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Tax Blog
“Taxing” is a word synonymous with “onerous” and “wearing.”  Bond Beebe, Accountants & Advisors, have created a user friendly blog called “It’s Taxing” to inform and educate our clients and business associates on timely topics related to tax, estates, accounting and finance.  We hope our blog answers your questions and alleviates the heavy burden and anxiety related to understanding complicated tax laws and related matters. 

 

Virginia Adopts a First Time Home Buyer's Savings Program

Beginning in 2014, Virginia has adopted a program (FHSP) that allows a taxpayer to designate an account as a first time homebuyer savings account and subtract the income from that account from their VA taxable income. (Section 58.1-322) The account can only be used to pay the down payment or closing costs for a single family home (includes condos and co-ops, but not a multi-family building or land) in VA for someone who has never owned a home before. This can include a couple where one person was a prior homeowner but one was not. VA law allows you to designate an existing account, or set up a new one as an FHSP account.

No formal paperwork is required at the financial institution; it must only be disclosed on the taxpayer’s tax return along with the income subtraction. The initial account can contain a maximum of $50,000, and the account value can grow to a maximum of $150,000. Cash or marketable securities may be contributed to or in the account that is designated as the FHSP account. A single taxpayer may set up more than one FHSP account and the contribution and maximum value limitation apply separately to each account. Most any financial institution account will qualify under the law including banks, mutual funds, insurance companies or brokerage accounts.

IRS Releases New Applicable Federal Rates

Each month, the IRS provides various prescribed rates for federal income tax purposes. These rates, known as Applicable Federal Rates (AFRs), are regularly published as revenue rulings. 

The AFRs for February 2015 are as follows:

Annual Semi-Annual Quarterly Monthly
Short-Term: 1-3 years 0.48% 0.48% 0.48% 0.48%
Mid-Term: >3 & up to 9 years 1.70% 1.69% 1.69% 1.68%
Long-Term: >9 years 2.41% 2.40% 2.39% 2.39%

 

Please click here to see the complete revenue ruling.

Qualified Excludable Transportation Benefits

Retroactive Guidance for 2014

The IRS has issued Notice 2015-2, which provides employers guidance on how to deal with the retroactive (Section 103 of the Tax Increase Prevention Act of 2014 enacted 12/19/14) increase in the maximum monthly exclusion afforded employees from $130 to $250 for 2014. The increased exclusion is applicable to employer-provided transit passes and commuter highway vehicle (vanpooling) transportation benefits and puts them on par with the exclusion for qualified parking for tax year 2014. Such benefits are excluded under Section 132(f)(2)(A) of the Internal Revenue Code.


Within Notice 2015-2, the IRS has spelled out a special administrative procedure that is applicable to employers who have not filed their fourth quarter Form 941 and would like to avoid filing amended 941’s for all quarters in 2014. In order to qualify for this procedure, the employer must repay or reimburse their employees that qualify for such benefits the over-collected FICA tax on the “excess transit benefits” for the entire 2014 prior to filing the fourth quarter Form 941.

For those employers that have already filed their fourth quarter Form 941, they are precluded from this special procedure and must file an amended 941-X for each quarter that the repayment or reimbursement is applicable.

Affordable Care Act Update: Shared Responsibility

With 2014 coming to a close, you may be hearing more buzz about the new health care tax. This year was the first year that the Shared Responsibility provision of the Affordable Care Act was in effect. Under this provision, you are required to either have qualified health care coverage or pay a penalty with your annual income tax return. This applies to you and any dependents you are eligible to claim (regardless of whether you claim them or not).

So what does it mean to have qualified health care coverage? The good news is that if you have health insurance, it is probably qualified. Qualified health care coverage, also known as minimum essential coverage, includes a wide range of insurance options from employer sponsored health insurance to government programs like Medicare. To see a full list of what qualifies as minimum essential coverage, visit Healthcare.gov’s qualified coverage page.

