Follow the Law, File Your 1099 Forms!

MAZUR_BLOG_1099

Attention all business clients, nonprofit organizations, and rental property owners! If you are filing a Schedule C/C-EZ, E, or entity tax return (1065, 1120, 1120S) then this article is for you. The following information will help you avoid steep penalties from the IRS due to misfiling your 1099 forms. ***Note that the filing dead line for 2017 nW-2s and 1099s is January 31, 2018.***

• 1099 forms are not optional, sending them is required BY LAW.
• These forms are used to report specific income types from sources of non-employment that may not be reported anywhere else.
• Employees do NOT need a 1099, that is what a W-2 is for.
• Determine whether or not you have a trade or business.
• If you are working to make a gain or profit, even if you are an independent contractor, you have a trade or business.
• If you run a non-profit, government agency, or a trust (of a qualified person or profit sharing employer plan) you have a trade or business.
• 1099-MISC are NOT for people you make personal payments to.
• If the payment is not related to your trade or business, there is no need for a 1099-MISC.
• Credit card payments do NOT require a 1099. These payments are reported in Form 1099K, which is provided by a merchant services provider.
• Review all disbursements made from January 1, 2017 through December 31, 2017. Summarize all payments to non-employee individuals and businesses that accumulate to $600 or more.
• Nonprofit organizations are required to do this as well.
• LLCs that elected to be treated as an S or C Corporation do NOT need to be given 1099s.
• If you are unsure about the status of a particular establishment (corporation or not), it is suggested to issue a 1099 as a precaution to avoid steep penalties.
• If you fail to file the correct information the deadline, do not include all necessary information, or file inaccurate information, there WILL BE PENALTIES.
• If you do not provide you taxpayer identification number (TIN), you may face backup withholding at a 28% rate.
• If you do not collect and pay back up withholding from the affected payees, you may become responsible for the uncollected amount.
• Employee business expense reimbursements are reported under a non-accountable plan as wages on Form w-2, not on Form 1099-MISC.
• A recommended policy is to require all vendors to complete and provided a W-9 before payment is administered.
• This way you can easily determine if they need a 1099 and how it should be issues if necessary.
• Directors’ Fees and other remuneration (including payments made after retirement) are reported in Box 7 of Form 1099-MISC for the year the payment was made.
• Firms maintaining trust or escrow accounts must review these types of payments.
• 1099s should be issues for payments out of these trust accounts, disbursements for interest, rentals, contracted services (that are not for employees), part-time employees that do not receive a W-2, commissions, maintenance/cleaning service individuals, etc.
• Forms 1099 are required for individuals, partnership, LLCs, etc.
• Just because the payment is made to a “company”, do not assume that it is a corporation
• The IRS has a special manual specifically for auditing lawyers! It focuses on lawyers not issuing 1099s to independent contractors out of an attorney’s trust account.
• The argument that the funds belong to the contractor does not exempt the lawyer from reporting the payments in a 1099.
• 1099s are rewired to be filed for payments to recipients of lawsuits unless specifically exempt from taxation.
• Payments to attorneys for legal fees that amount to $600 or more should be reported in Box 7 of Form 1099-MISC, regardless of whether or not the attorney is incorporated. Box 14 is where you report payments or gross proceeds paid to an attorney (i.e. Settlement agreements) ***unless the attorney’s fees are reportable in Box 7.
• It is suggested to have 1099s prepared by your staff or payroll service, however it is also recommended to have an outside source review all tax year expenditures to ensure no mistakes are made.
• Amounts reported in Box 7 are subject to self-employment tax. If payments made to individuals are not subject to self-employment tax and are not reported elsewhere on Form 1099-MISC, report them in Box 3.

If you or your business fails to file 1099s correctly by the due date and cannot provide reasonable cause, you may be subject to penalties such as those outlined above. These penalties apply if you miss the filing deadline or if you fail to provide complete and correct information on the 1099. They could also apply if you file on paper when you were required to file electronically or if your paper documents are not machine readable. You could also be penalized for not reporting your correct TIN.
BE AWARE! Time is of the essence when discussing 1099 filing because the deadline (January 31, 2018) is fast approaching!!
Mazur and Associates has the expertise to keep you out of trouble with the IRS! We are available by telephone and email, so please call (732) 936-1230 or email steve@mazurcpas.com to schedule an appointment today!

