Are you currently an employer? With new requirements on filing forms with employees, there is at least some form of relief. Beginning the 2015 tax year, Applicable Large Employers (ALEs) are required file Forms 1095-C and 1094-C with the IRS and provide a copy of the 1095-C to each of their employees. An ALE is generally an employer with 50 or more equivalent full time employees (EFTEs) in the prior year. Even though ALE’s with 99 or fewer EFTEs are not subject to the insurance mandate for 2015, they are subject to the 1094-C and 1095-C filing requirements for 2015.
Because this is the first year for this requirement, the IRS has decided to provide first year (2015) filing relief for Forms 1095-B and 1095-C. The due dates for furnishing these forms are extended. First, The due date for providing the 2015 Form 1095-B and the 2015 Form 1095-C to the insured and employees is extended from February 1, 2016, to March 31, 2016. Second, The due date for health coverage providers and employers to furnish the 2015 Form 1094-B and the 2015 Form 1094-C to the IRS is extended from February 29, 2016, to May 31, 2016 if not filing electronically. Lastly, The due date for health coverage providers and employers electronically filing the 2015 Form 1094-B and the 2015 Form 1094-C with the IRS is extended from March 31, 2016, to June 30, 2016.
While the IRS is prepared to accept information reporting returns beginning in January 2016, employers and other coverage providers who can’t meet the original deadlines are encouraged to furnish statements and file the information returns as soon as they are ready.
The information provided to individuals on their copy of Form 1095-B or 1095-C is generally used to confirm that the individual had minimum essential coverage (and thus avoid the penalty that applies when not covered for the full year). However, with the extension of the filing dates for these forms, individuals may not have the forms in hand before filing their 2015 returns. For 2015 only, individuals who rely on other information received from their coverage providers about their coverage for purposes of filing their returns need not amend their returns once they receive Form 1095-B or Form 1095-C or any corrections, according to the IRS.
Likewise, individuals who, when filing their 2015 income tax returns, rely upon other information received from employers about their offers of coverage for purposes of determining eligibility for the premium tax credit need not amend their returns once they receive their Forms 1095-C or any corrected Forms 1095-C.
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Do you want to take advantage of your energy credits as a homeowner? Renewed opportunities to homeowners wanting to take advantage of energy credits and reduce their costs are possible after a recently passed legislation to two homeowners with these credits that were about to expire.
The first of the two credits is what the tax code refers to as the Residential Energy Property Credit. A more descriptive title would be an energy saving credit since it applies to improvements to the taxpayer’s existing primary home to make it more energy efficient. This credit was extended for two more years, allowing homeowners to claim the credit for qualifying energy improvements made in 2015 and 2016.
The credit generally applies to insulation, storm windows and doors, and certain types of energy-efficient roofing materials, air-conditioning and hot water systems.
The credit is 10% of the cost of the energy-saving items but does not apply to the cost of installation and is limited to a lifetime maximum of $500. So if you have taken advantage of this credit in the past and received $500 or more in credit in a prior year, you cannot claim any additional credit.
In addition to the $500 overall limitation, there are also per-item limitations on the credit; for example, qualified windows and skylights – $200, qualified hot water boiler – $150 and qualified energy-efficient equipment – $300.
The credit is nonrefundable and can only be used to offset income taxes (including the alternative minimum tax).
The second credit to be extended is called the Residential Energy Property Credit. Better known as the home solar credit, it also provides credit for wind energy systems, geothermal systems and fuel cell systems. The credit is generally 30% of the qualified property and installation costs, subject to some limitations for fuel cell and geothermal systems.
The credit, which was scheduled to expire after 2016, has been extended through 2021, but only for solar electric and solar hot water systems (excluding swimming pools). In addition, the credit percentage is phased out beginning after 2019. The following are the credit percentages allowed through 2021: 2009 through 2021: No annual limit, 2009–2019: 30%, 2020: rate reduced to 26% and only on solar-related systems, and 2021: rate reduced to 22% and only on solar-related systems.
There is no limit on the actual credit other than the credit percentage. It is a nonrefundable credit and can be used to offset income tax liability (including the AMT). However, if the credit is unused because it exceeds the income tax amount, it can be carried over to another year as long as the credit has not expired.
When considering whether or not to go to the expense of installing a solar system, you need to consider a number of issues. Is it cost effective considering your electric usage? How will you pay for it? If you finance it are the terms and interest rate reasonable for your financial situation? How will it affect your property’s value? Will you be able to benefit from the tax credits?
Installing solar is a big financial commitment and should be considered carefully. Don’t let a solar system salesperson rush you into a decision. If you need assistance analyzing the financial and tax aspects of installing a solar system, please give Dagley & Co. a call before you sign on the dotted line.
