Making Cents

The New Migraine Headache - Form 1099

Posted by Curtis A. Smith, CFP® on 17 May 2010 | 0 Comments

Tags: Health Care Reform, Form 1099, Federal Deficit, Financial Planning, Government, Income Tax Preparation, IRS

Warning! Please be seated when you read this blog post. One of the provisions of the Health Care Reform bill is going to give all Americans a migraine headache. Section 9006 of the health care reform bill is going to require the use of Form 1099 in huge quantities.

Picture this … it’s a chilly morning in January 2012. You head out to your local office supply store to stock up on some essentials for your business – printer cartridges, copy paper, post-it notes, and a 500-pack of 1099 forms.

What? What was that last item again? 1099s? Yes, we may need them in bulk.

In 2012, you may need hundreds of 1099s. Why? Section 9006 of H.R. 3590 (the Patient Protection and Affordable Care Act, better known as the health care reform bill) has quietly ordered an enormous change in tax reporting.

Section 9006 says that starting on January 1, 2012, all businesses must issue 1099 tax forms not only to freelancers and vendors, but also to any individual, business or corporation from which they purchase more than $600 in goods or services in a tax year. What? Unbelievable. (source)(source)

Think about this for a moment. Let’s say that in 2012, you spend a few days in Dallas on business and stay at a nice hotel. If the bill is more than $600, you’ll have to give that hotel (and the IRS) a 1099 for your visit. Suppose you buy $900 worth of office furniture at a big-box retailer. Guess what: your company will have to give that retailer (and the IRS) a 1099.(source)

If you rent office space, you’ll need to send a 1099 to the IRS and your landlord. If your business buys a used truck worth more than $600, it will be time for a 1099. And so on.(source)

Even if you pay more than $600 incrementally to a business for goods or services in 2012 (i.e., you buy wine and sparkling water for your café every week from the same warehouse), you will still have to issue that business and the IRS a 1099.(source)(source)

This means you’ll have to have taxpayer ID numbers for every freelancer, vendor and business from whom you purchase tangible goods and services. Another unbelievable burden on small and large business alike.

Why would the government do this? The goal is better reporting, plain and simple. The IRS estimates that $300 billion (that’s billion) in tax revenue goes down the drain annually as a consequence of unreported income.(source)

If 1099s record the majority of payments a business makes, that means businesses and self-employed individuals will be less likely to understate revenue and overstate expenses. In 2012, it will be easier to figure out precisely which business transactions need 1099s. If more than $600 is involved, the answer will be yes – that will be the only test.(source)

Is anyone working to repeal this change? Yes. Rep. Dan Lungren (R-CA) has introduced the Small Business Paperwork Mandate Elimination Act to try and get rid of this demand. At some point in 2011, the IRS will have public hearings on the new law and release regulations pertaining to it. Expect a loud, lively protest.(source)

As a small business owner, this has my blood boiling. It seems surreal the firm's clients will issue the firm a 1099 for services provided. Shame on Congress for legislating such a burden on the American taxpayers.

If you disapprove, contact your Congressman and Senator immediately in writing. Further, there is an election in November. Make your voice heard at the ballot box. It is time to bring sanity back to our legislative process and the IRS Code.

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50% of Americans Are Not Paying Federal Income Taxes. Is that Right?

Posted by ICMC Staff on 21 April 2010 | 0 Comments

Tags: Income Tax, Federal Deficit, Government, Marginal Tax Rate

 

A provocative statistic. Last July, the nonpartisan Tax Policy Center (a joint venture of the Urban Institute and the Brookings Institution) estimated that 47% of Americans would not owe a penny to the IRS for tax year 2009.(source) This is a scary statistic for our nation. With the Baby Boomers beginning to retire, huge stress will be placed on all the social programs including Social Security, Medicare, Medicaid, Prescription Drug Program, and the new Health Care Reform mandates. The burden of income taxation must be across the broad spectrum of American wage earners. Is it time to revise tax policy?

