Tuesday, March 25, 2014

Time May be Running Out – March 31 is an Important Deadline Health Care Law Considerations for 2014

For most people, the Affordable Care Act has no effect on the 2013 income tax return they are filing in 2014. However, some people may need to make important decisions by the March 31, 2014 deadline for open enrollment. 

Below are five things about the health care law you may need to consider soon.

• Currently Insured – No Change: If you already insured, you do not need to do anything more than continue your insurance.

• Uninsured – Enroll by March 31: The open enrollment period to purchase health care coverage through the Health Insurance Marketplace for 2014 runs through March 31, 2014. When you get health insurance through the marketplace, you may be able to get advance payments of the premium tax credit that will immediately help lower your monthly premium. Learn more at HealthCare.gov.

• Premium Tax Credit To Lower Your Monthly Premium: If you get insurance through the Marketplace, you may be eligible to claim the premium tax credit. You can elect to have advance payments of the tax credit sent directly to your insurer during 2014 so that the monthly premium you pay is lower, or wait to claim the credit when you file your tax return in 2015. If you choose to have advance payments sent to your insurer, you will have to reconcile the payments on your 2014 tax return, which will be filed in 2015. If you’re already receiving advance payments of the credit, you need to do nothing at this time unless you have a change in circumstance like a change in income or family size. Learn More.

• Change in Circumstances: If you're receiving advance payments of the premium tax credit to help pay for your insurance coverage, you should report life changes, such as income, marital status or family size changes, to the Marketplace. Reporting changes will help to make sure you have the right coverage and are getting the proper amount of advance payments of the premium tax credit.

• Individual Shared Responsibility Payment: Starting January 2014, you and your family have been required to have health care coverage or have an exemption from coverage.  Most people already have qualifying health care coverage.  These individuals will not need to do anything more than maintain that coverage throughout 2014. If you can afford coverage but decide not to buy it and remain uninsured, you may have to make an individual shared responsibility payment when you file your 2014 tax return in 2015. Learn More.

More Information
Find out more tax-related provisions of the health care law at IRS.gov/aca
Find out more about the Health Insurance Marketplace at HealthCare.gov.
Posted on 12:40 PM | Categories:

IRS Releases Final Net Investment Income (NII) Tax Instructions For Form 8960

The IRS has released the final version of its instructions for 2013 Form 8960, Net Investment Income Tax—Individuals, Estates and Trusts. The final instructions represent one of the last tools in the shed for taxpayers required to report the new Code Sec. 1411 net investment income (NII) tax as added by the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148). The IRS previously issued several versions of Form 8960, Net Investment Income Tax—Individuals, Estates and Trusts, for 2013: a draft version in August 2013, and a final version in January 2014. The IRS issued a draft version of its instructions for Form 8960 in January 2014. (See the January 28, 2014 issue of this newsletter for coverage of the draft instructions). This article discusses the significant changes made to the final instructions.

Form 8960

The final Form 8960 is divided into three parts: Part I—Investment Income; Part II—Investment Expenses Allocable to Investment Income and Modifications; and Part III—Tax Computation (with separate computations for Individuals and for Estates and Trusts). Information from other IRS forms in some cases carries over to Form 8960. Such information includes NII adjustments to rental income shown on Form 1040, Schedule E. Many of the lines on the form refer to the instructions: some lines only require a quick reference to the instructions before they can be filled out; others require more complex directions or worksheets.

Final Instructions

“The final instructions helpfully add cross references to other relevant forms, instructions, and publications including Form 8582 and Publication 925,” Michael J. Grace, JD, Whiteford Taylor & Preston LLP, Washington DC, told us. “The IRS seems to have confined the changes to those it considered now either essential or helpful to preparers of 2013 tax returns. That strikes me as an intelligently incremental approach because preparers are fully occupied working on returns for the 2013 tax year, the first year in which their clients may be subject to the NII Tax.”
We talked to Michael J. Grace, JD, Whiteford Taylor & Preston LLP, Washington DC, regarding the instructions for Form 8960. Grace added that the IRS would likely further refine the instructions as preparers and IRS employees became more familiar with the NII tax. For example, the IRS could eventually decide to streamline the instructions and then release a more detailed Publication.

