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Tax TIPS 2016-2017

E-mail or Phone Calls from the IRS or the Franchise Tax Board

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Be wary of fraudulent CP2000s.  The IRS is warning taxpayers and practitioners that a new scam uses fraudulent CP2000s to solicit  money from taxpayers.  The fraudulent forms look convincing, and show balances due that are small enough that taxpayers just might pay rather than arguing the point.
However, upon closer inspection, these forms have telltale signs of fraud:
   -the instructions direct the taxpayer to make out a check to "I.R.S." rather than to "United states Treasury"; and
   -the return address is "Austin Processing Center, PO Box 15264, Austin, TX  78761-5264," which does not match the address listed on the IRS website for the Austin Processing Center.
Please contact us if ANY unexpected balance due arrives from the IRS, so that the correspondence can be verified.

For more information, go to

The IRS or the California Franchise Tax Board NEVER EVER sends e-mails to taxpayers.  NEVER EVER open or respond to any e-mail requests asking for personal information!  Beware, we have heard about fraudulent phone calls from people claiming to be IRS agents.  DO NOT give them any information.  Do NOT call them back.  Ask that they contact you in writing, then let us know if you get something in the mail.  Remember, if the IRS or the California Franchise Tax Board ever needs to contact you, they only do that by postal mail.  

Is your Social Security statement reporting correct information?

Some benefit recipients may find themselves short-changed.
This is why you need to keep your W-2's and Tax Return's
Suppose you are approaching age 62 and you are wondering when to apply for Social Security Administration (SSA) retirement benefits- early (62), full retirement (currently age 66), delayed (up to age 70), or some date in between these key points.  After locating your most recent SSA earnings and benefits statement, you peruse projected benefits at the three key points.  Your eyes
then wander to your record of earnings all the way back to your first job as a teenager, and you notice that some earlier years are void of data, and some years show understated earnings.  What should you do?

Making corrections to an incorrect earnings statement:

Immediately contact the SSA and begin working with them to make the proper corrections.  They will have you prepare SSA form 7008.  request for Earnings Record, which is the document initiating corrective action.
There is a statute of limitations for corrections, * three years, three months and fifteen days after the earnings year in question. During this period, once notified, the SSA will work to correct the misstatement.  There are exceptions allowing corrections after the statute has expired.  * An individual generally can work with the SSA to make corrections after expiration of the statute, provided a timely income tax return was filed for the year in question, but the burden is on the individual to prove the correct amounts.  Be ready to dig up everything possible, such as W-2's, tax return copies, wage stubs, any other relevant records, as well as names, addresses, and phone numbers of former employers. 

Situations in which an earnings statement might be incorrect:
Earning could be incorrect for several reasons, including:
   -an employer reported earnings incorrectly. or used a wrong name or social security number;
   -the individual got married or divorced and changed his or her name but never reported the change to the SSA;
   -the individual worked using a social Security number that didn't belong to him or her; or
   -Identity fraud - the presence of zeros and/or unusually large earnings can be a red flag.
If you're in your 60's and trying to correct misstated earnings from 35-40 years old, yes, you may experience difficulties.  Social Security issues are usually the least of concerns for workers at that point in time, namely those in their 20's or 30's, if not older.  However, even if you have no documents for those earlier years, you should still contact the SSA and see if anything can be done.  For example, if you had W-2 wages from a certain employer for several years, but there are two years of wages missing from that span, the SSA may be able to provide some help.

