Archive for the ‘Tax’ Category

Is Simplicity Worth The Cost Of Peace Of Mind?

Wednesday, March 25th, 2015
New Final Tangible Property Regulations - Ohio CPA Firm

Just because the IRS says you are no longer required to file Form 3115 to comply with its final tangible property regulations doesn’t mean it’s a good idea to stop. Read the article and find out why.

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.

Eligibility

  • 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.

Non-eligibility

  • 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?

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)

 

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How To Avoid The Retirement Culture Shock

Tuesday, March 24th, 2015
Retirement Doesn't Have To Hurt Contact Rea & Associates To Learn More - Ohio CPA Firm

When many of us start thinking about the realities of retirement, it’s already too late. Don’t let the “retirement culture shock” sneak up on you, these three tips will help as you attempt to navigate the road to retirement.

If you’re a newly retired American, then you are embarking on a new, exciting phase of your life. For many of you, increased travel, spending more time with grandchildren or pursuing a new hobby may be ways to enjoy this new journey.

Read: How Can I Make The Most of My Retirement?

But before you pack up your things and hop that next plane to Florida, here are three tips to help you avoid the retirement culture shock.

1. Taxes Don’t Vanish At 65

When you were an employee, your taxes were likely withheld from your paycheck. Today, however, is a new day. As a retiree, you no longer have a paycheck from which taxes can be withheld. But there are a few things you can do to make sure you won’t get hit with a large tax bill in April. For example, if you receive a regular pension payment or an annuity, consider withholding your tax payments from those. You also have the option of simply making quarterly estimated tax payments if withholding is not an option.

2. Transfer Your Pension To Avoid Added Tax Cost

If you do have retirement income from a pension plan, make sure to structure the transfer of your pension into an IRA as a direct rollover to avoid an additional tax. Basically, you want to make sure that the check is made out to your IRA and not directly to you, which will ensure that the funds are deposited into your IRA instead of your personal bank account. If you don’t structure your pension plan to disperse your money in this way, the company responsible for your pension payments is required to withhold 20 percent of the funds for the Internal Revenue Service (IRS). When this happens, the IRS will likely see fit to assess a tax to this 20 percent, effectively shrinking your retirement nest egg.

3. Don’t Miss Exclusive Tax Benefits

Retirees are eligible to receive a few nice tax incentives – perhaps to offset your new responsibility of paying your own quarterly estimated taxes and transferring your pension plan payments. Either way, these tax breaks are nothing to grumble about. Here are three tax facts to get you started:

  • If you turned 65 during 2014, your standard deduction increased by $1,550. This means that you can claim $7,750 instead of the $6,200 standard deduction allowed for those younger than 65.
  • For the next three years, taxpayers older than 65 are eligible to receive a reduced phase out of their medical expenses. Those who are older than 65 can deduct qualifying medical expenses to that exceed 7.5 percent of their adjusted gross income. Those younger than 65 can deduct qualifying medical expenses that exceed 10 percent of their adjusted gross income.
  • Self-employed individuals who have Medicare Part B, Part D or supplemental Medicare policies are eligible to claim an above-the-line deduction for these costs.

You have spent so many years putting in long hours, stressing over money and putting your wants and needs second. Retirement is your time. Make sure you are in control of your finances – and your future. Email Rea & Associates to learn how to make your money go further in retirement.

By Dana Launder, CPA (Cambridge office)

 

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How To Recover From Identity Theft & Refund Fraud

Wednesday, March 18th, 2015
How To Recover From Identity Theft & Refund Fraud

Have you been (or suspect you’ve been) a victim of identity theft and refund fraud? Rea & Associates recently compiled a variety of information that will help you recover from this nightmarish scenario.

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.

Read “How To Recover From Identity Theft & Refund Fraud

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 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.

The process of reporting fraud in Ohio is similar to the IRS procedures.

  • 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 is the primary federal government agency dealing with identity theft.

  • 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.

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.

By Joe Popp, JD, LLM (Dublin office) and Lesley Mast, CPA (Wooster office)

 

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Update: Ohio Tax Quiz Appears To Be Working

Friday, March 13th, 2015
Tax ID Quiz

According to officials at the Ohio Department of Taxation, while the new Identification Confirmation Quiz may be a pain in the neck, it appears to be working as a identity theft deterrent – Rea & Associates – Ohio CPA Firm

We have learned over the last month that Ohio’s new system of validating taxpayer identification, the Identification Confirmation Quiz, appears to be working.

In an effort to boost security and prevent tax-fraud in the state, the Ohio Department of Taxation introduced the quiz at the onset of the 2015 tax season and began flagging tax returns with data points that are inconsistent with public and commercial data sources. If their returns are flagged, taxpayers are required to take a Quiz to prove their identities.

