Wednesday, April 29, 2015

Tips on filing an amended return



Tips on Filing an Amended Return

What should you do if you already filed your federal tax return and then discover a mistake? Don’t worry -- you have a chance to fix errors by filing an amended tax return. Here are 10 tips from the IRS about filing an amended tax return.

1. Use Form 1040X, Amended U.S. Individual Income Tax Return, to file an amended tax return. An amended return can’t be e-filed -- you must file on paper.  Download and print out the form and instructions at www.irs.gov

2. You should consider filing an amended tax return if there is a change in your filing status, income, deductions or credits.

3. You normally don’t need to file an amended return just to correct math errors. The IRS will automatically make those changes for you. Also, do not file an amended return because you forgot to attach tax forms, such as W-2s or schedules. The IRS normally will send a request asking for those.

4. Generally, you must file a 1040X within three years from the date you filed your original tax return or within two years of the date you paid the tax, whichever is later. Be sure to enter the year of the return you are amending at the top of Form 1040X.

5. If you are amending more than one tax return, prepare a 1040X for each return and mail them to the IRS in separate envelopes. You’ll find the appropriate IRS address in the 1040X instructions.
6. If your changes involve the need for another schedule or form, you must attach that schedule or form to the amended return.  You can obtain forms and schedules for past years at www.irs.gov. Click on “Forms & Publications” and then click on the tab for previous years when you get to the Forms & Pubs page.  

7. If you are filing an amended tax return to claim an additional refund, wait until you have received your original tax refund before filing Form 1040X. Amended returns take up to 12 weeks to process. You may cash your original refund check while waiting for the additional refund.

8. If you owe additional taxes with the 1040X, file it and pay the tax as soon as possible to minimize interest and penalties.

9. You can track the status of your amended tax return three weeks after you file with the IRS’s new tool called, “Where’s My Amended Return?” The automated tool is available at www.irs.gov and by phone at 866-464-2050. The online and phone tools are available in English and Spanish. You can track the status of your amended return for the current year and up to three prior years.

10. To use the online “Where’s My Amended Return” tool, enter your taxpayer identification number (usually your Social Security number), date of birth, and zip code. If you have filed amended returns for more than one year, you can select each year individually to check the status of each. If you use the tool by phone, follow the prompts.

The current Actor’s Tax Guide is available throughout 2015 at www.ActorsTaxGuide.com.  If you need to file a corrected return for a previous year, email me at actorstaxguide@comcast.net to get past editions of the Tax Guide, going back to 2009. 

Sunday, April 19, 2015

Plan now for next year! Tax Guide available through 2015



Plan Now for Next Year!

 
Even though you may be worn out from working on your 2014 tax return, now is a good time to plan for next year, especially in the area of keeping good records of your business activities. As you went through your records for last year, what gave you difficulties? Are there some expenses you forgot to record, or receipts you wish you had saved? While these things are fresh in your mind, use your experience now to make things easier for next time.

If you've had trouble accounting for expenses, maybe you need to figure out a new way to keep track of things. I've always been an advocate of hand-written, on-paper records. Even in this new age of electronic record-keeping, the most compelling evidence of your business expenses is old-fashioned: written in your own hand, and at the time the expense was incurred. If you're audited, that kind of record carries the most weight. 

As a tax preparer friend of mine says, "You can't write it off if you don't write it down!"

The process of preparing your tax return also gives you a good opportunity to analyze your business activities and plan for the future. Take another look at your professional expenses. Analyze which expenses were effective in getting work. Are you overspending in some areas that don’t really advance your career? Should you be spending more to promote yourself? 

Now that you’re thinking about what kinds of things qualify as business expenses, you can be on the lookout for deductions. At a SAG Foundation tax seminar in January of 2013, Actor and Tax Practitioner Beth Lynn Kelly said that you should always be thinking, “Is this for my career?” It’s remarkable how many of your regular day-to-day activities are also legitimate business expenses.

