2016 Tax Code Changes: Important End-of-Year Information

Important messages about tax code changes – Action needed soon to take advantage of the update!

Two recent changes to the tax regulations may have an effect on your 2016 taxes that require action before December 31, 2016 to get the benefit.

In preparing your return for 2015, we discussed the Affordable Care Act (ACA or “Obamacare”) rule that affected your ability to have your company reimburse you or pay directly for your health insurance in 2016. The recent signing of the “21st Century Cures Act” as well a recent revision to prior guidance have provided clarity on the options available for 2016 and 2017. These changes make it possible for you to take certain health insurance related deductions as the owner of your business.

Doing so will likely mean that you need to take action before the end of the year, and which will include adjusting the W2 wages shown for you. Please be sure this issue is addressed with your payroll provider before year end. Please note that we are not just talking about accounting gimmickry – with owner reimbursements, funds should actually move between the company, and these changes need to be made before the end of the year for the deduction to apply in 2016.

***To clarify any questions you may have, or if you need assistance in having the conversation with your payroll people or having us help review their work – then please do call us ASAP as time is getting short.***

Going forward, the Cures Act also removes ACA-related penalties associated with Health Reimbursement Accounts (HRAs) in certain situations, and for certain employers. Those of you that had HRAs and were forced to end them due to the ACA may want to reconsider that decision now for 2017.

Lastly, the deadline for filing ALL W2s and 1099s has been accelerated starting with the 2016 filing due in January. These forms are now all due on January 31st, 2017, including the filing copies sent to the IRS or the Social Security Administration. Please plan accordingly, and of course if we’re helping you with that process please know that this means we will need to start earlier than in years past as there is no longer the opportunity to push any of that effort past the end of January.

Because every person is different, it’s critical that we review and discuss your situation with you personally before saying with certainty that any of this info would help or even affect you.  This post is meant to let you know that some last minute action at the end of the year may help – if you’d like to have that conversation please call us.

UPDATE: 2016 FLSA Overtime Changes

payrollStop the presses! The post below was our summary of the changes set to take effect starting December 1st in regards to overtime changes.

On November 22, a federal judge has issued a preliminary injunction bringing the December 1st roll out to a screeching halt. The path for appeal and eventual implementation is unclear at this moment,  but we will update this post as the situation evolves.

Our original post:

The salary threshold for employee exemptions for paying overtime have been increased effective December 1st, 2016. If you haven’t already considered the impact this may have on your business, time is running short to either make changes, find yourself out of compliance, or determine that no changes are necessary.

There are some circumstances where it may make sense to reclassify some employees by giving them a raise –  but be careful. Relying on the salary alone might not be enough to keep you out of hot water with the DOL. There are several nuances that can make this a bit more complicated. Some companies may need to hire additional part time help to prevent overtime, or budget for higher payroll to get compliant.

We understand and see firsthand that for many of our clients, payroll always has been and always will be the biggest expense on the P&L.  As those costs increase with higher minimum wages and new overtime rules, the importance of being lean on expenses in other areas is heightened.  We can help with reviewing your expense structure and helping you see where there may be a little fat to trim.

Another important aspect to note – while the Department of Labor (the federal agency) has always regulated this, they’ve hired thousands of additional auditors to review compliance in an area where they estimate massive levels of non-compliance exist.  It is likely they will be on the lookout for violators that can be made into an example. Don’t let that be you! One other thing to remember – while disgruntled employees have always been a problem for employers, workers are getting more savvy and the amount of press these regulations are getting means your workers are more likely to know the rules now than they did in the past.  And with the increased manpower the DOL will have, they will have a better ability to explore complaints, even with smaller companies – and I think it’s fair to expect that many complaints will be filed.

Why December 1st? The DOL hasn’t given a specific reason, but the holidays are prime time for overtime hours for seasonal workers.  Also, waiting until January 1 for implementation would mean the reporting that will drive their audits would not happen until April instead of in January when you file Q4 reports. If you’re unsure about your compliance level, talk to your payroll provider, familiarize yourself with the changes and be prepared for Q4 of 2016. If you’re not using a payroll service, taking extra steps yourself will be even more important, and it may be a good time to consider switching to outsourced payroll as both Paychex and ADP offer incentives at year end to get started with them.

