Individual taxpayers generally have until April 15th each year to file their tax returns and pay any income tax owed for the year. In most cases, you will not be liable for any penalties as long as you file your tax return and pay any tax due by this April 15th due date.  If you fail to meet this deadline, however, or you did not pay enough taxes during the year through Federal withholding or estimated tax payments, you may be liable for IRS underpayment of estimated tax, late payment, and/or late filing penalties in addition to any tax you owe. 

Underpayment of Estimated Tax Penalty

• 90% of the tax shown on the current year tax return, or
• 100% of the tax shown on the prior year tax return – 110% if the taxpayer’s prior year adjusted gross income exceeded $150,000 ($75,000 for married taxpayers filing separately).

Late Payment Penalty

Late Filing Penalty

Grace for Reasonable Cause

The Employer Shared Responsibility Provisions of the Affordable Care Act (“ACA”) went into effect for tax year 2015. If you haven’t already started doing so, we wanted to provide you with some guidance on what information an applicable large employer should be tracking monthly and reporting annually to help you meet reporting requirements for 2015.

Overview of the Employer Shared Responsibility Provisions

Before going into too much new detail, it’s important to briefly review the employer mandate. Applicable large employers are required to comply with the Employer Shared Responsibility Provisions beginning in January 2015. For 2015, a company must employ 100 full-time and full-time equivalent employees to be considered an applicable large employer. That amount reduces for 2016 down to 50 full-time and full-time equivalent employees. Companies meeting these thresholds are required to offer minimum essential health coverage to at least 70% of full-time employees and their dependents to be compliant. In 2016 and thereafter, the percentage increases to 95% of full-time employees and their dependents.

For a more in-depth discussion of the Employer Shared Responsibility Provisions and a brief discussion of how to calculate full-time and full-time equivalent employees, please see our article published December 13, 2014, "Employer Shared Responsibility Provisions of the ACA are in Effect for 2015."

Information to Track Monthly

During 2015, applicable large employers need to track whether they offered full-time employees and their dependents minimum essential coverage that meets the minimum value requirements and is affordable. They also need to track whether their employees enroll in the minimum essential coverage that was offered by the employer. It is important to track this information because an employer could be subject to an employer shared responsibility payment if either:

• The employer offered coverage to fewer than 70% (95% for 2016 and later) of full-time employees and their dependents, and at least one full-time employee enrolled in coverage through the Health Insurance Marketplace and receives a premium tax credit; or
• The employer offered coverage to at least 70% (95% for 2016 and later) of full-time employees and their dependents, but at least one full-time employee receives a premium tax credit because the coverage offered was not affordable, did not provide minimum value, or the full-time employee was not offered coverage.

New Reporting Requirements

The ACA requires that applicable large employers file information returns with the IRS as well as provide statements on healthcare coverage to full-time employees. Reporting this information was voluntary for 2014, but in 2015, all applicable large employers are required to file the reporting forms. It is important to note that the reporting requirements apply to ALL applicable large employers starting in 2015. This means that if your business has 50-99 full-time employees in 2015, and therefore qualifies for transition relief from the employer mandate because you have less than 100 full-time employees, you will still be required to file the forms for 2015.

Form 1095-C: “Employer-Provided Health Insurance Offer and Coverage”

Applicable large employers must provide Form1095-C to full-time employees. In addition, a copy of the form is filed with the IRS as an information return. This form is used by the IRS to help determine whether full-time employees are eligible for the premium tax credit, and it also helps determine if a business may potentially owe an employer shared responsibility payment. The following information is required to complete Form 1095-C:

• List of who is a full-time employee for each month.
• Identifying information for each employee such as name, address, and social security number.
• Information about the health coverage offered by month.
• List of the months the employee was enrolled in the company’s health coverage.
• The employee’s share of the monthly premium for lowest-cost self-only minimum value coverage.

Form 1094-C: “Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns”

Form 1094-C is filed as a transmittal document for Forms 1095-C, serving as a summary of the totals from Form 1095-C much as a Form W-3 serves  as a summary of the totals from Form W-2. This form is used by the IRS to help determine whether an employer is subject to a shared responsibility payment and the payment amount.