Advertisements

Tax Cuts and Jobs Act of 2017

MAZUR_BLOG_Tax Cuts

Individual Tax Provisions

New Tax Rates/Brackets (Effective 2018-2025)
• Seven brackets for individuals:
–  10%
–  12%
–  22%
–  24%
–  32%
–  35%
–  37%

• Personal Exemption Deduction is eliminated (Effective 2018-2025)
• Standard Deduction increases to $24,000 for Married Filing Joint, $18,000 for Head of Household, $12,000 for all other taxpayers (Effective 2018-2025 with future inflation adjustments)
• Itemized deduction for state and local taxes limited to $10,000 (Effective 2018-2025)
• Child Tax Credit Increased
• From $1,000 to $2,000)
• Eliminated Deductions (Individuals)
• Charitable Contribution Deduction for College Athletic Seating Rights
• No charitable deduction to a college or institution for higher education will be allowed to be exchanged for the right to purchase tickets/seating at an athletic event.
• Casualty and Theft Loss Deduction
• Personal casualty losses incurred in a federally declared disaster are exempt from this elimination.
• Miscellaneous Itemized Deductions (tax preparation, investment advisory fees, etc.)
• Alimony Deduction by Payor and Income Inclusion by Payee
• Alimony and separate maintenance payments are no longer deductible for the payor spouse and not included in the income of the payee spouse.
• Moving Expense and Reimbursements
• Active members of the Armed forces moving due to military order or change of station are exempt from this elimination.
• Education Incentives
• Taxpayers who pay tuition to a college or university may be eligible for a Lifetime Learning Credit, a Hope Credit, or an American Opportunity Tax Credit, depending on the circumstances.
• Employers may pay up to $5,250 on behalf of an employee to obtain work-related education without the payment being included in the taxable income of the employee.
• PhD candidates and dependents of college or university employees may receive tax free tuition waivers
• A deduction for student loan interest of up to $2,500 is available
• 529 accounts can be used to pay for private elementary and secondary school expenses
• Tax free treatment of 529 withdrawals for elementary and secondary schooling is limited to $10,000 per student per year.
• Alternative Minimum Tax (AMT)
• Increased exemption amounts
• $109,400 for married couples for tax years 2018-2025 compared to $84,500 in tax years prior.
• Less taxpayers will fall within AMT
• AMT credit is refundable and can offset regular tax liability equal to 50% of the excess of the minimum tax credit for the year over the amount of the credit allowable for the year against regular tax liability for 2018-2021
• Tax years beginning in 2021 50% turns to 100%
• Exclusion on Sale of Primary Residence
• Taxpayer may exclude up to $250,000 of gains ($500,000 married filing jointly)
• Must have owned/rented property and used it as the primary resident for two of the previous five years
• Affordable Care Act
• Individual “shared responsibility payment” is reduced from $695 to $0.
• RECHARACTERIZATION OF ROTH CONVERSIONS ELIMINATED
• Estate and Gift Tax Retained with Increased Exemption Amount
• Doubled the base estate and gift tax exemption (from $5 million to $10 million)

