health insurance coverage through a Health Insurance Marketplace. Learn more at HealthCare.gov.
W-2 Reporting of Employer Coverage: The value of health care coverage reported by your employer in box 12 and identified by Code DD on your Form W-2 is not taxable. Learn more.
Information available about other tax provisions in the health care law: More information is available on IRS.gov regarding the following tax provisions: Premium Rebate for Medical Loss Ratio, Health Flexible Spending Arrangements, and Health Saving Accounts.
Tax On Wheels, LLC is available to answer your health care reform tax questions. Simply call us at 803 732-4288.
You may be wondering if you have to report the value of your employer-sponsored health insurance coverage, which may appear on your W-2, Wage and Tax Statement when you file your 2013 federal income tax return.
Here is what you need to know about the value shown on your W-2.
See this W-2 page on the IRS Website for more information. You may also contact us at Tax On Wheels, LLC if we may be of assistance to you in navigating the tax requirements of the Affordable Care Act. We can be reached at 803 732-4288.
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More Information
Find out more about the tax-related provisions of the health care law at IRS.gov/aca.
Find out more about the health care law at HealthCare.gov.
If a lender cancels or forgives money you owe, you usually have to pay tax on that amount. But when it comes to your home, an important exception to this rule may apply in 2013. It is our understanding that this exclusion expired on December 31, 2013 and has not been renewed by congress. Therefore, as of now, this will not work after tax year 2013. But if you happened to finalize debt cancellation on your primary home loan prior to January 2014 this may save you from a significant tax bill. Here are several key facts from the IRS about the special exclusion for cancelled home mortgage debt:
• If the cancelled debt was a mortgage loan on your main home, you may be able to exclude the cancelled amount from your income. To qualify you must have used the loan to buy, build or substantially improve your main home. The loan must also be secured by your main home.
• If your lender cancelled part of your mortgage through a loan modification, or ‘workout,’ you may be able to exclude that amount from your income. You may also be able to exclude debt discharged as part of the Home Affordable Modification Program. Visit IRS.gov for more details about HAMP. The exclusion may also apply to the amount of debt cancelled in a foreclosure.
• The exclusion may apply to amounts cancelled on a refinanced mortgage. This applies only if you used proceeds from the refinancing to buy, build or greatly improve your main home. Proceeds used for other purposes don’t qualify. For example, a loan that you used to pay your credit card debt doesn’t qualify.
• Other types of cancelled debt do not qualify for this special exclusion. This includes debt cancelled on second homes, rental and business property, credit card debt or car loans.
• If your lender reduced or cancelled at least $600 of your mortgage debt, you should receive Form 1099-C, Cancellation of Debt, in January of the following year. This form shows the amount of cancelled debt and other information. Notify your lender if any information on the form is wrong.
• Report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. File the completed form with your federal tax return.
• Whether you use IRS e-File or mail a paper return, you can use the Interactive Tax Assistant on IRS.gov to find out if you must pay tax on cancelled mortgage debt.
For more on this topic, see Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments. You can get IRS forms and publications online at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Please feel free to contact Tax On Wheels, LLC at 803 732-4288 if we can assist your with debt cancellation issues.
Additional IRS Resources:
The Health Insurance Marketplace – Learn about Your Health Insurance Coverage Options
If you don’t have coverage or if you have it but want to find out about other options; help is available at the Health Insurance Marketplace. While no one is required to use the Marketplace, if you need insurance, it may be right for you. The Marketplace is where you can find health insurance coverage options that fit your budget and meet your needs.
The Department of Health and Human Services administers the requirements for the Marketplace and the health plans they offer.
An open enrollment period to get coverage for 2014 through the Marketplace began on October 1, 2013 and runs through March 31, 2014. The start of your coverage depends upon when you enroll.
When you visit the Marketplace, you can fill out one Marketplace application to learn if you can get lower costs based on your income, compare your coverage options side-by-side, and if you choose, you can enroll in health insurance coverage.
If you purchase coverage through the Marketplace, you may be eligible for the premium tax credit. This refundable tax credit helps people with moderate incomes afford health insurance coverage they purchase through the Marketplace.
If you are eligible for the credit, you can choose to “get it now” by having some or all of the credit paid in advance. These payments go directly to your insurance company to lower what you pay out-of-pocket for your monthly premiums during 2014. Or you “get it later” by waiting to get the credit when you file your 2014 tax return in 2015.