Get more ideas from The Actor’s Tax Guide, which will be available through 2015 at www.ActorsTaxGuide.com

Tuesday, April 14, 2015

Eight facts on late filing & late payment penalties



Eight Facts on Late Filing & Late Payment Penalties

April 15 is the deadline for most people to file their federal income tax return and pay any taxes they owe. The IRS may assess penalties for both failing to file a tax return and for failing to pay taxes by the deadline.

Here are eight important points from the IRS about penalties for filing or paying late.

1. A failure-to-file penalty may apply if you didn’t file by the deadline. A failure-to-pay penalty may apply if you didn’t pay all of the taxes you owe by the filing deadline.

2. The failure-to-file penalty is generally more than the failure-to-pay penalty. You should file your tax return on time each year, even if you’re not able to pay all the taxes you owe by the due date. You can reduce additional interest and penalties by paying as much as you can with your tax return. You should explore other payment options such as getting a loan or making an installment agreement with the IRS to make payments, which will reduce the interest rate.

3. The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.

4. If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of one-half of one percent (.005) of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.

5. If you requested the six-month filing extension in a timely fashion AND paid at least 90 percent of the taxes you owe with your request, you may not face a failure-to-pay penalty. However, you must pay any remaining balance by the extended due date.

6. If both the 5 percent failure-to-file penalty and the half-percent failure-to-pay penalties apply in any month, the maximum penalty that you’ll pay for both is 5 percent.

7. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.

8. You will not have to pay a late-filing or late-payment penalty if you can show reasonable cause for not filing or paying on time.

More information is available at http://www.irs.gov/taxtopics/tc653.html  

Get The Actor’s Tax Guide at http://www.ActorsTaxGuide.com

Tuesday, April 7, 2015

Tips on deducting charitable contributuions



Tips on deducting charitable contributions

Donating to charity makes you feel good and can help lower your tax bill. Here are some tips to help ensure your contributions pay off on your tax return.

1. You must donate to a qualified charitable organization. You can’t deduct contributions you make to an individual, a political organization, or a political candidate.

2. You have to file Form 1040 and itemize your deductions on Schedule A. 

3. If you receive a benefit of some kind in return for your contribution, you can only deduct the amount that exceeds the fair market value of the benefit you received. Examples of benefits you may receive in return for your contribution include merchandise, tickets to an event, a dinner, or other goods and services.

4.  You can deduct your mileage (at 14 cents a mile) and other out-of-pocket expenses you incur in charitable activity.  

5. But you CANNOT deduct the value of your donated time. 

6. Donations of stock or other non-cash property are usually valued at their fair market value, which is the price you would get if you sold the item on the open market.  For household items and clothing (which must be in good condition to be deductible), think of what they would fetch at a garage sale.  If your total deduction for all non-cash contributions for the year is more than $500, you must also file Form 8283, Noncash Charitable Contributions, with your tax return.  Special rules apply to vehicle donations.

7. You must have a written record of your donation in order to deduct any cash gift, regardless of the amount. Cash contributions include those made by check or other monetary methods. That written record can be a written statement from the organization, a bank record or a payroll deduction record that substantiates your donation. That documentation should include the name of the organization, the date and amount of the contribution.

8. To claim a deduction for gifts of cash or property worth $250 or more, you must have a written statement from the qualified organization. The statement must show the amount of the cash or a description of any property given. It must also state whether the organization provided any goods or services in exchange for the gift.

9. If you donate one item or a group of similar items that are valued at more than $5,000, you must also complete Section B of Form 8283. This section generally requires an appraisal by a qualified appraiser.

Bonus tip:  Report only those contributions you actually made in 2014. If you pledged $100 to an organization in December, but didn’t actually pay until January, your deduction will be for 2015, not 2014. However, if you paid by credit card in December but didn’t actually pay your credit card bill until January, you can still deduct the $100 for 2014. Same goes for a check mailed in December that didn’t clear your bank until January: you can deduct it for 2014. 

For more information on charitable contributions, see Publication 526, Charitable Contributions, available at www.irs.gov.  For information about noncash contributions, see Publication 561, Determining the Value of Donated Property.