Corporation, Pass-through entities and unincorporated businesses Tax Provisions

• C Corporation Tax Rates
• Lowered tax rate to a flat 21%
• Applies to personal service corporations as well
• Dividends Received Deduction
• If a corporation owns 20% or more of another, a 65% dividend received deduction is allowed (no longer 80%)
• Less than 20%, a 50% deduction is allowed (no longer 70%)
• Section 179 (Expensing and Depreciating Property)
• Maximum deduction is now $1 million
• Section 179 property includes some personal property used to improve non-residential property (roofs, security system, HVAC, etc.)
• Immediate Expensing of Qualifying Business Assets
• 100% first year deduction for qualified property bought and used after 9/27/17 and before 1/1/23
• 80% for 2023
• 60% for 2024
• 40% for 2025
• 20% for 2026
• Shortened Recovery Period for Real Property
• Qualified leasehold improvement, restaurant, and retail improvement property are now treated the same
• General 15 year recovery period for all qualified improvement property
• Recovery period for residential rental property is now 30 years rather than 40.
• Interest Expenses
• All businesses will have a net interest expense disallowance.
• Net interest expense over 30% of the company adjusted taxable income will be disallowed.
• Taxpayers with an average annual gross receipts for the past three years of $25 million or less are exempt
• Net Operating Loss (NOL)
• Deduction is limited to 80% of taxable income
• Can be carried forward indefinitely
• No more two year carry back rule
• Like-kind Exchanges (Section 1031)
• Now only applies to real property that is not held primarily for sale
• Research and Experimental Expenses
• Required specific R&E expenses to be capitalized and amortized ratably over five years (includes cost for software development)
• Deductions for Fringe Benefits
• Deductions for entertainment expenses are completely disallowed
• Business meals deduction allowed, subject to the 50% limit on deductibility now include those provided in an in-house cafeteria or on employer’s premises
• No deduction for employee transportation fringe benefits
• No deduction for transportation expenses that are equal to communizing for employees
• No employer deduction for meal expenses provided on business premises
• New Credit for Employer paid Family and Medical Leave
• Businesses can claim a general business credit equal to 12.5% of the wages paid to qualifying employees during any period when that employee is on family or medical leave if the rate of payment is 50% of the wages normally paid.
• Credit increased by .25 percentage points for each point that the rate of payment is over 50%.
• All qualifying full time employees have to be given at least two weeks of annual paid family and medical leave.
• Expansion of Cash Method Accounting
• The cash method can be used by tax payers that pass the $25 million gross receipts test (regardless of whether the purchase, production, or sale of products is an income generating factor).
• Not required to account for inventories
• Treat inventories as nonincidental materials or conform to their financial accounting treatment of inventories
• Eliminated Deductions (Business)
• Domestic Manufacturing Deduction (Section 199) repealed for tax years after 12/31/17

New Deductions
• Business Income from Pass-through Entities and Sole Proprietorships
• An individual may deduct 20% of qualified business income from a partnership, S corporation, or sole proprietorship but it cannot be included in computing Adjusted Gross Income.
• Can be used as a deduction reducing taxable income
• Deduction cannot exceed 50% of your share of the W-2 wages paid by the business.
• Can be computed at 25% of your share of the W-2 wages plus 2.5% of the original purchase price of property used in the production of income.
• W-2 limitations do not apply if you earn less than $157,500 (single) or $315,000 (married filing jointly).
• Some personal service businesses are not eligible for the deduction
• Services in the fields of health, law, consulting, athletics, financial services, brokerage, investment, investment management trading, security, etc. are not eligible
Limits Imposed/Adjusted/Increased/Eliminated
   • Standard Deduction (Increased)
• Married Joint Return- $24,000
• Head of Household- $18,000
• All Other Taxpayers- $12,000
    • State and Local Tax Deductions
• Taxpayer’s itemized deduction for state and local taxes is limited to $10,000 of the aggregate of state and local property taxes and state and local income, war profits, and excess profits taxes paid or accrued in the tax year. ***an individual may not claim an itemized deduction in 2017 on a prepayment of income tax for a future tax year in order to avoid the dollar limitation applicable for tax years beginning after 2017.
    • Mortgage and Home Equity Indebtedness Interest Deductions
• Deduction for interest on home equity indebtedness is eliminated
• Deductions on mortgage interest is limited to underlying indebtedness of up to $750,000.
    • Charitable Contribution Deduction Limitation (Increased)
• Cash contributions to public charities and some private foundations has increased from 50% to 60%.
• Contributions over 60% can be carried forward and deducted for up to five years based on the later year’s ceiling.
    • “Pease” Limitation on Itemized Deductions (Eliminated)
• High-income taxpayers who itemize their deductions no longer have a limitation
    • Luxury Automobile Depreciation Limit (Increased
• Max depreciation increased to $10,000 for the placed-in-service year
• Max depreciation $16,000 for second year
• Max depreciation $9,600 for the third year
• Max depreciation $5,760 for the fourth year and on

