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The American Recovery and Reinvestment Act of 2009 (ARRA) authorizes the Centers for Medicare and Medicaid Services (CMS) to make incentive payments to eligible professionals and hospitals that adopt, implement, upgrade or demonstrate “meaningful use” of certified electronic health record (EHR) technology to improve patient care. The funds for these incentive payments may be administered through the state’s Medicaid agency or directly from CMS via a Medicare contractor.
If the state agency or CMS makes incentive payments of $600 or more to an eligible professional or hospital, they are responsible for reporting such payments to the recipients on a Form 1099-MISC by January 31 of the next year. Therefore, if a state agency or CMS made payments of $600 or more in 2012, they should issue Form 1099-MISC to the recipients by January 31, 2013.
Professionals and hospitals should not consider EHR incentive payments to be reimbursements of expenses incurred in establishing an EHR system; instead, the recipient of the payments should consider the payments to be includible in gross income.
An eligible provider receiving an EHR incentive payment may be required to give the payment to the provider’s practice or group and not be allowed to keep it. In this situation, the eligible provider is not required to include the payment in gross income if the provider (1) is receiving the payment as an agent or conduit of the practice or group, and (2) turns the payment over to the practice or group as required. The state agency or CMS should send the Form 1099-MISC to the provider regardless of whether the funds are assigned or transferred to the provider’s practice group, or retained by the provider. The eligible provider, not the state agency or CMS, would bear the information reporting obligation, if any, for payments made to the provider’s practice group.
Yesterday, the President signed the American Taxpayer Relief Act, which was passed on New Year’s Day. Here is brief summary of selected portions of it, for your review. We can help answer any questions that you may have.
Individual Tax Rates
The Act preserves and permanently extends the Bush-era income tax cuts except for single individuals with taxable income above $400,000; married couples filing joint returns with taxable income above $450,000; and heads of household with taxable income above $425,000. Income above these thresholds will be taxed at a 39.6 percent rate, effective January 1, 2013. The $400,000/$450,000/$425,000 thresholds will be adjusted for inflation after 2013.
The new law, however, does not extend the payroll tax holiday. Effective January 1, 2013, the employee-share of Social Security tax withholding increased from 4.2% to 6.2% (its rate before the payroll tax holiday).
Capital Gains and Dividend Tax Rate
Effective January 1, 2013, the maximum tax rate on qualified capital gains and dividends rises from 15 to 20 percent for taxpayers whose taxable incomes exceed the thresholds set for the 39.6 percent rate (the $400,000/$450,000/$425,000 thresholds discussed above). The maximum tax rate for all other taxpayers remains at 15 percent; and moreover, a zero-percent rate will continue to apply to qualified capital gains and dividends to the extent income falls below the top of the 15- percent tax bracket. Note – The 2010 Affordable Care Act imposes a 3.8% Medicare tax on interest, dividends, capital gains, and other passive income, starting in 2013, and it applies at taxable income over $200,000 for single filers and over $250,000 for joint filers.
Estate and Gift Tax
Federal transfer taxes (estate, gift and generation-skipping transfer (GST) taxes) seem to have been in a constant state of flux in recent years. The Act provides some certainty. Effective January 1, 2013, the maximum estate, gift and GST tax rate is generally 40 percent, which reflects an increase from 35 percent for 2012. The lifetime exclusion amount for estate and gift taxes is unchanged for 2013 and subsequent years at $5 million (adjusted for inflation). The GST exemption amount for 2013 and beyond is also $5 million (adjusted for inflation). The new law also makes permanent portability and some enhancements made in previous tax laws.
Other Act Elements Affecting Individuals
• AMT (Alternative Minimum Tax) – Higher exemptions are made permanent, and indexed for inflation
• IRA distributions to charitable organizations, (for those over age 70) – restored through 2013
• Exclusion for cancellation of debt on principal residence – extended through 2013
• Reduction of itemized deductions for incomes over certain levels, (which was not in place since 2010) – will apply starting in 2013
Business Tax Provisions
Code Sec. 179 business equipment expensing. In recent years, Congress has repeatedly increased dollar and investment limits under Code Sec. 179 to encourage spending by businesses. For tax years beginning in 2010 and 2011, the Code Sec. 179 dollar and investment limits were $500,000 and $2 million, respectively. [This means that you can expense up to $500,000 of equipment or software purchased, so long as you don’t spend more than $2 million in total. Expenditures over the $2 million level reduces the allowable expense amount dollar-for-dollar.] The Act restores the dollar and investment limits for 2012 and 2013 to their 2011 amounts ($500,000 and $2 million) and adjusts those amounts for inflation. However, this increase is temporary. The Code Sec. 179 dollar and investment limits are scheduled, unless changed by Congress, to decrease to $25,000 and $200,000, respectively, after 2013. The new law also provides that off-the-shelf computer software qualifies as eligible property for Code Sec. 179 expensing. The software must be placed in service in a tax year beginning before 2014. Additionally, the Act allows taxpayers to treat up to $250,000 of qualified leasehold and retail improvement property as well as qualified restaurant property, as eligible for Code Sec. 179 expensing.
Bonus depreciation. Bonus depreciation of business equipment is one of the most important tax benefits available to businesses, large or small. In recent years, bonus depreciation has reached 100 percent, which gave taxpayers the opportunity to write off 100 percent of qualifying asset purchases immediately. For 2012, bonus depreciation remained available but was reduced to 50 percent. The Act extends 50 percent bonus depreciation through 2013. The Act also provides that a taxpayer otherwise eligible for additional first-year depreciation may elect to claim additional research or minimum tax credits in lieu of claiming depreciation for qualified property.
While not quite as attractive as 100 percent bonus depreciation, 50 percent bonus depreciation is valuable. For example, a $100,000 piece of equipment with a five-year MACRS life would qualify for a $55,000 write-off: $50,000 in bonus depreciation plus 20 percent of the remaining $50,000 in basis as “regular” depreciation, with the half-year convention applied in the first and last year.
