Posted by Keith Willis, CPA.CITP

Having worked with accounting software since the advent of the personal computer, I am truly excited by the latest evolution of technology. Integrated cloud accounting solutions help businesses easily manage growth while helping make the accounting staff more lean and efficient.

There are a myriad of benefits to using fully integrated cloud accounting solutions, but let’s start off by looking at one piece of the pie — how using cloud technology can achieve efficiencies in the area of bill paying.

Conventional Process

Company ABC pays its bills with hand-written checks or through an in-house accounting package and maintains paper files with copies of vendor bills already paid. Here’s how it generally works:

• A bill for services arrives in the office or email.
• It may get routed to the bookkeeper/accounts payable clerk or it may go to the approver.
• If it goes to the clerk, he or she reviews it for accuracy and route it for approval.
• At some time during the next couple of weeks approved bills come to the clerk (if they weren’t lost). The bill gets placed on the pile of bills to be paid.
• He or she may enter it into an in-house accounting system and code the transaction.
• The bookkeeper will pay it with a hand-prepared check or will generate the check from the in-house accounting system.
• He or she will mail the check and bill stub.
• The bill and a copy of the check will (hopefully) be filed in the vendor’s paid bills file.
• At a later date canceled checks with be reconciled to the accounting system.
• If entries were omitted, they will be made to the accounting system.
• (If a vendor calls looking for status on payment of an open bill — good luck.)

Cloud Technology Process

Company XYZ uses a cloud-based bill-pay service to manage, document and expedite the process. Here’s how it generally works:

• A bill comes in and it is emailed, faxed or uploaded to the bill-pay service. If it is a monthly recurring bill it can be directly sent via email directly to the company’s inbox.
• The bookkeeper receives an email notifying him or her that the bill has been delivered. He or she then logs in, reviews the bill, codes it and marks it ready for approval by the appropriate person. At this time, an electronic copy of the bill is placed in the vendor’s file folder, so any paper copy can be destroyed (the first exciting step to becoming a paperless office).
• The approver of the bill receives an email notification and can log in directly to review and approve the bill — even from a smartphone or tablet, providing anywhere, anytime bill pay.
• Once approved, the bookkeeper receives an email and he or she can schedule the payment to arrive just before the due date.
• If a vendor calls about status on payment of a bill, it’s no problem because the bookkeeper knows the exact status at any stage. The bookkeeper will even receive an email once the payment is made and the check clears. An image of the cancelled check can be viewed online anytime.

There’s no question that the electronic cloud process saves a company’s accounting staff significant time. There is no paper to chase around the office, no checks to prepare and mail and no bills to file and store in the office. Such enhanced efficiency will allow a larger volume of payables transactions to be handled and can provide accounting staff with extra time to concentrate on other important functions, such as monitoring accounts receivable, inventory issues or budgeting. And if done right the cloud accounting solutions integrate all of this payable activity into the accounting system automatically, further increasing efficiency.

A cloud-based bill-pay solution is definitely worth evaluating, especially for business owners and executive management who need a system that can streamline their processes while accommodating their hectic schedules.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

The Ohio Department of Taxation has updated its website to advise victims of identity theft. If someone has stolen your identity, you must complete the Department’s Identity Theft Affidavit at www.tax.ohio.gov/Individual/IDTheft.aspx and have your signature notarized. Before returning the affidavit, you must also complete the federal forms at www.irs.gov/uac/Taxpayer-Guide-to-Identity-Theft and attach those to the Ohio affidavit as well.

If you have questions on how to handle identity theft, contact a member of your Cohen & Company service team. Read our related blog post on what to do if you fall victim to tax ID theft.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Mark Danczak

Technology is ubiquitous and is advancing more quickly every day, enabling capabilities that could only be dreamed of just a few years ago. When strategically integrated with the business, advanced technology can significantly impact the bottom line. The secret is to understand where the business is going and how all the tech puzzle pieces fit together to help it get there.

The reality is, very few companies are fully utilizing existing technology let alone planning for emerging technologies. Being strategic about information technology (IT) is not some event that happens once every couple years at a board meeting or planning session. IT needs to be actively integrated into the business, and high-level IT professionals should be involved in business decisions to help drive the greatest value. The challenge is not to just install new stuff; the challenge is to install the right stuff, at the right time, to fully optimize the business.

Take cloud accounting solutions, for example. Enterprise cloud accounting systems were only affordable to the Fortune 500 just a few years back. Now cloud accounting is more than just affordable; it is often preferable for delivering more functionality while optimizing business processes and making staff more productive. The ROI is meaningful even before you add the business value of the real-time, anyplace information and the fact that owners and top management can focus on growing the business instead of worrying about the accounting function.

Driving significant bottom line impact through strategic initiatives such as cloud technologies? Ok, where do I sign up? Here’s where things typically stall out. Unfortunately the vast majority of technology professionals are good at keeping the systems running and not so good at strategically matching business needs to technology capability. In many ways, business in general is at fault for the disconnect; it has developed IT staff and even many chief information officers (CIOs) to be order takers, measuring and rewarding them as such.

Business owners need to raise their expectations of their staff so IT can contribute to the bottom line. That means inviting IT to the proverbial table. And IT leaders need to realize that it is their responsibility to know the business, know the processes and know how the company makes money. Then everyone can start to think about the strategies for investing in the right technology solutions to optimize business objectives.

If the folks managing your technology aren’t strategic, you should consider augmenting the process with outside help. But be careful; unfortunately many technology consulting firms suffer from the same shortage of strategic thinking as many internal IT departments. It may take a while to get the right person in place and/or develop the necessary skills, but the payback can be high.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Tracy Monroe, CPA, MT

Full application process begins September 30th

In an effort to help employers retain their workforce and remain competitive, the state has announced that at 10 a.m. on September 30th it will offer a second round of funding for its Incumbent Workforce Training Voucher Program. The program will offer eligible Ohio employers $27 million in total, a $7 million increase from the first round offered earlier this year.

