Recent Developments

Some significant, recent changes to the tax code that impact tax planning and reporting

Affordable Care Act –ACA (aka Obamacare)

The penalty, called the individual mandate, for not having health insurance and the subsidy (premium tax credit) for buying health insurance are both computed with the tax return. In 2017, the basic penalty is the greater of $695 per adult or 2.5% of household income (capped at the cost of insurance). With some exceptions, all persons filing tax returns and all dependents must have insurance. Persons with Medicare are insured. Only persons who buy insurance from an exchange are eligible for a subsidy. The Tax Reform Act of 2017 set the penalty to zero beginning in 2018.

Forms 1095-A, 1095-B, and 1095-C will be issued by exchanges, insurance companies, and employers to provide the information required to calculate penalties and subsidies. If insurance was issued by an exchange, form 1095-A will be required to prepare your tax return.

The ACA imposes a 0.9% Medicare tax on earned income and a 3.8% Medicare tax on net investment income when modified adjusted gross income (MAGI) exceeds a threshold amount. Furthermore, the ACA restricts small employer reimbursements to their employees for health insurance premiums on their individual policies. In the past, the reimbursement was a non-taxable fringe benefit.

Popular Extenders

Several popular tax benefits expired at the end of 2014; however, in December 2015, Congress reinstated many of them retroactively to the beginning of 2015. Many of the benefits were made permanent and others were extended through 2016 or later. The following is a partial list of the extenders:

  • the $250 above-the-line annual deduction for a professional educator’s qualified unreimbursed expenses, including books, supplies, computers, and software
  • the exclusion from gross income for discharges of qualified principal residence indebtedness
  • the itemized deduction for mortgage insurance premiums
  • the election to claim an itemized deduction for State and local general sales taxes in lieu of State and local income taxes
  • the exclusion from gross income of qualified charitable distributions (from IRAs) for individuals aged 70½ or older
  • the residential energy property credit (lifetime limit remains at $500, and no more than $200 of the credit amount can be attributed to exterior windows and skylights)

Many extenders did not survive the Tax Reform Act of 2017; some were enhanced and others were untouched.

Your IRA Could Owe Income Taxes

In recent years, many investors have sought to include investments in their IRAs other than traditional stocks, bonds, and mutual funds. When these investments generate more than $1,000 of unrelated business income (UBI) in one year, the IRA needs to file a tax return (Form 990-T). An IRA is most likely to generate UBI when it owns an interest in a pass-through business entity such as a partnership or limited liability company. Master limited partnerships (MLPs) most often trip up IRA owners. The Wall Street Journal recently reported on a person with an interest in a MLP affiliated with Kinder Morgan, Inc.; he received a tax bill for $24,321 to be paid from his IRA (November 14-15, 2015, page B7).

Investments other than MLPs can also generate UBI.


Married couples often use a credit shelter trust to reduce estate taxes. This technique effectively allows couples to shelter twice the exemption amount from estate taxes. Portability achieves a similar result without the credit shelter trust and should be considered in estate planning. Portability is especially advantageous when a couple has large retirement accounts or an expensive primary residence.

Portability was made permanent in 2013. To receive the benefits, an estate tax return (Form 706) must be filed in a timely fashion after the first spouse dies.

Foreign Financial Assets

The IRS has long required taxpayers to disclose information about foreign bank and investment accounts with value in excess of a threshold amount. Effective 2011, Congress expanded the disclosure requirements to include all foreign financial assets with value in excess of a threshold amount, regardless of whether they generate taxable income.

Failure to comply with these requirements can result in very significant penalties.

Anyone with assets outside the United States should be certain they are compliant. Persons who gamble online using Internet accounts may not realize this reporting requirement impacts them.

Itemized Deductions and Personal Exemptions

The phaseout of itemized deductions and personal exemptions was revived in 2013. For 2017, the phaseouts start when AGI exceeds the following threshold amounts:

  • $313,800 for married taxpayers filing jointly and surviving spouses
  • $287,650 for heads of households
  • $261,500 for unmarried taxpayers who are not surviving spouses or heads of households; and
  • $156,900 for married taxpayers filing separately (equal to one-half of the amount for a joint return or surviving spouse)

The Tax Reform Act of 2017 (for tax returns beginning in 2018) eliminated personal exemptions and miscellaneous deductions, including unreimbursed business expenses; furthermore, it capped state and local taxes at $10,000.

Rollovers as Business Start-Ups (ROBS)

These are arrangements in which a business owner uses his 401(k), IRA or other retirement funds to invest in his company. Promoters claim that this is a tax- and penalty-free use of retirement funds. However, most taxpayers do not realize the difficulty of staying in compliance with the rules. Entering into a prohibited transaction can result in the termination of the retirement account. If terminated, all monies would be considered a distribution and, if owner was less than 59½, subject to a 10% penalty. Some prohibited transactions are:

  1. Sale, exchange, or leasing of property between the IRA and IRA owner
  2. Lending of money, extending credit, or guaranteeing debt between IRA and owner
  3. Furnishing goods, services, or facilities to the IRA by the owner
  4. Transfer to, or use by, the IRA owner of income or assets of the IRA

Same-Sex Marriage Ruling

The same-sex marriage ruling states that same-sex couples who are legally married are considered married for federal tax purposes, regardless of whether their state of residence recognizes same-sex marriage. In 2013 and all future years, legally married same-sex couples must file their federal income tax returns as married filing jointly (MFJ) or married filing separately (MFS).

Same-sex married couples may now enjoy all of the federal tax-related benefits previously available only to opposite-sex married couples. These benefits include (but are not limited to):

  • Estate and gift tax benefits
  • MFJ or MFS filing status and standard deduction
  • Claiming personal and dependency exemptions
  • Claiming child-driven credits
  • Taxpayer-friendly employee benefits
  • Spousal IRAs

Same-sex married couples are also subject to the many marriage penalties included in the tax code.

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