Background on SSA statements and calculation of benefits:
In 1995, the SSA began mailing earnings statements to select age groups. The purpose was to inform the workers of their benefits, help the plan financially, and most importantly, ensure that earnings records were accurate.  The SSA's actuarial group foresaw a veritable tsunami of 50-somethings (baby boomers) biding their time until retirement , an hoped earning records could be verified and corrected, if needed, before the big wave hit. 
In 2000, the SSA began mailing statements annually to workers age 25 and older - described as the largest customized mailing ever undertaken by a federal agency.
* Mailing was suspended in 2011 due to budget constraints, with online access implemented in 2012.  Starting in September 2014, they're once again being mailed to age groups at five-year increments, such as 25, 30, 35, etc., and annually to workers age 60 and over.
Monthly benefits are calculated from a worker's rolling average of his or her highest 35 years of earned income after each of those years (up to age 60) is indexed for inflation.  Earnings at age 60 and over, while still a part of the calculation, are not indexed.  While the calculation is mind-boggling, the good news is the SSA calculates benefits for you, providing it has correct and complete information with which to work.
   -Comment- The annual earnings statement show actual earnings.  The inflation adjustment is done at the time the individual                                applies  for benefits and when showing projected benefits on the statement.
 Who's responsibility for a correct earnings statement?:
The SSA, with a sophisticated and user-friendly website, now provides for individual accounts to be created, with one of the resulting opportunities being the ability to download one's current earnings statement at any time.  From their homepage ( or, one can select"my social security" and easily create an account.  Yet, those who receive your earning statements in the mail may bring them to your tax appointment, and ask us if they are necessary.
Since the SSA can only work with the information it's given, and provides everyone the utmost opportunity to verify earnings and see that they're correct, the responsibility is on each worker to maintain a correct record.  Regarding those years with no documentation to support missing earnings, you should be prepared for possibly losing those years in the calculation.  If there's any consolation, there are two silver linings:
   -a worker's 35 highest earnings years (after indexing) are used for calculating benefits; therefore, if a person has 40-45 years of earnings, losing a single year may not even impact the calculation; and
   -the formula for calculating benefits is skewed favorably to lower earners.  Indexed earnings are factored into one's Primary Insurance Amount (PIA) calculation, with the PIA formula heavily weighted at the lower end of the earnings strata.  Therefore, missing a couple years of earnings, even within the highest 35 years, could very well have a minimal impact on benefit.

Important due date changes happen in 2017 filing season:

Filing issues:  W-2's must be files with the IRS by January 31.
In addition to changing filing deadlines for business returns and FBARS, deadlines for submitting W-2's and W-3's to the Social Security Administration will change during 2017.

 Business returns:
 New tax  law changes  for taxable years beginning after December 31, 2015 (i.e., beginning with filing season 2017):

   -Partnership returns (Form 1065):  Moved up one month from April 15 to March 15 (2 1/2 months after the end of the taxable      year).  Partnerships may apply for a 6 month extension;

   -C corporation returns (Form 1120):  Moved back from one month from March 15 to April 15 (3 1/2 months after the end of the taxable year).  However, C corporations with tax years ending on June 30 will continue to have a due date of September 15 until taxable years beginning after December 31, 2025 (2025 is not a typo).  C corporations may request a six-month extension except for calendar-year corporations, which are limited to a five-month extension through 2025;

   -S corporations (Form 1120S):   The due date continues to be March 15 (2 1/2 months after the end of the taxable year).
 S corporations may request a six-month extension;

   -FBAR (FinCEN Form 114):  The due date changed from June 30 to April 15, and taxpayers will now be allowed a six-month    extension.  The taxpayer must request an extension.  It is not automatic unser rules similar to those in Treas. Regs. 25.6075-1 (b)   The extension form has NOT yet been released.  The Act also provides specific penalty waiver relief for taxpayers required to file   an FBAR for the first time  if they file it late by mistake; and

   -Trusts (Form 1041):  There has been NO change to the filing deadline for trust returns, which are still due on April 15 (3 1/2 months after the end of the tax year).  However, the extended deadline changes from September 15 to September 30.

W-2 deadlines:
Under amendments made by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), W-2's, W-3's, and other returns required to report non-employee compensation must be filed with the Social Security Administration by January 31, the same date these statements must be sent to employees.  Effective for returns and statements relating to calendar years beginning after December 18, 2015, the February 28 date for filing these returns with the IRS and the March 31 extended filing date for electronically filed returns will no longer apply.

