Category Archives: Tax

Protect yourself from Tax Refund Fraud

Tax refund fraud has become a growing concern for taxpayers, state and local governments, and the federal government. Tax departments are implementing strategies to prevent and detect for the 2015 tax season.

The Ohio Department of Taxation (ODT) is implementing additional safeguards this tax season that will delay state tax refunds. The ODT is anticipating an increase in identity theft directly affecting tax fraud.

tax-fraudLast year, ODT stopped an unprecedented number of fraudulent income tax returns seeking to steal refunds totaling more than $250 million. In previous years, attempted tax fraud averaged roughly $10 million.

In order for the ODT to detect refund fraud due to identity theft, an additional up-front filter will now be applied to all tax refund requests to examine the demographic information reported on a return. This examination will then assign a “probability of fraud” factor that will determine how the return is then further processed by ODT.

If a return is pulled for review, ODT’s additional security measures will require some taxpayers to successfully complete an Identification Confirmation Quiz before the return will continue to be processed. If a taxpayer’s return is selected for identity confirmation they will receive a letter from ODT directing them to http://www.tax.ohio.gov. This will provide access to the quiz and detailed instructions on how to complete it. Taxpayers without access to the Internet will be directed to call ODT at 1-855-855-7579.

Processing of returns for refunds will be delayed due to these additional screening and security measures. According to the ODT, electronic returns requesting a refund may take up to 15 days to be direct deposited and paper returns could take up to 30 days for a physical check to be mailed out.

Not only is the ODT taking aggressive action on identity theft and tax fraud but so is the Internal Revenue Service (IRS). For 2015, the IRS is introducing new procedures which will address some of the issues. Effective 2015 tax season, the IRS is limiting the number of refunds directly deposited into a single financial account or onto a prepaid debit card. Therefore, any of the subsequent refunds will be issued by paper check and mailed to the taxpayer. Exceptions will not be made.
Visit the Taxpayer’s Guide to Identity Theft for helpful tips to protect yourself from identity theft or fraud.

By: Aubrey Forche, Staff Accountant

 

Cash Flow Management

The entrepreneurial spirit that compels people to start their own business does not necessarily translate into them being good business managers and this can lead to a stumbling block for many small business owners.

cashFlowOne of the most troubling aspects of running a small business can be learning how to manage cash flow. Understanding the basics of cash flow can help owners plan for large and small upcoming events in their business.

Cash is what you have at any given time to meet your daily expenses. The cash spent to buy inventory or business equipment is an asset on your balance sheet, but cannot be easily converted to pay monthly expenses. Profit on an income statement does not equate to cash in the bank if you have accounts receivables which require payment. You can’t spend profit. A profit on the income statement does not always indicate financial health unless the company also has a positive cash flow that correlates to those profits.

Many business owners use a cash flow statement to help them understand the movement of cash in their business. A cash flow statement will tell them the sources and uses of their cash.

A typical statement has three areas:

  1. Operating cash flow – is the cash generated from the day-to-day operations of the business. For example, the sale of products, the collection of accounts receivable and payments from vendors.
  2. Investing cash flow –  the cash that is used to purchase equipment.
  3. Financing cash flow – cash from outside normal business operations. For example, money from lenders or shareholders. A new loan or the repayment of a loan creates the cash inflow or outflow.

Good cash flow management requires the business owner to be forward thinking – when and how will cash be needed. How will I acquire the cash needed- thru better accounts receivable collection or from a bank in the form of a loan?

Acquiring the skills necessary to become adept at cash flow management could mean the difference between business success and business failure.

William Vaughan Company has the skill and expertise to help our clients with all aspects of their business management and cash flow is just a small part of overall good business management.

By: Chris Schultz. Accountant

LIFO Inventory Election: Don’t Miss Out

Today’s significantly reduced oil prices creates an financial opportunity for any business that maintains an inventory of products that are petroleum-based. Products such as heating oil, gasoline,lubricating oils, and diesel fuel are all obvious product types that use crude oil as their raw material. However, products such as plastics, fertilizers and other petrochemicals often are also based on crude oil prices.