Bonus depreciation also relates to the passenger vehicle depreciation dollar limits under Code Sec. 280F. This provision imposes dollar limitations on the depreciation deduction for the year in which a taxpayer places a passenger automobile/truck in service within a business and for each succeeding year. Because of the new law, the first-year depreciation cap for passenger automobile/truck placed in service in 2013 is increased by $8,000.
Bonus depreciation, unlike Code Sec. 179 expensing, is not capped at a dollar threshold. However, only new property qualifies for bonus depreciation. Code Sec. 179 expensing, in contrast, can be claimed for both new and used property and qualifying property may be expensed at 100 percent.
Research Tax Credit. The research tax credit was restored for 2012 and extended through 2013.
If you have any questions, please contact us.
Finally a Tax Law Change That Will Make Our Lives Easier. Well, unless you are a stock broker or mutual fund company that is. 1099-B Reporting Expanded
Stacie says: Good news for taxpayers who receive Forms 1099-B Broker and Barter Exchange Transactions. Starting in 2011, these forms will include the cost or other basis information of stock and mutual fund shares sold or exchanged during the year. I can’t tell you how happy this makes me. Countless hours are spent each year by preparers and taxpayers alike trying to find the basis information on stock sales. I have to say that this law change falls within one of my more favored.
WASHINGTON — The Internal Revenue Service today issued final regulations under a law change that will require reporting of basis and other information by stock brokers and mutual fund companies for most stock purchased in 2011 and all stock purchased in 2012 and later years. The reporting will be to investors and the IRS. This additional reporting will be optional for stock purchased prior to these dates.
“This important reporting change means investors will now receive the information they need to more easily and accurately report their gains and losses,” said IRS Commissioner Doug Shulman. “We will continue to work closely with stakeholder groups to ensure a smooth implementation of the new requirement, which reduces the recordkeeping and paperwork burden for millions of taxpayers.”
These regulations, posted today in the Federal Register, implement a provision in the Energy Improvement and Extension Act of 2008. Among other things, the regulations describe who is subject to this reporting requirement, which transactions are reportable and what information needs to be reported. Besides providing numerous examples, they also adopt a number of comments and suggestions received since the proposed regulations were issued last December.
Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, long used to report sales prices, will be expanded in 2011 to include the cost or other basis of stock and mutual fund shares sold or exchanged during the year. Stock brokers and mutual fund companies will use this form to make these expanded year-end reports. The expanded form will also be used to report whether gain or loss realized on these transactions is long-term (held more than one year) or short-term (held one year or less), a key factor affecting the tax treatment of gain or loss. The expanded form, to be first used for calendar-year 2011 sales, must be filed with the IRS and furnished to investors in early 2012.
The IRS today also announced penalty relief for brokers and custodians for reporting certain transfers of stock in 2011.
The relief is described in Notice 2010-67, which was posted today on IRS.gov.
- Special investment taxes: mutual fund capital gains and ‘Flash Crash’ earnings (dontmesswithtaxes.typepad.com)
- Waiting…For Your Tax Forms? (turbotax.intuit.com)
- 5 Things You Don’t Know About 529 Plans (money.usnews.com)
- Cost Basis: Tracking Your Tax Basis (turbotax.intuit.com)
- What are all those W-2s and 1099s and 1098s? (turbotax.intuit.com)
- A Tax Cut Everyone Can Agree on (fool.com)
- Fund investors continue to favor bonds over stocks (seattletimes.nwsource.com)
- DTCC Enhances Mutual Fund Profile Service To Improve Integrity of Data for the Fund Industry (eon.businesswire.com)
- What is the Best Roth IRA Broker? (bargaineering.com)
- When Your Investment Losses Really Arenât (at Least in the Eyes of the IRS) (turbotax.intuit.com)
- IRS Won’t Defer Your “Flash Crash” Gains (blogs.forbes.com)
- 5 Things Your Broker Won’t Tell You (money.usnews.com)
By Stacie Clifford Kitts, CPA
Well loyal readers, I am finally getting around to outlining the tax aspects of the Small Business Jobs Act. Because I am a visual interactive learner, writing and organizing helps me to retain information. I guess you could say that blogging is like a study technique for me. Too bad it doesn’t qualify for continuing education credit. *sigh* oh well.
Fixed asset expensing – Section 179
- Maximum expense amount $500,000
- Phase out amount $2 million for years 2010 and 2011
Fixed asset bonus depreciation – Section 168(k)
- Extended through 2010
- Percentage of completion method can be taken into account for qualified property
Qualified small business stock – Section 1202
- Increases the gain exclusion from the sale or exchange of qualified small business stock to 100%
- Applies to eligible stock acquired after the enactment date and before Jan 1, 2011
Business credits – Section 38
- Is extended to five years
- Can be used to offset regular and alternative minimum tax
- Tax years beginning after 2009
Built in gains – Section 1374
- Recognition period for computing built in gains tax is the five year period beginning with the first day of the fist tax year for which the corporation was an S Corporation.
Health insurance for self employed individuals
- (This is a particularly good one) For tax years ending after 2009, self employed individuals can deduct health insurance for themselves, their spouses, dependents and children under 27 against net earnings for self-employment for purposes of calculating their SECA taxes ( SECA is equivalent to a workers FICA tax)
Startup expenses – Section 195
- Expenses increased to $10,000 for years beginning in 2010 and 2011
- Limitation on deduction is increased to $60,000
- Calculated by the lessor of 1) the amount of the startup expense or 2) 10,000, reduced (but not below zero) by the amount by which the startup expenditures exceed $60,000
Reportable and listed transactions – penalty under section 6707A
- The penalty for failure to disclose a reportable transaction is limited to 75% of the decrease in tax resulting from the transactions.