Read: Theft Safeguards To Cause Tax Return Delays In Ohio

“Through Feb. 18, more than 1.3 million tax returns have been filed with about 874,000 requesting a state income tax refund. About half of the refund requests have been selected for additional screening to ensure that they were not filed by an I.D. thief,” stated Ohio’s Tax Commissioner Joe Testa in a press release. “About 97 percent of taxpayers taking the quiz are passing. That proves they are who they say they are.”

That means about 3 percent who fail the test are being declined to receive refunds that they would have normally received in previous years. As long as that 3 percent consists of actual identity thieves, the results reported are significant.

By Lisa Beamer, CPA (New Philadelphia Office)

 

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5 Tax Deductions To Ease Your Business’s Tax Burden

Thursday, March 12th, 2015
Tax Deductions Add Up

If you made a donation to a nonprofit organization last year, it’s almost guaranteed that you are eligible to deduct at least a portion of your contribution from your income.

The Internal Revenue Service (IRS) reported earlier this month that nearly 59 million 2014 federal tax returns have been filed so far this filing season. While that may sound like a lot, there’s still a ways to go as, according to IRS estimates, three of five taxpayers are still waiting to file. For those of you still working on your tax prep, there is still time to claim some valuable deductions. Here are five deduction options to help small businesses make the most of the 2015 filing season:

1. Ohio Small Business Deduction

Many small business owners in Ohio are eligible to receive help from the state on their 2014 tax returns through the Ohio Small Business Deduction. Initiated by Ohio Gov. John Kasich and considered to be “the largest overall tax reduction in the country,” the deduction allows eligible small businesses to take a 50 percent tax deduction on their first $250,000 of business income. However, for the 2014 taxable year only, that percentage was increased to become a 75 percent deduction of “net business income from an individual’s adjusted gross income reported on their Ohio personal income tax return.” Your financial advisor can help you learn more about the Ohio Small Business deduction and help you take your business strategy to the next level.

Read More

2. Section 179 Deduction

When Congress voted in favor of the Tax Extenders Act late last year, among the many tax incentives that were extended included an action to retroactively reinstate the $500,000 depreciation limit on the Section 179 deduction as well as the 50 percent bonus depreciation. Together, these tax incentives have the potential to save you and your company hundreds of thousands of dollars on equipment purchases. Limits and restrictions do apply, however, so make sure to work with a trusted advisor who can make sure your purchases actually qualify.

Read More

3. Personal Vehicle Deduction

If you drive your personal vehicle for business, then you may be able to deduct the expenses related to your car or truck as long as the vehicle was actually used for business purposes and not just commuting. A professional advisor can help you determine if you qualify to claim the deduction and can help determine which deduction method is the best one to use given your personal circumstances.

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4. Stock Gains Deduction

Some qualified businesses may also be able to exclude the gains generated by qualified small business stock per provision IRC Sec. 1202. Originally passed by Congress in the 1990s, this provision was designed to help reinvigorate the importance of continued investment into our country’s small business infrastructure. This incentive is a little more difficult than some of the others, but if you qualify, you could realize significant savings. Because of the complicated nature of this particular provision, it is essential that you work with a tax advisor to find out if you qualify.

Read More

5. Charitable Giving Deduction

If you make a donation to a nonprofit organization during the year, it is almost guaranteed that you will be able to deduct at least a portion of your contribution from your income. But there are rules that need to be adhered to. A good financial advisor can help you get the maximum benefit for every dollar donated.

Read More

For more information related to specific tax and deduction questions related to your business, email Rea & Associates.

By Lesley Mast, CPA (Wooster office)

 

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Obamacare: Some Taxpayers Get Second Chance To Purchase Health Insurance

Thursday, March 12th, 2015
Special Obamacare Open Enrollment Period

The Centers for Medicare & Medicaid Services (CMS) have taken steps to create a special enrollment period to allow individuals and families to secure 2015 health insurance coverage through the federal marketplace. – Rea & Associates – Ohio CPA Firm

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.

Read: Are You Prepared To Pay? Obamacare’s Shared Responsibility Provision

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:

  • 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).

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)  

 

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Is A Sale-Leaseback Transaction Right For Your Business?

Tuesday, March 3rd, 2015
Sales-Leaseback Transaction

Is it a better business strategy to enter into a sale-leaseback transaction on your current office building or other business property? Make sure you know the pros and cons before making any decisions – Rea & Associates – Ohio CPA Firm

Are you looking for a plan to increase your business’s cash flow? If you own business property, you may be able to benefit by entering into a sale-leaseback transaction. But while there several great benefits to this type of agreement, there are also some significant drawbacks. So, before you draw up the paperwork, schedule a time to meet with your financial advisor to find out if the benefit outweighs the risk.

