The filing season is going to be the worst filing season since I’ve been the National Taxpayer Advocate {in 2001}; I’d love to be proved wrong, but I think it will rival the 1985 filing season when returns disappeared.”

From Forbes.com:


Internal Revenue Service Commissioner John Koskinen warned that close to half the people trying to reach the IRS by phone might not get through during the upcoming 2015 tax filing season. “Phone service could plummet to 53%,” he told an audience of tax practitioners at the AICPA National Tax Conference in Washington, D.C. today. That would be down from an already unacceptable 72% during the 2014 filing season. The average hold time projection: 34 minutes! What’s to blame? Budget woes. “All we can do is try to maximize our services as well as we can; as well as we can is still going to be miserable. You really do get what you pay for,” he said.

Koskinen’s remarks followed National Taxpayer Advocate Nina Olson who was even gloomier:“The filing season is going to be the worst filing season since I’ve been the National Taxpayer Advocate {in 2001}; I’d love to be proved wrong, but I think it will rival the 1985 filing season when returns disappeared.”

There are five key factors at play – complicating the upcoming filing season (that’s when you file your 2014 tax return). The IRS agency budget is the number one challenge, Koskinen said. The House has voted to cut the IRS budget for 2015 by $341 million, and the Senate has proposed to increase it by $240 million—that would still be 7% below 2010 funding levels.

In the meantime, Congress keeps passing laws that the IRS has to implement, namely the Affordable Care Act (“ACA”) and the Foreign Account Tax Compliance Act (“FACTA”). For example, Koskinen said the IRS requested $430 million in 2014 from Congress to implement the ACA but got zero, forcing it to take money out of enforcement and taxpayer services budgets.

This will be the first filing season with two major provisions from the Affordable Care Act –the premium tax credit and the individual shared responsibility payment–on Form 1040. National Taxpayer Advocate Olson said she’s very concerned about the IRS receiving accurate information from the health exchanges. It won’t be the IRS’s fault, but taxpayers will likely put the blame on the IRS. Koskinen touted the web pages that the IRS has created to help explain the ACA tax provisions.



Read more by clicking on this link. 

September 2014 Client Newsletter

“You can have results or excuses. Not both.” – Anonymous

I ran across a great little book a couple of weeks ago by author George Cloutier, “Profits Aren’t Everything, They’re the Only Thing.”  In the introduction Cloutier asks some very powerful questions.  Do you take responsibility for every aspect of your business?  You better.  You are the boss. Are your blaming employees when they don’t do something right? Do you work on Sundays? Do your workers respect you, not like you?  Are you aware of all your customers and their needs? Do you pay for performance?  Do you pay yourself well? Are you satisfied?  

Although I am still in the middle of the book, not quite done, I thought I would pass on some rather radical ideas not found elsewhere from Cloutier:

"Entrepreneurs are people that start a business thinking they can do it better than their boss did and to make more money and enjoy life more. But if you don't have the controls and processes in place, far from gaining control over your life, you lose it, and become a slave to the employees and vendors you have to pay to keep the business alive.”

The only solution to this and the only way to regain control: put profits first. When budgeting, the first thing to budget are profits. Assume a profit percentage rate equal to that of the industry top quartile, leaving an expense budget remaining for all remaining costs. No cost in business is truly fixed. There's plenty you can live without. Profits first budgeting is like the family that says "Okay, we are going to save $1000 a month and go without until we can put that $1000 into a savings account."

Cut ruthlessly to earn.

You must micromanage. Expect someone else to do something and 90% of the time it won't get done. You should wear the badge of control freak with pride. Always circle back and follow up to make sure every task was in fact done. With a small business you have to know everything that is going on at all times.

In a small business, you don't have the time or money to correct bad mistakes or to constantly be making the same mistakes. Small businesses fail too fast. Doling out extra responsibility and praise, and hoping that workers will just somehow magically rise to the occasion is wishful thinking.

Small business owners have an unlimited capacity for deluding themselves until they are broke.

Implement required changes without mercy. When needing to confront people, you can ease the process by asking permission to be confrontational at the onset of the conversation.

Remember, you can always hire someone better for less.

This is a great book to get the entrepreneur's juices flowing and remind him or her of the basics over and over again. If you are in business and you have not figured out that profit is the only thing that is worth working for then, as Cloutier says at some point 'you'd better go out and kill yourself'.

One last thing from Cloutier’s chapter about ending denial, question nine from his denial pop quiz.

What do you consider to be the most accurate barometer of your businesses success?

A:    Profits and cash

B:    Profits and cash

C:    Profits and cash

D:    Profits and cash

In what seemed a never ending parade of bad news, poorly presented sessions and a lack of ability to answer anyones questions, I was struck by how good the about to take place myRA accounts presented at the retirement session at July’s IRS Nationwide Tax Forum really is.  

