ClientConnection Q1-2016

Transcription

1 ClientConnection Q IN THIS ISSUE 1 Tax Planning to Reap 2016 Savings 2 Employee Death: Final Paycheck and Other Tax and Benefit Issues 3 Tax Extender Package Passed 4 Planning Opportunities Abound 5 Small Businesses Preparing for Tax Season Tax Extender Package Passed Learn more about how the Tax Extender Package affects you! Page 3 ACCOUNTING FINANCIAL SERVICES GOVERNMENT AND NON-PROFIT CONSULTING HUMAN RESOURCES TAXES Tax planning to reap 2016 savings Deductions, credits, income deferral from whatever direction you approach your tax planning, the choices you make have a bearing on many aspects of your financial life. In addition, the rules governing your planning choices change or are updated with regularity. Those facts mean that early planning, combined with the willingness to adapt to changing conditions, will help you reap the most savings. Here are ways to get your 2016 planning off to a good start. Jamie Scherich, Branch Manager jscherich@donnelly-boland.com Address this year s portion of your multiyear analysis. Your end-of-year planning may have included bunching expenses or income by pulling items into one taxable period or deferring them to the next. Itemized deductions and alternative minimum tax planning are two areas that lend themselves to this strategy. Now that a fresh tax year is underway, review and update your analysis and begin to incorporate next year into your plan. Investigate your retirement saving options. The standard advice of making sure you re taking full advantage of allowable contributions and any amounts your employer matches holds true for You can contribute up to $18,000 to your 401(k) in 2016, plus another $6,000 if you re age 50 or older. Those are the same numbers as 2015, so if you re already having the full amount deducted from your paycheck, you may want to direct all or part of your 2016 raise into an IRA. Why? You can diversify your retirement holdings, save additional tax-deferred or tax-free money, and possibly enjoy a saver s credit as well as a tax deduction. Whether you choose a Roth or a traditional IRA, the maximum amount you can contribute during 2016 is $5,500 (plus $1,000 when you re age 50 or older). Just remember that your traditional IRA contribution may not be fully deductible if you re eligible to participate in your employer s plan. Continued on page 2

2 Continued from Page 1 Here s another option for retirement savings: A myra ( my Retirement Account ). These accounts are essentially a Roth IRA invested in a government security. You get no current deduction, but your investment earns interest and is guaranteed by the Treasury Department. You can fund a myra with an automatic payroll deposit through your employer, withdrawals from your savings or checking account, or part or all of your 2015 federal income tax refund. Educate yourself on education savings accounts. Do you have kids in college? As you begin your income tax planning, schedule the timing and amount of distributions from your education savings accounts during Your goal: to make sure the withdrawals to pay qualified tuition expenses remain tax-free. To begin, total the amount you ll receive from student aid, grants, tuition discounts, and education reimbursement accounts from your employer. Costs for expenses already covered by these programs and others reduce the amount that can come tax-free from your 529 account. You ll also want to learn about a recent change to rules affecting a federal financial aid form. Starting with the school year, the form will use income data from an earlier tax year than is used under the present rules. This shift means some financial gifts such as distributions from grandparent-owned 529 plans may be made earlier. Invest in planning for the 3.8% net investment income tax. This surtax applies to the lower of your net investment income or the amount by which your modified adjusted gross income exceeds $200,000 when you re single or $250,000 when you file jointly. Net investment income includes capital gains, interest, royalties, dividends, and passive income. Other items, such as distributions from IRAs and qualified plans and active business income, are excluded. The excluded items may still increase your modified adjusted gross income and bring the net investment income tax into play, which is why planning is important. Start the year by determining if you can turn a passive activity into an active business by increasing the hours you spend participating in the activity. You might also calculate whether directing this year s investments to tax-free municipal bonds or municipal bond funds makes sense. Income from those sources won t increase your net investment income or your modified adjusted gross income. The better you educate yourself on the changing laws and the opportunities to maximize your money, the better off you'll be. To discuss your particular tax situation, feel free to call and schedule an appointment to talk with me or one of our other tax professionals. Employee Death: Final Paycheck and Other Tax and Benefit Issues By Richard C. Healy Senior Consultant rhealy@donnelly-boland.com One of the most difficult situations a business may ever have to face is to manage the aftermath of the death of an employee. Although no one wants to talk about these situations, is your company prepared if the untimely occurs? Beyond the obvious emotional impact on the workforce, an employee s death almost always leaves unfinished business for HR and payroll. The following steps are meant to help act as a guide for smoothing the process of an employee s death: 1. Ask the family for a copy of the death certificate, and whether there is a tax ID number for the estate. That may seem intrusive, but you should receive valid proof of death before cutting any final paychecks. Also, the tax ID number will be necessary if the final paycheck goes to the deceased person s estate, rather than to a relative. 2. Begin COBRA notification process. An employee s death counts as a COBRA qualifying event for spouses and dependent children. If your company or organization must comply with COBRA, begin the paperwork necessary to notify your insurance carrier and survivors. 3. If you have any employee benefits that provide benefits to surviving relatives, i.e. 401(k), life insurance, etc. begin the processes. It also is a great help to the surviving family members if you are supportive and knowledgeable on the process. You should help them with this paperwork as much as possible. This is a prime example why employees should periodically check/review their beneficiaries on all relevant paperwork. Life changes such as getting married, divorced, or having children may prompt changes for your employees. Continued on page 3 Page 2 Client Connection

