Key Accounting Issues for 2017

4 Key Accounting Issues to Watch in 2017
Terry Sheridan
Jan 11, 2017
accountingweb.com

As if 2017 doesn’t promise enough drama and change already, the accounting profession is poised for a year brimming with expected regulatory issues and scrutiny.

Bloomberg BNA recently released its 2017 Tax & Accounting Outlook report that covers the gamut of legislative, state, international, and tax administration issues. But it also highlights the following four key accounting issues that could impact practitioners and companies in the new year.

1. Banks and credit losses. New rules on the reporting of loans and other credit losses portend one of the biggest changes ever in the financial accounting of banks and other companies, the report states.

Under Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which was issued by the Financial Accounting Standards Board (FASB) last June, banks and other lending institutions will be required to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

The “current expected credit loss model,” the core of the new standard, replaces the long-standing accounting model shaped around incurred losses.

This year “promises to be a period of preparing for the sweeping modifications in accounting for credit impairments,” the report states. “Companies have to assess what information must be assembled to shift to the new standard.”

Companies that file reports with the US Securities and Exchange Commission (SEC) will apply the new rules beginning in January 2020. Smaller and private companies have until 2021.

“Work that led to the credit losses rules of FASB and the International Accounting Standards Board was spurred by the 2008-09 financial crisis,” the report states. “Working in tandem for several years, the two boards sought to remedy the widely seen problem of recording loan losses ‘too little, too late.’”

2. Insurance. Life insurance and annuities are complex as it is, and a FASB proposal to change insurance accounting rules “brings hurdles, because of challenges inherent in the sector as a whole,” the report states.

Overall, the proposed ASU, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, seeks to modernize an accounting model dating back more than 35 years that doesn’t address the newest insurance products, Bloomberg BNA says. FASB contends that better and more consistent information will result.

Companies will need more data, which means more IT, internal controls, and more people in an industry that’s already faced cutbacks.

The proposal, which was issued last September, is expected to most affect traditional life insurance companies that issue long-term care policies and disability income, sell participating contracts, and sell products with market risk benefits, such as variable universal life and variable annuities, the report states.

Trouble spots include financial reporting projecting 30 years outward; how companies account for market risk benefits, like variable annuities; and disclosures.

Look for a FASB public roundtable early this year on the proposal and at least some changes to be made final later in the year.

3. Non-GAAP financial reporting. Will the SEC’s intense scrutiny of non-GAAP financial reporting continue this year? That’s the big question, according to Bloomberg BNA. A “flurry” of cautionary letters is expected, says one SEC staffer in the report.

Proponents of non-GAAP reporting indicate that its use can tell a better corporate story than GAAP, particularly in earnings reports. Whether the FASB will get involved isn’t clear, but at least one industry source in the report indicates that the board might want to begin by considering what issues lead to non-GAAP reporting.

When Bloomberg BNA recently asked SEC Chief Accountant Wesley Bricker whether the commission would continue to aggressively address non-GAAP reporting in 2017, he said, “I am confident that the commission will remain focused, as it always has, on the appropriate administration of the securities laws.”

4. Auditor disclosure rules. New requirements in audit transparency and a revamp of the auditor’s report are coming, courtesy of the Public Company Accounting Oversight Board (PCAOB).

Beginning on Jan. 31, audit firms must disclose the name of the audit engagement partner in the new PCAOB Form AP, Auditor Reporting of Certain Audit Participants. The form also will disclose other accounting firms that participated if they did at least 5 percent of the total audit hours. Foreign countries already require this.

“US auditors have vehemently opposed this requirement for liability reasons,” the report states.

Audit firms will have until June 30 to disclose the other firms’ participation.

A proposed revision to the auditor’s report will require auditors to explain “critical audit matters,” which PCAOB members initially described as “those matters that kept the auditor awake at night,” the Bloomberg BNA report states.

The board also wants experienced or “lead” auditors to supervise inexperienced auditors instead of simply signing off on their work.

The report cites an email from Larry Shover, a member of the PCAOB’s Investor Advisory Group, in which he states that the supervision of other auditors is the most significant of all the board’s projects to investors.

Celebrate National Wine Tasting Day @ Secco Wine Bar

Did you know that November 5, 2016 is National Wine Tasting Day?  As an avid wine drinker, I was delighted to learn of the event and excited that it gave me an excuse to visit one of my favorite clients in Richmond serving my favorite beverage— Secco Wine Bar! Having recently moved to their new location (something we both have in common...) they've been able to expand their menu as well as their seating with a heated patio outdoors and more space inside.  Celebrate this holiday with me and go to your favorite local wine bar...as if you needed the excuse.

Tax Planning for Small Business

It’s fairly common knowledge that when you plan ahead, things generally cost you less money.  You have more time to shop around for the best deal and you aren’t paying exorbitant fees for last minute convenience.  While it comes to mind that this rule is especially true for travel expenses, it is also very true when it comes to tax planning for your small business.  The more you plan ahead, the more likely you are to find a strategy or that new tax law, that saves you hundreds.

Cash flow is incredibly important for small businesses, and minimizing your tax liability means more money for growth and investment.  Money saving strategies like making contributions at end of year are also beneficial to your bottom line.  Further, knowing your bottom line months in advance can give you more time to plan on making that payment.  Would you rather learn about a $10,000 bill a week in advance or 4 months in advance? Exactly.

Tax Planning for Different Business Forms

SOLE PROPRIETORSHIPS AND PARTNERSHIPS Tax planning for sole proprietorships and partnerships is in many ways similar to tax planning for individuals. This is because the owners of businesses organized as sole proprietors and partnerships pay personal income tax rather than business income tax. These small business owners file an informational return for their business with the IRS, and then report any income taken from the business for personal use on their own personal tax return. No special taxes are imposed except for the self-employment tax (SECA), which requires all self-employed persons to pay both the employer and employee portions of the FICA tax, for a total of 15.3 percent.