Conclusion

The Employer Shared Responsibility Provisions of the ACA contain many new requirements for filing. In order to be compliant with the reporting requirements, an employer must first determine whether it will be considered an applicable large employer subject to the ACA mandate. If determined to be an applicable large employer, the next step will be to track information monthly on the health coverage offered and the employees participating in the health plan. This information is critical for applicable large employers to be able to provide the required information to their employees and the IRS.

For more information…

See our website for helpful charts, previously published articles, and the required IRS filing forms.

With expenses rising faster than revenues, making more money often starts with gaining an understanding of your cost structure in order to achieve cost reduction. For many practices, that entails first taking a critical look at overhead, as well as the specific expenses involved in providing patient care. Here’s how:

Start with Good Information

Understanding your practice costs requires relevant, reliable data — preferably a well-though-out report that groups expenditures logically at a reasonable level of detail. Unfortunately, this is typically where the problems start. Sure, your practice income and expense statement has expenses listed by category (generally defined by the practice’s general ledger categories). But problems occur when the statement doesn’t provide enough detail for informed decisions.

For example, a line item titled “supplies” or “salaries and wages” simply does not tell you enough. Detailed sub-categories — such as “drug supply,” “medical and surgical supply,” “office supplies,” “mid-level salaries and wages,” “nursing salaries and wages” and “office salaries and wages” — enable you to make better decisions about how to manage those costs. Detailed categories also allow you to compare practice expenses and overhead against national benchmarks, such as data from the Medical Group Management Association's Annual Cost Survey or your local medical or dental association.

Depending on the practice, even more detailed categories may be appropriate. For example, primary care practices are incurring more costs these days for injections — thanks in large part to changes in Medicare reimbursement and to increasing costs of new medications. Here, it might make sense to break out those injection costs into more specific categories, such flu vaccine, pneumonia vaccine, etc. Proper expense data can help with better drug purchasing and inventory control.

Conduct a Unit Cost Analysis

After grouping expenses logically and at the appropriate level of detail, you’ll want to get a handle on the actual cost of providing particular services. The most effective way is through a unit cost analysis.

1. Define the unit of service. First, identify the type of service (such as adult physicals, well-baby check-ups, and injections). Then define the unit based on what makes the most sense for your practice. For example, if you and your staff are already accustomed to thinking in terms of 15-minute increments, use that as your basic unit of service. You can further break down units of service to provide more detailed cost data about particular types of patients (e.g., a diabetic patient who requires more time with the physician or mid-level provider and also patient education time with a nurse).

2. Determine how many units of service were provided. Now that you’ve defined what a unit of service is (e.g., 15-minute intervals), use your practice management software to determine the number of units of that service that were provided during a given time period.

3. Calculate the direct costs. Of course, the most substantial direct cost to know is the provider time (physician or mid-level) allocated to a unit of service. You can capture this data using anything from a simple provider time diary to tracking patients from check-in to checkout (cycle times). You can use the same methods to determine time for other clinical staff. Plug in salary or hourly wage data, and you should be able to determine your cost for those 15 minutes. You’ll also need to determine the cost of drugs and medical supplies, lab tests, specialized equipment and other resources associated with the given service.

4. Add in the indirect costs. Make a list of indirect costs, such as administrative staff salaries and benefits, facility costs, office equipment and supplies, insurance and other general and administrative expenses. Next, decide how much of these costs should be allocated to the service in question. For example, if 15 percent of a practice's visits are for diabetes management, then it’s probably safe to attribute 15 percent of the practice’s indirect costs to diabetic care.

5. Tally it up. Add the costs from steps 3 and 4, and you should get a total cost per unit of service. Armed with solid unit-cost data, you can then make sound financial decisions to keep your practice successful.

Our experienced accounting professionals can provide anything from a full-scale unit cost analysis to simply helping you determine what the data from your own analysis means to your practice.

