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Written by: T. STEEL ROSE, CPA, AND JOSHUA FLUEGEL

Published: 08 September 2011

Tax preparation software is a product in a tax professional’s office that is as essential as an adding machine. During tax season, every preparer finds certain inefficiencies they would like to have improved in the tax preparation package they use. With client tax data rolling forward from prior years, it is no small task to change to new tax software, but several preparers have switched tax software to find the best package for their office.

Tax professionals love the way tax software makes their life easier by ensuring accurate returns but hate the inefficiencies that exist and calculations that change based on last-minute new legislation. This hurried process on capital hill spills over to tax software developers, leaving a small window to incorporate all the changes into new forms in time for January the 15th, arguably the beginning of tax season.

Tax software is distinctive in its design based on the complexity of the office. Basic 1040 prep packages are designed for quick turnaround tax prep offices that may even key the essential data into the package on the spot while talking with the tax client. More sophisticated tax suites incorporate tax planning, research, trial balance, business return and automatic K-1 transfer into the 1040. The most sophisticated software builds in management, review and documentation retrieval. While robust for sophisticated clientele, it can be overkill for the small 1040 high volume tax prep office.

Talking with tax professionals from around the nation, we found out which drop-down menus were hard to reach, which operating environments were too complicated and which companies did not back up their product with enough support. This process, followed by a close analysis of 1040 tax preparation software packages in our own offices, brought to light the What 10 Tax Professionals Hate About Their Tax Software.

 

What Tax Pros Had To Say:

 

David from Illinois
CCH Small Firm Services ATX MAX

Hate About It

I use CCH’s ATX tax software. I think the support during tax season needs to be improved. I do not mind searching the database for answers after 4-15. I need quick human support with short wait time during tax season.

Love About It

The 1040 package is a good value for your money.

Improve It

I would like to see the software run in the cloud. This will reduce our hardware and operating costs.

Robert from Tennessee
CCH Small Firm Services ATX MAX

Hate About It

First of all, the e-filing section is very confusing, cluttered, and hard to figure out. Second, the Client Organizer is far too long. A typical ATX organizer is 20+ pages, and my clients complained about it so much that I no longer use it. It wastes far too much paper. An option for a condensed organizer would be welcome. Third, the only way to print the client list is in landscape, and all of a client’s information is spread out horizontally over about six pages.

Love About It

While I don’t prepare a lot of returns, only about 200, most of those are fairly complex with multiple Schedules C, E, & F, etc and a lot of 1041s. I have not found any situations that ATX cannot handle competently.  I enjoy having an affordable program that will do all federal and state returns.  I find that the price is quite reasonable, and have already renewed for the next tax season. ATX’s technical support is excellent and very responsive!  I consider myself a loyal customer.

Improve It

I would like to see ATX offer a secure Web-based preparation option.

Sue from New Jersey
Intuit ProSeries

Hate About It

Although there is much to love, Intuit Customer and Technology Service has become horrific. I am not the person that picks up the phone without independently and diligently trying to troubleshoot an issue, so when I call, it means there is a problem.  I have called on software problem issues as well as program tax calculations. Trying to get a problem resolved is difficult because Intuit has practically eliminated the human element, or at least I have found it to be so time consuming and torturous that it is easier to work my way around the program for the issues rather than get them fixed. Also, I have had problems, year after year, transferring invoices into QuickBooks.

Love About It

I love the fact that I can use the forms entry mode. After hand preparing tax returns for many years, it was very easy to translate to the technology environment. It also has a number of the features a more expensive product has such as professional letter preparation, tax organizer, unlimited e-file and more.

Improve It

If I were going to fix anything, I would bring ProSeries back to a time when customers were a priority and problems were corrected more quickly. Although customer service is my biggest issue, I guess I can say at this point that I still love ProSeries enough to look the other way.