Since they do not receive an ordinary salary, the owners of sole proprietorships and partnerships are not required to withhold income taxes for themselves. Instead, they are required to estimate their total tax liability and remit it to the IRS in quarterly installments, using Form 1040 ES. It is important that the amount of tax paid in quarterly installments equal either the total amount owed during the previous year or 90 percent of their total current tax liability. Otherwise, the IRS may charge interest and impose a stiff penalty for underpayment of estimated taxes.

Since the IRS calculates the amount owed quarterly, a large lump-sum payment in the fourth quarter will not enable a taxpayer to escape penalties. On the other hand, a significant increase in withholding in the fourth quarter may help, because tax that is withheld by an employer is considered to be paid evenly throughout the year no matter when it was withheld. This leads to a possible tax planning strategy for a self-employed person who falls behind in his or her estimated tax payments. By having an employed spouse increase his or her withholding, the self-employed person can make up for the deficiency and avoid a penalty. The IRS has also been known to waive underpayment penalties for people in special circumstances. For example, they might waive the penalty for newly self-employed taxpayers who underpay their income taxes because they are making estimated tax payments for the first time.

Another possible tax planning strategy applies to partnerships that anticipate a loss. At the end of each tax year, partnerships file the informational Form 1065 (Partnership Statement of Income) with the IRS, and then report the amount of income that accrued to each partner on Schedule K1. This income can be divided in any number of ways, depending on the nature of the partnership agreement. In this way, it is possible to pass all of a partnership's early losses to one partner in order to maximize his or her tax advantages.

C CORPORATIONS Tax planning for C corporations is very different than that for sole proprietorships and partnerships. This is because profits earned by C corporations accrue to the corporation rather than to the individual owners, or shareholders. A corporation is a separate, taxable entity under the law, and different corporate tax rates apply based on the amount of net income received. As of 1997, the corporate tax rates were 15 percent on income up to $50,000, 25 percent on income between $50,000 and $75,000, 34 percent on income between $75,000 and $100,000, 39 percent on income between $100,000 and $335,000, and 34 percent on income between $335,000 and $10 million. Personal service corporations, like medical and law practices, pay a flat rate of 35 percent. In addition to the basic corporate tax, corporations may be subject to several special taxes.

Corporations must prepare an annual corporate tax return on either a calendar-year basis (the tax year ends December 31, and taxes must be filed by March 15) or a fiscal-year basis (the tax year ends whenever the officers determine). Most Subchapter S corporations, as well as C corporations that derive most of their income from the personal services of shareholders, are required to use the calendar-year basis for tax purposes. Most other corporations can choose whichever basis provides them with the most tax benefits. Using a fiscal-year basis to stagger the corporate tax year and the personal one can provide several advantages. For example, many corporations choose to end their fiscal year on January 31 and give their shareholder/employees bonuses at that time. The bonuses are still tax deductible for the corporation, while the individual shareholders enjoy use of that money without owing taxes on it until April 15 of the following year.

Both the owners and employees of C corporations receive salaries for their work, and the corporation must withhold taxes on the wages paid. All such salaries are tax deductible for the corporations, as are fringe benefits supplied to employees. Many smaller corporations can arrange to pay out all corporate income in salaries and benefits, leaving no income subject to the corporate income tax. Of course, the individual shareholder/employees are required to pay personal income taxes. Still, corporations can use tax planning strategies to defer or accrue income between the corporation and individuals in order to pay taxes in the lowest possible tax bracket. The one major disadvantage to corporate taxation is that corporate income is subject to corporate taxes, and then income distributions to shareholders in the form of dividends are also taxable for the shareholders. This situation is known as "double taxation."

S CORPORATIONS Subchapter S corporations avoid the problem of double taxation by passing their earnings (or losses) through directly to shareholders, without having to pay dividends. Experts note that it is often preferable for tax planning purposes to begin a new business as an S corporation rather than a C corporation. Many businesses show a loss for a year or more when they first begin operations. At the same time, individual owners often cash out investments and sell assets in order to accumulate the funds needed to start the business. The owners would have to pay tax on this income unless the corporate losses were passed through to offset it.

Another tax planning strategy available to shareholder/employees of S corporations involves keeping FICA taxes low by setting modest salaries for themselves, below the Social Security base. S corporation shareholder/employees are only required to pay FICA taxes on the income that they receive as salaries, not on income that they receive as dividends or on earnings that are retained in the corporation. It is important to note, however, that unreasonably low salaries may be challenged by the IRS.

This article originally appeared on ReferenceforBusiness.com and includes some other great resources as well!

No Tricks, Just Treats!

Now that we're all settled in, help us celebrate our new location at 122 Granite Ave!  We are inviting all of our friends, family, clients and colleagues to stop by for some grilled burgers and dogs along with craft beer and tasty homemade treats!

Tax Extension Deadline!

If you filed for an extension, Monday, October 17th is the deadline to file your Individual Tax Return (1040, 1040A, or 1040EZ) for 2015!  

October 17th is also the date for Electing Large Partnerships that have filed for an extension (Form 1065-B).

Think Ahead:

December 15th is the deadline for Corporations to make 2016 estimated payments.

For a list of all tax deadlines by quarter click here.

We're Open!

Thanks to all of our clients for their patience during our move, we are up and running at full speed! Make your appointments today!

Is Cloud-Based Accounting Right for Your Small Business?

Accounting Works specializes in helping small business owners set up easy to use software for everyday accounting needs.  If your business involves being out in the field or multiple employees conducting transactions, Cloud-based tools might be the right option for you!  Since everything can be accessed from anywhere your expenses and invoices can always be up to date even with multiple users.  One of the benefits of a subscription-based service is that updates will be available regularly at your normal subscription cost rather than purchasing updated software every few years.  This article from Entreprenuer.com goes into detail about how Cloud-based accounting could benefit you.