- Max penalty for a natural person is $10,000
- Penalty for a non-natural person is $50,000 (so like a business or trust or such)
- Listed transactions maximum penalty will be $100,000 for a natural person
- Listed transactions maximum penalty will be $200,000 for non-natural person\
- Minimum penalty
- $5000 Natural person
- $10,000 Non-natural person
Listed property – Section 280A
- no longer includes cell phone.
- Section 179 Changes in the Small Business Jobs and Credit Act of … (i80equipment.com)
- Section179.Org Reports on Section 179 Changes Contained in the The Small Business Jobs and Credit Act of 2010 (prweb.com)
- “The Small Business Jobs Act of 2010” and related posts (washparkprophet.blogspot.com)
- Obama signs the Small Business Jobs Act (mnn.com)
- President Obama Signs Small Business Jobs Act – Learn What’s In It (whitehouse.gov)
- Passage of Small Business Jobs Act a Huge Win (prnewswire.com)
- Brandon Edwards: Small Business Jobs Act: Real Value to Small Manufacturers (huffingtonpost.com)
- NADCO Celebrates the Signing of the Small Business Jobs Act and the SBA 504 Loan Program Enhancements Included (prnewswire.com)
- ICBA Applauds Passage of Small Business Jobs and Credit Act (prweb.com)
- Kristie Arslan: Senate Wakes Up and Pays Attention to Small Business [Commentary] (huffingtonpost.com)
By Stacie Clifford Kitts, CPA
Okay so earlier this week I talked about the passing of HR 3590 aka the Patient Protection and Affordable Care Act which is now a law known as P.L. 111-148.
However, the new law was amended yesterday by the passing of HR 4872 aka the Health Care and Education Reconciliation ACT. This new bill is on its way to the president’s desk for approval.
As the Journal of Accountancy points out, this new bill adds stuff that was not built-in to the Patient Protection Act.
If you need to get up to speed, you can check out my previous post which outlines the original tax provision here Outline of Health Care Act – Tax Provisions of HR 3590.
The following is a list of things that were changed or added. For a complete analysis, check out the J of A’s article.
- Premium Assistance Credit – Updated
- Excise Tax on Uninsured Individuals – Updated
- Adult Dependent – Updated
- Excise Tax on High Cost Employer-Sponsored Coverage Updated
- Medicare Tax on Investment Income ( I thought this one might be of particular interest to taxpayers so I have included the J of A’s analysis here- my take, this provision is likely to tick some folks off)
The Reconciliation Act added a new IRC § 1411 that imposes a tax on individuals equal to 3.8% of the lesser of the individual’s net investment income for the year or the amount the individual’s modified adjusted gross income exceeds a threshold amount. For estates and trusts, the tax equals 3.8% of the lesser of undistributed net investment income or adjusted gross income over the dollar amount at which the highest trust and estate tax bracket begins.
For married individuals filing a joint return and surviving spouses, the threshold amount is $250,000; for married taxpayers filing separately, it is $125,000; and for other individuals it is $200,000.
Net investment income is defined as income from interest, dividends, annuities, royalties and rents, other than such income derived in the ordinary course of a trade or business (however, income from passive activities and from a trade or business of trading in financial instruments or commodities is included in the definition of net investment income).
This provision applies to tax years beginning after Dec. 31, 2012.
- Economic Substance Doctrine – New
Here is a calendar of dates related to the Act to know:
|Dates to follow|
|January 1, 2010||Small Business Tax Credit – For tax Years Beginning on or after 1/1/10|
|July 1, 2010||Tax on Indoor Tanning Services – For services on or after 7/1/2010|
|January 1, 2011||Tax on HSA Distributions – For tax years beginning on or after 1/1/2011|
|January 1, 2011||SIMPLE Cafeteria Plans for Business – For tax years beginning on or after 1/1/11|
|January 1, 2011||Charitable Hospitals – For payments made on or after 1/1/2011|
|January 1, 2012||Medicare tax on Investment Income – for tax years beginning on or after 1/1/2012|
|October 1, 2012||Fees on Health Plans – Beginning for plan years on or after 10/1/12|
|January 1, 2013||Medical Care Itemized Deductions Threshold -Beginning on 1/1/13|
|January 1, 2013||Additional Hospital Insurance Tax on High Income Taxpayers – For tax years beginning on or after 1/1/13|
|January 1, 2013||Flexible Spending Account – Tax years beginning on or after 1/1/13|
|January 1, 2014||Premium Assistance Credit – For years beginning on 1/1/14|
|January 1, 2014||Excise tax on Uninsured Individuals – Tax years beginning on or after 1/1/14,|
|January 1, 2014||Reporting Requirements – Beginning on 1/1/14|
|January 1, 2014||Cafeteria Plans – Starting 1/1/14|
|January 1, 2014||Employer Responsibility – Beginning on 1/1/14|
|January 1, 2018||Excise Tax on High-Cost Employer Plans – For tax years beginning on or after 1/1/18|
As you get ready to prepare your 2009 tax return, the Internal Revenue Service wants to make sure you have all the details about tax law changes that may impact your tax return.
Here are the top five changes that may show up on your 2009 return.
1. The American Recovery and Reinvestment Act
ARRA provides several tax provisions that affect tax year 2009 individual tax returns due April 15, 2010. The recovery law provides tax incentives for first-time homebuyers, people who purchased new cars, those that made their homes more energy efficient, parents and students paying for college, and people who received unemployment compensation.
2. IRA Deduction Expanded
You may be able to take an IRA deduction if you were covered by a retirement plan and your 2009 modified adjusted gross income is less than $65,000 or $109,000 if you are married filing a joint return.
3. Standard Deduction Increased for Most Taxpayers
The 2009 basic standard deductions all increased. They are:
- $11,400 for married couples filing a joint return and qualifying widows and widowers
- $5,700 for singles and married individuals filing separate returns
- $8,350 for heads of household
Taxpayers can now claim an additional standard deduction based on the state or local sales or excise taxes paid on the purchase of most new motor vehicles purchased after February 16, 2009. You can also increase your standard deduction by the state or local real estate taxes paid during the year or net disaster losses suffered from a federally declared disaster.