3 Continued from Page 2 4. Determine who should receive the employee s final paycheck. In some cases, the final paycheck will be paid directly to the estate administrator. In others, the check may go to the employee s spouse, children, or another party. Check with the state s wage and labor department for rules about paying final wages. 5. Record and report before and after death payments carefully if final wages are paid in the same year. Withhold FICA if the final paycheck is cut in the same year as the employee s death. Use IRS Form 1099-Misc to report any payments made after the employee dies. If the final paycheck is sent to an individual, a spouse for example, include that person s social security information on that form. If the final paycheck goes to the estate, list the estate s tax ID number. At year end, use IRS Form W-2 to report total compensation before death as well as any Medicare and social security deductions. 6. Do not withhold employment taxes if final wages are paid the following year. Any outstanding wages that aren t paid until the next calendar year are not subject to federal income, social security or Medicare taxes. Report the total amount paid after death in box 5, Other Income, on Form 1099-Misc. You won t need to file a W-2 at year end if the final paycheck is issued in the year following the death. An employee s death is hopefully something you haven t dealt with, or at least not very often, so we are here to help if the need arises. Donnelly-Boland can help provide interim support or a more permanent solution to these or any other HR issues. Please feel free to call me to discuss how we can help provide the HR support you need. Tax Extender Package Passed By Michael C. Wilson Branch Manager President Obama signed the Tax Extender Package into law on December 15, The Protecting Americans from Tax Hikes (PATH) Act of 2015 extends many tax provisions that expired on January 1, Some of the provisions that have been extended are as follows: Businesses: Section 179 allows small businesses to expense up to $500,000, with a $2 million threshold for qualified new or used property purchased and placed into service; the amount of expense had reverted to $25,000 on January 1, Bonus depreciation will remain set at 50 percent and be used by business owners who purchase and place in service qualified new depreciable property; the bonus depreciation is set at 50 percent for 2015, 2016, and 2017; 40 percent for 2018; and 30 percent for There is 100 percent gain exclusion on qualified small business stock. The package also ends a 40-year-old crude oil exports ban. There is a 15-year straight line cost recovery for qualified leasehold improvements, restaurant property, and retail improvements. Individuals & Families: An additional provision extends the ability of persons at least 70½ years of age to be excluded from gross income qualified charitable distributions from Individual Retirement Accounts (IRAs) of up to $100,000 per taxpayer in any tax year. The Act extends through 2016 for the above-the-line tax deduction for qualified tuition and related expenses. The election to claim an itemized deduction for state and local general sales taxes, in lieu of deducting state and local income taxes was made permanent. mwilson@donnelly-boland.com Mortgage insurance premiums have also been extended through Childcare tax credit has also been made permanent, reducing earned income threshold amount of an unindexed $3,000. Health care: The Cadillac tax on high-cost health care coverage has been delayed for two years until 2020; the Cadillac tax is high-cost health coverage sponsored by the employer. The provision imposes a 40 percent nondeductible excise tax on the amount by which the monthly cost of an employee s applicable employersponsored coverage exceeds statutory dollar limits. The Tax Extender Package also puts a one-year delay on the Affordable Care Act s annual fee on health insurance providers, which applies to any covered entity involved in providing health insurance for U.S. health risks. Medical device excise tax has been delayed until Navigating your way through tax season is difficult enough, and it is even more difficult when tax provisions change. Make sure you understand the laws in place and take advantage of every deducation that applies to you. For more information on the PATH Act of 2015 and how it impacts your tax situation, please contact me! Page 3