3 Benefits of Cloud-Based Accounting Tools for Small-Business Owners
By: Jen Cohen Crompton

What do a pastry chef, a construction project manager and a creative design director have in common? As small-business owners, each opened up shop to serve customers and do what they love -- not to spend hours on accounting or bookkeeping.

Fortunately, today’s small-business owner can take advantage of an ever-growing suite of organizational tools and technologies to reduce the headaches of managing invoices, bills and receipts while increasing the time spent pursuing new business opportunities. These tools are increasingly available as cloud-based offerings, and most small businesses should consider migrating their current accounting workflows to the cloud.

What, exactly, is the cloud? Cloud-based software, or software as a service (SaaS), offers users access to technology on a subscription basis. The software provider securely hosts all necessary databases and servers, and small-business owners access their data anytime, anywhere via internet connection.

Many small-business owners may wonder if they can expect the same functionality from cloud-based accounting programs that they’re accustomed to with traditional desktop versions. While it’s true that cloud-based versions of tools like QuickBooks may provide slightly different functionality compared with a desktop version, what current versions of cloud tools lack in functionality they make up for in versatility and long-term viability.

Software providers are likely to continue phasing out desktop solutions and limiting or discontinuing support, which means that customers who migrate accounting workflows to the cloud today won’t be stuck with an unsupported product in the future. Additionally, small businesses that upgrade accounting workflows to the cloud can also enjoy a number of other benefits that SaaS models allow. Here are a few:

1. Enable smart organization for a distributed workforce.
Since accounting information stored in the cloud can be added or accessed anywhere, team members can quickly and easily complete their work regardless of their physical location. Whether a sales rep needs to add expense receipts or a project manager needs to check an invoice for a supplier, having cloud-based tools in place makes organizing and accessing important information as easy as taking a picture of a document or searching by vendor, amount or date.

2. Maintain relationships and easily verify discrepancies.
Relationships with vendors and distributors play an enormous role in the success of many small businesses. When a vendor or distributor questions why a bill hasn’t been paid, small-business owners that leverage cloud-based tools can quickly search for invoices. Advanced cloud tools allow team members to search by virtually any term to locate a bill and identify whether it was missed and pay for it quickly to preserve the vendor relationship.

3. Use a broader suite of secure apps.
Cloud applications such as QuickBooks Online and Neat not only provide access to information and documents from any device, but they also integrate with other cloud-based tools. As soon as a small business starts using one cloud-based accounting technology, it’s easy to extract and leverage data across a number of different platforms and reduce time spent on manual data entry.

Small-business owners start businesses because of passion for what they do -- not to spend time managing paperwork. Migrating traditional accounting workflows to cloud-based solutions enables small-business owners to reduce time spent managing information and improve overall operational efficiency.

For the original article, click here.

Helping Businesses Get Started; A Compass Home Solutions Story!

Charles Williams is a local Richmond small business owner.  His company, Compass Home Solutions, specializes in home organization of every variety.  From decluttering a home room by room when everyday life just gets out of hand, to implementing an organized schedule when there are not enough hours in the day— his goal is to reduce stress for his clients.  After being in the industry for 4 years, Charles decided to take a chance and open his own business on January 1st, 2015 and thus was born Compass Home Solutions!

Being an organizational zealot, Charles knew the importance of keeping his finances in order when starting this new venture.  He will be the first to admit that he is horrible at math, so he knew he needed help.

“If there’s anything math related, I want nothing to do with it,” he admits.  “I knew that before I started my business I needed to find someone,” so he sought the help of Stephen Fishel of Accounting Works.

Stephen initially started working with Charles on setting up a software system to stay organized for invoicing and tracking expenses. “He got me to the point where I could handle my day to day accounting,” he says when recalling starting to work with Stephen. “I’ve absolutely saved money not paying for programs I didn’t need, paper stock, supplies I would’ve never needed without his guidance.”  Not having a lot of start-up capital, it was important to Charles to save as much as he could in initial expenditures.  

“The first year I was in business, we didn’t set up quarterly estimated [tax] payments, because we weren’t sure how much I’d bring in, but this year we’ve set them up.”  Compass Home Solutions has grown a lot in just one year of business expanding to services for Realtors and prepping homes for sale.  As Charles’ business expands and his accounting questions get bigger he knows he won’t have any trouble tackling accounting problems. “[Stephen[ is always in his office and accessible.  If something doesn’t sound right, I still call him up."

If you’re looking to start your own business or need help organizing a system for your daily accounting issues, Accounting Works is there for you! 

DIY Tax Software, Not So User Friendly

This article from AccountingToday is a great read! It not only outlines the benefits of using a tax professional versus tax software, it explains that the taxpayer is still liable for any filing mistakes and NOT the software company itself.  Even though you've followed all of the prompts and double checked everything, it doesn't mean your purchased software covers the intricacies your individual circumstances.  In most cases you can find your tax bill a little lighter by using a professional who is aware of tax law and every exemption you qualify for.  If you owe less by using DIY software, it is most likely a mistake and could end up costing you a lot in the long run!

Cleaning Up the Mess Left By DIY Tax Software
By Greg Freyman

More and more taxpayers are turning towards do-it-yourself tax software to prepare and file business and individual income tax returns.
With every passing year, our offices receive an ever-increasing number of calls asking for help fixing previously self-filed returns. Consumers of these products are beginning to treat tax preparation software as virtual tax return preparers. As the IRS has focused on increased regulation for paid providers of tax return services, I believe the Service’s scope should include tax preparation software providers as well.

The security of taxpayer accounts and personal information has been a top priority of the IRS for e-file providers since the electronic filing program’s inception. Publication 4557, Safeguarding Taxpayer Data, and Publication 4600, Safeguarding Taxpayer Information were published to provide guidance and best practices. However, in 2015, Intuit’s TurboTax systems were hacked, leading to many fraudulent returns being filed without the taxpayers’ knowledge, due to poorly designed security measures. The repercussions of the fraudulent returns left fraud victims having to manually file their tax returns, file police reports detailing possible identity theft, and monitor their credit reports for any other signs of their information being used. Despite the security breach, no penalties were imposed against Intuit. The company was only instructed to prepare a list of changes to reduce tax fraud by the next filing year.

