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COBRA Subsidy Appeals of Denials for NYC Income Tax Credit Assistance

admin — Fri, 27 Aug 2010 12:00:37 +0000

Our Team of New York income tax CPAs want you to know that individuals who are involuntarily terminated from employment on or after September 1, 2008 and on or before May 31, 2010 can elect to pay 35 percent of their NYC COBRA continuation coverage and be treated as paying the full amount. The former employer pays the remaining 65 percent and then seeks reimbursement from the IRS, through a New York City payroll income tax credit. The COBRA subsidy has been credited with helping millions of individuals maintain their health insurance coverage during the economic slowdown.

The COBRA premium subsidy was first introduced in the American Recovery and Reinvestment Act of 2009 (2009 Recovery Act) and extended in subsequent legislation. The latest extension was in the Continuing Extension Act of 2010. The Continuing Extension Act extended eligibility for COBRA premium assistance through May 31, 2010. Congress is expected to approve legislation extending the subsidy through December 31, 2010. If passed, this would greatly help people who have been wit by the economy with their Manhattan income taxes.

In New York, COBRA premium assistance is excluded from gross income. However, the subsidy phases out for higher income individuals. Individuals with modified adjusted gross income (AGI) between $125,000 and $145,000 ($250,000 and $290,000 married couples filing jointly) must repay a portion of the subsidy on their income taxes in Manhattan. If a taxpayer’s modified AGI exceeds $145,000 ($290,000 for married couples filing jointly) the full amount of the subsidy will be repaid as an additional tax. A higher income individual can elect to waive COBRA premium assistance.

If you believe you are eligible for COBRA premium assistance but your former employer or plan denied the subsidy, you may apply to the U.S. Department of Labor (DOL) to review the denial. DOL has posted, online, its process for individuals to appeal denials of COBRA premium assistance under the 2009 Recovery Act. The DOL has promised to expedite review of denials for the temporary subsidy for COBRA continuation coverage.

Individuals who believe they are eligible for COBRA premium assistance, but have been denied the subsidy, can appeal to the DOL. Individuals can file their appeals electronically at its web site ( www.dol.gov/cobra ) or, alternatively, can print the online appeals form and send it to the DOL by mail or fax.
Individuals filing an appeal should have:
•   COBRA election notice;
•   A “Request for Treatment as an Assistance Eligible Individual” or other form used to request the premium reduction;
•   Insurance information card;
•   Payroll stubs showing deductions for health benefits;
•   Any documents detailing the date and circumstances of the termination; and
•   Any documentation the individual received regarding the denial of the premium reduction.

The DOL processes appeals from individuals who were employed in the private sector. If the individual was employed by the federal government or a state or local government, the U.S. Department of Health and Human Services (HHS) processes the appeal. HHS has also posted information about appeals on its web site ( www.cms.hhs.gov ).

If you have questions about COBRA premium assistance in New York, or the COBRA denial and appeals process, please do not hesitate to call our team of Manhattan income tax CPAs. We can answer your New York income tax questions and provide you with more specific information that you may need.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

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

Convenience Fees for NYC Income Tax Payments by Credit and Debit Cards May be Deductible

admin — Wed, 18 Aug 2010 12:00:03 +0000

Our Manhattan income tax CPAs have learned that the IRS has announced that convenience fees charged for paying federal and New York individual income taxes electronically with a credit or debit card are deductible for some taxpayers who itemize. This announcement represents a change from the IRS’s previous position on the deductibility of such fees, and may have a positive affect on your income tax return in NYC.

Federal law prohibits the IRS from paying fees to service providers for credit and debit card transactions. Therefore, service providers generally charge taxpayers a convenience fee for paying their federal income tax with a credit or debit card. Convenience fees average 2.5 percent of the amount of the payment. According to the IRS, more than four million taxpayers paid their tax electronically in 2008.
If you were charged these fees when you paid the balance due on last year’s New York City income tax return, or when you paid your estimated tax payments for the current year, you may be able to deduct the fees. The convenience fees are deductible as a miscellaneous itemized deduction subject to two percent of adjusted gross income.

