Could Client Accounting Services improve your business?

In a small or growing business, you most likely wear many hats. You’re the leader, you’re the HR department, you could be the entire sales team and you may also be managing the books. A study done by Wasp Barcode stated that the top accounting challenges facing small businesses today are: Accounts Receivable, Cash Flow, Paperwork, Closing the books each month, and Payroll Management.  

Did you know? More than 50% of small businesses have the CFO or Controller as the one managing all of these accounts! In order to ensure accuracy in these areas, segregation of duties and timeliness is key.  Handling all these duties, all while running the business, can be daunting. More often than not, the accounting gets pushed to the wayside, leaving companies scrambling at year end to get everything put together.

Are you a candidate?
Before you think about making a change or adding another service, it’s important to see if what you’re doing right now could be streamlined, automated or outsourced. 

  • Do you have difficulty monitoring your payables or receivables?
  • Are you struggling to keep up with compliance and financial reporting?
  • Are you looking for improved financial forecasting and strategic planning?

Our Client Accounting Services (CAS) program will utilize the latest technology and cloud based solutions to streamline your accounting functions, providing you real-time access to your information.   Every business is different, so we know there is no “one size fits all” CAS plan. We personalize our services to fit you and your distinct business needs.  

What exactly is CAS? Some of the services provided in our CAS package can include:

  • Keeping track of your receivables→  Know what’s owed to you and get notified when income is past due
  • Transaction processing and bill payment
  • Go Paperless→  Our cloud based storage software will link receipts to transactions, reducing the risk of missing/misplaced documents
  • Timely account reconciliations and financial statement preparation→   Know how much cash/credit you really have available
  • Payroll and payroll compliance
  • Periodic tax payments (Sales Tax, CAT Tax, etc.)
  • Outsourced CFO and business advisory services

Client Accounting Services will make strategic tax planning easier, as you will always have up-to-date access to your information.  Included in your custom CAS package is a review of your financial information by a CPA who will be analyzing the data to uncover trends, anomalies, new areas to pursue (if desired) and to provide input on possible strategies to help improve your business.

We’ll help you improve your segregation of duties, reduce the risk of misappropriation of assets and make for a better overall internal control structure.  With Client Accounting Services, leave the back office work to us, so you can focus on moving your business forward. As you grow, we are here to grow with you, every step of the way.

Ready to learn more or get started now? Contact us for a free review to see if your business would benefit.

How the sweeping tax reform will affect you or your business.

On December 22nd, 2017, the most sweeping tax reform in more than 30 years was signed by President Trump.  There are many updates to both individual and business tax law. Below are summaries of the Act’s major tax provisions and changes that will impact individuals, businesses and foreign operations. If you have any questions or concerns as to your household or business, please give us a call at 216.524.8900.

INDIVIDUAL PROVISIONS

PROVISION SUMMARY EXPLANATION
Individual Tax Rates Seven tax rates of 10%, 12%, 22%%, 24%, 32%, 35%, and a new top rate of 37%. The 37% top rate is slightly lower than the current top tax rate.

Rate          Joint Return                       Single

10%          $0 – $19,050                   $0 – $9,525

12%          $19,050 – $77,400         $9,525 – $38,700

22%          $77,400 – $165,000       $38,700 – $82,500

24%          $165,000 – $315,000     $82,500 – $157,500

32%          $315,000 – $400,000     $157,500 – $200,000

35%          $400,000 – $600,000    $200,000 – $500,000

37%          Over $600,000                Over $500,000

Standard Deduction $24,000 for married couples filing joint, $12,000 for single taxpayers and $18,000 for head of household.
Pass-Through Tax Rates Adds a new business deduction of 20% of qualified pass-through business income subject to a number of limitations and qualifications.
Child/Non-Child Dependent $2,000 per child credit with up to $1,400 being refundable. Credit begins to be phased-out for families making over $400,000.  Additionally, a $500 nonrefundable credit is available for certain non-child dependents.
Itemized Deduction for State Income Taxes and Property Taxes The bill sets an overall cap on these deductions at $10,000 annually and allows taxpayers to decide between property taxes, income taxes, or sales tax for this $10,000 limit.  Additionally, a provision was added so there could be no prepayment of future year’s income taxes in 2017.
Mortgage Interest Limits the mortgage interest deduction for mortgages exceeding $750,000 on new mortgages of principal residences or second homes.  The effective date is for loans on or after 12/15/2017.Deduction for “home equity interest” is repealed for tax years after 2017.
Charitable Contributions Increases the AGI threshold for charitable contributions to 60% from 50%.Repeals the 80% deduction for amounts paid for the seating rights for college sporting events.
Casualty Losses Itemized deduction repealed in 2018, except for losses in declared disaster areas.
Medical Expenses Medical expense deduction retained. 7.5% of AGI applies for 2017 and 2018, and rises to 10% of AGI thereafter.Also, eliminates individual ACA mandate for health insurance. Effective after 12/31/2018.
Alimony Repeals the alimony deduction for the payer and inclusion in income for the recipient.Effective date would be for divorce decrees executed after 12/31/2018.
AMT AMT would be retained but the exemption would be increased to $109,400 for married couples and to $70,300 for single taxpayers.Additionally, the AMT exemption would begin to phase-out at $1,000,000 for married couples and $500,000 for single filers.Applies in 2018.
401(k)/IRA Contributions Retains current law regarding 401K and IRA plans.
ROTH IRA Eliminates the option to re-characterize a ROTH IRA conversion back to a traditional IRA.  Effective for 2018.
Personal Exemptions The deduction for personal exemptions is suspended for tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026.
Capital Gains Retains current treatment and rate structure for capital gains and qualified dividends.
Miscellaneous Itemized Deductions The deduction for miscellaneous itemized deductions subject to the 2% floor is suspended for tax years beginning after Dec. 31 2017 and before Jan. 1, 2026.  These deductions include employee business expenses, tax preparation fees and investment advisory fees.
Moving Expenses For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the deduction for moving expenses is suspended, except for members of the Armed Forces on active duty who move pursuant to a military order and incident to a permanent change of station.
529 Plans For distributions after Dec. 31, 2017, “qualified higher education expenses” also includes tuition at an elementary or secondary public, private, or religious schools up to a $10,000 limit per tax year.
FIFO Stock Sale Proposal The proposed law on first-in-first-out stock sales has not been enacted.  Taxpapyers can still specifically identify stock lots when selling their shares to take advantage of potential losses
Estate Tax Exemption Estate tax exemption doubled from current levels. Effective for decedents dying after 12/31/2017.