The program will reimburse for-profit businesses up to 50% of training costs (up to $4,000/employee and $250,000/per company) for certain types of employee training  — including various HR certifications, ICD-10 training, tuition costs and other training that leads to an industry credential or occupational license. Training must be conducted from July 1, 2013, through June 30, 2014, and must be within certain industries, such as advanced manufacturing, automotive, financial services and information technology, to name a few.

The pre-application process is now open. Determine your training schedule and needs from now through June of next year, including what types of training you will send employees to, which employees will go, and dates and specific trainer information, then fill out as much information as possible on the pre-application form prior to September 30th, as funds could go fast.

For more details on the program, contact Tracy Monroe of Cohen & Company’s state and local tax team, or visit http://development.ohio.gov/bs/bs_wtvp.htm. Or sign in and pre-apply on the Ohio Development Services Agency webpage.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

The U.S. Department of Labor (DOL) recently issued Technical Release No 2013-02. This release provides temporary guidance to “applicable employers” on notifying employees of health care coverage options that will be available beginning January 1, 2014. Even though the options are not available until 2014, employers must notify current employees no later than October 1, 2013. 

The notification requirement applies to employers who are subject to the Fair Labor Standards Act, which generally includes employers with at least $500,000 in annual sales and who are engaged in interstate commerce. The notice must be provided in writing, such as first-class mail or email, in a manner that can be understood by the average employee. Beginning on October 1, 2013, employers must begin providing a notice to each new employee at the time of hire.

Employers can visit http://www.dol.gov/ebsa/healthreform/ to access model notices provided by the DOL. There is a model notice for employers who offer health plans to some or all employees and a separate notice for employers who do not offer health plans to their employees.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

While the IRS will experience some interruption in its operations due to the U.S. Government’s shutdown over failed budget talks, the October 15th tax filing deadline will not change. However, only about 9% of IRS employees will continue working for now, so responses from the IRS on questions related to filings may be delayed.

The IRS has set forth its Shutdown Contingency Plan, which details which activities and processes will or will not continue for at least the next five days, e.g., they will continue to prepare for the 2014 tax filing season. If the shutdown extends beyond a five-day-period, the IRS will re-evaluate and adjust the plan accordingly.

Contact a member of your service team if you have any questions.
 

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Trevor Chuna, CFP®, AEP®, MSFS

A good financial plan translates and organizes all areas of your finances into one central location, providing a complete snapshot of your financial situation. By knowing where you stand today, financially speaking, you can make educated decisions regarding where you want to be in the future — and how to get there.

One of the most impactful benefits of a plan is that it breaks down complex financial information in a way that is easy to understand. For example, many people are unaware of the inner workings of their current assets and overall incoming and outgoing cash flows. Completing a cash flow worksheet as part of a financial plan can be an eye-opening experience. In the long-term, a plan creates a digestible outline or reference point that families or spouse can use as a guide in the event the bread-winning spouse passes away.

A solid financial plan also provides clarity. It aids in identifying, prioritizing, preparing for and reevaluating financial goals, and dealing with unforeseen events. Saving for your children’s college fund may need to wait if a clear look at your financial picture indicates that doing so will leave you with insufficient funds during your retirement years. The good news is, with a plan in place, you can always revisit it and use it as a baseline to ensure you are on track. Or you can adjust your plan as your life situation changes. Having this roadmap at your fingertips can be especially useful during a market downturn when you may be looking for reassurance regarding your long-term stability.

At its core, the comprehensive nature of a financial plan should consider all aspects of your finances together and create a foundation on which financial decisions can be made throughout your lifetime:

• Investments. Am I taking too much risk in my portfolio given the timeframe in which I may need the money?
• Insurance. What do my survivors need today based on my current and projected net worth to cover their living expenses or the payment of estate taxes? Will I be okay if I become disabled?
• Business Succession. How much do I need to sell my business for, in order to be financially independent?
• Estate Planning. How should the estate be structured in order to provide for my family and other heirs? How much can I gift to my children without negatively affecting my plan?
• Tax Planning. What is the most advantageous way to save for my retirement? How do I limit estate taxes?

When all is said and done, a plan makes financial questions easier to address and future issues easier to hurdle. But creating a plan does come with joint responsibility, beginning with the comprehensive information you provide to your financial planner. A firm’s advice is only as good as the information they have available to them. An open and honest relationship based on communication and trust is also key. With those pieces in place, your financial planning team will help you translate your goals into actionable planning strategies to help you get where you want to be.

Trevor Chuna, CFP®, AEP®, MSFS is the Managing Director of wealth planning at Sequoia Financial Group, LLC. Contact him at tchuna@sequoia-financial.com for more information or visit www.sequoia-financial.com.

Investment advisor services offered through Sequoia Financial Advisors, LLC, an SEC Registered Investment Advisor. Certain third–party money management offered through ValMark Advisers. Inc., an SEC Registered Investment Advisor. Securities offered through ValMark Securities, Inc. Member FINRA, SIPC. 121 S. Main St. #300, Akron OH 44308, 330-375-9480. Certain insurance products offered though Sequoia Financial Insurance Agency. Sequoia Financial Group and related entities are separate entities from ValMark Securities, Inc. and ValMark Advisers, Inc.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Donna M. Weaver, CPA, MT

No matter the size of your nonprofit, it is essential to present yourself to the world in the best possible light. And believe it or not, your annual Form 990 tax return can create opportunities to garner more support for your organization and its cause. Since your return is made available to the general public, via www.guidestar.org, potential individual and organizational donors will often review it to determine if your organization is one they may want to support.

Make Your Mission Clear
Your disclosures on pages one and two of the 990 are critical, as they contain your mission statement and details of your program services. Providing a strong, well-crafted mission statement and detailing the organization’s accomplishments during the year and important services provided is vital. Be sure to highlight what makes your organization great, what you have done or are doing to accomplish your mission and how your organization has helped the general public. It is important to use these statements as an opportunity to showcase your organization in a way that will capture the reader and gain their support.