4. 2009 Standard Mileage Rates
The standard mileage rates changed for 2009. The standard mileage rates for business use of a vehicle:
- 55 cents per mile
The standard mileage rates for the cost of operating a vehicle for medical reasons or a deductible move:
- 24 cents per mile
The standard mileage rate for using a car to provide services to charitable organizations remains at 14 cents per mile.
5. Kiddie Tax Change
The amount of taxable investment income a child can have without it being subject to tax at the parent’s rate has increased to $1,900 for 2009.
For more information about these and other changes for tax year 2009, visit IRS.gov.
- FS-2010-4, 2009 Tax Law Changes Provide Saving Opportunities for Nearly Everyone
- The American Recovery and Reinvestment Act of 2009: Information center
- 1040 Central
- Form 1040 instructions (PDF 941K)
IRS YouTube Videos:
- Tax Filing Season 2010 English | Spanish | ASL
- Earned Income Tax Credit English | Spanish | ASL
- Education Credits – Parents English| ASL
- Education Tax Credit-Claim it-Students English | Spanish | ASL
- Energy Tax Credits Claim It English | Spanish | ASL
- Haiti Earthquake Donations English | Spanish | ASL
- Making Work Pay – Claim It English | ASL
- New Homebuyer Credit-Claim It English | Spanish
- New Homebuyer Credit-Military English
- Split Refunds-Savings Bonds English | Spanish
- Unemployment Compensation English | Spanish
- Vehicle Tax Deduction – Claim It English | Spanish | ASL
[Stacie says: If you are a retired government employee be sure to talk to your preparer about your eligibility to claim the Government Retiree Credit]
Certain government retirees who receive a government pension or annuity payment in 2009 may be eligible for the Government Retiree Credit. The American Recovery and Reinvestment Act of 2009 provides this one-time credit of $250 for certain federal and state pensioners.
Here are seven things the IRS wants you to know about the Government Retiree Credit:
- You can take this credit if you receive a pension or annuity payment in 2009 for service performed for the U.S. Government or any U.S. state or local government and the service was not covered by social security.
- Recipients of the Making Work Pay Credit will have that credit reduced by any Government Retiree Credit they receive.
- The credit is $250 for individuals and $500 if married filing jointly and both you and your spouse receive a qualifying pension or annuity.
- You must have a valid social security number to claim the credit. If married filing jointly, both spouses must have a valid social security number to each claim the $250 credit.
- You cannot take the credit if you received a $250 economic recovery payment in 2009.
- This is a refundable credit, which means it may give you a refund even if you had no tax withheld from your pension.
- To claim the credit, you must complete Schedule M, Making Work Pay and Government Retiree Credits, and attach it to your Form 1040A or 1040.
- The American Recovery and Reinvestment Act of 2009
- Schedule M, Making Work Pay and Government Retiree Credits
The American Recovery and Reinvestment Act was passed in early 2009 and created the American Opportunity Credit. This educational tax credit – which expanded the existing Hope credit – helps parents and students pay for college and college-related expenses.
Here are the top nine things the Internal Revenue Service wants you to know about this valuable credit and how you can benefit from it when you file your 2009 taxes.
- The credit can be claimed for tuition and certain fees paid for higher education in 2009 and 2010.
- The American Opportunity Credit can be claimed for expenses paid for any of the first four years of post-secondary education.
- The credit is worth up to $2,500 and is based on a percentage of the cost of qualified tuition and related expenses paid during the taxable year for each eligible student. This is a $700 increase from the Hope Credit.
- The term “qualified tuition and related expenses” has been expanded to include expenditures for required course materials. For this purpose, the term “course materials” means books, supplies and equipment required for a course of study.
- Taxpayers will receive a tax credit based on 100 percent of the first $2,000 of tuition, fees and course materials paid during the taxable year, plus 25 percent of the next $2,000 of tuition, fees and course materials paid during the taxable year.
- Forty percent of the credit is refundable, so even those who owe no tax can get up to $1,000 of the credit for each eligible student as cash back.
- To be eligible for the full credit, your modified adjusted gross income must be $80,000 or less — $160,000 or less for joint filers.
- The credit begins to decrease for individuals with incomes above $80,000 or $160,000 for joint filers and is not available for individuals who make more than $90,000 or $180,000 for joint filers.
- The credit is claimed using Form 8863, Education Credits, (American Opportunity, Hope, and Lifetime Learning Credits), and is attached to Form 1040 or 1040A.
For more information about the American Opportunity Tax Credit visit the IRS Web site at IRS.gov/recovery.
An Interesting Rewrite for the Vanity Tax H.R. 3590 Looks As if Congress Found a Vanity Product with Enough Sin to Justify a Tax
By Stacie Clifford Kitts, CPA
It is all over the news; the Dems have enough votes to push the Patient Protection and Affordable Care Act on ward. But what has been eliminated from the latest version of the bill has me wondering – was it – our stimulating online debate that finally killed the dreaded 5% booby tax (i.e. the cosmetic surgery tax). Hmmmm …okay so it was most likely the influential lobbying by the American Health Association who strongly opposed the tax that murdered it.
But you know what; I’m all a-glow just the same. Congress – it appears – has responded to my points from a previous post where I chastise our lawmakers for attempting to tax the sinless personal choice of cosmetic enhancements.
I can’t say that I am totally opposed to taxing
behavior. That is, I agree with sin taxes. Taxes on cigarettes and alcohol for
instance do provide a certain amount of good since these products have been
shown to cause harm to the public welfare. Likewise, the cost of treating people
who have made themselves sick by indulging in unhealthy activities or behaviors
must be considered – I get that – and if a tax on so called unhealthy products
helps to relieve the public burden, then so be it.