BUSINESS PROVISIONS 

Corporate Tax Rates Regular corporate rate reduced to a flat 21%,Personal Service Corporation rate reduced to flat 21%.Effective in 2018.
Corporate AMT Corporate AMT is repealed. Effective in 2018. 
Interest Deduction for Companies with over $25 million Limited in their interest deduction based on 30% of adjusted taxable income. Any unused interest expense above 30% threshold would be disallowed, and would carry forward for an unlimited amount of years. There are exceptions that apply for “real estate businesses” and for “floor plan financing” for auto dealers.Effective in 2018.
Bonus Depreciation 100% bonus depreciation for additions placed in service after September 27, 2017. Applies to new and used property.
Section 179 Expensing Limitation would be increased from $500,000 to $1,000,000.Phase-out amount for annual additions would be increased from $2,000,000 up to $2,500,000.Effective in 2018.
Net Operating Losses (NOLs) Disallows NOL carrybacks except for a special 2 year carryback for farming.NOLs can be carried forward indefinitely but will be limited to 80% of taxable income.Effective in 2018.
Accounting Method Reforms for Small Businesses ($25 million or less of annual gross receipts) Permits use of the cash method (even if the small business had inventories).Removes the Uniform Cost Capitalization for Inventory (UNICAP) rules for small businesses.Permits use of the completed contract method or other method for long-term contracts for contractors.Effective in 2018.
Like-Kind Exchanges (§1031 Exchanges) Limits the use of like-kind exchanges to real property and eliminates the use of like-kind exchanges with personal property.Applies to exchanges after December 31, 2017.
Luxury Auto Limits For passenger automobiles placed in service after Dec. 31, 2017, in tax years ending after that date, for which the additional first-year bonus depreciation deduction not claimed, the maximum amount of allowable depreciation is increased to: $10,000 for the year in which the vehicle is placed in service, $16,000 for the second year, $9,600 for the third year, and $5,760 for the fourth and later years in the recovery period.
Domestic Production Activities Deduction For tax years beginning after Dec. 31, 2017, the DPAD is repealed.
Employer Fringe Benefits For amounts incurred or paid after Dec. 31, 2017, deductions for entertainment expenses are disallowed, eliminating the subjective determination of whether such expenses are sufficiently business related; the current 50% limit on the deductibility of business meals is expanded to meals provided through an in-house cafeteria or otherwise on the premises of the employer; and deductions for employee transportation fringe benefits (e.g., parking and mass transit) are denied, but the exclusion from income for such benefits received by an employee is retained.
Excessive Employee Compensation For tax years beginning after Dec. 31, 2017, the exceptions to the $1 million deduction limitation for commissions and performance-based compensation are repealed. The definition of “covered employee” is revised to include the principal executive officer, the principal financial officer, and the three other highest paid officers. If an individual is a covered employee with respect to a corporation for a tax year beginning after Dec. 31, 2016, the individual remains a covered employee for all future years.Under pre-Act law, exceptions applied for: (1) commissions; (2) performance-based remuneration, including stock options; (3) payments to a tax-qualified retirement plan; and (4) amounts that are excludable from the executive’s gross income.

Employer-Paid Family and Medical Leave

For wages paid in tax years beginning after Dec. 31, 2017, but not beginning after Dec. 31, 2019, the Act allows businesses to claim a general business credit equal to 12.5% of the amount of wages paid to qualifying employees during any period in which such employees are on family and medical leave if the rate of payment is 50% of the wages normally paid to an employee. The credit is increased by 0.25 percentage points (but not above 25%) for each percentage point by which the rate of payment exceeds 50%.

Dividends-Received Deduction

For tax years beginning after Dec. 31, 2017, the 80% dividends received deduction is reduced to 65%, and the 70% dividends received deduction is reduced to 50%.

