Tax Pointers Category

There are a lot of questions raised about the Affordable Healthcare Act and taxpayers ability to offset their medical premiums using the integrated tax credit. Only certain people will qualify.

Here are the requirements:

  • Must buy health insurance through the Marketplace;
  • Are ineligible for coverage through an employer or government plan;
  • Are within certain income limits (described below);
  • Do not file a Married Filing Separately tax return (unless you meet the criteria in Notice 2014-23, which allows certain victims of domestic abuse to claim the premium tax credit using the Married Filing Separately filing status for the 2014 calendar year); and
  • Cannot be claimed as a dependent by another person.

The income requirements can be confusing, but are as follows:

100% is considered “Poverty Level”. 400% is considered 4x ABOVE the poverty level based on family size.

  • $11,490 (100%) up to $45,960 (400%) for one individual.
  • $15,510 (100%) up to $62,040 (400%) for a family of two.
  • $23,550 (100%) up to $94,200 (400%) for a family of four.
  • These numbers continue to rise based on the family size

Refund:

As far as the actual tax refund, it is much more complex than a “straight line”. Typically at 100% of the poverty line or lower, you get nearly a FULL refund (90-99%) of any health insurance premiums you pay. At 200% you are looking at 40-65%, depending on family size. At 300% or above you get very little unless your family size is higher than 4 (approximately 0%-10% refund).

All of this is filed on the tax return, though there is an option to collect this credit throughout the year by contacting your health insurance provider.

Penalty:

Penalties are in place if you do not have insurance from an employer or through the exchange. The penalty for 2014 is 1% of adjusted gross income with a minimum of $95.

I get asked this question A LOT. Especially for service based businesses. There is confusion between Leasing and Buying, whether or not to get the car personally or through the business entity, and what kind of car to buy. Hopefully I will clear this up.

1) Leasing vs Buying

Simple Answer: Buy a vehicle: you usually get a slight tax advantage over leasing. Though if you typically turn over cars every three years, get a lease if only for the reason that a lease was designed for that sort of thing.

Complex Answer:

Categories used for Calculation of tax savings

  • Buying – able to deduct up to the percentage used for business (for example 20% personal and commuting, 80% business – 80% of each of the below would be deductible):
    • Depreciation (purchase price spread out over 5 years)
    • Gas
    • Registration
    • Repairs
    • Interest paid on car loan
  • Leasing – Able to deduct up to the percentage used for business (Same as Buying):
    • Lease Payments
    • Gas
    • Registration
    • Repairs
  • Standard Mileage Deduction of “business miles driven” = .56 cents per mile

Calculation of Tax Savings

Lets assume that the SAME mileage is driven regardless of which we choose. In that case, only Depreciation, Interest and lease payments will vary. Lets also assume that the car price is $35,000 at 5% interest, and the lease monthly payment is $575 based on an online calculator using a standard residual and no down payment.

  • Buy:
    • Depreciation: $6,000 (average over 3 years)(FYI this may change for 2014)
    • Interest Paid: $1,750
      • Total: $7,750
  • Lease:
    • Lease Payments: $6,900
  • Difference
    • $850 – Buying Wins!!

Although it is a small difference, buying always tends to beat out leasing by a small margin strictly from a tax benefit standpoint.

2) Should I buy the car under the business?

Simple answer: No, there is no tax advantage to doing this.

Complex Answer: No, unless you are planning on having an employee drive the car more than 50% of the time and it will be used 100% for business reasons. There is no tax advantage for buying a car through your business since the IRS allows you to bring personally owned cars into your business by using a “percentage of business use” model.

If you are having employees drive the cars, or it is used as a delivery vehicle, then you will need commercial insurance and an added layer of legal protection. By registering the vehicle as commercial, and getting commercial insurance, you can accomplish this. Otherwise it is just a total pain to do. If you mainly drive the car, I would recommend skipping this step.

3) Is there a tax advantage depending on what kind of vehicle I buy?

Simple Answer: Yes. typically trucks over certain weight limits allow an immediate tax benefit.

Complex Answer:

  • Cars and Trucks under 6,000 pounds are typically depreciated over 5 year and use a complex method of determining this. There is no ability to accelerate that depreciation. beyond the current maximum $11,160 (2013 for a $22,000+ vehicle).
  • Trucks over $6,000 pounds allow a Section 179 deduction of up to $25,000 in the first year.
  • Trucks with an open bed, and are over 12,000 pounds allow a FULL Section 179 deduction for the purchase price (If you buy the vehicle for $40,000, you can take that as a first year deduction if you use it 100% for business)

Really, I would only recommend buying a big truck if you can actually use it for business, otherwise the cost really does not justify the expense.

4) Conclusion

Hopefully that clears up the Buy vs Lease conundrum. I have to admit, that this information is subject to change based on changes in the laws regarding Bonus Depreciation, Section 280F Luxury care limitations, and Section 179 deductions. I will try and update this page as those changes happen, but assume this is all for 2013 for now.