Eileen from Massachusetts
CCH Small Firm Services ATX MAX

Hate About It

The price. Several years ago when ATX was a small company, the MAX package was less than $500. It was reasonably affordable for small practitioners with less than 100 clients, and did all types of returns—from individuals, to partnerships, to corporations, to estates. Now, that this good company has teamed up with Wall Street’s, CCH, the same package is over $1,200 assuming a 10% early payment discount. OUTRAGEOUS! Additionally, there are too many gimmicks—deferred payments, purchasing a cheaper 1040 package but getting nailed with $100 charges for purchasing blocks of 5 returns which allow you to do returns not offered in the cheaper 1040 package. This arrangement does NOT help small practitioners. CCH is assuming that just because you have a small practice, you must only be doing 1040 individual returns. My practice is small, however, I do a variety of states, a variety of entities, as well as prepare 1099s and W-2s on occasion. I can’t use the cheaper package, and it is unaffordable to keep tacking on $100 fees.

Love About It

It is a very good package.  Additionally, they still accept checks.  It is my company policy not to transact business online and I do not believe in plastic when making purchases.

Improve It

Their claim is to be the “small practice section” but it seems like the pricing is targeted for the big-spending, non-tax-paying wealthy.

Lawrence from California
CCH ProSystem fx Suite

Hate About It

The price.  I think the larger firms are getting really good breaks.  They need to give us a break.  I’ve referred new customers to them and didn’t get any thank yous. They need more customers so the cost can be spread among more users. They keep pushing Worksheet View. That might work in some practices, but will not work for mine. Let’s keep Interview Forms.

Love About It

They listen to us. Suggested enhancements show up in later versions.

Improve It

Don’t get rid of Interview Forms - it works. Keep listening to us. Help us manage our practices and make us look good. However, stop nickel & diming us. Give us at least 100 click charges as part of our subscription and loyalty. Please remember there are a lot of small practices that use ProSystem. Don’t forget us.

Alfredo from Texas
Thomson Reuters UltraTax

Hate About It

I do wish that the Texas state franchise tax reports could be filed electronically.

Love About It

I use UltraTax in a virtual “cloud” environment. The virtual environment keeps all the software and client data off my computers and in a very secure server farm. It also allows me to pull up my “office” from home, clients offices or from the “road”.

The software integrates with all the other Thomson Reuters accounting and tax products, such as file cabinet, write up, fixed assets, etc.

Improve It

Allow multiple clients to be open at one time.  This would help with the consolidated or affiliate reporting. I would also like to see a better client data report writer.

Brent from Maryland
CCH ProSystem fx Suite

Hate About It

CCH charges an arm and a leg for its products. It nickel and dimes you for just about everything and makes you pay well in advance for the next year if you want any discounts.  The system is built on old technology (I think) that just gets the band aid treatment annually.

Love About It

It is built to handle the most difficult returns and CCH’s technical staff is knowledgeable, helpful and available.

Improve It

CCH’s billing structure should be overhauled. They are just too expensive for what they provide compared to their competition. They need to start from scratch and build a new program. We are moving to Thomson Reuters for about half the price, smoother and more efficient technology, and a lot more bells and whistles. Only time will tell whether their technical people are as responsive and their prices stay reasonable.

Gerard from Louisiana
Intuit Lacerte

Hate About It

Price is tough but we have managed. With all software packages, still worry that conversion to next year is done right.

Love About It

Efficient quality product. Where we have voluminous returns, have to have a product like this.

Improve It

Those worried about price could have serious consequences if they have a complicated return and lower cost package does not do all the calcs (carry forwards, limitations, etc.).

Jayne from Oregon
Drake

Hate About It

I just changed this year from another software (I used to use ATX). What I liked about the prior software was the flexibility to override when necessary and to keep track of the changes as I worked the return. I’m having to adjust to working on the templates and running the “View” to see the results. Let me give you one override example:  Today I prepared a 2009 fiduciary return and because the estate is closing, I wanted to include the penalty and interest on the late payment for the IRS. I was able in ATX to create a worksheet showing the calculation of the penalty and interest and affix it to the amount due. The software doesn’t do that, but I could do that with an attached statement. I could not do the same thing with the 2010 return in Drake or at least I haven’t yet learned if I can do that in Drake.