4 Planning Opportunities Abound to Help You Keep More of What You Make By Kevin P. Boland*, CPA Executive Vice President Happy New Year! The Christmas season is always a chaotic scramble in the Boland household and this year was no different. It was the first Christmas for our twin grand-daughters and that certainly added to the chaos and the joy of the holidays. By the time New Year s Day rolls around, things are starting to get back to normal and there is time for reflection and planning and a look ahead. On the business front, there were some new arrivals. The Grinch came early with new rules for Social Security that will soon close the door on a strategy for maximizing retirement benefits. However, the politicians got back in the spirit of things with federal tax extender legislation that Mike Wilson discusses on page 3. And Pennsylvania gave us something in between half a budget bringing holiday relief to businesses, school districts, and a host of human service agencies, but leaving us all concerned about the future. So I think a quick overview of lessons learned this holiday season is in order - Not knowing the rules can cost you; Knowing the rules can be to your benefit; Ignoring or breaking the rules can be disastrous; Don t waste time when the rules work in your favor; and Everyone is frustrated when there are no rules (a.k.a. the Harrisburg corollary). Investors got a lesson in these rules this past tax season with the full implementation of the tax changes arising from the Affordable Care Act. The Act's implications for investors produced unpleasant surprises for a lot Page 4 Client Connection kboland@donnelly-boland.com ext of unwary investors during the past tax season. The Act introduced a surtax of 3.8% on net investment income. For Pennsylvania taxpayers this increased the combined top marginal rate to 46.47% in the top tax bracket. However, the application threshold for the tax means that it could also apply to single tax payers and heads of household in the next three brackets raising the top marginal rate for the 28%, 33% and 36% brackets to 34.87%, 39.87% and 42.87%. For married taxpayers filing jointly only the next two brackets (33% and 36%) are affected. This increases the appeal of tax free and tax deferred investments to taxpayers in these brackets. CHANCE FAVORS only the prepared mind -Louis Pasteur Business owners have additional planning opportunities including retirement savings plans. For owners nearing retirement, the opportunity to get a current period business tax deduction for retirement savings plans contributions that will provide income in their retirement years when their income and tax brackets are lower can produce tremendous savings. Our tax and financial services professionals have worked with business owners to do exactly that. For professionals with limited staff, a defined benefit plan may even make sense. It is certainly a planning opportunity to consider. For those nearing retirement, you should know that Social Security rules are changing and the opportunity is closing on one of the more popular strategies for working couples the file and suspend strategy. This strategy, which allowed one spouse to file and suspend benefits while the other spouse filed a restricted claim for a spousal benefit will be much more limited after April This potentially lucrative strategy allowed both spouses to accumulate deferred retirement credits by delaying their own benefits until age 70 when they would qualify for the maximum individual benefit available on their work record. All the while drawing retirement income in the form of a spousal benefit for one spouse. While those rules are changing, there are still planning opportunities that are numerous and varied and unique to each person s individual situation. In planning, it is important to understand all of your opportunities before you need to take advantage of them. For those eligible for social security, the recent rules change closes a door but not without leaving open a window of opportunity for those between 62 and 66. However, that window closes in April. For investors, those opportunities can include tax exempt and tax deferred income sources and strategies for timing the recognition of gains and losses for tax advantage. For those approaching retirement and business owners in particular, those opportunities can include shifting income to retirement years (and getting a current period tax deduction to boot), understanding how Social Security will work for you specifically, and the list goes on. For businesses and nonprofits, planning for cash flow interruptions becomes increasingly important in the current contentious state budget environment. As Louis Pasteur remarked more than a century ago Chance favors only the prepared mind. We have access to resources that can help organize your planning effort. If you re ready to plan, please don t hesitate to give us a call. Kevin P. Boland, Fay K. Boland, Susan E. Levi, and Michael C. Wilson, Advisory Representatives. *Securities offered through H.D. Vest Investment Services sm, Member SIPC. Advisory Services offered through H.D. Vest Advisory Services SM Investment and Insurance Products: NOT FDIC Insured NO Bank Guarantee MAY Lose Value Donnelly-Boland and Associates is not a registered broker/dealer or independent investment advisory firm.

5 Small Businesses Preparing for Tax Season By Ryan Babiak Assistant Controller Tax time affects us all, but in some ways it is most important for small businesses. Each tax deduction could help the bottom line, and we understand how important each and every dollar is for small businesses. Do you know all of the deductions that are available to you? Do you know and understand the tax laws ensuring that you are in compliance? One way to put your business in the best position is with proper planning. Is your business preparing for tax season? Below are some steps to follow to ensure a smooth tax season filing for your small business: Review your Business Expenses Business expenses are often an area that take up significant time during tax season. Monitoring these throughout the year can ensure accuracy and can also save time during tax season. Keeping your business expenses in a centralized place can help with ease of review. Additionally, a benefit from doing this is that businesses can identify areas in which rbabiak@donnelly-boland.com x1135 they overspend and make adjustments moving forward. Business Expenses vs. Personal Expenses One issue that seems to arise with many small businesses is making a distinction between business expenses and personal expenses. The IRS states: To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary. Rather than risking fines during an audit, make sure to review your business expenses for their validity according to the law. Gather all Taxable Income Make sure to keep track of all Form 1099s that are linked to your business. This could include your own form or forms for independent contractors that are contracted by your company. Small businesses must issue a 1099-MISC for any contractor that makes over $600 in a tax year. Best Practices Many businesses simply do not worry about contractors or vendors who are under the $600 threshold, but this is incorrect. There is no requirement for reporting income. This means that all income should be reported separately for tax season, even for amounts less than $600. In the Event of an Audit In the event of an audit, you want to make sure you have everything in order. To do this, make sure that you categorize all tax documents with supporting detail. The better detail you have, the more likely you are to avoid any surprises. When preparing your documents for tax season, make sure to call us for any questions you may have. Whether it is helping with your tax filing, answering questions, or even helping with your company's finances, we can help. Make your tax season process smooth with planning and good tax support from Donnelly-Boland! Did you know Donnelly-Boland specializes in working with CONSTRUCTION companies? Trust a group of professionals who know the industry and can support your accounting and business consulting needs. Page 5