A CPA told me, “Your explanation of the charitable gifts [in The Actor’s Tax Guide] is probably the clearest, most concise explanation I have ever read.”  Get the book at www.ActorsTaxGuide.com.

Tuesday, March 31, 2015

Best way to pay your taxes due: electronic bank draft



Best way to pay your taxes due:  electronic bank draft


If the bottom line on your tax return is bad news and you owe a balance due, the question is, what’s the best way to pay? 


There are three ways to pay:  You can mail a check, payable to “United States Treasury” (not “IRS”) and enclose the little voucher, Form 1040-V, which isn’t legally required but will help them process your payment.  You can also pay by credit card, which isn’t a good idea, because there’s a 2.5% “convenience” fee.  The best way to pay your balance is by electronic debit, which you can schedule for precisely on April 15. You can hang onto the money until the last minute (or give yourself time to make deposits).  There’s no paper check to get lost and no credit card fee, and the responsibility for timely payment is the bank’s, not yours.



If you can pay in full, bite the bullet and do so.  If you can’t pay the whole amount, pay as much as you can by the due date. The IRS will bill you for the balance and charge interest. You can also set up periodic payments.  You can apply for an online payment agreement or you can set up a payment plan using IRS Forms 9465 and 344-F.  Here’s the link for information:




If you’re in a real hardship position, they’ve shown some flexibility in the past few years, since so many folks have been in a similar situation. The important thing is to contact your local IRS office right away and discuss your situation with them.



Under certain circumstances, if you owe a significant amount, you’ll have to pay a penalty. (It’s Line 79 of the Form 1040.) Even the IRS admits that it’s a bear to figure this out, so pay the balance due and they’ll bill you. If you file your return on time, you won’t owe any additional late penalty.



Finally, if you do have a huge balance due (or conversely, a really outlandish refund coming), you may need to adjust your withholding with your employer(s) and/or change your quarterly payments for your self-employment work.  The Treasury Department has an Electronic Federal Tax Payment System which makes it easy to set up your quarterly payments. You can also have your payments automatically debited from your bank account. Here’s the link: https://www.eftps.gov/eftps/.  To adjust your withholding, file a new form W-4 with your employer(s) and decrease your exemptions and/or request additional funds to be withheld from your paychecks.    



Further discussion about these matters is in Chapter 14 of The Actors Tax Guide, available at www.ActorsTaxGuide.com.

Monday, March 23, 2015

Business Gifts & Entertainment: Use Limits to Your Advantage



Business Gifts & Entertainment: Use Limits to Your Advantage

If you sent gifts of any kind to your clients, agents, casting directors, etc., including holiday greetings, birthday cards, and so forth, you can deduct them as business expenses. There’s a limit of $25.00 per person (not including shipping) per year, so if you sent your agent a $50.00 basket of flowers, you can’t write off the whole thing. However, if you sent the flowers to the agency (several non-related people as co-recipients and one person would not personally benefit from the gift), the individual limit wouldn't apply. If you sent out inexpensive items that were of an obviously promotional nature, such as mugs or pens with your name on them, those aren’t gifts, they’re advertising, and not subject to the gift rules.  Gratuities, such as a tip to your dresser at the close of show, aren’t gifts; they’re payment for services rendered. 

Business entertainment refers to anytime you host a client or potential client, your agent, a casting director, or anyone else who might advance your career, provided that it’s not “lavish or extravagant under the circumstances” (the IRS’s words). It can include things like theatre tickets or taking someone to dinner. And as I posted a couple of weeks ago, a dinner must have a clear, specific business purpose at the time of the event and can't be essentially social in nature. If you treat someone to dinner, you can deduct your own meal (food, drink, tax & tip) as well as your guest’s, and you must have been present at the meal for it to be deductible as entertainment – you can’t discuss business if you aren’t there!

The limit on business entertainment is 50% instead of a dollar amount, so you can use the limits to your advantage. Let's say you bought a ticket for a director to see you in a show. If the ticket was $30, call it a gift and deduct $25. If it was $60, call it entertainment and deduct $30.00.

