Tag Archives: toledo cpas

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

2014 Year-end Payroll tax information and 2015 updates

Social Security and Medicare withholding
The employee’s and employer’s portion of social security taxes withheld has remained unchanged (6.2%). The wage base for 2014 is $117,000. In 2015 the wage base will increase to $118,500.

For 2014 and 2015 the Medicare tax calculation rates are unchanged. The employee’s and employer’s Medicare tax remains at 1.45% with no wage limits. Earners making more than $200,000 in a year are subject to an extra 0.9% Medicare tax. The extra 0.9% tax is not matched by the employer like the 1.45% Medicare tax.

year-end940 FUTA Unemployment tax
The 2014 and 2015 FUTA rate remains at 0.6%. This rate includes the 5.4% credit for State Unemployment paid. There are still credit reduction states published by the IRS and listed on Schedule A (Form 940). A “credit reduction state” is a state that has borrowed money from the federal government to pay unemployment benefits and has not yet repaid this money. In 2014, there are 7 states listed on this credit reduction list. Some of the state changes include:

  • Ohio – .012
  • Indiana .015
  • New York – .012
  • North Carolina – .012

This means that instead of paying the 0.6% in 2014, there is an additional 1.2 % added (or 1.5% for IN), for a total of 1.8% for Ohio. The credit reduction will add up to approximately $84- $126 of extra tax liability per employee for this year. Each year the % will increase another .003 until the state is no longer on the list published by the IRS each fall. Line 11 of the 2014 940 Form is where the amount from Schedule A, calculating your state credit reduction amount is entered. The extra 940 deposit will need to be paid thru EFTPS.gov by January 31, 2015.

1099 Misc forms
These forms are the most common. They are issued to independent contractors who received $600 or more for their services in the calendar year. Make sure you have their address and social security/Federal ID number and any DBA company name in your software. Now is the time to contact the vendors for any missing information and ask them fill out a W-9 form with their current information.
If you have any other questions with other 1099 forms, please contact our company.

Sandra Stone, Accountant

5 Strategies for Reducing/Eliminating Your Estate Tax

As many of you know the estate tax exemptions and rates have been all over the board in recent years. For many Americans, this isn’t an issue. However, when you begin amassing a large enough estate this becomes a huge concern. Historically, passing away with a large enough estate has imposed upwards of 55% tax. For 2014, this rate is at 40% with a $5,340,000 personal lifetime exclusion. Below are 5 strategies you can use now to help mitigate any future tax burden you should incur.

EstateTax1. Start gifting smaller amounts
There is an annual gift exclusion of up to $14,000 per person per year. Meaning a married couple could collectively gift 28,000 per year per person without eating into any of their lifetime estate tax exclusion.

2. Gift highly appreciable assets now
Gifts of over $14,000 will still need to be reported on the federal Form 709 (and will consequently count against your lifetime limit) but gifting these assets now, instead of waiting, allows the appreciation to build with the recipient instead of counting against your lifetime limit later on.

3. Buy life insurance
Life insurance proceeds are not includible in your taxable estate and are, therefore, a good way of sheltering your net worth. Doing this essentially transforms taxable assets into non-taxable income once a death occurs (assuming the estate is not the beneficiary of the policy and the decedent is not the owner).

4. Use both exemptions
Currently, the tax code allows for the husband and wife to each claim a $5.34 million estate/gift exemption. If elected timely, any unused portion of a spouse’s estate can be transferred to the surviving spouse (called portability).

5. Take advantage of unlimited exemptions
When in doubt, be charitable! The IRS allows you to contribute an unlimited amount to the qualified charities of your choice. So if you are considering donating a portion of your estate and are over the exemption limitation this would be a terrific way of sheltering those dollars from taxation.

Courtney Elgin, CPA

Year-end Retirement Planning Tips

There are only a few weeks left to make 401(k) and some other retirement plan contributions that will get you a tax deduction on your 2014 tax return. Retirees also need to be aware of deadline dates for distributions from your various retirement accounts.

You can make a contribution of up to $17,500 to your 401(k) plan in 2014. Workers age 50 and over can contribute an extra $5,500 to their account as a catch-up contribution for a total of $23,000. Income tax isn’t due on the amount deposited in a traditional 401(k) plan until the money is withdrawn. For self-employed workers, a couple good options are a solo 401(k) plan or a simplified employee pension (SEP). With a SEP, you can contribute up to 20% of your net self-employment income for a total limit of $52,000. The SEP contribution can be calculated before filing your taxes to minimize your tax bill. SEP contributions are not due until the due date of your tax return. That means for a 2014 deduction if you file an extension, your contribution would not be due until October 15, 2015.