Pay Attention to Policies and Governance
Not only does the IRS believe that if strong policies are in place an organization is more likely to be compliant with laws and regulations, but the general public will also scrutinize your policies and governance. Within the Form 990, there are questions and disclosures relating to policies such as compensation, whistleblower, record retention/destruction and conflict of interest. Some of these policies are not required by the IRS, but it is considered a best practice to have them in place — potential donors or current supporters may view an organization in an unfavorable light if it ignores such items. If you are missing some, just know that many of these policies are easier to put into place than you may think. For example, the IRS includes a sample conflict of interest policy in the instructions to Form 1023.

Regardless of the policy, a nonprofit may write it themselves and have legal counsel review, or it can opt to have legal counsel create the first draft. In addition to having these polices in written format, remember to obtain board of director approval and, most importantly, to follow the policies and procedures and to review/update them on a regular basis.

Keep in mind that to answer “yes” to a question on Form 990, stating that a particular policy is in place, the policy must have been adopted on or before that Form 990’s year end. If a policy is put into place after your organization’s year end, you will need to answer “no,” but you can note on Form 990 Schedule O that the policy has been subsequently adopted.

Watchdogs Are Out There
Think no one is looking? A recent article in the Cleveland Plain Dealer reported that several local not-for-profit organizations had omitted information on their recently filed Form 990s. The missing information was officers’/directors’ compensation, which is a required disclosure by the IRS. Compensation information for the executive director must be included as well. The article also noted that many of these organizations lacked compensation, whistleblower, record retention/destruction and conflict of interest policies.

Like it or not, your Form 990 is public information. Every nonprofit should remain compliant regarding Form 990 but should also view the return as yet another way to communicate why the organization is vital to the community.

Contact Donna Weaver, CPA, MT, at dweaver@cohencpa.com for more information.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Karen Raghanti, CPA

As reported in an earlier blog post on Ohio’s new biennial budget (H.B. 59), beginning on or after January 1, 2014, Ohio will introduce a variable minimum CAT structure. What still remained unclear was how Ohio would determine the new minimum tax amount owed.

According to CAT 2013-05 just issued by the Ohio Department of Taxation, the state will calculate the minimum CAT tax due based on the taxpayer’s previous calendar year’s taxable gross receipts. For example, if your company has annual taxable gross receipts between $150,000 and $1 million by December 31, 2013, you will owe $150 in CAT tax on your return filed in 2014. However, the chart below details how companies with greater Ohio gross receipts will be more significantly impacted under the new tiered structure.

* The minimum fee will still be due on the first quarter CAT return due in May of each year. CAT amounts listed are in addition to the 0.26% assessed on receipts over $1 million.

This new structure will phase out the benefit of the first $1 million only being subject to a minimum tax. Also, all annual filers, e.g., those with $1 million in Ohio gross receipts or less, must now pay their CAT online through the Ohio Business Gateway.

For more information, contact Karen Raghanti at kraghanti@cohencpa.com or a member of your service team.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Tracy Monroe, CPA, MT

Michigan companies who have had a positive reserve balance in their state unemployment account for five years or more may be eligible to receive up to a 50% credit on the additional amount of federal unemployment taxes (FUTA) paid.

Intended to ease the burden on employers who have to pay additional FUTA taxes, the credit is available for the 2010, 2011 and 2012 tax reporting years. This is a non-refundable and non-transferable credit that can only be used against future Michigan unemployment tax liabilities.

The actual credit will be the lesser of:

1. 50% of the additional FUTA tax paid by the employer for the previous year, or
2. the employer’s taxable wages for the previous calendar year multiplied by the Nonchargeable Benefits Component of the employer’s unemployment tax rate for the year.

Employer Eligibility
To be eligible the employer must meet the following criteria.

• Be in business for five years and have paid Michigan unemployment taxes for five years or more
• Be a positive reserve balance employer at June 30th of the previous calendar year for each year that the credit is available (2010 reporting for 2009, 2011 reporting for 2010 and 2012 reporting for 2011 – three separate applications are required)
• Filed quarterly tax reports for the year prior to the year taking the credit
• Paid additional FUTA taxes on IRS Form 940 by December 31st of the year prior to the year taking the credit
• Certified the amount of the additional FUTA taxes paid for each of the applicable years

Applying for the Credit
Businesses can apply for the credit via the Unemployment Insurance Agency (UIA) Michigan Web Account Manager (MiWAM) or by completing Form UIA 1110. The following information will be needed when you apply.

• UIA account # for Michigan (7 digits)
• Michigan annual rate determination found on Form UIA 1771 for 2009, 2010 and 2011
• Michigan taxable wages as reported on the UIA quarterly tax reports for 2009, 2010 and 2011
• FUTA return for 2009, 2010 and 2011

This credit provides a tax-savings opportunity that is worth checking out for those who may be eligible. Contact Tracy Monroe at tmonroe@cohencpa.com for more information.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Health flexible spending arrangements (FSAs) — also commonly known as cafeteria or Section 125 plans — have historically required participants to forfeit all funds left in their account at the end of the plan year. In 2005, the IRS introduced a limited grace period rule that allows participants to spend unused amounts from a plan year during the first two-and-a-half months of the next plan year.

On October 31, 2013, the IRS issued Notice 2013-71, which gives employers a new option to allow participants in FSAs who do not use all of their contributions in a plan year to carryover up to $500 to the next plan year. Funds that are carried over will not affect the following year’s $2,500 annual FSA salary-reduction limit.

The new carryover rule is an alternative to the grace period rule, meaning employers who choose to implement the carryover provision must discontinue use of the grace period.

Employer Action & Timing
HR departments are advised to make decisions regarding potential changes to the FSA component of their cafeteria plans before open enrollment begins in the next couple of weeks so that employees will have time to incorporate the changes into their 2014 FSA elections. 

In the case of a plan that contains grace period provisions, the plan must be amended to eliminate the grace period no later than the end of the plan year from which amounts may be carried over (e.g., December 31, 2013, for a calendar year plan wishing to carryover amounts from 2013 to 2014). The IRS notice points out that the ability to eliminate a grace period provision previously adopted for a plan year may be subject to non-code legal restraints. Thus, as a practical matter, a plan that currently contains grace period provisions may have to wait until its 2014 plan year to implement the carryover provisions.

