Dear Client:

The IRS has released guidance on the Manhattan personal income tax treatment of health care coverage for children under age 27 that may be relied upon pending the issuance of amended regulations by the IRS and Treasury Department.

The Patient Protection and Affordable Care Act (PPAC Act), as amended by the Health Care and Education Reconciliation Act of 2010 (2010 Reconciliation Act), added several provisions that expanded the health care tax benefits that apply to various workplace and retiree health plans and their personal income taxes in NYC. The benefits also apply to self-employed individuals who qualify for the self-employed health insurance deduction on their federal and New York personal income tax return.

Exclusion for employer reimbursements. The PPAC Act expanded the exclusion from an employee’s gross income for employer-provided reimbursements for medical care to cover the employee’s child who has not attained age 27 as of the end of the tax year. This new age 27 standard replaces the lower age limits that applied under prior tax law, as well as the requirement that a child qualify as a dependent for New York City personal income tax purposes.

The guidance clarifies that an employee’s child includes a son, daughter, stepchild, adopted child or eligible foster child. When determining the child’s age at year end, the tax year considered is the employee’s tax year. For purposes of the gross income exclusion, an employer can assume that an employee’s tax year is the calendar year and may rely upon the employee’s representation as to the child’s date of birth. The new Manhattan personal income tax benefit is available beginning March 30, 2010 for children who meet the year-end age requirement and are already covered under the employer’s plan or are added to the employer’s plan at any time during the year.
It should be noted that the PPAC Act requires group health plans and health insurance issuers to extend coverage to an adult child until age 26 rather than age 27, and this requirement is effective only for plan years beginning on or after September 23, 2010.

Cafeteria plan, health FSAs, and HRAs. Under the PPAC, the exclusion of coverage and reimbursements from an employee’s gross income for an employee’s child who is under age 27 at year end applies to the definition of qualified benefits for cafeteria plans, including health flexible spending accounts (health FSAs) and health reimbursement arrangements (HRAs). The IRS intends to amend the cafeteria plan rules to include change-in-status events affecting nondependent children under age 27. As a result, as of March 30, 2010 employers may permit employees to make pre-tax salary reduction contributions for accident or health benefits under a cafeteria plan for children under age 27, even if the cafeteria plan has not yet been amended to cover these individuals and their personal income taxes in NYC.
Self-employed health insurance deduction. Insurance paid by a self-employed individual for any child who is not age 27 at year end qualifies for the self-employed health insurance deduction. However, this deduction is denied if the self-employed individual can participate in any subsidized plan, including that of an employer of a dependent or child under age 27 at year end.

The IRS guidance clarifies that these additional tax benefits are provided by the PPAC for adult children who have not attained age 27 at year end:
•    Exemption from FICA, FUTA, RRTA, or income tax withholding for health insurance coverage and employer reimbursements provided under a plan for employees and their dependents
•    Sickness and accident benefits under a Voluntary Employees’ Beneficiary Association (VEBA)
•    Sickness, accident, hospitalization, and medical expense benefits offered by a retired employee’s pension or annuity plan

These health care benefits provided to children under age 27 are meant to encourage the shared responsibility for health insurance coverage of all Americans. If you have any questions regarding this  New York personal income tax issue or any other provision of the health reform legislation, please call our Manhattan personal income tax CPAs at your earliest convenience.

About us: MEDOWS CPA, PLLC is a boutique New York CPA NY Firm serving the needs of Individuals & Small Businesses in New York City and throughout the nation.  We work with the self-employed, freelancers, LLC, C-Corporations and S-Corporations to help them with their accounting and tax needs.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

http://www.medowscpa.com

http://taxblog.medowscpa.com

info@medowscpa.com

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

This article is in response to many questions that our small business CPAs have received about Archer Medical Savings Accounts (MSAs). These accounts are similar to IRAs. Like IRAs, special rules govern when your money can be withdrawn, for what purpose the funds can be used and the deductibility of contributions. Because Congress has not extended Archer MSAs, they have been eclipsed by health savings accounts (HSAs). Our CPAs know that this is especially important to freelancers, self-employed persons, and small business owners in new york.

If you have an MSA, a decision should be made whether to continue to operate as an MSA. Is the MSA adequate for your needs or should it be rolled over into a new HSA account? Administrative costs for setting up an HSA are generally a good reason not to convert to an HSA. A greater degree of flexibility in certain business settings may be another good reason.

