Healthcare Tax Credit for Self-employed

Certain individuals who purchase qualified health care coverage through an American Health Benefit Exchange located in their state of residence are entitled to a refundable income tax credit equal to the premium assistance credit amount.

In general, you may be eligible for the credit if you meet all of the following:

  • buy health insurance through the Marketplace;

  • are ineligible for coverage through an employer or government plan;

  • are within certain income limits;

  • do not file a Married Filing Separately tax return (unless you meet certain criteria, which allows victims of domestic abuse to claim the premium tax credit); and

  • cannot be claimed as a dependent by another person.

A self-employed individual may also be allowed a deduction for all or a portion of the premiums paid during the tax year for health insurance for the taxpayer, the taxpayer’s spouse, the taxpayer’s dependents, and any child of the taxpayer under the age of 27. This deduction is limited to the taxpayer’s earned income from the trade or business with respect to which the health insurance plan is established.

The taxpayer must know the allowable health insurance premium deduction to compute the premium tax credit because the health insurance premium deduction is allowed in computing adjusted gross income and the adjusted gross income is necessary to compute the premium tax credit. A taxpayer who is eligible for both the deduction and a premium tax credit may have difficulty in making the determinations of those items.

Therefore, the IRS has issued guidance that is intended to provide taxpayers with calculation methods that resolve the circular relationship between the deduction and the tax credit. This guidance includes a special section for taxpayers who have a premium assistance amount with coverage months for which no health insurance premium deduction is allowed.

The use of the calculations provided by the IRS is optional; a taxpayer may determine the amounts of the deduction and the tax credit using any method that satisfies the requirements of the applicable tax law and regulations. Your tax professional can help you determine how to get the greatest benefit from the deduction and credit available to you.

Work Can Affect Your Social Security Benefits

A large number of retired individuals are back in the workforce. In addition to earning a salary, these individuals may also be receiving Social Security benefits. Depending on the individual’s age, benefits may be reduced and included in the recipient’s gross income.

Taxpayers at and above full retirement age can continue to earn unlimited amounts without any reduction in Social Security benefits. Full-retirement age was 65 for many years. However, beginning with 1938 birth dates or later, that age gradually increases.

How much can you earn and still get benefits?

If you were born January 2, 1956, through January 1, 1957, then your full retirement age for retirement insurance benefits is 66 and 4 months. If you work, and are full retirement age or older, you may keep all of your benefits, no matter how much you earn. If you’re younger than full retirement age, there is a limit to how much you can earn and still receive full 2 Social Security benefits. If you’re younger than full retirement age during all of 2018, the social security administration will deduct $1 from your benefits for each $2 you earn above $17,040.

If you reach full retirement age during 2018, $1 will be deducted from your benefits for each $3 you earn above $45,360 until the month you reach full retirement age.

A portion of Social Security benefits is included in the gross income of a recipient whose total income exceeds applicable base and adjusted base amounts. The base amounts and adjusted base amounts vary with the filing status of the recipient.

Since income tax is not withheld on Social Security, you may need to pay estimated tax. Your tax professional can help you determine if you should pay individual estimated tax. Additionally, even though Social Security benefit payments are not automatically subject to withholding, a taxpayer may request to have federal income tax withheld from them.

In addition to contacting an expert, the Social Security Administration has prepared and excellent brochure on this topic. Don’t wait to ask questions. Finding out the hard way how Social Security payments have affected your tax positions, either now or in the future, can be nuisance.

Believe It or Not, Social Security Income Can Be a Tax Burden

Social Security income used to be tax-free to all, but that’s no longer the case. Depending on your other income, you could wind up paying tax on up to 85% of your Social Security benefits, at a time when you need steady income the most. However, your qualified tax professional may be able to help you map out a strategy that will reduce your exposure to federal income tax on your Social Security benefits.

According to the Social Security Administration (SSA), about one-third of people who receive Social Security benefits have to pay income taxes on their benefits.

If you file a federal tax return as “single,” and your combined income is between $25,000 and $34,000, you may have to pay taxes on 50 percent of your Social Security benefits. If your combined income is more than $34,000, up to 85 percent of your Social Security benefits are subject to income tax.

If you file a joint return, you may have to pay taxes on 50 percent of your benefits if you and your spouse have a combined income that is between $32,000 and $44,000. If your “combined income” is more than $44,000, up to 85 percent of your Social Security benefits are subject to income tax.

Each year, the SSA sends individuals a Statement of Social Security Benefits. You can use this Statement along with your earnings report to determine if your combined income may be subject to taxation. You can also check online at

If there is a chance that your Social Security income will be subject to federal income tax, you may be able to reduce your exposure by using the following techniques to reduce your income level:

  • Consider switching some funds into investments (such as annuities) that pay monthly amounts that include a tax-free return of capital component. That part of each annuity payment representing your investment is not currently taxed and is not factored into the calculation of how much Social Security income is subject to tax.

  • If you currently are not expending all of your investment income on living expenses, defer as much income as possible. For example, the interest buildup in U.S. Government Series EE bonds isn’t taxed until the bonds are redeemed. In addition, defer taking cash out of your IRAs and qualified plan accounts as long as possible.

  • If you have the choice, consider withdrawing interest from your municipal bond funds before withdrawing cash from IRAs for living expenses. This helps because municipal bond interest you earn is taken into account when computing the tax on Social Security benefits, but interest and dividends accumulating in an IRA account are not taken into account.