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If you don’t think about your taxes and haven’t filed them, then you’re probably leaving money on the table – and that’s why you haven’t heard from the IRS.
The Earned Income Tax Credit (EITC) is a tax benefit for working people who have low to moderate income. It provides a tax credit that is treated like tax withholding: it goes to pay an individual’s tax liability, and any excess is paid to the individual in the form of a tax refund. We can help you collect this refund!
Qualifications for the credit are based upon the amount of the filer’s earned income, the spouse’s earned income if the filer is married, and the number of qualified children on the tax return. Any child must either be under the age of 19 or be a full-time student under the age of 24 at the end of the year. Low-income earners between the ages of 25 and 64 who don’t have a qualifying child may also qualify.
Earned income generally means income from working, such as W-2 wages and self-employment income.
The credit increases as the taxpayer’s earned income or adjusted gross income (AGI) increases until it reaches a plateau, where it remains constant (at the maximum amount) until it reaches the AGI phase-out threshold. Once the threshold amount is exceeded, the credit is reduced by a set percentage; if income exceeds the top of the phase-out range, no credit is allowed.
Computing the credit, like all things tax, is complicated, and the credit is actually determined using IRS tables that reflect the dollar amounts at which phaseout begins and ends. However, the chart below can help approximate the credit for 2015.
Example: A married couple with two children has earned income of $20,000 and a modified AGI of $21,000. If we multiply their earned income by their credit percentage ($20,000 x .40), we come up with $8,000. However, that exceeds the maximum credit of $5,548 for a married couple with two children, so their credit before any phaseout is $5,548. Since their modified AGI is less than the phaseout threshold, then their EITC is $5,548. Had their earned income been $10,000, then their credit would have been $4,000 ($10,000 x .40). If either their earned income or their modified AGI had exceeded $49,974, their EITC would have been totally phased out and they would not have gotten any credit.
There is also a limit on investment income a taxpayer can have and qualify for the EITC. For 2015, that limit is $3,400. Thus if a taxpayer qualifies for EITC but has investment income in excess of $3,400, the taxpayer will not receive any EITC.
Individuals that claim either the foreign earned income or foreign housing exclusion also will not qualify for the earned income credit.
Members of the military can elect to treat all or none of their nontaxable combat pay as earned income for the purposes of computing the EITC. The calculation providing the larger EITC benefit can be used.
Because the potential payout of this credit is so generous, it is the constant target of scammers, and in 2014 the government paid out nearly $18 billion in improper EITC payments. Besides scammers, the qualification for EITC is frequently contested between divorced parents who are both attempting to claim the same child in an effort to qualify for the EITC.
The IRS is authorized to ban taxpayers from claiming the EITC for two years if it determines during an audit that they claimed the credit improperly due to reckless or intentional disregard of the rules. Last year, there were more than 67,000 two-year bans in effect. The ban lasts 10 years if credit was claimed in an earlier year due to fraud.
The government wants those who are entitled to the credit to claim it, and so the IRS widely promotes the credit. However, the rules are quite complex and best addressed by a tax professional.
If you have questions about how the EITC might apply to you, please get in touch with us for additional information. Please understand that a taxpayer who might not normally be required to file a return might still benefit from filing to claim the EITC.
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Drive often for work? There’s a tax deduction for that. The Internal Revenue Service recently announced the inflation-adjusted 2016 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning January 1, 2016, the standard mileage rates for the use of a car (or a van, pickup or panel truck) will be:
- 54.0 cents per mile for business miles driven (including a 24-cent-per-mile allocation for depreciation). This is down from 57.5 cents in 2015;
- 19 cents per mile driven for medical or moving purposes. This is down from 23 cents in 2015; and
- 14 cents per mile driven in service of charitable organizations.
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. The rate for using an automobile while performing services for a charitable organization is statutorily set and has been 14 cents for over 15 years.
Taxpayers always have the option of calculating the actual costs of using their vehicle for business rather than using the standard mileage rates. With the extension of the bonus depreciation though 2019, using the actual expense method may be a worthwhile consideration in the first year the vehicle is placed in service. The bonus depreciation allowance adds an additional $8,000 to the maximum first year depreciation deduction of passenger vehicles and light trucks that have an unloaded gross vehicle weight of 6,000 pounds or less.
However, the standard mileage rates cannot be used if the actual method (using Sec. 179, bonus depreciation and/or MACRS depreciation) has been used in previous years. This rule is applied on a vehicle-by-vehicle basis. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.
