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

The IRS recently released guidance addressing the tax treatment of losses for individuals, LLCs, S-corporations and other small business owners in New York affected by ponzi investment schemes. The IRS clarified that the guidance is not specifically for Madoff victims but for all individuals who have experienced losses from ponzi-type investment schemes. Because of the economic downturn, the IRS reports that dozens of schemes have surfaced and that thousands of investors have been burned. Many hardworking Manhattan taxpayers and  New York City small business owners have been effected by these schemes.

A ponzi scheme for IRS purposes is considered a “specified fraudulent arrangement” that makes payments to investors from their own funds or funds paid by subsequent investors. Fictitious income is reported as there is no actual profit earned. Such schemes pay and offer high returns to keep money flowing in from investors. They are not just bad investments in which your broker picked the wrong stocks. If you were actually invested in securities, your losses are governed by separate  NYC tax rules.

Ordinary theft loss
The guidance provides that investors in fraudulent investment arrangements are entitled to an ordinary theft loss under Code Sec. 165 rather than just a capital loss. As a result, not only is the loss not restricted to a maximum $3,000 offset against ordinary income, but it can offset any ordinary income, including wages, with no limit. The loss is not subject to the personal loss limitations; however, only those who itemize deductions on their New York income taxes may claim it. If an investment advisor made poor investment decisions (as opposed to never making any investments), the investor would only be entitled to a capital loss rather than a theft loss.

The amount of the theft loss deduction on their NYC taxes includes the amount invested in the scheme, less any amounts withdrawn, any reimbursements, and any claims as to which there is a reasonable prospect of recovery. The deductible amount also includes any fictitious income reported to the investor in any year prior to the discovery of the theft that the investor included in gross income and paid tax on for that year.

To the extent an investor’s theft loss deduction creates or increases a net operating loss in the year the loss is deducted, the investor normally may carry back up to three years and forward up to 20 years the portion of the net operating loss (NOL) attributable to the theft loss. If the loss is discovered in 2008, however, a special, more generous rule applies: the individual investor or proprietorship is treated as a small business that is eligible for the extended five-year NOL carryback period under the American Recovery and Reinvestment Tax Act .

Safe harbor treatment
Bilked investors of ponzi schemes also have been given a streamlined, safe-harbor route to take theft loss deductions on their New York City income tax returns. This safe-harbor route simplifies the investors burden in proving when the loss took place and it also expedites the process for the IRS’s handling of these thousands of cases. The safe-harbor, which the vast majority of investors are expected to use, provides a uniform approach for determining the year in which the loss occurred and a simplified method for calculating the loss amount.

The safe harbor allows the loss to be taken when a criminal complaint is issued against a promoter, rather than waiting until a conviction is handed down. Under the safe harbor, as much as 95 percent of the loss may be deducted, however, the loss amount cannot take into account the investor’s net investment plus any actual recovery in the year of discovery and the amount of any recovery expected from private or other insurance (including insurance under the Securities Investor Protection Corporation (SIPC). The 95 percent applies to investors suing the promoter of the scheme. For investors suing third parties (persons other than the promoter), the percentage is reduced to 75 percent.

To take advantage of the safe harbor, an investor must complete the safe harbor statement, “Appendix A.” An investor claiming the safe harbor recovery amount must claim the entire loss for the year of discovery. An investor who previously filed original or amended prior year returns to claim the investment losses may claim the safe harbor amount but must identify the inconsistent prior year returns.
If you would like additional information about how to deduct investment fraud losses as theft losses,  and how this relates to your LLC or S-corporation NYC income taxes, please give us a call. We would be happy to schedule an appointment to discuss the issue further with you.

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

To best be prepared for your Manhattan income taxes, now may be a good time to evaluate the expenses you incur as an employee in connection with your work. While your employer may be reimbursing you for some of these expenses, there may be others for which you are bearing the cost yet not utilizing the NYC income tax benefit. Through proper substantiation, it is possible that you may be able to obtain greater reimbursement from your employer. Alternatively, you may be entitled to deduct such expenses as miscellaneous itemized deductions on your income taxes in New York.

In order to be reimbursed and/or deducted, the trade or business expenses  on your New York City income taxes must be ordinary, necessary, and reasonable. They also must be properly substantiated. Examples of qualifying expenses include:

•    Travel, transportation, meal, or entertainment expenses
•    Safety equipment, small tools, or supplies
•    Uniforms required by your employer that are not suitable for everyday wear
•    Required protective clothing
•    Dues to professional organizations
•    Subscriptions to professional journals
•    Certain job hunting expenses
•    Certain expenses for the business use of your home
•    Computer costs
•    Work-related educational expenses

You may also benefit from a review of the business expenses related to the use of your home. If you qualify for the home office deduction on your New York  income tax return, you may be able to deduct part of your home’s normal operating expenses, such as utilities and insurance. The Manhattan tax saving opportunities available to you are dependent not only on the type of work you do at home, but where in your home you perform it.