If this describes your business you will want to take extra care to ensure compliance. Take a look at the DOL resources and other links below.  Questions about the OT rules or want to talk about where you may offset the increased payroll costs?  Give us a call – 253.234.5732.

 

DOL Job Description and Classification Fact Sheets

https://www.dol.gov/whd/overtime/fact_sheets.htm

Paychex Resources

https://www.paychex.com/articles/payroll-taxes/overtime-rule-faq

ADP Resources

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We’ve Moved! – October 2016 Newsletter

Benefits of Filing Early

Our days are finally starting to get a little longer, and we are no longer de-icing our cars every morning. That means that springtime and tax season are just around the corner! Tax professionals know all too well how quickly these 3-and-a-half months vanish. In addition to minimizing the stress of a looming deadline, here are several really good reasons to get in and file your taxes early.

Avoid Identity Theft

If your Social Security Number ends up in the hands of an identity thief, one thing they might try to do with it is file a fraudulent return. This is most often done through the E-file system. If you have filed early, the identity thief will be rejected by E-file and forced to move on to their next victim.

When you file early, an identity thief has a smaller window of time to make use of your private information. If you do discover that a fraudulent return has been filed using your information, you will have to paper file. Read more about Tax Return Identity Theft and how to avoid it here.

 

Know What You Owe (And Maybe, What the Government Owes You!)8531408243_4ba61eab7a_z

When it comes to taxes and finances, most people don’t like to be surprised. If you will owe taxes or fees for your 2015 tax return, filing early will allow you more time to plan for the financial hit and avoid late payment penalties. The momentary ouch factor often pales in comparison to the anxiety of feeling like you will probably owe, and waiting until the last minute to find out exactly how much. On the other side of this, if you are owed a refund filing early means you get that check sooner!

 

Claim your Dependents Before They Claim Themselves

A social security number for a Taxpayer can only be used once – if E-file detects that there is a duplicate SSN on a return it will be rejected. The following situation is one a lot of parents run into after their children leave the nest. If you are financially supporting your adult child under 25 as they go to school or they are still living with you at home, you will likely be able to claim them as a dependent (give us a call to find out exactly what those requirements are). If your child files their own return and erroneously claims themselves before you are able to, you are either out of luck, or in for the hassle and added expense of amending returns. Don’t let them take away your hard-earned education credits just because they want to do their return by themselves.

 

FAFSA Requi8384151957_3b73315939_zrements

If you have a child applying for college, your most recent tax return is required to complete the Free Application for Federal Student Aid (FAFSA). File early and have this info ready to go when your student is shopping for schools and figuring out how to finance their education. If your income is changing substantially compared to last year, you’ll need a good estimate of 2015 income and taxes in order to make sure you get the best aid and loan package before all the funds have been allocated to other families.

 

Retireme7027606047_cac49c3b79_znt Planning

One tax savings technique that is most common is the Individual Retirement Account or IRA. If you haven’t made your contributions already, you’ll have a better idea of the impact these contributions for 2015 could have on your taxes. Perhaps this could be the year you do a Roth IRA instead, or maybe you need to ramp up your deductible IRA contributions to lower your income threshold to qualify for a healthcare-related Premium Tax Credit.

 

Just remember, knowledge may be powerful, but only ACTION is actual power. Knowing all of the reasons to file early won’t help you if don’t take the next step to make it happen.

Give us a call at 253-234-5732. We are currently scheduling appointments. Reserve your spot today and get ahead of the tax season rush!

Rental Properties

Is the real estate market hot?  Just ask any realtor and they’ll answer you with a resounding “YES”!  And the hot market is for all homes, not just those the buyers will be living in.  Rental property in South King County and Seattle continues to be a very popular investment, and with good reason.  If your place is rented, you’ve got someone else paying your mortgage, so after the down payment you’re building equity with someone else’s money. Clark & Associates serves many clients who have real estate investment portfolios ranging from a single vacation rental, to rental homes in their own neighborhood, to dozens of rental investments across the Puget Sound and beyond.

