Posts by Joe Popp, JD, LLM:
- True or False? Your small business’s assets total no more than $10 million or, over the last three years, your gross receipts have totaled no more than $10 million. (only need one of these to be true).
- True or False? You will not file Form 3115 for any other business activity or any other change in accounting method for the year.
- True or False? You get no benefit (or you don’t care about the benefit) from harvesting favorable 481(a) adjustments as a result of partial dispositions made in previous years.
- True or False? You don’t care about prior year audit protection.
- True or False? You believe that adequate records will otherwise be maintained with regard to what you have done (and are going to do) to protect against an audit. For example, if you have chosen not to do repair X, Y and Z because of your obligation to list it on Form 3115, will you continue to maintain that information in the event an audit were to occur?
- The primary item to complete for the IRS is Form 14039 which initiates the IRS fraud protection procedures.
- Also included is a form letter, one of several, the IRS may send to a taxpayer if tax return fraud is suspected to be occurring on the account.
- The IRS has published a number of articles related to identify theft and how to protect yourself. A master page with links to all these topics is included in this packet. You may also check out some of our recent articles on the topic, which can be found in the “Related Articles” portion of this post.
- Ohio also sends form letters to the taxpayer.
- Ohio recently added an identity quiz for roughly 50 percent of taxpayers requesting a refund. This letter simply asks the taxpayer to complete a quiz specifically used to prove their identity. Note: This request doesn’t indicate that your identity has been stolen (unless you haven’t filed your tax return for the year yet).
- If the Ohio Department of Taxation suspects fraudulent activity on the account, the taxpayer will receive a second letter that will indicate these suspicions.
- Ohio includes an affidavit (Form IT TA) that must be filled out to initiate their protection procedures, similar to Federal.
- The FTC has put together a very detailed, checklist to help you with the identity theft process. The guidance includes information on most forms of identity theft – of which tax identity theft is just one. While this may be more information than you need, if the fraud has gone beyond your tax returns and includes false credit activity (or you are concerned this may happen), this guide will be very useful for you.
- The guide includes a wealth of information, such as sample letters and a variety of websites and contact information to relevant organizations that can help you. It also guides you through the process of making a police report in response to the theft of your personal information. Check it out here.
- Note: The IRS and the FTC generally do not share data with each other. Therefore if you have completed the IRS identify theft notification procedures, don’t assume that the FTC, credit bureaus, etc., are also aware of your situation.
- Are not currently enrolled in federally-facilitated coverage for 2015,
- Had to pay an individual mandate on Form 1040 of their 2014 tax return, and
- Live in a state with a federally-facilitated exchange (Ohio residents qualify. Those who do not live in Ohio may click here for a full list of other qualified states).
- You were self- employed and had a net profit for the year. (Profits should be reported on Schedule C, C-EZ or F).
- You were a partner with net earnings from self-employment.
- You received wages in 2014 from an S corporation in which you:
- The minimum cost for your premiums totals over 8 percent of your household’s total income.
- You have had a gap in your health insurance coverage for less than three consecutive months.
- You have a hardship that prevented you from obtaining coverage.
- You are a member of certain religious groups (e.g. Amish) and you have Supplemental Security Income (SSI) exemption on file.
- There are several other criteria and fine print you can see here.
- You must make the IRS aware of whether your household had minimum essential coverage for each month in 2014. This can be done by checking a box identified on your tax return document.
- If your household qualified for an exemption in 2014, an additional form must be attached to your tax return, which will provide the IRS with the information needed to approve the exemption claim.
- Those required to make an individual shared responsibility payment, must make the payment when you submit your federal tax return to the IRS.
- Copyright registration
- Correspondence (legal and important matters)
- Deeds, mortgages, bills of sale
- Depreciation schedules
- Financial statements (end-of-year)
- General and private ledgers (and end-of-year trial balances)
- Insurance records, current accident reports, claims, policies, etc.
- Minute books for director and stockholder (including bylaws and charter)
- Property appraisals by outside appraisers
- Retirement and pension records
- Tax returns and worksheets, revenue agent’s reports and other documents relating to determination of income tax, sales tax, or payroll tax liability
- Accident reports and claims (settled cases)
- Accounts payable/receivable ledgers and schedules
- Expense analyses and expense distribution schedules
- Inventories of products, materials and supplies
- Plant cost ledgers
- Telephone logs/message books
- Time books/cards
- Withholding tax statements
- Employee payroll records (W-2, W-4, annual earnings, etc.)