Employers who want to implement the carryover provision generally must formally amend their plans by the last day of the plan year for which amounts will be carried over; however, for a plan year beginning in 2013, the deadline for amending is extended to the last day of the plan year that begins in 2014. 

Special 2013 Election for Participants in Fiscal Year Cafeteria Plans
The IRS notice also contains a provision that would permit participants in fiscal year cafeteria plans a special, one-time election to make prospective changes to their cafeteria plan elections during the 2013 fiscal year. This special election is intended to accommodate the needs of participants who choose to enter the new healthcare exchanges effective January 1, 2014, (which falls during the 2013 fiscal year) and who otherwise would not be able to change their cafeteria plan elections until the end of the 2013 fiscal year. 

Click here to read the IRS notice. To discuss incorporating the carryover provisions into your flexible spending account, please consult with the members of your Cohen & Company service team and your attorneys.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Maura Corrigan, CPA, MT

We’ve all felt that feeling of sticker shock — perhaps when we had our car repaired, our teeth fixed, or our roof repaired.

Unfortunately, I believe that folks who own businesses or individuals who have several different sources of income should prepare themselves for that same feeling as their 2013 tax returns are prepared. There are a few reasons for it:

1. across the board tax rate increases,
2. the .9% earned income Medicare tax,
3. the 3.8% Medicare surtax on Net Investment Income,
4. phase out of certain deductions, and
5. expiring tax provisions.

That’s why preparing income tax projections NOW will help you better prepare, plan for and ultimately manage this year’s tax impact. My advice to clients and colleagues is to start immediately so strategies to minimize the tax burden can resonate and be executed between now and year end, removing the last-minute scramble to do something that could have been handled much more effectively in November.

Keep in mind the tax law changes not only affect individuals and businesses, but trusts and estates as well.

Now on your mark, get set, GO!!

Contact a member of your service team to discuss ideas for your year-end tax planning needs.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.
 

As a result of Ohio’s failure to repay outstanding federal loans related to the state’s unemployment insurance for the past four years, Ohio employers will be unable to claim the maximum state unemployment tax credits on their 2013 federal unemployment tax (FUTA) return. Consequently, employers will experience an increase of up to $63 in FUTA tax per employee on this year’s returns.

Other credit reduction states/territories named by the U.S. Department of Labor (DOL) for defaulting on their loans includes, Arkansas, California, Connecticut, Delaware, Georgia, Indiana, Kentucky, Missouri, New York, North Carolina, Ohio, Rhode Island, Wisconsin and the Virgin Islands. Instead of the typical net FUTA tax rate of 0.6%, employers in these areas will pay more, as outlined in the schedule below. Resulting rates are based on the number of years each state has been in default on its unemployment insurance loans.

* As compared to employers not in credit reduction states.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

This year’s fall client CPE day was packed full of information for our CFO and controller clients. Roughly 100 people filled the Bertram Inn to hear Cohen & Company as well as external speakers deliver on-target, educated insights into a variety of issues and industries. Below is a synopsis of the day.

Tax Outlook
Tracy Monroe of Cohen & Company provided businesses and individuals with the hot items for year-end tax planning. The American Taxpayer Relief Act passed in January 2013 extended many key tax provisions and gave more certainty than in past years as to year-end planning. Tracy advised to keep in mind opportunities such as 50% bonus depreciation and $500,000 Section 179 expensing through 2013; and research and development credits, both federal credits and those against the Ohio CAT tax. She pointed out that while Bush-era tax cuts were made permanent for most individuals, high-earning taxpayers with taxable income of more than $400,000 per year will now pay 39.6% tax on ordinary income and 20% on capital gains and qualified dividends. The Pease Limit and Personal Exemption Phase-Outs also will add complexity and additional taxes for some. Tracy discussed healthcare reform’s 3.8% and 0.9% new Medicare taxes, noting that the 3.8% tax particularly creates an issue for taxpayers who receive net income from rent payments. She also addressed Ohio’s new budget, which includes a permanent 10% reduction in personal income tax rates phased in over a three-year period and the small business income deduction. Taxpayers also can expect increases in their CAT tax due to a new variable minimum tax structure, and an increase in statewide sales and use tax from 5.5% to 5.75%.

Ohio’s Utica Shale Industry 
Vince Bevacqua of ShaleComm gave a unique look at the national and regional state of the Utica Shale industry. Commenting that Shale has been viewed as Northeast Ohio’s “comeback” industry, Vince cited statistics to set the stage of the industry as a whole, pointing to the great potential Shale holds for our national and local economies. He noted experts that predict the U.S. could be energy efficient in 10 years due to Shale, that the 1.2 million jobs that have already been created in the industry are expected to triple by 2020, and that $34 billion in outside investments into Ohio is expected by 2015 in areas such as hospitality and construction. While these numbers are impressive, Vince was clear to state that Ohio in particular is still very much in a testing phase with this industry. The state at this point is focused on building infrastructure and drilling test holes to determine the quantity and quality of our Shale supply. The industry holds much promise yet is still unproven.

IC-DISC Export Incentive
Amit Mathur of WTP Advisors shared his expertise on how IC-DISCs can help closely held companies compete internationally and how those already using an IC-DISC can fully capture all of the available, intended and allowable benefits.

At its core, he explained that an IC-Disc is a mechanism through which to change the character of an operating company’s income from ordinary to qualified dividends, therefore lowering the tax rate. He clarified common misconceptions, stating that the taxpayer does not have to actually manufacture the product being exported, an IC-DISC does not interrupt business operations or create additional administrative burdens, and it is not an aggressive tax tool or “tax shelter.” IC-DISCS can be used in unsuspecting industries, such as software, food growers, equipment leasing and distributors/brokers. Addressing those already using the IC-DISC, Amit stressed that many using the tool don’t maximize its benefits, such as failing to take advantage of ultimate use sales, sales to related parties, simplified calculations, distributor sales, related and subsidiary services (such as architectural and engineering services that are related to proposed or actual foreign construction project).

Amit told the audience to speak with an advisor to ensure the IC-DISC entity is appropriate for the business situation at hand and is established correctly. Once an IC-DISC in place, he also emphasized conducting a detailed analysis of the mechanism to maximize its benefits.