Love About It

I was sold on three features:

One was the price. Every other software I have been exposed to has become so expensive it isn’t cost effective for the size and economic status of my client base.

One was the customer support. I get real answers that work from the people who answer the phones and the people who answer e-mail. With ATX I was often on the phone long distance tying up my phone line so clients couldn’t call me for hours while we traced out the problem that they couldn’t fix because they couldn’t see it on the screen.

One was the comprehensive package. Every other software I’ve been exposed to has add-ons for research, add-ons for e-filing, add-ons for comprehensive support, etc. Drake puts all the things you need in one package for one reasonable price. And they have good tutorials that are free so you can learn how to use their software without additional cost.

Improve It

Sometimes a figure is generated by input on 1099 screens or W-2 screens and there is a space in the template for an adjustment. But there is no evidence on the template page that there is a 1099 or a W-2 behind the template creating an entry on the form. It would be nice if there were a way to see what you are adjusting or at the very least a clue that there is a calculation going on in the background.

Marjorie from Texas
Intuit Lacerte

Hate About It

The wait time if I have a question. They want us to use the Internet and ask the question and then wait for an answer. Because I never ask the question exactly correct, I never get the right answer.

Love About It

The way it keeps all of the data from year to year.

Improve It

The price has gotten way too high, and the wait time too great. I have contacted more vendors for the 2012 tax season.  Mine, you have to renew in May to get the deep discount and I do not have time until at least June to look at other software.

 

For more information about tax software likes and dislikes, check out the 2011 Tax Software Survey at http://www.aicpa.org/publications/taxadviser/2011/august/pages/bonner_aug11.aspx. If you would like to have your voice heard, send your hate, love and improvement suggestions about a particular 1040 tax preparation product to This email address is being protected from spambots. You need JavaScript enabled to view it..

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Written by: Joshua Fluegel

Published: 07 September 2011

In this information age, it is not hard to find information on current tax law and recommended practices. It seems that you could even look on the back of your kid’s cereal box and probably find a cartoon tiger explaining Circular 230 requirements. The true trial of even today’s most experienced tax practitioners is finding an up-to-date authoritative source of information that is recognized by the IRS.

The IRS expects professionals to know the ins and outs of every law relevant to a return as well as the correctness of that return. All related documents and affidavits are spelled out in Circular 230 § 10.22 Diligence as to accuracy:

In general. A practitioner must exercise due diligence —

• In preparing or assisting in the preparation of, approving, and filing tax returns, documents, affidavits, and other papers relating to IRS matters;
• In determining the correctness of oral or written representations made by the practitioner to the Department of the Treasury; and
• In determining the correctness of oral or written representations made by the practitioner to clients with reference to any matter administered by the IRS.

A professional’s efforts to conduct his/her due diligence on behalf of a client can be in vain if the source of information is not reliable. While referencing current tax code is undisputedly the best practice, tax code does not often address unique tax situations. Even more maddening is that some information from the IRS, such as commentary, analysis, publications and forms, are not considered authority. These frequent situations will lead a professional to look for sometimes obscure but reliable sources. Some IRS approved sources of tax interpretation are:

• Code and other statutory provisions.
• Temporary, proposed and final regulations.
• Revenue rulings and revenue procedures.
• Congressional intent per committee reports.
• Letter rulings and technical advice memoranda.
• Actions on decisions and general counsel memoranda.
• Explanations of tax legislation released by the Joint Committee on Taxation.
• Press releases, notices, announcements or any similar documents published by the IRS in the Internal Revenue Bulletin and tax court decisions.

Searching the Internet for information can be a hazardous line to walk between IRS approved fact and utter fantasy. However, there is good information out there if one only knows where to look.

http://www.ustaxcourt.gov/

The U.S. Tax Court’s Web site has press releases, various court required forms and videos describing the tax court process.

http://www.findlaw.com/casecode/

FindLaw is a database with easy-to-find information on recent tax cases and laws for all 50 states including the District of Columbia and Guam.

Commercial tax research vendors offer a great deal of information that is timely and accurate. Most of it is available as a subscription service.