Like an MSA, an HSA is a tax-exempt trust or custodial account to which tax-deductible contributions may be made by individuals with a high deductible health plan. HSAs provide tax benefits similar to, but more favorable than, those provide by MSAs. What’s more, unlike HSAs, only individuals who are self-employed or employed by a small business may participate in an MSA.
Both MSA and HSA participants must be enrolled in a “high deductible health plan.” However, that deductible is higher for MSAs. For 2010, MSA must carry an annual deductible of at least $2,000 (the same as for 2009), and at least $4,050 (up from $4,000 in 2009) for family coverage), with a maximum out-of-pocket cap of $3,000 (down from $4,000 in 2009) for individual coverage ($6,050 for family coverage).

HSAs, on the other hand, must only have an annual deductible of at least $1,200 for self-only coverage ($2,400 for family coverage), with an out of pocket cap of $5,9500 ($11,900 for family coverage). In both cases, the amounts are adjusted for inflation each year.

Qualified distributions from both MSAs and HSAs are tax free, even though contributions to either account are deductible when deposited. You may withdraw money to pay for your medical expenses and the medical expenses of your spouse and dependents. Generally, most medical expenses can be paid by these withdrawals. Withdrawals for most non-medical purposes, however, are subject to federal tax and a penalty.

The future of MSAs and HSAs is uncertain. A final health care reform bill, which is making its way through Congress, will likely impose new limits on these arrangements, such as increasing the penalty for early nonqualified withdrawals from an HSA. Our office of CPAs for the self- employed in New York will keep you informed on the developments, and how they may affect your NYC small business.

About us: MEDOWS CPA, PLLC is a boutique New York CPA NY Firm serving the needs of Individuals & Small Businesses in New York City and throughout the nation.  We work with the self-employed, freelancers, LLC, C-Corporations and S-Corporations to help them with their accounting and tax needs.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

http://www.medowscpa.com

http://taxblog.medowscpa.com

info@medowscpa.com

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

The IRS has provided procedures for taxpayers to make changes to, from, or within a nonaccrual-experience (NAE) accounting method, and to adopt certain NAE methods. This applies in particular to S-corporations, LLCs and other small businesses operating in New York who use CPAs. The NAE methods are limited to taxpayers that use an accrual method and that:
•    provide services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts and consulting, or
•    meet the $5 million annual gross receipts test.
A New York City small business, C-corporation, LLC or high net worth taxpayer who uses an accrual method for accounts receivable for services performed may request a change to the nonaccrual-experience method of accounting. Under this method, a taxpayer does not need to accrue any portion of the accounts receivable that on the basis of experience will not be collected.

The NAE method is unavailable if interest is charged on the amounts due or if there is any penalty for late payment. Generally, offering a discount for early payment is not regarded as charging interest or imposing penalties for late payments, if certain conditions are met. Income cannot be reported using the NAE method for activities related to lending money, selling goods, or acquiring receivables from other persons who earned the amounts through the provision of services.

The procedures apply to taxpayers that wish to:
•    change to a safe harbor NAE method; or
•    change to a period system; or
•    change from a NAE method to a specific charge-off method; or
•    change from a sub-method of its current NAE method regarding applicable periods or tracing of recoveries to another permissible sub-method; or
•    change a sub-method unrelated to the applicable period or to the tracing of recoveries for a taxpayer currently using a NAE method; or
•    change to or adopt a NAE method other than a safe harbor method provided by the IRS.

Our NYC CPAs specialize in helping LLC, S-corporations, C-corporations or other Manhattan based small businesses. If you are interested in reviewing your current collection procedures and method of accounting, please call one of our Manhattan LLC CPAs at your earliest opportunity to arrange an appointment.

About us: MEDOWS CPA, PLLC is a boutique New York CPA NY Firm serving the needs of Individuals & Small Businesses in New York City and throughout the nation.  We work with the self-employed, freelancers, LLC, C-Corporations and S-Corporations to help them with their accounting and tax needs.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

http://www.medowscpa.com

http://taxblog.medowscpa.com

info@medowscpa.com

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

There have been new guidelines released by the IRS that may affect C-corporations, S-corporations, LLCs and other small businesses in New York. Keep reading to learn more about these new guidelines and how a LLC CPA in Manhattan can help.
The IRS has issued guidance for accrual basis taxpayers as to when they incur a liability for services or for insurance. If a taxpayer wants to change its treatment of liabilities to comply with this guidance, they must obtain the consent of the IRS.
Under the accrual method of accounting, which you use, a liability is incurred, and is generally taken into account for federal income tax purposes in the tax year in which:
1.    all the events have occurred that establish the fact of the liability,
2.    the amount of the liability can be determined with reasonable accuracy, and
3.    economic performance has occurred with respect to the liability (the “all events test”).
There are exceptions, such as when the amount of the accrual is immaterial, or accrual of the liability in the tax year of payment results in better matching of the liability against the income to which it relates than would result from accrual of the liability in the tax year in which economic performance occurs. This is something that a skilled CPA experienced in handling Manhattan C-corporations will be able to assist you in sorting out.