From the Department of Treasury web site:

For businesses, making myRA available to employees is straight-forward.  Treasury will handle account set-up and maintenance and will provide informational materials for business owners to share with their employees. There is no employer-match or contribution.  In fact, all that interested employers have to do is to make Treasury-provided program materials available to their employees and set-up ongoing payroll direct deposits into myRA for interested employees.  myRA is intended for employees who do not have access to an employer-sponsored plan or who are not eligible for their employer’s plan.  myRA is not intended to replace current employer​-sponsored retirement plan offerings.  

For workers, myRA is simple, safe and affordable.  Employees will be able to start saving with an initial deposit of as little as $25 and recurring contributions each pay period of $5 or more.  Account balances are protected--they will never go down in value, and there are no fees for savers to participate. The accounts are also portable so if savers change jobs, they can maintain their accounts across multiple jobs.

Contributions to a myRA are made with after-tax dollars, and when savers retire, they won’t have to pay taxes on what these accounts earn, provided they meet the relevant Roth IRA requirements.

While myRA is for employers of all sizes, Treasury knows that this program has the potential to be a powerful tool for small business owners who want to help their employees begin to save for retirement.

  

As an incentive to small business employers to offer the the myRa program the government is going to offer a tax credit for your troubles.  Although I read some criticisms of the program while researching it,  this is a  program that even the lowest paid employee can participate in, a minimal amount of periodic savings deposit requirement, the principal amount of the account is backed by the federal government, and a tax credit for allowing your employees to participate, adding up to a very good thing. We will forward you information after the Treasury Department officially begins offering the accounts, hopefully this fall.

To the contrary I couldn’t help thinking that the enforcement of the Obamacare employer mandate, as presented at the IRS Nationwide Tax Forum, is going to pretty much be mission impossible.   

2014 was the year that the Obamacare was suppose to impose the employer employee health care  mandate was scheduled to be implemented. It obviously wasn’t implemented.  For 2015 the employee health care mandate was again postponed for all employers with under 100 employees.  By my estimation this postponement covered nearly 95 % of all businesses in the United States.  Safely after election day the employer health care mandate will finally be in force for all businesses with more than 50 employees.

If you are an employer, and are mandated to cover your employee’s health insurance and you don’t, you are subject to a penalty of $2,000 per employee.  Or if you have any employee getting a subsidy from the Healthcare Marketplace and you are not providing this employee health insurance, you are subject to a penalty of $2,000 per employee.   Here is the rub.  There are no forms to file, well kind of.  The IRS is going to send you a bill, relying on information provided to them from three sources; Insurance companies, The Health Insurance Marketplace, The Employer.

Under current IRS Obamacare rules, three new forms have been developed to determine whether an employer is subject to the $2,000 penalty. The plan is for the already overburdened IRS to process these additional forms, compare the information, make a determination if the employer is in compliance. and assess any penalties if applicable.  IRS currently processes, rather poorly, not my opinion but that of the Treasury Inspector General For Tax Administration (TIGTA), 173 million tax forms a year. I couldn’t find an estimate of the number of additional forms that Obamacare will generate, but it has to be in the tens of millions.

As proof of IRS’ inability to handle the upcoming responsibility to determine the employer mandate you don’t have to look any further than how it is currently enforcing other current portions of the Obamacare taxes. According to Yahoo news, Obamacare has instituted an excise tax – equal to 2.3 percent of the sales price of medical devices – that took effect in January, 2013  and is estimated to bring in about $20 billion through 2019, according to the Joint Committee on Taxation has said. Auditors say the IRS had originally estimated that the tax would bring in about $1.2 billion in the second and third quarters of 2013 – but it’s only received $913.4 million. Under the law, producers and manufacturers are required to file Form 720 that reports the medical device tax on their tax returns. But when TIGTA went to review how the agency was processing the tax returns this year, it found the agency had no way to identify which medical device manufacturers were required to pay the tax. It also had no controls in place to “ensure the accuracy” of the tax revenue reported. One can come to the conclusion that when the employer mandate is finally instituted next year the same results are in store.  Like I said mission impossible.

One final note from the IRS Nationwide Tax Forum.  You really are going it alone when it comes to tax law and certainly don’t rely on the IRS for help. I learned that a recent tax court case dealing with the number of allowed IRA rollovers is limited to one per taxpayer per year. This ruling is contrary to information that had been written in the previous IRS publications dealing with IRA rollovers. The ability to execute IRA rollovers on a one-per-IRA basis has been described in detail in IRS Publication 590, Individual Retirement Arrangements (IRAs), for at least 20 years “IRS publication is not official guidance” wrote the tax court. In the case Bobrow v. Commissioner, the Court looked at a situation where the taxpayer, Mr. Bobrow, had made two IRA rollovers within a 12-month period.  Each rollover consisted of assets distributed from a different IRA.  The Court disallowed Bobrow’s IRA rollover on the grounds that he was limited to one rollover per taxpayer per 12-month period, not one rollover per IRA contrary to IRS guidance.  There you go.   

