Your Fantasy Football Team’s Biggest Fan Is…

The fantasy football season is in full swing as we are approaching the middle of the NFL season. For some, the season is going great and you are eagerly awaiting the playoffs, while others are all but eliminated from contention after drafting a team full of underachieving duds. For those of you lucky enough to be in the thick of the playoff hunt, remember that Uncle Sam is cheering you on. That is, he wants a cut of your winnings.

Some of you may be thinking, “why would the government care about fantasy football? It’s just a fun hobby and gives me something to talk about at the water cooler.” The truth is, fantasy football is a major industry and the IRS is very aware of such notion. According to an article from the Fantasy Sports Trade Association’s website, nearly 37 million people play fantasy football. According to the article, fantasy football players will spend an average of $111 per year. At 37 million players, that’s a staggering total of $4.1 billion each year. You better believe that Uncle Sam wants in on the winnings!

If your fantasy football skills earn you a payout of $600 or more, you will likely receive a 1099-MISC in the mail come January, which reports your winnings to the IRS. The amount of your winnings that are taxable can be reduced by entry fees, transaction fees, research materials (such as magazines) and losses from other leagues where you weren’t quite as lucky. So be sure to keep records of all your expenditures to support the information reported on your 1040.

Once you come to the net of all your winnings less all expenses, this amount will be reported as “other income” on line 21 of your 1040. Since the amount reported will not match the 1099-MISC you received, you will need to attach a statement to the return reconciling the 1099-MISC to the amount reported. Note that if you were in several fantasy football leagues where you lost money and one where you won, you will not be able claim a loss on your return and will just report income of $0.

So I hope everyone’s season is going well, but remember, Uncle Sam has a rooting interest in your team as well.

By: Mark Sawyer, CPA

Are You an Audit Target?

Each year there are individuals who are targeted for IRS audits based on minor decisions they may have made during the year. One goal during tax season, besides being on time, should be to completely avoid the IRS in an ethical manner. There are multiple ways that individuals may intentionally or unintentionally raise red flags, which makes them susceptible to an IRS audit.
While there are a number actions that may call for an IRS audit, here are some of the more common red flags:

Charitable donations. Who would have thought being generous could land you in hot water? The truth is, usually, it won’t. However, people who are audited in regards to charitable donations are the ones who over exaggerate the value of their donations, generally when dealing with non-cash items. Avoid the headache of dealing with the IRS and be realistic when it comes to pricing your donations. Also, remember to keep all of your charity receipts just to be safe.

Reported income. Failing to report income seems like an obvious red flag to most people, but you would be surprised to find out how many people honestly forget to report certain income. If you are an individual with multiple brokerage statements, it may be a good idea to create a checklist to keep on hand, ensuring each form of income is reported. Being organized will keep you safe and less stressed come tax time.

Being a millionaire. While the red flags associated with charitable donations and reporting income are ones that you may be able to avoid, there is one red flag that may be waving regardless of your action. Once you become a millionaire, your chance of being audited increases exponentially. While the current audit rate is at 1% on average, the rate climbs all the way up to 9% if you make $1 million. Just to give you an idea of how much the risk of being audited grows in relation to what you earn, people who bring in more than $10 million have a 27% percent chance of an audit. Let’s hope these individuals are reporting all of their income as well, because this percent does not have a limit!

Overall, there are some red flags that individuals will be able to avoid and some that should be expected. The goal should be to eliminate as many red flags as possible while being remaining. Make sure you keep donation receipts, record realistic values on donations and report all of your income. Hopefully, you will be on your way to a headache free tax season!

By: Jason Wenner, Staff Accountant

October 15 Deadline Upon Us

October 15, the deadline to file extended individual tax returns is fast approaching. This is a great time for a reminder that the extension applies to the filing due date, and it is not an extension of the due date to pay. Penalty and interest are still charged to an account if the resulting tax liability is not fully paid on April 15.

The terms “penalty and interest” sound gruesome enough on their own. Now throw in the fact that they’re showing up on an IRS notice, and it might be enough to make some taxpayers’ bones quiver.

