Wednesday, January 15, 2014

The Affordable Care Act - What You Need to Know

It’s coming faster than you think: the Affordable Care Act (ACA) mandate that kicks in on March 31, 2014.  On this date, the ACA will make health insurance mandatory for most Americans. Many clients are asking for advice and guidance.   So I’ve put together the basics in a question and answer format on how the law will affect your coverage, your health plan options and your costs.

When Does the Law Start?

Some of the ACA’s reforms and consumer protections have already started. Most will take effect by March 31, 2014.  For instance, if you don’t have health coverage through your employer or a public plan like Medicare or Medicaid, you will need to purchase coverage by March 31, 2014 or pay a penalty.
 
For some requirements, the federal government has extended the deadline. For example, large employers will have to offer health coverage to their workers, or pay a penalty. Employers now have until 2015 to comply with that rule.

What Coverage Will I Need to Have? 

By March 31, 2014, everyone unless an exemption applies must have “minimum essential coverage” or pay a penalty.  Health coverage provided by your employer, an individual plan that you buy, and public insurance like Medicaid all count as minimum essential coverage.  If you can’t afford coverage, you may be eligible for financial help.

Under certain circumstances, you won't have to pay a penalty if an exemption applies.  Click here for a list of qualifying exemptions.   

Why is there a penalty for not having insurance?  

When you are uninsured and cannot pay for healthcare services, others indirectly have to foot the bill.  The ACA is intended to encourage as many people as possible to have coverage in order to spread the risk among a large group and minimize costs for everyone.


How much is the penalty? 

The penalty is based on income and starts at $95 per adult and $47.50 for each child in 2014.  And of course, in addition to the penalty, you will still have to pay all of your own medical costs.

You can see examples of minimum essential coverage and learn more about the penalty fee here.


What are Health Insurance Exchanges?

Starting on October 1, 2013, you will be able to buy a health plan using a “Health Insurance Exchange” or “Health Insurance Marketplace.”  Think of the Exchange as a centralized website where you can shop and compare different plans. Keep in mind that if you already have minimum essential coverage through your employer, a family member or another plan, you’re all set - you won’t need to use an Exchange.

How Do I Find an Exchange?

Exchanges will be run by some states, the federal government, and in some cases, states in partnership with the federal government. If you live in a state that is running its own Exchange, you will use that one.  If your state will not have its own Exchange, or if it will offer one in partnership with the federal government, you can use the federal Exchange.

You can find out if your state will run its own Exchange, and locate its website here (scroll to the bottom of the page to find your state).  The federal Exchange will be available at www.healthcare.gov. Missouri does not run it’s own exchange so Missouri residents should use the federal Exchange.

When Can I Enroll?

You can sign up for a health plan on the Exchange during an “open enrollment” period. Open enrollment starts on October 1, 2013 and ends on March 31, 2014.  You can enroll online, by phone or in person.

If you want your coverage to begin on January 1, 2014, you must sign up by December 15, 2013.  If you enroll between December 16, 2013 and March 31, 2014, as long as you sign up by the 15th of the month, your coverage will begin on the first of the next month.

What Do the Exchange Plans Provide? 


Each Exchange will sell “qualified health plans” – plans that meet a minimum level of coverage and cost sharing.  Every plan on the Exchange will need to meet these requirements:

Essential Health Benefits


Qualified health plans must offer a core set of benefits.  These include coverage for behavioral health services, emergency services, maternity and newborn care and preventive/wellness services.

Starting on January 1, 2014, all health plans, even those that are not sold on an Exchange, must cover essential health benefits.  A full list of essential health benefits is available here.

Coverage for Preventive Care

Taking care of our health is often the best way to reduce our health risks – and our health costs.  One of the most important things we can do is get regular preventive care, like immunizations and cancer screenings.  Some health plans already cover a range of preventative services at no cost to you – even if you haven’t met your deductible, or usually have co-pays for other services.  All health plans on the Exchange will cover certain preventive services at no cost.

New health plans created after the ACA was signed on March 23, 2010, or plans that have changed their coverage since then, are already required to cover preventive services for free.  Older plans that have stayed the same since the law was signed are considered “grandfathered.”  These plans don’t have to cover free preventive services yet, but they will on January 1, 2014. If you aren’t sure if you have a grandfathered health plan, review your plan documents, check with your employer or contact your plan.