Chapter Nine of The Actor’s Tax Guide is devoted to travel, transportation, entertainment, and vehicle expenses.  Get it at www.ActorsTaxGuide.com

Tuesday, March 17, 2015

Must a child performer file a tax return?



Must a child performer file a tax return?

If you have dependent child who has worked in the business (or if you ARE a dependent child working in the business), the question often arises about whether or not the child has to file a tax return at all. The IRS says that a dependent must file a tax return if any of the following apply:

• Their unearned income was more than $1000
• Their earned income was more than $6200
• Their gross income was more than the larger of $1000 OR their earned income (up to $5850), plus $350.

Unearned income includes taxable interest, ordinary dividends, and capital gain distributions. (It also includes unemployment compensation, taxable social security benefits, pensions, annuities, and distributions of unearned income from a trust.) Earned income includes salaries, wages, tips, professional fees, and taxable scholarship and fellowship grants. Gross income is the total of unearned and earned income.

Clear as mud? Here's an easy way to figure it out. Take a piece of scratch paper and enter the following:

1. Enter dependent’s earned income, plus $350
2. Enter the minimum amount, $ 1000
3. Compare Lines 1 & 2. Enter the LARGER amount
4. Enter the maximum amount, $ 6200
5. Compare Lines 3 & 4. Enter the SMALLER amount
6. Enter the dependent’s gross income

If Line 6 is more than Line 5, the dependent must file a return.  

Remember that if income taxes were withheld from the child’s income, you may want to file to get a refund, even if they aren’t required to file.  

Chapter Six of The Actor’s Tax Guide is for parents of child performers.  Get the book at www.ActorsTaxGuide.com.

Monday, March 9, 2015

Social meals aren't business deductions



Social Meals Aren't Business Deductions

There’s an active rumor mill out there, and you should be skeptical of anything you hear about deductible expenses, especially if they sound too good to be true.  I heard about a tax preparer who deducted gym memberships and even plastic surgery procedures as professional expenses.  Feces of gentleman cow.  And a while back, I was horrified to learn about a persistent rumor, mostly among younger actors, that whenever you have dinner with your actor friends and talk about the business, it's a deductible business expense. More bull pucky – and it could be dangerous bull pucky if you get audited.  

To be a legitimate deductible entertainment expense, the person you're taking to dinner (or coffee, or whatever) must have the power to hire you or to provide some other clear business advantage to you at the time of your meal, and you must discuss a specific income-producing opportunity, not just your career in general. 

For example:  you take your agent to lunch and talk about signing an exclusive contract and how they might then promote you more actively.  That’s a clear, current business relationship and the conversation is about a specific business activity that is of potential advantage to you, and the meal would be deductible.    

On the other hand, let’s say you have dinner with an actor friend and talk about a certain play you both like. Even if he or she eventually directs that show and casts you in it, the meal in question is essentially social in nature and isn't deductible. 

There's a detailed discussion of travel, entertainment, and vehicle expenses in Chapter 9 of my Actor's Tax Guide, available at www.ActorsTaxGuide.com

Tuesday, March 3, 2015

What sorts of wardrobe & makeup expenses are deductible?



What Sorts of Wardrobe & Makeup Expenses are Deductible?

The general rule about wardrobe and makeup is that if you CAN use something for general street wear, even if you never do, then it’s NOT deductible as a business expense. If you bought a business suit to do a commercial and never wore it for anything else, it’s still not deductible, because you COULD wear it in public. A sequined, gold-lamé business suit would be a different story – it’s obviously a costume and not normal attire, and it’s deductible. Dance wear and shoes ARE deductible, even though you could wear them to the gym or even some places out in public, because they’re considered specialized work clothing -- like a nurse’s scrubs or a construction worker’s safety boots. 

Cleaning, repairs and maintenance of your clothes used on the job ARE deductible.

The same rules apply to hair and makeup expenses. Here, men have it easier, because we generally don’t wear makeup on the street, so guys can probably write off all their makeup expenses. Ladies do wear makeup on the street, so you’re probably limited to deducting only those items of makeup that aren’t suitable for street wear. Hair is much the same: even if a director or designer required you to get a specific haircut or dye job for a role, if the hairstyle is suitable for street wear, it’s not deductible. One exception to the general rule might be for hand models, who have to get more frequent manicures and take other precautions beyond normal grooming to keep their hands camera-ready.