There comes a time in a small business owner’s life where you figure it out or your business dies. The mistake most business owners make is a focus on production, not marketing. The number one mistake that small business owners make is that marketing is subject to the influence of, dare we call it salespeople.  Advertising salespeople.  Master the marketing of your business and you will succeed. 

Shared responsibility under the Affordable Care Act

Under the Affordable Care Act, the federal government, state governments, insurers, employers, and individuals are given shared responsibility to reform and improve the availability, quality, and affordability of health insurance coverage in the United States.

Starting in 2014, the individual shared responsibility provision calls for each individual to have minimum essential health coverage (known as minimum essential coverage) for each month, or qualify for an exemption. Otherwise, they are required to make a payment when filing their federal income tax return.

The provision applies to individuals of all ages, including children. The adult or married couple who can claim a child or another individual as a dependent for federal income tax purposes is responsible for making the payment if the dependent does not have coverage or an exemption.

The provision went into effect on Jan. 1, 2014. It applies to each month in the calendar year. The amount of any payment owed takes into account the number of months in a given year an individual is without coverage or an exemption.

Minimum essential coverage includes at a minimum all of the following:

1. Employer-sponsored coverage (including COBRA coverage and retiree coverage)

2. Coverage purchased in the individual market

• Medicare coverage (including Medicare Advantage)

• Medicaid coverage

• Children's Health Insurance Program (CHIP) coverage

• Certain types of Veterans health coverage

• TRICARE
  
  
  
  

Minimum essential coverage does not include specialized coverage, such as coverage only for vision care or dental care, workers' compensation, disability policies, or coverage only for a specific disease or condition. The Department of Health and Human Services (HHS) has authority to designate additional types of coverage as minimum essential coverage.

The statutory exemptions from the requirement to obtain minimum essential coverage include:

1. Religious conscience: You are a member of a religious sect that is recognized as conscientiously opposed to accepting any insurance benefits. The Social Security Administration administers the process for recognizing these sects according to the criteria in the law.

2. Health care sharing ministry: You are a member of a recognized health care sharing ministry.

3. Indian tribes: You are a member of a federally recognized Indian tribe.

4. No filing requirement: Your household income is below the minimum threshold for filing a tax return. The requirement to file a federal tax return depends on your filing status, age, and types and amounts of income.

5. Short coverage gap: You went without coverage for less than three consecutive months during the year. If an individual has two short coverage gaps during a year, the short coverage gap exemption only applies to the first or earlier gap.

6. Hardship: A Health Insurance Marketplace, also known as an Affordable Insurance Exchange, has certified that you have suffered a hardship that makes you unable to obtain coverage.

7. Unaffordable coverage options: You can’t afford coverage because the minimum amount you must pay for the premiums is more than eight percent of your household income.

8. Incarceration: You are in a jail, prison, or similar penal institution or correctional facility after the disposition of charges against you.

9. Not lawfully present: You are neither a U.S. citizen, a U.S. national, nor an alien lawfully present in the U.S.

Most individuals in the United States have health coverage today that counts as minimum essential coverage and do not need to do anything more than continue the coverage that they have. If an employee enrolls in employer-sponsored coverage for himself and his family, the employee and all of the covered family members have minimum essential coverage. However, it is not necessary for you, your spouse and your dependent children to have coverage under the same policy or plan.

For those who do not have coverage, who anticipate discontinuing their current coverage, or who want to explore whether more affordable options are available, Health Insurance Marketplaces (also known as Affordable Insurance Exchanges) are accessible in every state and the District of Columbia. These Health Insurance Marketplaces help qualified individuals find minimum essential coverage that fits their budget and potentially financial assistance to help with the costs of coverage. The Health Insurance Marketplace is also able to assess whether applicants are eligible for Medicaid or the Children’s Health Insurance Program (CHIP).

For those seeking an exemption, a Health Insurance Marketplace is able to provide certificates of exemption for many of the exemption categories. HHS has proposed regulations on how these exemptions are granted. Individuals will also be able to claim exemptions for 2014 when they file their federal income tax returns in 2015. Individuals who are not required to file a federal income tax return are automatically exempt and do not need to take any further action to secure an exemption.

Because, the individual shared responsibility provision goes into effect in 2014, you will not have to account for coverage or exemptions or to make any payments until you file your 2014 federal income tax return in 2015. However, you should obtain coverage if you do not already have it, or consider your eligibility for an exemption as soon as possible.

If you would like additional information on the individual shared responsibility provision or on health care reform in general, please contact our office. We are happy to answer your questions.