What In The World Is A “MINI-MED”?

The Obama administration on Monday loosened rules for bare bones health insurance plans known as “Mini-Meds”. Essentially, a mini-med is an insurance policy that pays for small, routine health care expenses but does not provide for catastrophic events. For example, a mini-med might pay $90 of a $100 doctor visit. If the doctor put you in the hospital, it probably would not pay more than a flat daily amount. Actuarially, the mini-med uses a different model than standard health insurers.

The mini-med concept has great appeal to the foot loose and fancy free younger generation that is seldom sick. This group typically only goes to the doctor once or twice a year. For employers with significant workers that fall in this class, this product is very valuable.

So when the Obamacare program came out, it required health insurance companies to spend between 80 and 85% of its premium dollars on actual medical care (a topic for another day). Mini-meds were included in the initial legislation.

The problem, as previously stated, is that the mini-med model requires a lower payout to premium percentage than the standard policy. The only way to make the mini-med work was to significantly raise the premium. Enter now the employer of America’s youth, McDonalds. McDonalds said “not so fast my little friend.” Mickey D’s has approximately 30,000 hourly workers on the mini-med program. To change to a standard program would require a significant cost. Or, put another way, old Number 2 and a Dr. Pepper would have to go up in price.

Monday, the President and his posse loosened the rules giving the mini-med an extension. That is good news for companies with a number of young hourly workers. Mini-meds are a good program for that category of individuals. The product offers a low cost employee benefit for employers.

If you need more information on mini-meds, give our office a call 210-495-4424.

WHY THE INCREASE IN AUDIT COSTS?

Time. It all comes down to the amount of time a firm and its employees must spend gathering support and documentation. An increase in audit hours leads to an increase in overall audit costs due to the per hour rate that most firms institute. Why the increased support and documentation? Two words: new standards.

These new accounting and auditing standards are often difficult to interpret and can be even harder to apply. Some of the more wide-known changes include:

• Greater responsibility related to the detection of material fraud
• Gaining a better understanding of the design and operation of a client’s internal controls
• Obtaining specialized knowledge regarding fair value measurements
• Determining the best answer when presented with conflicting guidance in professional literature
What can firms (who require audits) do to assist the auditors and decrease audit costs? The following list provides a few basic rules to follow to make an audit as smooth as butter (butter? Maybe crunchy peanut butter):

• Ask your auditors for a list outlining what documents they will need. Some likely suspects:
o Articles of incorporation
o Debt agreements
o Significant leases
o Minutes of the Board of Directors
o IRS filings
• Designate sufficient personnel to the audit. For example:
o CFO
o Controller
o Accounts receivable manager
o Accounts payable manager
o Internal auditor
• Hold a meeting to introduce the audit firm to any personnel they may need to have contact with.
• Develop a joint audit plan that identifies deadlines and the materials needed at those deadlines.

Instituting these simple steps can greatly reduce confusion, excessive communications, and thus audit hours. For further questions regarding the audit process and how to simplify it, contact your local Certified Public Accounting firm.

UNIVERSAL HEALTH COVERAGE MANDATES

I just finished a continuing education class on the new universal health coverage mandates. I also visited with people in the health care insurance business. After last Tuesday referendum on the current administrations policies, there may be changes. As of today, however, this is where we stand.

First, the coverage requirement does not include individuals whose employer sponsored coverage exceeds 8% of their household income. So if your household income is $50,000 then you do not have to take the coverage if the annual employer sponsored coverage exceeds $4,000 (8% of $50,000). Since insurance premiums tend to increase with age, older individuals that have higher premiums , will be more likely to exceed the 8% rule. Hence, the people most likely to need insurance will be less likely to be covered.

In addition, coverage rules to do apply to exempted religious individuals, Indian tribes and incarcerated individuals.

Penalty for Non-paying Qualified Individuals
If an individual that qualifies for coverage, does not maintain coverage, they will be penalized. The penalty is the lesser of (1) a flat dollar amount or (2) a percentage of income. Now it gets confusing.

The flat dollar amount is actually the lower of two separate calculations based on a government mandated applicable dollar amount. For 2014 this amount is $95.00. After you have determined the
appropriate flat dollar amount, you calculate the percentage amount and chose the highest number as your flat dollar amount.