- Bank deposit slips
- Employment records
- General correspondence
- Internal work orders
- Production and sales reports
- Sales commission reports
- Subscribed to the state workers’ compensation fund
- Was not group-rated
- Reported payroll and paid premiums in a manual classification for which the non-group effective base rate was “inflated” due to application of the group experience rating plan
The IRS recently made the road on which business owners must travel to comply with final tangible property regulations a little less bumpy. Currently, most businesses that buy, depreciate, or repair property were required to file Form 3115 basically telling the IRS that the business had changed its accounting methods to comply with the new IRS rules and safe harbor, regardless of whether the change actually impacted their income.
Today, now that Revenue Procedure 2015-20 (15-20 relief) is in effect, small business taxpayers have the option of foregoing that extra paperwork. This relief removes the requirement to file a 3115 or statement with the tax return just to tell the IRS that you are making the changes. But, is that a good idea?
The main reason that you might still want to file a 3115 is if you have favorable tax adjustments from the past that you can harvest and take on your tax return this year. Filing the form is the only way to get at those. You also waive the audit protection for prior years that would be available with filing the 3115. But, you do get to save some money on tax prep fees and paperwork.
Here’s a brief “true-or-false” quiz to help you decide what to do. Of course you have to be eligible for the 15-20 relief, so the eligibility statements must be true. You should also consider filing a 3115 if you answer false to the later items.
Better Safe Than Sorry
Because it’s the only way to harvest prior year benefits and because most taxpayers desire the audit protection on these issues for prior years, we will likely continue to file Form 3115 for many of our clients.
Email Rea & Associates to learn more about Revenue Procedure 2015-20 and to find out if the new simplified method of reporting property changes is right for you.
By Joe Popp, JD, LLM (Dublin office)
Suspecting, and then confirming, that you’ve had your identity stolen is a nightmarish scenario. It combines one of your worst fears, losing your wallet or purse, with all of the work of replacing the things that were lost. It can be so overwhelming you might be wondering: “Where do I even start?”
An increasing number of identity thefts are first identified when a thief attempts to file a tax return on your behalf and claim a federal or state tax refund. To help you navigate some of the issues you may be confronted with, we recently released a compilation of documents and resources.
The documents that are included are intended to help you navigate some of the issues you may be confronted with if you find that you’ve been an identity theft and fraudulent tax return victim.
Beat The Identity Thieves
The guidance includes a variety of valuable information for those who have been (or suspect they’ve been) a victim of identity theft and refund fraud. The following is a brief synopsis of information included in this guide.
The IRS has provided a short list of items for you to complete, which is substantially similar to the items the Federal Trade Commission (FTC) covered in its longer, checklist-style guidance.
The process of reporting fraud in Ohio is similar to the IRS procedures.
The FTC is the primary federal government agency dealing with identity theft.
Check Your Mail, Not Your Caller ID
Remember, the first contact taxpayers will have with the IRS regarding any issue will be in the form of an official mailed letter – not a phone call. These scammers appear to be determined to steal your money and/or your identity and reports of these types of scams continue to be on the rise. By educating yourself, your friends and your family, you are taking a proactive stance against these criminals.
If you would like to learn more about how you can protect yourself against, and recover, from Identity Theft & Refund Fraud, click here to view our compilation of documents and resources. You may also email Rea & Associates for more information.
Did you get hit with the “shared responsibility payment” for not carrying health insurance on yourself or your family members in 2014? If so, you’re not alone.
Americans who were unaware of (or who simply didn’t understand) the fees they would be subjected to as a result of not carrying health insurance coverage may have been equally surprised to learn that the open enrollment period to obtain coverage for 2015 closed last month – meaning that even if they wanted to avoid the fees next year, they were out of luck. Fortunately, the Centers for Medicare & Medicaid Services (CMS) realized this dilemma and took steps to create a special enrollment period to allow individuals and families in this bind to secure 2015 health insurance coverage through the federal marketplace. This will be a big help to those who may have found out that they were eligible for premium subsidies to help pay for insurance – a little too late. The new open enrollment period is March 15, 2015, through April 30, 2015, and is only available for individuals and/or families that:
According to CMS, eligible enrollees also must “attest that they first became aware of, or understood the implications of, the Shared Responsibility Payment after the end of open enrollment in connection with preparing their 2014 taxes.” “We recognize that this is the first tax filing season where consumers may have to pay a fee or claim an exemption for not having health insurance coverage,” sad CMS Administrator Marilyn Tavenner in a press release. “Our priority is to make sure consumers understand the new requirement to enroll in health coverage and to provide those who were not aware or did not understand the requirement with an opportunity to enroll in affordable coverage this year.” Note that even if you don’t qualify for this open enrollment, there are a number of qualifying events that let you sign up for coverage on the exchange any time of year. If you want to know whether you qualify for subsidies to help shoulder the burden of health insurance, click here. Or you can email Rea & Associates for any Affordable Care Act questions.