Therefore, in order to deduct the convenience fees, taxpayers must be eligible to file Schedule A of Form 1040 to itemize their deductions, and also have enough miscellaneous expenses to exceed 2 percent of their adjusted gross income. Fees are deductible in the year they are paid.

If you have any question on whether or not you may take the deduction on your income tax return in Manhattan, or on your tax liability in general, please call our office of New York income tax CPAs at your earliest convenience.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

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

Small Business Tax Guidance on Small-Employer Health Care Credit in NYC

admin — Wed, 28 Jul 2010 12:00:49 +0000

Dear Client:
Our Manhattan CPAs want yo make sure that you are aware of the following development in NYC small business taxes: The IRS has released guidance on computing the health insurance tax credit for eligible New York small businesses that make nonelective contributions toward their employee’s health insurance premiums.

The Patient Protection and Affordable Care Act added a provision that allows eligible New York City small businesses a tax credit for nonelective contributions that pay for at least one-half of the cost of health insurance premiums for the coverage of participating employees. The amount of the NYC small business tax credit is equal to 35 percent of the lesser of:
1. The total amount of the nonelective contributions the employer makes on behalf of its employees during the tax year under a contribution arrangement for the payment of premiums for qualified health insurance coverage of its employees, or
2. The total amount of nonelective contributions that would have been made during the tax year if each employee taken into account in item (1) had enrolled in a qualified health plan that had a premium equal to the amount that the Secretary of Health and Human Services determines is the average premium for the small group market in the state in which the employer is offering health insurance coverage (or the area within the state that is specified by the Secretary of Health and Human Services).

An employer determines its status as an eligible New York small business each tax year. An employer is an eligible small employer if the following conditions are met:
•   it has 25 or fewer full-time equivalent (FTE) employees;
•   the average annual wages of these employees are not greater than twice the applicable dollar amount for the tax year ($25,000 in tax years beginning in 2010 through 2013); and
•   the employer has a qualified health care arrangement in effect.
Certain employees are excluded from the determination of FTEs. Excluded employees are sole proprietors, partners in a partnership, shareholders owning more than 2 percent of an S corporation, and any owners of more than 5 percent of other businesses. Family members of these owners and partners are also not taken into account as employees.

The IRS guidance clarifies, among other things, how employers calculate the credit, the types of coverage that are eligible for the credit, and the interaction of the federal tax credit with New York small business tax credits. In addition, the IRS provides the average premium for the small group market in each state for the 2010 tax year for purposes of computing the amount of the credit.

The health insurance tax credit for NYC small businesses is one of many provisions of the Patient Protection and Affordable Care Act that encourages the shared responsibility for health insurance coverage of all Americans. If you have any questions regarding your eligibility or the calculation of the credit, please call our Manhattan small business CPAs at your earliest convenience.
Sincerely yours,

Jonathan Medows, CPA

MEDOWS CPA, PLLC

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

Tax Strategies for Dependent Children in Manhattan

admin — Thu, 15 Jul 2010 12:00:12 +0000

Raising a family can be both challenging and rewarding. As a parent, you worry about your children receiving quality child care, paying medical expenses, or saving for college. You want to do what is right for your family, but there are so many factors to consider, including how your choices will impact your family’s overall New York income tax burden. Our Manhattan income tax CPAs can assist you in understanding your options and in taking full advantage of the credits and deductions that you are entitled to on your New York City income taxes as a parent.
For instance, you may be able to take a child and dependent care credit if your child is under the age of 13 at the end of the year.

However, not all expenses qualify, and some expenses may qualify for both the dependent care credit and the deduction for medical expense, depending on your circumstances. In addition, if your employer offers a flexible spending plan, you might consider whether or not participating in the plan saves you more money than claiming the credit on your Manhattan income taxes. If you are divorced, the issues can be more complicated. Who is entitled to an exemption for your child and how does claiming the exemption impact other tax benefits for a dependent? A New York CPA who specializes in income taxes in Manhattan can answer these tough questions for you.