The percentage method takes a percentage of household income adjusted by the filing threshold amount (part of you annual 1040). The kicker is that household income is the sum of the taxpayer and all individual accounted for in the family unit. Therefore, if the kids work, you must include their income!

Now choose the appropriate amount and you have your penalty. These penalties will be a part of your annual tax return (form 1040).

If you are confused, you are not alone.

Insurance premiums will be increasing 30 to 50% at your renewal date.
Your insurance premiums will be increasing because you will also be paying for those that can not afford regular insurance premiums. Here is how this provision works:

Should you not be covered by an employer, the government is creating a new program similar to CHIPS called QHP. The QHP insurance will be provided by all insurance companies at discounted rates. All insurance companies must participate.

There is more in this legislation including the tax credits for those that can not afford any of the above. The long and short of this legislation is that those of us that pay insurance premiums will pay more to subsidize the QHP. Those of us that pay federal income taxes will pay more to offset the tax credit program.

Halloween and Taxes: Top IRS Horror Stories

To get in full spirit of the Halloween season here at Cook and Associates, we’ve decided to share some of the scariest IRS horror stories we could find.

1. A Cayman Islands Vacation Gone Bad

When most people hear the words "Cayman Islands" they probably think of a relaxing Caribbean vacation. However, many might also think about illegal tax shelters, as the islands are somewhat infamous for hosting the private bank accounts of many American tax evaders. A few years ago, Joe ran into a few problems of his own in the Cayman Islands. He and his business partners used to vacation in, and bank in the islands on a regular basis, until Joe's vengeful ex wife got wind of the situation. She tipped off the IRS and Joe found out about it one afternoon when 25 federal agents stormed his home and business, ceasing all kinds of financial information. Joe was considered a flight risk and imprisoned under $5 million bail. It took dozens of court cases and thousands of dollars in legal fees to prove his innocence, and resulted in a major lifestyle change for Joe.

2. The Audit of Endless Receipts

Auditors are notorious for being difficult every now and then when it comes to documenting expenses and qualifying for credits, but usually leave a little leeway. However, this was not the case for a taxpayer named Heather who was audited by what she now refers to as the world's most relentless auditor. She claims that the auditor in question hounded her for not only proof of her business expenses, but receipts for every single personal and professional transaction made over the past two years. The auditor supposedly made her scrounge up receipts for transactions for as little as a dollar or two. Needless to say, Heather could not find every document required and faced several penalties.

3. The Beauty Shop Butchery

Celia, an honest and hardworking beauty shop owner, had her life ruined by the IRS a few years ago when her shop's equipment was seized and sold at auction to pay her back tax debts. Celia did not know much about taxes and hired a professional to assist her. Fortunately, the tax consultant found that Celia had indeed paid her taxes in full. The IRS had made a mathematical error, accidentally entering her tax amount twice in to the system, which made it look like she had not paid her taxes at all. Although she got her equipment back, she lost many of her clients and income due to the incident.

Refinancing Your Home - A Good Idea?

Refinancing is probably the last thought in many American’s minds. At a time when many people are having trouble just paying the monthly mortgage, how could you even consider throwing down a chunk of cash to reach a lower interest rate? Interestingly enough, this very thought has been on my mind quite a bit lately.

As more and more of my neighbors either walk away from their mortgages, resulting in foreclosure, or sell at a deep loss, the more I contemplate the benefits of refinancing. Crazy, right? Maybe not. While home mortgage refinancing can certainly be a tricky business, it may be worth your while to consider how refinancing can save your future.

1. It can reduce the length of your loan.
2. It can lower your interest costs.
3. It can lower your payments.
4. It can allow you to tap into your equity.

Paying off your loan more quickly may be one of your top reasons to refinance. Let’s say you have 25 years left on your mortgage loan, but the idea of a 15 year loan is appealing. Is it a good idea? It could be. If the interest rate is lower on the new 15 year loan allowing you to make payments equal to or slightly above your current amount, it might make perfect sense.

Lowering your interest costs generally means paying less overall in the long run. Is it worth paying the fees and points initially to save in interest costs over the course of the loan? How many months/years will it take to recoup the fees you paid by paying less in interest? Make sure you plan on being in the house long enough to start seeing the savings.

If you’re aiming to lower your monthly payments, refinancing to a lower interest rate or a longer term might make sense. However, keep in mind that the longer your loan, the more you’re paying in interest.