CCH

Operating since 1913, CCH is a provider of research tax, accounting and audit information, services and software tools such as ProSystem fx Suite and IntelliConnect. For research visit www.cch.com and click on IntelliConnect on the right side under tax products. Do not expect free tax research on this site.

BNA

BNA Tax and Accounting Center offers practitioners an extensive federal tax library. The BNA Portfolios provide analysis of federal tax transactions including primary sources, case law analysis, sample documents, and election statements. Visit www.bna.com and select the Tax and Accounting tab. There is a federal tax blog, a news section and seven-day free trials for income portfolio and tax practice.

Thomson Reuters

Thomson Reuters Checkpoint combines online guidance and analysis from RIA, WG&L and PPC experts, with content from primary sources. Visiting www.ria.thompsonreuters.com/taxresearch and searching Tax Watch, will provide recent tax updates including the often-interesting RIA Observation. There are links to RIA Checkpoint tax research and the option for a 30-day free trial.

Josh Fluegel, graduate of the University of North Texas’ Mayborn School of Journalism, is a contributing writer and the Editorial Coordinator for Tax CPE Course (CPA Magazine). He has also written for organization such as Live Nation and NASA. Contact him at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Written by: T. Steel Rose, CPA

Published: 07 September 2011

Beginning in taxable year 2010, the Affordable Care Act provides a tax credit to small businesses with no more than 25 full-time employees and average annual wages of less than $50,000 that provide health insurance to their employees. Employers that satisfy the requirements for the credit are referred to as “eligible small employers.” The credit phases out as firm size and average annual wages increase. The full amount of the credit is available to employers with ten or fewer full-time employees and average annual wages of less than $25,000. The credit is not payable in advance and is only available to offset the business’s actual tax liability. For tax-exempt small business, the credit is available as a reduction in payroll taxes. The credit is provided in two phases:

Phase I
Tax Years 2010 - 2013

A tax credit is available to eligible small businesses of up to 35% of an employer’s contribution as long as the employer contributes at least 50% of the total premium or 50% of a benchmark premium. Tax-exempt small businesses meeting the eligibility requirements can receive a tax credit of up to 25% of the employer’s contribution.

Phase II
Tax Years 2014 +

A tax credit is available to eligible small businesses of up to 50% of the employer’s contribution as long as the employer contributes at least 50% of the total premium or 50% of a benchmark premium. The credit is available up to two years. Tax-exempt small businesses meeting the eligibility requirements can receive a tax credit of up to 35% of the employer’s contribution.

Steps to determine whether an employer is eligible for a small business health care credit:

• Determine the employees who are taken into account for purposes of the credit.
• Determine the number of hours of service performed by those employees.
• Calculate the number of the employer’s full-time equivalents (FTEs).
• Determine the average annual wages paid per FTE.
• Determine the premiums paid by the employer that are taken into account for purposes of the credit. Specifically, the premiums must be paid by an employer under a qualifying arrangement and must be paid for health insurance that meets the requirements of section 45R.

 In general, employees who perform services for the employer during the taxable year are taken into account in determining the employer’s FTEs, average wages, and premiums paid, with certain individuals excluded and with employees of certain related employers included.

Exclusions from the definition of an employee are sole proprietors, partners in a partnership, shareholders owning more than two percent of an S corporation and any owners of more than 5% of other businesses. Family members of owners and partners are also not taken into account as employees. For purposes of section 45R, a family member is defined as a spouse, child (or descendant of a child), sibling or step-sibling; a parent (or ancestor of a parent), step-parent, niece or nephew, aunt or uncle, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law.

Any other member of the household of these owners and partners who qualifies as a dependent under section 152(d)(2)(H), is not taken into account as an employee for purposes of section 45R. If an individual is not considered an employee, then their wages, hours and premiums paid on their behalf are not counted in determining the amount of the section 45R credit. Seasonal workers are disregarded in determining FTEs and average annual wages unless the seasonal worker works for the employer more than 120 days during the taxable year. All employers treated as a single employer under section 414(b), (c), (m) or (o) are treated as a single employer for purposes of section 45R.