Chapter 8 of The Actor’s Tax Guide discusses more than 25 kinds of expenses actors might incur.  Order your copy at www.ActorsTaxGuide.com

Tuesday, February 24, 2015

Cell Phone Costs: What's Deductible?



Cell Phone Costs:  What’s Deductible? 


Almost everyone has a cell phone these days, and it’s an essential communications tool for actors who need to stay in touch.  It certainly passes the IRS test of an “ordinary and necessary” business expense in our profession.



There may be some confusion if your cell phone is your only telephone service.  IRS rules say that you can’t deduct the base costs of your first phone line.  But the rules are pretty specific that this refers to a LAND line, so your cell service should be deductible even if you’ve ditched your land line and use your cell phone exclusively.



So how do you deduct your cell use?  We all use our cell phones and their associated data plans for personal as well as business matters.  Here’s the method I use.  It’s a little tedious, but it gives you an accurate deduction for the business use of your cell phone, and differentiates between those calls made for W-2 work and those for 1099 work.



Your cell phone bill should detail every call you make. Every month, go through your cell phone bill and highlight your business calls, using different colors for W-2 and 1099. (Doing it monthly makes it easier to remember the specific calls.)  At tax time, first add up the W-2 business minutes each month and divide that by the total minutes used that month.  Second, multiply that month’s bill by the resulting percentage.  Include the added charges for text and data in the total bill, but if you have a family plan, be careful to use the charges for your cell number only.  Then do the same for the minutes related to 1099 work.  Finally, add up all the costs for each month for W-2 and 1099, and voilà! -- you have dollar figures for W-2 and for 1099 that reflect your actual cellular business use for voice, which also gives reasonable prorated amounts for text and data. 



In a tax seminar I gave last year, there was a CPA in attendance who said this was a rock-solid way to calculate your cell phone costs. 



Learn about all your business deductions in The Actor’s Tax Guide.  The 2015 edition is available at www.ActorsTaxGuide.com.

Tuesday, February 17, 2015

Deducting your internet service costs



Deducting your internet service costs

We all pay a substantial amount every month for internet service, and actors use the Internet for lots of business purposes. I subscribe to a couple of online casting services; I get theatre audition postings from a local website; I get my radio audition copy by email and submit my voice auditions by MP3; I submit my pic and résumé to producers and directors electronically; I even use online maps to figure out where an audition is! So it's legitimate to claim part of your internet bill as a business expense.

Now -- your internet access is basically a communication device, right? So I would tend to think of it somewhat like your telephone service. In the Instructions for Schedule C, it says that you can’t deduct the base rate of your first phone land line. But you can deduct costs over and above the base rate of the first line, such as call waiting, voice mail, and other service enhancements, or the business use of a second line, including its base rate. Therefore, it’s reasonable to look at your internet service as a "second line."  Alternatively, you could think of it like your cell phone -- a separate communication device.  So you should be able to claim a reasonable portion of your internet bill as a business expense. 

The trick is, what's reasonable?  You also use your internet service for personal emails, playing games, wasting time on social media sites, etc.  It would be impossible to figure the amount of time you spend in personal vs. business activity.  In terms of time spent, I'd bet it's more personal, but in terms of individual internet searches and log-ons, I would think the business percentage would rise substantially.  I suppose you could look at your email records and figure out the percentage of personal vs. business and extrapolate from that.  But let's just go half and half, which is what I advise for deducting the cost of telephone service enhancements. 

Start with half of your 2014 internet bill.  Deduct the portion of that expense that’s attributable to your self-employment (1099) work on Line 25 (Utilities) of Schedule C, and include the W-2 portion with “Other” expenses on Line 4 of Form 2106. 

There’s a complete discussion of other allowable deductions (and my unique system for allocating this type of expense between 1099 and W-2 work) in Chapter Eight of The Actor’s Tax Guide, available at www.ActorsTaxGuide.com.