The path to being a land baron isn’t without pitfalls.  For Rent SignThere are numerous deductions you can take, but first you have to make sure you have a rental, and not a second personal residence.  Then you need to depreciate the right amount every year – when you sell the IRS will claim that you took the right depreciation even if you took too little.  Can you deduct maintenance and repairs?  Is that repair really an expense, or is it a “betterment” that must be capitalized and depreciated over a period of years?  Are you renting to family at something other than fair value?  Are you using the vacation rental yourself a couple of weeks each year?  There’s a lot to be aware of just to stay out of trouble, but lots of opportunity for generating wealth with relatively low risk if you know the rules – or trust your CPA to keep you informed.  Owning rental real estate is one of the more common reasons people go to a CPA, and you’re in good hands with us here whether your rental is in Renton, Tukwila, or Long Beach.

Give us a call at 253-234-5732. We can help you get organized and set up a time to go over your unique situation as well as your goals for your investment. Are you concerned that you missed out on possible deductions for previous tax years, or are you selling this year and are concerned about the gain you may have to take?  Regardless of your issue, we’ll help you get answers and peace of mind.

Are You a Victim of Tax Related Identity Theft?

taxreturnidentitytheftWas a fraudulent return filed under your social security number? The IRS finally announced on November 3rd, 2015, a plan to allow you to get more information about what was included on that return. This sounds great on the surface, but you may not find what you seek, given that much of the information you want will be redacted from what you receive.

To get information on the fraudulent return, you’ll need to send a letter to the IRS including the information below. They say they will acknowledge the request within 30 days and provide the information within 90 days.

Per the IRS instructions, the letter must contain the following information:
• Your name and SSN
• Your mailing address
• Tax year(s) of the fraudulent return(s) you are requesting
• The following statement, with your signature beneath: “I declare that I am the taxpayer.”
Your letter must be accompanied by a copy of your government-issued identification (for example, a driver’s license or passport).

Should I Request a Copy of the Fraudulent Return?

Here’s the rub – the information they ask you to provide is all the information someone else would need to perpetrate more fraud on you if your letter were lost in the mail. This is all information that every security expert says you shouldn’t provide to anyone except when absolutely necessary. That being said, perhaps you should ask yourself how important it is to get at the information the IRS has about the return.  In addition to my professional experience here, I speak from personal experience, as my wife’s SSN was used to file a fake return. Clearly, the return filed included a bunch of information that was bogus in order to get a phony refund issued. But what can I learn from the IRS about it, and how important is it to see?

The fraudster must have used a different address, as I have a locking mailbox, or a bogus bank account for a direct deposit. I won’t see either in the IRS response. What was provided to the IRS will be redacted, as will most any usable information as to names, addresses, bank accounts. What will be seen are the amounts of income and deductions on the return, which are curious facts at best. You should by now have already pulled credit reports to make sure there is nothing bogus on them, or that credit hasn’t been issued under your SSN without your knowledge. If you are listed as being associated with a business or partnership, that information would be helpful to know, but of little import to anyone BUT the IRS unless it were also on a credit report.

You also will not see if your children and their social security numbers were used on the bogus return, as that information will be completely redacted. All you will see is the last four letters of the last name, which will tell you nothing.

About the only thing useful I can see coming from this is to see if the address on the return differs from yours, and the closest you will get is the street name. The IRS address database is updated based on the most recent return filed. If you filed (on paper) with the correct address after the fraud, they should have your correct address to which they will mail any notices or correspondence. If you haven’t filed, you can send in Form 8822 to update your address only.

Is it plausible to think that you will gain nothing from the IRS response? I think so. Consider carefully before putting your private details into an unregistered letter that, if misplaced, could cause more harm to your identity theft situation. What you gain may be nothing more than satisfying some curiosity about the fraud. I suggest you are better off spending that time looking over your credit reports more closely than usual.