Partnership Technical Termination

For partnership tax years beginning after Dec. 31, 2017, the Code Sec. 708(b)(1)(B) rule providing for the technical termination of a partnership is repealed. The repeal doesn’t change the pre-Act law rule of Code Sec. 708(b)(1)(A) that a partnership is considered as terminated if no part of any business, financial operation, or venture of the partnership continues to be carried on by any of its partners in a partnership. (Code Sec. 708(b), as amended by Act Sec. 13504)

FOREIGN OPERATIONS

Repatriation/Foreign Source Dividends

Under pre-Act law, U.S. citizens, resident individuals, and domestic corporations generally were taxed on all income, whether earned in the U.S. or abroad. Foreign income earned by a foreign subsidiary of a U.S. corporation generally was not subject to U.S. tax until the income was distributed as a dividend to the U.S. corporation.For tax years of foreign corporations that begin after Dec. 31, 2017, and for tax years of U.S. shareholders in which or with which such tax years of foreign corporations end, the current-law system of taxing U.S. corporations on the foreign earnings of their foreign subsidiaries when these earnings are distributed is replaced. The Act provides for an exemption by means of a 100% deduction for the “foreign-source portion” of dividends received from specified 10% owned foreign corporations by domestic corporations that are U.S. shareholders of those foreign corporations.No foreign tax credit or deduction is allowed for any taxes paid or accrued with respect to a dividend that qualifies for the deduction. There is also a provision in the Act that disallows the deduction if the domestic corporation did not hold the stock in the foreign corporation for a long enough period of time.

Taxation of Foreign Earnings and Profits

Under the Act, U.S. shareholders owning at least 10% of a foreign subsidiary generally must include in income, for the subsidiary’s last tax year beginning before 2018, the shareholder’s pro rata share of the net post-86 historical E&P of the foreign subsidiary to the extent such E&P has not been previously subject to U.S. tax.The portion of the E&P comprising cash or cash equivalents is taxed at a reduced rate of 15.5%, while any remaining E&P is taxed at a reduced rate of 8%.At the election of the U.S. shareholder, the tax liability is payable over a period of up to eight years The payments for each of the first five years equals 8% of the net tax liability. The amount of the sixth installment is 15% of the net tax liability, increasing to 20% for the seventh installment and the remaining balance of 25% in the eighth year.

 

 

You should utilize these tax-saving strategies before it’s too late!

by: Franco DiLiberto, CPA

Time is flying, and the end of the year is quickly upon us.  With distractions like the holiday season, it can be easy for individuals to lose focus on opportunities to reduce your tax bill in the spring.  To assist you, we have compiled a list of our Top 7 tax saving strategies for you to consider before the end of the year.  Do not miss out on these opportunities!

  1. Contribute to your 401(k), Traditional IRAs, and Other Tax-deferred Retirement Accounts.

It is never too early to start saving for retirement, and tax-deferred retirement accounts are a great way to simultaneously grow your money and lower your tax liability.  If you work for an employer that provides a 401(k), it is highly recommended to contribute as much as you can afford up to a limit of $18,000 in 2016 for individuals under the age of 50.  Individuals aged 50 or older can contribute an additional $6,000, which is known as a catch-up contribution.  If you cannot afford to contribute the maximum, aim for contributing an amount that will be fully matched by your employer.  For employees, the 401(k) deferral due date is the date of the last paycheck for 2016 or December 31, 2016.

Traditional IRAs are another great tax-saving retirement vehicle, and unlike 401(k) plans, anyone is eligible to participate.  For 2016, the maximum contribution is $5,500 for individuals under the age of 50.  For individuals aged 50 or older, an additional catch-up contribution of $1,000 is also permitted for a total deduction of $6,500.  For 2016, the deadline to make this contribution is April 17, 2017, and no extension is permitted.  If you are setting up a new IRA, applications postmarked by April 17, 2017 will be accepted by the IRS.  However, if you or your spouse are covered by a retirement plan at work, exceeding certain income thresholds disallows the deductibility of these traditional IRA contributions.  If you are single or head of household, the deduction is fully disallowed if your modified adjusted gross income reaches $71,000.  If you are married filing jointly, the income phase out level is $118,000.  Finally, if you are married filing separately, the phase out amount is merely $10,000.  You are not required to make regular minimum distributions from a traditional IRA until you reach the age of 70 ½.

For self-employed individuals or small business owners, two additional retirement vehicles to consider are the Simplified Employee Pension (SEP) IRA and the Savings Incentive Match Plan for Employees (SIMPLE) IRA.  An important distinction between these two options is that contributions to a SEP IRA are only permitted by the employer, while a SIMPLE IRA allows employees to contribute as well.  For 2016, the maximum contribution to a SEP IRA is 25% of business income up to a cap of $53,000.  Therefore, SEP IRAs allow much higher contributions than 401(k) or traditional IRAs.  The maximum contribution for an employee in a SIMPLE Plan is $12,500 and a $3,000 catch-up for those employees aged 50 or older.

  1.  Open up a Health Savings Account

Now is a great time to consider opening a health savings account (HSA).  Contributions made to HSAs are fully deductible on your individual tax returns.  However, not everyone is eligible to participate in a HSA.  To be eligible, you must be covered by a high-deductible health plan (HDHP).  A HDHP is a plan with a deductible of at least $1,300 for single coverage and $2,600 for family coverage.  You are not eligible if any of the following applies:

  • Your health insurance plan is not an HDHP
  • You have health coverage in addition to the HDHP, with limited exceptions
  • You are eligible as a dependent on someone else’s tax return
  • You are enrolled in Medicare
  • You or your spouse have health coverage under a flexible spending account (FSA)

If you meet these requirements, you are eligible to open a HSA.  For 2016, the maximum contribution for single coverage is $3,350 and $6,750 for family.  Under the last month rule, if you are eligible and open up your HSA by December 1, then you can contribute the maximum amount for the entire year rather than prorated by month.  The due date for HSA contributions is April 17, 2017 and no extension is permitted.  