Managing Risk
Michael Cristal of Consolidated Risk Management offered insight into the risk management process, reminding attendees that it’s always more cost-effective to prevent risk than to pay all of the varying costs associated with a loss, e.g., deductibles, higher premiums, negative publicity, etc.

Michael provided the group with common findings in risk assessments, citing there are simple steps business owners can take to transfer risk. He recommended first and foremost having a business continuity plan. Without that, it is hard to survive any significant loss event. But he also suggested taking the necessary steps to safeguard critical business information by moving it offsite; reviewing contracts such as purchase orders with vendors, suppliers, contractors, etc., to include language that releases a business from responsibility for any unexpected occurrences; or taking care of general insurance issues, such as being consistent with named insureds on all policies and inserting language requiring an insurance company to give 90-day notice of cancellation or non-renewal of a policy (most states, and general contracts, only require 30-day notice). Other policies to consider include contingent business interruption insurance, which extends business interruption insurance to key clients and vendors critical to a company, e.g., coverage to protect the business if a fire happens at a vendor site; or blanket property insurance that can cover a business for more, particularly useful for companies with multiple locations. Regardless of the coverage selected, Michael emphasized to have any changes formally written into the policy; documenting the change in an email will not suffice in the event of a loss.

Changes in the Accounting Industry
Unlike in the past few years, Pat Piteo of Cohen & Company reported that 2013 was a “slower year” in the world of accounting changes. Changes that did occur included more disclosures for balance sheet offsetting, more detailed disclosures and presentations of accumulated other comprehensive income, and new rules regarding CPA independence regarding clients’ affiliates, beginning in 2014.

Pat touched on recent initiatives that will help make financial reporting for private companies more meaningful, such as the Financial Accounting Standards Board’s (FASB’s) formation of the Private Company Council (PCC). The PCC is already reviewing accounting for interest rate swaps, goodwill subsequent to a business combination, and VIE guidance to common control leasing arrangements. She also reminded those in attendance that the new Financial Reporting Framework for Small- and Medium-sized Businesses (FRF for SMEs) is an alternative to GAAP reporting. FRF is a more concise, accrual-based method of reporting that is not for everyone but could simplify reporting for 1) those preparing income tax basis financial statements and want more relevant disclosures but don’t want to use GAAP, or 2) for those who believe GAAP does not provide relevant, cost-effective financial information.

On the horizon for the industry are changes to revenue recognition standards due out in final form in Q1 of 2014 with an implementation date of 2018 for private companies. The new rules will encompass a five-step process and have the most significant effects for the construction industry and other companies with multiple deliverables or long-term contracts. Also expected to be implemented in 2018 is a new model for lease accounting that will affect lessees, requiring them to capitalize all leases extending for one year or more.

Pat wrapped up her presentation with best practices and tips for ensuring a smoother audit process. In addition to having financial information ready, she recommended scheduling time to meet with the audit team during the audit, and communicating to ensure deadlines are clear and enough time is allowed for appropriate quality reviews and revisions.

State of the Economy
Tom Haught of Sequoia Financial Group gave his annual global review of the economy and financial markets. Unlike at this time last year, consumers are being more cautious again with their funds, causing spending to trend downward. And while a recession in the near future is less of a concern these days, GDP growth is slow and projected to be at 1.5-2.5% as compared to the ideal 3-4%. Current fiscal policy, e.g. the Sequester, is doing its job to cut government spending and the national deficit; while the Fed’s Quantitative Easing, pumping money into banks to encourage more loans to in turn boost consumer spending, is not yet working.

In the jobs market, while unemployment figures have improved, mainly because labor force participation is down, the issue of chronic long-term unemployment still persists. People are giving up looking for jobs, especially younger individuals. The 65+ demographic is staying in the job market longer. This has been the slowest job recovery we have seen since tracking of these stats began. On the housing front, interest rates are on the rise, making mortgages less affordable than even six months ago. Rental prices are increasing as well, as the supply of rentals has not caught up with the demand, and vacancies are at an all-time low.

Companies continue to lock in interest rates for longer periods, since rates are still relatively low, and are putting more money back into their businesses, buying capital assets and paying more dividends. The global economy is slightly better off than last year, as China’s GDP has stabilized and Europe is emerging from its 18-month recession. European PMI trends are also encouraging, with the Euozone’s and even Greece’s PMI on the rise. Significant unemployment, especially in the young workforce, in the Eurozone still remains cause for concern, however. See important disclosures below.

Healthcare Reform Panel
This year’s CPE event ended with a panel discussion on healthcare reform. We asked Lisa Kimmel from Benesch, Maura Corrigan from Cohen & Company and Norm Riley from Wells Fargo to help private companies understand the impact to their businesses. Moderated by Tracy Monroe, the panel touched on a variety of areas and sparked many questions from the audience. Below are a few of the highlights:

• Play or Pay. The employer mandate for employers with 50 or more full-time equivalent (FTE) employees to offer health insurance or pay a penalty is more than a numerical calculation. It is ultimately a business decision that will impact recruiting the most highly talented professionals in any field. Norm pointed out that in his opinion employers with more than 130 FTEs are potentially worse off financially by cancelling their health insurance policies. The mandate goes into effect in January 2014 but no penalties will be assessed until 2015.
  