Levels of Cost-Sharing

Most plans require cost-sharing: you pay for a portion of your care, and your insurer covers the rest. Qualified health plans are grouped into four categories of cost-sharing: Platinum, Gold, Silver and Bronze.  Monthly premium payments are higher for Platinum and Gold plans than for Silver and Bronze plans, but they also offer lower deductibles, co-insurance and co-pays.  On your Exchange website, you will be able to compare all of these costs and see what type of plan works best for you.

Remember, all plans will cover, at a minimum, the same essential benefits – the big difference will be how much you pay.

What If I Can’t Afford a Plan?

When you enroll in a health plan, you generally pay a premium to your health insurance company for health coverage.  When you get health insurance through an employer, the employer generally pays a portion of the premium and you pay the rest, usually through regular deductions from your paycheck.

If you buy a plan through an Exchange, you will pay the cost yourself. But, you may qualify for financial help – and you won’t have to figure out whether you’re eligible on your own. When you submit your application, it will automatically be sent to the right place to determine what kind of financial help, if any, you can receive.


Premium Tax Credit

Based on the information you include on your Exchange application, you may qualify for a premium tax credit to help you pay the plan premium. You may be eligible for a credit if you are under age 65 and are not eligible for employer coverage, Medicaid or Medicare.  Your income and family size also affect your eligibility for financial help.

You can learn more about tax credits here.  The Kaiser Family Foundation offers a helpful subsidy calculator that you can use to see what type of assistance you may qualify for.

Medicaid and CHIP

Under the ACA, many states will be expanding Medicaid eligibility to more people. If you live in one of them, and your income is less than 138% of the federal poverty level (currently $32,500 for a family of four), you will be able to enroll in Medicaid using the federal Exchange at www.healthcare.gov.

The Children’s Health Insurance Program (CHIP) offers low cost health insurance coverage for children as well as for some parents and pregnant women. You can find more information about CHIP here.

Your Action Plan: Get Your Affordable Care Act Together

If you won’t have health coverage by January 1, 2014 and you don’t want to pay a penalty fee for being uninsured, start thinking about buying coverage through an Exchange.
 

  • Do your homework!  Start reading up on the coverage options and plans that will available in your area by visiting finder.healthcare.gov.


Being in the know about the ACA can help you make smart decisions and get the coverage that’s right for you and your family!

S-Corporations and the Reasonable Wage Requirement

One of the top audit risks for S corporations is salary and wages paid to officers of the corporation.  S corporations have many advantages, tax and legal, as long as you follow the rules.  So if you are considering an S corporation for your business, here is what you need to know on reasonable compensation and S corporations:

Reasonable Compensation

The fastest way to get audited as an S corporation is to file an 1120S with no amount showing on Form 1120S Line 7 "Compensation of Officers." It is assumed by the IRS that no one works for free, and so the IRS has said over and over again that officers of the corporation must receive wages (reported on line 7).

As an owner-employee of the S corporation, you must pay yourself a salary, and pay payroll taxes on your salary, even if the business is losing money. You don't have to pay yourself a high salary, but it must be a "reasonable amount" according to the IRS. Reasonableness can be interpreted in different ways. I would keep track of the number of hours you work for your business, and then figure out a "reasonable" salary to pay yourself based on the amount of time you spend.

If your S corporation is losing money (especially in the first few years of operation), then your losses will be exaggerated by the salary you have to pay yourself. Thus, if your economic losses (not counting your salary) is $10,000, but you need to pay yourself a "reasonable" salary of $10,000, then your tax loss will be at least $20,765 ($10,000 economic loss + $10,000 salary + $765 in employer-paid payroll taxes). In an S corporation, your tax losses will always be greater than your economic losses, and your tax profits will always be less than your economic profits.

What's a Reasonable Salary?

IRS Fact Sheet 2008-25 provides some guidance on how to determine the amount of wage compensation that is reasonable for a taxpayer.  In making the determination, the IRS notes that the courts have taken into account all facts and circumstances of each case.  Some of the specific factors considered by the courts include the following:

  1. The training and experience of the taxpayer
  2. The taxpayer’s duties and responsibilities
  3. The time and effort the taxpayer devotes to the business endeavor
  4. The draw history
  5. The payments made to nonshareholder employees
  6. The timing and manner of paying bonuses to key people in the business
  7. The amount of comparable pay for similar services that the taxpayer provides
  8. The existence of any compensation agreements
  9. Whether there is any formula that determines compensation


Salary is reasonable if a non-shareholder would be willing to accept the job at the proposed salary level.

Comparable compensation information may be found from sources such as the U.S. Department of Labor, employment agencies and placement offices, union administrations and professional associations.

Note> It is important to document the sources of information used to justify the wage compensation amount paid to an S corporation business owner.

Generally, the IRS will grant the S corporation a degree of latitude in setting salary compensation for shareholder-employees. However, the salary must be paid, and the level of salary must be appropriate.

What's an Unreasonable Salary?

Zero salary is unreasonable. No one works for free.  Salary below minimum wage is unreasonable. You would not persuade a non-shareholder to accept a job offering below minimum wage.

Salary far in excess of an appropriate wage is unreasonable. Paying a million-dollar salary when an officer in similar position would expect to make only $150,000 is also unreasonable. Some S corporations have attempted to pay higher-than-normal salaries as a way to increase business expenses.

Why is Officer Compensation an Audit Priority?

The IRS can collect payroll taxes on officer compensation.  If the IRS determines the S corporation paid the shareholder an unreasonable wage, they can recharacterize the distributions as salary and require payment of employment taxes and penalties which can include payroll tax penalties of up to 100% plus negligence penalties. 

For example, a CPA who incorporated his practice took a $24,000 annual salary from his S corporation and received $220,000 in distributions which were free of employment taxes. The IRS said that his salary was unreasonably low and that $175,000 of the distributions should be treated as wages subject to employment taxes. The court upheld the IRS’s power to recharacterize the dividends as wages subject to employment tax. (Watson v. United States, (DC IA 05/27/2010) 105 AFTR 2d ¶ 2010–908.)

If you have questions about this information or need assistance in determining a reasonable wage please contact our office and make an appointment.

Monday, February 4, 2013

How to Track Your IRS Refund


So you’re getting a tax refund and now you want to know when to expect it.   The good news is that the IRS wants you to know as well.  There are three fast and easy ways to track the status of your refund.

Go Online

The IRS created “Where’s My Refund?,” a digital tool designed to answer taxpayer questions about the status of their refund.  This year the IRS has refreshed, enhanced and polished the app just in time for the 2013 tax season, making it more automated and accurate than ever before.

With “Where’s My Refund", a new progressive feature called a “refund tracker” displays the return progress in three separate stages.  Here are the three stages and the messages you may receive:

1. Return Received

·          We have received your tax return and it is being processed.

·          You should get your refund within 21 days from the date we received your tax return.

·          Please check here or use our free mobile app, IRS2Go, to check on your refund.

2. Refund Approved

·          Your tax refund is scheduled to be sent to your bank on (MMDDYYYY). (Direct deposit date of refund) or (Other appropriate text if a paper check)

·          If your refund is not credited to your account by (the above date), check with your bank to see if it has been received.

·          Please Note: For refund information, please continue to check here, or use our free mobile app, IRS2Go. Updates to refund status are made no more than once a day.

3. Refund Sent

·          Your refund was sent to your bank on (MMDDYYY) for direct deposit (or other appropriate text if a paper check).

·          If your refund is not credited to your account by (MMDDYYY), check with your bank to find out if it was received (or other appropriate text if a paper check).

To get started you need your social security number, filing status and the exact dollar amount of the refund.  All of this information can be found on your 2012 tax return.

Wait 24 hours after e-filing a return and four weeks after mailing a return. 

The IRS tool updates overnight so there is no need to check more than once a day.

Call a Special Toll Free Number

If you don't have access to a computer or simply prefer using a telephone, you can call the IRS to track down your refund.

A special automated toll-free line is dedicated to refund status reports. When you call (800) 829-1954, you'll need the same information the online system requires – social security number, filing status and exact dollar amount of refund.

Use an App on Your Smartphone

The IRS has released a new version of IRS2Go, a smartphone application that lets you interact with the IRS using your mobile device.  Three new features are available, providing access to video, new updates and more tax information.

Get Your Refund Status You can check the status of your federal income tax refund using IRS2Go.  Simply enter your Social Security Number, which will be masked and encrypted for security purposes, then select your filing status and enter the amount of your anticipated refund from your 2012 tax return.  If you e-file your return, you can check your refund status within a 24 hours.  If you file a paper tax return, you will need to wait three to four weeks to check your refund status because it takes longer to process a paper return.

Get Tax Updates You can also use IRS2Go to subscribe to filing season tax updates by entering your e-mail address to automatically get daily tax tips. Tax Tips can help you with your tax planning and preparation needs. They are issued daily during the tax filing season and periodically during the rest of the year. The plain English updates cover topics such as free tax help, child tax credits, the Earned Income Tax Credit, education credits and other topics.

Follow the IRS
You can use IRS2Go to sign up to follow the IRS Twitter news feed, @IRSnews.  IRSnews provides the latest federal tax news, including information about tax law changes and important IRS programs.

New! Watch Us IRS2Go delivers video from the IRS YouTube channel to your mobile device.  As IRS launches new videos on YouTube, the videos are automatically featured on IRS2Go.

New! Get the Latest News
IRS news is available via IRS2Go as soon as it is released to the public. This feature allows you to learn about new programs, legislative updates and relevant tools to help you navigate taxes and the IRS.

New! Get Your Tax Record You can request your tax return or account transcript using your smartphone.  IRS2Go allows you to request this information, which will be mailed to you within several business days.

The app is free for both Android and Apple users.

I hope this information is helpful.  If you need further assistance, please contact me at Kinzey & Arndt, CPA.  
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Saturday, January 19, 2013

Most Overlooked Deduction for Clients in the Construction Industry


I want make you aware of a substantial deduction that many people in the construction industry qualify for but is often overlooked by tax preparers.  Specifically, I am speaking about the “Domestic Production Activities Deduction”.
 
This deduction is available to all home builders and contractors regardless of what tax forms they file.   If you are a sole proprietor, S-corporation, LLC or Partnership, you can tell if you have taken the deduction by looking at line 35 of your Form 1040.  I find that nearly all of the builder’s and sub contractor’s tax returns I have reviewed have not claimed this deduction…and it can be substantial. 

Personally, I think there are a couple of reasons this deduction is not being taken advantage of:

·         Some tax preparers may not be up to speed on all changing tax laws as it relates to the construction industry 

·         The tax law covering this deduction can be somewhat complicated 

·         Some home builders don’t have their accounting system setup correctly to capture the data needed to do the calculations
 
The good news is if you haven’t been taking this deduction you can amend up to the prior three year’s tax returns and receive a refund.  If you need some tax assistance or have questions about if you qualify for this deduction, please give me a call at Kinzey & Arndt, CPA; my firm offers a free 1 hour consultation.  We have many clients in the construction industry and understand the unique challenges that home builders and their contractors face.  

I would love a chance to talk with you about how we can help your business run more efficiently and profitably.  We are located in the Claremont Commons building on East Battlefield (right next door to Metropolitan Grill).  Feel free to stop by or schedule an appointment, I would love to hear from you!
 

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Wednesday, January 16, 2013

Lost Your Home In Foreclosure? You May Qualify for A Refund.


A Jan. 18 deadline looms for about 2 million homeowners who lost their homes to foreclosure between the start of 2008 and the end of 2011. Five lenders could give each of those borrowers as much as $2,000.

The National Mortgage Settlement (NMS) administrator mailed Notice Letters and Claim Forms in late September though early October 2012 to those borrowers who lost their home due to foreclosure between January 1, 2008 and December 31, 2011.  The problem is that many qualifying homeowners never received those notices because they were mailed to the address of the foreclosed home.  Therefore, they do not realize they qualify for a refund.

The deadline to file a claim is January 18, 2013.  So if you lost your home between 2008 and 2011, keep reading to see if you qualify for relief, how much you might receive and how to file a claim.

What is the National Mortgage Settlement?

The NMS was reached last February between 49 states and the nation's five largest mortgage lenders and loan-servicers — Ally/GMAC, Bank of America, Citi, JPMorgan Chase and Wells Fargo. (Oklahoma didn't agree to the settlement terms, so homeowners in that State can't take part.)

The settlement was reached after it was determined the five institutions may have illegally foreclosed on millions of homeowners between January 1, 2008, and December 31, 2011. Common problems involved improper review of foreclosure documents, failure to have key papers signed in front of a notary, and sometimes even downright abuse of the mortgage and foreclosure processes.

Who Qualifies?

Only borrowers who had loans that were issued or serviced by these five companies (Ally/GMAC, Bank of America, Citi, JPMorgan Chase and Wells Fargo) are eligible to share in proceeds from the settlement. It required the banks to set aside about $20 billion to help current homeowners refinance their loans, reduce the outstanding balance of their mortgage, or get other types of relief that could help save their homes.

How much money will I get back?

In an interesting twist, though, it also earmarked $1.5 billion to reimburse an estimated 2 million people whose homes were foreclosed upon by any of the five banks between January 1, 2008, and December 31, 2011. The payments are expected to range anywhere from $800 to perhaps more than $2,000, based largely on how many of those former homeowners file the simple claim form by the upcoming January 18th deadline.

How do I file a claim?

There is no fee to file the application, and federal regulators are discouraging consumers from paying for help from con men who offer to complete the easy paperwork for them.

The best place to get more information is from the following website:  www.nationalmortgagesettlement.com  An alternative is to call the offices of the National Mortgage Settlement Administrator toll-free, (866) 430-8358.

If you have any questions or need assistance with the application, please call me at Kinzey & Arndt, CPA 417-882-9000 or visit our website www.cpainthesky.com.  I am happy to answer any questions free of charge for anyone that lost their home in this manner.  Let's see if we can get you what you were entitled to.


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Sunday, January 13, 2013

Business Gift Giving – What’s Deductible?

During the holiday season many business owners give gifts to their clients, prospective clients or employees to thank them for their business or show appreciation for their hard work.   

But did you know your deduction for that business gift is limited to $25? 

The basic rule is that if you give someone a gift for business purposes, your business expense deduction is limited to $25 per person per year.  Any amount over the $25 limit is not deductible.  If this amount seems low, it is.  That’s because it was established in 1954.   

Most taxpayers are at least vaguely aware of this tax rule.  But what isn’t as widely known is that there are a few exceptions and work-arounds to this rather restrictive limit.   

Here’s a quick rundown of the major exceptions to the $25 limit. 

Companywide gifts 

The $25 limit applies only to gifts to individuals, either directly or indirectly.   It doesn’t apply if you gift to an entire company, unless the gift is intended for a particular person or group of people within the company such as the president or manager.  Such companywide gifts are deductible in any amount as long as they are reasonable. 

Example:  

Jackson, is a residential custom home builder whose best client is Acme Brick. Just before Christmas, he drops off a $100 cheese basket at the company's reception area for all of Acme's employees. He also delivers an identical basket to Acme's president. The first basket left in the reception area is a companywide gift, not subject to the $25 limit. The basket for Acme's president is a personal gift and therefore is subject to the limit.

Gifts to a husband and wife 

If you have a business connection with both spouses and the gift is for both of them, the $25 limit doubles to $50. 

Gifts to employees 

Although they have their own limitations and may be treated as compensation to the employees, an employer is allowed to deduct the costs of gifts made to employees. 

Entertainment 

There is a special twist if you gift a client with entertainment tickets, such as tickets to a football game. If you don't attend the event with the client, you have the option of treating the tickets as a gift or as an entertainment expense. Gifts of up to $25 are 100 percent deductible, while entertainment expenses are only 50 percent deductible. So, with tickets that cost less than $50, you get a bigger deduction if you treat them as a gift. If they cost more, treat them as an entertainment expense. 

Example: 

You pay $400 to a scalper for a pro football game ticket that has a face value of only $100. You give the ticket to a client but don't attend the game yourself. If you treat the ticket as a gift, you may deduct only $25 of the expense. If you treat it as an entertainment expense, your deduction would be 50 percent of $400, or $200. 

Only direct costs are limited 

Incidental costs, such as engraving on jewelry, or packaging, insuring, and mailing, are generally not included in determining the cost of a gift for purposes of the $25 limit 

Inexpensive gifts 

Inexpensive items such as key chains and pens are not considered gifts for purposes of the $25 limit so long as:

  • they cost $4 or less a piece
  • your company name is clearly and permanently imprinted on them, and
  • they are one of a number of identical items you widely distribute

As you can see, there are several exceptions to the $25 rule. With careful planning your business gifts could be 100% deductible.  To the extent your business qualifies for any of them, it’s important that the qualifying expenses be tracked separately (typically by charging them to a separate account in your accounting records) so that you can claim a full deduction. 