Here’s a link to the IRS instructions: https://www.irs.gov/Individuals/Instructions-for-Requesting-Copy-of-Fraudulent-Returns

Preventing Fraudulent Tax Returns

How do you prevent this in the future? File your return early in the filing season. A fraudulent return only has value if you haven’t already filed a real return. You found this out the hard way when you tried to file and couldn’t do so electronically because of the bogus return.  The IRS treats the first filing as the legitimate one until it’s told otherwise through another mechanism.  If you file early, a thief’s attempt to file on you will be thwarted and they will almost certainly move on the next, easier target. Bring your tax paperwork in in early February as soon you have it compiled, and we will get you filed early. Call us at 253-234-5732 to make your appointment now.

Important Information For Uninsured Tax Payers

How Much Will I Owe?

The penalty for not having “essential minimum coverage” per the Affordable Care Act is going up in 2015 and again in 2016. The important part of the language regarding the penalty is that you will pay the higher of two amounts – either the flat minimum for the tax year or a percentage of your yearly income that is above the tax filing threshold, about $10,150 for an individual in 2014.

In simplified terms, if you make more than what would qualify you for the flat minimum penalty, your Individual Mandate Penalty = (Total Yearly Income – Tax Filing Threshold) x % for the Tax Year.

For those of you without insurance, in 2014 the Shared Responsibility Payment was likely to be above the minimum amounts published in the press. This is because, put simply, the penalty was computed as the greater of 1 percent of your household income or the flat dollar amount for your family. In 2014, that flat amount was $95 per person or $285 per family.

In 2015, those minimums have gone up to the greater of 2.0% of your household income (minus your filing threshold) or $325 per person ($975 per family). Expect to see these figures when we look at your taxes for 2015.

In 2016, you will pay the greater of: 2.5% of your household income or $695 per person ($2,085 per family). As in previous years, the 2.5% is applied only to your income that is above the minimum filing threshold.

Issues with the Healthcare Exchange (aka Healthplanfinder.org)

For many business owners, the Exchange site does not make it easy to report your net income – they try to quiz you, but the quiz has often led to confusion even among people who fully grasp income and taxes.  Distinguishing between owning your own corporation and being self-employed are nuances that can present a challenge.

What are my options?

There are definitely some misunderstandings about coverage options available to you.  Options that may ease your pain with regard to insurance itself include:

  • Opting for a plan that allows for co-pays for office visits, so you don’t have to satisfy your deductible before getting any benefit at all from your coverage.
  • If you do have a high deductible health plan (HDHP), coupling that with a Health Savings Account (HSA) can provide you with tax savings via the HSA while you save up funds to pay out of pocket medical expenses.
  • Realize that you may be in line for a tax credit for having coverage purchase through the Exchange. There are income thresholds of course, but if you don’t go through the Exchange you are automatically disqualified from the credit.
  • If you see questions that know how to answer but don’t have exact figures, make your best estimate.  You should not stop the application process only because you can’t get your amounts down to the penny or you have variable income you need to estimate.

 

The Cost of Being Uninsured

I’ve had a number of clients come through saying that insurance wasn’t affordable for them. When you consider the penalty that you will be assessed for not having coverage, the affordability discussion really changes. Please take time to explore once again the possibility of getting coverage through the exchange to avoid these penalties.  It may be too late to avoid these for 2015, but it’s the time now to get on a plan for 2016 before it’s too late.

The IRS has a page showing examples of the penalty calculation for 2014.  If you extend the second of those examples to 2016, the penalty that was $497 in 2014 will increase to $1,243 in 2016.  There’s a good chance that if the coverage is truly unaffordable, you may qualify for one of the state’s subsidy program, or be eligible for a tax credit, either of which will help offset or reduce the cost of coverage, and possibly by a lot.  Click here for the IRS examples using 2014 thresholds.  https://www.irs.gov/ACA Shared Responsibility Examples

Still Have Questions?