Tax preparation software providers need to apply the same strict data-handling guidelines to self-preparation tax software as do the professional tax preparers.

Another significant issue with do-it-yourself software is the consumer’s reliance on it to do the impossible and apply the voluminous amount of tax law to their individual scenario. Without a firm grasp of the ever-changing tax law, individuals are relying heavily on the automated prompts within the system to help guide them, further creating the illusion that preparing and filing income tax returns is simple in all cases.

Granted, a tax return may be simple, and the software utilized may be sufficient, in some cases. However, even in straightforward scenarios, costly mistakes can and do happen. A client of ours, for example, forgot to enter the city tax that was withheld from them, costing them approximately $4,000 while self-preparing a very simple return. Additionally, what most fail to realize about tax audits and proceedings is that the burden of proof, unlike the legal system, fall on the taxpayer to show the reason why certain deductions were taken or key information was omitted from the return. Consumers of these tax products need to be reminded that relying on prompts from the software does not constitute a viable defense.

Another case involved both a business and a personal income tax return, and arose from the taxpayer’s limited knowledge of Schedule K-1s, the IRS’s ability to cross-reference documents, misclassifying large expenses, and misrepresented 1099 filings. The taxpayer had not included Schedule K-1’s on his personal return after preparing his own business’s return. The taxpayer failed to realize that the IRS operates on a matching system in which it matches third-party filings with an individual’s return. The mismatch of the K-1 that was present on the S corporation return, but not found on the client’s 1040, triggered a correspondence audit. In yet another example, the client incurred over $161,000 worth of penalties and interest over multiple years, and had to spend over $30,000 in accounting fees over a number of years, working with the IRS and states, to remove the incorrect penalties and amend six years of business and individual tax filings.

The cause? The client used self-preparation tax and payroll software, and assumed their company was correctly filing partnership and payroll forms for years. In fact, the client had been sending in payroll tax deposits, but not filing all of the forms consistently, omitting filing for the periods where no payroll tax was due. The client was unaware of a requirement that mandated taxpayers to file zero payroll forms. Since the IRS had not received zero payroll forms, the tax liability from prior periods was assumed for the periods with missing tax forms. Aside from missing forms, the client was also unaware that an employee had a certain type of visa status that exempted an employer from certain payroll taxes. Presenting this information helped to show that a payroll tax overpayment existed on the account, helping to reduce their penalties and interest.

Taxpayers should be made aware that the software they are using and relying on to prepare and file their taxes may not adequately report their tax liability to comply with tax laws. Furthermore, taxpayers may inadvertently be leaving more of their money on the table due to the automated software. ABC News recently showed a segment on how one family’s refund amounts differed when using do-it-yourself tax software, a storefront tax preparer and a tax accountant. Their highest refund was calculated by the tax accountant. The family admitted to having overlooked a key item within the tax software, which the tax accountant had found for them. By engaging in an open dialogue with a tax professional, the family was able to more than double their tax refund amount.

Until the IRS requires all tax preparation software providers be held to the same standards of paid tax professionals, we must continue to advocate for our clients and those burned by do-it-yourself software. It is up to us to remind taxpayers to seek professional help with their tax issues to avoid costly mistakes. The services of tax professionals may seem more expensive upfront than do-it-yourself tax software at first glance. To overcome this obstacle, it is important to showcase the value in choosing tax professionals who not only provide peace of mind, quality of service, and thorough investigation and resolution of their tax issues, but also perform in-depth tax research and perform representation services. As tax professionals, we need to keep the dialogue open with our clients and those attempting to navigate through tax laws on their own, and remind them of the value we bring.

The original source of this article is found at AccountingToday.com

3 Tips to Spring Clean Your Business Plan

Spring cleaning isn’t just for your home.  If there are things you need to do to get your house in order, now is the time to do it before it's too late. Refresh your plan for the year!  Taxes are over and it’s time to start planning for next year.  Get your quarterly and yearly goals in order and you can maximize profit, minimize spending and get your small business finances running smoothly. Not to mention be able to fully relax on your summer vacation!

Quarterly Tax Payments

You probably already pay quarterly tax estimates as a small business owner. If you don’t already do that, you should.  It keeps that one BIG bill at bay in the long run.  If you are already doing that, make sure to established a separate account just for the funds going towards your tax bill. It’s also imperative to keep your business accounts away from personal ones.  This helps you keep more accurate records of business income or expenses and minimizes confusion about how much your quarterly payments should be.

Cash Flow

Spring is an amazing time for any business.  People are starting to get out and about, reemerging from their winter funk and non-spending habits.  It’s time for updates to wardrobes, houses, and finances!  A good tip is to check your cash flow every week.  This will let you know if your cash flow is stuck in accounts receivable and more accurately time income and expenses. 

Update Your Plan

Take the time to write down a formal business plan.  If you don’t have one in place, there are no goals to reach with no direction to achieve them.  Take the time to do this because it will make a difference.  If you already have one in place, but it’s from last year, review it!  Do you still have the same goals as last year, or do you want to aim a little higher for the next?  This will help you prioritize time and money in order to curb extraneous spending.  Strategizing your business is a productive task and can really increase profits.

Spring cleaning is a really great way to start fresh not only in your personal life but for your business, too!  So get motivated this season and take these steps towards organizing your business!

Premium Tax Credits Being Reviewed by IRS

An article on AccountingToday.com, by Michael Cohn, recently highlighted how the IRS has been advised to review the Premium Tax Credits due to the fact that "the IRS is unable to ensure that individuals claiming the PTC met the most important eligibility requirement: that insurance was purchased through an exchange."  The IRS has updated procedures to spot fraudulent claims, but not without stretching its resources.