But what if you don’t have the cash to pay the entire bill at once? The IRS will allow individuals to set up an installment plan, but that cost you too. Penalty and interest are still due, and on top of that there is a one time set up fee that can cost over $100. As scary as a large tax liability can be, surely one wouldn’t want to make it worse by adding to it. Well don’t fret, we have a viable solution: pay it down with a credit card and owe the bank instead of the IRS.

By: Anthony Mifsud, Staff Accountant

Don’t Miss Out on Ohio’s Workforce Training Voucher Program

The Ohio Workforce Training Voucher Program is now in its third year. This employer-driven program is targeted to provide direct financial assistance to train workers and improve the economic competitiveness of Ohio’s employers. The program is designed to offset a portion of the employer’s costs to upgrade the skills of its incumbent workforce and will provide reimbursement to eligible employers for specific training costs accrued during training.

This time around businesses will have a chance to claim a piece of $29.4 million. That’s the good news. The bad news however, is that you have to be quick if your business has a desire to claim any portion of these funds. Similar to round two of the program, a pre-application process is available. The period to complete this process began Sept. 15, and will continue until the application officially goes live on Sept. 30.

According to the state, the funds are to be made available on a first-come, first-served basis. Employers can apply for a credit that will reimburse them up to 50% of eligible training costs – which could mean the business could be reimbursed up to $4,000 per employee.

In order to qualify, training must have been performed between Aug. 1, 2014, and Dec. 31, 2015. Employers have the option to apply for vouchers for training that has already occurred.

Pre-application allows employers to enter as much information and specific details as possible. When the application goes live, all you need to do is log on to your account and submit it. We expect all funds to be accounted for within the first few hours of the application going live. We urge businesses to take time to complete the pre-application process as soon as possible.

What Is Considered Eligible Training?
• Classes at an accredited education institution
• Training that leads to an industry-recognized certificate
• Training provided in conjunction with the purchase of a new piece of equipment
• Upgrading computer skills (e.g. Excel, Access)
• Training for the ICD-10-CM/PCS diagnostics classification system
• Training from national, regional or state trade associations that offers certified training
• Training for improved process efficiency (e.g. ISO-9000, Six Sigma, or Lean Manufacturing)
• HR Certification – limited to HR staff only

What Companies Can Apply?
For-profit entities located in Ohio and that operate in one of the following industries are eligible to apply for the Incumbent Workforce Training Voucher Program:

• Advanced Manufacturing
• Aerospace and Aviation
• Automotive
• Bio Health
• Energy
• Financial Services
• Food Processing
• Information Technology and Services
• Polymers and Chemical
• Research and Development
• Companies with a Corporate Headquarters in Ohio (with limited availability of funds)

Real Estate Investment: 1031 Exchange

What is a 1031 exchange (also called a like-kind exchange) and why would you want to do it? If you own investment real estate you may have already engaged in this activity and reaped the benefits, but for others just getting into real estate investment this may be a new topic of conversation.

A 1031 exchange is a swap of one investment asset for another. If done under the rules of 1031 you will in most cases be able to defer any tax due at the time of exchange, which allows your investment to grow tax deferred. You can roll any gain on the swap over into the new investment asset until you actually sell that investment asset for cash at which time you would then recognize any gain.

There are special rules that apply when depreciable property is exchanged. It can trigger gain known as depreciation recapture that is taxed as ordinary income. In general if you swap one building for another building you can avoid this recapture.

Some general guidelines regarding this provision: It is only for investment and business property, most 1031 exchanges are for real estate. Properties are of like-kind if they are of the same nature or character, this can have a broad interpretation. If you receive cash after the exchange is complete this cash may be taxed as partial sales proceeds and is generally considered capital gain.

This is a general overview and there are many other rules and regulations to complete a successful 1031 exchange transaction for which you would want to consult your accountant.

By: Christine Schultz, Accountant

Filing Taxes: Together or Not Together?