The White House has projected the federal deficit at $1.6 trillion for 2010 – that’s about 10.6% of our GDP, a percentage unseen since the 1940s. So is it fair to the nation so many Americans are legally avoiding federal income taxes?(source)

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Health Care Changes in America

Posted by Curtis A. Smith,CFP® on 23 March 2010 | 1 Comments

Tags: Healthcare, Medicare, Medicaid, Prescription Drug Benefit, Government, Economic, Capital Gains, Income Tax

The House approves the Senate bill. Not a single Republican voted for it, but 219 Democrats did – and by a vote of 219-212, the House of Representatives sent the Senate’s version of landmark healthcare legislation toward President Obama’s desk. The President signed the bill into law on March 23.(source)

But the fight is far from over. The House of Representatives also passed a collection of amendments to the Senate bill by a 220-211 margin, but the Senate must also approve this reconciliation bill – exactly as it is worded. If that doesn’t happen, then guess what … there will be another vote on the Senate version of the bill in the House.(source)(source)

“If those people think they’re only going to vote on this once, they’re nuts,” Sen. Orrin Hatch (R-UT) said on Bloomberg Television March 20. Hatch claims that Senate Republicans have the votes to force a modification of the bill passed on March 21 and boot it back to the House for a second vote.(source)

Will the reforms be overturned? Twelve state attorney generals have already filed in court to contest the bill. The conincided with the moment President Obama signed the bill.(source) What are the odds the Supreme Court will throw the reforms out? Probably pretty slim. Look at the precedents of Medicare and Medicaid. When both those federal programs were enacted, the Court twice upheld a broad federal role in health care. Yet, is this time different? The bill has different mandates than Medicare or Medicaid.

The big reforms will take effect in 2014. If you are looking forward to health insurance reform, you will have to wait a while before many of the big changes occur.

•    Starting in 2014, individuals will be required to have health insurance coverage or pay an annual penalty which could climb to $750 or 2% of their income  (alternately $695 or 2.5% of income), whichever is larger. Inmates, Native Americans, and those with religious objections would be exempted.(source)(source)
•    In 2014, if you aren’t enrolled in an employer-sponsored health care plan, you will have to buy coverage yourself. You could shop for it through a state insurance exchange. The federal government will offer $500 billion worth of assistance to help insurance shoppers buy coverage through these state exchanges. Undocumented immigrants would not be able to buy coverage.(source)(source)
•    After 2014, businesses with more than 50 employees could be fined as much as $2,000 per worker for failing to provide the option of coverage.(source)
•    In 2014, insurers will be required to provide coverage to all Americans regardless of their health status.(source)
•    Medicare spending will be cut by about $500 billion over the next decade, mostly in reduced government payments to Medicare Advantage plans. Democrats have claimed this will not shortchange Medicare recipients.(source)
•    Federal money coming from the bill could not be used for abortions, with exceptions made in cases of rape, incest, or danger to a woman’s life.(source)

What changes are about to happen in 2010? These new rules would go into effect presently thanks to the new law.

•    Insurers will be barred from revoking existing health insurance coverage on an individual, unless fraud or misrepresentation can be shown.(source)
•    Insurers will not be able to limit the amount of money that can eventually be paid out on a health care policy, and it will be harder to limit the amount of money that can be paid out annually.(source)
•    Seniors will get $250 payments to help them out if they face a coverage gap in the middle of the Medicare Part D prescription drug coverage plan.(source)
•    Children will be able to stay on their parents’ health care policies until age 26, and they won’t be denied coverage because of pre-existing health conditions.(source)
•    Adults with pre-existing health conditions will get a chance to enroll in a national high-risk insurance plan – albeit a temporary one.(source)
•    Small businesses that sponsor health care plans for their workers could qualify for tax credits of up to 50% of the cost of the premiums they pay.(source)

New taxes? Yes – starting in 2013. Approval of these reforms will also bring a new 3.8% tax on investment income for individuals earning more than $200,000 and households earning more than $250,000, so the effective capital gains rate will be 23.8% for these taxpayers in 2013. Also, these taxpayers will be able to keep 8.8% less of the income resulting from taxable stock investments. The Medicare tax rate on households with income over $250,000 will also rise in 2013, from 1.45% to 2.35%.(source)(source)(source)