1  IRC §6072(b)
2  IRC §6072(a)
3  Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, §2006(b)(11)
4  R&TC §18601
5  R&TC §§18567, 18604
6  IRC §6071(c)

IRS may keep taxpayers from traveling:

 The IRS can now revoke passports, just as they are about to be required for domestic air travel.
Starting October 1, 2020, anyone traveling by air on a domestic flight will need a form of I.D. that is compliant with the  requirements set out in the Real ID Act.  However, currently not all states' driver's licenses are compliant with the Act.  That means that, barring charges to the licenses in those states to bring them into compliance, passengers will most likely be using passports to board domestic flights.  Unless they owe the IRS money, that is. 

The IRS able to revoke passports:
The Fixing America's Transportation Act of 2015 (Fast Act) added IRC §7345, which provides the IRS with the ability to revoke the passport of any "seriously delinquent ' American with a tax debt in excess of $50,000., including penalties and interest, for which a notice of lien or levy has been filed. 
However, the taxpayer will no longer be considered seriously delinquent for the purpose of passport revocation if:

   -the taxpayer who owes such a delinquency pays the debt in full, or enters into an installment agreement or offer in compromise;
   -a spouse files for relief from joint liability; or
   - the delinquency was erroneously reported.

 This could affect the travel ability for those of you who 
 live in states that issue non-compliant drivers licenses; although, there are other forms of acceptable federal identification listed at 

 Real ID Act timeline:
 Until January 22, 2018, if you are traveling by air, residents from ANY state may still use a driver's license or any of the various other forms of identification accepted by the Transportation Security Administration.  The Department of Homeland Security website currently has some states listed as exempt through October, 10, 2016, but that has been extended for all states.
 Effective January 22, 2018, if you have a drivers license or identification card issued by a state that does not meet the requirements of the REAL ID Act, unless that state has been granted an extension, you must present an alternative form of identification acceptable to TSA in order to board a commercial domestic flight.
 Starting October 1, 2020, every air traveler will need a REAL ID-compliant license, or another acceptable form of identification, for domestic air travel.   

Donating personal services to charity:  

Because charitable contributions only apply to gifts of money or property, the value of personal services (including professional services) rendered are not deductible.  
However, you may be able to deduct some amounts paid for expenses incurred while giving services to a qualified organization.

The amounts must be:

   -Directly connected with the services;
   -Expenses incurred only because of the taxpayer's services; and
   -Not personal, living, or family expenses.

Deductions for out-of-pocket expenses intended for the benefit of charity are denied if:

   -the expenses are not incurred directly in connection with and are not solely attributable to charitable services;
   -A substantial, direct, personal benefit inures to the donor or someone other than a charitable organization;
   -The donor does not actually render services to a charity; or
   -The services do not further the activities  of a charitable organization.
   -the following unreimbursed expenses can be deducted as contributions made to charity.

The cost and upkeep of uniforms that are not suitable for everyday use and that you must wear while performing donated services for a charitable organization are deductible.  An example would be a troop leader uniforms.

Foster Parents:  
Foster parents may deduct as a charitable contribution some of the costs of being a foster care provider if they have no profit motive in providing the foster care and are not, in fact, making a profit.  A qualified organization must designate the individuals that taxpayers take into their homes for foster care.

Deductible expenses must be both of the following:
   -Unreimbursed out-of-pocket expenses to feed, clothe, and care for the foster child; and
   -Primarily to benefit the qualified organization.
Unreinbursed expenses that are not deducted as charitable  contributions may be considered support provided by the taxpayer in determining whether he or she claim the foster child as a dependent. 

Church Deacon:  
As a taxpayer, you can deduct, as a charitable contribution any unreimbursed expenses while in a permanent diaconate (training) program established by a church.  These expenses include the cost of vestments, books, and transportation required in order to serve in the program as either a deacon candidate or as an ordained deacon.

Car Expenses: 
Unreimbursed out-of-pocket expenses, such as the cost of gas and oil that are directly related to the use of a car in giving services to a charitable organization are deductible.  
Of course, most people use a standard mileage rate of 14 cents per mile to figure the contribution, but don't forget parking fees and tolls are also deductible, regardless of whether the taxpayer uses actual expenses or the standard mileage rate. 