One of the more common strategies married couples consider when thinking of ways to reduce taxes is whether or not they should file their tax returns separately, rather than jointly. While this strategy may be a common consideration, it is not as common for this strategy to actually be implemented. Following are a few reasons why “together” is usually the best option for most married couples when filing their taxes.

​First, taxpayers filing separately are subject to the higher tax brackets earlier than taxpayers filing their returns as single. For example, in 2014, a taxpayer filing as single can earn up to $186,350 before being subject to the 33% tax bracket. However, a married filing separately taxpayer can only earn up to $113,425 before being subject to this tax bracket.

​Also, filing separately eliminates the flexibility of deductions that taxpayers would have if they were to file their returns jointly. With a joint filing, taxpayers can decide to use either itemized deductions or the standard deduction, based on which method offers the most benefit. Even though taxpayers filing separately are still able to choose which deduction they take, the method that one spouse uses also becomes the method the other spouse must use. This means that if one spouse uses itemized deductions, the other spouse must also use itemized deductions, even if the standard deduction would have been more beneficial. Additionally, filing separately eliminates the opportunity for taxpayers to take various other deductions and credits. These include adoption expenses, child and dependent-care costs, educational tax credits, and interest paid on student loans.

​While filing jointly is often the best option for married couples, there are some cases in which filing separately can be more beneficial. As a result, it is important to keep organized records and send all necessary documents to your tax advisor so that a proper analysis of your situation can be made.

By: Ruben Becerra, Staff Accountant
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Tools of the Trade: Financial Statements

Some “tools of the trade” are specific. Carpenters need hammers. Programmers need computers. Financial statements, however, are critical tools for all businesses. They allow you to monitor profitability, improve financial management, and provide banks and other lenders with vital information.

Primary Tools

There are several financial statements. The two most well-known are:

• The Balance Sheet shows the assets of your business and the amounts it owes (liabilities) on a particular date. The difference in the two numbers is the amount of owners’ equity.
• The Income Statement is a summary of your business’ revenue and expenses over a certain period of time. It reveals your income (or loss) from core operations and then incorporates other income and costs and any extraordinary items to arrive at a net income figure.

Level of Services

A CPA can provide different levels of service when it comes to financial statements. How you plan to use the statements will determine the level of review or verification required.

Compilation. If you want reports mainly for internal use, a CPA will simply compile the figures you provide and prepare the appropriate statements. No assurances are made about whether the statements are presented fairly.

Review. Potential lenders will generally require more than a simple compilation. The CPA will need to provide limited assurance that, based on limited procedures, nothing came to the accountant’s attention that would indicate that material changes to your financial statements are necessary. That requires looking at your accounting policies and practices, how your business operates, the actions of your board of directors, recent changes in your business, and so forth.

Audit. In some instances, you may need to have audited financial statements prepared. This is the highest level of service and requires the CPA to thoroughly examine your books and records and all of your financial policies and procedures. Then, the CPA can provide an opinion about your statements.

Most Common Tax Return Mistakes

A majority of tax returns are e-filed to the IRS, making your return on your refund much faster … unless, you do one of these common mistakes that can delay your return from being processed.

Double check not only your social security number, but also your spouse and children’s social security numbers. Transposing these numbers are very common.

Another common error is misspelling your name or having the wrong name. If your name has changed due to marriage or divorce, make sure you do a change of name with the Social Security Administration before you file your tax return. Just changing it with your employer on your paycheck does not change it in the IRS system. The IRS recommends you change it with Social SecurityAdministration even before you ask your employer to change it for paychecks and W-2’s.

Many people are confused with their filing status when it comes to head of household, mainly when you are divorced with kids. If both parents claim head of household and both claim the kids … there will be delays.

Errors in figuring credits or deductions, such as the child and dependent care credit, or the earned income tax credit, or if you are over 65 and/or blind will also delay processing.

Receiving your refund through electronic direct deposit is the safest and fastest … unless you enter the wrong bank account numbers. Double check the routing and account number to make sure they are correct.