A huge savings? Maybe. The non-partisan Congressional Budget Office estimates that the health care reforms will reduce the federal deficit by between $65-118 billion over the next decade and by more than $1 trillion in the decade after that.(source) The proof is in the pudding, as all large entitlement programs such as Social Security and Medicare are all currently bankrupt. Might this add insult to an already bloated national debt? If history is any indication, more than likely the cost of this legislation could be disastrous for the US economy. Time will tell.

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Are you Prepared to Pay for Long Term Care?

Posted by Curtis A. Smith, CFP® on 13 November 2009 | 0 Comments

Tags: Long-Term Care, Medicare, Insurance, Healthcare, Government, Financial Planning

ARE YOU PREPARED TO PAY FOR LONG TERM CARE?

70% of people currently over age 65 will require some long term care someday. That is the estimate of the U.S. Administration on Aging, a division of the U.S. Department of Health & Human Services.(source) Will Medicare or private health insurance pay for it? The short answer is “no”.

In the decades ahead, baby boomers will reach their seventies, eighties and nineties. With aging parents of their own, some are learning how much long term care really costs. Some are still unaware.

How many of us are financially prepared for the possibility? Here are a couple of “averages” to consider from MetLife’s 2009 survey of LTC costs. The average annual cost of nursing home care is now $79,935 or $219 per day. That’s up 3.3% from 2008. The average nursing home stay is about 2.5 years, which means you would need roughly $200,000 to pay those bills.(source)

Can you imagine paying it out of pocket? Taking out a reverse mortgage to do it? Using Medicaid because you have nothing left? No one wants these financial circumstances. The clear answer is long term care insurance coverage.

How expensive is LTC coverage? Annually, it typically costs about as much as a cheap used car. MarketWatch cited an example from the MetLife survey: in 2009, a 52-year-old federal employee could pay $1,524 annually for an LTC policy with a $200-per-day benefit for three years and a maximum lifetime benefit of about $200,000.(source)

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House Narrowly Passes Healthcare Reform Bill

Posted by Curtis A. Smith, CFP® on 12 November 2009 | 0 Comments

Tags: Healthcare, Medicare, Medicaid, Government, Economic

A narrow victory in the House of Representatives. The Affordable Health Care for America Act (H.R. 3962) passed 220-215 in the House of Representatives on the night of November 7, with 39 Democrats voting no and a lone Republican (Rep. Anh Cao of Louisiana) voting yes.(source) While President Obama lauded passage of the House version of the bill as “historic” and “courageous”, it is still questionable whether any consensus reform bill will land on the President’s desk by the end of 2009.

A tough fight ahead in another. Right now, the Democratic caucus has the 60 votes needed in the Senate. However, Sen. Joseph Lieberman (I-Connecticut) says he will readily break away and join the Republican filibuster if the Senate version of the bill includes a public option. Senate Majority Leader Harry Reid (D-NV) says it will.(source)

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Extended Homebuyer Credits and Jobless Benefits

Posted by Curtis A. Smith, CFP® on 6 November 2009 | 0 Comments

Tags: Unemployment Benefits, Homeowner Tax Credit, Net-Operating Loss Carryforward, Financial Planning, Economic, Government, Layoff, Mortgage

EXTENDED HOMEBUYER CREDITS & JOBLESS BENEFITS

After unanimous passage in the Senate and a 403-12 passage in the House of Representatives, President Obama signed H.R. 3548 into law on November 6. The bill extends and expands a key tax credit for homebuyers while also offering more help for those out of work.(source)(source)

The $8,000 credit for “first-time” homebuyers continues. This tax break is now extended until May 1, 2010. If you have never owned a home or haven’t owned a home in the previous three years, you are considered a “first-time” buyer and therefore eligible for the credit (it is a credit of up to $8,000, by the way). You must sign your purchase agreement before May 1, 2010 and close the transaction before July 1, 2010 to qualify for this tax break.(source)