The IRS specifically addresses two situations in which an accrual basis taxpayer incurred liability for services or for insurance in the year payment was due and paid, not in the year the taxpayer executed the contract for the services or the insurance. The IRS further provides guidance on how a taxpayer can change their method of accounting for services and insurance contracts. This is also something that a CPA versed in LLCs in Manhattan can help you with.

If you have any questions regarding this guidance or compliance with the accrual method of accounting, please call one of our New York City small business CPAs at your convenience.

About us: MEDOWS CPA, PLLC is a boutique New York CPA NY Firm serving the needs of Individuals & Small Businesses in New York City and throughout the nation.  We work with the self-employed, freelancers, LLC, C-Corporations and S-Corporations to help them with their accounting and tax needs.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

http://www.medowscpa.com

http://taxblog.medowscpa.com

info@medowscpa.com

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

This letter is intended to answer questions that many New York LLCs, S-corporations, and other small businesses have been raising about the reach of the continuing IRS campaign to identify and shut down abusive corporate tax shelters. When combined with the simultaneous push by the federal government to enforce stricter corporate accounting and financial practices through Sarbanes-Oxley, the IRS’s tax-shelter enforcement activities undeniably have created some “sleepless nights” for many corporate executives. Whether such worry is unfounded or not, however, depends upon a number of factors, some still developing in the courts, in the IRS, and in the Treasury Department’s tax policy offices. Keep reading to determine if this may affect your LLC, S-corporation, or small business in New York City, and to see how a CPA can help if it does.

One of the key characteristics of a corporate tax shelter is that the transaction has no economic substance. Generally, if a transaction has a business purpose other than solely to minimize taxes, it is not a tax shelter. Once a transaction is deemed to be business related, restructuring that transaction to save the most taxes will not then transform those efforts as a tax-shelter activity.
To help identify tax shelters more easily, the IRS has been instructing its agents to look for following additional characteristics:
•    Exclusive of the tax benefits involved, corporate tax shelters typically earn no economic profit;
•    Inconsistent financial accounting and tax treatment, since tax shelters will often reduce taxable income while leaving book income unaffected;
•    The participation of a “tax-indifferent” party, for example, some type of entity involved in the transaction that can absorb the taxable income or deflect the tax liability, most often a foreign or charitable tax-exempt entity;
•    Use of special entities, structures, and innovative financing instruments that are unnecessary to the transaction except to be more able to claim on a technicality a direct tax result or one facilitated by the use of a tax-indifferent party; and
•    Unnecessary steps or novel investments, for example, steps unnecessary to achieve a corporation’s purported business purpose.

The past several years have marked a number of victories for the IRS in both the domestic and international tax shelter arenas. The IRS has won some huge tax shelter cases in the courts and these victories have encouraged it to go after even more shelters. The IRS has also cracked down on accounting and law firms that facilitate tax shelters. The “anything goes” attitude of past years ago is a long faded memory. And while the IRS has been enforcing the law, Congress is looking to close as many loopholes as possible to prevent NYC tax evasion.

The IRS has launched several tax shelter settlement initiatives in which it offers to settle with taxpayers who had participated in abusive tax shelters. These covered the notorious Son of BOSS tax shelter, abusive executive compensation schemes, and many other abusive transactions.

The IRS has also beefed-up its Large and Mid-Size Division (LMSB). LMSB services the largest business entities in the country. LMSB is implementing an Industry Issue Focus approach to compliance to ensure consistency in resolution across industry lines and increased coverage of non-compliant taxpayers by maximizing limited resources. These issues are prioritized or tiered based on how prevalent they are across industry lines and the level of compliance risk they present. Tier I issues are of high strategic importance to LMSB and have significant impact on one or more industries. Abusive tax shelters have been designated as a Tier I compliance issue. If you are a high net worth individual in Manhattan, you may want to obtain a CPA just to cover your back.