  1.  Take Capital Losses in 2016

Tax loss harvesting or selling underperforming investments before year end allows taxpayers to take capital losses in order to lower tax liability.  These losses can used to offset dollar for dollar any capital gains realized throughout the year.  Because December 31st falls on a Saturday in 2016, the deadline to sell investments to lock in losses is December 30th.  If your total capital losses exceed your capital gains, you are allowed to deduct up to a maximum of $3,000, and the remaining loss is carried forward to next year.  Tax loss harvesting is especially helpful to assist higher income taxpayers who are subject to the 3.8% Net Investment Income Tax.  If you are expecting large capital gains for 2016, then be sure to consider taking losses before the calendar turns to 2017.

  1.  Bunch your Schedule A Deductions

Similar to taking your capital losses at the end of the year, another strategy is to make payments before year end to maximize your itemized deductions on Schedule A.  Taxpayers who itemize are aware of deductions such as:

  • Medical costs
  • State and local income taxes
  • Mortgage interest
  • Real estate taxes
  • Charitable contributions
  • Other miscellaneous deductions.

Depending on your income and deduction levels, it may be advantageous for you to push your deductions into one tax year rather than spread evenly over two years.  Alternative minimum tax (AMT) is another area to consider when bunching itemized deductions since state, local, and real estate taxes are not deductible under AMT.  If bunching the deductions in 2016 is beneficial, be sure to issue the checks for real estate taxes and any state and city 4th quarter estimates before the end of the year.

Also, do not forget about charitable contributions.  For all cash and non-cash contributions of $250 or more, the IRS requires a signed letter from the charity specifically stating the name of the organization, the amount of the contribution, and that no goods or services were provided in return for the contribution.  Additionally, the IRS allows taxpayers to donate investments directly from their investment accounts.  If the donated asset was held for more than one year, you will receive the fair market value for the deduction.  In addition, you avoid any capital gains on this investment.  It is important to plan your costs now rather than scramble in late December.

  1.  Pay your 4th Quarter Estimates

If you were set up to pay federal, state, or city estimated taxes for 2016, be sure to make these payments in a timely manner.  The due date for making 4th quarter estimates is January 16, 2017.  However, as previously discussed, if you would like the itemized deduction for state and local income taxes on Schedule A, then the state and local estimates need to be paid by December 30th.  Paying estimates are important to not only reduce tax liability in the spring, but also to avoid any penalties for underpaying estimated tax during the year.  We are ready to assist you with income projections and estimated taxes for your specific tax situation.

  1.  File Timely and Apply for Direct Deposit

Be sure to organize your tax documents and send to your accountant as soon as possible in the spring.  The vast majority of forms, including W-2s, 1099s, and 1095s, are due to employees by January 31, 2017.  Getting your documents in early, especially through electronic delivery, assures your taxes will be filed timely, and, if applicable, you will receive your refund quicker.  Also, direct deposit of refunds is another method to ensure quicker processing of your applicable refunds.

Don’t wait until the end of the year to start thinking about these moves!  Whether you’re a current client or prospect, our team of experts will discuss the best options for you and your family.  If you have questions on any of these deductions or would like to discuss your specific individual situation, contact us by email at info@hobe.com or call at 216.524.8900.  

Businesses should utilize these tax-saving strategies before it’s too late!

by: Franco DiLiberto, CPA

The end of the year is quickly approaching and that means businesses and business owners should be thinking about taxes.  Businesses have many money-saving strategies at their disposal and many times it’s just a matter of scheduling a meeting with an advisor to discuss options.  As always, the sooner you can initiate these strategies, the better as the holidays will be here soon.

It’s for this reason, that we have put together our list of the Top 5 tax-saving strategies that businesses should be considering:

  1.  Defer Income and Accelerate Deductions

Businesses need to evaluate their current and future tax situation to decide whether or not to defer income or accelerate deductions. If possible and reasonable, deferring income and accelerating deductions for business owners is an effective way to reduce taxable income for the current year.  If you expect to be in a similar or lower tax bracket in 2017, you may want to consider delaying billings and sending invoices to customers until 2017.  

In addition, paying off and prepaying certain bills for cash basis businesses is another way to lower income in the current year.  

  1.  Make a Purchase to Utilize Section 179 and Bonus Depreciation

Yes, the highly popular accelerated depreciation methods of Section 179 and bonus depreciation offer tremendous tax savings for businesses.  The Section 179 deduction was permanently extended in 2016, and bonus depreciation was extended through 2019.  

Section 179 allows businesses to expense the cost of new and used qualified property that is purchased and placed into service in the current tax year.  Bonus depreciation is a 50% depreciation deduction on qualified new property purchased and placed into service in the current tax year.