Workplace Etiquette

MAZUR_BLOG_GRAPHIC_workplace-ett

As a business owner or employer, you have a long list of priorities when it comes to how to run your workplace. Somewhere at the top of that list should be workplace etiquette, more specifically sexual harassment, discrimination, and gender bias. In today’s society, more and more attention is being paid to biased hiring, treatment, and payment. Not only is it your legal obligation as an employer to protect your employees from harassment under Title VII of the Civil Rights Act (more information can be found at https://www.eeoc.gov/laws/statutes/titlevii.cfm), but as a savvy employer you know that the price to pay for low morale, low productivity and lawsuits due to harassment is steep. There are some basic and easy steps that you can take to protect yourself and business from potential lawsuits and your employees or coworkers from biased treatment and harassment. Even as an employee, it is extremely important for you to know your rights and what you are guaranteed at your workplace.

The first step to take is to create a clear, gender neutral, and strict discrimination and harassment zero tolerance policy for your business. This policy should outline and define what exactly sexual harassment, gender bias, and discrimination is. It should explain what is considered appropriate and inappropriate behavior, what constitutes harassment and discrimination, and how exactly to report a conduct violation. The standards for behavior should be exceedingly clear and easy to understand, as well as be applicable to everyone, regardless of title or position. The policy should also include a statement that each claim will be investigated thoroughly in a timely fashion and that there will be no toleration for any retaliation against anyone who files a claim. In your Employee Handbook there should be an outline of the disciplinary actions to be imposed if and when a claim is verified.

Your company should express in writing very clear hiring and promotion criteria available to everyone. This criteria should be gender and racially neutral to ensure that everyone has a fair chance at meeting the requirements regardless of outward appearance or identification. This will also help ensure that jobs/promotions are given to those selected based on their ability alone.

Salaries should be regularly reviewed with special attention paid to the differences presented between genders, races, etc. This practice will ensure that your workplace is being fair and adhering to your harassment and discrimination policy.

Make sure you and your employees are comfortable talking about the uncomfortable. Discrimination and sexual harassment are gender neutral offenses. Anyone can be harassed or discriminated against. Thus, everyone should feel comfortable reporting a violation they have either experienced or witnessed. Be certain that your employees are well versed in your policy, what their rights are, and how you are planning on protecting them. Annual training sessions in harassment and discrimination recognition and prevention are highly recommended. These sessions should cover definitions of sexual harassment and discrimination of all kinds, your policy, how it is enforced, procedures it includes and the monitoring process. It is important on this subject that you clearly state how seriously all complaints are taken.

Do you want additional clarity on ensuring your establishment is a safe and friendly one? Here is a PowerPoint we found very enlightening! https://elpnet.org/sites/default/files/portfolio/breaking_down_bias_v1.0_september_2016.pdf

We at Mazur & Associates, Certified Public Accountants and Business Advisors are here to guide you. We are available by telephone and email, so please call (732) 936-1230 or email steve@mazurcpas.com to schedule an appointment today!

Identity Theft: Protect Yourself

MAZUR_BLOG_GRAPHIC-ID Theft

Identity theft: we’re all afraid of it, but what if there was a way to alleviate that fear? Understanding identity theft and knowing how to protect yourself is the best way to ease your mind.

What is tax related identity theft, anyway? In simple terms, tax related identity theft is when someone steals your Social Security Number (SSN) and uses it to file a fraudulent tax return to claim the tax refund.

How do you know if you’ve been victimized? There are a lot of warning signs and signals that you may be in danger or are being victimized by an identity thief. If the IRS or your personal tax professional contacts you about more than one tax return filed under your name and SSN, if you owe additional tax or have collection actions taken against you for a tax year that you have not filed a return for, or if your IRS records indicate that “you” received some sort of income from an employer you do not work for, you may be in danger of having your tax identity stolen. Also possible is a scenario in which you may discover that a return has already been filed using your SSN AFTER you efile your return. The IRS may also contact you via a letter stating that they have received a suspicious tax return filed under your SSN. Receiving this type of correspondence indicates that you are in danger or have been victimized.

