Accurate Advice Newsletter – August 2015

Time to take advantage of solar energy credits

Summer is here which means it is construction and home improvement season; the perfect time to add solar to your home and take advantage of some really great tax credits.

The Federal energy credit for installing solar on your residential property is 30% of the cost with no limit to the credit! The credit is not refundable but it can carry forward if solar energy credit exceeds tax liability. Current federal solar property credits expire  December 31, 2016.

In addition to the federal tax credit, many states offer solar energy credits.
Oregon’s Tax credit is based on $1.90 per watt of installed capacity (DC) up to $6,000 per residence taken over four years ($1,500 per year) limited to 50 percent of the cost of the system. It also must be a minimum of 200 watts to qualify.

Another possible benefit to installing a solar system on your property is many local utilities offer rebates and interest free loans to provide further incentive for customers to take advantage of this, but every local utility seems to have different offers. Contact your local provider to see if you qualify for loans and rebates on the installation of solar energy on your property.

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Tax Tips for Summer Wedding Season

Wedding season is here and if you have an upcoming wedding, here are some tips to help you get things in order for the upcoming tax season:
Change of Name
The names and social security numbers on a tax return must match current social security records. If you are changing your name, make sure to file form SS-5 with the Social Security Administration to get an updated Social Security card with the correct name on it. The easiest way to get the form is to download and print it from their website www.ssa.gov/forms/ss-5.pdf , it can also be picked up at your local Social Security office or ordered by calling them at 1-800-772-1213.
Changing Tax Withholding
Because your filing status will become Married you may want to consider changing your tax withholdings with your employer.  You can do this by filing a new form W-4 with them. Remember when filling out form W-4, withholding at a married rate is lower than single and some married couples find not enough will be withheld depending on income levels of the couple. You can get a form   W-4 from your employer or IRS.gov/forms. Feel free to contact us at ABTS if you have questions about withholdings and we can help you with questions about how to optimally fill out form W-4 for your unique situation.
Reporting Change of status to the Health Insurance Marketplace
If you  obtained your health insurance through the Health Insurance marketplace and qualified for advanced payments of the premium tax credit, be sure to notify the marketplace so that the credit can be recalculated. If you receive more premium tax credit than you qualified for based on income and family size when filing your tax return, you may need to pay the excess premium tax credit back, so it is very important the income reported to the marketplace be as accurate as possible.
If your spouse has employer provided health insurance you may want to find out the cost to be added to their plan. It may be less expensive than the insurance you have through the marketplace.
Filing status Changes
If you are married as of Dec. 31, 2015, you are considered married on your upcoming 2015 tax return. As a married person you can file jointly with your spouse or separately. Generally it is most beneficial to file jointly but we can figure the tax both ways to save you the most money.

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Supreme Court Decides for the Government in King v. Burwell

In a 6-3 decision, the Supreme Court handed a major victory to the Obama Administration and the Affordable Care Act. At issue were the Premium Assistance Tax Credits given to qualifying individuals who purchased their health insurance through Federal exchanges in the 36 states without state exchanges.

The plaintiffs in Burwell argued for a plain reading of IRC Section 36B(a); Congress intended that the premium tax credits would only be available on insurance purchased through “an exchange established by a state.” In urging the Court to adopt a literal meaning of this phrase, the plaintiffs said that Congress intended the tax credits as an incentive for states to establish exchanges that would be just too good to pass up; like the iconic movie mobster says, “we’ll make’em an offer they can’t refuse.” Unfortunately, 36 states refused this Congressional offer, and the Federal government was forced to step in and establish Federal exchanges in those states to allow the system to function as intended.

The plaintiffs in Burwell, residents of Virginia, were hoping that a literal reading of “an exchange established by a state” would make them ineligible for the Federal tax credit. Strange as that sounds, there was method to reasoning. Not having credits would make their insurance unaffordable, allowing them to opt out of the individual mandate.

In a well-crafted majority opinion, Chief Justice John Roberts stated that the meaning of the phrase “an exchange established by a state” is clearly ambiguous, and it is the job of the Court is such instances to look at the overall Congressional intent of the law in interpreting any particular phrase. What then, did Congress intend?

The ACA was modeled after the experiences of several states, in particular, Massachusetts. The cornerstones of many of the reforms during the last three decades were “guaranteed issue” and the “community rating” requirements; people could not be denied health insurance because of the state of their health and pre-existing conditions. Their premium cost would be largely based on “community ratings,” i.e. the entire insurance pool in their area.

Initially, these reforms worked well, but as time passed, people waited until they became sick before purchasing insurance, and this, combined with a significant lack of young, healthy individuals participating in the health insurance market drove premiums to the point where they were unaffordable to the average person.

To help alleviate this problem, in 2006, Massachusetts passed laws requiring all individuals to purchase health insurance and provided tax credits and penalties as carrots and sticks. The system worked well and insurance costs dropped significantly to the point that now only 2 to 3% of individuals in Massachusetts are currently without health coverage.

The ACA is modeled after these three cornerstones of Massachusetts’s health reform, “guaranteed issue,” “community rating,” and mandatory participation including penalties and incentives to participate. The whole success of the ACA is founded on these three linchpins. If any one of these fails, the whole systems falls into a “death spiral” where premiums skyrocket and people are left without adequate coverage. Recognizing that this “death spiral” would result from removing the federal tax credits in certain states, Justice Roberts wisely deduced the overall Congressional intent in the passage of the ACA:

“A provision that may seem ambiguous in isolation is often clarified by the remainder of the statutory scheme…because only one of the permissible meanings produces a substantive effect that is compatible with the rest of the law…Here, the statutory scheme compels us to reject petitioners interpretation because it would destabilize the Exchange, and likely create the very ‘death spirals’ that Congress designed the Act to avoid…We cannot interpret federal statutes to negate their own stated purposes.”

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