Tag Archives: taxes

4 New Ways You Can Avoid Fines For Not Having Health Insurance

There are already more than a dozen reasons people can use to avoid paying the penalty for not having health insurance. Now the federal government has added four more “hardship exemptions” that let people off the hook if they can’t find a marketplace plan that meets not only their coverage needs but also reflects their view if they are opposed to abortion.

It’s unclear how significant the impact will be, policy analysts said. That’s because the penalty for not having health insurance will be eliminated starting with tax year 2019, so the new exemptions will mostly apply to penalty payments this year and in the previous two years.

“I think the exemptions … may very marginally increase the number of healthy people who don’t buy health insurance on the individual market,” Timothy Jost, emeritus professor of law at Washington and Lee University in Virginia who is an expert on health law.

Under the new rules, people can apply for a hardship exemption that excuses them from having to have health insurance if they:

  1. Live in an area where there are no marketplace plans.
  2. Live in an area where there is just one insurer selling marketplace plans.
  3. Can’t find an affordable marketplace plan that doesn’t cover abortion.
  4. Experience “personal circumstances” that make it difficult for them to buy a marketplace plan, including not being able to find a plan in their area that gives them access to specialty care they need.

In California, two of those exemptions will be particularly relevant — the one related to abortion coverage and the one for people in counties where only one insurer sells through the state’s Affordable Care Act marketplace, Covered California.

The first new exemption, for people in areas with no marketplace plan, isn’t relevant for consumers anywhere in the United States this year. Since the Affordable Care Act’s marketplaces opened, there have been no “bare” counties.

However, in about half of U.S. counties — in which 26 percent of enrollees live — there is only one marketplace insurer this year, according to the Kaiser Family Foundation. (Kaiser Health News, which produces California Healthline, is an editorially independent program of the foundation.)

This includes California, where Anthem Blue Cross exited six counties and other communities this year, leaving an estimated 60,000 people with only one insurer.

The counties of Monterey, San Benito, San Luis Obispo, Santa Barbara, Inyo and Mono were left with only one insurance option: Blue Shield of California.

As for the abortion exemption, in many places it won’t be an issue either. Women in 31 states didn’t have access to a marketplace plan that covered abortion in 2016, according to a Kaiser Family Foundation analysis.

By California law, abortion services must be covered in marketplace plans as well as by Medi-Cal, the state’s Medicaid program, and by most private health plans outside of the marketplace — except employer-funded ones. That means women in the Golden State might have trouble finding insurance that excludes abortions, experts said. New York and Oregon also have similar laws.

The ACA established several different types of exemptions from the penalty for not having coverage. Among them are exemptions for not being able to find coverage that is considered affordable or being without insurance for less than three consecutive months in a year. People claim these more common exemptions when they file their tax returns.

Hardship exemptions that had already been on the books protected people who faced eviction, filed for bankruptcy or racked up medical debt, among other difficulties. Consumers apply for these exemptions by submitting an application to the ACA insurance marketplace.

The new hardship exemptions apply to people in all 50 states, according to an official at the federal Centers for Medicare & Medicaid Services, which oversees the health law’s insurance marketplaces. To apply, people generally need to provide a brief explanation of the circumstances that made it a hardship for them to buy a marketplace plan, along with any available documentation, when they submit their application to marketplace officials. They can apply for the current calendar year or going back two years, to 2016.

It’s difficult to gauge how many people will try to take advantage of the changes, said Tara Straw, a senior policy analyst at the Center on Budget and Policy Priorities.

“People aren’t sure how to apply or if they’re eligible, and that discourages them from applying,” Straw said.

The penalty for not having health insurance in 2018 is the greater of $695 or 2.5 percent of household income.

During the 2017 filing season, there were more than 106 million tax returns reporting that all family members had health insurance, and nearly 11 million tax returns that claimed an exemption from the requirement to have it, according to a report from the Treasury Department’s inspector general for tax administration. In addition, more than 4 million returns reported paying penalties totaling nearly $3 billion for not having health insurance.

People often don’t realize they may owe a penalty until it’s time to do their taxes, said Alison Flores, a principal tax research analyst at H&R Block’s Tax Institute. H&R tax preparers first work to see if clients can qualify for an exemption that can be claimed on their tax returns. If that doesn’t work, they move on to the hardship exemptions. The preparers help people get the hardship exemption application, but it’s up to consumers to send it to the marketplace and get the exemption certificate.

The federal guidance about the new exemptions was released April 9, shortly before the end of the income tax filing season. People who’ve already filed their taxes and qualify for the new exemptions for 2016 or 2017 and get marketplace approval can file an amended tax return to receive a refund of any penalty they paid, said Katie Keith, a health policy consultant who writes regularly about health reform.

Bitcoin – The IRS stated it is taxable. Now what?

BitcoinOn March 25, 2014, the Internal Revenue Service (IRS) released Notice 2014-21 stating that virtual currency is treated as property. In English, this means that virtual currency like Bitcoin will be subject to income tax just like it is treated as cash or property.  The taxability will depend on the type of transaction and how it is received.  The type of tax treatment will be similar based on current transactions dealing with cash and existing tax laws.  Let’s look at three common examples:

Employment & Independent Contractor Relationship:  We all know, that if you work for someone as either a employee or independent contractor and you are paid in cash, that the cash amount is taxable as compensation or income.  Thus if you work for someone and they pay you in Bitcoin or another virtual currency, the IRS is now stating that transaction is taxable based on the fair market value (FMV) on the day of receipt (assuming the taxpayer is using the cash basis of accounting).  If a taxpayer is using the accrual method of accounting, income would be triggered differently.  Thus the employee or contractor would be taxed just like they received cash.  Some items to consider are:  (1) Will you receive a W-2 or 1099-k?, (2) The income most likely would be subject to self-employment tax, or Federal and state withholding, payroll tax and don’t forget additional Medicare tax (AKA Obamacare), (3) Tracking the income at the date of receipt will provide a tax basis / cost, (4) Tracking a gain or loss on the date of conversion from Bitcoin to cash or property.  Thus, there are many things to consider.  The fact that virtual currency will eventually be converted into cash or property creates an additional step not generally created if paid in cash.