Summertime tax saving ideas

Individuals

Charitable Deductions

Summertime means cleaning out those often neglected spaces such as the garage, basement, and attic for many of us. Whether clothing, furniture, bikes, or gardening tools, you can write off the cost of items in good condition donated to a qualified charity. The deduction is based on the property's fair market value. Guides to help you determine this amount are available from many nonprofit charitable organizations.

Charitable Travel

Do you plan to travel while doing charity work this summer? Some travel expenses may help lower your taxes if you itemize deductions when you file next year:

1. You must volunteer to work for a qualified organization. Ask the charity about its tax-exempt status. 
    
2. You may be able to deduct unreimbursed travel expenses you pay while serving as a volunteer. You can’t deduct the value of your time or services.
    
3. The deduction qualifies only if there is no significant element of personal pleasure, recreation or vacation in the travel. However, the deduction will qualify even if you enjoy the trip.
    
4. You can deduct your travel expenses if your work is real and substantial throughout the trip. You can’t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip.
    
5. Deductible travel expenses may include:
   • Air, rail and bus transportation
   • Car expenses
   • Lodging costs
   • The cost of meals
   • Taxi fares or other transportation costs between the airport or station and your hotel

Renting Your Vacation Home

A vacation home can be a house, apartment, condominium, mobile home or boat. If you rent out a vacation home, you can generally use expenses to offset taxable income from the rental. However, you can't claim a loss from the activity if your personal use of the home exceeds the greater of fourteen days or 10% of the time the home is rented out. Watch out for this limit if taking an end-of summer vacation at your vacation home. 

Businesses

Buying New Equipment

Two key tax incentives for acquiring qualified business property have either expired for property placed in service in 2014 or have been greatly reduced. The additional first year “bonus” depreciation provision for qualified property expired at the end of 2013 and is not currently available for business equipment purchased in 2014. 

The election to expense the cost of qualifying property under Section 179 is still available for property placed in service in 2014, but the deduction is limited to $25,000 of qualifying property, as long as the qualifying property placed in service by the business during the year is $200,000 or less. The deduction is reduced dollar for dollar as the amount of qualifying property placed in service in 2014 exceeds $200,000 and is completely phased out if the amount of qualifying property placed in service during the year exceeds $225,000.

The Section 179 election to deduct the cost of equipment placed in service during a year has been one of the most useful tax deductions available for small business. The Senate Finance Committee approved the Expiring Provisions Improvement Reform and Efficiency Act of 2014 on April 3, 2014, which extends the $500,000 Section 179 limit of recent years for tax years 2014 and 2015. It also allows businesses to use Section 179 to deduct the cost of off-the-shelf software and the costs of improvements to certain leased business properties. At this time, it is unclear whether this bill will be passed by Congress and signed by the President before December 31, 2014.

Traveling for Business

When you travel away from home, you may deduct your travel expenses – including airfare, train, bus, taxi, meals (generally limited to 50%), lodging – as long as the primary purpose of the trip is business-related. You might have some downtiem relaxing, but spending more time on business activities is critical. Note that the cost of personal pursuits is not deductible.

Entertaining Clients

If you treat a client to a round of golf at the local club or course, you may deduct qualified expenses – such as green fees, club rentals, and 50% of your meals and drinks at the nineteenth hole – as long as you hold a "substantial business meeting" with the client before or after the golf outing. The discussion could take place a day before or after the entertainment if the client is from out of state. For information on what does and does not qualify,please contact us.

Using Your Home Office  

Home office expenses are generally deductible if part of a business owner's personal residence is used regularly and exclusively as either the principal place of business or as a place to meet with patients, customers or clients. The IRS recently provided an optional safe-harbor method that makes it easier to determine the amount of deductible home office expenses. Starting in 2013, the new rules allow you to deduct $5 per square foot of home office space (up to 300 square feet). In addition, deductions such as interest and property taxes allocable to the home office are still permitted as an itemized deduction for taxpayers using the safe harbor.