The $6,500 tax break for move-up buyers. Okay, maybe you aren’t a “first-time” buyer. You may still qualify for this new real estate credit. Have you lived in your current home for more than five consecutive years? You may be eligible for a credit of up to $6,500 if you move out of that home and buy another. Again, you have to sign your purchase agreement before May 1 and close before July 1 to get the tax break.(source)

Worth noting: BusinessWeek.com contacted Sen. Chris Dodd’s office (the Connecticut lawmaker chairs the Senate Banking Committee) and received word that move-up buyers can qualify for this $6,500 credit even if they have signed a purchase contract prior to November 6, provided the purchase closes before July 1.(source)

Does everyone qualify for these credits? Not quite. They phase out for individuals with adjusted gross incomes of more than $125,000 a year and couples with AGI of more than $225,000 a year. (The old phase-outs respectively kicked in at $75,000 and $150,000. These higher phase-outs mean that the credit can now help an additional segment of the housing market.)(source) You can’t buy a vacation home and claim one of these credits – they only apply to principal residences. In fact, the home you buy has to have a sale price of $800,000 or lower.(source)

What will this do for the economy? “Every economist will tell you we have to steady the housing market before the economy will turn around,” Sen. Dodd expressed on November 5. “We can't afford to let this tax credit expire now.” Respected Moodys.com economist Mark Zandi agrees, saying that “from a macroeconomic perspective, nothing is more important than stabilizing housing values.” Zandi thinks that the $8,000 credit has led to 400,000 additional home sales in 2009. On the other hand, Dean Baker, the co-director of the Center for Economic and Policy and Research, questions why the extension is necessary: “For the most part, you're just giving people money for something they would have done otherwise.” The Joint Committee on Taxation estimates that extending these credits into 2010 will cost $10.8 billion across the next decade.(source)(source)

An extension of unemployment benefits. H.R. 3548 – sponsored by Rep. James McDermott (D-WA) – additionally extends state jobless benefits by up to 20 weeks. This will happen as a result of another extension – an extension of the federal unemployment tax on employers until June 30, 2011.(source)

If you are one of nearly two million Americans whose jobless benefits are set to run out at the end of 2009, this extension will help you. Your benefits will last at least another 14 weeks into the new year – in fact, they will last for another 20 weeks if you live in a state where the unemployment rate exceeds 8.5%. Have your unemployment checks already stopped? You may reapply for benefits.(source)

A chance for companies to convert losses into cash. What? Really? Yes. There is one provision of the new legislation that many have overlooked: it widens the window of time on the net-operating loss carryback. It lets all businesses apply losses from either 2009 or 2008 to any five years prior to 2008. So business owners, by virtue of the new legislation, have the potential for an IRS refund on the taxes they paid for the five years prior to 2008. There are two asterisks here. One, refunds for taxes in the fifth year of the carry back shrink by 50%. Two, any business that received TARP funds can’t take advantage of this tax break.(source)

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Health Care Reform

Posted by Curtis on 26 June 2009 | 0 Comments

Tags: Healthcare, Government, Regulation

HEALTH CARE REFORM

The U.S. is the only developed nation without a comprehensive national health care system. President Barack Obama aims to change all that with a massive reform bill to bring health insurance to 46 million Americans without it over the next 10 years.

Huge reform, huge questions. How much will this cost? Who will pay for it? Could the reform put private health insurers out of business? Will it work? These are just some of the questions swirling around the proposed legislation.