But is cosmetic surgery really
sinful? Personally, I fail to see how it is. Maybe our lawmakers can explain to
me how slimmer hips, larger breasts, or plumper lips harms the public welfare or
places a financial burden on the government.But what is even more perplexing is
just how or why cosmetic surgery won the tax lottery. I fear that this type of
legislation opens the door for a whole litany of WTF taxes. I mean why not tack
on an additional tax for hair coloring, nail salons, or makeup. These are also
vanity products. Frankly where does it stop?I am all for affordable health care,
balancing the budget, and reducing debt. But come on lawmakers, I find it hard
to believe that you can’t do better.
In response to my argument, it would appear that our lawmakers did find a vanity procedure that fits the sin criteria. The new vanity target – tanning salons. Here is a portion of the amended law:
SEC. 10907. EXCISE TAX ON INDOOR TANNING SERVICES IN LIEU OF ELECTIVE COSMETIC MEDICAL PROCEDURES.
(a) IN GENERAL.—The provisions of, and amendments made by, section 9017 of this Act are hereby deemed null, void, and of no effect.
(b) EXCISE TAX ON INDOOR TANNING SERVICES.—
Subtitle D of the Internal Revenue Code of 1986, as amended by this Act, is amended by adding at the end the following new chapter:
CHAPTER 49—COSMETIC SERVICES
Sec. 5000B. Imposition of tax on indoor tanning services.
SEC. 5000B. IMPOSITION OF TAX ON INDOOR TANNING SERVICES.
(a) IN GENERAL.—There is hereby imposed on any indoor tanning service a tax equal to 10 percent of the amount paid for such service (determined without regard to this section), whether paid by insurance or otherwise.
But what is even more telling is this tid bit found over at Kay Bell’s blog Don’t Mess with Taxes
“Congressional bean counters had estimated the Bo-Tax would bring in $5.8
billion over the next decade. The Tan Tax, which would go into effect next July,
is projected to produce $2.7 billion over 10 years.
But that loss of revenue is OK, because the new tax addresses health
Or as one anonymous aide put it, the tanning tax was added out of
“concern that use of these tanning beds creates a health problem with respect to cancer.”
Well, I guess I got what I wanted, a tax that benefits the public welfare and relieves the public burden by taxing those people who intentionally expose themselves to cancer causing tanning beds.
Geez, I sure do hope that smog doesn’t cause cancer otherwise our lawmakers might tack on an excise smog tax for my sinful choice to live in California and breathe in the foul air.
By Stacie Clifford Kitts, CPA
I just want to go briefly back to one point that was missed during my extensive commentary about the Vanity Tax.
You may have read a couple of posts I have written regarding my disapproval of this tax commonly known as the cosmetic surgery tax which is included in the Patient Protection and Affordable Care Act (HR 3590).
If you want to catch up, here are the links to the previous posts:
You might also recall that Mary O’Keeffe over at Bed buffaloes in your tax code wrote some good responses to my posts and even answered some of the questions posed in my ramblings.
The gist of my angst over this tax issue really arises from my query as to why it is that Cosmetic surgery won the tax lottery.
As I pointed out in previous posts:
The Patient Protection and Affordable Care Act has declared VANITY as the eighth
deadly sin punishable by the imposition of a 5%excise tax.
The bill, which apprises to seek affordable healthcare also imposes an additional tax on those people wishing to improve their appearance or self-esteem via cosmetic
So again, I ask, why did cosmetic surgery win the tax lottery, why not the treatment of acne? After all dermatologists went to medical school too, their education was also subsidized. The answer is clear, because taxing little pimple faced teenagers for their acne treatment would tick people off. It doesn’t matter that this procedure is also elective and even vanity driven. However, people who elect to have cosmetic surgery are perceived as vain, spoiled, overindulged, and sinful.
Mary also ponders on this question and in her post More on taxing cosmetic surgery, subsidies, and tax simplification She makes this observation.
Our existing tax code already makes a distinction between its treatment of
cosmetic surgery (which is not tax-deductible on Schedule A, nor is it eligible
for tax-excluded flexible spending account use) and treatment of acne (which is,
I believe, eligible for both tax breaks.) But you haven’t complained about that
distinction in existing tax law?
Well here is where I complain, thanks for the reminder:
Absent some brilliant legal argument regarding why acne treatments should or should not qualify for a tax deduction let me just put this out there where it belongs.
The distinction Mary mentions that includes acne treatments, as deductible vs. the non-deducibility of elective cosmetic procedures is in my opinion a clear example of the TAX THE OTHER GUY SYNDROME.
Consider this, the reshaping of one’s enormous nose may to have found its way to the tax-deductible pages of some legislation had that “problem” been a common issue for lawmakers. Had their children been unfortunate enough to be saddled with some enormous honker, then we might be talking about THE ENORMOUS NOSE REDUCTION ACT.
Why then can we deduct the cost of acne treatments?
The answer is as plain as the nose on my face, because our lawmakers and their children know the embarrassment and social stigma associated with acne. Acne is a universal and relatable vanity issue. Acne simply represents the “average guy.”
And what does the average guy do, he says, tax the other guy!
So then, what happens?
Well, we get the Patient Protection and Affordable Care Act which shoves its fist between the couch cushions of the OTHER GUY in search of loose change.
[Stacie says: I didn’t have time to write up the post I wanted for today. However, I did read this informative news release about modified mortgages. ]
WASHINGTON – The U.S. Department of the Treasury and Department of Housing and Urban Development (HUD) today kick off a nationwide campaign to help borrowers who are currently in the trial phase of their modified mortgages under the Obama Administration’s Home Affordable Modification Program (HAMP) convert to permanent modifications. The modification program, which has helped over 650,000 borrowers, is part of the Administration’s broader commitment to stabilize housing markets and to provide relief to struggling homeowners and is a primary focus of financial stability efforts moving forward. Roughly 375,000 of the borrowers who have begun trial modifications since the start of the program are scheduled to convert to permanent modifications by the end of the year. Through the efforts being announced today, Treasury and HUD will implement new outreach tools and borrower resources to help convert as many trial modifications as possible to permanent ones.
