Health care provisions reviewed The two national health care bills—the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act, as signed into law by President Obama last March—sure have been widely discussed in the election battle that ended this Tuesday. The point of both of these laws, in the end, is to require all Americans to be covered by some type of health care. Employers and individuals will be penalized if they choose not to participate. Of course, over 20 states have sued the federal government for overstepping their bounds. Does the federal government really have the right to force people to participate in the health care system or pay a penalty to not participate? If they do, does this also mean that they can penalize people in order to get them to not participate or participate in some other activity? This could be a rather unique way to balance the budget! It also could be viewed as a way to encourage or discourage certain behavior patterns. Americans can do certain things or not do certain things if they are willing to pay for the privilege. The ramifications are endless. If you thought Roe v. Wade was a big case, the experts can hardly wait for the Supreme Court to weigh in on these cases. The Republicans and especially the Tea Party candidates are looking to fully repeal both of these acts. Democrats are not going to go along with this without a fight. That means there will be a big battle that I am sure we will all get very tired of seeing and reading about before things are settled. In any event, there are many provisions that went into effect immediately or are set to go into effect on January 1, 2011. It’s hard to imagine those provisions will be repealed. Most provisions, however, go into effect in 2012 and beyond. In my thinking, those are the prime candidates for being repealed or at the very least being revised. Let’s go over those provisions in effect now or on January 1, 2011 that most likely will remain in effect. First, employers must provide employees with the option of covering adult children under the age of 27. This provision […]
Useful tax tips and information from Jerry Coon of Action Tax Service.
Some tax cuts not well known Next week’s election is one of the more important elections that we have had recently. I won’t over-dramatize the situation, but this election may mean much to you and me in a variety of matters. Since I’m a tax person, I will concentrate on just the potential tax consequences of the election. I say “potential” because no matter who gets elected next Tuesday, Congress has to be prepared to either extend or not to extend the many tax breaks lumped under the title known as the “Bush Tax Cuts.” As of this December 31, most of the income tax breaks that we have come to enjoy will disappear. Congress can choose to extend all of the cuts or they can pick and choose which ones to modify or extend. Here are some of tax cuts I sincerely hope they extend, because these particular tax cuts affect not just the taxpayers earning more than $200,000 but every taxpayer who pays income tax. I have written previously about some of the more prominent Bush Tax Cuts such as the Alternative Minimum Tax and Capital Gains, but I would like to point out some of the ones that are not as well-known that nevertheless will have an effect on many taxpayers. In fact, these provisions are quite important to all taxpayers, but they have gotten practically zero publicity. First, under the Bush Tax Cuts, for taxpayers in the 10%, 15% and 25% tax brackets, there is no penalty for filing as married-joint as opposed to filing single. The married-filing-joint tax rates were exactly twice the single. For example, two single taxpayers with total incomes of $50,000 would pay exactly the same tax that two married-joint taxpayers earning $50,000 would pay. There is no incentive to file single or disincentive to be filing joint. There is no marriage penalty. If we go back to the pre-Bush Tax Cut days, there was a drastic marriage penalty that started in the 15% tax bracket and continued upward throughout the higher brackets. In addition, there was no 10% tax bracket. Without some adjusting of the tax brackets, all jointly filing taxpayers will pay more tax than two single taxpayers with the same income. The marriage penalty will […]
RAL a thing of the past Recently, I wrote an article publicizing that the Internal Revenue Service, starting next January, is not going to provide something called the “debt indicator” to tax preparers and financial institutions. This is a big thing because the “debt indicator” is the one item that tax preparers and financial institutions use when they are writing a Refund Anticipation Loan (RAL) for taxpayers. In an RAL, the taxpayer is given a check by the tax preparer or financial institution immediately for the amount of his refund minus the cost of tax preparation and loan fees. “Immediately” has come to mean: as soon as the IRS provides to the preparer the information, via the debt indicator, that the taxpayer does not have outstanding debts that will redirect some or all of the taxpayer’s refund to a third party. The debt indicator gives the writer of the RAL the security that the refund will not be sent to a credit card company, the friend of the court, a mortgage company, the state of Michigan, or kept by the IRS itself. Thus, the