Advantages Of A Sale-Leaseback Transaction

A sale-leaseback transaction occurs when you, the real estate owner and occupier, sell your property to a third party on the condition that they agree to lease the property to you. Entering into this type of arrangement has several benefits, including increasing your business’ cash flow while freeing your business up to allocate the capital to other areas of your business. Additional benefits include:

  • As the seller and eventual lessor, you essentially maintain control of the property, which prevents operational disruptions from occurring.
  • Assuming the current property is financed with debt, this long-term debt can be eliminated from the balance sheet under certain lease arrangements.
  • From a tax perspective, you gain an additional annual “write-off” for the portion of rent related to the land (as land is not depreciated).

Drawbacks Of A Sale-Leaseback Transaction

Perhaps the most significant disadvantage of entering into this type of agreement is that you stand to lose the flexibility that comes with owning the property outright since these transactions usually are for longer terms than a typical property lease (15 or more years). The typical sale-leaseback transaction takes the form of a “triple net lease,” which usually states that you, as the tenant, will be responsible for the net real estate taxes, net building insurance and net common area maintenance. Other disadvantages include:

  • The loss of the real estate’s appreciation value over the course of a lengthy lease term.
  • Significant income tax impact that comes in to play when a property’s sale price significantly exceeds the property’s “book value.” This typically occurs when you are selling a property that has been owned for a long period of time prior to the sale.
  • A decrease in your Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) as your depreciation expense on the property is replaced by the rent expense.

The financial benefits of sale-leasebacks must be balanced with your unique strategic and operating considerations. A financial advisor and business consultant can help identify whether this option is right for you and your business. Email Rea & Associates to learn more about sale-leaseback transactions and other strategic business decisions. By Ben Antonelli, CPA (Dublin office)  

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If You Buy Online You Might Owe Use Tax

Monday, March 2nd, 2015
Ohio Use Tax

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. – Rea & Associates – Ohio CPA Firm

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)

 

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Governor’s Budget Proposal Makes The Case For Tax Reform

Wednesday, February 11th, 2015
Proposed tax increase on oil and gas production

If the proposed two-year state budget proposal passes, oil and gas produced by horizontal wells will be taxed at a 6.5 percent tax rate for product sold at the wellhead. If sold downstream, a 4.5 percent tax will be applied.

Since it was unveiled last month, Gov. John Kasich’s proposed two-year state budget has many individuals, businesses, school districts, not-for-profit organizations and others scrambling to find out how his proposed tax reform package will affect them. In his recommendation, Gov. Kasich says his proposal seeks to “create more opportunities for each and every Ohioan.” To this end, the budget focuses on four primary objectives:

  1. To ensure that students are ready for college and careers
  2. To help more students get degrees
  3. To cut and reform taxes
  4. To help Ohioans move up and out of poverty and into jobs

To achieve these goals, Gov. Kasich has proposed implementation of several tactics to help fund his $35.5 billion 2016 budget, which is up 15.5 percent over the state’s projected spending in fiscal year 2015. Of those tactics, a slew of tax cuts and increases are central to his budget initiative. The following points address some primary changes Ohioans can expect to see if Gov. Kasich’s 2016-2017 budget plan is approved.

Proposed Tax Cuts

  • A 23 percent across-the-board income tax rate reduction. This proposed cut would drop the top income tax rate to 4.1 percent, the current from 5.33 percent.
  • Business owners of pass-through entities with gross receipts less than $2 million will pay no income tax on their business income.
  • Other Ohio business owners will see the 50 percent reduction incentive on income that totals $250,000 and less become permanent.
  • Individuals who earn less than $40,000 will see a $1,600 increase in their personal exemption (from $2,400 to $4,000). The personal exemption for those who make between $40,000 and $80,000 will increase by $900 (from $1,950 to $2,850).

Proposed Tax Increases

  • The commercial activity tax (CAT), which is measured by a business’s gross receipts on business activities in the state, will increase 0.6 percent to 0.32 percent.
  • The state’s sales tax will increase to 6.25 percent. The current sales tax rate is 5.75 percent and would be expanded to include management consulting, lobbying, market research and opinion polling, public relations, debt collection services, cable subscriptions and parking and travel services.
  • Means-tested tax credits and exemptions for retired taxpayers who earn more than $100,000.
  • Oil and gas produced by horizontal wells will be taxed at a 6.5 percent tax rate for product sold at the wellhead. If sold downstream, a 4.5 percent tax will be applied.
  • The state currently reduces the price paid for the new car or boat by the value of the trade-in. The proposal calls for a 50 percent deduction in this exemption.
  • The discount vendors receive for collecting, reporting and remitting sales tax will be capped at $1,000 per month.

To learn more about how tax reform could affect you, email Rea & Associates.

By Lesley Mast, CPA (Wooster office)

 

 

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