Changes

A real estate professional’s rental income or loss is not passive if the professional materially participated in the rental real estate activity. The Safe Harbor for Real Estate Professionals describes two alternative 500-hour safe harbors. If a safe harbor is met, the professional’s rental income from rental real estate activity is treated as derived in the ordinary course of a trade or business and is not net investment income.
COMMENT 
“On Page 3, a new Note helps to remind preparers that real estate professionals who have elected under section 469 to aggregate into one activity all rental real estate interests also have one rental real estate activity for purposes of applying the safe harbors for real estate professionals under section 1411,” Grace said.
COMMENT 
“Page 4: Under Recharacterization of Passive Income, the final instructions delete the following sentence: ‘For example, net rental income from property rented to a nonpassive activity (self-rental) that is not derived in the ordinary course of a trade or business will be included in net investment income.’ Presumably, this deletion does not signal that the IRS has changed its position. The sentence probably was deleted because the Special Rules for Certain Rental Income immediately below explain how to characterize self-rental income under the NII Tax,” Grace said.
Economic grouping allows a taxpayer to treat one or more trade or business activities, or rental activities, as a single activity if they form an appropriate economic unit for measuring gain or loss under the passive activity loss rules.
COMMENT 
“Page 4: Under Economic Grouping, a new subheading, Regrouping rules, highlights the one-time opportunity to regroup activities in view of section 1411. The revised explanation of Regrouping also clarifies important points including that a taxpayer may regroup activities for the first tax year in which he or she is subject to NII Tax (without the effect of the regrouping),” Grace said.
The provisions on dispositions of an interest in a passthrough entity discuss adjustments to gain or loss from the sale of the interest.
COMMENT 
“Page 5: Under Deferred recognition sales (installment sales and private annuities), the final instructions add a filing requirement. In each year following the year in which first subject to NII Tax, a taxpayer now must attach a statement identifying any adjustment from a deferred recognition sale that had been reported in that first year. The draft instructions, by contrast, had stated that a taxpayer need not attach statements to returns for subsequent years,” Grace said.
COMMENT 
“Page 5: Under Regulations Section §1.1411-10(g) Election, the final instructions clarify that such an election applies not only to the specific stock of a CFC or QEF for which the election was made but also to subsequently acquired stock of a CFC or QEF,” Grace said.
Specific instructions for the form begin on Page 6.
COMMENT 
“Under Elections for Investment Income, the final instructions prescribe that a taxpayer electing under Reg. 1.1411-10(g) must not only check a box but also attach a statement to the affected tax return,” Grace said.
COMMENT 
“Page 6: Under Line 1 [of Form 8960]—Taxable Interest, a new sentence helpfully reminds taxpayers to use line 7 of Form 8960 to subtract from net investment income any interest derived in the ordinary course of a non-section 1411 trade or business. For example, net investment income would not include interest derived in the ordinary course of a trade or business (other than trading in financial instruments or commodities) in which the taxpayer materially participates,” Grace said.
COMMENT 
“Page 6: Under [Form 8960] Line 3—Annuities, the final instructions reorganize the explanation and identify an additional category of annuities excluded from net investment income—amounts paid in consideration of services,” Grace said.
An example includes distributions from a foreign retirement plan that are paid in the form of an annuity and that include investment income that was earned by the retirement plan, we noted.
Line 5b of Form 8960 addresses Net Gain or Loss From Disposition of Property That Is Not Subject to Net Investment Income tax:
  • On “Page 7: Under Line 5b, the final instructions clarify that taxpayers may not exclude from net investment income gain or loss from disposing of substantially appreciated property recharacterized as portfolio income. However, net investment income does not include gain or loss from substantially appreciated property that Reg. §1.469-2(c)(2)(iii)(A) recharacterizes from passive to nonpassive (but not portfolio) income.Under the subheading Substantially appreciated property, the final instructions also clarify the scope of Reg. §1.469-2(c)(2)(iii)(A),” Grace said.
  • On “Page 7: Under Line 5b, the final instructions delete from the examples of items that may be included on line 5b “Gain or loss due to a termination payment on a notional principal contract,” Grace said.
Line 6 of Form 8960 discusses changes to investment income for certain controlled foreign corporations and passive foreign investment companies.
COMMENT 
On “Page 10: A new Note reminds preparers to use line 5b to deduct inclusions under section 1293(a)(1)(B) that are allowed on line 5a or to adjust gain or loss derived from disposing of shares of a CFC or QEF [qualified electing fund],” Grace said.
Line 7 of Form 8960 includes other modifications to investment income, we noted:
  • “Page 11: A new Note helpfully observes that preparers should report on line 10 expenses associated with a trade or business of trading in financial instruments or commodities reported on Schedule C accompanying Form 1040,” Grace said.
  • “Page 11: A new Note observes that an Early Withdrawal Penalty from a retirement savings plan should be reported on line 10 [of Form 8960],” Grace said.
  • “Page 11: Under Form 8814 election, some details have been eliminated, presumably because the instructions accompanying Form 8814 provide them,” Grace said.
  • “Page 11: A new Note cautions that the total amount of deduction recoveries reported on line 7 cannot exceed the total amount of a taxpayer’s properly allocable deductions for the year,” Grace said.
On page 12, the instructions begin to discuss investment expenses allocable to investment income and modifications.
COMMENT 
“Page 14: Under Items not deductible in calculating net investment income, the final instructions clarify that taxpayers may not deduct real estate taxes or personal property taxes not constituting investment expenses under section 163(d)(4)(C). Presumably, taxes that do qualify as investment expenses under section 163(d) may be deducted in calculating net investment income,” Grace said.