By Joseph Popp, JD, LLM (Dublin office)
If you are one of the millions of people who love to browse and buy online, it may shock you to learn that the Ohio Department of Taxation is looking at you to declare and pay a little more when you go to file your 2014 tax return. From gifts to grocery shopping, many of us use the ease of online shopping to snag a good deal and avoid the hassle of braving the brick-and-mortar shops – especially during the holidays, but sometimes that convenience might come at a price.
Were you charged sales tax for that pair of shoes you bought last October or those books you had shipped to your house in June? If the company you made purchases from doesn’t have facilities in the state or a law that requires it to collect sales taxes for your state, then it’s likely you owe use tax to Ohio – and you have to report your use tax on Line 19 of your Ohio Form IT 1040.
Use Tax Is Not A New Tax
Declaring and paying sales and use tax on your state tax return is not a new responsibility. The Ohio Department of Taxation states that “in transactions where sales tax was due but not collected by the vendor or seller, a use tax of equal amount is due from the consumer.” In Ohio, the use tax rate is the same as sales tax rate you would have paid if sales tax was correctly charged by the vendor. This is usually the place of purchase (or your home address for shipments from outside Ohio). You can read Ohio’s use tax law in its entirety here.
As a courtesy, Amazon provides a brief explanation of the consumer’s responsibility to pay use tax on its website. Because Amazon suspects its customers aren’t keeping a file of receipts, the online retailer provides customers with the option to create and download an Order History Report, which compiles your download, shipment, return and refund activity and can be used to help calculate use tax.
But your Amazon purchases aren’t the only ones to consider when you sit down to file your tax return this year. Other popular online retailers and groups, including Etsy, are also depending on their consumers to pay use taxes on the products they sell. So make sure you take a second look at that packing slip and receipt.
Little Box, Big Pause
While the responsibility of paying use tax isn’t new, this is the first year taxpayers in Ohio are required to certify their use tax claim before filing their return with the state. If you didn’t shop online or make a “sales tax-free” purchase, you should have nothing to worry about – simply check the box and continue on. On the other hand, if you did partake in online retail therapy in 2014 and don’t have your receipts handy, you may have to pause your tax preparation to give yourself a little more time to find out what you owe.
To find out more use tax, email Rea & Associates.
By Joe Popp, JD, LLM (Dublin office)
Do you provide health care benefits to a few of your employees and not others? This is an eligibility and richness of benefits issue. You may find yourself at risk for eligibility discrimination if, for example, you offer coverage only to the owner and an employee or two and not to the rest of your team. You also run into problems if you are found to be discriminating in the benefits your company provides. An example could be if you offer your management group 100 percent of premiums paid by the company and only offer your staff 50 percent of premiums paid. This is not related to the 50 full-time equivalent (FTE) large employer status.
While it might be possible to set up a plan to comply with the tax non-discrimination rules where employees throughout the company are offered different benefits, you also have to navigate through federal and state insurance laws and other Department of Labor regulations – the short answer is just don’t do it! The penalty for non-compliance is $100 per failure per day.
Do You Qualify For The Self-Insured Health Deduction?
Are you seeking to claim the self-insured health deduction (SIHD) on your 1040? If so, one of the following statements must be true:
- Owned more than 2 percent of shares and
- Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2.
Easy enough … until it isn’t.
S Corps: Catch 22
If you are basing your self-insured health deduction on only the S Corp eligibility criterion above, you have to be very careful to a.) not violate ACA non-discrimination and, b.) maintain your eligibility for the self-insured health deduction.
In order to get the self-insured health deduction, S Corp either needs to pay directly or reimburse the owner and include the amount on form W-2. Whichever of those two choices the S Corp makes, the S Corp is providing coverage to that owner. And, if you remember in the non-discrimination section above, ALL employees of the S Corp must receive the same benefit in order to comply with the non-discrimination rule. So by doing the actions required to get that owner eligibly for the self-insured health deduction, S Corp is covered by the ACA non-discrimination testing and it had better be sure to offer coverage to everybody.