IRS Miscalculating Tax Credits for Obamacare
By  Michael Cohn

The Internal Revenue Service’s computer systems miscalculated the allowable Premium Tax Credits for more than 27,000 taxpayers who received subsidies for health insurance under the Affordable Care Act, according to a new report.

The report, from the Treasury Inspector General for Tax Administration, evaluated the effectiveness of the IRS’s verification of health care tax credit claims during the 2015 filing season. According to the IRS, almost $11 billion in Advance Premium Tax Credits were paid to insurers in fiscal year 2014.  As of June 11, 2015, the IRS processed more than 2.9 million tax returns involving the Premium Tax Credit, and taxpayers received approximately $9.8 billion in PTCs that were either received in advance or claimed at filing.

The ACA requires health insurance exchanges to provide the IRS with information regarding individuals who are enrolled by the exchange on a monthly basis. The data is referred to as Exchange Periodic Data, or EPD. TIGTA’s analysis of more than 2.6 million tax returns with a PTC claim that were filed between January 20, 2015, and May 28, 2015, for which the IRS had EPD, found that the IRS accurately determined the allowable PTC on more than 2.4 million (93 percent) returns.

TIGTA said, however, that it is continuing to work with the IRS to determine the cause for calculation differences in 150,385 of the remaining 182,884 (7 percent) tax returns. Computer programming errors resulted in an incorrect computation of the allowable PTC for 27,827 tax returns. For 4,672 tax returns, the IRS did not have the authority to correct the PTC claim during processing.

The Affordable Care Act created the health insurance marketplace, also known as an exchange. The exchange is where taxpayers find information about health insurance options, purchase qualified health plans, and, if eligible, obtain help paying premiums and out-of-pocket costs. The ACA also created a new refundable tax credit, the Premium Tax Credit, to help offset the cost of health care insurance for those with low or moderate income. Individuals can receive the PTC in advance or can claim the PTC on their tax return. Individuals who received the PTC in advance are required to reconcile the amount paid on their behalf to the allowable amount of the PTC on their tax return.

The House Committee on Appropriations requested that TIGTA evaluate the IRS processes to ensure that unauthorized payments or overpayments of the PTC are fully recouped.

The exchanges did not provide the EPD to the IRS prior to the start of the 2015 filing season as required. In addition, IRS system issues prevented the IRS from being able to use most of the EPD received between Jan. 20, 2015, and March 29, 2015, according to TIGTA.

Without the required EPD, TIGTA noted, the IRS is unable to ensure that individuals claiming the PTC met the most important eligibility requirement: that insurance was purchased through an exchange. TIGTA’s analysis of tax returns filed between Jan. 20, 2015, and May 28, 2015, identified 438,603 tax returns for which the IRS did not have EPD at the time the tax returns were processed or the EPD were incorrect.

“The IRS did develop manual processes in an effort to verify Premium Tax Credit claims associated with Exchanges that did not provide the required Exchange Periodic Data,” said TIGTA Inspector General J. Russell George in a statement. “However, these processes resulted in the IRS having to suspend tax returns during processing, which uses additional resources and increases the burden on taxpayers entitled to these claims.”

TIGTA verified that the IRS processes to identify potentially fraudulent PTC claims are operating as intended. In addition, the IRS corrected programming errors identified by TIGTA that resulted in tax returns not being identified for further review during processing.

TIGTA recommended the IRS review the 27,827 tax returns that TIGTA identified to ensure that these individuals receive the correct PTC, and that the IRS modify the income and family size verification processes to use the most current information available when determining if a taxpayer has reconciled APTCs received in the prior calendar year.

The IRS agreed with both of TIGTA’s recommendations and said it will review the 27,827 tax returns to prioritize them against existing workload demands and resource constraints so that they may be addressed accordingly. The IRS also said that implementation of agreed changes to the income and family size verification process is subject to budgetary constraints, limited resources and competing priorities.

“For those 27,827 returns where the PTC claim may have been incorrectly verified, due to the reliance on projected partial-year data and programming errors, it is important to note that the IRS does not have statutory authority to correct discrepancies without following deficiency procedures,” wrote Debra Holland, commissioner of the IRS’s Wage and Investment Division, in response to the report. “Deficiency procedures, also known as audit procedures, are costly and compete with other enforcement priorities for scarce resources. We will review those returns to identify those that merit appropriate follow-up activity.”

For the full article, click here.

When to Stop Claiming your Children as Dependents

There has been a trend in recent years of kids returning home after college to save money.  Whether it's because they're still trying to find that great job, saving to buy a home, or don't know their next move, when it comes to supporting your kids, tax filing can get complicated.  Here are some scenarios in which you still qualify for filing your adult children as dependents, especially if they're still in college.  The limits for exemptions tend to change from year to year, so make sure you're up to date with what tax law requires of how much you're able to claim.

Can You Claim Your Adult Children on Your Taxes?
It's possible, but after they turn 19, the rules become complicated

By Penelope Lemov

All good things come to an end, and in the realm of taxes, that certainly applies to the dependency exemption parents can claim for raising their children. But when exactly does that exemption end?
The $3,800 exemption on 2012 tax returns is a tax break you can claim regardless of whether you itemize or how much money you earn, as long as your son or daughter was under 19 last year. But if your child was 19 or older, well, it’s complicated.

When You Can Claim Adult Children

Here are the rules:

Let’s start with the simplest case. If your child was 19 to 24 and a full-time college student for at least five months of the year, the exemption is yours for the taking, so long as you provided at least half of his or her support.

This isn't a high bar to meet for parents of undergrads or grad students. “If you’re paying for their education, it’s a no-brainer,” says Harold Miller, a CPA in New Haven, Conn. “That’s the largest expense in supporting them.”

When calculating whether you provided more than half of the support, you don’t need to factor in any scholarships or financial aid your child received. Nor do you need to count gifts from grandparents, as long as your son or daughter saved or invested the money.
“If you’re paying for more than half of their support while they are in college, they could have a summer job and earn $5,000, and that’s still OK,” says Barbara Weltman, an attorney and contributing editor at J.K. Lasser’s Your Income Tax 2013.