Some small businesses are concerned that the IRS’s focus on tax shelters will mean increasing scrutiny of other aspects of their business operations as well. Others want to undertake internal protective audits to set up a strategy against IRS involvement before the IRS sends out audit letters. Many high net worth individuals in NYC in particular are seeking the help of experienced CPAs to help. If you would like a further analysis of how the IRS assault on tax shelters may affect you, directly or indirectly, please do not hesitate to call one of our seasoned CPAs experienced in working with S-corps, LLCs, high net worth individuals and small businesses in New York and abroad.

About us: MEDOWS CPA, PLLC is a boutique New York CPA NY Firm serving the needs of Individuals & Small Businesses in New York City and throughout the nation.  We work with the self-employed, freelancers, LLC, C-Corporations and S-Corporations to help them with their accounting and tax needs.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

http://www.medowscpa.com

http://taxblog.medowscpa.com

info@medowscpa.com

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

If you and your spouse are contemplating starting a small business together, you are probably wondering what to do about your New York income taxes. First, you have to determine what kind of relationship you and your spouse will have in the relationship. Will you be partners, or will one of you be more of an employee? The answer determines how you’ll go about filing your income taxes in Manhattan.

According to the IRS, A spouse is considered an employee if the first spouse significantly controls the business in terms of management decisions and the second spouse is under the direction and control of the first spouse. If this is the relationship that you will have in your small business, then the second spouse is an employee subject to income tax and FICA (Social Security and Medicare) withholding.

If both spouses have an equal say in the business, provide equal services to the business, and contribute capital to the business, then your business is a partnership type of relationship and the business’s income should be reported on Form 1065, U.S. Return of Partnership Income.

However, there is also a third option for Husband and Wife income taxes in NYC. According to the  Small Business and Work Opportunity Tax Act of 2007, there is a qualified joint venture  option for businesses whose only members are a husband and wife filing a joint income tax  return not to be treated as a partnership for Federal tax purposes. A qualified joint venture is a joint venture involving the conduct of a trade or business, if (1) the only members of the joint venture are a husband and wife, (2) both spouses materially participate in the trade or business, and (3) both spouses elect to have the provision apply.

Under this law, a qualified joint venture conducted by a husband and wife who file a joint return is not treated as a partnership for Federal tax purposes. All items of income, gain, loss, deduction and credit are divided between the spouses in accordance with their respective interests in the venture. Each spouse takes into account his or her respective share of these items as a sole proprietor.
This being the case, it is anticipated that each spouse would account for his or her respective share on the appropriate form, such as Schedule C.  For purposes of determining net earnings from self-employment, each spouse’s share of income or loss from a qualified joint venture is taken into account just as it is for Federal income tax purposes under the provision (i.e., in accordance with their respective interests in the venture).
This generally doesn’t increase the total tax on the return, but it does give each spouse credit for social security earnings on which retirement benefits are based. However, this may not be true if either spouse exceeds the social security tax limitation. For more information on filing your husband and wife business income taxes in NYC, contact an experienced  manhattan CPA.

About us: MEDOWS CPA, PLLC is a boutique New York CPA NY Firm serving the needs of Individuals & Small Businesses in New York City and throughout the nation.  We work with the self-employed, freelancers, LLC, C-Corporations and S-Corporations to help them with their accounting and tax needs.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

http://www.medowscpa.com

http://taxblog.medowscpa.com

info@medowscpa.com

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

If you have recently started a small business, are a freelancer, independent contractor, or are otherwise self-employed in the US, then you will likely owe the government what is called self-employment tax (SE tax).  The self-employment tax is a Social Security and Medicare related tax is that is very similar to the taxes that are withheld from the wages of employees.

The self-employment tax is currently 15.3%. When you are an employee at a company, normally this tax is divided between the company and you via the FICA tax, but when you are self-employed, you end up having to pay the 15.3% yourself.
Social Security accounts for 12.4% of the tax, and Medicare accounts for the remaining 2.9%.

If your net earnings for self-employment were more than $400, then you will have to pay the self-employment tax. Only the first $106,800 of your combined wages, tips, and net earnings in 2009 are subject to any combination of the 12.4% social security part of self-employment tax.  However, all of your combined wages, tips, and net earnings in 2009 are subject to any combination of the 2.9% Medicare part of self-employment tax.

You can deduct half of your self-employment tax in figuring your adjusted gross income.  This deduction only affects your income tax and it does not affect either your net earnings from self-employment or your self-employment tax.