If your company relies on one or more of those products and maintains an inventory, especially a large dollar value of inventory, then this might be the year for you to consider a “last in first out”(LIFO) inventory election.

Many taxpayers in the U.S.currently use (FIFO) “first in first out” which means they are always valuing their inventory using the purchase price closest to the date of the inventory. The assumption on the flow of cost is that the oldest products are sold first and the cost of the most recent additions to the inventory are maintained as the inventory value.

imageLIFO, on the other hand, reverses that assumption. LIFO maintains inventory values based on the original purchase price, typically the lowest price, and in effect allows current costs to be expensed as incurred. The end result is that many taxpayers who have elected LIFO 30 or 40 years ago are still valuing their inventory at the prices that were in affect at the time they made the LIFO election. This means that all the years of price increases have been expensed as a cost of sales for the year they were incurred, and none were trapped in inventory. In times of rising prices, this is a great benefit to the taxpayer.

Basically, the best time to consider making a LIFO election is at the time when raw material prices are at the lowest point. This election is simply done by attaching several forms to the year-end tax returns and is an automatically approved election by the Internal Revenue Service.

With crude oil prices being under $60 a barrel at the end of 2014, it sets the stage for those taxpayers that have not already elected LIFO to lock-in, what could be, the lowest oil prices we’ll see for years. This low cost would be part of their base inventory cost and they would gain the benefit in all future years, as prices most-likely climb.

If you have questions on any element associated with LIFO inventory or think it may be a valuable option for you, please contact your professional at William Vaughan Company as soon as possible.

By: Bill Horst, CPA, CMA

Volunteer Expenses — Are They Deductible?

volunteerDonating money isn’t the only way to help out an organization whose cause is important to you. Volunteering your time and expertise can be valuable to the charity and rewarding for you. And, as a bonus, you may be able to deduct some of your out-of-pocket expenses on your income tax return.

What’s Deductible

If you use your car while performing services for the charity, you can deduct gas, oil, and other unreimbursed auto expenses or take the standard charitable mileage deduction (14 cents per mile). If you travel out of town on the charity’s behalf, your travel, lodging, and meal costs may be deductible. The cost of uniforms worn while volunteering is also deductible as long as the uniforms aren’t suitable for everyday use.

What’s Not

You can’t deduct your time or the value of any services you perform. And it goes without saying that you can’t deduct expenses that have been reimbursed by the organization.

You must itemize your deductions to claim a deduction for charitable contributions.

 

Ohio Municipal Tax Updates

As you may have heard, Governor Kasich recently signed the Municipal Income Tax Reform Bill, which is known as the Amended Substitute House Bill 5 (“HB5”). There is an extensive list of provisions that will take effect on January 1, 2016. Ohio taxpayers have been eager for a bill to emerge that simplifies Ohio’s municipal tax law, and HB5 is a step in the right direction. Here are some of the major changes that you should be aware of:

hb_5_signing

Pass-Through Entity (PTE) Tax: It is important to know that the municipal net profits tax will be imposed at the entity level for pass-through entities (PTE), but PTE owners will generally be taxed on the pass-through income by the municipality in which they reside. HB5 will stay consistent with the previous law set in place for S corporations, meaning tax is imposed at the entity level, and the pass-through income flowing through to resident owners will generally not be taxed by the municipality.

Net Operating Loss Carryforwards (NOL): Starting on January 1, 2017, carryforwards for NOL’s at the municipal level will be consistent across the state. Any loss incurred after the implementation date will have a required 5 year carryforward period, regardless of the municipality. Remember having to keep track of NOL carryforwards separately for each municipality? This is no longer required due to carryforwards now being calculated on a pre-apportionment basis.

