Understanding the Health Care Acts; Part III

As part of our ongoing effort to break apart and better understand the two Health Care Acts signed into law in March of this year, today we are going to focus on the provision that requires all Americans to carry health insurance.

Much like most states do in requiring motorists to carry auto insurance, our government has decided that requiring all Americans to carry health insurance will serve to benefit society — first, by providing a measured and systematic mechanism for allowing everyone to receive quality health care, and second by no longer requiring those who do carry insurance to absorb the costs of those who do not in the form of higher premiums.

As with most laws that have made it through countless committees, two legislative houses, and the White House, these bills have a myriad of provisions and clarifiers, however the main points related to this element of the bills are as follows:

1. Beginning in 2014, all U.S. Citizens and legal residents must maintain minimum essential health coverage or pay a penalty.
2. Exemptions are made for: those whose income is below the Federal Filing Requirement, individuals who reside outside the U.S., those who are exempted for religious reasons, those who are incarcerated, and members of Indian Tribes.
3. Failure to maintain coverage will result in a penalty.  The penalty will be calculated as the larger of a flat dollar amount ranging from $95 per person ($285 per family) in 2014 to $695 per person ($2085 per family) in 2016 ~OR~ a percentage (1% in 2014 rising to 2.5% in 2016)  of total income above the Federal Filing Requirement.
4. In an effort to keep insurance affordable, individuals who make less than 400% of the Federal Poverty Threshold (currently approximately $43K for a single individual, and $88K for a family of four), will be entitled to a Refundable Tax Credit for some or all of their Health Insurance Premiums.

There are, of course, additional provisions, but the above should serve to provide a basic outline of the obligations — and opportunities — provided by these bills.

If you have any questions about how the above may impact your personal situation, feel free to ask!

Until next time…….

Steven E. Clem, your Tax & Money Coach

Weekly Success Story: Having your Cake and Eating It Too!

It was recently pointed out to me that most of my “success” stories regarding tax planning involve people who are either self-employed or are business owners.  While it is true that being in an entrepreneurial environment opens the door to more opportunties for tax planning, the field is by no means limited to them exclusively.

Consider the case of some folks we will call Jack and Louise.

Jack and Louise are both professionals in their early 50’s.  Combined they earn a little bit shy of $90K, their kids are out of the house, they have a manageable mortgage, and no measurable consumer debt.  The bills get paid without a problem, although due to the fact that they are still providing some assistance to their children there isn’t a whole lot left over for indulgences, and they aren’t saving as much as they would like for retirement.

A few months ago, after a long illness, Louise’s Mother passed away.  Louise’s share of the estate came to a little over $100K, and part of their dilemma was in how to allocate those dollars.  They knew the responsible course of action would be to set them aside for retirement, and they considered investing the money in some mutual funds.  On the other hand, after several decades of putting everyone else’s needs above their own, they also toyed with using some of the money to “treat” themselves.

In cases like this, my philosophy is simple: Why choose ONE, when you can have BOTH?

After some discussion we devised a strategy that would allow them to invest the inherited dollars in a tax-advantaged manner.  The net result was that the dollars were invested in a portfolio that stands a very good chance of doubling — even tripling — in value over the next 10 years, while ~simultaneously~ reducing their annual tax bill between $3-$4K every year, freeing up some dollars for vacations, home improvements, and other “treats.”

Louise was so grateful for the above solution that she brought me a cake.  “After all,” she said “if we can have our cake and eat it too, so should you!”

Nothing makes me happier than helping people pay themselves more, pay the government less, and build their wealth for the future.  If you think I can be of help to you, you have but to ask!

Until next time………

Steven E. Clem, your Tax & Money Coach

Have you paid the Pumpkin Tax?

If you are a news junkie like me, you probably recently read the story of the Idaho Tax Collector who shut down a children’s roadside pumpkin stand because they didn’t have the proper permits.

While the immediate reaction of most people to this story is “Aw, those poor wee little kiddies!” the message behind this story is clear — our state and local governments take issues surrounding private enterprise very seriously, regardless of its size or who is operating it.

Ours is a entrepreneurial nation.  By some accounts there are as many as 80 million Americans who are involved in some form of enprepreneurial endeavor.  And these folks run the gamut from the Donald Trumps of the world to the guy trading baseball cards on eBay and the woman selling her grandmother’s peach jam at the Farmer’s Market.

The IRS’ position on all of this is crystal clear — if you are engaged in an activity in which there is a profit motive (regardless of whether you actually succeed or not), then you have a business and must treat it accordingly.

And so, it is vitally important that ANYONE who operates a business — no matter how small or large — understand the obligations (and opportunities!) that their venture provides.

If you or someone you know is engaged in a profit-motivated venture, I strongly encourage you to find out what “Pumpkin Taxes” are relevant to your business.  As always, I am happy to lend a hand if needed!

Until next time……..

Steven E. Clem, your Tax & Money Coach