Employer reimbursement – Where employers reimburse employees for business-related car expenses using the standard mileage allowance method for each substantiated employment-connected business mile, the reimbursement is tax-free if the employee substantiates to the employer the time, place, mileage and purpose of employment-connected business travel.
Employees whose actual employment-related business mileage expenses exceed the employer’s reimbursement can deduct the difference on their income tax return as a miscellaneous itemized deduction subject to the 2%-of-AGI floor. However, an employee who leases an auto and is reimbursed using the mileage allowance method can‘t claim a deduction based on actual expenses unless he does so consistently beginning with the first business use of the auto.
Faster Write-Offs for Heavy Sport Utility Vehicles (SUVs) – Many of today’s SUV vehicles weigh more than 6,000 pounds and are therefore not subject to the luxury auto depreciation limit rules; so taxpayers with these vehicles can utilize both the §179 expense deduction (up to a maximum of $25,000) and the bonus depreciation (the §179 deduction must be applied first and then the bonus depreciation) to produce a sizable first-year tax deduction. However, the vehicle cannot exceed a gross unloaded vehicle weight of 14,000 pounds. Caution: Business autos are 5-year class life property. If the taxpayer subsequently disposes of the vehicle early, before the end of the 5-year period, as many do, a portion of the §179 expense deduction will be recaptured and must be added back to income (SE income for self-employed individuals). The future ramifications of deducting all or a significant portion of the vehicle’s cost using §179 should be considered.
If you have questions related to best methods of deducting the business use of your vehicle or the documentation required, please get in touch with us at Dagley & Co. so we can turn your mileage back into money.
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If you operate a business and hired an individual (like an independent contractor) who is not an “employee” and you paid him or her $600 or more for the 2015 calendar year, you are required to issue him or her a Form 1099 at the end of the year to avoid penalties and the prospect of losing the deduction for his or her labor and expenses in an audit – or at the very latest, February 1, 2016.
That is, the due date for mailing the recipient his or her copy of the 1099 that reports 2015 payments is February 1, 2016, while the copy that goes to the IRS is due at the end of February.
It is not uncommon to have a repairman out early in the year, pay him less than $600, then use his services again later in the year and have the total for the year exceed the $599 limit. As a result, you may have overlooked getting the information from the individual needed to file the 1099s for the year. Therefore, it is good practice to always have individuals who are not incorporated complete and sign an IRS Form W-9 the first time you engage them and before you pay them. Having a properly completed and signed Form W-9 for all independent contractors and service providers eliminates any oversights and protects you against IRS penalties and conflicts. If you have been negligent in the past about having the W-9s completed, it would be a good idea to establish a procedure for getting each non-corporate independent contractor and service provider to fill out a W-9 and return it to you going forward.
IRS Form W-9, Request for Taxpayer Identification Number and Certification, is provided by the government as a means for you to obtain the data required to file 1099s for your vendors. It also provides you with verification that you complied with the law in case the vendor gave you incorrect information. We highly recommend that you have a potential vendor complete a Form W-9 prior to engaging in business with them. The W-9 is for your use only and is not submitted to the IRS.
The penalties for failure to file the required informational returns have been doubled this year and are $250 per informational return. The penalty is reduced to $50 if a correct but late information return is filed not later than the 30th day after the February 29, 2016, required filing date, or it is reduced to $100 for returns filed after the 30th day but no later than August 1, 2016. If you are required to file 250 or more information returns, you must file them electronically.
In order to avoid a penalty, copies of the 1099s you’ve issued for 2015 need to be sent to the IRS by February 29, 2016. They must be submitted on magnetic media or on optically scannable forms (OCR forms). This firm prepares 1099s for submission to the IRS. This service provides recipient copies and file copies for your records. Use the 1099 worksheet (http://images.client-sites.com/1099-Worksheet.pdf) to provide Dagley & Co. with the information needed to prepare your 1099s.
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There is only one deadline for business owners to remember: on January 15, your Employer’s Monthly Deposit is due. If you are an employer and the monthly deposit rules apply, January 15 is the due date for you to make your deposit of Social Security, Medicare and withheld income tax for December 2015. This is also the due date for the nonpayroll withholding deposit for December 2015 if the monthly deposit rule applies. Employment tax deposits must be made electronically (no more paper coupons), except employers with a deposit liability under $2,500 for a return period may remit payments quarterly or annually with the return.
If you are a small- or medium-sized business owner, and you don’t have a CPA lined up for the upcoming tax season, we would love to take you on as a client. Dagley & Co. specializes in businesses like yours, and we have a stellar track record. You can find our information at the bottom of this screen. We look forward to working with you!
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