If you need assistance with this issue, please call us and we can help you determine the total cost of the penalty for the time you are uninsured and how this fits in with your total tax picture. We can also refer you to one of our partners who have expertise in this very subject if your questions go beyond taxes. We know that healthcare coverage is but one piece of a complex puzzle unique to you, so we’re ready to answer any other tax and small business questions you may have as well.

Randy Clark CPA Inc P.C. is now Clark & Associates CPA P.S.

Randy Clark CPA Inc P.C. is now Clark & Associates CPA P.S. Since our founding in November 2012, the firm has been blessed with outstanding growth, thanks to our great clients and referral partners. This name change is as much a reflection of where the firm is today as it is an indication of where it’s going in the future. We are more capable than ever before of serving our small business clients with the level of personal care and attention they have come to expect and enjoy. As always, we will also continue to serve individuals, businesses, real estate investors, non-profits, and trusts and estates.

Clark & Associates was started with the goal of providing real solutions to the everyday problems every business must conquer in order to be successful. Since our business IS your business, we’re here to assist you with more than just your accounting or bookkeeping needs. We also specialize in individual accounting needs, from help with filing your yearly return to sorting out more complicated tax and accounting issues. A big THANK YOU to all our clients and referral partners for all the support over the years.

 

IMG_0492Randy Clark, CPA
Principal, Owner
Clark & Associates CPA P.S.
randy@clarkaccounting.net
253-234-5732

Best job ever?

I recently watched the movie “Fury”, a story about the crew of one army tank during World War II. Several times throughout, they collectively mutter the phrase “Best Job Ever” – given the times when they say it, it’s not what you’d expect to hear them say. What’s genuine about the phrase for them though is that it wasn’t so much the best job ever, but the best team ever. There was real love among the men, and that brought them together to make an otherwise unthinkable situation manageable.

I also recently met a woman who had just embarked on a new venture, and her excitement and passion about what she was doing was palpable. In my work I routinely meet this kind of person, someone whose excitement about their business is downright infectious, but there is nothing routine about how they feel or how they express it to others.
So how are these two encounters related? If you wrote a job description of what I do based on the tasks performed, it would seem to many to be a job they would never want because of the tedium and repetition. What’s missing from that viewpoint is that it isn’t the task that makes the job, it’s the process, the engagement with the people, the end result of helping a business owner or individual achieve something they might not otherwise achieve.

Just like the tank team in Fury worked together to coordinate their attacks, and only as part of a team could they achieve their goals, so it is with being a business owner. Business owners are nearly always passionate and excited about their venture, and I get caught up in the excitement of what they’re doing. In many cases we become a team of sorts. Yes, they still own the company and I’m still a vendor, but the deeper my involvement and the stronger the relationship gets, the more rewarding it is. And it isn’t just business owners – I truly enjoy working with people in a whole host of situations – business owner, retiree, wage-earner, real estate investor. Whatever the client is into, when I know that I’ve helped them get one step closer to their dream, at that moment it feels to me like the Best Job Ever.

If you’re tired of going it alone, and are ready to build out your team, call Randy at 253-234-5732. Now accepting new clients. Our office in Kent serves Renton, Des Moines, Tukwila, Federal Way, Burien, and the Seattle area.

Boeing Pension Buyout – good or bad option?

Boeing2According to news reports, Boeing sent a letter out to about 40,000 former employees, asking them if they would be willing to take their vested pension benefit as a lump sum payment, or monthly annuity in lieu of staying in the pension plan.  Whether such an option is right for you or not depends on a variety of circumstances.  It’s important to recognize that Boeing wouldn’t be making this offer if it wasn’t good for Boeing to get you out of the pension, so please take care to consider what is good for you before accepting their offer.

What’s at stake is that if you accept one of the payout options offered, you will be assuming the risk of future returns.  With your money in the pension plan, Boeing bears that risk, but you have no influence or ability to change how much your payouts will be in the future.  That choice is at the heart of the question you need to make before October 31 and let Boeing know your decision. …Continue Reading