The maximum Section 179 deduction allowed for 2016 remains at $500,000 and phase out limitations occur if asset purchases exceed $2 million.  For instance, buying a heavy SUV, pickup truck, or van before year end is an option for business owners to reduce their taxable income.  

To qualify for a full or partial Section 179 expense, the heavy vehicle must weigh over 6,000 pounds and be used at least 50% in the business.  Also, the vehicle can be bought outright or financed with certain leases and loans.

  1.  Utilize the “De Minimis Safe Harbor” Election

For tax year 2016, the IRS allows businesses to immediately expense the cost of tangible property below the threshold of $2,500 for businesses without an audited financial statement.  The threshold is $5,000 for businesses with an audited financial statement.  This threshold reduces the administrative burden for small businesses to comply with capitalization requirements.  In addition, this new tax relief allows businesses to immediately deduct assets that were traditionally capitalized, such as computers and high-end furniture.

Before year end, businesses should review their capitalization policies and consider documenting the $2,500 safe harbor election policy.  Also, assuming the safe harbor election is made, businesses should review their asset purchases to ensure that all items under $2,500 have been properly expensed rather than capitalized or included in Section 179 or bonus depreciation.

  1.  Research & Development Credit

The R&D credit was permanently extended in 2016, and it continues to offer tax incentives to business innovations.  Expenses associated with qualified research is eligible for this credit.  Qualified research is defined as developing or improving a business component with regard to its performance, functionality, reliability and quality.  The business component must be intended for sale, lease, or license.  Business owners should consider this credit and also be aware that, for 2016, small businesses with less than $50 million in sales may claim the credit against alternative minimum tax liability (AMT), which eliminates a major restriction on the use and applicability of this credit in the past.

  1. Ohio Business Deduction and 3% Business Tax Rate

For Ohio businesses, do not forget about the 100% business deduction for 2016.  The deduction is limited to $250,000 for single and married filing joint taxpayers and limited to $125,000 for married filing separate.  Eligible individuals for this deduction are owners and investors in Ohio businesses structured as sole proprietorships and pass-through entities, including partnerships, S-Corporations, and limited liability companies.  

In addition, Schedule E rental properties are eligible for this deduction.  Finally, any potential business income is taxed at a maximum 3% business tax rate, providing further relief to taxpayers.

Don’t wait until the end of the year to identify which options you would like to take for your business!  Whether you’re a current client or prospect, our team of experts will discuss the best options for your business.  If you have questions on any of these deductions or would like to discuss your specific business situation, contact us by email at info@hobe.com or call at 216.524.8900.  

Mid-Year Tax Planning

by: Kassie Armstrong

Summer is here and you’re most likely thinking about upcoming vacations, weddings, and pool parties! What you’re probably not thinking about is taxes–but maybe you should be. Here are a few things that you can do now that will help ease the burden of dealing with taxes at year end:

Adjust your withholding
If you’re getting married, divorced, or having a baby this year, all these life changes can affect your taxes. Changing your W-2 withholding or exemptions is fairly simple, just stop by human resources or your payroll department and submit a new W-4. Many employers allow you to do this online as well.

Evaluate estimated taxes
Since the year is almost half over already you should have a good idea of what your total income will be for the year. If you think your income will change significantly from prior year, you should adjust your estimated tax to prevent a big over payment or underpayment and penalties at tax time.

Get organized
Set up a tax folder and start gathering all your relevant tax documents in one place so you won’t have to hunt for them later. Keep charitable contribution receipts, unreimbursed medical expenses, business expenses, and other pertinent tax information. This will assist you in filling out that tax organizer at the beginning of next year.

Hire a tax professional
Summer is typically a little slower than during the busy filing season and tax professionals are more willing to take on new clients and spend some time on tax planning strategies.

Feeling overwhelmed or don’t have the time to take a quick peek? Give us a call at 216.524.8900 or fill out our contact form. One of our tax experts can get you organized and put a plan together to make sure you’re not scrambling at the end of the year!

Important rules that every non-profit volunteer should know

by: Melissa Love, CPA

Most non-profit organizations, regardless of size, couldn’t operate successfully without volunteers.  Sure, some of the larger ones have paid employees too, but many have governing bodies made up entirely of volunteers.   Without relying on these individuals, many organizations simply could not afford to present programs, raise funds or properly serve their members or community in a way that serves the intended purpose or mission.  According to the IRS, 85% of all charities operate with no paid employees and rely solely on volunteers.

Are there downsides to drawing from this well of free labor?  Unfortunately, yes.  Charities are often victims of theft, fraud, and improper governance due to the acts of dishonest, careless or unqualified volunteers.  So it’s very important to be selective and maintain a responsible governing body.

Even the best volunteers have limited availability.  Life happens.  People are contributing their spare time, which is sometimes scarce when also managing a job or family. Because of this, we often see issues arise during periods of Board transition. Lack of communication between incoming and outgoing members coupled with the possibility of key positions being left vacant can cause gaps in proper governance.

Non-profit organizations are often left scrambling to pick up the pieces after the IRS has notified them of a revoked charitable status, improperly classified employee, non-deductible expense, or taxable income resulting from an unrelated business activity.  While some non-profit organizations are blessed with volunteers who are well suited to navigate the necessary applications, filing requirements and ongoing compliance required to keep their non-profit status with the IRS, many are not.