You can claim a charitable contribution deduction for the travel expenses necessarily incurred while away from home performing services for a charitable  organization only if there is no significant element of personal pleasure, recreation, or vacation in the travel.
That doesn't mean that the deduction for travel expenses will be denied simply because the you enjoyed providing services to the charitable organization.  Even if you had fun, a charitable contribution  deduction for the travel expenses is permitted if you, the taxpayer, were on duty in a genuine and substantial sense throughout the trip.

A chosen representative of a qualified organization attending a convention, of a qualified organization, can deduct unreimbursed expenses for travel and transportation, including a reasonable amount for meals and lodging, while away from home overnight in connection with the convention.  "Qualified organizations" include nonprofit groups that  are religious, charitable, educational, scientific or literary in purpose, and nonprofit groups that work to prevent cruelty to children of animals.  
No deduction is allowed for personal expenses for sightseeing , fishing parties, theater tickets, or nightclubs.  The representative also cannot deduct travel, meals and lodging, and other expenses for a spouse or children.  
If you, as a taxpayer, attend a convention only as a member of the church, rather than as a chosen representative, none of the expenses in attending are deductible unless they are directly connected with giving services for the church during the convention.

Disaster assistance:
Unreimbursed expenses directly connected with providing food, lodging, clothing, or other basic necessities to hurricane or other disaster evacuees referred through an organization such as the Red Cross, Civil Defense, Salvation Army, or a church are deductible.   But no allocation of a taxpayer's household costs (like rents and/or utilities) is allowed.  
In general, for expenses related to providing services to be deductible as a charitable contribution, the services must benefit an organization and not individuals.  However, a deduction is allowed for expenses related to services provided to individuals where an organization's essential charitable purpose is to benefit individuals in a prescribed group, and the individuals benefited are selected by the organization and not the taxpayer.  
Unreimbursed out-of-pocket expenses for maintaining, in a taxpayer's home, refugees referred by a qualifying charitable organization are deductible.  These expenses are contributions or gifts for the use of the organization, within the meaning of IRC §170.  

Volunteer income tax assistance-

Program volunteers' expenses, such as transportation costs to and from training and tax assistance sites, paper and pencils, and newspaper advertising are deductible.

Donation of someone else's services-

As a taxpayer, you may take a charitable deduction for contributing the right to another person's services.
For example, if an individual  buys dancing lessons from a dancing school and donates the lessons to charity, which in turn uses the lessons in furtherance of its charitable purposes by designating the persons who can take the lessons, the value of the dancing lessons is deductible.

Substantiation requirements-

Any charitable expense deduction of $250 or more must meet the substantiation requirements of Prop. Treas. Regs. §1.170A-16, or no deduction is allowed;
   -for amounts of $250-$500, substantiation is met by a contemporaneous written acknowledgement from the donor;
   -for amounts of $500-$5,000, the contribution must be substantiated with contemporaneous written acknowledgement and form   8283, Section A; and
   -for amounts of $5,000 and over, the contribution must be substantiated with contemporaneous written acknowledgement, a qualified appraisal, and Form 8283, Section B.

1099-K Reporting Merchant Transactions - Businesses and individuals with credit, debit or PayPal transactions (over 200 transactions and/or $20,000 in gross income in 2014-2015) will receive 1099-K forms from businesses that process the transactions.  

1099 Reporting - Congress passed a regulation that business owners and rental property owners should issue 1099s to the various service providers they paid over $600 during a calendar year.  We can prepare those forms and reports for you.  

Charitable Contributions - A scary IRS court case in 2008 reminds us of the rules on charitable contributions. ALL deductions of any amount must have a receipt.  You need to have receipts for all cash donations. You also need receipts for all non-cash donations (clothes, household goods, etc.).  Stricter guidelines apply for larger valued items (vehicles, boats, airplanes, art, etc.).  Any individual contribution over $250 must also have an acknowledgement letter from the charity, and the letter must be dated by the date we file your return. The letter should show the date and amount of any individual contribution over $250, and should also state that no goods or services were received in return for the contribution. Remember that donations should be documented so that you may claim them on your itemized tax return. 

Income Tax Refunds - The Internal Revenue Service will continue their increased verification of most tax returns before issuing refunds again this year.  This means you should not expect to get your Federal refunds as quickly as in past years.  

