Obamacare, Fatca And So Much More For ’14 Tax Year

Eleventh-hour legislation in December kept many tax breaks alive for the 2014 tax year, but they weren’t extended beyond that. (See chart on page 26.) So clients who want to take advantage of those breaks need to get with a knowledgeable practitioner—and quickly.

“CPA firms nationwide face a staffing challenge this year,” says CPA Blake Christian, a partner at Holthouse, Carlin & Van Trigt LLP in Long Beach, Calif. “Many are a bit understaffed going into the filing season. Clients should get their tax info to their accountant early, even if they are missing a few documents, to give the preparer a jump-start.”

In addition to the last-minute reprieve for various tax breaks, the 2014 tax year introduced several aspects to keep clients—and their accountants—on their toes.

One new twist was Obamacare, the less-than-affectionate nickname pinned on the Patient Protection and Affordable Care Act that mandates all Americans carry a minimum level of health insurance beginning in 2014. Compliant clients check a box on line 61 of Internal Revenue Service Form 1040 to indicate full-year coverage.

If the client or a dependent did not have qualifying insurance for at least one day of each month in 2014, a “shared responsibility payment” (read: tax penalty) applies. It is the greater of: 1) 1% of the client’s income that falls above the threshold for filing a return ($20,300 for joint filers, $10,150 for singles); or 2) $95 per adult, plus $47.50 per dependent under 18 (capped at $285 for a family). The maximum payment for 2014 is $2,448 per individual, topping out at $12,240 for a family of five or more.

Exemptions are available, including one for a gap in coverage that lasted less than three consecutive months. Instructions to new Form 8965 furnish further details.

The Foreign Account Tax Compliance Act, or Fatca, added another new wrinkle in 2014. Its new reporting requirements for offshore institutions could alert the IRS to clients who haven’t been disclosing their overseas income and assets.

“Many U.S. taxpayers are going to get a Form 1099 from a foreign financial institution that has never issued them a 1099 in the past,” says Brent Lipschultz, partner-in-charge of the international wealth advisory services practice at EisnerAmper LLP, a New York City-based accounting firm. “It will be a wake-up call.”

If a client’s failure to report is considered non-willful under the law, then fessing up to the feds under a streamlined IRS program introduced last June may lead to a relatively lenient penalty. However, full penalties get slapped on taxpayers who enter the streamlined process and then are subsequently deemed by the IRS on audit to have willfully not reported their foreign interests.

“So before entering the streamlined program, you need an international tax expert to make a determination as to whether the client’s failure to report was willful or not,” Lipschultz says. Practitioners must be extremely thorough in their due diligence of these cases because the government now gathers a wealth of data on taxpayers from a spectrum of sources, he adds.

A separate Fatca concern is the accuracy of foreign institutions’ 1099s. “We have found discrepancies between what they report on the 1099 and what’s on the client’s statements,” Lipschultz reports. Currency translations can be questionable, too, he says.

In some cases, it may be worth taking a position contrary to the info on the 1099. “We’ve done that. We’ve also queried foreign institutions how they got their numbers, but it’s very difficult to get to the right person within the organization,” Lipschultz says.

Clients with businesses can probably benefit from complex U.S. Treasury “repair and maintenance” regulations that became effective in 2014. These regs address whether a wide range of expenditures for property can be written off in the current year, or instead must be capitalized—i.e., spread out over time through yearly depreciation deductions. The changes potentially affect any business that bought or retired real or personal property in 2014, or is depreciating assets purchased in earlier years.

Christian, the California-based CPA, calls the repair and maintenance regs “pretty liberal” because they allow business owners to write off a lot more costs right away, rather than being forced to capitalize and spread them over time through yearly depreciation deductions.

To take advantage of the regs’ changes, certain elections on a client’s returns must be made in a timely manner. Most businesses will need to file for a change in accounting method using Form 3115, which can be a red flag. “But the IRS is going to get literally millions of these forms filed for not only these new regs but several other procedural changes,” Christian says. “So I’m not too worried about my clients having a target on their backs for audits.”