Are you currently a volunteer?  Here are some specific areas of concern regarding the governance of non-profit organizations that you should be aware of when serving as a volunteer or on a Board:

Maintain your compliance

Each state has different filing requirements to maintain non-profit status.  Ohio requires that all charitable organizations file the Articles of Incorporation with the Ohio Secretary of State along with a code of regulations under which the organization will govern.  After the initial filing, a Statement of Continued Existence must be filed with the Ohio Secretary of State every 5 years to avoid cancellation of the Articles of Organization.  Many Ohio charities are also required to file an annual report with the Ohio Attorney General to ensure their compliance with various requirements.

Stay organized   

Keep on file all organization documents of the non-profit, including the Articles of Organization, Charter, application for tax-exempt status with the IRS (Form 1023 or 1024) and the Determination Letter from the IRS.  For many public charities, these items must be available for public inspection.

Be aware of Form 990

Form 990 (990-EZ, 990-N, 990-PF, etc.) is the annual Return of Organizations Exempt from Income Tax.  The return is due the 15th day of the 5th month following the end of the organization’s taxable year.  If the organization fails to file Form 990 for three consecutive years, the IRS will revoke the tax-exempt status.

Keep your records

Proper recordkeeping should be maintained for all activities of the non-profit organization.  This includes detail for all funds travelling into and out of the non-profit, along with any employment records, donor information and amounts, etc.  Especially important are receipts for reimbursed expenses to volunteers and employees.  Improper recordkeeping could lead to the IRS disallowing the deductions and treating the reimbursement as taxable compensation to the volunteer.  These records should be kept for a minimum of 3 years following the filing of the Form 990 return with the IRS.

Understand taxable income

Although a group is deemed a non-profit organization by the IRS, this does not mean it avoids paying income tax altogether.  Income earned by the organization not substantially related to its exempt purpose may be taxable to the organization as unrelated business taxable income.  There are additional filing requirements to the IRS and the entity could be required to make estimated tax payments.

Know volunteer tax deductions

Expenses not reimbursed by the non-profit organization to its volunteers may be deductible on the volunteer’s personal income tax return as a charitable donation.  The value of the volunteer’s time and services is not deductible, but other non-reimbursed expenses, such as mileage and other travel/meal costs could be deductible.  Careful consideration must be given to ensure gifts/reimbursements to volunteers do not constitute compensation.

Both the Ohio Attorney General and the IRS have resources available on their websites to assist non-profit organizations and their board members to adopt sound governing practices to maintain their tax-exempt status and continue providing their charitable purpose in the most effective manner.

Navigating the rules of operating a non-profit organization can be a daunting task.  Our team of experts can work with you if you require any of the following:

  • Financial recordkeeping assistance
  • Help maintaining (or reinstating) non-profit status with the IRS or Ohio Attorney General
  • Guidance determining what expenses are deductible
  • How to determine an employee from a volunteer or what constitutes unrelated business taxable income

Contact us at 216.524.8900 or info@hobe.com to set up a time to discuss your group’s situation.  

Delays in Tax Refunds are Possible Again This Tax Season

By: Mario Ciclone

The IRS has informed that delays in tax refunds will be primarily due to the continued increase in cases of identity theft and income tax fraud. One common type of identity theft and tax fraud is someone attempting to file a tax return using your social security number and claiming a false refund.

Many states, like Ohio, are working to mitigate the risk of fraud by requiring random taxpayers to take an identity quiz before they receive their refund. The taxpayers are required to answer personal questions to verify his or her identity. Once passed, the return gets processed along with the refund. A taxpayer who fails the quiz multiple times is advised to contact the Ohio Department of Taxation.

We have received many questions from clients over the past year as they were receiving these letters from the Ohio Department of Taxation. If you are selected to complete the identity confirmation quiz, please be advised that it is a legitimate request. Failing to take the quiz will result in your tax return not getting processed timely.

Have questions?  Contact us! 216.524.8900

Tips for 2016 Tax Planning

by: Franco DiLiberto, CPA

As we dive into the tax season, it is important that you are aware of the new regulations and credits that are in effect as of January 1st. That's why we have created our annual 'Hobe & Lucas Tax Tips Cheat Sheet' which can be downloaded below.  Many of these regulations and credits should be taken into consideration when planning throughout the year in order to decrease tax liability. On our reference sheet, you will find a guide to some of credit limits and top tax areas which we find to be most important to clients and their tax planning process, such as:

  • New Business Mileage Rate
  • Health Care Tax Limits, including Affordable Care Act
  • New Retirement Plan Contribution LimitsHobe_Tax_Strategies_2016
  • Standard Deductions based on Filing Status

We all know tax planning can often be stressful and unclear to many since tax factors can change annually. Not to mention, your individual and business situations can often be complicated and complex!  At Hobe and Lucas, it's our goal to provide you with the assistance you need in order to minimize your tax liability through our well rounded tax knowledge and accounting services.

To download the PDF, please enter your name and email address below:

Full Name*

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Still have questions? Feel free to contact your Hobe and Lucas representative, call us at 216.524.8900 or email info@hobe.com.