Mortgage Interest - Recent IRS scrutiny of home mortgage interest deductions now require us to carefully track re-financings and the use of loan proceeds. Please provide us with any new home loan information, closing statements from any re-financings, and a summary of what any additional loan proceeds were used for.
Foreign Accounts - If you have read any news in the last year you know that the IRS is looking closely for offshore accounts. If you have an account, rental property, or business interest with a value over $10,000 in a foreign country, or a foreign business ownership (not through a mutual fund) please let us know as some special rules will apply to you. There are substantial penalties for failure to disclose these items.
Education Credits A major revision of college credits by President Obama has provided us with the “American Opportunity Credit”, a special credit for undergraduate college students. If you have children in college or near to college, please discuss some options with us to assure that you receive the best benefit for these costs.
Rental Prop
erty -  If you own rental property, this year the IRS has demanded substantially more information. We now need, FOR EACH PROPERTY SEPARATELY, the physical location, the type of property (single-family, duplex, etc), and Forms 1099-K received, and a record, by property, of the number of days rented and the number of days used for personal purposes.

Gift ChangesEffective 1/1/2013 the amount you may give to one person in one year without any return filing requirements has been increased to $14,000.
Worthless Stocks and BondsIf you own stocks or bonds that became worthless this year please be sure to provide us with the cost and purchase dates so that we can take any allowable deductions.

Tax treatment of same-sex spousesThe IRS and other Federal agencies issued guidance on the treatment of same-sex spouses and couples for tax and other purposes in light of the Supreme Court's landmark Windsor decision striking down section 3 of the Defense of Marriage Act (DOMA), which had required same-sex spouses to be treated as unmarried for purposes of federal law. The key developments are as follows:

  • Effective as of Sept. 16, 2013, the IRS adopted a "state of celebration" rule in recognizing same-sex marriages. This means that same-sex couples who were legally married in jurisdictions that recognize their marriages (i.e., "state of celebration") will be treated as married for federal tax purposes, regardless of whether their state of residence recognizes same-sex marriage. Spouse may retroactively apply this rule to open years.
  • Same-sex spouses who were legally married in a state that recognizes same-sex marriages must file their 2014 federal income tax return using either "married filing jointly" or "married filing separately" status, even if they now reside in a state that does not recognize same-sex marriage. Same-sex spouses who file an original 2012 tax return on or after Sept. 16, 2013 also generally must file using a married filing separately or joint filing status. Same-sex spouses may file original or amended returns choosing to be treated as married for federal tax purposes for one or more prior tax years still open under the statute of limitations on refunds.

The IRS provided optional special administrative procedures for employers to use to correct over payments of employment taxes for 2013 and prior years for certain benefits provided and remuneration paid to same-sex spouses.

The Department of Labor's (DOL)'s Employee Benefits Security Administration (EBSA) announced that it is following the IRS in recognizing "spouses" and "marriages" based on the validity of the marriage in the state of celebration, rather than based on the married couple's state of domicile, for purposes of interpreting the meaning of "spouse" and "marriage" as these terms appear in the provisions of the Employee Retirement Income Security Act of 1974 (ERISA) and in Internal Revenue Code provisions that EBSA interprets.

  • In Frequently Asked Questions (FAQs) posted on the IRS's website, the IRS made clear that same-sex and opposite-sex individuals who are in registered domestic partnerships, civil unions, or other similar formal relationships that aren't marriages under state law aren't considered as married or spouses for federal tax purposes.

Disaster Averted - We made it past the fiscal cliff, but at a price that most of us will pay starting in 2013.  As expected, tax rates will climb and the rules will be complicated and confusing.  There is a tax increase for everyone.  The American Taxpayer Relief Act increases individual tax rates for those with taxable incomes over $400,000 ($450,000 for families), revives certain credits that were scheduled to expire, maintains a $5,430,000 exclusions for estate taxes but at a 40% max rate, and permanently "patches" that alternative minimum tax (AMT).  To boot, phase outs of itemized deductions and persona exemptions returned starting in the 2013 year.  There's plenty for each of us to dislike.  On the other hand, the Act did avoid draconian sunset provisions that would would have changed all tax rates, capital gains treatments, child credits, estate taxes, and more.  The cost of no action would have been far worse than what we got.  