When Dependency Exemptions Get Complicated
When the kids have completed college and you’re still supporting them, however, the dependency exemption rules get far more complicated.

That’s an increasingly common phenomenon. In the wake of the Great Recession, with a great number of recent college grads unable to find work, many have moved back home. According to the most recent census data, 19 percent of men ages 25 to 34 — and 10 percent of women in the same age range — live with their parents.

For you to claim a child who’s no longer a full-time student, your son or daughter must be what the IRS calls a “qualifying relative.” This is the same category you might use to claim an elderly parent or child [with disabilities]. (For the rules on claiming your parents on your taxes, see “How to Claim Tax Breaks for Supporting Your Parents.”) Another thing you might have to consider: If you were divorced or separated last year, the decision over who gets to take the exemption would be a matter of negotiation.

The Tax Rules Regarding Support
To be a qualifying relative, your child didn’t have to live under your roof in 2012, but you had to provide at least half of his or her support. Here’s the catch: You can take the exemption only if your adult kid earned less in gross income than the exemption is worth ($3,800), regardless of how much you contributed to his or her expenses. So even though your daughter has been trying to gain traction in an exciting career, if she took a part-time gig tending bar in the meantime, that could be the kiss of death, taxwise.

Although the dependency exemption is fairly sizable, keep in mind that it’s a deduction from income, not a credit against your taxes. So its actual value depends on your tax bracket. For example, at the 25 percent bracket (taxable income between $70,700 and $142,700 for couples filing jointly), a $3,800 exemption is worth $950.

“It’s a nice amount, but not anywhere near what it costs to support a child,” says Marty Kurtz, president of the Financial Planners Association and a planner in Moline, Ill.

To read the original article, click here.

15 Things to Keep After Filing & How Long to Keep Them

In Kelly Phillips Erb's own words, a Forbes Tax writer, here are the things you need to keep after filing your return and for how long!

1. As a rule, keep your tax records and supporting documentation until the statute of limitations runs for filing returns or filing for refund. For most taxpayers, that means that you’ll want to keep those records for three years following the date of filing or the due date of your tax return, whichever is later.

2. If you don’t report all of the income that you should report (generally, if you omit more than 25% of the gross income shown on your return), the statute of limitations is extended: you’ll want to keep those records for at least six years. You may also want to get a better tax professional.

3. If you file a clearly fraudulent return or if you don’t file a return at all, the statute of limitations never actually runs. That means that there is no time limit on IRS action. In that event, you’ll want to hold onto your records forever. And in that case, you absolutely want to get a better tax professional and possibly a defense attorney on speed dial.

4. If you file a claim for credit or refund after you file your return, you’ll want to keep your records for three years from the date you filed your original return or two years from the date you paid the tax, whichever is later.

5. If you are a partner or S corporation shareholder, the statute of limitations is generally controlled by the date of your individual return.

6. If you file an amended return, it does not extend the statute of limitations for your original return. The clock doesn’t restart: the original date determines the statute of limitations (some exceptions apply if you file within 60 days of the assessment window).

7. You’ll want to keep supporting documentation for as long as the statute of limitations runs. Supporting documentations for your tax returns includes not only your forms W-2 and 1099 but also bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.

8. Don’t forget about those Obamacare requirements. Beginning with the 2014 tax year (the return you filed in 2015), you’ll need to keep records of minimum essential health insurance coverage or proof that you qualified for an exemption or premium tax credit (especially if you had to pay it back).

9. If you make nondeductible contributions to a traditional IRA, hold onto those records until you make a complete withdrawal/distribution: you don’t want to pay tax on those twice. But don’t stop there. As a rule of thumb, you should hold onto all IRA records – including Roth contributions – until you withdraw all of the money from the account.

10. If you claim depreciation, amortization, or depletion deductions, you’ll want to keep related records for as long as you own the underlying property. That includes deeds, titles and cost basis records.

11. If you claim special deductions and credits, you may need to keep your records longer than normal (for example, if you file a claim for a loss from worthless securities or bad debt deduction, you should keep those records for seven years).

12. If you have employees, including household employees, keep your employment tax records for at least four years after the date that payroll taxes become due or is paid, whichever is later. This should include forms W-2 and W-4, as well as related pay information including benefit forms.

13. If you claim any other special tax benefits not mentioned above (for example, the first time homeowner’s credit), a good rule of thumb is to keep your records for as long as the tax benefit runs plus three years.

14. If you own property that will result in a taxable event at sale or disposition (like stocks, bonds or your home), you’ll want to keep records which support your related tax consequences (capital gains, etc.) until the disposition of the property plus three years. That means, for example, that you should keep records related to your home, including home improvements, for as long as you own the house. Remember that you’re entitled to exclude up to $250,000 of gain on the sale of your home ($500,000 if married filing jointly) – so keep excellent records of the cost of the home as well as any improvements or other adjustments to basis.

15. If you receive property as the result of a gift or inheritance, you’ll want to keep records that support your basis in that property. Generally, if you inherit property, your basis is the stepped up value as of the date of death; if you receive a gift, your basis is the same as the donor’s basis. Don’t toss those old records just because you’re the new owner of the assets.

The full article "Tax Records You Should Keep After Tax Day (And How Long to Keep Them)" By Kelly Phillips Erb can be found here.

A Break After Busy Season!

It was so amazing to take a break after the busy tax season!  Thank you to all of my clients.  I was so happy that after offering my services for personal tax returns I was able to help out some great people who just needed some help getting the most out of their return!  Had so much fun at Northside Grille with the Richmond Business Alliance and looking forward to a wonderful summer!