“We are encouraged by the pace at which trial modifications are now being made to provide immediate savings to struggling homeowners,” said the new Chief of Treasury’s Homeownership Preservation Office (HPO), Phyllis Caldwell. “We now must refocus our efforts on the conversion phase to ensure that borrowers and servicers know what their responsibilities are in converting trial modifications to permanent ones.” In her new role, Caldwell will lead HPO’s conversion drive efforts.
“Encouraging borrowers to move through the process of converting trial modifications to permanent modifications remains a top priority for HUD,” said HUD Assistant Secretary for Housing and FHA Commissioner David Stevens. “As a part of our continuing efforts to improve the execution of the HAMP program, HUD is committed to working with servicers, borrowers, housing counselors and others dedicated to homeownership preservation to improve the transition of distressed homeowners into affordable and sustainable mortgages.”
With tens of thousands of trial modifications being made each week, the Administration is now working to ensure that eligible borrowers have the information and the assistance needed to move from the trial to the permanent modification phase. (All mortgage modifications begin with a trial phase to allow borrowers to submit the necessary documentation and determine whether the modified monthly payment is sustainable for them.) As the first round of modifications convert from the trial to permanent phase, the Administration has identified several strategies for addressing the challenges that borrowers confront in receiving permanent modifications.
In addition to the conversion drive that kicks off today, the Obama Administration has already taken several steps to make the transition from trial to permanent modification easier and more transparent by:
Extending the period for trial modifications started on or before September 1st to give homeowners more time to submit required information;
Streamlining the application process to minimize paperwork and simplify the submission process; meeting regularly with servicers to identify necessary improvement to borrower outreach and responsiveness;
Developing operational metrics to hold servicers accountable for their performance, which will soon be reported publicly;
Enhancing borrower resources on the MakingHomeAffordable.gov website and the Homeowner’s HOPETM Hotline (888-995-HOPE) to provide direct access to tools and housing counselors.
The Mortgage Modification Conversion Drive will include the following:
Servicer Accountability. As part of the Administration’s ongoing efforts to hold servicers accountable for their commitment to the program and responsibility to borrowers, the following measures will be added:
Top servicers will be required to submit a schedule demonstrating their plans to reach a decision on each loan for which they have documentation and to communicate either a modification agreement or denial letter to those borrowers. Treasury/Fannie Mae “account liaisons” are being assigned to these servicers and will follow up daily as necessary to monitor progress against the servicer’s plan. Daily progress will be aggregated by the end of each business day and reported to the Administration.
Servicers failing to meet performance obligations under the Servicer Participation Agreement will be subject to consequences which could include monetary penalties and sanctions.
The December MHA Servicer Performance Report will include the data on permanent modifications as well as the number of active trial period modifications that may convert by the end of the year if all borrower documents are successfully submitted, sorted by servicer and date.
Servicers will be required to report to the Administration the status of each modification to provide additional transparency about situations where borrowers face obstacles to moving to the permanent phase.
Web tools for borrowers. Because the document submission process can be a challenge for many borrowers, the Administration has created new resources on http://www.makinghomeaffordable.gov/ to simplify and streamline this step. New resources include:
Links to all of the required documents and an income verification checklist to help borrowers request a modification in four easy steps;
Comprehensive information about how the trial phase works, what borrower responsibilities are to convert to a permanent modification, and a new instructional video which provides step by step instruction for borrowers;
A toolkit for partner organizations to directly assist their constituents;
New web banners and tools for outreach partners to drive more borrowers to the site and Homeowner’s HOPETM Hotline (888-995-HOPE).
Engagement of state, local and community stakeholders. Through the conversion drive, the Administration is engaging all levels of government – state, local and county – to both increase awareness of the program and expand the resources available to borrowers as they navigate the modification process.
HUD will engage staff in its 81 field offices to distribute outreach tools. HUD will also encourage its 2700 HUD-Approved Counseling Organizations to distribute outreach information to participating borrowers.
By engaging the National Governors Association (NGA), National League of Cities (NLC) and National Association of Counties (NACo) the Administration is connecting with the thousands of state, local, and county offices on the frontlines in large and small communities across the country who are hardest hit by the foreclosure crisis. These offices will now have the tools to increase awareness of the program, connect with and educate borrowers and grassroots organizations on how to request a modification and take the additional steps to ensure they are converted to permanent status; and serve as an additional trusted resource for borrowers who are facing challenges with the program.
In partnering with the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators, state regulators will now have enhanced tools to assist borrowers who are facing challenges in converting to a permanent modification and to report to the Administration on the progress and challenges borrowers and servicers are facing on the ground. Regulators will also be empowered to work directly with escalation and compliance teams to ensure that HAMP guidelines are consistently applied.
More information about the Obama Administration’s mortgage modification program can be found at http://www.makinghomeaffordable.gov/.
More on This Topic From the IRS – Yet Again -10 Important Facts about the Extended First-Time Homebuyer Credit
[Stacie says: Boy the IRS is really bombarding us with the rules on the extended homebuyers credit. Do you think they are worried that taxpayers are going to get it wrong – again?]
If you are in the market for a new home, you may still be able to claim the First-Time Homebuyer Credit. Congress recently passed The Worker, Homeownership and Business Assistance Act Of 2009, extending the First-Time Homebuyer Credit and expanding who qualifies.
Here are the top 10 things the IRS wants you to know about the expanded credit and the qualifications you must meet in order to qualify for it.
You must buy – or enter into a binding contract to buy a principal residence – on or before April 30, 2010.
If you enter into a binding contract by April 30, 2010 you must close on the home on or before June 30, 2010.