Now you know what tax related identity theft is and what the warning signs are. But what do you do if you think your tax identity has been stolen? First, you will not be able to efile your tax return to the IRS. However, you still will have to file your tax return on paper and pay any taxes due, if any. If it is determined that you are a victim of tax related identity theft, you should file a complaint with the Federal Trade Commission at https://identitytheft.gov. You should place what’s called a “fraud alert” on your credit records. You can do so by contacting any of the following major credit bureaus: Equifax, www.Equifax.com, 1-888-766-0008, Experian, www.Experian.com, 1-888-397-3742, or TransUnion, www.TransUnion.com, 1-800-680-7289. Next you should contact your bank or other financial institutions and close any account, financial or credit, which may have been tampered with or used without your permission.

If you feel as though your SSN has been stolen or compromised, the prudent course is to respond to any IRS notice immediately by calling the number provided on that notice. Complete IRS Form 14039 (Identity Theft Affidavit) if your efiled return is rejected due to a duplicate being filed under your name or if you are instructed to do so by the IRS. The Form 14039 can be found at https://www.irs.gov. Print the form and attach it to your paper return. Then mail your return using certified mail as per the instructions on the form and website. You will receive an acknowledgement letter back from the IRS. Typically, each identity theft case takes 120 days to resolve, but often the process can involve more than six months and multiple correspondences from the IRS.

Reducing your risk for tax related identity theft is absolutely doable for everyone. One mandatory precaution is to always install security software with firewall and anti-virus protection (which most computers come with; it is also available for purchase at major electronics stores like Best Buy). Also, make sure you use secure and strong passwords on all your accounts and change them every sixty (60) days. Further, always safeguard your social security card and tax records in a secure place (do not carry that information around with you). Another “must do” is to avoid phishing emails, calls, and text messages. (Phishing is the act of sending emails as if you were someone you are not in order to get the person you are communicating with to give your personal information like account passwords or credit card numbers). These forms of communication are used by potential thieves, usually posing as a legitimate representative of an organization like your bank and credit card companies or even the IRS. If you receive a message with a link or downloadable attachment, do not open it unless you are sure that the person sending it is really who they claim to be. Remember, the IRS does not contact taxpayers by email or any other type of electronic communication such as text message nor will they ask for personal or financial information using these mediums. Another way to reduce your risk and make sure you are not being victimized is to monitor your credit report and review your Social Security Administration earnings statement once a year.

Now that you are equipped with the knowledge and tools, you can protect yourself, your business, and your family from tax related identity theft. But how do taxpayers stay on top of the latest trends with this nagging issue? They call their accounting firm for help! We at Mazur & Associates, Certified Public Accountants and Business Advisors are here to guide you should you feel you’ve become a victim of tax-related identity theft. We are available by telephone and email, so please call (732) 936-1230 or email steve@mazurcpas.com to immediately schedule an appointment!

Minimum Wage Increase: Crisis or Blessing?

MAZUR_BLOG_GRAPHIC-Minimum-wage

Most small businesses are aware of the increase in the minimum wage this past January (2017). Most are also aware that this increase is the first step in a five year plan to increase the minimum wage to $15 dollars an hour. In light of the fact that, according to the Economic Policy Institute, the minimum wage has not provided workers with a “fair and livable wage” since 1968, this wage increase is a positive change. Many workers celebrated this change and continue to celebrate the five-year plan being implemented in 40 states across the country.

However, not everyone is rejoicing. Small business owners are feeling a bit conflicted, and understandably so. However, higher minimum wages could lower the employee turnover rate and keep company morale up. A boost in minimum wage can actually boost business and cash flow.

Although the positive aspects of an increased minimum wage benefits both employers and employees, there are some downsides. A higher minimum wage can also prevent the growth of a business by preventing an owner from hiring the extra personnel needed to expand. And almost all small business trade associations don’t see the need to raise the minimum wage and view it as another cost burden impacting a business’ profitability. It can also force a business to downsize just to stay afloat.