Last Minute Money Saving Tax Moves

Now that we’re really down to the wire, it’s time to start crunching those numbers!  You’ve have a little bit longer this year, Individual Tax Returns are due on April 18th, but you may want to take the weekend to make sure you’re taking advantage of all the deductions available to you.  Lower your tax liability and avoid IRS scrutiny with some of these last minute tips.

1. Did you know you could deduct the cost of your 2015 Startup?

As long as your costs fall below the $50,000 mark, you could deduct up to $10,000 of your taxable income.  Up to $5,000 for research, development and creation of your business and $5,000 for the implementation costs such as incorporating, patenting, and legal fees.  Research costs spent improving your product or service are considered eligible expenses as well.

What doesn’t count:

-Advertising

-Promotions

-Quality control testing

-Consumer Surveys

2. Did you know that the threshold for big company purchases has been raised?

If you’ve purchased expensive equipment last year for your business, this year you can deduct up to $500,000 as long as your total eligible property costs are less than $2 million.  This can include big items like a new walk-in refrigerator for restaurants, or furniture for your office space, even computer programs.

What doesn’t count:

- Improvements on rental properties

- Air conditioning or heating units

- Any property used outside of the U.S. 

Did you know that in addition to mileage you can deduct auto loan interest?

Everyone’s favorite year end deduction— mileage, now includes any interest you’ve paid on auto loans!

What doesn’t count:

- Your daily commuting miles don't count as business miles

3. Did you know that the Home-Office deduction equation has simplified?

It has! Up to 300 square feet at $5 per square foot for a whopping total of $1,500. There is still the old method available for filing, it may be worth looking into which one saves you more.

What doesn’t count:

- Multi-Use Space; a playroom/office doesn’t count. Neither does your living room where you occasionally check emails.

It’s not too late!

Contribute to a Health Savings Plan (HSA), a Retirement Savings Plan like a traditional or Roth IRA and a percentage will be deductible.  However, each one has a cap A Roth IRA cannot except $5,500, or $6,500 if you’re over 50.  HSAs max out at $3,350 for individual and $6,650 for families.

Take these extra few days to scrutinize your account statements.  An extra couple hundred in tax liability is nothing to scoff at! 

4 Things You Need to Track When You're Self Employed

Being self-employed means there's a lot of weight on one person's shoulders - yours!  So come tax time, all of those small accounting and bookkeeping tasks that you've put off are mounting up.  When it comes to staying organized when there are so many other things to do, they key is to keep it simple. This article outlines the important things that you need to be tracking weekly, monthly and quarterly as a person who is self-employed. There may even be an app out there that can help you!

4 Things You Need to be Tracking if Your Self Employed
By Matt Rissell

There are more than 14 million entrepreneurs in the United States today. Together, they represent more than 10 percent of the nation’s 146 million workers. But it doesn’t stop there; the employees those entrepreneurs hire constitute yet another 20 percent of the U.S. workforce—putting a whooping 43 million people (three for every 10) under the self-employed/small business umbrella.

However, it’s a well-known statistic that eight out of 10 small businesses fail within the first 18 months. Which means that 80 percent of those 14 million entrepreneurs will never get their small business off the ground.

Why? Well, there’s a number of reasons a business can fail, but almost all of those failures can be attributed (at least, in part) to inconsistent or nonexistent tracking. One of the most critical things you need to track is also the easiest to do ... but oftentimes the most overlooked—and it can save your business thousands of dollars in gross payroll costs each year. Sound good? Keep reading. These are the four things you need to be tracking if you want to see success.

1. Your business AND personal expenses.
This might seem like a given, but you’d be surprised how many business owners don’t realize the importance nor have an accurate view of their business vs. personal expenses. Use a do-it-all expense tracking system like Expensify to keep your bank account, and your business, on track.


2. Your quarterly and yearly taxes.
Tax time for entrepreneurs can be a huge hassle—and a major financial blow—especially if you haven’t been relentlessly tracking your business and personal expenses. Tracking and understanding where you stand come tax season will help you avoid any nasty surprises and ensure you’re getting every dollar you deserve! Use tax software designed specifically for small businesses like yours. I recommend Avalara for automatic monthly and quarterly tax filing or TurboTax Home & Business for to track, organize, and maximize your annual refund.

3. Your billing and invoicing.
Are you still billing and invoicing using paper invoices and snail mail? Pay or get paid faster and easier with a business payment system like bill.com. Knowing exactly what your profits and losses are, right now, enables you to make smarter decisions for your business and ultimately make more money.

4. YOUR TIME.
Time is your most precious commodity—do you know where you’re spending it? Accurate and easy time tracking results in real-time business insight, more accurate job and labor costing, and faster payroll. Customers who use TSheets save an average of 2-8 percent on gross payroll costs each year. Time is the easiest and most important thing you should be tracking—but often the most overlooked. How much would you save, simply by making the switch to automated time tracking?

To see the original article, click here.

Last Minute Tax Tips for Small Businesses

When you’re running a business it’s hard to do it all. Filing your taxes in a timely manner can be difficult and if you’re a business owner this is especially true because you typically have a lot on your plate. The problem with waiting until the last minute to file your taxes is that you may miss some things that will work to your advantage. Here are some of the things you want to pay attention to when you’re filing this year:

Free Filing

If you made less that $57k in the past year, you are eligible to use free e-filing software. What’s great about this is that there is little to no out of pocket expense to you and it's typically self-explanatory. You get asked questions about your business and finances, and you fill out the form like you would any other questionnaire. 

Start-Ups

Did you start your business last year? You qualify for a $5k deduction since starting a business is considered a capital expense. This may not apply to everyone but it definitely applies to some, and if you did start a new business last year, congrats! It’s not easy. 

Education

Did you take a class or course to receive training to improve your business? If so, that also qualifies as a deduction. Things like seminars and conventions count too!

Driving

Mileage is one of the easiest deductions for you to qualify for. Whether it’s meeting clients, getting supplies or doing research around town, you can get a deduction for using your own vehicle to run your business. Most business owners have to do this at some point or another, just make sure that you keep track of your miles and maybe even use a helpful app to do it for you!