Even if child care is not a concern of yours, these examples illustrate how complex family tax planning can be. There are many other Manhattan income tax considerations, such as the benefits and pitfalls of shifting income to minor children in light of the NYC kiddie tax; determining what expenses qualify for the education credits and deductions and who can claim them; the eligibility requirements for the earned income credit; or the impact of the alternative minimum tax. We can help you see the bigger picture and develop a plan that both meets your needs and saves you money on your income taxes in NYC. Please call our Manhattan office at your earliest convenience to make an appointment with one our CPAs for a full review of your New York income tax situation.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

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

NYC S-Corp: Audit Warning

admin — Fri, 25 Jun 2010 12:00:55 +0000

As a Manhattan CPA firm who specializes in small business tax preparation, we have noticed that S corporations have enjoyed exponential growth over the years in New York, becoming “king of the entities” among those forms of doing business nationwide as well. Except for the unincorporated sole proprietorships, the S corporation is the most popular form of small business in New York State, as well as the whole country. In fact, over the past 15 years, the number of S corporations has quadrupled. S corporations are estimated to make up roughly 13 percent of all businesses. The growth of S corporations in New York State has not gone unnoticed by the IRS.
According to the Government Accountability Office (GAO), the most significant tax reasons for businesses to choose S corporation status in New York include its single level of taxation, ability to pass through business losses to shareholders, and the imposition of employment taxes on wages, rather then net business income. Combine the rising popularity of the S corporation with intense pressure put upon the IRS by Congressional leaders to close the “tax gap” (the difference between what is owed and what is collected) and the perfect storm for more IRS audits has developed. A recent report on the tax gap, which hovers at around $300 billion annually, blames up to 80 percent of it on small businesses. IRS intelligence also bears out that result, with a particularly large group of abusive tax techniques concentrated among S corporations.
The IRS received almost 4.4 million S corporation returns for 2008, the year in which the latest data is available. The IRS has begun to place more emphasis on the growing area of flow-through entities, “a source of potential noncompliance.” As such, the IRS is currently working on updating its analysis of S corporation collection and compliance data.
Since New York employment taxes are imposed on all net income of the owners of partnerships and proprietorships, this difference has provided a significant incentive for Manhattan S corporations to treat wages paid to owners as distributions and has been determined to be a serious area of noncompliance.
The IRS is also looking closely at NYC S corporation compensation practices. In particular, auditors’ eyebrows will be raised if salaries paid by an S corporation to its principal owner or owners look suspiciously low. One scenario involves a technique in which the S corporation owner/employee draws a low salary to avoid employment taxes that ordinarily would be due on additional wages but would escape tax if passed through as dividends. Not only are IRS examiners disallowing this technique but they reportedly are also assessing 20 percent accuracy-related penalties. A review of W-2 income and total distributions received by the S corporation owner-employee during the year may be in order for many businesses. The IRS has also issued a fact sheet on S corporation compensation.
The ability of S corporations to pass through losses provides a significant advantage over C corporations and is one of the main reasons for business owners to elect S corporation status. However, a significant area of noncompliance by S corporations that has drawn IRS attention involves incorrect and excessive determinations of basis by S corporations.
If you would like any further information on the recent IRS audit initiatives against S corporations in New York City, or if you would like us to do a thorough review of your compensation practices and other “audit triggers,” please call our office. Our firm of experienced Manhattan S corp CPAs will review your situation and advise you in the best ways to avoid any penalties regarding your New York S corp income taxes.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

