Start Planning for Your Child’s Future Today
Feb 12, 2015
Looking for ways to help your children save for the future? There are several ways to do this, which will not only give them the beginnings of a good future, but also reduce your own taxes!
Employ your child Have some light work around your business that needs to be done? Know someone that’s looking for a little help? Think of your child! This is a win-win situation because the business gets a deduction for the wages paid and depending on the salary, your child will pay little to nothing in taxes on that income!
Start a Roth IRA Roth IRAs are special because they take post-tax dollars, allow you to save and invest, and then pull the money out at some point in the future, tax-free. Any investment advisor will tell you that time is your friend and that it’s important to save early. And while this is true, there are also other advantages to starting to save early. When you start a Roth for your child, you are able to take advantage of their extremely low effective tax rates and save those post-tax dollars on which they are paying essentially nothing in tax. In the example of employing your child, doing this and starting a Roth is incredible because the wages that they are being paid are not only (essentially) tax-free when they are earned but they and all their future earnings are sheltered from tax inside of the Roth. With several decades of compound interest, this adds up the thousands upon thousands of dollars in tax savings.
Contribute to a 529 Plan Most states now offer 529 college savings plans. This is a great college savings tool because many states allow you to deduct a portion of your contributions to these accounts from your taxable income. In addition, as long as the money is used for qualified college expenses, all the earnings are tax-free when withdrawn.
Courtney Elgin, CPA
Categories: Uncategorized
Ohio Governor Kasich Budget Proposal May Lead To Tax Cuts For Small Businesses
Feb 05, 2015
Governor Kasich’s two-year budget proposal includes income tax cuts for small businesses and individuals that would be partly offset by higher taxes on sales, tobacco, drilling and larger businesses.
The proposal eliminates income tax on all small businesses with annual gross receipts of $2 million or less at a cost of $696 million over two years. This is in line with the previous tax cuts on income reported on individual returns from limited liability companies, s-corporations, sole proprietors and other pass-through entities. In 2013, these taxpayers were able to exempt 50 percent of pass-thru income up to $250,000. In 2014, the amount is increased to 75 percent for one year only.
The $696 million loss in revenue would be partially replaced by an increase in the state commercial activity tax (CAT). The CAT would be raised from .26% to .32%, the first increase since its inception in 2005.
The budget would raise the state sales tax by half a cent to 6.25 cents on the dollar in addition to the county piggyback taxes. It also proposes to add tax on currently exempt services like cable, lobbying, debt collection and parking. Lucas county sales tax has already increased the sales tax by ¼ percent to 7.25 cents effective April 1, 2015.
Other tax increases include raising the tax on cigarettes by $1 to $2.25 per pack. The tax would include other tobacco related products such as e-cigarettes, chewing tobacco, and cigars. The severance tax on extraction of oil and natural gas would climb as high as 6.5 percent depending on whether the tax is applied directly to oil or gas drilled or on the processed end result.
The Governor pointed out that Ohio has regained thousands of jobs lost in the recession and the state has a current unemployment rate of 4.8 percent. He believes his budget proposal will help the unemployment rate decrease even further and create more jobs. A new budget must be approved and in place by July 1.
By: Diane Cook, Accountant
Categories: Uncategorized
Tips For Surviving An Audit
Feb 03, 2015
One of my clients was randomly selected for an NRP (National Research Program) audit. According to the IRS, “the goal is to design and implement a successful strategy to collect data that will be used to measure payment, filing and reporting compliance and to deliver the data to the Business Operation Divisions to meet a wide range of needs including support for the development of strategic plans and improvements in workload identification.” Some of you may have heard of a TCMP audit, or a taxpayer compliance measurement program audit. The NRP audit has now replaced the TCMP audit. Here are a few tips to make your life easier when going through an audit.
Do not ignore the request. Usually, you are given 30 days to respond, so make sure to write back promptly or certain items may be disallowed or automatically corrected. Prompt response will get you started off the on the right foot.
Organize your records. As CPA’s we tell our clients the importance of keeping good records and providing support for your income and expenses. This is never more true than when going through an audit. Generally, an auditor is looking for two main things: One, that the expenses you reported really were business-related, and two, that you have actually reported all your income.
Keep receipts to support all of your expenses, i.e. supplies, repairs, payroll, maintenance, etc. and keep an accurate income record. If you have reasonable receipts to support the expenses taken you will very easily get through an audit.