Working from home

Being your own boss is great, but if you also get to work a lot from home and have a dedicated space just for that, that also qualifies as a deduction. You do have to specify square footage but that shouldn’t take too long to figure out. 

Insurance

There’s no one looking out for you but yourself when you’re self-employed, this is why getting health insurance is on you. Not to worry though, IRS knows that this can be a costly expense for someone who has their own business and sometimes either offers assistance or a tax break to ensure you’re healthy enough to run your business. 

Software and subscriptions

Quickbooks, Photoshop, Paypal - if you’re a business owner you may be familiar with some of the these software programs. Most of these require a monthly subscription which can end up costly hundreds of dollars a year, take this as a deduction also because it is considered a business expense.

Hotels and Meals

We never know where work will take us, but we do know that covering these expenses can get costly. That is why saving all your receipts for both meals and hotels is important. Most of these things, as long as they are a business expense, are also deductible. 

Don't Forget Your 1095-A

There are three forms you should have received in the mail this year and those are forms 1095-A, B, and C.  These forms come from the Marketplace (A), other insurers (B), or your employer (C), and their official purpose is to be your proof of qualifying health coverage.

1095-A
You should have received this document already, but if you haven't there are still ways to get it or file without the form.  This is important to save and file with your return because it exempts you from having to make a "shared responsibility payment," or penalty under the Affordable Care Act.  However, if you have made more in 2015 than you had anticipated, you may end up owing back any Advanced Premium Tax Credits you've received throughout the year.

1095-B & 1095-C
This means you've obtained insurance through your employer or private means.  The important thing is to save these documents along with your annual tax files.  If you've switched coverage, you will receive these forms for each of the plans that you've held.  If you haven't gotten your 1095-C yet, it may still be on its way.  In December, an extension was granted for these forms and may arrive past the March 31 deadline.

Those with a 1095-A don't be caught off guard this year with a bigger tax liability than expected!  But also, congratulations on making more than you anticipated.

Change in Small Business Expense Threshold for Deductions

Straight from the IRS, news that allows small businesses to immediately deduct expenses that would previously have to be spread out annually through depreciation deductions!

For Small Businesses: IRS Raises Tangible Property Expensing Threshold to $2,500; Simplifies Filing and Recordkeeping

WASHINGTON —The Internal Revenue Service today simplified the paperwork and recordkeeping requirements for small businesses by raising from $500 to $2,500 the safe harbor threshold for deducting certain capital items.

The change affects businesses that do not maintain an applicable financial statement (audited financial statement). It applies to amounts spent to acquire, produce or improve tangible property that would normally qualify as a capital item.

The new $2,500 threshold applies to any such item substantiated by an invoice. As a result, small businesses will be able to immediately deduct many expenditures that would otherwise need to be spread over a period of years through annual depreciation deductions.

“We received many thoughtful comments from taxpayers, their representatives and the professional tax community, said IRS Commissioner John Koskinen. “This important step simplifies taxes for small businesses, easing the recordkeeping and paperwork burden on small business owners and their tax preparers.“

Responding to a February comment request, the IRS received more than 150 letters from businesses and their representatives suggesting an increase in the threshold. Commenters noted that the existing $500 threshold was too low to effectively reduce administrative burden on small business. Moreover, the cost of many commonly expensed items such as tablet-style personal computers, smart phones, and machinery and equipment parts typically surpass the $500 threshold.

As before, businesses can still claim otherwise deductible repair and maintenance costs, even if they exceed the $2,500 threshold. The new $2,500 threshold takes effect starting with tax year 2016. In addition, the IRS will provide audit protection to eligible businesses by not challenging use of the new $2,500 threshold in tax years prior to 2016.

For taxpayers with an applicable financial statement, the de minimis or small-dollar threshold remains $5,000.

To access the original article, click here.

Which Education Deduction/Credit Works Best for You?

When thinking about education expenses when filing your 2015 tax return there are basically 3 options. There are two tax credits available to those who have paid expenses for higher education in 2015. They are The American Opportunity Credit and the Lifetime Learning Credit.  The third option is claiming your tuition and fees as a deduction.  Where a tax deduction reduces only your taxable income, claiming one of the credits reduces your bill by the actual credit amount  Only one of these credits can be claimed for a qualifying student, you cannot claim both in the same year.  However, if you have paid education expenses for two students, these credits can be claimed on a per-student, per-year basis!  As with any accounting, it’s all in the math.  A lot of people will be better off claiming the credits and reducing their bill outright. Whereas making deductions might still land you in the same tax bracket, barely making an impact.  Ultimately, the bottom line will always tell you which is the best way to go.

Here is a guide to which option may be best for you:

Tuition and fees deduction

You are allowed up to a $4,000 deduction and you don’t even have to itemize them.  The deduction is for the taxpayer, not the student.  If there are multiple students in the household, this may not be the most beneficial

American Opportunity Credit

You are allowed up to $2,500 credit per eligible student, therefore, if you have two students in the household you could receive a $5,000 credit off of your final tax bill.  The American Opportunity Credit is only available for the first 4 years of any student pursuing an undergraduate degree and needs to be enrolled at least half-time during one academic period to qualify.  All of your tuition and required enrollment fees are qualified expenses along with any course materials and supplies needed and don’t have to be purchased from the institution in order to qualify.

Lifetime Learning Credit

This allows up to $2,000 credit per return— not student.  So only one Lifetime Learning Credit can be claimed per tax year no matter how many qualifying students.  However, the advantage of this credit is that you can claim it for any post-secondary education and it applies to all courses that help acquire or improve job skills.  It is not necessary to be pursuing a degree or other recognized education credential.  All qualifying expenses include tuition and enrollment fees, and course materials, supplies and equipment purchased from the institution.

No matter what your situation, these are three great tools to use to whittle down tax liability, and for good reason. These days education can be expensive so take advantage of all the help you can get!