And if you think you can just get around the rule by simply increasing wages in lieu of paying for or reimbursing shareholder’s premiums, you’re wrong. Doing this will put you at odds of the self-insured health deduction eligibility rules, making it impossible for your shareholders to claim the deduction.
Let this be your guide:
A shareholder of an S corporation (who doesn’t have a schedule C or one of the other SIHD criteria) will not be able to take the self-insured health deduction unless the S corporation is providing similar coverage to ALL other S corporation employees AND is including the amounts paid directly to the insurance provider or in payments reimbursed to the shareholder on Form W-2.
Remember, you do have options. A tax professional can help identify yours. Email Rea & Associates to learn more.
By Joseph Popp, JD, LLM (Dublin office)
American businesses have been feeling the push and pull of Obamacare on their bottom lines for a while. Now, it’s time for individuals who chose to forego health insurance coverage to see what the individual shared responsibility provision has in store for them. If you did not have insurance coverage in 2014, you may need to send a little more money to the IRS when you go to file your 2014 federal tax return.
The individual shared responsibility provision became active in 2014 and, absent an exemption, requires individuals to pay a fee into the system if they choose not to carry health care insurance.
An exemption may be granted if:
According to the IRS, your shared responsibility payment for 2014 will either be “the greater of one percent of the household’s income above the income filing threshold for your tax filing status, or a flat dollar amount of $95 per adult and $47.50 per child (under the age of 18) – but no more than $285 per family. The individual shared responsibility payment is also capped at the cost of the national average premium for bronze level health plans available through the health insurance marketplace that would cover everyone in your family who does not have minimum essential coverage and does not qualify for an exemption – for example, $12,240 for a family of five.” This fee will increase in future years.
As you prepare to file your 2014 federal tax return, here are a few things to keep in mind:
If you’re unsure whether you qualify for an exemption or need help calculating how much you will owe to the government when making your shared responsibility payment, email Rea & Associates. We can help you determine how the shared responsibility provision will affect you.
Author: Joe Popp, JD, LLM (Dublin)
Interested in other Obamacare-related posts? Check these out:
Are you wondering what to do with all those tax documents and records you have piling up around your office or in your computer files? Are you thinking about wiping them from your company’s hard drive or sending them to the shredder? Not so fast. The IRS has several rules when it comes to how long your business should keep its records. Make sure you are up to date on the current records retention schedule before you permanently delete something important.
Generally speaking, records that support your income or deduction claims for tax return purposes should be kept until the period of limitations for a particular tax return expires. The “period of limitations” is defined as the period of time the IRS gives you to change information on your return, particularly when the information relates to a refund or credit you have claimed. Also, just because you aren’t planning to make any changes to your tax return doesn’t mean the IRS won’t. Therefore it’s in your best interest to keep your documents until the IRS can no longer assess additional taxes or request additional information from you.
Below is a quick reference guide pertaining to some common records your office has been collecting over the years and how long you should keep them.
Records You Should Keep Permanently:
Records That Should Be Retained For At Least Seven Years:
Records That Can Be Destroyed After Three Years:
If the records you are looking for aren’t listed above, you can find additional record retention recommendations in our current record retention schedule.
IMPORTANT: The actual amount of time you are required to keep a specific document may be longer depending on your business or what is contained in the document. If you have questions about specific documents or would like some advice on your current record retention practices, email Rea & Associates.
Author: Joe Popp, JD, LLM (Dublin office)
Countless small businesses soon may find that they have money coming back to them. The Ohio Bureau of Workers’ Compensation (BWC) has decided to settle a class action lawsuit alleging that the BWC, over the course of many years, had a system of group rating in place that improperly overcharged many Ohio businesses. A lower trial court originally ruled in favor of the plaintiffs with possible damages exceeding $800 million. While the ruling was upheld on appeal, the appeals court sent the decision back to the initial court to better address the issue of damages.
Now the BWC has agreed to pay out $420 million to those affected by the state agency’s practice of overcharging for workers’ compensation premiums between the years of 2001 and 2008.
To fulfill its obligation under the settlement agreement, the BWC said it will create a fund that will be specifically used to pay: claims made by employers found to be participants in the class action lawsuit, attorney fees, court costs, and costs associated with administering the fund. According to the settlement agreement, any unclaimed money will be returned to the bureau.
Can You Make An Ohio BWC Claim?
In order to make a claim, you must have been a private, non-group rated employer at some point during 2001-2008 who:
Employers who were non-group rated for at least one policy year between 2001 and 2008 are eligible to claim a portion of the settlement. Eligible employers should be receiving a notice that indicated their status as class members and how to make a claim. A website where claim information can be submitting is currently under development.