The rules for deducting these expenses, as well as substantiating your deduction, vary according to the type of expense involved. To make your New York tax preparation go as smoothly as possible, it is important to retain all records and receipts that document the time, place, and business purpose of each expense. Don’t hesitate to call our firm of experienced NYC accountants to schedule a consultation.

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 life of a freelancer in New York City isn’t one to take lightly: You perform on deadline, then wait maybe two weeks, or maybe two months, for a check. Whether it’s arts, writing, information technology, web design, or anything else, a career in a field that requires that most of your income shows up whenever someone gets around to paying you can be stressful enough without worrying about doing your New York taxes.

It can be confusing trying to figure out which Manhattan tax forms to use, let alone what counts as a legitimate expense and what does not. To avoid getting in trouble, maybe you don’t bother with it at all. Perhaps some years you feel like you’ve poured a bunch of money down a hole and didn’t take advantage of some resources or  NYC tax breaks that may be out there for you.On top of that, some months you hit the jackpot; others you just barely squeak by. It’s the same story annually.
New York City CPA Jonathan Medows understands the fluctuating, potentially unstable world of freelance. Plenty of his NYC clients make a living like this, and he can help figure out how to straighten out what may feel like a giant burden with the IRS. He knows it can be difficult to manage money or plan a financial future with this kind of  NYC tax set-up, and can help advise you accordingly without talking down to you like some of the larger firms.
And if you’ve put off your Manhattan taxes for a couple years or so, don’t get so scared of how much it’s going to cost that you decide to just ignore it in hopes of it going away. Jonathan Medows offers affordable, knowledgeable services, and can help get you sorted out.  Call his Manhattan office today for a consultation.

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 doing your small business taxes in NYC, there are some recent tax changes that you need to know about.  Even if you are doing your taxes outside of Manhattan, these changes will affect you.


Recently the Internal Revenue Service revised Form SS-4, the Application for Employer Identification Number, to clearly identify the applicant’s true owner. Effective January 2010, all mail, fax, phone, and electronic EIN applications must disclose the name and taxpayer identification number of the true “responsible party” for the entity requesting an EIN.


For an EIN applicant that is publically traded or is registered with the Securities and Exchange Commission, the “responsible party” is the principal officer, general partner, grantor, owner of a disregarded entity, owner, or trustor, depending on the business entity of the applicant. For all other entities, the “responsible party” is the person who can control, manage, or direct the entity and the disposition of the entity’s funds and assets.


A nominee is an entity with delegated authority to act in name only and can never be the “responsible party” for the Form SS-4 application. The IRS does not accept the use of nominees to obtain EINs. The SS-4 must be signed by an individual with the authority to legally bind the entity; therefore, it cannot be signed by a nominee.


Prior to the SS-4 revision, taxpayers in Manhattan obtained EINs using nominee individuals for the EIN application process. Entities that used nominees on their applications should consider updating the information shown on the original application.

Third party designees filing online applications must retain a complete copy of the paper Form SS-4, signed by the responsible party, and a signed authorization statement, for each EIN application filed with the IRS.
Using nominees in the EIN application process prevents the IRS from gathering appropriate information on entity ownership. It may also facilitate tax non-compliance by entities and their owners. Clearly identifying an entity’s true owner makes it difficult for taxpayers to conceal their income and assets. The IRS will pursue penalties, injunctions, or other enforcement action to prevent the misuse of EIN applications.


If you are doing your small business taxes in New York City, this very well may affect you. If you are at all unsure as to how to react to the SS-4 changes, it would be the safe bet to consult a CPA that is a veteran of New York Taxes.



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

More and more people are choosing a home based business as their main career then to work for a particular group or company. These home based businesses range from a catering service to a child or adult day care service provided in the home. Today’s generation is one of the popular generations to help themselves and become independent from everything and everyone.

There are so many benefits to owning your own home based business. You have the ability to create your own schedule, work around the kids, and become a contributor to the family income.

A home office is a tax benefit in several ways. You will need to establish a specific area in your home as a home office. You can have an office in the corner of the dining room or the living room as long as it is for business use. However, there is a caveat; if you use your home office for other reasons then you cannot deduct it for taxes. Spend a little money and have your home office built because you will get a majority of that money back at tax time because you can use it as a deduction.

Real estate taxes, mortgage interest, and home owners insurance is a major expense for everyone whether you run a business at home or not. However, if you run your own home based businesses you can use a portion of all of these to help you get more of a deduction. All you need to know is how large your home office is and your Manhattan CPA can help you determine what can be a deduction and how much.

Your utilities are also considered an expense. If you don’t keep track of your utility bills you will not be able to use this. Make sure that you keep a file just for utilities. You will want to keep track of all utilities.

Any furniture or fixtures that you purchase for your office, is considered a deduction so keep track of all receipts. You need to use these expenses in the tax year so you get the credit for them. If you are not sure what is deductible and what isn’t, ask your Manhattan certified public accountant to help you document the deductions and determine how much you will be deducted from your tax return.

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