If you are  self-employed and are not sure about how to handle your self-employment taxes, the best bet would be to go to a CPA in Manhattan who specializes in dealing with the self-employed. MEDOWS CPA, PLLC is one such NYC based CPA firm. Don’t hesitate to call us with your self-employment tax concerns, as our first consultation is free.

About us: MEDOWS CPA, PLLC is a boutique New York CPA NY Firm serving the needs of Individuals & Small Businesses in New York City and throughout the nation.  We work with the self-employed, freelancers, LLC, C-Corporations and S-Corporations to help them with their accounting and tax needs.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

http://www.medowscpa.com

http://taxblog.medowscpa.com

info@medowscpa.com

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

If you are an individual or small business owner living in New York City, then you know that doing your income taxes can be complicated.  There are various small details that a regular person may miss while filing their New York income taxes that a seasoned NYC Certified Public Accountant would catch.

An experienced CPA based in New York is familiar with all of the various ins and outs of NYS and NYC income tax laws and they will be able to advise you on various ways that you could possibly save money, or get a larger refund.  When you file your income taxes in New York City, it is imperative that you go with a certified professional who you can trust will get the job done right the first time.

At MEDOWS CPA, PLLC, our Manhattan based certified public accountants will handle your income taxes effectively and promptly, as well as assist you in any other income tax matters or questions you may have. We specialize in dealing with small businesses, freelancers and individuals, and are well versed in the unique income tax positions of these groups.  If you are doing your income taxes in New York, do not hesitate to call us, as our initial consultation is free.

About us: MEDOWS CPA, PLLC is a boutique New York CPA NY Firm serving the needs of Individuals & Small Businesses in New York City and throughout the nation.  We work with the self-employed, freelancers, LLC, C-Corporations and S-Corporations to help them with their accounting and tax needs.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

http://www.medowscpa.com

http://taxblog.medowscpa.com

info@medowscpa.com

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

If you live in Manhattan, it is only logical that you would want to file your income taxes with a tax professional who is nearby. However, you may not be aware that filing your Manhattan income taxes with anyone other than a Manhattan CPA could actually hurt your wallet.

There are some income tax issues that are unique to Manhattan that only a CPA based in the borough would know thoroughly, and if you went to a CPA or other tax professional outside of Manhattan, they may overlook these issues and you could end up paying more on your income taxes or possibly even missing out on an extension or refund opportunity. And of course you don’t want that to happen.

Nobody likes losing money, so it makes sense to trust your Manhattan income taxes to a veteran Manhattan Certified Public Accountant. At MEDOWS CPA, PLLC our Manhattan based CPAs will be able to take care of your income taxes and also offer you any additional advice or assistance you may need.

About us: MEDOWS CPA, PLLC is a boutique New York CPA NY Firm serving the needs of Individuals & Small Businesses in New York City and throughout the nation.  We work with the self-employed, freelancers, LLC, C-Corporations and S-Corporations to help them with their accounting and tax needs.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

http://www.medowscpa.com

http://taxblog.medowscpa.com

info@medowscpa.com

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

When you were shopping around for a CPA to do taxes for your small business or freelance work, you decided not to risk it. Tax preparation is a sensitive subject, so better to just go somewhere with a recognizable name and a decent reputation to get your taxes done, someone your friend went to and said worked out just fine … right?

So you went to a large firm, because it’s supposed to be a safe choice. But when you got there, it was pretty impersonal. Every time you called with a question, you were bounced to someone new, usually some kid who was one year out of college and said he had to ask someone else. And then they’d take a while to get back to you, and it’d be a different person, and you’d have to re-explain your situation all over again.

Then came all the forms. Top to bottom, the whole process felt very bureaucratic. And to top it all off you got a bill for several grand. You put so much work into your small business to make it personal, and yours–isn’t there a better way to do this?

There sure is. Manhattan accountant Jonathan Medows understands you want prompt, professional tax preparation by senior-level people you can actually speak to. They’ll return your call within a day, usually even less time than that. With an accessible Manhattan office where you can pick up the phone and know who you’re talking to, NYC CPA Jonathan Medows offers reasonable fees and a staff who’s sensitive to your personal needs.

About us: MEDOWS CPA, PLLC is a boutique New York CPA NY Firm serving the needs of Individuals & Small Businesses in New York City and throughout the nation.  We work with the self-employed, freelancers, LLC, C-Corporations and S-Corporations to help them with their accounting and tax needs.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

http://www.medowscpa.com

http://taxblog.medowscpa.com

info@medowscpa.com

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses