New Adjustments Will Affect Your 2015 Tax Return

Lesley Mast | November 18th, 2014

The calendar may still say 2014, but the IRS is already looking ahead to 2016 – when you will file your 2015 tax returns. In doing so, it recently announced slight adjustments to more than 40 tax provisions to account for inflation.

So, what can you expect? The adjustments are outlined fully in Revenue Procedure 2014-61, but a few points that may be of special interest include:

  • The new 39.6 tax rate. This rate will affect those who are single with income that exceeds $413,200, which is up from $406,750. Those who are married filing jointly will be affected if their income exceeds $464,850 – up from $457, 600. You can check out a great break down of the other tax rate increases here.
  • A slight standard deduction increase. Those who are single, or married filing separately, can expect their standard deduction to be $6,300 – up from $6,200. Married couples filing jointly will see standard deductions increase to $12,600 – up from $12,400.
  • Increasing elective contribution limits. In 2015, taxpayers will be allowed to defer $18,000 to your 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan. The deferral limit in 2014 was $17,500. The catch-up contribution limit for employees who are 50 and older will increase to $6,000 – up from the 2014 rate of $5,500.

You can read the full IRS article here.

Navigating tax rate and IRS procedure changes can be difficult – not to mention time consuming. To get more information on how you may be impacted by these adjustments, email Rea & Associates.

By Lesley Mast, CPA (Wooster office)

 

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Manage Your Business’s Ethical Framework After You’re Gone

Cathy Troyer | November 18th, 2014

While the reasons for drafting an ethical will may seem more personal than business-related, an ethical will can be an effective way for business owners to pass along their vision for the future of their company after they are gone.

A properly drafted last will and testament is critical to ensure your estate’s financial well-being. Perhaps equally important is your responsibility to manage your intellectual assets, including knowledge and ethical values. An ethical will, also known as a legacy letter, is a way for you to pass along information to family, friends, colleagues and even communities.

Ethical wills have been around for many centuries. They were very prevalent in Medieval Times, but lost much of their popularity in modern times. Over the past couple of decades, they have regained their popularity.

While a last will and testament details how a person’s possessions will be distributed after death, an ethical will is a way to pass on a person’s values, hopes, dreams and life lessons – among other viewpoints. Though an ethical will is not a legal document, Business Week has described it as an aid to estate planning.

What should I include in my ethical will?

  • Your personal values – the importance of honesty, integrity and personal responsibility.
  • Your views on work ethic, dedication to one’s chosen profession and work-life balance.
  • Your views on charitable giving and community responsibility.
  • How to develop and cultivate personal and business relationships.
  • Your hopes and dreams for your spouse, children and other family members.
  • Anything that you have learned in life and would like to pass on to others.

When should I draft my ethical will?

  • Marriage
  • Birth of a child
  • Children leaving for college
  • When drafting a succession plan for your business
  • End of life
  • Or anytime

An ethical will can be an integral part of your overall estate plan, so consider putting one together today!

By Cathy Troyer, CPA (New Philadelphia office)

 

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Retirees Get Cranky Over Tax Returns

Lee Beall | November 4th, 2014

Tax preparation and tax payments often become MORE complicated in retirement. Why? Because retirement taxation is new for a retiree so there’s a learning curve. Here are a few cliff notes to help new retirees navigate these uncharted waters:

Social Security

The money you receive from Social Security will likely be taxable. Fifteen percent of your Social Security benefit is a return on your lifetime payroll deductions and your employer’s match. Eighty-five percent of your Social Security is the excess benefit payment, or “growth,” in your benefit account and, thus, your untaxed benefit. That 85 percent may be taxable depending on the amount of your other income. This calculation is complex and the tax is difficult to avoid, but it is possible.

IRA Distributions

You must take your IRA distributions when you have reached the age of 70-½. The Required Minimum Distribution (RMD) can be managed and will impact your taxable Social Security. Planning is essential.

Capital Gains

As your lifetime investments are sold to help pay for retirement, capital gains is another obstacle to overcome. Here are a few tips to make them more manageable:

  • It may take a little time, but document when you bought those investments and what you paid for them. Once your record is complete, give the information to your broker to record in your investment account statement.
  • If you own your investments directly, gather them up and put them into an investment account to simplify your tracking, cost barriers, tax preparation and estate administration.

Itemized deductions

The good news is that you have likely paid off your mortgage. The bad news is that you may no longer exceed the standard deduction to itemize. So then why do you keep tracking medical bills if you can’t itemize? “Bunching” deductions may be a planning option. For example, every OTHER year, I have my Mom pay her real estate taxes, Ohio tax estimates and charitable contributions she made during the year. Then I have her prepay next year’s real estate taxes, charitable contributions and Ohio estimated taxes in December. That doubles her itemized expenses and raises her total above the standard deduction. Then, I have her take an additional IRA distribution equal to the excess itemized deductions. That excess distribution equates to a tax-free payment because it is offset by the excess itemized expenses! This option is available to you too!

Estimated tax

You are required to calculate and pay your income tax by managing your social security and IRA retirement tax withholding, along with quarterly tax estimate payments. You must project and declare your taxable income by April 15 in the new-year. And remember, there are NO excuses for not paying them on time.

Complexities You Can Avoid

  1. Watch those managed stock accounts. The amount of programmed buying and selling creates more work for your CPA and will raise your tax preparation fee. Ask yourself if that activity really did make you more money after the incurred income tax and preparation fee. If it didn’t, revisit your managed stock accounts.
  2. Understand the publicly-traded LLCs recommended by your broker and know that you may need to extend your tax return because of the K-1 you will receive to report the income. Your preparation fee will be raised as well. Again, if you didn’t make any money after the incurred taxes and preparation fee, is it really worth it to continue?

The transition into retirement is not easy. Unfortunately, your money management and tax filing won’t be easier either. Our tax experts are always happy to answer any question you may have. Email Rea & Associates to learn more about your options for managing your retirement.

Author: Lee Beall, CPA (Dublin office)

 

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Nonprofit Service Is Voluntary, Workers Comp Coverage Is Not

Maribeth Wright | November 3rd, 2014

Did you know that the Ohio Bureau of Workers Compensation (BWC) expects you to provide workers compensation coverage to your nonprofit’s board of directors? And while the bureau hasn’t heavily enforced this guideline in the past, you can expect to see more enforcement of the rule in the future.

We recently caught up with a BWC representative to validate a letter one of our clients received pertaining to this issue. The conversation was valuable because we were able to walk away with some important pieces of information that, over time, had either been forgotten or ignored by many in the nonprofit sector.

Even though your board of directors may not receive a paycheck for the time and resources they have put in to your organization, they are likely on the front lines when it comes to managing the organization’s volunteers, finances, events and other initiatives. In other words – they are “working” for you.

“Active executive officers of a corporation, except for an individual incorporated as a corporation or officers of a family farm corporation, are considered employees for workers’ compensation purposes,” the bureau states in its Coverage Information by Employee Types.

Here are four facts nonprofit organizations need to know to avoid issues with the BWC:

  1. An organization’s officers are always considered employees of the organization. Even if an individual receives no pay, officer status indicates that they’re responsible for regular organizational work. Therefore, they are identified as an employee by the BWC, not a volunteer.
  2. Individuals who perform volunteer, non-emergency services for private employers (including nonprofits) are not covered under the BWC’s compensation policy.
  3. Since the BWC identifies those who hold an office with nonprofit organizations as employees, the nonprofit organization is responsible for reporting all wages paid to officers to the BWC, as well as to the IRS.
  4. You must pay the minimum reportable amount even if you have an “all-volunteer board.” However, non-officer board members are not subject to these rules.

Email Rea & Associates today to learn more about the BWC’s compliance requirements. The sooner you understand your compliance requirements, the sooner you can get back to focusing on doing more for your communities, families and causes your organization cares about.

By: Maribeth Wright, CPA (Cambridge office)

 

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The Totalization Conundrum: Tax Tips for Employees Abroad

Ben Jonard | October 31st, 2014

Taxes are confusing enough when geography isn’t a factor. Now imagine that you are accepting a short-term opportunity as an independent contractor overseas. Do you have any tax obligations while you are away? If so, how should these obligations be managed? Is there a difference between working as an independent contractor overseas versus working as an independent contractor in the United States?

Someone recently reached out to us to find answers to these questions. We researched her question a little further to arrive at the following conclusion: yes – on all counts.

As an independent contractor working overseas for a short period of time you will:

  • Owe self-employment tax
  • Have to pay advanced taxes (i.e. make estimated payments)

In fact, if you are an American citizen, it does not matter if the work you complete is inside or outside the United States, your tax obligations are universal regardless of where in the world you are staying.

That said, the bigger question becomes, will the income you generate be taxed more than once. The answer to this question is: maybe.

For example, if you are working in India, you may be expected to pay into India’s social security program. The good news is that the U.S. has made agreements with many nations to prohibit multiple tax practices from occurring. For income tax purposes, these agreements are called Tax Treaties. When the issue pertains to Social Security purposes, they are called Totalization Agreements.

Why Are Totalization Agreements Important?

A Totalization Agreement is meant to improve Social Security protection for those who have worked (or are working) in multiple countries. The agreement essentially provides a way to manage how taxes are distributed and how workers are credited for the progress made toward their Social Security benefits (or similar programs abroad) between the two or more countries in which the employee has worked.

Again, using India as the example, because no Totalization Agreement exists, a U.S. citizen working in India should be prepared to pay in to each country’s social security program. This isn’t the case in countries where Totalization Agreements are in place.

A U.S. citizen working in the Canadian Province of Quebec, as an independent contractor, for example, would only be obligated to pay U.S. Social Security taxes. In this example, a Totalization Agreement between Quebec and America would also mean:

  • A self-employed American citizen working in Quebec would not have to pay in to Quebec’s social security program.
  • The taxes and Social Security accumulated by an employee of an American company working in Quebec would be distributed by the American company to the U.S. government.

You can learn more about the Totalization Agreement between the United States and Quebec here. Or you can view a list of countries with Totalization Agreements in place with the U.S. here.

Additional Deductions Are Available

Even though Americans working in India may be required to pay into social security programs in both countries, a Tax Treaty protects U.S. citizens from paying income taxes to both countries. Additionally, there are other ways to find tax savings as an employee working overseas.

  • Even though you may be required to pay into the county’s social security program, this cost can likely be deducted per the foreign tax credit, which was established to assist American taxpayers who find themselves working from countries where Totalization Agreements are not in place – such as India.
  • If you are planning a temporary absence from your tax home in the U.S. for business, your away-from-home expenses may also be deductible. So keep track of your travel, meal and lodging costs.

If you are an American working overseas who is struggling with the tax obligations between your country of residence and your country of employment, email Rea & Associates today. Our tax professionals will help you identify your tax obligations while you are abroad and can help you successfully deduct business-related expenses on your next tax return.

Author: Ben Jonard (Dublin office)

 

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