Have a child going to college? Have a yen to do some remodeling? You may want to refinance to tap into your equity. If the rates to refinance are less than the going rate on a personal loan, it may be beneficial to consider this option. On the other hand, if refinancing rates are higher than your current rate, you could end up paying a bundle more in interest than you would have on a personal note.

Finally, before you commit to any new financing, be sure you understand what you’re taking on. Do your research and be prepared. It could be the difference between -$ and $$$$$.

Tax Planning Tips For Year End 2010

Uncertainty is a factor in most tax planning decisions, but this year it is greater than ever. The recent decision by Congress to adjourn without addressing the expiring Bush tax cuts, as well as other items that expired at the end of 2009, leaves many tax advisors in the lurch.

With both political parties staking out irreconcilable positions - from the Republicans releasing a "Pledge for America" that calls for more tax cuts and the permanent extension of the Bush tax cuts, to the Democrats not extending those cuts.

"There's been universal frustration at the delays," said Robert Kerr, director of government relations at the National Association of Enrolled Agents. "The trend in the last few years has been to pass extenders at the end of the year. The extenders package, in addition to the tax rates, are up in the air. We go into November not knowing simple things such as whether the R&D credit exists, the deductibility of state and local sales taxes, or the Alternative Minimum Tax patch."

Yet planning, though difficult, is still possible and absolutely necessary, according to Greg Rosica, a tax partner in Ernst & Young's Tampa, Fla., office and a contributing author to the Ernst & Young Tax Guide.

"We're in a time of greater uncertainty when it comes to planning," he said. "But just because the legislative process has been delayed, it doesn't mean that taxpayers should. If they do delay, they might not be able to execute on ideas that make sense."

Rosica recommended planning a series of alternative scenarios based on the possibilities that might come out of the post-election process. "Instead of traditional year-end planning, we consider at least two different sets of assumptions," he said. "For example, Action List A would be the things to do if things stay the way they are. Action List B sets out the path to take based on various legislative changes. Once we get clarity as to what direction the rates will go, people can look at the list and execute the plan with the time remaining in the calendar year. Once we know what happens, we know what actions to take."

CORPORATE PLANNING

For private C corporations, Rosica recommended a look at accelerating dividends from 2011 to 2010. "If the corporation pays dividends, it should consider paying all its dividends, or as much as possible, in 2010 in light of the fact that there is currently a 15 percent tax rate on dividends that is scheduled to go up to 39.6 percent in 2011," he said.

Pass-through entities, such as partnerships and S corps, should re-evaluate their entity status, advised Rosica. "Is the S corporation or partnership status going to continue to make sense versus converting to a C corp? C corporation rates are not scheduled to change, but the flow-through rates are, so it's important to check where you are from an entity perspective," he said. "Even with an S corporation, there may be accumulated earnings and profits from a previous C corporation, so by accelerating some of these dividends there may be a more favorable tax result."

INDIVIDUAL PLANNING

"When you look at individuals, customary planning is 180 degrees different this year," said Rosica. "Traditionally you're looking to defer income and accelerate dividends, but now it's the opposite - accelerate income into 2010, and defer deductions till 2011, because income is worth more at lower tax rates, and deductions are worth more at higher tax rates. Real estate taxes, year-end deferred-compensation decisions, and charitable contributions are areas to consider."

"The important thing is to develop a plan with at least two different scenarios now so you will be able to execute it when the time comes. If you wait, you will be pushing up against a difficult time," he said.

All in all, this is a really tough time for those of us in the tax planning business. Our best advise is be prepared for anything.

1040 DEADLINE

The Internal Revenue Service’s final deadline for individual taxpayers who filed an extension to submit their 2009 tax returns is October 15, 2010. The IRS expects over 10 million returns to be electronically transmitted on October 15. The IRS encourages filing the returns electronically not only to receive your refund more quickly, but also to prevent common errors that are not caught on paper returns.
This is also an important date for small non-profit organizations. If you have failed to file returns for the past three years, you are at risk of losing your tax-exempt status. Links to this information can be found at the address below:

http://budurl.com/gjb3

The IRS sent out one last reminder to individual taxpayers in general….check your federal filing status. There are about three months left in this calendar year so now is the time to make sure you are getting enough taxes taken out to prevent owing anything at the end of the year. The IRS has a free withholding calculator to estimate if you’re taking out too much or too little. Below is a link to that website:

http://budurl.com/4us6