Tax Extenders are now permanent!

by: Franco DiLiberto, CPA

Taxpayers are receiving a bundle of early Christmas gifts as Congress has avoided a shutdown by passing a major $680 billion tax bill that will extend and also make permanent several tax breaks. The following are the major tax provisions that have been made permanent, providing taxpayers with relief and a great level of certainty now and in the future:

Businesses:

Research and Development Credit (R&D)

  • The new tax bill permanently extends this credit and also adds one important modification.  Beginning in 2016, small businesses with less than $50 million in sales may claim the credit against alternative minimum tax liability (AMT), meaning that taxpayers will no longer be restricted from claiming the R&D credit due to an AMT limitation.

Section 179 Depreciation

  • The new tax bill permanently extends Section 179 expensing of the cost of new and used qualified property in the current tax year.
  • The maximum deduction allowed for 2015 remains at $500,000.  Businesses with asset purchases exceeding $2 million will have a dollar-for-dollar phase out of the $500,000, completely eliminating the deduction if purchases are above $2.5 million.
  • Beginning in 2016, the maximum deduction and phase out amounts will be indexed for inflation.
  • An additional modification in 2016 includes the treating of air conditioning and heating units as eligible for expensing.

Built-in Gains Tax Period for S-Corporations

  • The new tax bill permanently sets the period of 5 years for which an S-Corporation must hold its assets following conversion from a C Corporation to avoid the tax on built-in gains.

 

Individuals:

Child Tax Credit (CTC)

  • The CTC is a $1,000 credit that can be claimed for each qualifying child of the taxpayer.
  • This credit remains subject to adjusted gross income (AGI) limitations.  The phase out begins when AGI exceeds $75,000 for single taxpayers and $110,000 for married filing jointly.
  • If the CTC exceeds the taxpayer’s tax liability, the taxpayer is eligible for a refundable credit, known as the additional child tax credit.  The new tax bill permanently allows this refundable credit if earned income exceeds the permanent threshold of $3,000.

American Opportunity Credit (AOTC)

  • The AOTC is a $2,500 credit that be claimed each year for four years of post-secondary education.
  • The credit remains subject to adjusted gross income (AGI) limitations.  The phase out begins when AGI exceeds $80,000 for single taxpayers and $160,000 for married filing jointly.  The credit is disallowed for married filing separate taxpayers.
  • A new provision disallows taxpayers from claiming the credit for 10 years if they fraudulently claim the credit.

(Just a reminder that the AOTC cannot be claimed by taxpayer who is claimed as a dependent on another person’s tax return.)

Earned Income Tax Credit (EITC)

  • The EITC is a credit eligible for taxpayers with low to moderate incomes.  The credit increases as the number of qualifying children increases.
  • A new provision increases the amount for families with 3 or more qualifying children.
  • A new provision increases the phase out range for married filing jointly taxpayers.

Educator Expenses Above-the-line Deduction

  • The new bill has made permanent the $250 deduction for teachers on money they spend for books, supplies, and other materials in their classrooms.

(Beginning in 2016, the $250 will be indexed for inflation and include professional development expenses.)

Itemized Deduction of State and Local General Sales Tax

  • The new bill permanently extends the option to claim sales tax as an itemized deduction in the event that the sales tax exceeds state and local income taxes paid for the tax year.

Tax-free Distributions from Individual Retirement Plans for Charitable Purposes

  • The new tax bill permanently allows individuals who are at least 70 ½ years old to exclude from gross income qualified charitable distributions from Individual Retirement Accounts (IRAs).  The exclusion may not exceed $100,000.

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The following are non-permanent extensions of tax provisions as a result of the new tax bill:

Businesses:

Bonus Depreciation

  • Bonus Depreciation will be extended 5 years through 2019.
  • The Bonus Depreciation percentage is 50% for property placed into service during 2015, 2016, and 2017.  The percentage is reduced to 40% in 2018 and 30% in 2019.
  • The new tax bill modifies the AMT rules to increase the amount of unused AMT credits allowed while claiming bonus depreciation.

Just a reminder that bonus depreciation is not allowed for used property.

Work Opportunity Credit

  • The provision extends through 2019 the work opportunity tax credit.
  • The provision also modifies the credit beginning in 2016 to apply to employers who hire qualified long-term unemployed individuals (i.e., those who have been unemployed for 27 weeks or more) and increases the credit with respect to such long-term unemployed individuals to 40 percent of the first $6,000 of wages.

 

Individuals:

Debt Forgiveness from Personal Residence

  • The discharge of debt on a taxpayer’s personal residence is excluded from income.  This provision has been extended through 2016.

The itemized deduction of mortgage interest premiums is extended through 2016.

The large majority of energy incentive credits for individuals and businesses have been extended for two years.

As for the Affordable Care Act/Obamacare, the medical device tax and the Cadillac tax is delayed for two years.

As you can see, virtually all of the major tax deductions and credits have extended, some permanent and others temporarily.  In addition, many of these deductions and credits have been modified in ways that provide more tax relief to individuals and businesses.
Be prepared to take advantage of the tax breaks now and in the future.  Have questions or need assistance on the application and eligibility of these tax breaks as it pertains to you?  We are here to assist you with our expertise and high value services.  Contact us at 216.524.8900 or our form to discuss your individual situation.

 

There’s still time to cut your 2015 business tax bill

by: Pat Lysobey, CPA

Before you close the books on 2015, we’ve compiled a few important ways to lower your business tax bill.  You only have a few weeks, so no time to waste!  Let us know if you have questions or need to find out if you can take advantage of any of these below.

