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Archive for Annette Nellen

Revenue Magic (That Should Be Avoided)

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H.R. 1891 (114th Congress), the African Growth and Opportunity Act Extension and Enhancement Act of 2015, sponsored by Congressman Paul Ryan, extends the “African Growth and Opportunity Act, the Generalized System of Preferences, the preferential duty treatment program for Haiti, and for other purposes.” It is a revenue loser, but has a supposed revenue offset. That offset is really a fake in that it doesn’t raise any revenue, it just accelerates revenue into an earlier year that falls within the 5-year budget measurement period for the bill.

The shifting of tax revenues is accomplished by accelerating corporate estimated tax payments. H.R. 1891 proposes to modify IRC Section 6655 as follows: Read more

IRA Contribution By April 15 May Prevent Paying Back Premium Tax Credit

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The Premium Tax Credit (PTC) for individuals who purchased health insurance on the Exchange (Marketplace) is an important tax break. As income goes up, this subsidy in the form of a refundable credit decreases. Then, it hits a cliff and completely disappears if one’s household income exceeds 400% of the Federal poverty line (FPL). This can result in a tax bill of thousands of dollars!

Here is an example. A married couple, both age 64, thought their 2014 income would be about $62,000. Being eligible for insurance on the Exchange, they purchased a policy and obtained a PTC of $14,112. When they file their return, they realize they actually have $63,000 of income for 2014. this is above 400% of the FPL so they must repay all of the $14,112 PTC! If they can drop their income to $62,040 (400% of the FPL for 2014), they Read more

Challenges of Taxing Gambling Winnings

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Gambling winnings are taxable – include them on line 21 of Form 1040 as other income. You can only deduct your gambling losses if you itemize your deductions (Schedule A). How do you know if you had winnings or losses? Often, it is easy. You buy ten lottery tickets at $1 each and one is a winner, let’s say $500. Of the $500, $1 is considered a return of your investment and is not taxable. So, $499 goes on line 21. The $9 spent for the losing tickets is a loss for Schedule A.

What about a trip to the casinos? or multiple trips during the year? Do you track each bet, such as at a slot machine? That sounds unrealistic. The IRS says a session of play can be the bet. So, start at a machine with $100 and end up with $150 and you have $50 of winnings. Even if that also includes a $1,300 jackpot (for which the casino will give you Read more

Politics And Taxes – Why Call For Abolishing The IRS?


We now have two presidential candidates who promote abolishing the IRS – Senator Ted Cruz and Senator Rand Paul. (For example, see Christian Science Monitor of 3/25/15 on Cruz and Citizens United on Paul.) Why would they make such an odd statement? They must know that a government agency is needed to help taxpayers comply with the tax law, collect taxes, and use audits and other techniques to be sure taxpayers have properly computed and paid their taxes. While both men also call for tax reform, there would still be taxes. And there would still be complexities. The size of a tax return (such as a postcard) does not mean it is simple. It all depends on how much information is summarized and given to the IRS. Today’s income tax could go on a postcard (total income less deductions, and the net tax); it would still be complicated to compute these figures. Read more

Designing Sales Tax Exemptions – What Is Necessary?


Several sales tax exemptions fall under the “necessity of life” category – or at least that is typically how a state might describe them. For example, see page 1 of California Board of Equalization Pub 61 which lists food, health and housing under this category. One that caught my attention recently is Idaho’s addition of  “eyeglasses and eyeglass component parts” as a sales tax exemption effective July 1, 2015.

While the lens are health related, the frames are often fashion related. Frames range in price from $50 including the lens (!) to over $250 for just the frames. If I’d been asked, I would have suggested that Idaho just exempt the cost of the lens and the cost of a basic frame (perhaps $20). The rest should be subject to sales tax. That helps the system be more equitable as expensive frames are not a necessity of life and more likely to be Read more

Another Affordable Care Act Oddity


To help more people obtain health insurance, the Affordable Care Act (ACA) provides a subsidy in the form of a refundable, advanceable tax credit – the Premium Tax Credit (PTC). Generally, if your household income is at least 100% of the Federal poverty line, but not over 400% of that line, and you are not offered affordable coverage from your employer, you are eligible.

