NYC CPA Tax Accountant
Tax Benefits of Health Savings Accounts
While most people are familiar with tax benefits for other types of investments, often times, they are less familiar when it comes to the tax benefits of health savings accounts. There are three such benefits that you should know about and take advantage of.
Perhaps the largest tax benefit is that the money that goes into the account is tax-deductible. Also, if the money is invested through a company payroll deduction, all contributions are made pre-tax.
The second tax benefit comes on the interest side. Health savings accounts, do earn interest, and this interest is tax free. This allows an individual to use the account for long-term appreciation as the money does grows tax free. In that regard, it is very much like a Roth IRA with the added benefit of a current tax deduction.
The third tax benefit is that the owner of the account has the option of taking tax free withdrawals for medical expenses. These expenses must quality, but they do include almost all services provided by licensed health providers as well as substance abuse treatment and prescriptions.
Currently, in 2015, an individual can contribute up to $3,350 and a family can contribute up to $6,650. For those over the age of 55, an extra $1,000 contribution per year is allowed.
Finally, it is important to note that health savings accounts do not have a limit on carry-overs or a requirement on when the funds must be used. This is what enables them to be used for long-term savings to offset increased health-care costs or additional costs after retirement.
While health savings accounts haven’t always been on the forefront of investment options, with health insurance policy’s current rising deductibles and out-of-pocket expenses, more individuals are qualifying for the accounts, and with the tax benefits, it’s wise to give them a look.
If you are tired of overpaying taxes, call 212-631-0320 and ask for Mark Feinsot.
Feinsot CPA is a licensed New York City CPA Firm with offices on 57th Street and 32nd Street to service clients throughout Midtown Manhattan. Our practice services businesses and individuals. For additional expertise, we have concentrations in Law Firm Accounting, Aviation Accounting, Dental Practice Accounting and High Net Worth Accounting and Tax.
Trump Fires Shot Across Bow at Hedge Funds
If you pay attention to recent headlines, it may seem that being a hedge fund manager is the equivalent of being a punching bag, but while Donald Trump and others may be wagging their fingers and sparring verbally, there may be good reason to do so.
According to Trump, “The hedge fund guys didn’t build this country. These are guys that shift paper around and they get lucky. It is the wrong thing. These guys are getting away with murder.”
He goes on to say, “They are energetic. They are very smart. But a lot of them – they are paper-pushers. They make a fortune. They pay no tax. It’s ridiculous, ok?”
While one might argue whether or not hedge fund managers are paper pushers, there is much truth when it comes to using hedge funds to avoid paying taxes. Most hedge funds are limited partnerships with the investors being the partners. There is also a person that manages the fund. This person is paid a certain percent of the profits of the fund.
Due to the fact that the manager is compensated on the profits, the vast majority of the income that is generated by the fund is not taxed as compensation or salary. Instead it is taxed as a return on investment. This means that the income this person receives is taxed as capital gains instead of regular income.
The bottom line is that the fund manager is paying 20% income tax, (capital gains), instead of the typical 39.6% tax rate for those in this tax bracket. It is this loop hole of claiming regular income as capital gains and paying a much lower rate of tax instead of paying ordinary income tax rates that rightfully causes concern and scorn from some politicians and others such as Donald Trump. It is the typical argument of one set of rules for the rich and another set for the middle class.
AMT Tax – Most Hated Tax in New York City
The AMT, also known as the alternative minimum tax, is one of the most hated taxes in the United States and for good reason. For those individuals above a certain threshold of taxable income, or corporations, trusts, and estates, the AMT creates a higher tax burden beyond that imposed on those that fall under the threshold.
The alternative minimum tax was first originated with the thought that those individuals and corporations in the higher tax bracket were able to find and utilize large tax breaks that the middle class could not. It was decided that the AMT would ensure that those with the highest incomes would pay a minimum tax rate regardless of the tax breaks and loopholes they may have available to them.
The current AMT was enacted in 1982 and is applied to all taxable income when an individual or entity’s taxable income falls above a pre-determined level. In 2013, that level was tied to inflation, or CPI rates.
As it stands now, the alternative minimum tax rates are 26 and 28%, and to determine whether or not you are subject to regular tax rates or the AMT rates, you would be required to calculate your taxes twice. This can become problematic as the AMT does not allow the same deductions as the regular tax does, so your adjusted income levels will be different.
The bottom line is you will be required to pay the higher of the two rates. It can become quite complicated to determine if you are subject to the AMT as well as what deductions are allowed and which are not. Often, the best course of action is to contact a qualified tax accountant to walk you through the process.
The AMT is hated for good reason. It’s complicated and some would say creates a separate class of citizens that is being penalized for their financial success.
Mark Feinsot, CPA is a New York City CPA Accounting firm with offices on West 57th Street (Midtown West near Central Park) and West 32nd Street (Broadway, near Empire State Building). Our firm works with all types of businesses and high net worth individuals. If you are searching for a new accountant who is focused on minimizing your taxes legally, call us at 212-631-8320 and ask for Mark.