The three (3) states in our region have quite different hourly minimum wage tax requirements. In New Jersey (NJ), the minimum hourly wage is $8.44. In New York (NY) the hourly minimum wage rate is $9.70, while In Pennsylvania (PA), the minimum wage is merely $7.25 per hour.

In addition, the above three states have differing rules amounts withheld from employees for unemployment and disability insurance. New Jersey has the most onerous burden for both employees and employers: in 2017 employees and employers must pay taxes to the Department of Labor for unemployment and disability insurance on wages until they earn $33,500.00. New York State employees have disability taxes withheld on .5% of their wages up to a maximum of $31.20 per year, while employers pay into the unemployment fund until the employee earns $10,900.00. Pennsylvania requires unemployment taxes be withheld from employees at a 0.07% rate with no annual earnings limit while employers remit unemployment tax on the first $9,750 in employee earnings.

So what is a small business owner to do? Businesses have to comply with minimum wage laws after all.

Our advice is for you to be aware of four basic things to help you comply with minimum wage requirements while making sure you are not one of the businesses forced to downsize due to a minimum wage increase in your state.

• You need to know the exact jurisdiction that your business is in so you can comply with the appropriate requirements. Your postal zip code is not always an accurate indicator of jurisdiction, so a little research may be required. Additionally, if you have employees working from multiple locations or working remotely, determining the jurisdiction that they are actually working in becomes increasingly difficult.
• There are different minimum wage requirements based on the size of your business, the employee benefits you offer, your industry type, and the type of work your employees do. As a business owner, you should make an effort to learn what tax breaks you may be eligible for based upon these factors. A good way to stay on top of changing rates and requirements is to sign up to receive alerts for changes and rate rises through your payroll software.
• Having access to exactly how many hours each employee works at any time is helpful when trying to comply with minimum wage and overtime requirements, whether your employee is salary or hourly based. Ensure that you have this information available at all times.
• If you pay employees in a particular city, the local council can call meeting and change the minimum wage rate at any time. And State Departments of Labor or Revenue may introduce minimum wage increases, although these changes generally take more time to implement. A great example of a change was the requirement for New York State employers to withhold Paid Family Leave (PFT) from employees effective on July 1, 2017!

It is imperative to be aware of these changes as they are rapid, sudden, and not always communicated throughout the community. We recommend that you get on the email list for your local or state Department of Revenue or Taxation in an attempt to remain informed on any changes regarding minimum wage or new withholding tax requirements.

But how do most business owners stay on top of their business AND remain informed about the constantly changing minimum wage requirements?—They call their accountants for help! We at Mazur & Associates are here to help you make sure that the minimum wage increase doesn’t cause your business to downsize and experience financial hardship. We are available via telephone and email. Call (732) 936-1230 or email steve@mazurcpas.com and set up an appointment today! www.MazurCPAs.com

 

Trends That Will Impact Your Business in the Near Future

MAZUR_BLOG_GRAPHIC_6-29

Recently Mazur & Associates had two of our staff members attend the Annual NJCPA Convention in Atlantic City from June 15th -16th, 2017. Our CPA’s came back to our office saying that one of the most informational and timely sessions they participated in was conducted by Mr. Gene Marks about how technology, the millennial generation, and the Trump Administration are going to effect the cash flow of small businesses.

A bit of background on Gene Marks: He is a columnist, author, and small business owner. Gene also earned his Certified Public Accountant credential and once worked at KPMG as a senior manager. He writes for numerous publications including the Washington Post, Forbes Magazine, and Huffington Post website. He has written five books on business management and has been featured as a keynote speaker on multiple occasions. He also owns Mark Group PC, a technology consulting firm geared towards small and medium sized businesses.

At the conference, our staff members heard Mr. Marks speak about keeping an eye on technology, tax changes under the Trump Administration, and attracting millennials to your workplace.

On technology: Mr. Marks stressed that keeping up to date with human resource campaigns and platforms is imperative for a small business. He suggested using accounts payable automation and making sure you back up your information in the could using up to date systems and software. “The smart business leaders are thinking about 2018 and 2019 right now,” Mr. Marks stated.