An employee’s hours of service for a year include:

• Each hour for which an employee is paid, or entitled to payment.
• The performance of duties for the employer during the employer’s taxable year.
• Each hour for which an employee is paid, or entitled to payment, by the employer on account of a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.

In calculating the total number of hours of service, the employer may use any of the following methods:

• Determine actual hours of service for which payment is made or due (payment is made or due for vacation, holiday, illness or incapacity).
• Use a days-worked equivalency where the employee is credited with eight hours of service for each day for which the employee would be required to be credited with at least one hour of service.
• Use a weeks-worked equivalency where the employee is credited with 40 hours of service for each week for which the employee would be required to be credited with at least one hour of service.

 

All examples are for the 2010-2013 taxable years. 1 – An employer’s payroll records indicate that Employee A worked 2,000 hours and was paid for an additional 80 hours on account of vacation, holiday and illness. The employer counts hours actually worked.

Under this method of counting hours, Employee A must be credited with 2,080 hours of service (2,000 hours worked and 80 hours for which payment was made or due).

2 – Employee B worked 49 weeks, took two weeks of vacation with pay, and took one week of leave without pay. The employer uses the weeks-worked equivalency.

Under this method of counting hours, Employee B must be credited with 2,040 hours of service (51 weeks multiplied by 40 hours per week).

FTE Determination Example

The number of an employer’s FTEs is determined by dividing the total hours of service credited during the year to employees taken into account (but not more than 2,080 hours for any employee) by 2,080. The result, if not a whole number, is then rounded to the next lowest whole number. In some circumstances, an employer with 25 or more employees may qualify for the credit if some of its employees work part-time. For example, an employer with 46 half-time employees (meaning they are paid wages for 1,040 hours) has 23 FTEs and, therefore, may qualify for the credit.

For example, if an employer pays five employees wages for 2,080 hours each, three employees wages for 1,040 hours each, and one employee wages for 2,300 hours; the employer does not use an equivalency method to determine hours of service for any of these employees.

FTE Calculation

The employer’s FTEs would be calculated as follows:

• Total hours of service not exceeding 2,080 per employee is the sum of:
  • a) 10,400 hours of service for the five employees paid for 2,080 hours each (5 x 2,080)
  • b) 3,120 hours of service for the three employees paid for 1,040 hours each (3 x 1,040), and
  • c) 2,080 hours of service for the one employee paid for 2,300 hours (lesser of 2,300 and 2,080
  • d) The sum of a, b and c equals 15,600 hours of service.
• FTEs equal 7 (15,600 divided by 2,080 = 7.5, rounded to the next lowest whole number).

For example, if the 2010 taxable year, an employer has 26 FTEs with average annual wages of $23,000 per FTE; only 20 of the employer’s employees are enrolled in the employer’s health insurance plan.

The hours of service and wages of all employees are taken into consideration in determining whether the employer is an eligible small employer for purposes of the credit. Because the employer does not have fewer than 25 FTEs for the taxable year, the employer is not an eligible small employer for purposes of the credit.

Average Annual Wages Calculation

The average annual wages paid by an employer for a taxable year is determined by dividing the total wages paid by the employer during the employer’s taxable year to employees by the number of the employer’s FTEs for the year. The result is then rounded down to the nearest $1,000 (if not otherwise a multiple of $1,000).

Only wages that are paid for hours of service are taken into account.

For example, an employer pays $224,000 in wages and has 10 FTEs; the employer’s average annual wages is: $22,000 ($224,000 divided by 10 = $22,400, rounded down to the nearest $1,000).

Acceptable Health Insurance Coverage Example

Only premiums paid by the employer for health insurance coverage are counted in calculating the credit. For example, if an employer pays 80 percent of the premiums for employees’ coverage (with employees paying the other 20 percent), the 80 percent paid by the employer is taken into account in calculating the credit. Any premium paid pursuant to a salary reduction arrangement under a Section 125 Cafeteria Plan is not treated as paid by the employer. An employer’s premium payments are not taken into account for purposes of the credit unless they are paid for health insurance coverage under a qualifying arrangement. A qualifying arrangement is an arrangement where the employer pays at least 50% of the premiums for each employee enrolled in health insurance coverage offered by the employer (must be uniform percentage for all employees).

For example, if an eligible small employer pays 80 percent of the premiums for coverage provided to employees (and employees pay the other 20 percent), the premiums taken into account for purposes of the credit are the lesser of 80 percent of the total actual premiums paid or 80 percent of the premiums that would have been paid for the coverage if the average premium for the small group market in the state (or an area within the state) were substituted for the actual premium.

Example 1 – An eligible small employer offers a health insurance plan with single and family coverage. Employer has nine FTEs with average annual wages of $23,000 per FTE. Four employees are enrolled in single coverage and five are enrolled in family coverage. The employer pays 50 percent of the premiums for all employees enrolled in single coverage and 50 percent of the premiums for all employees enrolled in family coverage (and the employee is responsible for the remainder in each case). The premiums are $4,000 a year for single coverage and $10,000 a year for family coverage. The average premium for the small group market in employer’s state is $5,000 for single coverage and $12,000 for family coverage.

The employer’s premium payments for each FTE ($2,000 for single coverage and $5,000 for family coverage) do not exceed 50 percent of the average premium for the small group market in employer’s state ($2,500 for single coverage and $6,000 for family coverage). Thus, the amount of premiums paid by the employer for purposes of computing the credit equals $33,000 ((4 x $2,000) plus (5 x $5,000)).

Example 2 – Using the same facts as in Example 1, except that the premiums are $6,000 for single coverage and $14,000 for family coverage.

The employer’s premium payments for each employee ($3,000 for single coverage and $7,000 for family coverage) exceed 50 percent of the average premium for the small group market in the employer’s state ($2,500 for single coverage and $6,000 for family coverage). Thus, the amount of premiums paid by the employer for purposes of computing the credit equals $40,000 ((4 x $2,500) plus (5 x $6,000)).

Example 3 – An eligible small employer offers a major medical plan and a dental plan. The employer pays 50 percent of the premium cost for single coverage for all employees enrolled in the major medical plan and 50 percent of the premium cost for single coverage for all employees enrolled in the dental plan. The employer can take into consideration the premiums paid by the employer for both the major medical plan and the dental plan, but only up to 50 percent of the amount of the average premium for single coverage for the small group market in the employer’s state.

Example 4 – Same facts as in Example 3, except that the employer pays 40 percent of the premium cost for single coverage for all employees enrolled in the dental plan.

The employer can take into consideration only the premiums paid by the employer for the major medical plan, and only up to 50% of the amount of the average premium for single coverage for the small group market in the employer’s state. The employer cannot take into consideration premiums paid for the dental plan when employer pays less than 50% for the dental plan.

An employer that pays an amount equal to at least 50% of the premium for single (employee-only) coverage for each employee enrolled in coverage offered to employees by the employer will be deemed to satisfy the uniformity requirement for a qualifying arrangement, even if the employer does not pay the same percentage of the premium for each such employee. The requirement that an employer pay at least 50% of the premium for an employee applies to the premium for single coverage for the employee. An employer will be deemed to satisfy the uniformity requirement for a qualifying arrangement if it pays at least 50% of the premium for single coverage for each employee receiving single coverage; and if the employer offers coverage that is more expensive than single coverage (such as family or self-plus-one coverage), if it pays an amount for each employee receiving the more expensive coverage that is no less than 50% of the premium for single coverage for that employee (even if it is less than 50% of the premium for the more expensive coverage the employee is actually receiving).

State Tax Credits

Some states offer tax credits or subsidies to certain small employers that provide health insurance to their employees. State tax credits and subsidies are treated as amounts paid by the employer for purposes of determining whether the employer has satisfied the “qualifying arrangement” requirement to pay an amount equal to a uniform percentage (not less than 50%) of the premium cost. However, the amount of the credit cannot exceed the amount the employer actually paid in premiums. When calculating the employer’s actual premium payments, the amount of any state tax credit or subsidy is not included.