For more information about your coverage options, financial assistance and the Marketplace, visit HealthCare.gov. Find out more about the premium tax credit, as well as other tax-related provisions of the health care law at www.IRS.gov/aca.
Tax On Wheels, LLC can answer your healthcare reform tax questions. Simply give us a call at 803 732-4288.
Everyone has important decisions to make concerning health care coverage in 2014. Starting in 2014, you must choose to either have basic health insurance coverage (known as minimum essential coverage) for yourself and everyone in your family for each month or go without health care coverage for some or all of the year.
If you don’t maintain health insurance coverage, you will need to either seek an exemption or make an individual shared responsibility payment for the period that you are not covered with the 2014 income tax return you file in 2015.
If you choose to have health care coverage, qualifying coverage includes:
If you purchase health insurance coverage through the Marketplace, you may be eligible for financial assistance including the premium tax credit, which will help lower the out-of-pocket cost of your monthly insurance premiums.
Qualifying coverage does not include certain coverage that may provide limited benefits, such as coverage only for vision care or dental care, workers’ compensation, or coverage only for a specific disease or condition.
If you choose to go without coverage or experience a gap in coverage, you may qualify for an exemption if you do not have access to affordable coverage, you have a gap of less than three consecutive months without coverage, or you qualify for one of several other exemptions. A special hardship exemption applies to individuals who purchase their insurance through the Marketplace during the initial enrollment period but due to the enrollment process have a coverage gap at the beginning of 2014.
If you (or any of your dependents) do not maintain coverage and do not qualify for an exemption, you will need to make an individual shared responsibility payment with your return. In general, the payment amount is either a percentage of your household income or a flat dollar amount, whichever is greater. You will owe 1/12th of the annual payment for each month you (or your dependents) do not have coverage and are not exempt. The annual payment amount for 2014 is the greater of:
The individual shared responsibility payment is capped at the cost of the national average premium for the bronze level health plan available through the Marketplace in 2014. You will make the payment when you file your 2014 federal income tax return in 2015.
For more information about the individual shared responsibility provision and the premium tax credit, visit IRS.gov/aca. Visit the Department of Health and Human Services at HealthCare.gov for more information about health insurance coverage options and the Health Insurance Marketplace, financial assistance and exemptions.
Tax scams that use email and phone calls that appear to come from the IRS are common these days. These scams often use the IRS name and logo or fake websites that look real.
Scammers often send an email or call to lure victims to give up their personal and financial information. The crooks then use this information to commit identity theft or steal your money. Some call their victims to demand payment on a pre-paid debit card or by wire transfer. But the IRS will not initiate contact with you to ask for this information by phone or email.
If you get this type of ‘phishing’ email, the IRS offers this advice:
If you get an unexpected phone call from someone claiming to be from the IRS:
Be alert to scams that use the IRS as a lure. The IRS will not initiate contact with you through social media or text to ask for your personal or financial information.
Please contact us at Tax On Wheels, LLC if you have questions about the legitimacy of IRS emails or telephone calls. You can reach us at 803 732-4288.
Using the correct filing status is very important when you file your tax return. You need to use the right status because it affects how much you pay in taxes. It may even affect whether you must file a tax return.
When choosing a filing status, keep in mind that your marital status on Dec. 31 is your status for the whole year. If more than one filing status applies to you, choose the one that will result in the lowest tax.
Note for same-sex married couples. New rules apply to you if you were legally married in a state or foreign country that recognizes same-sex marriage. You and your spouse generally must use a married filing status on your 2013 federal tax return. This is true even if you and your spouse now live in a state or foreign country that does not recognize same-sex marriage. See irs.gov and the instructions for your tax return for more information.
Here is a list of the five filing statuses to help you choose:
1. Single. This status normally applies if you aren’t married or are divorced or legally separated under state law.
2. Married Filing Jointly. A married couple can file one tax return together. If your spouse died in 2013, you usually can still file a joint return for that year.
3. Married Filing Separately. A married couple can choose to file two separate tax returns instead of one joint return. This status may be to your benefit if it results in less tax. You can also use it if you want to be responsible only for your own tax.
4. Head of Household. This status normally applies if you are not married. You also must have paid more than half the cost of keeping up a home for yourself and a qualifying person. Some people choose this status by mistake. Be sure to check all the rules before you file.
5. Qualifying Widow(er) with Dependent Child. If your spouse died during 2011 or 2012 and you have a dependent child, this status may apply. Certain other conditions also apply.
Tax On Wheels, LLC is available to assist you in determining the proper filing status. Simply give us a call at 803 732-4288.