For many people, their household income is roughly the same each month. But not for everyone. Perhaps you started the year with monthly income within the eligibility range and obtained subsidized insurance for those months. But, then you get a better paying job or a bonus (but still no offer of affordable health insurance from your employer), and your annual household income goes above 400% of the FPL? Well, then you have to repay the Read more

Need For Greater Tax Literacy And Regulation of Preparers

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I was shocked by the March 13, 2015 IRS release warning individuals to chose their tax professional carefully. The IRS found that some “unscrupulous preparers” instructed their clients to make individual shared responsibility payment directly to the preparer! That is stealing!

I fault the clients, preparers and the complex system.

The IRS has tried to regulate all return preparers but been held up by a need for a statute change that Congress will have to address (see quick summary from IRS on this). Of course, truly unscrupulous people will still find a way around the law.

So, more is needed to educate individuals about the tax system so they better understand Read more

Busy Season Updates – Tangible Property Regulations And Affordable Care Act

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Well into the start of busy season, the IRS issued important guidance on some parts of the Affordable Care Act (ACA) and how small businesses can adopt the tangible property regulations (TPR).  I’ve got a summary of the ACA updates (and beyond) in a short article in the 3/12/15 AICPA Tax Insider – An update on Affordable Care Act busy season developments.

Here is my summary of the TPR items as well as a recent news release by the California Franchise Tax Board on conformity with TPR.

Policy Item: Both the ACA items (particularly the relief from the $100/employee/day penalty for health reimbursement arrangements (HRAs) that violate ACA provisions), and the TPR Read more

Tax Filings By Same-Sex Couples

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After the US Supreme Court’s decision in Windsor in 2013, tax filing for most same-sex married couples got easier because they were then allowed to file as married at the federal level.  However, that might not have been the case at the state level if the state did not recognize same-sex marriage.  But, states are changing and a few states, including Virginia and Wisconsin now require all married couples to file as married filing joint or married filing separately.

So, how you filed your state return for 2013 might not be the same for 2014.  Same-sex couples should check to see if state law has changed to allow for (require) filing as married. Read more

Obamacare Confusion – Real And Made Up


Our health care system is too complex. I am not only referring to the numerous tax provisions in the Affordable Care Act (ACA or Obamacare), but the system itself.  For example, if you have health insurance, do you know what it covers, how costs are computed, how insurance companies and the medical profession make money?

On March 4, the US Supreme Court heard oral argument in King v Burwell on whether individuals who obtained health insurance through the federal exchange (because their state did not establish its own exchange), are entitled to a Premium Tax Credit (PTC).  The PTC provision in the Code (Section 36B) makes reference to state exchange. The Administration interprets that as also meaning a federal exchange. Millions of individuals have obtained (in 2014) and are currently obtaining for 2015, a PTC to help pay for Read more

Bitcoin Transaction Reporting


A growing number of individuals and businesses own bitcoin or use it for transactions (perhaps with a third party actually handling the bitcoin to cash exchange). So, more people, including tax practitioners, need to know the federal guidance at Notice 2014-21.

I was interviewed recently for an article in Business Insider by Jonathan Marino on the topic. The article is titled: “Bitcoin will be a big mess for both Bitcoin holders and the IRS.” That may be true for some, but it doesn’t necessarily have to be.

Certainly, if an individual has been using bitcoin regularly and not doing anything to track the basis and value for each transaction, they have some catching up to do. If someone gets on a system of tracking, they should have the data all ready when it comes time to Read more

Taxable Income of A Marijuana Business

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Despite marijuana operations at the state level being legal at the state level since 1996 in California (and now many states), tax guidance has been sparse. A recent, non-binding Chief Counsel Advice memo sheds some light on how the UNICAP rules apply (or don’t apply), but more is needed.

I’ve got a short article in the AICPA Tax Insider today about the CCA and its meaning – here.

A few more observations beyond the article: While the CCA basically says that the UNICAP rules do not allow a seller of a controlled substance, such as marijuana, to treat more costs as inventoriable, there seems to still be some leeway for a producer. Producers Read more