People are 20 times more likely to make errors doing manual pen and paper returns compared to people who use tax software and e-file. Many are errors from either arithmetic or transferring figures from line to line or form to form. Always double check your figures with a calculator.

Should you have received a Misc/Interest/Dividend 1099 Form? If you haven’t received it, check with the company. Your copy may have gotten lost in the mail, while the IRS will still have received their government copies. If you do not claim the income on your return, the IRS will send you a notice asking for the missing tax you owe on the unreported income. This could also result in penalties and interest.

If you are mailing your return, remember to sign and date your return. If you are e-filing, make sure you use the correct Electronic filing pin number that you used the prior year.

If you are unable to file your tax return on-time, make sure to fill out an extension and mail it to the IRS. You will also need to pay in any tax that you might owe, but it gives you an extra 6 months to file the return.

The best way to avoid common mistakes is to not wait until the last minute to work on your taxes. Even giving it to your tax preparer within the last few days before the deadline is an easy way to end up getting a delay in your return being processed due to missed items or mistakes.

By: Sandra Stone, Accountant

Vacation Home Rentals & Taxes

If you rent a home to others, you usually have to report the rental income on your tax return. But you may not have to report the income if the rental period is short and you also use the property as your home. In most cases, you can deduct the costs of renting your property. However, your deduction may be limited if you also use the property as your home.

Here is some basic tax information that you should know if you rent out a vacation home:

Vacation Home – A vacation home can be a house, apartment, condominium, mobile home, boat or similar property.

Schedule E – You usually report rental income and rental expenses on Schedule E, Supplemental Income and Loss. Your rental income may also be subject to Net investment income tax. 

Used as a home – If the property is “used as a home,” your rental expense deduction is limited. This means your deduction for rental expenses can’t be more than the rent you received.

Divide expenses – If you personally use your property and also rent it to others, special rules apply. You must divide your expenses between the rental use and the personal use.

Personal use – Personal use may include use by your family. It may also include use by any other property owners or their family. Use by anyone who pays less than a fair rental price is also personal use.

Schedule A – Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses.

Rented Less than 15 days – If the property is “used as a home” and you rent it out fewer than 15 days per year, you do not have to report the rental income.

By: Diane Allman, CPA

Back To School &Taxes

There is a chill in the air here in Northwest Ohio which means fall is on its way. Many people like the cooler temperatures, but I personally prefer the heat. After all, we are still in August! With fall comes colder temperatures and I fear a repeat of our epic winter from last year! Needless to say, I guess the fall-like weather makes it more believable that it is back to school time. What does back to school mean for you and your taxes?

If you are a college student, or the parent of one, there are various deductions and credits available for tuition payments. There is a tuition and fees deduction which reduces the amount of income that is taxed. There are also two different types of tax credits, the American Opportunity tax credit and the Lifetime Learning credit. These two credits reduce the amount of tax you owe, potentially below zero, allowing you to get a refund of taxes you did not pay. There are various stipulations required to receive these deductions, all of which would need to be discussed with your accountant based on your individual circumstance. You will receive a form 1098-T at the end of the tax year that shows how much tuition you paid to the school for the current year. Also keep in mind that any additional fees paid or costs of courses, even the cost of books, can be included. These additional expenses are ones you would need to track yourself.

Many students today finance their way through college. If you are one of those students, you can also take a tax deduction for the student loan interest paid throughout the year.

If your children or grandchildren have college in their horizon, you can save on state taxes by contributing to a state 529 plan. You can contribute as much as you would like, however, only $2,000 per child per year in Ohio is available as a deduction to your taxable income. If you contribute more than $2,000 in a year, the remainder will carry-over to be a possible deduction in future years.

If you are an educator for grades Kindergarten through twelfth grade you are eligible for a $250 deduction on your return for unreimbursed education materials purchased in the year.

If you are a parent of a school-aged child and recently purchased school supplies, I am sure you wish there was some tax incentive. Unfortunately, you only have to look forward to paying college tuition before you can get a tax deduction!