On February 18, 2015, the Internal Revenue Service issued Notice 2015-17, which reiterates the conclusion in previous guidance addressing employer payment plans – that they are not in compliance with the Affordable Care Act (ACA). This article will discuss the additional guidance provided by Notice 2015-17, and it will also serve as an update to the article that Stockman Kast Ryan & Co. published on December 15, 2014 linked here:

https://www.skrco.com/what-the-affordable-care-act-means-for-reimbursement-type-plans/

Transition Relief for Small Employer Reimbursement Plans

Notice 2015-17 states that employer payment plans, (plans that pay directly for or reimburse employees in part or full for health insurance) are considered group health plans that are not in compliance with the Affordable Care Act. However, the Notice does provide transition relief to small employers – those who are not Applicable Large Employers, meaning that they have less than 50 full-time or full-time equivalent employees. Small employers have until June 30, 2015 to transition their plan to one in compliance with the Affordable Care Act or be subject to excise tax under Internal Revenue Code §4980D. The excise tax is equal to $100 per day, per employee, or $36,500 per participant, per year.  

The transition relief applies to:

1.Employer payment plans, as described in Notice 2013-54 (http://www.irs.gov/pub/irs-drop/n-13-54.pdf);

2.S Corporation healthcare arrangements for 2-percent shareholder-employees;

3.Medicare premium reimbursement arrangements;

4.TRICARE-related health reimbursement arrangements (HRAs).

S Corporation Guidance for 2% Shareholder-employees

Notice 2015-17 provides that the IRS is still contemplating publication of additional guidance on the application of market reforms to a 2-percent shareholder-employee healthcare arrangement. The good news for taxpayers is that until this guidance is issued, and in any event through the end of 2015, these arrangements will not be subject to the excise tax under Internal Revenue Code §4980D. In addition, S corporations with a 2-percent shareholder-employee healthcare arrangement will not be required to file Form 8928. Keep in mind that this relief does not apply to S corporation employees who are not 2-percent shareholders.

As discussed in the December article, the market reforms do not apply to a group health plan with less than two participants. For this reason, a plan covering only a single S corporation employee is not subject to the market reforms or the excise tax.

Medicare Reimbursements

Arrangements that reimburse employees for Medicare Part B or Part D premiums are considered employer payment plans under IRS Notice 2013-54. Notice 2015-17 discusses that when an employer reimburses the cost of Medicare premiums and integrates this with another group health plan offered by the employer, then this is permissible under the market reforms.

 However, this is permissible only if:

1.The employer offers a group health plan (other than the Medicare reimbursement arrangement) to the employee that does not consist solely of excepted benefits and offers coverage providing minimum value;

2.The employee participating in the Medicare reimbursement arrangement is actually enrolled in Medicare Parts A and B;

3.The Medicare reimbursement arrangement is available only to employees who are enrolled in Medicare Part A and Part B or Part D;

4.The Medicare reimbursement arrangement is limited to reimbursement of Medicare Part B or Part D premiums and excepted benefits, including Medicare premiums.

Employee Reimbursement

Notice 2015-17 confirms the argument that an employer may increase an employee’s taxable compensation, not conditioned on the purchase of health insurance, without creating an employer payment plan.  Because this type of arrangement will not be considered a group health plan, it is not subject to the market reform provisions.

Unfortunately, the IRS has clarified that after-tax employer payment plans are, in fact, subject to excise tax under Code §4980D. An arrangement where an employer pays for or reimburses an employee for the cost of health insurance is subject to the market reform provisions of the Affordable Care Act without regard to whether the employer treats the money as pre-tax or post-tax to the employee.

Conclusions

The market reform provisions of the Affordable Care Act are continuously updating and taking shape as more guidance is received on the application of these rules from the IRS. Notice 2015-17 contains some important clarification on the employer reimbursement arrangements as well as transition relief through June 30, 2015 for some small employer plans. We will continue to update you as new information and guidance becomes available.

If you receive a notice from the Internal Revenue Service (IRS), don’t panic! The IRS frequently sends notices and they are usually very easy to address.  

