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According to Werner…

Our contribution to the latest thinking and advice on various current accounting and financial topics.

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The Affordable Care Act

December 15 2013

Several sections of the Affordable Care Act have been implemented; however, there are a number of changes that won’t go into effect until 2014. What does this mean for taxpayers? The short and sweet answer is that most every American will be required to have health insurance, and many businesses will be required to offer insurance to their employees. The government’s basis for this Act is simply finding a way to get healthy people who don’t feel the need to pay for expensive coverage to purchase health insurance and help fund the cost of people who require more medical care.

Who Isn’t Required to Have Coverage

If you currently do not have coverage and any of the below situations apply to you, you may not be required to purchase coverage.
– You have been uninsured for less than three months.
– You have religious objections.
– You are in prison.
– You face financial hardships.
– You are an undocumented immigrant.
– You are an American Indian.

What if I’m Required to Have Coverage but Choose Not To?

If you are not in one the above situations and choose to not purchase insurance, you could be subject to a penalty. In 2014, you will pay the greater of 1% of your taxable income or $95. In 2015, the fine will be $325 or 2% of your taxable income. In 2016, the penalty will be $695 or 2.5% of your taxable income. Each year after the government will refigure the penalty based on cost of living adjustments, but you can be sure it will increase.

How Much Will This Cost and Who Will Help Me Pay for It?

Like most tax situations, that depends on your income levels. If your income ranges between 133 and 400 percent of the Federal Poverty Level, you could end up receiving premium credits that will help reduce your monthly premium payment. For example, if your income is 400% of the Federal Poverty Level, your premium costs will not be more than
9.5 of your household income.

There are host of unknowns and uncertainties when it comes down to the ACA, and we can help you sort through some of the confusion. Please give us a call so we can discuss your situation and what impact the ACA could have on you.

Avoiding Capital Gains When You Sell Your Home

December 10 2013

The average family selling a home for the first time and moving on to another home or newer town will not need to worry about capital gains. According to the IRS, when you sell your primary residence (the key word here is primary residence or the home you actually live in), you can realize up to $250,000 in profit without owing capital gains taxes. That number is doubled for married homeowners to $500,000.

The Primary Residence Requirement

In order to qualify for the exemption from capital gains taxes on the sale of your home, it must be your primary residence. However, the IRS offers a great deal of latitude in defining a primary residence as a home you own and live in for two of the previous five years before selling the home.

While it is possible to sell multiple homes without acquiring a capital gains tax penalty, you must wait two years between these transactions. This makes sense as the intent is for this home to be your primary residence and the IRS requires two of the past five years of residence in order for the home to qualify.

Exceptions to the Two-Year Rule

For every rule, there is usually an exception. The same holds true when it comes to the two-year rule for capital gains exemptions. If you have lived in your home less than two years, you may still exclude a portion of the gain if you are forced to move due to a change in jobs, the result of health-related issues, or other unexpected issues. These unexpected issues include the destruction of your home, divorce, death, loss of a job, and acts of terrorism or war.

Another exception occurs when one of the primary residents of the home becomes suddenly disabled (mentally or physically) and can no longer care for him/herself as a result of the disability. As long as the individual lived in the home for one year before being moved into a licensed care facility, the time the individual lived in the primary care facility may count towards the two-year rule.

Upping the Ante for Bigger Tax Benefits

Another way to avoid capital gains taxes on higher ticket home sales is to add more owners. As long as the owners meet the residence requirements, they can each shelter an additional $250,000. This means if you add an adult child as a homeowner who has lived in the home for two of the past five years along with you and your spouse, the three of you can shelter a total of $750,000 profit from capital gains taxation.

No one wants to pay unnecessary taxes. The government has granted homeowners a major boon when it comes to eliminating capital gains taxes on home sales. Keep in mind though, that these are generalized rules, and may not apply to every situation.

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