6 Tax Provisions: What's New in 2016? PROVISION Each tax season, clients want to know whether or not they will be getting a refund back. The short answer is that we don't know until we talk with you, review your yearly earnings, and better understand your particular situation. Many tax preparers may claim you will receive a higher refund than last year even when your situation did not change. Beware of false promises. Without looking through your numbers, no tax preparer can know whether or not you'll be getting a refund. So if you find yourself having questions this tax season, stop by and talk with us. Our offices are open year-round, and we can help you navigate through the difficulties of tax filing. Included is a list of Key 2016 Tax Provisions Personal exemption Standard deduction Single Joint returns and surviving spouses Married filing separately Head of household Additional for elderly or blind (married) Additional for elderly or blind (single) Income at which itemized deductions and personal exemptions start to phase out Single Joint returns and surviving spouses Married filing separately Head of household Alternative minimum tax exemption Single Married, joint Married, separate Maximum wages subject to social security tax Social security earnings limit Under full retirement age Year full retirement age reached Full retirement age Estate tax top rate Estate tax exclusion Annual gift tax exclusion (per donee) Maximum retirement plan contributions IRA - under age 50 IRA - 50 and over SIMPLE plan - under age 50 SIMPLE plan - 50 and over 401(k) plan - under age (k) plan - 50 and over HSA contribution limit Self only Family Additional for 55 or older Kiddie tax threshold Nanny tax threshold $4,050 $6,300 $12,600 $6,300 $9,300 $1,250 $1,550 $259,400 $311,300 $155,650 $285,350 $53,900 $83,800 $41,900 $118,500 $15,720 $41,880 No limit 40% $5,450,000 $14,000 $5,500 $6,500 $12,500 $15,500 $18,000 $24,000 $3,350 $6,750 $1,000 $2,100 $1,900 $4,000 $6,300 $12,600 $6,300 $9,250 $1,250 $1,550 $258,250 $309,900 $154,950 $284,050 $53,600 $83,400 $41,700 $118,500 $15,720 $41,800 No limit 40% $5,430,000 $14,000 $5,500 $6,500 $12,500 $15,500 $18,000 $24,000 $3,350 $6,650 $1,000 $2,000 $1,900 Questions about the Affordable Care Act? Donnelly-Boland has answers! Baldwin 2801 Custer Avenue, Suite G Phone (412) Brentwood 3730 Brownsville Road Phone (412) Orlando Hartford Run Orlando, FL Phone (412) Waynesburg 69 S. Washington Street Waynesburg, PA Phone (724)

7 About Us Donnelly-Boland and Associates, a certified woman-owned business enterprise, is a CPA and management consulting firm that provides an array of professional services including accounting, financial services, government and nonprofit consulting, human resources, and taxes. We have extensive experience in providing these services to governments, nonprofits, individuals and service businesses. Donnelly-Boland and Associates was incorporated in 1992 and is headquartered locally with offices in Baldwin, Brentwood, and Waynesburg as well as an office in Orlando, FL. We assist a variety of organizations, large and small, on both an interim or more permanent basis. The Value of Proven Results We serve every client with a depth of resources and the highest level of expertise, yet offer the personal attention and accessibility that builds strength and trust. We ve proven it s possible to offer comprehensive accounting, financial services, government and nonprofit consulting, human resources, and taxes by top-notch professionals without sacrificing value. Let Donnelly-Boland and Associates be the breath of fresh air you need to find temporary or long term solutions, project assistance, or a different perspective. Our owners and many of our employees are not just accountants, they are business owners and entrepreneurs themselves and have confronted many of the same challenges you face every day. Feel assured that your financial information is accurate, precise and always available in a timely fashion. Now you ll have the time you need to focus on the growth and success of your business or organization. Offices Baldwin 2801 Custer Avenue, Suite G Phone (412) Fax (412) Brentwood 3730 Brownsville Road Phone (412) Fax (412) Orlando Hartford Run Orlando, FL Phone (412) Fax (412) Waynesburg 69 S. Washington Street Waynesburg, PA Phone (724) Fax (412) Page 7

8 The Hough Building, Suite G 2801 Custer Avenue