If you find that you do not have qualified coverage, you may owe a Shared Responsibility payment with your Federal tax return. But before you break out the calculator, confirm that you are going to owe the payment at all. There are several circumstances under which you may be exempt even if you did not have coverage. For example, if coverage is considered unaffordable or you were uninsured for less than three consecutive months, you may qualify for an exemption. For details on these and other exemptions, visit Healthcare.gov’s fee’s & exemption page.

Achieving a Better Life Experience (ABLE) Act of 2014

Earlier this week, when the Senate passed the Tax Increase Prevention Act of 2014, they not only approved a number of tax extenders, but they also passed the Achieving a Better Life Experience (ABLE) ACT as well. The ABLE Act, which applies to tax years beginning after December 31, 2014, allows each state to establish a new type of tax-advantaged savings program for disabled individuals and families with disabled children. These new accounts will operate in a similar fashion as 529 college savings accounts, where contributions can be made to an account for a qualified beneficiary and the earnings and qualified distributions will not be subject to income tax.


Qualified Beneficiary

An ABLE account can only be established for a qualified disabled beneficiary. A qualified beneficiary can be determined in two ways:

  1. The individual is entitled to disability benefits under the Social Security disability insurance program or the Supplemental Security Income (SSI) program, and the individual became disabled before reaching the age of 26; or
  2. A disability certification for the individual, signed by a licensed physician, has been filed with the IRS for the tax year certifying that the individual has a medically determinable physical or mental impairment and that the disability occurred before the individual reached the age of 26. 

It is important to note that in both scenarios, an individual must have become disabled before reaching the age of 26.

One Year Tax Extenders Package Passed in the Senate

Just in time for year-end tax planning, the Senate passed the tax extenders bill by vote of 76 to 16 on Tuesday, December 16. As discussed in our previous post, this bill includes many previously expired tax provisions that will be extended through December 31, 2014. The bill will be sent to the President for his signature and is expected to be signed into law quickly. 

An Alternative to Capital Gains Taxes: Donating Stock to Charity

This time of year many individual taxpayers are seeking ways to reduce their 2014 tax bill with April right around the corner. It is no secret tax rates have increased beginning January 1, 2013 leaving some with an uncomfortable reality last April. Plus, many previous beneficial tax provisions have expired on December 31, 2013 and without an extension by Congress*, tax preparers and clients alike are left searching for alternatives to reduce their tax liabilities.

Rest easy, there is one tax planning strategy that can realize the appreciation, increase your itemized deductions and reduce your tax bill all at the same time. Taxpayers are eligible to take a charitable deduction for contributions of long term capital gain property to qualified charities.

Long term capital gain property would include stocks, mutual fund shares, real estate held for investment and a few other similar types of investments held longer than one year. Many people make cash contributions to their favorite charities throughout the year, but instead of cash, you could donate stock at its fair market value and accomplish a similar deduction. This planning tip is effective because it alleviates the need to sell the security in your portfolio and pay capital gains tax on the appreciation above your historical cost basis then to later make a cash contribution to the charity. In other words, you can skip the sale of the security and make the contribution of the security directly to the qualified charity. Many qualified charities are capable of receiving this type of property just as easily as the charity would receive a cash contribution.

Tips for Year-End Charitable Contributions

The IRS has issued a news release (IR 2014-110) to remind taxpayers of the important tax law rules and documentation requirements that they should follow when making donations to charity.


Rules for donations of clothing and household items. To be deductible, clothing and household items donated to charity must be in good used condition or better. Clothing or household items (e.g., furniture, furnishings, electronics, appliances, and linens) for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Be aware of this rule and the value you intend to claim before you make the donation. In practice, this is a burden that few taxpayers are willing to bear, which can result in them receiving no benefit at all. Donors must get a written acknowledgment from the charity for all gifts worth $250 or more that includes the name of the charity, date of the contribution and a description of the items contributed. In practice you should have this receipt for all donations of property. If a donation is left at a charity's unattended drop site, you should keep a written record of the donation that includes this information. It is good practice to take pictures of your items to substantiate their condition as well as their existence. Make an itemized list of your contribution and note the value of each item prior to making the donation. Receipts that have generic listings like “3 bags of clothes: $500” have been disallowed due to a lack of detail that is considered a lack of substantiation by IRS.

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