Individual Tax Rates - Effective as of 2013, the American Taxpayer Relief Act makes the Bush-era rates permanent for those with taxable income less than $400,000 single, $425,000 head of household, $450,000 MFJ.  Income above these rates will now be taxed at 39.6% up from the 35% prior bracket.  

Capital Gains/Dividends - For individuals in the same threshold group mentioned above ($400k area), the top rate for capital gains and dividends raises to 20% for the prior 15% max rate.  All other taxpayers will still use the 15% max rate and, surprisingly, the zero percent rate for capital gains will still apply to capital gains and dividends to the extent income falls below the top of the 15% income tax bracket.  Capital gains from installments sale profits will be subject to the rates and rules in place in the year of payments, not the year of sale.  The Act does not affect sale of principal residence gains, which are still tax free generally up to $250,000 per individual, $500,000 married filing jointly.  

Itemized Deduction Limitation (Phase Outs) - Mortgage interest expense, income taxes, property taxes, charitable contributions, medial expenses (subject to limits), mortgage insurance premiums (subject to limits), and miscellaneous items are still deductible as itemized deductions, as well as the personal exemption.  However, the phase out of deductions began again in 2013.  Essentially, 2015 itemized deductions begin to be phased out at income levels of $300,000 MFJ, $250,000 single and $150,000 MFS.  Phase outs will also apply to personal exemptions.  The effect of this is obviously raised tax revenue for higher income taxpayers without raising rates, and it adds more complexity to the filing of returns.  

New 3.8% Medicare Surtax - For those with modified gross income of $250,000 single, $125,000 MFS, a 3.8% tax will apply to net investment income.  Net investment income is generally to be considered interest, dividend, and capital gain income.  This tax provision was actually passed in 2010 to help cover the cost of health care reform.  Again, those in lower income categories won't be affected by this.  But for those individuals whose taxable incomes are over the thresholds, the effective maximum tax rates for capitals gains and dividends will go up by as much as 8.8% (5% capital gain rate increase plus 3.8% Medicare surtax).  That is significant.    

Additional .9% Medicare Tax - Currently, the Medicare withholding tax is 1.45% of wage and salary income, and this amount is matched by employers for a total of 2.9%.  Effective starting in 2013, however, an additional .9% medicare tax is required to be withheld from employee wages and salaries exceeding $200,000.  The employer does not have to match this.  For example, John may earn $190,000 and Mary may earn $150,000 an neither will be subject to the .9% withholding.  However, on their 2014 tax filing, their combined salary income is $340,000.  $90,000 will be subject to .9% medicare tax ($340,000 less $250,000 threshold) which they will pay with income tax return.

Alternative Minimum Tax - AMT was originally intended to ensure that wealthy taxpayers paid "minimum tax" rather than using loopholes to escape taxes altogether.  Over the years, because of lack of inflation indexing, AMT has snared millions of taxpayers that Congress probably never intended to penalize.  It causes taxes to be higher than they would be under the usual rules, yet the revenue generated is significant so it hasn't been revised.  Fortunately for 2014 and going forward, "patches" have been made to AMT in the form of increased exemptions and promises to index for inflation.  While these won't make AMT go away, these patches will reduce the effects on many and will reduce the number of people who would otherwise have been subject to AMT.  AMT is neither simple nor easily predictable.  We will, however, always determine whether you filings are subject to AMT and will let you know the effects.        

Auto Expenses and Standard Mileage Rates - If you use your personal vehicle for business purposes, the standard mileage rate can be used to simplify record keeping and to allow for adequate reimbursement of expense.  For 2016, the rate is 54 cents per mile for business, 19 cents per mile for medical, 19 cents per mile for moving, and 14 cents per mile for charitable organizations. For 2017, the rate is ???? cents per mile for business, ????? cents per mile for medical, ???? cents per mile for moving, and ??? cents per mile for charitable organizations. It is important that you maintain a log of your business mileage to include date, places traveled, business reason and mileage.  If you are audited, IRS will require that you provide a copy of the log; if it isn't available, they can deny the deduction.  