Obtain the information you need for disputed items. On the flip side, if you do not have the supporting materials for your expenses, the IRS will disallow those expenses. That will leave you in a panic trying to find something to support that expense. Create either a manual or electronic folder and place receipts by category and by year into that folder. Document on that receipt the business purpose if not apparent. Make sure it is a detailed receipt that shows what the purchases were. Then all you have to do is provide that folder. That is a lot easier than trying to recreate the facts years later.
Be nice. IRS auditors are not always welcomed with open arms. Being friendly can go a long way and can sometimes mean the difference between winning and losing.
The chance of being audited is rather slim, but it does happen! If you do your part to make, the process can be less painful. Stay organized and be honest. For more on the audit process, be sure to check out IRS Publication 556.
By: Tara West, CPA, CMA
Categories: Uncategorized
Are You Required To File Forms 1099-MISC?
Jan 29, 2015
The February 2 deadline to have Forms 1099 to receipts is less than a week away. As a business owner, the Internal Revenue Service (IRS) requires you to submit “information returns”, Forms 1099, in order to counteract tax evasion. With more individuals becoming self-employed each year, it’s important to review the IRS rules and requirements for issuing Forms 1099.
Requirements Keep in mind that there are several variations of the 1099 form, but the focus of this article is Form 1099-MISC. The basic rule is if you use an unincorporated service provider and you pay them $600 or more for the year, you are required to issue them a Form 1099-MISC. For example, paying a contractor who is not incorporated to renovate your office for $1000 would require completing and submitting a form. Reporting such payments is generally only required if the recipient of the payment is not a corporation – an individual, partnership, a limited liability company treated as a partnership or sole proprietorship. Payments made to corporations in the case of medical and health care payments and in the case of legal fees paid to attorneys are exceptions to this general rule and require reporting. Payments made for personal purposes do not require issuing a Form 1099-MISC.
Deadlines For year 2014, Form 1099 must be provided to the independent contractor no later than February 2, 2015. Filing Form 1099 by paper must be completed by March 2, 2015 to the IRS. This date is extended to March 31, 2015 if you electronically file.
Penalties New, higher penalties introduced with the Small Business Jobs Act remain effective as of January 1, 2011. Companies intentionally disregarding the requirement to provide a correct payee statement are subject to a minimum penalty of $250 per statement, with no maximum. Filing late, but within 30 days of the deadline, incurs a first-tier penalty of $30 per 1099, with a maximum of $75,000. In contrast, filing more than 30 days late, but prior to August 1st triggers a per-form penalty of $60 up to $200,000 total, while not filing or filing after August 1st will cost you $100 per-form up to $500,000.
By: Katie Mokry, Senior Accountant
Categories: Uncategorized
Protect yourself from Tax Refund Fraud
Jan 27, 2015
Tax refund fraud has become a growing concern for taxpayers, state and local governments, and the federal government. Tax departments are implementing strategies to prevent and detect for the 2015 tax season.
The Ohio Department of Taxation (ODT) is implementing additional safeguards this tax season that will delay state tax refunds. The ODT is anticipating an increase in identity theft directly affecting tax fraud.
Last year, ODT stopped an unprecedented number of fraudulent income tax returns seeking to steal refunds totaling more than $250 million. In previous years, attempted tax fraud averaged roughly $10 million.
In order for the ODT to detect refund fraud due to identity theft, an additional up-front filter will now be applied to all tax refund requests to examine the demographic information reported on a return. This examination will then assign a “probability of fraud” factor that will determine how the return is then further processed by ODT.
If a return is pulled for review, ODT’s additional security measures will require some taxpayers to successfully complete an Identification Confirmation Quiz before the return will continue to be processed. If a taxpayer’s return is selected for identity confirmation they will receive a letter from ODT directing them to www.tax.ohio.gov. This will provide access to the quiz and detailed instructions on how to complete it. Taxpayers without access to the Internet will be directed to call ODT at 1-855-855-7579.
Processing of returns for refunds will be delayed due to these additional screening and security measures. According to the ODT, electronic returns requesting a refund may take up to 15 days to be direct deposited and paper returns could take up to 30 days for a physical check to be mailed out.
Not only is the ODT taking aggressive action on identity theft and tax fraud but so is the Internal Revenue Service (IRS). For 2015, the IRS is introducing new procedures which will address some of the issues. Effective 2015 tax season, the IRS is limiting the number of refunds directly deposited into a single financial account or onto a prepaid debit card. Therefore, any of the subsequent refunds will be issued by paper check and mailed to the taxpayer. Exceptions will not be made. Visit the Taxpayer’s Guide to Identity Theft for helpful tips to protect yourself from identity theft or fraud.
By: Aubrey Forche, Staff Accountant
Categories: Uncategorized