  Individuals are mandated to sign up for a healthcare policy, either via their work or state-sponsored health exchanges, by January 2014 or pay a penalty.
• Employer Notification of Penalties. The IRS will be responsible for sending out notices to employers about Play or Pay penalties. Small employers need to determine with certainty if they have more than 50 FTEs, which is different from calculating the number of full-time employees.
• How will healthcare reform be paid for? The overall goal of reform is to make people healthier, which will eventually drive down medical care costs. In the interim, reform will be paid for namely by 1) a 0.9% Medicare surtax for individuals earning $200,000 or more in earned income per year; 2) a 3.8% tax on net investment and passive income; and 3) a 2.3% excise tax on medical device sales.
• Cadillac Tax. The Cadillac tax is an excise tax that also can apply to small employers if an individual plan premium equals more than $10,800 per year. The term “Cadillac plan” does not refer to the benefits offered, only the premiums paid.
• How can smaller employers offer competitive health insurance? Once operational, Shop exchanges will offer a marketplace for employers with less than 100 employees to select from various plans to offer employees. While it will give smaller employers more options, they may be expensive. Self-insured plans may also be worth considering.
• What is the future of Health Savings Plans (HSAs)? They are here to stay, and the government is still encouraging their use.
• How will the Affordable Care Act (ACA) be enforced? The Department of Labor (DOL) is well-staffed and ready to audit! DOL audits are already on the rise, during the course of which they will be looking for ACA compliance. Recent benefits audits have shown approximately one-third of the requests pertain to the ACA.
• Final Words? Lisa Kimmel recommended that employers think about their companies’ benefits goals as part of the universal HR goals of the company, not just related to healthcare, and to communicate with employees so they can understand and appreciate the benefits offered.
  
  Norm Riley said to be prepared, analyze information, know the options and look at all the scenarios and their impact. He also went one step further to predict that in the next 7-10 years we may see health plans treated like defined contribution plans, in which an employer gives “x” amount towards a plan and the responsibility of choosing the right plan will fall to plan participants.
  
  Maura Corrigan advised businesses to be proactive and keep tax advisors in the loop on healthcare decisions so your team can plan for and address any tax impact and opportunities for the company.

If you would like to review the materials presented in a printable PDF format, please take a moment to visit our Seminar Materials page.

We sincerely thank all of our CPE presenters for sharing their knowledge and all of our clients who joined us. If you have topics you would like to hear at our half-day CPE day this summer, please send them to Erin Clark at eclark@cohencpa.com.
 

Sequoia Financial Group, LLC Disclosures: Past performance is not indicative of future performance and the value of investments and the income derived from them can go down as well as up. The views expressed in this document are based on current market conditions. They are subject to change without notice. Investment Advisory Services offered through Sequoia Financial Advisors, LLC, an SEC Registered Investment Advisor. Certain Third Party Money Management offered through ValMark Advisers, Inc. an SEC Registered Investment Advisor.  Securities offered through ValMark Securities, Inc., Member FINRA, SIPC.  121 South Main Street, Suite 300 Akron, Ohio  44308 Phone (330) 375-9480.  Certain insurance products offered through Sequoia Financial Insurance Agency, LLC.  Sequoia Financial Group, LLC and related entities are separate entities from ValMark Securities, Inc. and ValMark Advisers, Inc.  This document and the information contained herein is for information purposes only.  It is not intended as, and does not constitute, an offer or solicitation for the purchase or sale of any financial instrument.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Adam Hill, CPA

The American Taxpayer Relief Act passed in January 2013 extended many key business and individual tax provisions through the end of this year. The extensions allow for significant benefits, if you plan accordingly, especially in regards to capitalized property placed in service in 2013. 

Businesses can benefit from 50 percent bonus depreciation for certain assets placed in service before January 1, 2014. This provides an opportunity to write off half of your qualified purchases made in 2013 that have a 20-year useful life or less.  For real estate entities, when you combine this with the 15-year recovery period for qualified leasehold improvements, qualified retail improvements and qualified restaurant property, which all expire at the end of 2013, accelerating tenant build-outs into 2013 could lead to substantial benefits. Unlike other depreciation methods, under which half-year or mid-quarter conventions may be required, a taxpayer is entitled to the full 50 percent bonus depreciation regardless of when during the year the asset is placed into service. As a result, year-end qualifying purchases can provide an almost immediate “cash return” due to tax savings, even when factoring in the cost of business loans to finance a portion of those purchases.

Qualified property includes the following:

• Qualified restaurant property is any Internal Revenue Code Sec. 1250 property that is a building or an improvement to a building. More than 50 percent of the building’s square footage must be devoted to preparation of meals and seating for on-premise consumption of prepared meals.
• Qualified leasehold improvement property is any improvement made by the lessor or lessee under or pursuant to the terms of a lease to an interior part of a building that is nonresidential real property more than three years old.
• Qualified retail improvement property is any improvement to an interior portion of nonresidential real property that has been in service for more than three years. The improved interior portion must be open to the general public and used in the retail trade or business of selling tangible personal property.

Another provision extended through 2013 is Section 179 expensing, which can be maximized at $500,000 and is available for all assets, new or used, but will be reduced once total additions exceed $2 million.  Qualified real property for Section 179 expensing purposes is limited to $250,000 and includes qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property.  Section 179 expense is scheduled to decrease to $25,000 in 2014, so if you are considering a purchase in the first quarter of 2014, you should consider the potential tax benefits of moving the purchase into 2013. 

Contact Adam Hill at ahill@cohencpa.com for more information.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Tracy Monroe, CPA, MT
First published in CPA Voice on November 26, 2013

Finally. For once in recent history we can talk about tax certainty as we head into year-end tax planning. The American Taxpayer Relief Act, passed in January, extended many key business and individual tax provisions through the end of this year – that’s the good news. Unfortunately, that act also added much more complexity to the tax code at a time when we thought the rules would be simplified. Nevertheless, we know the road ahead and should take advantage of every available opportunity.

Bonus depreciation and increased section 179 live on
Throughout 2013, businesses can benefit from 50% bonus depreciation and increased Section 179 expense, totaling $500,000 for 2013. This provides an opportunity to take advantage of bonus depreciation for qualified purchases made in 2013 that have a 20-year life or less. Keep in mind that bonus depreciation is not a guarantee for 2014. Section 179 expensing is available for all assets, new or used, but it will be reduced once additions exceed $2 million. Section 179 expense is scheduled to revert to $25,000 in 2014.

R&D – with a twist
Businesses that incur wages and supplies to improve an existing or develop a new process or product should consider the federal research and development credit, extended through the end of 2013. While there is strong government and business support for making the credit permanent, the $13 billion incurred every two years the credit is renewed has thus far created a roadblock to making that a reality. An alternative simplified calculation introduced in 2009 should provide more businesses the opportunity to claim the credit.