Mining Operation: If you own or are a partner in a mining operation then the mining operation will generate income when a Bitcoin or virtual currency is mined.  Depending on the entity structure type  (i.e. sole-proprietorship,  C Corporation, S -Corporation, Partnership, LLC) the taxability of the income will be treated differently.  When a business is in the business to generate a profit, then expenses to run the business can be deductible against the income.  Side note, there are exceptions if the business is deemed illegal.  Anyway, thus in a virtual mining operation, the hardware, software, utilities and other operating expense can be used to reduce the taxable income.  Then depending on the entity structure, the income will be taxed differently.  The mining operation taxability is similar to any other for profit business, but again, another step is created due to a virtual currency being used.  Since virtual currency mining isn’t like normal manual labor mining, the tax issue of this business being active or passive is more relevant.  This again, can change the tax results.  For example, will Net Investment Income Tax (NIIT) / (AKA: Obamatax) be due?

When the virtual currency is mined, the FMV of that currency will generate income.  That currency value on that date should be tracked as it will generate income and also create a tax basis for the currency.  If the virtual currency is exchanged into US dollar, then the transaction has ended and income is generated.  However, if the virtual currency is held for a period of time, then the business should keep track of the FMV on the date it was mined and generated income.  Later when the virtual currency is exchanged into US currency, that transaction will create another taxable transaction based on currency exchange tax laws.  Thus tracking the virtual currency from mined date to exchange date is very important.  As with any business it is also important to make sure the business is properly tracking and supporting expenses and chooses the entity structure wisely.  For example, an S Corporation structure can generate less tax than a sole proprietorship or partnership / LLC.  Entity structures need to be throughly reviewed  based on the business operation and consideration of the partners / shareholders.

Let’s discuss an example.  A mining operation generates three (3) bitcoins.  The value of those bitcoins on the day they are mined is $700 a coin, so income under the new IRS ruling would be  $2,100 for that week. If the bitcoin is exchanged into cash on the mining date, then the income step is over. However, if the bitcoin isn’t exchanged into dollars on the mining date then the company needs to track the bitcoin and later when it is exchanged into cash at $800 a coin, there would be $300 of additional income.  However, if the exchange rate  is $600 a coin, there would trigger a $300 loss.  The mining income and exchange income should be tracked separately due to various tax laws.

If you are part of a pool mining operation, then the above still needs to be considered and then other tax items like, passive versus non-passive come up slightly differently.  Also, the pooling operating agreement should have an operating agreement, explanation about tax ramifications and who is the tax matters partner.  All these items discussed come up with any business.

Investing in Virtual Currency:  If an individual invests in virtual currency, then the transaction should be treated just like any other investment.  For example, buying a stock.  The opportunity to be taxed at the lower long term capital gains rate is possible.  The long term capital gains tax rates are generally either 15% or 20%, and then one must not forget the Net Investment Income Tax (NIIT) / (AKA Obamatax).  The individual will need to track their cost basis / tax basis, the date of purchase, the date of sale and the sales price.  The holding period will determine if the transaction will qualify for the reduced long term capital gains rate or not.

In summary, now that the IRS has taken the position that they will treat virtual currency like property from a tax law perspective, income tax now becomes an issue that virtual currency holders didn’t really have to worry about in the past.  It will be interesting to see any debate about the IRS notice and to see how the community will deal with the IRS notice.  Will the community provide the IRS with W-2’s, and 1099’s, or not?  Will the community report virtual currency holdings or not?  It is hard for the IRS to track transactions if they are not reported, but this IRS notice is telling the taxpayer, the law, and the taxpayer would need to comply.

If we look at how aggressive the IRS has been over the last five years regarding offshore bank accounts then one could argue that this taxation on virtual currency is here to stay. The community and network of virtual currency has also provided support that the currency is valuable and easily converted into good and world currencies.  So, if you are involved with virtual currencies, now is the time to speak with your tax advisor and create a plan on how to deal with the taxation and create a strategy just like any other successful business.

The IRS notice can be found at http://goo.gl/ONYs4y as of today.  However, if the link doesn’t work, go to www.irs.gov and search the website for Notice 2014-21.  Please feel free to ask questions and comments.  Please contact us if we can be of assistance.

How long to keep your income tax records?

Audits (or as the IRS calls them examinations) have been up over the past five years.  I’m sure someone in goverment has told the IRS to find more money as we all know the Federal government has a lot of debt to pay down.  So, if a taxpayer wants to be prepared for an audit, how long should they keep their documents?   Our general answer is four years.  In general, the IRS has three years (the regular statue of limitation) from the filing date to audit a tax return.  Most states have four years to audit as they want time to see if the IRS audits a return.  If the IRS audits a tax return and there are changes which require a taxpayer to pay more tax rest assured that the Federal government will tell the state(s). Then it is the states turn.

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