Estate Tax - Federal transfer taxes (estate, gift, and generation-skipping transfer (GST) taxes) seem to have been in a constant state of flux in recent years.  The American Taxpayer Relief Act aims to provide some certainty.  Effective January 1, 2013, the maximum estate, gift and GST tax rate is generally 40%, which reflects and increase from 35% for 2012.  The exclusion amount for estate and gift taxes is unchanged for 2013 and subsequent years at $5 million (adjusted for inflation).  The GST exemption amount for 2013 and beyond is also $5 million (adjusted for inflation).

(UNDER CONSTRUCTION FOR 2016-2017) Affordable Care Act and Related Tax InformationPreparation of ALL 2014 tax returns will include several completely new forms and an entirely new and complex process. Our staff has attended seminars, -conferences and training in order to properly prepare your tax returns that will now include the new government requirements.

The “individual mandate” under the Affordable Care Act began in 2014. All individuals are required to have health insurance. All people who are required to file a tax return (and their dependents) must report their insurance on that return. Because of that, this is the first year we will need quite a bit of additional information to prepare your 2014 tax return.

In reporting their 2014 health insurance, people will fall into one of four categories:

  1. You had qualifying insurance through the exchange (the Marketplace, i.e. “CoveredCA”);
  2. You had qualifying insurance through some other source such as an employer or Medicare;
  3. You did not have qualifying insurance and you do not have an exemption which means you will be subject to the penalty for not having insurance in 2014;
  4. You did not have qualifying insurance but you are entitled to an exemption from the penalty.

These four categories apply to each member of your family and may apply differently to each member (for example, different members of the family have insurance from different sources). Moreover, any one member of your family may have changed categories during the year. The information we request below must cover each family member on a month-to-month basis. If a family member’s situation was the same for the entire year, then you can document that member’s insurance on a yearly basis.

Exchange:  If you had insurance through the exchange (such as CoveredCA) in 2014, the exchange will send you a Form 1095-A, Health Insurance Marketplace Statement. This form will be used to claim any Premium Tax Credit to which you may be entitled. If you are eligible for this tax credit you must bring us the 1095-A form. We cannot process this tax credit without the form.

Other source: If you had insurance from another source in 2014, you will need to bring us documentation. If it is government insurance, such as Medicare, the government will send you the documentation. If it is employer insurance, the employer may provide you with Form 1095-B or Form 1095-C. If they do not provide either form, we can accept documentation such as a copy of the insurance policy. If you cannot provide any documentation, but you are sure you had qualifying coverage, we will have you sign a statement to that effect.

Exemption: Some exemptions are claimed on the tax return and others require a certificate from the exchange (such as CoveredCA). We cannot claim an exchange exemption without that certificate. Examples of exemptions that require certification from the exchange include:

  • You are a member of certain religious sects;
  • You did not have access to affordable coverage at the beginning of the year due to your household income;
  • You were notified that your health insurance plan would not be renewed and other plans were not affordable; or
  • You experienced other problems that prevented you from getting insurance. This broad category includes homelessness, evictions or foreclosures, domestic violence, bankruptcy, illness or death in the family, and many other hardships.

If you think you qualify for an exchange exemption, visit to learn more and to get an application for exemption. Do not wait.  It can take more than two weeks to receive the exemption.  It may take even longer once their office gets busier.

Household Information:  The health coverage calculations are made using “tax household” information.  This means we must have income and health insurance information for the taxpayer, spouse (if filing a joint return) and any individual that may be claimed as a dependent.  Please note that if your dependent has income and files a tax return independently (not prepared by our office), we will need a copy of their return before we will be able to complete your tax return!

Example: A college age student lives on campus during the school year and has a part time job. The student is still claimed as a dependent on the parent’s tax return for the most beneficial family result. The student files their own tax return.  The parent must bring us a copy of that dependent’s tax return before we can properly complete the parent’s 2014 tax return!

Small Business Expensing - to be updated