If you have any questions regarding the types of gifts or gift-giving situations that may qualify for a full deduction or how to properly isolate and account for them in your records, please contact me at Kinzey & Arndt CPA.  J

Saturday, January 12, 2013



2013 Brings Two New Taxes to High Income Taxpayers

With the fiscal cliff stealing the spotlight over the holidays, very little attention was given to two new taxes that started January 1. 
 
Thanks to the Affordable Care Act (also known as Obamacare) the first wave of tax increases rolls out in 2013 to help fund the massive 2010 health care reform.  The new taxes on wages and investment income are expected to raise about $318 billion over 10 years. 
 
Granted the bulk of these taxes fall mainly on the wealthy and the health care industry, but sooner or later we will all be paying more.  To find out who pays and how much, keep reading:
 
Increased Medicare payroll tax
 
Currently, the Medicare payroll tax is 2.9% and it applies to earned income only.  An employee is responsible for 1.45% of the tax and it’s deducted automatically from the paycheck.  The employer kicks in the other 1.45%.   
 
Under the new tax provision, most taxpayers will continue to pay the 1.45% Medicare tax, but single people earning more than $200,000 and married couples earning more than $250,000 will owe an additional 0.9% on earned income above these thresholds.  
 
Employers will collect the extra 0.9% on wages exceeding $200,000 just as they would withhold Medicare taxes and remit them to the IRS. However, companies won’t be responsible for determining whether an employee’s income from other sources or combined income with his or her spouse makes them subject to the tax.  This means that some employees will have to pay additional Medicare taxes when they file income tax returns and others will get a refund for amounts overpaid.

Example 1

If you’re married and you and your spouse each earn $150,000, your employers will withhold 1.45% for Medicare tax, because neither of you exceeds the $200,000 individual threshold. But if you file a joint tax return, your combined earned income of $300,000 is $50,000 above the married filing jointly threshold. This means you will have underpaid your Medicare tax by $450 (.9% of $50,000) and will owe the additional amount when you file your taxes.

Example 2

If you are a self-employed single person with self-employment income of $300,000 you will pay a 2.9% Medicare tax on the first $200,000 and a 3.8% tax on the remaining $100,000.  This means you will owe an additional tax of $900 under the new tax provision.  (.9% * $100,000 = $900) 

New Medicare tax on Investment income

This one is kind of a big deal because it’s the first time a Medicare tax will be assessed on unearned income.  It applies to most joint filers with adjusted gross income (AGI) above $250,000 and single filers with AGI above $200,000.  AGI is the number at the bottom of the front page of Form 1040. 

The new tax is complex, but in effect it is a flat tax on investment income above the $250,000/$200,000 threshold. 

Investment income includes:

  • interest, dividends, annuities, royalties, rents
  • capital gains – including any profit you make on the sale of your residence if it exceeds the amount you are allowed
  • income from a passive trade or business 

Investment income does not include:

  • Income from a business in which you are an active participant
  • Distributions from an IRA or qualified retirement plan
  • Gain on the sale of an active interest in a partnership or S-corporation
  • Gain inside a tax deferred annuity
  • Distribution from a tax-free Roth account
  • Interest from tax-exempt municipal bonds (Obama has proposed changing this) 

For those whose income levels are well below the $250,000/$200,000 threshold, keep in mind that all it takes is one transaction to push you into the 3.8% tax territory (i.e., sale of real estate with a large gain or conversion of an IRA into a Roth account).

Example

If a married couple earns $200,000 in wages and $100,000 in capital gains, $50,000 will be subject to the new tax, creating an additional $1,900 tax liability.  ($200,000 wages + $100,000 CG = $300,000 income - $250,000 threshold = $50,000 * 3.8% = $1,900).
As you can see, the wealthy are going to bear the brunt of this tax.  If you fall in these income levels and have investments, visit with me.  Tax advisers have already found ways to minimize the impact of this tax.   Contact my office to see how we can help.