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

Living Trusts in NYC- An Introduction

admin — Wed, 23 Jun 2010 12:00:28 +0000

“Revocable living trusts” have become popular estate planning tools for many people in NYC. Whether a living trust is right for you, however, depends on a number of factors. A living trust in New York may benefit you greatly, or you may be worse off with one.
A living trust is a trust that you set up during your lifetime, to which you transfer most or all of your assets. You get the income from the trust, and also have the right to withdraw principal. You can revoke or cancel the trust at any time during your life. At death the trust becomes irrevocable and its income and assets are disposed of under terms specified by you in the trust papers.
Why would you do this? The main advantage of the living trust is that its assets are distributed without going through the court probate process. That avoids a filing fee in the probate court. Also, trustee fees generally are lower than nonfamily executors’ or personal representatives’ fees would be. However, even if probate is avoided there will be the expense of preparing an New York estate tax return, valuing and transferring assets, and making a formal accounting and settlement. Also, to avoid probate, all probate assets must be included in the living trust. If some are left out, a probate proceeding still would be necessary. As a result, those in New York with living trusts usually also have a will to direct any extra property into the trust.
Some of the other benefits and pitfalls to consider are:
Quicker distributions: Probating a will and gathering assets into the estate for distribution can take quite a bit of time. With a living trust, by contrast, all assets already are gathered together, so the trustee can make immediate distributions and continue paying bills as usual.
Protecting minors: Living trusts can help avoid the need to appoint a guardian to represent children’s interests, which can cause delay and add to administration costs.

Privacy protection: Since probate records are public, the size of your estate, and the names of beneficiaries and the amounts each received, can come into anyone’s possession. The size and terms of a living trust, by contrast, are not necessarily public matters.

Multiple residences: Those with real estate in more than one state can avoid the problems and expense of multiple probate proceedings by putting the out-of-state real estate in a living trust.

New York Income taxes: If you create a living trust, you will be taxed on its income in much the same way as if you continued to own the property outright.

NYC Estate taxes: It’s a fairly common misconception that living trusts save estate taxes in New York, but that’s not necessarily the case. The trust assets will be subject to New York estate tax just as if you continued to own them outright. Therefore, basic estate planning techniques, such as dividing a married couple’s assets to ensure that they receive the benefit of two unified credit exemption equivalent amounts, remain important in the context of living trusts as well transfers at death by will.

As we said, living trusts make a lot of sense for some people and none at all for others. You have to consider all of the pluses and minuses as they relate to your particular situation to make an informed choice about a living trust. We would be happy to assist you in making the decision that’s right for you, and to help you understand how having a trust may effect your tax preparation in New York City. Please call our manhattan office today if we can be of assistance.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

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

Know More about Self Employed Income Tax

admin — Thu, 13 May 2010 12:00:46 +0000

When you work for yourself, it has great rewards but it also makes you responsible for everything, including your income tax returns. When you are self-employed, you may qualify for some deductions that you never would have been eligible for when you work for someone else. How do you know what is deductible and what is not? First you need to find a certified public accountant that can guide you through your first year and every year after that. A NYC CPA will play an important role in the organization of your business in terms of financial and the IRS.

If you are self-employed and work from your home, you will be able to deduct a lot more then if you didn’t work at home. Although it may be confusing to keep up with everything, the general rule is to keep all receipts and go through them during your tax preparation Manhattan or have the NYC CPA go through them to let you know what is taxable and what is not. If you keep receipts, you should write on the receipt as you buy items for your business. For example, if you buy printer ink for your business printer then at the top of the receipt write down “printer ink” so you will know at a glance what you purchased and won’t need to try and interpret the receipt. Not everything on a receipt is labeled correctly. It may be a general title and you won’t know what you get.

If you have a home office, you need to keep track of everything you normally do on your home; mortgage interest receipts, real estate tax receipts, utilities, and any home improvement receipts. At the end of the year, your NYC CPA will be able to look through them and divide them out so that a portion of your payout will be a deduction. You will need to know the size of your home office in order for your CPA to be able to figure out the exact amount.

If you are a freelancer who also works at home, you can hire a NY CPA for freelancers. They can help you determine what you need to keep track of in order to claim the right deductions for your business throughout the year. It’s not easy trying to keep track of everything but a great rule to keep in mind is when you are in doubt, save it and ask your CPA.

When you work for your self you will need to be responsible for your taxes throughout the year. You can hire a NYC CPA to work with you throughout the year to keep records for you so when tax time comes around you won’t be frantic trying to find your box of receipts or wonder what you can deduct. Your CPA can take care of this throughout the year and have it all recorded by the time tax season rolls around again. Then you simply need to go to your CPA and go over everything before you file to verify all the information.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

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

Most Common Income Tax Audit Issues

admin — Tue, 11 May 2010 12:00:40 +0000

When you work hard throughout the year, you don’t want to become audited but sometimes it’s hard to avoid. While most IRS audits are random, you can avoid attention on yourself by filing your income tax returns on time and making any payments to the IRS on time.

There are common income tax audit issues that you can also avoid if you find yourself in the auditing seat or afraid of being audited. The first thing that draws the attention over to you is not reporting income. When you work for someone during the year and you do not report it thinking that you don’t need to and the person you worked for decides to report it then the IRS will wonder why you didn’t report it and become suspicious. This may make them wonder what else you have not reported and thus begins your audit.

If you are audited you may be requested to meet with the IRS agent and bring your tax returns for the last few years. You can be audited several years after filing your income tax papers so always save your forms or have a way to make a copy whenever it is needed.

Another common issue is reporting the wrong information. Mistakes happen, especially if you are in a hurry and you may put down the wrong social security number or the wrong amount on your tax return. For example, if you made $52,000 last year and you put down $552,000 you may only pay taxes on $52,000 and the IRS wants to know why you didn’t pay taxes on $552,000.

You can avoid these common errors by choosing an accountant New York to help you determine what you need to put down on the tax return forms and to verify that all the information is correct and accurate before you send in the form. This is the best way to prevent an incorrect number from being recorded.

Doing your own taxes can save you money on filing fees but one mistake can cost you thousands of dollars compared to preparation fees of a Certified Public Accountant NY.

If you are audited and you do your taxes yourself, you will have no one there to represent you and defend your expenses. You may need to consider hiring a tax attorney who can sit in with you and help you deal with the tax auditor. The only problem with this idea is that a tax attorney is going to be more expensive then if you paid for a certified public accountant Manhattan to do your taxes for you. If you have a NYC CPA handle all of your taxes then you don’t have to worry about sitting alone. They will sit in on your audit with you and help to explain some or all of the expenses that the IRS is questioning. A simple mistake can always be avoided if you have help. A certified public accountant can offer you that help.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

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

Tax Preparer Indicted for Stealing $320K in Refunds

admin — Wed, 28 Apr 2010 12:00:40 +0000

Courtesy of WebCPA.com:

A federal grand jury has indicted a California tax preparer on charges of income tax evasion and possession of stolen government money after he was accused of stealing over $320,000 in tax refunds.

Joseph Usunubu Aluya, of Placentia, Calif., allegedly received, concealed, and retained a total of $321,492.39 in refunds from his clients that he received via wire from the Internal Revenue Service. According to the indictment, for tax years 2003, 2004, 2005, and 2006, Aluya failed to report as taxable income the money that he diverted from his clients’ tax refunds into his own bank account.

“I am very pleased that the U.S. Attorney was able to obtain an indictment in this case,” said TIGTA Inspector General J. Russell George in a statement. “Tax preparers hold positions of trust, and when they are suspected of violating that trust, they must face the consequences.”

If convicted, Aluya faces up to 30 years in prison and a fine of $650,000.

At MEDOWS CPA, we would never violate a client’s trust and we would never mishandle or exploit a person’s income tax. When you put your income taxes in our hands, you can be sure that you are dealing with honest, trustworthy people who will treat both you and your income taxes with the respect that you deserve.

Jonathan Medows, CPA

MEDOWS CPA, PLLC