Tuesday, February 10, 2015

Deductible Mileage



Deductible Mileage



I think I’ve heard more anxiety expressed about deducting mileage than any other topic, specifically what is commuting and what is not.  Here’s the scoop.



The basic rule is that mileage for job-seeking and career-building activities is always deductible.  These would include actual auditions and interviews, but also meetings with your agent, trips for coaching and lessons, union meetings, and errands to photographers, studios and printers to get your head shots, demos, and résumés.  All these activities are ordinary and necessary in the course of pursuing an acting career, and this is probably most of your mileage. 



Driving to a regular job, including a theatre job, is commuting and is not deductible. We encounter a grey area when it comes to driving to temporary (“freelance”) W-2 jobs.  The Instructions for Form 2106 say that if you have at least one regular work location away from your home and you travel to a temporary work location in the same business, that’s not commuting – and is therefore deductible.  So let’s say you’re doing a show in a theatre (a regular workplace), and then you get a radio spot.  It would seem that your radio spot is a temporary job in the same business.  But what if you’re not doing a “regular” job when you do the radio spot?  Some would argue that since the work is temporary in nature, it should be deductible.



Other people are much more restrictive.  They say that if you’re driving to work, no matter how temporary it is, it’s commuting and non-deductible.  But what if you have a studio in your house?  Then your home is your principal place of business (at least for voice work), and your commute would therefore be zero, and any driving you did away from home would be deductible…..for voice work.  I have a very simple set-up in my house just to record voice auditions, but if I book a job, I go and do it in a studio.  So do I have a workplace in my house or not?



See how iffy it can get? 



Two instances of driving to a job that would be deductible are when you travel to a job outside your regular metropolitan area and when you drive from job to job.   I would also include driving between a job and a job-seeking activity.  That last point is probably the source of what you may have heard about deducting everything except your first and last trip of the day. 



The foregoing discussion applies to W-2 work. The rules for self-employment business mileage as outlined in the instructions for Schedule C are much looser, and I think you can make the case that all your driving is deductible. Again, most of your driving is for job-seeking and career-building, not for shoots and sessions. I can’t give legal advice here.  I would advise you to keep your records as regularly and as accurately as you can, so that whatever choices you make in claiming mileage deductions will be logical and consistent.



Mileage and other deductions discussed at length in The Actor’s Tax Guide:  www.ActorsTaxGuide.com

Tuesday, February 3, 2015

Working with a Pro



Working with a Pro

With tax season now in full swing, one of the main decisions you’ll need to make is whether to hire a professional tax preparer, or to do it yourself. I’ve heard from more than one colleague that actors really aren't interested in working with taxes and would just as soon give a hundred bucks (or more) to a professional preparer and be done with it. If that's your choice, fine. You’re a job creator in the tax preparation industry. But you still need to think about a couple of things.

First, if you choose to go with a pro, make sure he or she is competent and experienced. Ask around and find somebody with a good track record.  And trust your gut.  If you’re not personally comfortable with the person, walk away.  After all, you’ll be sharing some pretty intimate details of your life with them.  The IRS has a web page of “Ten Tips to Help You Choose a Tax Preparer.”  It’s all pretty much common sense, but it’s worth a look.  Note also that all paid tax preparers must now have a Preparer Tax Identification Number (PTIN).  Here’s the link:  www.irs.gov/uac/Ten-Tips-to-Help-You-Choose-a-Tax-Preparer  

Also make sure your tax preparer knows about actors and how our business works. Many tax preparers are totally clueless about actors!  I’ve read some horror stories about tax preparers who completely screwed up the Qualifying Performing Artist rules, reported deductions improperly, and made other significant errors on actors’ tax returns.  Last year, I heard that a tax preparer who caters specifically to actors was deducting gym memberships and even Botox injections as professional expenses!  That's nonsense, and could trigger an audit, which would not be good news for you.

The main thing to remember about using a pro:  YOU are legally responsible for what's on your tax return, even if it was prepared by someone else!