One situation we want to make you aware of is that the IRS has prematurely sent notices regarding the late filing of S-Corporation returns. This is simply a mistake within their system of one office not communicating with another. These notices are being generated from the first office before the second office has processed the extension of time to file the tax return. The notice usually lists the number of shareholders and shows a penalty for each shareholder of $195 multiplied by the number of months the return is shown as late. A penalty may be accessed for up to 12 months per shareholder.

If your S-corporation filed an extension yet you received a late filing notice, this issue can be handled by a call to the IRS or simply mailing a letter with proper documentation to refute their claim. You can handle this yourself or promptly forward the notice to your CPA and they can determine the best way to respond. If you choose to write a response yourself, please be sure to make copies and provide that detail to your CPA. It is important to reply within the allotted time frame to avoid further notices or penalties and interest on any balance due.  

Often times the IRS sends notices that don’t require any response. If you receive a notice and are uncertain of what is required or you want assistance responding to the notice, contact your CPA promptly and they can help you understand what is needed and respond appropriately.

There are many reasons to keep household records, including keeping track of your expenses, maintaining records for insurance purposes or getting a loan. You should have the same approach to managing your tax records, even after your tax return is filed. Records you should keep include bills, credit card and other receipts; invoices; mileage logs; canceled, imaged or substitute checks; proof of payments; and any other records to support deductions or credits you claim on your return. Read our quick tips below for more detail on what to keep and for how long.

Here are some quick tips for keeping your tax return records:

• If you file a claim for credit or refund after you file your return, you’ll want to keep your records for three years from the date you filed your original return or two years from the date you paid the tax, whichever is later.
• Supporting documentation for your tax returns includes not only your forms W-2 and 1099 but also bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.
• If you claim depreciation, amortization, or depletion deductions, you’ll want to keep related records for as long as you own the underlying property. That includes deeds, titles and cost basis records.
• If you claim special deductions and credits, you may need to keep your records longer than normal (for example, if you file a claim for a loss from worthless securities or bad debt deduction, you should keep those records for seven years).
• If you have employees, including household employees, keep your employment tax records for at least four years after the date that payroll taxes become due or is paid, whichever is later. This should include forms W-2 and W-4, as well as related pay information including benefit forms.
• If you claim any other special tax benefits not mentioned above (for example, the first time homeowner’s credit), a good rule of thumb is to keep your records for as long as the tax benefit runs plus three years.
• If you have property that will result in a taxable event at sale or disposition (like stocks, bonds or your home), you’ll want to keep records which support your related tax consequences (capital gains, etc.) until the disposition of the property plus three years.
• If you receive property as the result of a gift or inheritance, you’ll want to keep records that support your basis in that property. Generally, if you inherit property, your basis is the stepped up value as of the date of death; if you receive a gift, your basis is the same as the donor’s basis. Don’t toss those old records just because you’re the new owner of the assets.

You should keep copies of your tax returns as part of your tax records. In the event of your death, copies of your returns and records can be helpful to your survivor or the executor, or administrator, of your estate. You may also need tax returns from previous years for loan applications or to estimate tax withholding.

Keeping good records will help us explain any tax position we take on your return and arrive at the correct amount of tax with a minimum amount of effort on your part. If you don’t have records, you may have to spend time getting statements and receipts from various sources. In the event of an IRS audit, if you cannot produce the correct documents you may have to pay additional tax and be subject to interest and penalties.

We are happy to answer any questions you may have about what records you should keep and for how long in your particular situation. For general guidelines, you can download or print our Tax Records Retention Schedule here.

Separating fact from fiction

It is human nature to fear the unknown. The thought of being audited by the IRS strikes fear in even the calmest of individuals. Many of us picture the man in the dark suit or trench coat, wearing dark sunglasses appearing on our doorstep and announcing he's with the IRS. So when a letter comes in the mail or a call is received from the IRS, even the most prepared individual will get a knot in their stomach. For someone who is not prepared or for those whose records are not in the best of shape, then there can be a real dread associated with that notice.

