Special to NKyTribune
What are some of your key insights and considerations for the 2015 season?
“There are important things to remember with the Affordable Care Act, and also some considerations for those in the ‘Sandwich Generation,’” says Jami Vallandingham, CPA and Shareholder at VonLehman. “And, this is a great time to safeguard your important documents, since you’ll be working with them now.”
Our Q&A with Jami Valladingham:
Q: What are some of the changes to tax filing due to the Affordable Care Act (ACA)?
A: Filing “correctly” this year means you’ll have to answer whether or not you had health insurance each month in 2014. If you went without insurance, there are additional forms and potential penalties that may be due, and if you received insurance credits through the ACA, there are new forms as well (see below).
If you purchased your insurance through the exchange, you may have to file Form 8962 (Premium Tax Credit) with your return. The exchange will issue Form 1095-A, which is necessary to complete Form 8962. If you received insurance credits and your income went up or down from the estimated figure you provided during the application process, this will need to be reconciled on your tax return. You may have to pay back some of that tax credit, or you may receive a larger one, depending on your income fluctuation. The 1095-A form is where you make adjustments due to a change in income after the credit was issued.
Q: What is the “Sandwich Generation?”
A. Well, basically, if you find yourself in a situation where you’re raising children and funding their education, saving for your own retirement, and helping to care for or support aging parents, consider yourself a member.
Q. Is there any tax relief for this group?
A. Yes. To ease the financial burden, the adult-dependent tax exemption allows qualifying taxpayers to deduct up to $3,950 in 2014 for each adult dependent claimed.
So how do you qualify?
A. First, for your parent to be considered a dependent, his or her income must be less than $3,950 in 2014. Social Security generally doesn’t count toward this amount, though any income from sources such as dividends, interest, and retirement plan or IRA withdrawals does.
Second, you must contribute more than 50% of your parent’s financial support. If two or more individuals combine to provide more than half the support, such as two children supporting a parent, they can agree that one of them will claim the exemption.
Here, Social Security is a factor. The amount your parent receives may detract from how much you’re contributing. For example, your parent may receive less than $3,950 in income, but if he or she is using Social Security to pay for medications or other items, you may not be providing enough support to claim the exemption.
On the other hand, if your parent lives in your home, you can factor the fair market rental value of a portion of your residence into how much financial support you’re providing. However, your parent does not have to live with you for you to claim the exemption. If he or she stays in a separate residence, or lives in a nursing home or assisted living facility, you can still factor your financial support into the 50% test.
Beginning in 2013, the deduction for exemptions phases out if your income exceeds certain levels, so beware that, even if you qualify, you may not fully benefit. If you’re subject to the alternative minimum tax (AMT), you may also not get full benefit for exemptions. If you don’t qualify for the exemption because your parent has too much income, you may still be able to deduct combined medical costs that you pay for a parent and your own family in excess of 10% of your adjusted gross income (7.5% if over age 65).
Q: Are there any other insights you would like to provide our readers this tax season?
A. Yes. Safeguarding important documents is, unfortunately, something not everyone thinks about until it is too late. At tax time, you have all the documents at your fingertips, so now is a good time to be sure you have back-ups and safeguards in place.
Back up records electronically. Disasters, both natural and technical are more common than many like to admit. Tornadoes, fires, hard-drive crashes and other similar catastrophic occurrences can happen at any time, to anyone. Don’t be caught without back-ups of your critical information. The IRS suggests that taxpayers take some basic steps to prepare.
You should keep a set of backup records in a safe place away from the original set. This is more easily accomplished now that many financial institutions provide statements electronically and other financial information is readily available on the Internet. Even if the original records are on paper, they can be scanned into an electronic format. The electronic files should be backed up on an external hard drive, USB flash drive, CD, DVD, and/or to the cloud for safekeeping.
Document valuables. Take photos or videos of the contents of your home or business. You should store electronic versions of these photos or videos with your other important documents. These visual records can help you prove the value of your lost items. They may help with insurance claims or casualty loss deductions on your tax return. You should store them with a friend or relative who lives out of the area.
Jami Vallandingham merged her previous firm, West, Vallandingham & Company (formerly Alex, West & Company) with VonLehman and Company in 2002. She received her Accounting degree from Cumberland College and her CPA designation in 1996. Specialties are business and personal income tax and planning for small business owners, wealthy individuals and retirees. Email her at jvallandingham@vlcpa.com For more about The VonLehman company, click here.
DISCLAIMER: The technical information in this article is necessarily brief. No final conclusion on these topics should be drawn without further review and consultation. Please be advised that, based on current IRS rules and standards, the advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty assessed by the IRS.