On the Trump Administration: In order to prepare for any tax-related changes made by the new administration, Marks suggested that companies make sure they are being paid the proper amounts on time by looking through and managing their accounts receivable ledgers. Another tip given was that, to save money, companies should take a look at the research and development tax credit again.

On millennials: Marks gave a few statistics on millennials that may come as a shock to some business owners.
• Millennials represent about half of the workforce in the United States, which means statistically, a large portion of your potential workforce will be from this generation. In order to build your staff, you will need to know how to attract and accommodate them as employees.
• 72% of millennials look for jobs that offer flexible work schedules and 68% look for work from home options. Firms that offer perks and amenities such as educational opportunities, generous paid time off and good healthcare benefits are the most competitive when it comes to attracting millennials.
• Two thirds (2/3) of millennials prefer socially conscious organizations in the workplace and rank independence/flexibility over compensation. This generation is considered to be the most tech savvy generation ever, with the largest percent of immigrants since the early 1900’s. Keeping up to date on both social progression and technological advancement will be key components for businesses targeting the millennial market.
• Millennials seem to be very focused on healthcare benefits; it is their top requested benefit. Marks suggests that a level funded healthcare plan (a hybrid plan with both group insurance and self-insurance) may be a good fit for both businesses and potential millennial employees. He also notes that health saving accounts (HSAs) are growing in popularity, making that another option to consider when revising and potentially revising one’s employee benefit plan.

– MazurCPAs.com

Tax Advantaged Savings Accounts for Medical Expenses

mazur_blog_graphic_savings-account-medical-expense

One of the most important things in life is maintaining proper health care, but this comes with many costs. To make these health care costs less of a burden on taxpayers, Congress has designed many tax-favorable programs.

Health Savings Accounts (HSAs)
An HSA is a U.S. trust or custodial account set up for the exclusive purpose of paying the account beneficiary’s qualified medical expenses. Only eligible individuals can set up HSAs, which is determined on a month-by-month basis. You are deemed an eligible individual for a month if:
•    You are covered under a high-deductible health plan (HDHP) on the first day of that month;
•    Are not also covered by any other health plan that is not an HDHP;
•    Are not entitled to benefits under Medicare
•    Cannot be claimed as a dependent on another person’s tax return.

The maximum amount that an eligible individual can contribute to an HSA for the tax year is equal to the sum of the monthly limits for all the months during the tax year that the individual is deemed eligible. The monthly limit is 1/12 of the annual limit (subject to inflation). For 2016, the annual limits are:
•    $3,350 for self-only coverage ($279.16/month)
•    $6,750 for family coverage ($562.50/month)
•    If you are age 55 and older by the end of the year, you can make an additional “catch up contribution” of up to $1,000 a year.

You (the eligible taxpayer), or any other person on your behalf (including family members and employers) can contribute to an HSA. Other than employer contributions, all contributions made are deductible on your tax return, depending on whether or not you itemize deductions. Distributions from HSAs that are used to pay qualified medical expenses are not taxed.

Other Tax Favorable Programs

•    Medical Savings Accounts (MSAs), including Archer MSAs and Medicare Advantage MSAs. Archer MSAs may receive contributions from both you and your employers, but not both in the same year. Contributions are deductible, depending on whether or not you itemize deductions. Employer contributions to an Archer MSA are not included in income. Distributions from an Archer MSA that are used to pay for qualified medical expenses are not taxed.

•    Health Flexible Spending Arrangements (FSAs): Both eligible individuals and employers can contribute to an FSA. They are not includible in income, and reimbursements from FSAs that are used to pay for qualified medical expenses are not taxed.

•    Health Reimbursement Arrangements (HRAs): these are limited to receiving contributions from an employer only. They are not includible in income, and reimbursements from HRAs that are used to pay for qualified medical expenses are not taxed.

We at Mazur & Associates CPAs have the expertise and knowledge to help you decide on the type of medical expense savings account that best fits your situation.  Please don’t hesitate to call us with any questions, or schedule a face to face meeting at our office. Our phone number is (732) 936-1230.