|Health care accounts for major tax changes|
|February 05, 2015 Jerry Purvis|
The Patient Protection and Affordable Care Act, commonly called the Affordable Care Act (ACA) or “Obamacare,” is the primary source of changes in this year’s tax code. And people need to understand how it will affect them as they fill out their 2014 tax forms.
“If you had insurance coverage for 2014, there won’t be a problem,” said Brenda Straub of Next Generation Tax and Accounting. “If you got insurance from the marketplace and received a credit, you have to do reconciliation on you tax return to make sure you didn’t receive too much or too little. You might owe some of the credit back or might have more credit coming.”
People who didn’t have health insurance coverage for more than three consecutive months during 2014 could potentially owe a penalty, which is collected on the tax return.
“There are exemptions for not having coverage,” Straub said. “Low income is one of them, and also if you’re receiving Social Security or enrolled in Medicare. It’s a complicated calculation based on income level, your level of coverage and your number of dependents.”
She recommends using a tax professional to help you through the process.
The IRS also extended many of its previous deductions for the 2014 tax year. Out-of-pocket expenses for teachers, such as tuition costs, were included in the extended deductions. Also, you can itemize state and local sales taxes on your itemized return. The form 179 expense on depreciation schedule was also extended.
Small business owners, such as farmers, will also be affected by changes to the repair and capitalization policy. There’s a $500 limit to what can be classified as repairs on equipment before it has to be capitalized and put on depreciation.
Straub also had advice for people on avoiding an IRS audit. “Don’t claim a large number of deductions and be sure to report all your income, whether you receive a tax form or not,” she said. “The IRS has a normal range of deductions for businesses of different classifications. It draws a red flag if your business gets out of that normal range too often.”
She added that most of the problems are caused when a business inflates its expenses and fails to report its income.
Even though 2014 is over, people might still be able to claim a deduction for contributing to an IRA account, which reduced taxable income. “There are some factors to look at whether you qualify for the deduction, but it’s worth looking into,” she said. “And if you have a high deductible health insurance plan, you can make a deduction by contributing to a health savings account. It can save you quite a bit of money.”
Straub also warned the public about a number of IRS scams that have been popping up in the area. “If something is wrong, the IRS will always send you a letter first,” she said. “If someone calls or texts you out of the blue saying you’re in trouble, you know it’s a scam. Unfortunately, people are afraid of the IRS and fall victim to these scammers. You should never give your personal or banking information to anyone over the phone.”