Retirement_PlanAnother option is an Individual Retirement Account (IRA). These contributions are not required to be made until April 15th to count toward your 2014 taxes and usually can be figured after your tax liability is determined. The IRA contribution limits are $5,500 or an additional $1,000 for people 50 and over for a total contribution of $6,500. Roth IRA’s have the same limits but are not pre-tax and will not decrease your tax bill, however, are also not taxable when distributed.

Retirees who have reached the age of 70 ½ have required minimum distributions from traditional 401(k)’s and IRAs and income tax will be due on each withdrawal. The date for making the distribution is April 1st after you have reached 70 ½ years of age. The penalty for missing a distribution is 50% tax on the amount that should have been distributed. It is best to consult William Vaughan Company or your financial advisor to make sure the amount required is computed correctly and done by the due date.

It’s probably also a good idea to start planning for the 2015 tax year. The amounts for 401(k) contributions will increase by $500 to $18,000 and $6,000 for the catch-up contributions. Increasing your percent contributed each year can make a big difference in the long run, especially if there is an employer match. There are many options when it comes to retirement plans, make sure you are doing what is best for you and in the necessary time frame to achieve the most benefit.

Diane Cook, Accountant

Driving A Lot? Deduct Your Mileage

I recently met with a client who is starting a new investment firm. He asked me how to determine if an expense can be classified at a business expense. He told me he drives to meet with potential partners and was wondering if any of that mileage would be considered a business expense. I told him if you are using your vehicle to meet people or to scope out locations, etc. then absolutely, those situations would fall under the business expense category.

The question then came up of how to track these expenses in order to receive the deduction. I explained there are two different methods, the first being the allowance method and the second, tracking the actual expenses. Each of these methods has a sidenote worthy of mentioning. The allowance method must be elected in the first year the vehicle is used for business purposes. If it is not, it cannot be used.

Mileage

The allowance method replaces taking a deduction for actual operating costs and depreciation. You can, however, deduct parking fees and tolls that are paid for business purposes. If you use the allowance method, you must keep records of your business trips. These records need to be comprised of the date, customer or client visited, the purpose and the number of miles travelled for business. This can be used for leased vehicles as well. However, it must be used for the entire lease period. The log can be kept electronically or on paper, but must be available at the request of the IRS. The total business miles for the year are then multiplied by the IRS standard mileage rate, $.56 in 2014, and deducted on the tax return.

Actual expenses can be deducted in the first year if the allowance method is not elected, or in any future year. This is only true if the vehicle is not leased. However, electing in a future year forfeits any first-year accelerated depreciation that may be available. Actual expenses must be tracked for items like, gasoline, oil, repairs, license tags, insurance, etc. Depreciation or lease payments can also be deducted. If the vehicle is also used personally, then the total expenses are allocated based on the business use percentage. This percentage is determined based on the total miles driven for the year and the business miles driven for the year.

Deducting automobile expenses can surely save you money on your tax return, just make sure you gather the appropriate documentation the select the right method for your deduction.

To receive a free copy of William Vaughan Company’s mileage log, email Jessica Sloan at sloan@wvco.com

By: Tara West, CPA, CMA

Don’t Leave Health Care Dollars on the Table

Don’t make the mistake of waiting until the end of December to review your finances. You might not have enough time to take full advantage of some money-saving strategies before the ball drops. Here are some healthy yearend moves you may be able to make.

image

Check your deductibles

Many health insurance plans have an annual deductible. If you’ve already met yours for the year, now’s the time to schedule any elective procedures you’ve been considering. If it doesn’t look like you’re going to meet your deductible this year, then switch gears and push any non-urgent visits into next year. That might help youmeet your deductible in 2015.

Max out your benefits

Be sure to take advantage of any benefits your health plan provides you free of charge. For example, it may cover an annual physical and various screenings.

If your employer sponsors a wellness program, don’t wait until the end of the year to check your status. You may be eligible for additional rewards for doing something as simple as scheduling a screening.

Review your FSA

If you have a health flexible spending account (FSA) through your employer, check your balance. If you have more money in your account than you can spend by the end of the year, see if the plan offers a grace period so employees can spend down their funds. Or the plan may allow employees to carry over a certain amount to the next year. Find out if your employer offers one of these options.

Tax tips

If you usually itemize deductions on your tax return, you may want to brush up on the details about the medical expense deduction. You won’t be able to qualify for it until your expenses are over 10% of your adjusted gross income (7.5% if you or your spouse is 65 or older). If you’re close to reaching the threshold, it may influence the decisions you make about elective procedures. You can only deduct unreimbursed medical expenses that exceed the threshold.