So let's take a look at IRS audits and separate the fact from fiction. Knowing what to expect can alleviate many of our fears.

Fiction: It's just a matter of time before I'm audited
Fact: On average, the IRS audits only about 1% of individual tax returns

It is far more likely that your return will not be chosen for audit. It helps to understand how returns are selected for audit. According to the IRS, returns are selected using a variety of methods, including:

• Random selection and computer screening – sometimes returns are selected based solely on a statistical formula.
• Document matching – when payor records, such as Forms W-2 or Form 1099, don't match the information reported.
• Related examinations – returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.

It is also important to note that selecting a return for audit does not always suggest that an error has been made.

Fiction: I should not claim all of my deductions to avoid the risk of being audited
Fact: Taking deductions to which you are entitled does not increase your chances of being audited

Taxpayers often fear that claiming tax deductions will raise eyebrows at the IRS. That’s not true unless the deductions are excessive as compared to your level of income. When returns are filed, they are compared against “norms” for similar returns. The “norms” are developed from audits of a statistically valid random sample of returns. If you have the documentation to prove your deductions are legit, whether few or many, an audit should not be worrisome. So go ahead and take those deductions!

Fiction: Any correspondence from the IRS means an audit
Fact: Receiving a notice from the IRS could mean any one of a number of things

Many people assume that any correspondence from the IRS means they are being audited, but this is rarely the case. When you get a letter from IRS, open it – don’t ignore it because it is usually not as bad as you think and most correspondence is time sensitive. Sometimes it’s an informational letter (advising you that you might need to file a certain form, etc.), sometimes it’s simply a notice of adjustment in which case you pay what you owe or work something out, and only rarely will it be notification of an audit. 

We've only touched on a few of the more common concerns regarding an IRS audit. If you have additional questions, see the IRS' FAQs on the topic here. And remember, if you receive a notice or you are chosen for an audit, fear not! Your tax preparer can assist you.

If you use your home for business, you may be able to deduct expenses for the business use of your home. If you qualify you can claim the deduction whether you rent or own your home. If you qualify for the deduction you may use either the simplified method or the regular method to claim your deduction. Here are six tips that you should know about the home office deduction. 

1. Regular and Exclusive Use.  As a general rule, you must use a part of your home regularly and exclusively for business purposes. The part of your home used for business must also be:

    

   • Your principal place of business, or
   • A place where you meet clients or customers in the normal course of business, or
   • A separate structure not attached to your home. Examples could include a garage or a studio.
      
2. Simplified Option.  If you use the simplified option, you multiply the allowable square footage of your office by a rate of $5. The maximum footage allowed is 300 square feet. This option will save you time because it simplifies how you figure and claim the deduction. It will also make it easier for you to keep records. This option does not change the criteria for who may claim a home office deduction.
    
3. Regular Method.  If you use the regular method, the home office deduction includes certain costs that you paid for your home. For example, if you rent your home, part of the rent you paid may qualify. If you own your home, part of the mortgage interest, taxes and utilities you paid may qualify. The amount you can deduct usually depends on the percentage of your home used for business.
    
4. Deduction Limit.  If your gross income from the business use of your home is less than your expenses, the deduction for some expenses may be limited.
    
5. Self-Employed.  If you are self-employed and choose the regular method, use Form 8829, Expenses for Business Use of Your Home, to figure the amount you can deduct. You can claim your deduction using either method on Schedule C, Profit or Loss From Business. See the Schedule C instructions for how to report your deduction.
    
6. Employees.  If you are an employee, you must meet additional rules to claim the deduction. For example, your business use must also be for the convenience of your employer. If you qualify, you claim the deduction on Schedule A, Itemized Deductions.

For more on this topic, see Publication 587, Business Use of Your Home or consult your tax professional.

This information provided by IRS Tax Tip 2015-42, March 19, 2015

If you paid for work-related expenses out of your own pocket, you may be able to deduct those costs. In most cases, you claim allowable expenses on Schedule A, Itemized Deductions. Here are six tax tips that you should know about this deduction.