Credit Phase Out

The credit phases out gradually (but not below zero) for eligible small employers if the number of FTEs exceeds 10 or if the average annual wages exceeds $25,000. If the number of FTEs exceeds 10, the reduction is determined by multiplying the otherwise applicable credit amount by a fraction; the numerator of which is the number of FTEs in excess of 10 and the denominator of which is 15.

If average annual wages exceed $25,000, the reduction is determined by multiplying the otherwise applicable credit amount by a fraction; the numerator of which is the amount by which average annual wages exceed $25,000 and the denominator of which is $25,000. In both cases, the result of the calculation is subtracted from the otherwise applicable credit to determine the credit to which the employer is entitled.

For an employer with both more than ten FTEs and average annual wages exceeding $25,000, the total reduction is the sum of the two reductions.

How to calculate the credit:

• Calculate the maximum amount of the credit.
• Reduce the maximum credit in step 1 in accordance with the phase out rule, if necessary.
• For employers receiving a state credit or subsidy for health insurance, determine the employer’s actual premium payment.

Example 1 – Calculating the maximum credit for a taxable eligible small employer. A taxable eligible small employer has 9 FTEs with average annual wages of $23,000 per FTE. The employer pays $72,000 in health insurance premiums for those employees (which does not exceed the average premium for the small group market in the employer’s state) and otherwise meets the requirements for the credit.

The credit equals $25,200 (35% x $72,000).

Example 2 – Calculating the maximum credit for a tax-exempt eligible small employer. A tax-exempt eligible small employer has ten FTEs with average annual wages of $21,000 per FTE. The employer pays $80,000 in health insurance premiums for its employees (which does not exceed the average premium for the small group market in the employer’s state) and otherwise meets the requirements for the credit. The total amount of the employer’s income tax and Medicare tax withholding plus the employer’s share of the Medicare tax equals $30,000 in 2010. The credit is calculated as follows:

Initial amount of credit determined before any reduction: (25% x $80,000) = $20,000. Employer’s withholding and Medicare taxes: $30,000

Example 3 - Calculating the credit phase-out if the number of FTEs exceeds 10 or average annual wages exceed $25,000.

A taxable eligible small employer has 12 FTEs and average annual wages of $30,000. The employer pays $96,000 in health insurance premiums for its employees (which does not exceed the average premium for the small group market in the employer’s state) and otherwise meets the requirements for the credit. The credit is calculated as follows:

• Initial amount of credit determined before any reduction: (35% x $96,000) = $33,600
• Credit reduction for FTEs in excess of 10: (33,600 x 2/15) = $4,480
• Credit reduction for average annual wages in excess of $25,000: ($33,600 x $5,000/ $25,000) = $6,720
• Total credit reduction: ($4,480 + $6,720) = $11,200
• Total tax credit equals $22,400 ($33,600 - $11,200).

Claiming the Credit

The credit is claimed on an eligible small employer’s annual income tax return and offsets an employer’s actual tax liability for the year. Eligible small employers should attach the Form 8941, Credit for Small Employer Health Insurance Premiums, to their tax return. Tax exempt organizations must attach the Form to their 990-T. The credit is a general business credit and any unused credit amount can be carried back one year and carried forward 20 years. For a tax-exempt eligible small employer, the credit will be a reduction in payroll taxes.

The credit can also be used to offset an employer’s alternative minimum tax (AMT) liability for the year but is subject to certain limitations based on the amount of an employer’s regular tax liability. No deduction is allowed for the employer under section 162 for that portion of the health insurance premiums which is equal to the amount of the section 45R credit.

For taxable years beginning in 2014

The maximum amount of the tax credit is 50% of the employer’s contribution (35% for tax-exempt employers). The credit is only available to small businesses purchasing health insurance through an exchange and is also only available for two years (not counting any years prior to 2014 when the small business may have received the credit).