RAL is a short-term loan with the taxpayer’s coming refund as the security. The loan is then paid off when the IRS issues the taxpayer’s refund directly to the tax preparer or financial institution. Congress and the IRS have long thought that RALs are not necessary and are somewhat of a rip-off because of the exorbitant fees that some tax preparers and financial institutions charge for an extremely short-term loan. The IRS has gotten very efficient in the last few years in processing returns and issuing refunds. For example, if a return gets into their system by Thursday, Oct. 21, the refund will be direct-deposited into the taxpayer’s account on Friday, Oct. 29. So, if the fee for the RAL was $100, that’s a pretty stiff fee for what is in reality an eight-day loan. By ceasing to issue the debt indicator, the IRS has effectively eliminated the RAL market. That is what they planned to do but, as always, there is more to the story. I prefer to call this the theory of unintended consequences. In this case, the unintended consequence is that there are millions of taxpayers who do […]
Integrity is a way of life My minister at Rockford Reformed Church, Rick Tigchon, sometimes hits a “grand slam” of a sermon. Since the baseball playoffs are in full swing, I thought I would borrow one of its terms to describe his wonderful sermon given to us this last Sunday. Since the Lions finally won a game, I know I should be using a football term. But I love baseball, while I just like football, so I’m sticking to the baseball term. The sermon dealt with the subject of “integrity.” One of the examples he cited involved a father and son buried close to each other. The father had a very lengthy list of accomplishments on his gravestone detailing his life’s accomplishments. He must have been quite the fellow. The son, however, had only five words inscribed on his grave marker: “A man of unquestioned integrity.” Now that’s my kind of guy. Those words are powerful and say as much as we need to know about the son. It doesn’t say that his middle name was Solomon and he was the wisest man of the day. It doesn’t say he was a great athlete, or the best man at his job, or the best businessman in the area. It doesn’t say he was a great family guy, or the wealthiest man in the region, or even the nicest of guys. What it does say is that he dealt with people on an honorable basis and with “unquestioned” integrity. He was a man of his word. Oh, he could have been wise, probably was a great family man, perhaps was someone who could hit a curveball, and may have operated a successful business. Those characteristics and abilities are items that his dad would have listed on his tombstone. Those accomplishments in and of themselves don’t tell the whole story. The son took it all one step further and let integrity be his guide. Those who knew him honored him with that five-word inscription: “A man of unquestioned integrity.” What a different type of world this would be if everyone followed the son and let integrity be their guide. Rick and I are members of the Reformed Church, but integrity is much greater than the Reformed Church. It […]
Three new provisions to help small businesses In a previous article, I stated that our present Congress is not a “do nothing” Congress. They have shown that they are not afraid to pass bills and make laws. Not everyone agrees with the bills they have passed and laws they have instituted, but they do keep trying. For example, just last Thursday Congress passed the Small Business Jobs and Credit Act of 2010. This bill has some provisions that will help many small businesses such as self-employed sole proprietors, partnerships and small corporations. Of course, it also has a myriad of provisions that seem to be written to affect about one person or entity in the entire United States. I will highlight the provisions that affect many of my tax clients. First, and perhaps best, there is a provision that will allow self-employed taxpayers to deduct premiums paid for health insurance for the owner and owner’s family when calculating the taxpayers’ self-employment tax. In light of the cost of health insurance today and where those costs are heading, this is huge. This provision only affects the 2010 tax year, but one year is better than no years. Making this change is perceived as leveling the playing field between employees and self-employed taxpayers. Currently, if a taxpayer works for a company and the company supplies health insurance for the taxpayer, this is a totally tax-free fringe benefit. The company deducts the premiums paid and the taxpayer does not have to claim the premium as a taxable benefit. However, up until now that has not been the case for self-employed taxpayers. The self-employed taxpayer has always been allowed to deduct the premium as an adjustment to income so they don’t pay any regular tax on the premium. But they have never been able to deduct the premium when calculating the amount of Social Security tax due on their profit. Social Security tax is calculated at 15.3% of the taxpayer’s profit. So while the employees of the world don’t tax regular tax or Social Security tax on their tax-free fringe, the self-employed taxpayers of the world have been forced to pay a 15.3% tax on their almost tax-free fringe. That has always been perceived as not being fair and […]