  1. Buy a heavy SUV, pickup, or van

Big SUVs, pickups, and vans are useful for hauling people and stuff around for your business, and they also offer major federal income tax advantages. Thanks to the Section 179 expensing deduction, you can probably claim a current-year write-off for up to $25,000 of the cost of a new or used heavy SUV that is placed in service before the end of your business tax year.

50% first-year bonus depreciation for new (not used) vehicles expired at the end of 2014, but we expect Congress to restore this valuable break for new vehicles that are placed in service by Dec. 31, 2015. If that happens, your allowable first-year depreciation write-off for a new vehicle can be even higher.

To qualify for these tax-saving deals, you must buy a “heavy” vehicle. That means one with a manufacturer’s gross vehicle weight rating (GVWR) above 6,000 pounds. You must also use the vehicle over 50% for business.

  1. Defer income and accelerate deductible expenditures through year end

If you are a cash basis sole proprietorship, LLC, partnership, or S corporation, your share of net income generated by the business is reported on your Form 1040 and taxed at your personal rates. Since the 2016 individual federal income tax rate brackets will not be much different from this year’s brackets, consider the time-honored strategy of deferring income into next year while accelerating deductible expenditures into this year–if you expect to be in the same or lower bracket next year. Deferring income and accelerating deductions will, at a minimum, postpone part of your tax bill from 2015 until 2016.

On the other hand, if your business is doing well, you might expect to be in a significantly higher tax bracket in 2016 (say 35% versus 25% for this year). In this scenario, take the opposite approach: accelerate income into this year (if possible) and postpone deductible expenditures until next year. That way, more income will be taxed at this year’s lower rate instead of at next year’s higher rate.  Since you may be subject to the alternative minimum tax, you should consult with your tax adviser before making any of these moves.

Now, how do you defer taxable income and accelerate deductions with two weeks to go?

If you expect your business income will be taxed at the same or lower rate next year, here are specific cash basis accounting moves to defer some taxable income until 2016.

  • Charge recurring expenses that you would normally pay early next year on major credit cards and not store credit cards. You can claim 2015 deductions even though the credit card bills won’t actually be paid until 2016.
  • Pay expenses with checks and mail them a few days before year end. The tax rules say you can deduct the expenses in the year you mail the checks, even though they won’t be cashed or deposited until early next year. For big-ticket expenses, consider sending checks via registered or certified mail, so you can prove they were mailed this year.
  • Before year end, prepay some expenses. As long as the economic benefit from the prepayment does not extend beyond the earlier of: (1) 12 months after the first date on which your business realizes the benefit or (2) the end of the next tax year. For example, this rule allows you to claim 2015 deductions for prepaying the premium for property insurance coverage for the first half of next year.
  • On the income side, the general rule for cash-basis businesses is that you don’t have to report income until the year you receive cash or checks in hand or through the mail. To take advantage of this rule, consider waiting until near year end to send out some invoices to customers. That will defer some income until 2016, because you won’t collect until early next year.
  1. Utilize the “De minimis Safe Harbor” Election

Take advantage of the “de minimis safe harbor” election to write-off supplies and small equipment. To qualify for the election, the cost of a unit of property can’t exceed $5,000 if the taxpayer has an audited financial statement (AFS). If there is no AFS, the cost of a unit of property can’t exceed $2,500.

  1. Stay tuned for news about restored depreciation breaks

Last year’s super-favorable depreciation rules will not apply this year, unless  Congress resurrects them. The good news: we strongly expect that to happen. If it does, the following beneficial depreciation rules will be available for asset additions that are placed in service before the end of your business’s current tax year. Be prepared to act fast around year end to take advantage.

Generous Section 179 deduction rules

Under current tax law, the maximum Section 179 deduction is only $25,000, and the deduction cannot be claimed for off-the-shelf software. We expect Congress to restore the generous $500,000 cap (from tax years 2010-2014) and the allowance for off-the-shelf software for 2015 in end-of-the-year legislation.

Real property expenditures have traditionally been ineligible for the Section 179 deduction privilege. However, there was an exception for so-called qualified real property that your business placed in service in tax years that began in 2010-2014. Specifically, your business could claim a Section 179 deduction of up to $250,000 for the following types of real property expenditures:

  • Interiors of leased non-residential buildings.
  • Restaurant buildings.
  • Interiors of retail buildings.

As the tax law currently reads, no Section 179 deduction is allowed for real property expenditures in tax years beginning in 2015. However, we also expect Congress to restore the $250,000 Section 179 deduction for 2015.

  1. Get ready for 50% first-year bonus depreciation?

As the tax law currently reads, no 50% bonus depreciation is allowed for assets placed in service in calendar year 2015. However, we expect Congress to restore the break for 2015 shortly.

  1. Stay tuned for news on other business ‘extenders’

Beyond the depreciation tax provisions, there is a list of other popular business tax breaks that Congress habitually allows to expire before ultimately extending them for another year or two. The tax credit for R&D expenditures is probably the most important example of these so-called “extenders.”

Meanwhile, be prepared to act fast around year end to take advantage of breaks that are extended for this year.  And let us know what you need to help your 2015 tax bill before the clock strikes midnight.  Contact us at 216.524.8900 or email your Hobe & Lucas contact.