For qualifying purchases in 2010, you will have the option of claiming the credit on either your 2009 or 2010 return.
A long-time resident of the same home can now qualify for a reduced credit. You can qualify for the credit if you’ve lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the new home is purchased and the settlement date is after November 6, 2009.
The maximum credit for long-time residents is $6,500. However, married individuals filing separately are limited to $3,250.
People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after November 6, 2009. The full credit is available to taxpayers with modified adjusted gross incomes up to $125,000, or $225,000 for joint filers.
The IRS will issue a December 2009 revision of Form 5405 to claim this credit. The December 2009 form must be used for homes purchased after November 6, 2009 – whether the credit is claimed for 2008 or for 2009 – and for all home purchases that are claimed on 2009 returns.
No credit is available if the purchase price of the home exceeds $800,000.
The purchaser must be at least 18 years old on the date of purchase. For a married couple, only one spouse must meet this age requirement.
A dependent is not eligible to claim the credit.
For more information about the expanded First-Time Home Buyer Credit, visit IRS.gov/recovery.
Homeowners Now Also Qualify
By Stacie Clifford Kitts, CPA
Mary O-Keeffe strikes back with another good argument in response to my post Still Talking About Fuller Lips, Larger Breasts, Slimmer Thighs, And H.R. 3590. In her post More on taxing cosmetic surgery, subsidies, and tax simplification Mary is certainly on target when she says:
“If we as taxpayers don’t want more taxes, then we as taxpayers also have
to send a clear signal to our politicians as to what we don’t want the
government to be spending our money on.”
Well Mary, I agree so here goes:
I would greatly appreciate your not spending $100 million to buy a vote.
If Louisiana needs the money, base it on that need, not on your need to win.
Also,are you really spending $1.15 million to put a guardrail around a dry lake
in Oklahoma? Because if you are, I would rather that my portion of the tax
coffer not be spent on that – please.
And what’s the deal with giving the SETI Institute $13.8 million in
2008? Did you know they spent $456,312 to search for “signs of intelligent
extraterrestrial life”? (Although that does sound kinda cool, I am
wondering, why can’t we wait until they find us? I mean, let them spend the
And If even half of the rest of what Senator Coburn said about your
spending habits is right, would you please knock off all of the other
shenanigans, too – The public can’t afford it AND their cosmetic surgery too!
I eagerly await your response.
Very truly yours,
Stacie Clifford Kitts, CPA
As Mary pointed out, the cost of “unnecessary” cosmetic surgery is not deductible for tax purposes and cannot be paid with pre-tax or what I’d call “tax efficient” dollars. And the proposed tax does not apply to otherwise deductible cosmetic surgery. So, yep, they do dictate behavior and have done so for quite awhile.
But that’s not the point.
The point is where does it stop? Yes, as Mary pointed out, they already started down this slippery slope, particularly with the [ab?]use of their taxing powers. Yes, the tax code is replete with behavior modifying incentives and disincentives. While this tax may be new, the concept on which it rests certainly is not. This “vanity” tax is merely an example of how far down the slope they’ve slipped.
So what’s next? Maybe congress will decide that having two bathrooms is unnecessary? So levy a tax or limit a deduction on anyone owning, renting, or squatting in a house with more than one?
How many cars per family are acceptable? Isn’t one enough? Why not charge an excise tax on each car purchased after the first?
Ok – so that’s a little dramatic. None of that is likely to happen – at least not before the next election.
So again I ask, why just cosmetic surgery?
Is it, as Mary argues, because it is unfair to subsidize “elective” surgery? Admittedly, I am not well read on medical education subsidies and the resulting economics. And if she is willing, she may help educate us all on the topic.
Remember, I’m pleading ignorance and despite that – or because of it – I’m not yet buying her argument.
First, I don’t understand how the doctor’s get a discount and second I don’t see the logic that explains how that discount gets to the public. From what I can find, most of the subsidies go to the teaching hospitals or schools. Doctors don’t directly benefit.
Oh, there is the “collateral benefit.”
Let’s consider – without the subsidies one of three things can happen: 1) the schools and hospitals can reduce training and research thereby eliminating the costs currently subsidized 2) the schools can raise tuition to compensate for the lost revenue or 3) they can collude with a combination of the two.
Well – less training and less research means lower quality. Lower quality generally means lower demand, which means poorer health. Poorer health raises the cost of taking care of sick people who shouldn’t be sick – and said cost are then being paid for by the public. This of course does not subsidize medical care. So why go there?
Ok, so subsidies result in lower medical school tuition (thus lowering the barrier to entry) which increases the supply of doctors. Supply pressure then pushes the price of the doc’s services down.
Okay, am I getting this yet?
Or, maybe subsidies result in lower tuition which means lower costs (and lower opportunity cost – threw that in for you economists) which means they can charge a lower fee and still make the same profit margin. This, in theory, means they charge less.
Is this what Mary means?
I suppose this is why I’m an accountant and not an economist ‘cause I know what really happens. Doc hires an accountant who says: “Raise your price as high as possible to accomplish one of two goals.
- 1) If you raise the price just right, you will maximize your profit margins without losing patients. So you will pocket more money even after my fees.
2) Or, you might lose a few patients (due to your price increase), while maintaining the same level of profit leaving more time to play golf or whatever docs do when they aren’t available.
So what does the doc do? She decides to maximize revenues because no matter the outcome she wins.
In reality – There is no subsidized discounts to the patient, just higher income or more time off for the doc.
Now let’s consider this -why not tax where the money really goes? That is levy the tax on the docs!
Look, assuming the doc has risen rates to accomplish the goals recommended by the accountant – which duh she has, the tax increases the cost to the patient means too much price pressure means lower demand means lower revenues means lower profits means doctor pockets less means accountant pockets less which really sucks!
Speaking of sucks – so does the “vanity tax” and all it represents.