Details

Written by: T. Steel Rose, CPA

Published: 07 September 2011

I. PREPARER 

______ 1. Signed engagement/separate privilege tax advice engagement section

______2. Update taxpayer information, filing status and dependents

______3. Review prior year returns, work papers, correspondence, and audit results

______4. Review proforma or tax organizer for accuracy

______5. Complete State Individual Tax Return Checklist

______6. Check for carryovers and include effect of prior period tax audits

______7. Review accounting methods

______8. Properly report adjustments for accounting method changes

______9. Consider filing a power of attorney

______10. Consider if disaster relief provisions apply

______11. Determine if requirements for avoiding penalties for improper disclosure or use of taxpayer information by tax return preparers imposed under §§6713and 7216 have been met

II. INCOME

For sales or other disposition of property consider

______1. Recapture

______2. Installment sales treatment

______3. Taxable/deferred/excluded gain on sale of residence or other property

______4. Holding period/basis

______5. Related party transactions

______6. Like-kind exchanges

Consider the following

______1. Salaries and fringe benefits

______2. Taxability of dividends, interest and capital gain distributions

______3. Ordinary income on market discount bonds and deferral of related interest expense

______4. Annuities, retirement plans, IRAs, Roth conversions

______5. Limitations due to at-risk and basis

______6. Passive loss limitations and election

______7. Alimony

______8. Rents

______9. Tax benefit rules

______10. Discharge of indebtedness

______11. Worthless stock/bad debt

______12. Punitive damages

______13. Exclusion of employer-provided educational assistance

______14. Unemployment Compensation

III. DEDUCTIONS

______1. Home office Form 8829

______2. IRA, SEP, SIMPLE, Keogh, MSA, and HSA contribution

______3. Roth IRA and Education Savings Account

______4. Non-deductible contributions

______5. Moving expenses

______6. Casualty losses

______7. Allocation and limitation of interest

______8. Alimony

______9. Itemized deductions

______10. Contributions

______11. State and local sales tax

______12. Teachers’ classroom expenses

______13. Qualified higher education tuition deduction

______14. Sales, use, or excise tax on qualified vehicles

______15. Consider property tax deduction for non-itemizers

______16. Limit on meals and entertainment and exceptions (Rev. Proc. 2007-63) (Rev. Rul. 2008-23)

______17. File Form 8283 for noncash donations

______18. Consider limitations on deductibility of dues and lobbying expenses

IV. DEPRECIATION/AMORTIZATION

______1. § 179 deduction for new and used equipment up to $500,000

______2. § 179D energy tax deduction election

______3. Additional first-year depreciation up to $150,000

______4. Methods and lives

______5. Listed property

______6. Capitalization of leased property

______7. Qualified leasehold improvement property

______8. Amortization of goodwill and other intangibles

______9. Like-kind exchange and involuntary conversion property rules

______10. Amend returns for tax years after 2002 to elect and/or revoke § 179 elections

______11. Compute AMT depreciation

______12. Compute state depreciation, if different

V. TAX COMPUTATION AND CREDITS

______1. Regular and AMT tax

______2. Self-employment tax and deduction

______3. Credits, carryovers and recaptures

______4. Tax on premature distributions

______5. Claim credit for excess FICA, other withholding/payments

VI. E-FILE

______1. Review software validation, create and print e-file return(s)

______2. Provide taxpayer with complete Federal and state return(s) including Form 8879 and state consent form(s)

VII. OTHER CONSIDERATIONS

______1. Risk of accuracy-related penalty. (§ 6662)

______2. Taxable income and tax to projections.

______3. Report tax shelters. Form 8886

______4. Election to forgo NOL carryback.

______5. Inclusion of child’s taxable income. (Kiddie Tax)

______6. Evaluate estimated tax payment/withholding

______7. Household employee requirements

______8. Other returns like gift and qualified plans

______9. Include/attach extensions

______10. Note planning/additional service suggestions

______11. Consider Circular 230 requirements

______12. Consider third-party service provider notification limitations under Sec. 7216, Rev. Ruling 2010-4 revisions for 2010

______13. Consider accuracy-related penalty regarding “substantial authority” language

______14. Consider elections and required statements and attachments