Class members are required to submit their claims to Judge Robert McGonagle of the Cuyahoga County Court of Common Pleas. Claims must be postmarked no later than Sept. 22, 2014. More information on this ruling can be found here. More details are coming, so stay tuned!
If you’re entitled to a portion of the BWC settlement, make sure you understand your rights and know how to follow the transaction process. If you’d like more information about how to claim what’s yours, email Rea & Associates and ask for information about this process.
Author: Joseph Popp, JD, LLM (Dublin office)
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Obamacare is back in the news as a top story! Why? Because the U.S. Supreme Court ruled today that closely held, for-profit companies can claim religious exemption to avoid providing health insurance coverage for contraceptives.
An Obamacare provision stated that businesses with more than 50 employees must cover preventive care services, including birth control and morning-after pills to female employees. Today’s Supreme Court ruling provides relief for many U.S. for-profit companies by giving way to this religious exemption. Now companies that feel offering health insurance the covers contraceptives goes against their religious beliefs can opt out of providing this kind of coverage. Check out this New York Times article which provides a more in-depth look at the today’s U.S. Supreme Court ruling. Of course, its too early to tell the practical impact of this decision – insurance companies are free to choose which kind of coverage is covered by their insurance plans, and the relative pricing of those plans, after all.
Do you feel like today’s Supreme Court ruling could impact your business and the health insurance coverage you offer to your employees? If it does, and you need help, contact Rea & Associates. Our health care reform tax experts can help you determine how it affects you and your business.
Author: Joe Popp, JD, LLM (Dublin office)
Interested in other Obamacare-related blog posts? Check these out:
You may have heard some buzz lately about the Obama administration and/or the IRS barring employers from “dumping” employees onto the health care exchanges – with some truly severe cash penalties for doing so. But is this really “new” news? What exactly does this mean? It might surprise you to know that employee dumping is not all it seems.
A recent New York Times article explains that “employee dumping” is the practice where an employer drops health insurance coverage to its employees, the employees go to the health care exchange to buy insurance, and then the employer on a pre-tax basis reimburses its employees for their premiums. This “have-your-cake-and-eat-it-too” approach (with various ways to accomplish it) was one of the leading responses to this legislation that Obamacare consultants developed. The administrating agencies (IRS, HHS, DOL) shut this option down when they issues guidance in September 2013. ANY attempt by an employer to pay an employee a pre-tax benefit for health insurance has since then been a very dangerous approach, although some exceptions exist (e.g. retirees only). This current “news” is simply a clarification that these things are indeed busted.
Can You Still Drop Health Care Insurance Coverage?
What if you want to drop your coverage, send employees to the exchange, and then increase their after-tax pay so that they can pay for exchange insurance? That’s OK, it doesn’t conflict with the rules. It’s only pre-tax benefits you should be concerned with.
What if you increase worker pay as I just described, and then the employee sinks that cash into an HSA that they get from a bank (for free)? That gets them a tax deduction (up to certain limits) … is that OK? Yes! Remember that what the IRS is looking to prevent is employers trying to give pre-tax benefits without offering insurance – that is the “evil” that these regulations are designed to combat. Once the employer pays taxable wages to an employee, the employee is free to use whatever means they have available to be tax efficient.
A Pit Trap For The Unwary
So is “employee dumping” limited to the situation where employers are trying to push tax-free cash to employees? Actually no, and this is why I refer to this as “a pit trap for the unwary.” Dumping also refers to the practice of employers encouraging workers with high medical bills to go to the exchange.
What exactly does this mean? Think of it this way … As an employer, you have an insurance plan that still takes into account the health and claims of your workforce (they still exist). If you can get an employee to the exchange that has $400,000 of medical costs a year, you could potentially save a large sum of money and your employee is not harmed because they can get quality coverage on the exchange for no more than a healthy individual can.
Some companies throw a cash kicker on top for the employee to voluntarily drop coverage (what’s an extra $10,000 in cash if you are saving $100,000+). Everybody wins, right? Well, not the Exchange. If it’s discovered that you – the employer – are doing this, there are administrative rules in place that can throw that cost back at you. Insurance companies have a duty to report suspected employee dumping, so be careful!
Have you considered “dumping” or are you unsure if you’re heading down this path? If so, contact Rea & Associates. Our team of Ohio tax professionals can help you determine what path is best for you to take, as well as help you stay in compliance with Obamacare rules and avoid any pitfalls along the way.
Author: Joe Popp, JD, LLM (Dublin office)
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