But don’t just count on the federal credit. In fact, many overlook a planning gem right in Ohio, which offers an R&D credit against the CAT tax. The Ohio credit is 7% of the excess of the current year R&D expense over the previous three-year average.

High earners pay higher price
The American Taxpayer Relief Act made the Bush-era tax cuts permanent for all individuals except those with taxable income of more than $400,000 per year ($450,000 for married filing jointly). These “high earners” are now subject to 39.6% tax on ordinary income and 20% on capital gains and qualified dividends. Some stealth increases resulting from the act, such as the return of the Pease Limit and Personal Exemption Phase- Out, will also add to the complexity for individual tax planning and will increase the taxes due.

Nuances of the 3.8% Medicare tax
Health care reform has applied a Medicare tax of 0.9% for earned income more than $200,000 annually ($250,000 per family) and an additional 3.8% Medicare surtax on net investment income, if modified adjusted gross income exceeds those levels.

The 3.8% surtax particularly creates an issue for taxpayers who receive net income from rent, which is considered net investment income and, therefore, is subject to the tax. Real estate professionals should look for further guidance under IRC 1411 to see if there is any opportunity to exclude this income under the trade or business exemption.

Ohio – Win some, lose some
Ohio’s biennial budget signed this summer created significant tax ramifications, both positive and negative, for individuals and businesses.

Retroactive from Jan. 1, 2013, individuals across the board will see a permanent, 10% reduction in their personal income tax rates phased in over a three-year period. Also retroactive as of Jan. 1, 2013, small business owners will benefit from the small business income deduction. The deduction applies to owners in partnerships, sole proprietorships, limited liability companies and S Corporations. Single or joint filers are able to deduct half of their business income up to $125,000. Married filing separate taxpayers can deduct $62,500 each. This deduction helps to ease the disparity between C Corporations that don’t pay Ohio income tax and the owners of flow through entities who do.

However, Ohio also will experience some meaningful tax increases. Beginning Jan. 1, 2014, Ohio introduces its variable minimum CAT structure. The $150 minimum tax due on annual taxable gross receipts between $150,000 and $1 million will remain unchanged, but larger companies will pay more according to the new tiered structure that tops out at $2,600 in taxes on annual taxable gross receipts of more than $4 million. The tax increase is in addition to the 0.26% assessed on receipts over $1 million. This new structure will phase out the benefit of the first $1 million of gross receipts only being subject to the minimum tax.

Additionally, Ohio increased its statewide sales and use tax from 5.5% to 5.75%, which began Sept. 1, 2013. Sales and use tax will also now be applied to videos, music and ebooks transferred electronically as well as to certain magazine subscriptions.

Staying on top of the latest developments and collaborating with your colleagues and clients is the best way to identify new opportunities. Take advantage of the stable tax environment before uncertainty creeps back in for 2014.

Contact Tracy Monroe at tmonroe@cohencpa.com or a member of your service team to discuss year-end tax planning strategies.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Rocco Miller

Many of our clients are business owners who hope to some day pass on their business to one or more of their children. So, naturally, they bring their kids into the fold early on to learn the ropes, often exposing them first to simple tasks, such as stocking shelves or assisting with data entry, until ultimately the kids are grown and have become part of the company’s natural evolution. But regardless of your ultimate succession plan, there are certain tax-related and other financial considerations to be aware of when hiring your kids as employees.

1. As a business owner, when you pay wages to your children you effectively lessen your own tax burden. By paying your children, who generally are subject to lower tax rates, your family’s overall tax liability is reduced. Additionally, if you are a sole proprietorship, or a partnership consisting of only you and your spouse, children are exempt from FUTA tax (if under age 21) and FICA tax (if under age 18), so the business withholds less payroll tax and retains more cash for the company’s use. Sole proprietorships and partnerships of a husband and wife also benefit from less self-employment tax liability, since more money is going to the kids.
   
   Since your dependants will now have earned income, they can take a much higher standard deduction than the typical $1,000 limitation. In 2013 they can take up to a $6,100 deduction and the next $8,925 of wages after that will be taxed at only 10%.
2. As a wage-earning employee, your child can start saving for retirement or to later help defray college costs via his or her own IRA. You can choose a traditional (tax deferred) or Roth (tax-free) IRA depending on your child’s age and goals.

So how much pay is “reasonable” for a child? Minimum wage should be the standard for younger children, e.g., 12- to 13-years old; while older children could potentially earn more. Be mindful that when it comes time for college, too much earned income may negatively affect your children’s ability to receive financial aid. Regardless of age, ensure the wages you pay your children are comparable to what non-family employees would receive for the same job, are appropriate for their age and skill level, and comply with all fair labor laws. It’s also a best practice to maintain regular records of your children’s work hours and adhere to an employer-employee relationship by having them fill out Form W-4 and provide them with a W-2 at year end.

It’s important to note that over paying your children for the services rendered (or not rendered) to the business in order to reduce the family’s tax burden can result in significant tax-related penalties. Therefore, it is critical that a fair wage is established and proper documentation of services performed, hours worked, etc. is maintained. Prior to implementing this tax-savings strategy you should thoroughly discuss such planning with your tax advisor.

For more information, contact a member of your service team.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Karen Raghanti, CPA

State becomes full member of Streamlined Sales Tax Project

Federal law does not require a business to collect and remit sales tax if it does not have a physical presence (a building or a sales force) in the state. These “remote sellers,” such as online or mail-order businesses, are not surprisingly often more appealing to consumers than brick-and-mortar businesses that must collect the tax.

In an effort to level the playing field, a cooperative effort of 44 states created the Streamlined Sales Tax Project (SSTP). The goal is to simplify and unify the rules for sales and use tax, making it easier for businesses to comply and, therefore, encouraging even remote sellers to voluntarily register, collect and remit sales tax in each of the member states.

Ohio is one of the 24 states that has adopted the SSTP agreement. Ohio has been an associate member of SSTP since 2005 and, beginning January 1, 2014, will become a full member. While this new status will not change any of the requirements for Ohio vendors or consumers, it will require Ohio to offer a sale tax amnesty program for both taxpayers that newly register for SSTP in 2014 and for those currently registered who may not be compliant.