COMMENT 
“Page 17: Under Line 10—Additional Modifications, the final instructions delete a sentence providing that, for example, an interest rate swap, cap, or floor and an equity rate swap would be treated as a notional principal contract that produces net investment income,” Grace said.
Reference: PTE §32,022
Posted on 10:02 AM | Categories:

Xero execs play up integrations, point to vertical solutions

Heather Clancy for ZD Net writes:  One factor instrumental in helping New Zealand cloud accounting software provider Xero build its North American presence—aside from the $150 million raised to support that agenda—is its vast ecosystem of add-ons and integrations to other services crucial for managing a small business holistically: more than 300 and counting. 
As Xero doubles down on its market outreach in the United States, you can expect that focus to continue, according to the executives leading that charge, newly appointed U.S. CEO Peter Karpas and U.S. President Jamie Sutherland.
"The number isn't as important as the quality of the integrations, but it is one of our great advantages," Karpas told me in a recent interview.
One particular focus right now for Xero, and other cloud accounting players including powerhouse Intuit, is integration with payroll software that helps automate some of the onerous tax administration that small-business owners must handle on behalf of employees. Aside from its own service, Xero has enabled integrations with major providers including Paychex, ADP Payroll Services, and upstart ZenPayroll.

You'll also hear more about vertical market application support in the future, Karpas said. While he wouldn't be specific, Xero in February announced a "Farming in the Cloud" solution that will bring single-ledger reporting to farmers starting in mid-2014. The initial focus is on supporting the farming community in New Zealand, where Xero has its roots. The solution is made possible through an integration with farming accounting experts Figured.com, as well as software partners iAgri and Aghub (both of which provide farm management applications), according to Xero's press release about the new solution.  [snip]  The article continues at ZD Net, click here to continue.  You can follow the author Heather Clancy on Twitter Here.
Posted on 10:02 AM | Categories: