Kim Lawrence made

1. TAX UPDATE
Kimberly A. Lawrence, CPA

2. 2010 HEALTH CARE
REFORM
LEGISLATION
Important Highlights

3. A TWO PART ACT
 Patient Protection and Affordable Care Act
 Enacted March 23, 2010
 Health Care and Education Reconciliation Act
 Enacted March 30, 2010
 $770 billion in revenue raisers
 IRS administration
 2,000 page bill

4. 2010 SMALL BUSINESS TAX CREDIT
 Available for those offering health coverage
 For qualified small business
 No more than 25 full time employees (FTE) with
 Average annual wage of no more than $50,000

5. 2010 SMALL BUSINESS TAX CREDIT
 Maximum credit – The lesser of:
 Actual insurance paid by the employer, or
 What employer would have paid had employee
enrolled in coverage with a small business
benchmark premium
 Multiplied by the percentages below:
 2010-2013: 35%
 2014 and beyond: 50%

6. 2010 SMALL BUSINESS TAX CREDIT
 Deduction for health insurance is reduced by the credit
 Allowed for the AMT
 Eligible employees include part-time and leased
 Include seasonal, sole-proprietors, partners, 2% S
shareholders, 5% company owners and those related to
such persons
 Definition of full time employee:
 Total number of hours of service by eligible
employees/2080

7. 2010 SMALL BUSINESS TAX CREDIT
 Credit phaseout applies and is based on:
 Number of full time employees #-10/15, and
 Average annual wage-$25,000)/$25,000

8. 2010 SMALL BUSINESS TAX CREDIT
 Employer contribution must be at least 50% of
the premiums paid for single (employee only
coverage)
 Any unused credit is carried forward
 Aggregation rules apply

9. OTHER ISSUES IN 2010
 Children under age 27 covered under parents’
plan
 10% indoor tanning tax on services after
6/30/2010
 Adoption tax credit – Increased by $1,000 up to
$13,170 and made refundable (through 2011)

10. 2010 PROVISIONS
 Lifetime caps eliminated on insurance for
essential services
 Prohibits excluding children from coverage due
to pre-existing conditions (2014 for adults)
 Insurance companies cannot rescind except in
cases of fraud

11. 2011 PROVISIONS
 Cost of employer paid premiums reported on W-2
 Over-the-counter drugs
 Unless prescribed by the doctor, OTCD (other than
insulin) are no longer treated as an allowable
expense for FSA, HSA, HRA and MSA.
 Increased tax on nonqualifying HSA and MSA
distributions
 HSA from 10% to 20%
 MSA from 15% to 20%

12. 2011 PROVISIONS
 New Simple cafeteria plans for small businesses
 Disclosure of nutritional content at fast food
restaurants and vending machines
 Grants for small employers who set up wellness
programs

13. 2012 PROVISIONS
 Business that pay more than $600 per year to
corporate providers of property and services
must issue a 1099

14. 2013 PROVISIONS
 Increased threshold for claiming medical on Schedule A
 From 7.5% to 10%
 Remains at 7.5% for those age 65 and older until
2016
 Additional Medicare tax on high income workers
 Increased by 0.9% on those earning over $250,000
joint/$200,000 single
 Does not impact the Medicare tax paid by the
employer
 Employer required to withhold on wages over $200K

15. 2013 PROVISIONS
 Unearned Income Medicare Contribution
 3.8% surtax is imposed on net investment income
 Interest, dividends, royalties, rents, capital gains,
passive income from a trade or business or income
from the business of trading in commodities or
financial instruments
 Excluded items:
 Interest on tax-exempt bonds, veteran’s benefits,
gain on the sale of a principal residence, trade or
business income and retirement plan distributions

16. 2013 PROVISIONS
Unearned Income Medicare Contribution Cont.
 The tax is imposed on the lesser of:
 Net investment income, or
 The excess of Modified Adjusted Gross Income over
$250,000 joint ($200,000 single)

17. 2013 PROVISIONS
 New limit on FSA contributions
 $2,500 per year

18. 2014 PROVISIONS -PENALTIES FOR
REMAINING UNINSURED
 Minimum essential coverage is required to avoid the
penalty
 The penalty is imposed on the uninsured under 18 is
one-half of that imposed on adults
 Exempted from penalties:
 Cannot afford because their required contribution
exceeds 8% of household income
 The per adult annual penalty is phased in:
 2014: $95
 2015: $325
 2016: $695
 2017 and beyond: Indexed for inflation from $695

19. PENALTY FOR REMAINING
UNINSURED CONTINUED
 The maximum household penalty is 300% of the adult
penalty $2,085 for 2016 (3 x $695)
 The penalty applies to any period essential coverage is
not maintained (monthly)
 The penalty is to be assessed by the IRS

20. LARGE EMPLOYER PLAY OR PAY
 Large employer
 Had at least 50 FTE
 Average at least 30 hours per week during the
previous calendar year
 Special rules for part time employees
 Exemption applies:
 The workforce exceeds 50 FTE for no more than 120
days, AND
 The employees in excess of 50 were seasonal

21. LARGE EMPLOYER PLAY OR
PAY(2014)
 Penalty for not offering minimum essential coverage
 Does not offer coverage for FTE
 Offers unaffordable minimum essential coverage
 Offers minimum essential coverage where the plan
pays less than 60% of the cost
 Will only apply if at least one FTE is enrolled in a health
insurance exchange to which a premium tax credit or
cost-sharing reduction is allowed
 30 person threshold before the penalty kicks in

22. 2014 PROVISIONS
 Reporting
 Corporate estimated payments
 Wellness programs

23. 2018 PROVISIONS
 Excise tax on “Cadillac” plans
 40% tax imposes on high cost employer-
sponsored and self-insured plans
 Levied on insurance companies and plan
administrators
 Applied to annual insurance premiums for
those under 55 that exceed $10,200 for
individuals and $27,500 for families
 For those aged 55 and above the threshold is
$11,850 for individuals and $30,950 for
families

24. 2010 TAX SAVINGS
Kimberly A. Lawrence, CPA

25. SAVINGS FOR HEALTH & RETIREMENT
 Contribute to your retirement
 Maximum Contribution of $16,500
 $22,000 if > 50
 Take advantage of a Flexible Spending Account or
Health Savings Account
 Contribute pre-tax wages to cover medical
costs

26. OTHER SAVINGS
 Charitable Contributions
 Don’t forget to deduct any out-of-pocket costs
 Charitable Miles – 14 cents/mile
 Always get a receipt
 2% Miscellaneous Deductions
 Job Hunting & Job Relocation Expense
 Unreimbursed employee expenses
 Job travel, professional subscriptions, parking

27. OTHER SAVINGS CONTINUED
 Energy Improvements
 30% of costs up to $1,500
 2010 is the last year for deductions/credits
related to home energy improvements
 Section 179 Expense Deduction remains at
$250,000 for qualified assets of $800,000

28. OTHER TIPS – ESTIMATED PAYMENTS
 Plan ahead!
 If your income is more than you expected,
consider paying estimates.
 Consider using the annualization method
when computing underpayment of estimated
tax penalties.
 Don’t forget to consider early withdrawal
penalties and AMT considerations when
planning and making estimated payments.

29. 2010 TAX RATES
Single Married Filing Jointly
Income Range Tax Of the amount Income Range Tax Of the
over amount over
$0 - $8,375 10% 0 $0 - $16,750 10% 0
$8,376 – 34,000 837.50 + 15% 8,375 $16,751 – 68,000 1,675.00 + 15% 16,750
$68,001 – 137,300 9,362.50 + 25% 68,000
$34,001 – 82,400 4,681.25 + 25% 34,000
$82,401 – 171,850 16,781.25 + 28% 82,400 $37,301 – 209,250 26,687.50 + 28% 137,300
$171,851 – 373,650 41,827.25 + 33% 171,850 $209,251 – 373,650 46,833.50 + 33% 209,250
373,651 and over 108,421.25 + 35% 373,650 373,651 and over 101,085.50 + 35% 373,650

30. OTHER 2010 RATES
 Business Miles 50 cents/mile
 Personal Exemption $3,650
 Kiddie Tax Threshold $1,900
 Standard Deduction
 Single $5,700
 MFJ $11,400

31. RECORDKEEPING TIPS
 Records that can support a deduction or could
impact your federal return should be kept a
minimum of 3 years
 Records regarding large purchases including
homes, cars, stocks, etc. and business or rental
property records should be kept longer
 Keep copies of your tax returns and tax form
packages

32. ROTH IRA
CONVERSION
Kimberly A. Lawrence, CPA

33. ADVANTAGES:
 Conversion -
 $100,000 AGI and married-filing-separately limitation
removed for 2010.
 Unless a taxpayer elects otherwise, none of the gross
income from the conversion is included in income for
2010; half of the income resulting from the conversion is
includible in gross income in 2011 and the other half in
2012.
 Rollovers are not subject to the 10% early distribution
tax.

34. ADVANTAGES CONTINUED:
 Rollovers and transfers to a Roth account can be made
from any qualified retirement account including 401(k)
and 403(b) plans.
 When a nondeductible IRA is converted to a Roth IRA in
2010, only the earnings in the account will be subject to
tax.
 Appreciation is tax-free.
 NOLs can offset Roth income

35. CONTRIBUTIONS -
 Can make contributions after age 70 ½ subject to Roth
contribution rules; retired couple could contribute
$12,000 each year (including the “over-50 make-up”
amount) into Roth accounts.
 Can make nondeductible contributions to a traditional
IRA and convert to a Roth regardless of AGI. The
account could grow tax free indefinitely.

36. DISTRIBUTIONS
 Tax-free distributions are especially beneficial if your tax
rate will be higher when you retire.
 No required distributions at age 70 ½.
 Distributions are not included in calculating modified
adjusted gross income for taxability of social security
benefits.
 Contributions may be withdrawn any time without tax or
penalty.
 If the taxpayer is at least 59 ½ and has held the Roth
account for at least five years, the earnings may be
withdrawn tax and penalty-free.

37. DISADVANTAGES:
 Contributions to Roth IRAs are never deductible for
income tax purposes.
 Income tax rates could be higher in years of conversions
and contributions than in years of distributions.
 Tax law changes could remove tax-free treatment on
earnings.

38. DISADVANTAGES CONTINUED:
 Ordinary income tax on the amount rolled over from a
traditional IRA to a Roth IRA.
 If have nondeductible and deductible IRAs, cannot
choose to roll over only the nondeductible amounts. The
amounts must be prorated based on the balances of
each type.
 A 6% excise tax applies if an individual exceeds the
aggregate regular Roth contribution limits.

39. QUESTIONS OR COMMENTS?