By Stacie Clifford Kitts, CPA
Mary O-Keeffe over at Bed buffaloes in your tax code has responded to my post:
Her answer to my question is thoughtful and while I do agree with Mary’s point that there is some government subsidizing in the medical profession, I think her argument provides fodder for the slippery slope that this type of public policy inspires.
In my previous post, I say:
- “But what is even more perplexing is just how or why cosmetic surgery won the tax lottery. I fear that this type of legislation opens the door for a whole litany of WTF taxes. I mean why not tack on an additional tax for hair coloring, nail salons, or makeup. These are also vanity products. Frankly where does it stop?”
Mary’s answer is this:
- “The government provides large subsidies for the education of physicians. Yes,they do pay tuition, often taking out large loans to do so, but their tuition does not cover all the costs of their training. Government subsidies for medical education make up the difference. At the moment, people who purchase cosmetic surgery services are getting it at a discount thanks to the general public’s subsidies of their physicians’ training.”
Given the current economic state, and the need for our government to find revenue sources, I worry what source will be next.
Are we now to accept that any government subsidized product or profession is subject to this excise tax? If this is your position, then be wary, there are hundreds of thousands of government subsidies in all types and forms.
Tell me – are we now to explore the background of every product that we buy and determine if the government ever subsidized research or provided tax breaks? How soon do you think it will be before it becomes “public policy” to tax all of our choices, in products, or services, or lifestyle? Moreover, who gets to decide which items are wicked enough to be taxed first.
So again, I ask, why did cosmetic surgery win the tax lottery, why not the treatment of acne? After all dermatologists went to medical school too, their education was also subsidized. The answer is clear, because taxing little pimple faced teenagers for their acne treatment would tick people off. It doesn’t matter that this procedure is also elective and even vanity driven.
However, people who elect to have cosmetic surgery are perceived as vain, spoiled, overindulged, and sinful.
Do you see how letting our government tax our life choices even when those choices are not harmful to the public welfare creates a morality clause in our tax system by giving lawmakers the power to tax those items or services that they believe are wrong?
Let’s Talk Fuller Lips, Larger Breasts, Slimmer Thighs, and H.R. 3590 (Patient Protection and Affordable Care Act.)
By Stacie Clifford Kitts, CPA
I really don’t have anything against women or men for that matter, who want to make some appearance enhancements.
However, as it turns out, some politicians do.
Here is the reality, “average” folk seek out and pay for cosmetic surgery. The reasons why are probably as varied as the numerous cosmetic procedures available to anyone willing to go there. I suppose if you are interested enough, you can get a comprehensive list of reasons from your local therapist.
Nevertheless, I think you will be surprised to learn that you probably know someone who has gone under the knife. Frankly, I don’t know many women (over 35) who haven’t had something done, even if it’s just a little Botox around the eyes or the permanent removal of some unwanted hair.
However, regardless of a person’s reasons, vanity it seems, is something our lawmakers believe should be discouraged and even punished.
The Patient Protection and Affordable Care Act now in the Senate has declared VANITY as the eighth deadly sin punishable by the imposition of a 5% excise tax. The bill, now in its fourth draft was originally introduced in the House as the Service Members Home Ownership Tax Act of 2009 by a myriad of politicians. You can check out the first draft, which includes a list of those politicians here.
The bill, which apprises to seek affordable healthcare also imposes an additional tax on those people wishing to improve their appearance or self esteem via cosmetic surgery.
Of course, the current draft has some fairness weaved in for those needing reconstructive or corrective procedures. Here’s a taste of what we get:
- `(a) In General- There is hereby imposed on any cosmetic surgery and medical procedure a tax equal to 5 percent of the amount paid for such procedure (determined without regard to this section), whether paid by insurance or otherwise.
- `(b) Cosmetic Surgery and Medical Procedure- For purposes of this section, the term `cosmetic surgery and medical procedure’ means any cosmetic surgery (as defined in section 213(d)(9)(B)) or other similar procedure which–
- `(1) is performed by a licensed medical professional, and
- `(2) is not necessary to ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or disfiguring disease.
As a CPA and advisor, my first thought on the subject is just this, if after you have maxed out your retirement contributions, saved for a rainy day (at least 6 month salary set aside), figured out how you are going to meet your children’s needs including college, purchased adequate medical insurance, considered life insurance and other retirement arrangements, then it might be okay to check out a cosmetic enhancement – if that’s your thing.
Now assuming your procedure of choice is elective, let’s look at the tax cost under the provisions of the proposed “vanity tax.” Let’s assume that your choice is a new rack, which will cost you $10,000. The 5% tax on your new boobs would be an additional $500. Now from a realistic standpoint, and in my humble opinion, if you can’t scrape together an additional $500, then frankly you probably can’t afford the boobs and shouldn’t be getting them anyway.
But really – let’s put the “who can afford it” stuff aside and delve in. This provision actually falls under the WTF category – don’t you think?
I can’t say that I am totally opposed to taxing behavior. That is, I agree with sin taxes. Taxes on cigarettes and alcohol for instance do provide a certain amount of good since these products have been shown to cause harm to the public welfare. Likewise, the cost of treating people who have made themselves sick by indulging in unhealthy activities or behaviors must be considered – I get that – and if a tax on so called unhealthy products helps to relieve the public burden, then so be it.
But is cosmetic surgery really sinful? Personally, I fail to see how it is. Maybe our lawmakers can explain to me how slimmer hips, larger breasts, or plumper lips harms the public welfare or places a financial burden on the government.
But what is even more perplexing is just how or why cosmetic surgery won the tax lottery. I fear that this type of legislation opens the door for a whole litany of WTF taxes. I mean why not tack on an additional tax for hair coloring, nail salons, or makeup. These are also vanity products. Frankly where does it stop?
I am all for affordable health care, balancing the budget, and reducing debt. But come on lawmakers, I find it hard to believe that you can’t do better.
If you are interested in perusing the entire bill, you can find it here.