Huge compromises. The most controversial aspects of the bill may soon be watered down. Part of that has to do with cost; part of it has to do with appeasing the private sector. The Senate and House must reconcile different versions of the bill. In the House version, 95% of Americans would be eligible for health coverage; in the Senate version, 97% of Americans would qualify.1,2

Possibly kaput: the government-sponsored option for health insurance. Could private health insurance companies hope to compete with the federal government? Private insurers railed against their proposed new competitor – and last week, Sen. Kent Conrad (D-ND), a Senate Finance Committee member, told Bloomberg News that talk was shifting away from that concept in the Senate and toward nonprofit cooperatives. The House version of the bill still includes the government-run plan.1

Also possibly kaput: mandatory health insurance for employees. In the original conception, businesses would pay federal fines in the future if they refused to provide health coverage to workers. According to Sen. Conrad, the Senate version of the bill would ask businesses to shoulder a portion of the cost of Medicaid coverage received by their workers, or 100% of the Medicaid tab for certain workers poor enough to qualify for a tax credit that could help them buy health insurance.1

If the bill passes, the amount of employer-provided health benefits exempt from income taxation might be limited. Sen. Max Baucus (D-MT), current chair of the Senate Finance Committee, has suggested a $15,000-$17,000 ceiling on that tax exclusion.1

Definitely disliked: the proposals to fiddle with private Medicare plans. The Obama administration has set goals of ending overpayments to Medicare Advantage, which it claims would save the government $177 billion by 2019. In that same time frame, it also wants to use Medicare reimbursements to reduce preventable hospital readmissions – for a conceived $25 billion in additional savings.3 The Obama reforms would also give Medicaid members a bigger prescription drug discount, while reducing that discount for high-income Medicare members.4

In testimony before the House energy and commerce panel, Blue Cross and Blue Shield Association senior VP Alissa Fox contended that any cuts in Medicare funding “would cause millions of Medicare Advantage enrollees to lose their coverage and lead to significant reductions in benefits or increases in premiums for millions more.” In addition, Blue Cross, Blue Shield and America’s Health Plan recently presented a letter to Sen. Ted Kennedy (D-MA), referencing a Milliman study that found the average family of four pays $1,700 a year more than they should in health insurance premiums due to Medicare and Medicaid underpaying hospitals and physicians.1,5

Obama claimed before the American Medical Association that his reforms “will actually extend the life of the Medicare Trust Fund by 7 years and reduce premiums for Medicare beneficiaries by roughly $43 billion over 10 years.”3

The proposed total costs: apparently almost $1 trillion. Sen. Baucus and Sen. Chuck Grassley (R-IA) worked in late June with the Senate Finance Committee to whittle down the House’s $1.6 trillion version of the bill to less than $1 trillion.2

Who pays for it? Tax increases and savings would fund the reforms. More specifically, the President has talked about cutting back the value of the itemized deductions available to the wealthiest American taxpayers. House Ways and Means subcommittee chair Rep. Richard Neal (D-MA) said other ideas a payroll tax and a value-added tax. The Senate seems to prefer the idea of taxing employee health benefits.6

More change likely to come. “We are still early in this process," Obama noted Thursday. “We have not drawn lines in the sand.” Expect those sands to shift further as legislators and lobbyists exert pressures on another of the President’s ambitious reforms in July.
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Citations.
1 bloomberg.com/apps/news?pid=20601103&sid=aki1sLcOe4GM [6/26/09]
2 cnn.com/2009/POLITICS/06/25/health.care.proposal/ [6/25/09]
3 usatoday.com/news/washington/2009-06-15-obama-speech-text_N.htm [6/25/09]
4 forbes.com/2009/03/03/obama-health-plan-lifestyle-health_obama_health_budget.html [3/3/09]
5 usatoday.com/news/washington/2009-06-23-health-congress_N.htm [6/23/09]
5 washingtonpost.com/wp-dyn/content/article/2009/06/18/AR2009061804053.html [6/18/09]

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Obama's Plan to Overhaul the Financial System

Posted by Curtis on 19 June 2009 | 0 Comments

Tags: Regulation, Financial, Government

Since September 2008, the federal government has committed $10.5 trillion to fixing the economy – bailing out Citigroup, Bank of America, AIG, Freddie Mac, Fannie Mae, Chrysler and General Motors in the process.1 To try to prevent further economic nightmares, President Obama is proposing a “sweeping overhaul” of the U.S. inancial system on a level unseen since the 1930s.

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