OK, let’s say you’ve found a good tax professional.  The second thing to remember is that even when you use a pro, you’ll still need to prepare!  Accountants charge for the time they spend preparing your tax return, and if you bring in all your records neatly organized, their fee will be a lot lower than if you simply dump a shoebox full of receipts on their desk.  And when you pull your documents together neatly, you can easily answer any questions the preparer might have.  

My friend and tax maven Dean Vivian says that you should bring the following when you meet with a tax preparer:  1) Documentation for all your income – W-2s, 1099s, bank and dividend statements, unemployment statements, etc.  2) Documentation of all your expenses – student loan, medical, child care, charitable contributions, mortgage interest, taxes, etc., and all your professional expenses, preferably neatly organized.  3) If this is your first visit to the tax preparer, also bring a copy of last year’s return. 

I’ll be posting tax tips here about once a week during the tax season.  You can also find mini-tips at my Twitter site every day or so: https://twitter.com/ActorsTaxGuide.

Learn about actors’ unique tax issues in The Actor’s Tax Guide. The 2015 edition will be available soon.

Tuesday, January 27, 2015

Primer on the Affordable Care Act



Primer on the Affordable Care Act

The Affordable Care Act was passed in 2009 and took effect last year, and can affect your tax return in several ways. 

Individual Shared Responsibility

The “Individual Shared Responsibility” provision (sometimes called the “individual mandate”) is key to understanding the tax implications of the ACA. The law requires everyone in your household to have qualifying health insurance, called “minimum essential coverage,” for each month of the year. “Minimum essential coverage” includes employer (or union) provided coverage, government coverage such as Medicare, private insurance, or insurance purchased through a state or federal exchange, a.k.a. “The Marketplace.”

If your entire household had minimum essential coverage for each month of 2014, you simply check the box on Line 61 of Form 1040 and that’s it.  Easy.  If, however, anyone in your household did not have coverage for any month in 2014, you’ll have to determine if you qualify for an exemption or if you’ll have to make a “shared responsibility payment.” 

Exemptions & shared responsibility payment

There are several kinds of exemptions: some you get from the Marketplace and some you just claim on your tax return.  Some are based on your membership in certain groups, some are based on your income, and some are based on other factors. 

If you didn’t have the required coverage for one or more months and you don’t qualify for an exemption, then you need to make a shared responsibility payment.  You pay either according to a flat dollar amount or a percentage of your income.  This payment is capped at an amount equal to a national average for “bronze” level coverage.

You claim your exemption or figure your shared responsibility payment on Form 8965. 

The Premium Tax Credit

The Premium Tax Credit is an income-based program designed to help eligible taxpayers pay for health insurance premiums.  The program is available only if you purchased your health insurance through the Marketplace.  When obtaining insurance through the Marketplace, you provided an estimate of your income and chose to have all or part of your credit paid in advance to the insurance provider, or to wait and claim the credit on your tax return.  If you got insurance through the Marketplace, you should receive a Form 1095-A from your insurer, giving you the information about your credit. If you had too little of your credit paid in advance, you’ll claim a refund on your tax return.  If you got too large an advance credit, you have to repay the difference.  You use Form 8962 in both cases. 

Getting help

IRS Publication 5187, Health Care Law: What’s New for Individuals & Families covers this material in detail and is reasonably user-friendly.  It’s available at the IRS website, www.irs.gov.
  
The IRS also suggests using an electronic tax prep program.  I’m sure they realize how intimidating these new rules are for most taxpayers, and the e-file programs can lessen the hassle and confusion.  The program will ask questions about your health coverage, request the information from Form 1095-A (if applicable), and then use your income figures (and those of your dependents) to calculate your exemption, your shared responsibility payment, or your premium tax credit or repayment.

Be sure to assemble all your health insurance information and the income figures for yourself and everyone else in your household before you start work on this part of your tax return.  And if your health coverage situation is particularly complicated, just get your records together and bring them to your tax preparer. 

There is a whole new chapter in the 2015 Actor’s Tax Guide about the Affordable Care Act.  It will be available soon!