Occasional Entrant Revisions: This provision of the municipal tax reform is associated with the amount of days an individual may work in another municipality, away from their primary place of work, before being required to withhold income there. HB5 has increased the amount of days from 12 to 20. Therefore, if an employee is working in another municipality for 20 days or less, the employer will withhold income from where the employee’s primary place of work is located. If the employer expects the employee to work more than 20 days in another municipality, they are required to start withholding from day one. On the other hand, if an employee happens to work over 20 days, which was not originally expected by the employer, the employer must begin withholding income on day 21. For employers who may try to rotate employees to bypass the 20 day rule, provisions are set in place to prevent this.

Does your business collect less than $500,000 of revenue in a given year? This classifies your company as a small business, which means complete exemption from the 20 day rule. Small businesses are only required to withhold income tax from their employees in the municipality of their fixed location, which could be a warehouse, office, etc.

These are just a few of the provisions associated with HB5, which is effective on January 1, 2016. For a deeper look into the provisions and more, click here.

Jason Wenner, Staff Accountant

IRS Releases 2015 Standard Mileage Rates

The IRS has recently announced the 2015 standard mileage rates available for use in calculating the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Starting January 1, 2015, the standard mileage rates for the use of a car, van, pickup or panel truck will be 57.5 cents per mile for business miles driven, which is up from the 56 cents per mile currently allowed in 2014. In addition, the rate will change to 23 cents per mile driven for medical or moving purposes, which is actually down half a cent from the 2014 rate. The rate for charitable miles driven will remain at 14 cents per mile as this rate is fixed by Congress.

Mileage_Car
Some may wonder why there is such a difference between the business miles rate and the rate for medical or moving purposes. The reasoning behind this is that, in calculating the rate for business miles driven, the IRS uses an annual study of the various fixed and variable costs associated with operating a vehicle. These costs include depreciation, insurance, repairs, tires, maintenance, gas and oil. As inflation causes the cost of many of these expenses to rise, the IRS adjusts their rate for business miles accordingly. In contrast, the rate for medical and moving purposes is based only on variable costs, like gas and oil. As we have all noticed, prices at the pump have dropped considerably in recent months. In fact, the U.S. Department of Energy predicts the average price for a gallon of gas to be $2.60 in 2015, the lowest full-year average since 2009. As a result, the rate for medical or moving purposes has decreased to account for this expected drop in gas prices.

It is important to remember that these standard mileage rates are optional, and taxpayers always have the option of deducting their actual costs incurred with operating a vehicle. While deducting the actual costs may require more work, due to the increased recordkeeping required, in many cases the actual costs method provides the greatest benefit. It is also important to note that, when choosing to use the standard mileage rates, taxpayers should always keep an accurate and detailed log of their miles traveled for business, charitable, medical or moving purposes.

By: Ruben Becerra, Staff Accountant

Can Your Business Save More by Paying More?

A client recently sent me a notification they received from the Ohio Department of Job and Family Services (ODJFS) informing them that they could reduce their unemployment tax rate by making a voluntary additional payment. Usually, paying more taxes in is something employers try to avoid doing, but for certain employers, making this voluntary payment may save them money.

Unemployment application Form with pen, calculator

The unemployment rate that employers pay is largely based on their experience rate – the lower their experience rate, the lower their tax rate. The experience rate is dependent on factors such as how much the employer has paid into its account, how much has been paid out in claims, as well as what the average annual taxable wage amount is. If the employer has paid in enough contributions, their account could reach a certain threshold that could reduce the experience rate. The ODJFS will usually notify the employer whether an additional voluntary contribution would help the employer reach that threshold to reduce its rate.

A basic calculation is included with the ODJFS notification that allows the employer to estimate whether the tax savings is more than what the voluntary payment would be. In the case of my client, it did not benefit them enough to make the voluntary payment, but depending on how many employees your business has, the voluntary payment could end up saving you tax dollars. Please contact your William Vaughan Company representative should you need any further guidance.