Reminders and Updates

As fall continues, things continue to pick up around the office.  Here are a few of the things we’re working on that might be of note for you.

  • October 15th is the deadline for extended individual tax returns, which is just more than two weeks away.
  • This is an excellent time to do some tax planning for the end of the year to allow any tax-reducing strategies time to work.
  • There are a couple of new taxes to keep in mind as we bring the year to a close, especially if you are a higher-than-average income earner.
    • An additional .9% tax on wages over $200,000 for a single person or $250,000 for those married filing jointly. (Note, for MFJ filers, the $250,000 is the combined amount of both spouses salaries)
    • An additional 3.8% tax on the net investment income of those with adjusted gross income of more than $200,000 single or $250,000 MFJ.
    • Minnesota’s new 9.85% tax bracket on taxable income over $150,000 single or $250,000 MFJ.

With all the new tax rates and a fairly short time before the end of the year is here, now is a great time to speak with your tax professional and make sure you know what to expect come next April 15.

Affordable Care Act

As fall progresses, we are seeing more parts of the Affordable Care Act (also known as Obamacare) come into effect.  This posting will serve to answer a few of the questions we get most often from clients.

Do I have to insure my employees?

If you have fewer than 50 full-time equivalents (FTE’s) the answer is no.  What is an FTE? Think of it this way:  full-time is defined as 40 hours per week, 52 weeks per year.  If you have one person working 40 hours per week all year including paid time off, they are one FTE.  If you have two people each working 20 hours per week for a total of 40 hours, you also have one FTE.  Owners and their family members are not included in this calculation.

If you have 50 or more FTE’s and do not provide “minimum essential coverage” (defined later), you may face penalties starting in 2015.

What is the health care exchange?

The exchange, which in Minnesota is called MNSure, allows individuals and businesses with fewer than 50 FTE’s to shop for health insurance policies in a more competitive, and hopefully easy to use environment.  The idea is to create a one-stop-shop for these groups to compare coverage options and costs, and to choose the plan that is best for them.  The MNSure system goes live in October, 2013, with plan coverage starting in January, 2014.

The decisions needing to be made as a result of the Affordable Care Act are complex, and will need to be made at a quicker pace as months go by.  As always, we’re here to help you sort out the details and make the right decisions for you and your business.

Same-Sex Marriage and Taxes

On June 26th, the United States Supreme Court issued a ruling in the matter of United States v. Windsor.  The basis of this case was in tax – Windsor was the executor of the estate of Thea Spyer, as well as Spyer’s wife.  When Spyer passed away she left her interest in the couple’s assets, including an apartment on New York’s 5th Avenue, and a country home in the Hamptons, to Windsor.  Since they were a same-sex couple, the Federal Defense of Marriage Act (DOMA) didn’t see them as spouses, and that meant the tax court didn’t either.  Windsor paid nearly $364,000 of Federal estate taxes on her inheritance, filed for a refund, and eventually filed suit against the IRS.

The Supreme Court struck down DOMA as unconstitutional, which has led to a flurry of changes for those same-sex couples that are legally married.  The following is a brief overview of the tax impacts we’ve seen so far.

  • The IRS will recognize marriages in the “state of celebration”, which means that couples that get married in a state or foreign country that allows for same sex marriage will be treated as married for federal tax purposes, even if they move to a state where same sex marriage is not legal.
  • If the couple lives in a state where same-sex marriage is not legal, they will likely have to prepare two sets of tax returns: one federal using a joint status, and two state returns, using the proper individual status.
  • Same-sex couples will be treated as married for income, gift, and estate taxes. Specifically, the ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit.
  • Legally married same sex couples have several filing requirements and options to keep in mind.
    • Those that file an original tax return on or after 9/16/13 are required to use either married filing joint (MFJ) or married filing separately (MFS)
    • Those who filed individual returns prior to 9/16/13 are allowed, but not required, to amend their federal tax returns to use the MFJ or MFS filing statuses. This is available for all “open years” which is generally 3 years from the date the return was filed, which means some may be able to amend their returns to MFJ or MFS back through their 2010 tax returns.
    • Note: once a return has been filed with (or amended to use) a MFJ or MFS filing status, it cannot be separated in the future. The decision on how to treat the returns filed prior to 9/16/13 is one that should be approached carefully and with advice from a tax professional.

Additional guidance is coming out on a weekly basis, so stay tuned as the story continues to unfold.