Next Steps
Any type of business may register for SSTP and, importantly, may benefit from its simplified structure of collecting and remitting sales tax, such as a single centralized tax ID registration number used for filing returns and paying sales tax in all SSTP states. Be mindful, however, that once a business registers it will need to collect and remit sales tax for all member states of SSTP, regardless of whether there is a physical presence in the state.

If you are not currently registered but would like to be, or if you are registered but have not been compliant with collecting and remitting sales tax, and are not eligible for a voluntary disclosure program, now is the time to act. The amnesty program offered throughout 2014 can offer relief via minimized penalties and a limited lookback period.

If you are already registered under SSTP and anticipate making sales in Ohio in 2014, it’s business as usual, beginning with the tax return due January 1, 2014.

If you are already registered and do not anticipate making any sales in Ohio (and are not a Model 1 Seller, which is a seller that has selected a Certified Service Provider as its agent to perform its sales and use tax functions), you will need to change your account to indicate that you do not anticipate making any Ohio sales. If you do not update your account, Ohio will expect a return to be filed starting with the reporting period January 1, 2014.

We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact Karen Raghanti at kraghanti@cohencpa.com or a member of your service team for further discussion.
 

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

After a year-long wait, final regulations have been released that clarify Code Sec. 1411, better known as the 3.8% Net Investment Income (NII) tax, which went into effect January 1, 2013. While there were no big surprises from the proposed regulations to the final version, there is now more detailed guidance on who this tax will impact and in what ways. We have summarized the main provisions below; as we continue to delve into the detailed regulations we will post more information on specific areas of impact. We also will continue to meet with our clients to identify specific planning opportunities surrounding this tax.

What is Net Investment Income?
NII is the excess of gross income from interest, dividends, annuities, royalties and rents — or “passive” income. NII applies to:

• Other gross income from a trade or business that includes passive activity with respect to the taxpayer or income by a financial trader.
• Net gain from the sale, exchange, transfer, conversion, cash settlement, cancellation, termination lapse, expiration or other disposition including a deemed disposition of property. This does not include gain or loss attributable to the trade or business of a non-passive activity.
• Gain in excess of $250,000 ($500,000 for married couples) realized from the sale of personal residence or like-kind exchanges.

One of the biggest exceptions to NII is income derived in the ordinary course of a trade or business that is not a passive activity. This includes income that professionals earn in the real estate industry. Importantly, the final regulations include a safe harbor for real estate professionals, allowing for a particular grouping that can be made when filing tax returns that would exempt this particular income from the tax.

Who Does NII Apply to?
The 3.8% NII tax is in addition to ordinary income tax and applies to U.S. citizens or residents whose adjusted gross income (AGI) exceeds $250,000 for joint filers, $200,000 for single taxpayers and $125,000 for married filing separately. If AGI is above one of these thresholds, the tax will apply to the lesser of (1) net investment income for the tax year or (2) the excess of AGI for the tax year over the threshold amount. Threshold amounts are not indexed for inflation, meaning as time goes by more taxpayers will become subject to the tax.

In addition to individuals, the tax also applies to estates and trusts, but with lower threshold amounts ($11,950 for 2013 and $12,150 for 2014). Distributions to grantors or beneficiaries will be considered NII when grantors or beneficiaries are calculating their individual NII. Certain trusts and estates are exempt from the NII tax, including religious, charitable and scientific trusts; grantor trusts (the NII is treated as being paid directly to the grantor and will be included in their individual calculation of NII); and foreign trusts and estates.

The 3.8% tax also has specific implications for partnerships and S Corporations and provides exceptions for distributions from qualified plans and self-employment income.

Next Steps
The 3.8% NII is in effect for tax years beginning after December 31, 2012. That means the 2013 tax returns being prepared this spring will be affected. Below are some initial steps to discuss with your service team.

1. Calculate your income. First determine if you exceed the threshold and therefore are subject to the NII tax. Be mindful of the various ways you can file and what those specific thresholds are. For example, if a U.S. citizen or resident is married to a nonresident alien, the spouses will be considered as married filing separately for purposes of the NII tax.
2. Take a second look. If you are close to the threshold, calculate your income again. Be sure to take into consideration that some income excluded for income tax purposes may in fact apply to NII, or vice versa.
3. Identify opportunities. Key planning opportunities exist to minimize the NII tax moving forward. Some of the most fruitful areas to re-evaluate each year include the option of distributing or not distributing trust income, since trusts have a much lower NII threshold, or reviewing any significant change in your investments.

Since the final regulations were just released in December, that does not leave much time to adjust for the coming tax filing season. However, there are still plenty of opportunities to minimize the impact of the tax in future tax years.

We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact a member of your service team for further discussion.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.

Posted by Mike McGivney, CPA, MA

The IRS issued Revenue Procedure 2014-12 on December 30, 2013. This long-awaited guidance provides a safe harbor for structuring investments in federal Historic Rehabilitation Tax Credits (HTCs) available under IRC Section 47. The safe harbor is effective for all partnership allocations of HTCs occurring on or after December 30, 2013, and for buildings placed in service prior to December 30, 2013, if the partnership and its partners meet the safe harbors set forth in the revenue procedure.

Since Historic Boardwalk Hall, in which the Third Circuit Court of Appeals unwound an HTC transaction and disallowed the tax credits allocated to the investor, there has been a significant amount of uncertainty regarding what types of transaction structures would be challenged by the IRS. This recent guidance should allow developers and investors to structure transactions with more certainty using either a partnership flip or master tenant structure. However, those seeking to fall under the safe harbor should be aware that it only applies when the transaction is structured to meet the detailed requirements of the safe harbor structures as outlined by this revenue procedure. Failure to meet these requirements does not automatically prohibit special allocations of the rehabilitation credit, but such transactions would be subject to a greater degree of scrutiny and would need to stand on their own merits as non-tax avoidance transactions.

We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact Mike McGivney at mcgivney@cohencpa.com regarding this revenue procedure and how it may impact your real estate transaction.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.