Of course, always bear in mind that taxes should never be the motivating factor behind an investment decision. It’s important to consider your financial, investment, and tax situation in detail before you use one of these techniques.

5 Third Quarter Tax Moves to Make Right Now

With almost three-quarters of the year squarely behind us, now is a great time to assess your tax situation. Even though tax law changes are up in the air again this year, here are five moves, with the help of your tax professional, that you should consider right now.

One – Deductions and Credits

Look at last year’s tax return and determine if you are at a point to get a good estimate of your deductions and credits. If your deductions are less than half of what they were for the full year, you will end up paying more tax. Now would be a good time to clean out the kids closet or the garage and make an in-kind charitable donation.

Two – Investment Portfolio

Many people wait until the end of the year to do tax loss harvesting on their investment accounts. However, you can take those losses at any point during the year. You can sell your securities that are at a loss to offset capital gains and up to $3,000 of ordinary income each year. Proper planning with security purchases and sales can make for big savings during tax time.

Three – Retirement Plans

Retirement plan contributions through work are often forgotten or underutilized. Many employers offer some type of match for a retirement plan and that is free money to you! If you are not contributing enough to take full advantage of the employer match, now is a great time to up your contribution. Also, if you are over 50, you can increase the deferral to the max contribution of $24,000. If you were a late starter on making those retirement contributions, you may even want to consider contributing to an IRA in addition to the 401k.

Four – Higher Education

Paying for college seems to be getting more and more difficult. By claiming some of the higher education credits that are available, you can lessen the financial burden. For some higher earners, the credits do have phaseouts. Get a head start on reviewing which credit could apply so you can make sure you don’t miss out.

Five – Estate Plan

Everyone has an estate plan; either the one you create or the one a judge determines for you. Now is the time to make sure you have your financial affairs in order and to maximize gifting strategies among spouses, family members and charitable organizations. Current estate and gift tax exemptions for 2017 are $5.49 million per taxpayer or $10.98 million per couple.

These are just five simple moves to make at this point to help reduce taxes and make sure you take advantage of a range of financial incentives. Don’t wait though, soon it will be too late, so schedule a 3Q tax review now.

5 Things to know about the 2017 Tax Season

2017 tax season is upon us. Monday, January 23, 2017 The IRS will begin accepting electronic tax returns that day, with more than 153 million individual tax returns expected to be filed in 2017. The IRS again expects more than four out of five tax returns will be prepared

electronically using tax return preparation software. So that you’re ready for the season, here are five things that you should be aware of:

Start early
While there’s time until your taxes are due, it’s best to get a jump on things. With new rules, credits on refund delays and the sheer volume of returns, IRS Commissioner, John Kosikman, is advising; “For this tax season, it’s more important than ever for taxpayers to plan ahead,…IRS employees and the entire tax community will be working hard to make this a smooth filing season for taxpayers.”

Gathering all of your tax information and having it in-hand for preparation by your qualified tax professional will ensure smooth and timely processing. Using a tax organizer, like this one, will help to ensure that you’ve gathered everything you need.

This year’s deadline
The filing deadline to submit 2016 tax returns is Tuesday, April 18, 2017, rather than the traditional April 15 date. In 2017, April 15 falls on a Saturday, and this would usually move the filing deadline to the following Monday — April 17. However, Emancipation Day — a legal holiday in the District of Columbia — will be observed on that Monday, which pushes the nation’s filing deadline to Tuesday, April 18, 2017. Under the tax law, legal holidays in the District of Columbia affect the filing deadline across the nation.

Some refunds will be delayed
Beginning in 2017, a new law requires the IRS to hold refunds on tax returns claiming the Earned Income Tax Credit or the Additional Child Tax Credit until mid-February. Under the change required by Congress in the Protecting Americans from Tax Hikes (PATH) Act, the IRS must hold the entire refund — even the portion not associated with the EITC and ACTC — until at least Feb. 15. This change helps ensure that taxpayers get the refund they are owed by giving the IRS more time to help detect and prevent fraud.

Track your refund
The IRS anticipates issuing more than 9 out of 10 taxpayer refunds in less than 21 days. Where’s My Refund? ‎on and the IRS2Go phone app will be updated with projected deposit dates for early EITC and ACTC refund filers a few days after Feb. 15. Taxpayers will not see a refund date on Where’s My Refund? ‎or through their software packages until then. The IRS, tax preparers and tax software will not have additional information on refund dates, so Where’s My Refund? remains the best way to check the status of a refund.

E-file for speedy refunds
Eight out of 10 taxpayers will receive their tax refunds by using direct deposit rather than requesting a paper check. According to the IRS, e-filing your return together with direct deposit is the fastest way to receive your refund.

Only use qualified tax professionals
A trusted tax professional can provide helpful information and advice about the ever-changing tax code. The IRS urges taxpayers to avoid fly-by-night preparers who may not be available after this year’s April 18 due date or base fees on a percentage of the refund. By law, all paid tax preparers must have a Preparer Tax Identification Number or PTIN. Paid preparers must sign the return and include their PTIN. The IRS offers tips to help taxpayers choose a tax return preparer wisely.

Remember though, no matter who prepares it, by signing your return, you become legally responsible for the accuracy of all information included. So, be sure to double-check everything.

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