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.

Making Meetings More Efficient

Many people in business have come to dread meetings.  It seems that meetings seem to fall off track, go on for too long, and not accomplish much of anything.

This article linked below does a nice job of making suggestions to make meetings shorter and more efficient.

Make it a great day.

Tax Breaks for School Expenses

As summer begins to draw to a close, students of all ages are preparing to head back to school, and parents are shelling out money for everything from school supplies to tuition and fees.  This presents a great opportunity to summarize the various education-related tax benefits that are in place for these and other expenses.  Even though this benefit won’t be seen until tax time, it’s nice to know all this spending may result in some tax breaks.

Minnesota K-12 Expenses

Minnesota offers two different benefits for K-12 expenses; a subtraction (deduction) from income, and a credit against tax.

The subtraction allows for up to $1,625 of K-6 expenses and $2,500 of 7-12 expenses per child to be deducted from income before calculating Minnesota tax.  Some of the items allowed for the subtraction are listed below, though this is not a complete list.

  • Private school tuition
  • Fees for all-day Kindergarten
  • Music lessons
  • Tuition for summer camps which are primarily academic in focus, such as fine arts or language

For some, claiming a credit against tax would provide a greater benefit.  The credit is allowed for those with incomes between $37,500 and $43,500, depending on the number of children in the household.  In this case, the same expenses above that qualify for the subtraction qualify for the credit, with the exception of private school tuition.

As always, we’re here to help with areas like this, as we have been for nearly 40 years.

Summer Jobs and – IRA Contributions?

As summer progresses, teenagers everywhere are working at part-time or full-time summer jobs.  Some are saving for college, some are paying for a car, and others are using the income to enjoy the summer months with their friends.  Very few are using that money to save for the future.  This does present a great planning opportunity for parents and others to help those teens get ahead down the road.

Anyone with earned income can contribute to an IRA or Roth IRA, so this includes teenagers.  Even if the teen isn’t interested in using their income to fund either of these accounts, a parent, grandparent, or really anyone else, can do so for them, up to the lesser of the teen’s earned income or the IRA contribution limits ($5,500 for 2013).

Using a traditional IRA will allow the teen to take out money penalty free for the big, important items in life, like paying for college or paying for up to $10,000 of a first home.  Or, if the contributions are allowed to grow in the account over their lifetime, the IRA can provide a significant retirement asset when the time comes.  Though the teen might not appreciate the value of this type of planning now, the impact will be felt and genuinely appreciated as they continue into adulthood.

As always, we’re here to discuss these and many other options, as we have been for more than 35 years.