Health Care tax issues- Flexible spending new rules

The Affordable Care Act was enacted on March 23, 2010.



Effective Jan. 1, 2011, the cost of an over-the-counter medicine or drug cannot be reimbursed from Flexible Spending Arrangements or health reimbursement arrangements unless a prescription is obtained.

Exceptions: insulin, medical devices, eye glasses, contact lenses, co-pays and deductibles. The new standard applies only to purchases made on or after Jan. 1, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer’s plan. A similar rule goes into effect on Jan. 1, 2011 for Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs). Employers and employees should take these changes into account as they make health benefit decisions for 2011.

U.S. Economic Indicators (Unemployment rate and Capacity Utilization %)

August 2010

The US Dept. of Treasury release yesterday their Monthly economic data yesterday; here are two...

The unemployment rate is 9.6% and the capacity utilization rate is 74.7% for the month of August. Not much change from last month.

In periods of economic prosperity the capacity utilization rate (i.e., the rate at which production capacity is operating) range in the 80%+.

Source: US Dept of Treasury

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Injury Spouse Claims

I was asked about this topic, so let me talk about it in general.

What is the general definition "injured Spouse"?
this is where you submit a claim to the IRS for wrongfully appling your refund to satisfy a liability (ex., federal taxes, loans, child support, etc.)arising from a marriage relationship.

Some of the issues you may encounter are:

-Income and Taxes reported...
-Commnunity property laws (ex., people who live in TX, AZ, CA, ID, LA,NM, WI, WA, and NV.) requires special treatment...
-Are you personally liable?

After you determine that you qualify and a valid claim was calculated you need to file the proper form to the IRS (F-8379)to get relief.


Source: IRS.gov

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TAX Treaties

In a ceremony held on May 27, 2010 at 6:30 p.m. local time at the OECD in Paris, France, officials from seventeen countries signed the Protocol in order to bring the existing Convention into conformity with current international standards for the exchange of information for tax purposes between national revenue authorities. For example, the Protocol provides for the full exchange of information on request in tax matters without regard to a domestic tax interest requirement or bank secrecy laws. The proposed Protocol also provides updated rules regarding the confidentiality and permitted uses of exchanged information as well as the level of detail that countries must provide when making a request for information. The Protocol also permits countries which are not members of the OECD or of the Council of Europe to become parties to the Convention, subject to unanimous consent by the existing parties.

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Do you really need to file a Federal tax return?

This is the rule for 2009:
It would all depends on many factors, but mainly is Gross Income (GI) and filing status.

Single-
under 65 with GI of $9,350 or more
65+ with GI of $10,750 or more

Head of Household-
under 65 with GI of $12,000 or more
65 + with GI $13,400 or more

Married Filing together-
under 65 with GI of $18,700
65 + with GI of $19,800 (one Spouse)
65 + with GI of $20,900 (both Spouses)

Married filing separately-
age is not a factor, GI $3,650 or more

Widowed (an remains a widowed by year end)with dependent child-
under 65 with GI of $15,050
65 + with GI of $16,150

That is the rule, however, failure to file a tax return may trigger an IRS notice even when a tax return is not required.

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Tax Exempt Organization - filing regs.

Most tax-exempt organizations, other than churches, must file a yearly return or notice with the IRS. If an organization does not file a required annual return for three consecutive years, the law provides that it automatically loses its tax-exempt status. Loss of exempt status means an organization must file income tax returns and pay income tax, and its contributors will not be able to deduct their donations.

What must be filed this year depends on the organization’s financial activity:

Form 990-N If Gross Receipts (GR) Less or equal $25K
Form 990-EZ If GR > $25k <$1 million and Total Assets (TA)of < or =$2.5 Millions. Form 990 If GR > or = $500K or TA > or =$1.25 million.
Form 990-PF Private Foundation.

Source IRS

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Haiti Earthquake-relief for taxpayer

The Internal Revenue Service today issued guidance that designates the earthquake in Haiti in January 2010 as a qualified disaster for federal tax purposes. The guidance allows recipients of qualified disaster relief payments to exclude those payments from income on their tax returns. Also, the guidance allows employer-sponsored private foundations to assist victims in areas affected by the January 2010 earthquake in Haiti without affecting their tax-exempt status.
Qualified disasters include Presidentially declared disasters and any other event that the Secretary of the Treasury determines to be catastrophic. The IRS has determined that the earthquake in Haiti that occurred this month is an event of catastrophic nature for purposes of the federal tax law.

The IRS will presume that qualified disaster relief payments made by a private foundation to employees and their family members in areas affected by the earthquake in Haiti to be consistent with the foundation's charitable purposes. Source: IRS Code.

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Which tax return form should I use?

To file your 2009 individual tax return, you’ll have to decide which form to use…unless you e-file. Whether you use e-file or prepare on paper, using the simplest form will help avoid costly errors or processing delays.

Which IRS form to file?

Use the 1040EZ if:

Your taxable income is below $100,000
Your filing status is Single or Married Filing Jointly
You and your spouse – if married -- are under age 65 and not blind
You are not claiming any dependents
Your interest income is $1,500 or less
You are not claiming the additional standard deduction for real estate taxes, taxes on the purchase of a new motor vehicle, or disaster losses

Use the 1040A if:

Your taxable income is below $100,000
You have capital gain distributions
You claim certain tax credits
You claim deductions for IRA contributions, student loan interest, educator expenses or higher education tuition and fees
If you cannot use the 1040EZ or the 1040A, you’ll probably need to file using the 1040.

You must use the 1040 if:

Your taxable income is $100,000 or more
You claim itemized deductions
You are reporting self-employment income
You are reporting income from sale of property

Generally speaking these are the main reasons, however you must consult your license professional to determine which one fits your particular situation.

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Estimated Taxes are due January 15, 2010...

Individuals- Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough.

If you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return.

Corporations - You generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return.

Estimated tax requirements are different for farmers and fishermen.

You want to estimate your income as close as you can to avoid penalties. You must make adjustments both for changes in your own situation and for recent changes in the tax law.

When To Pay Estimated Taxes

For estimated tax purposes, the year is divided into four payment periods. Each period has a specific payment due date. If you do not pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return.

If it is easier to pay your estimated taxes weekly, bi-weekly, monthly, etc. you can, as long as you have paid enough in by the end of the quarter.
(SOurce: IRS)

Consult your license professional.

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Do you file electronically?

Advantages of filing electronically.

Last year, 2 out of 3 tax returns were filed electronically. Approximately 95 million already file electronically.

1. It’s fast. Your tax return will get processed more quickly if you use e-file. E-file software reduces the chance of making errors when you prepare your return. These are typically identified before filing is completed.

2. If you choose to have your tax refund deposited directly into your bank account, you will have your money in as few as 10 days, from the time it gets accepted by the IRS.

3. When you file a tax return electronically, the IRS is fully committed to protecting your information on our tax processing systems.

4. If you owe money to the IRS, e-file also allows you to file your tax return early and delay payment up until the due date. I suggest few days before the due date to make sure.

For a modest fee, you can have your tax return filed by your favorite license tax preparer.

(Source: IRS)

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