June 30, 2016, is the deadline for filing the 2015 Form 114, Report of Foreign Bank and Financial Accounts, known as the FBAR. Not sure if you need to file? The general rule is that a return is due when you have a financial interest in, or signature authority over, foreign financial accounts if the aggregate value of those accounts exceeds $10,000 at any time during the calendar year. The requirement applies to both individuals and entities such as trusts and businesses, and you may need to file even if your foreign account produces no income.
Be aware that June 30, 2016, is a “hard” deadline. Your 2015 Form 114 must be filed electronically with the Treasury Department no later than that date. No filing extension is available for 2015 forms – even if you filed an extension for your federal income tax return.
Financial literacy is a vital skill in today’s world. Will your children be able to handle their finances when they became adults? Here are tips to help ensure the answer is yes.
Shave spending. Take the weekly allowance to the next level by helping your child develop a budget. Review the results to reinforce good habits.
Stress savings. Even young children can grasp the power of compound interest. A simple example is asking your child to put a dollar in a piggy bank. Offer to pay five percent interest if the money is still there in a week or a month. Make the same offer at the end of the first time period, and pay “interest on the interest” as well.
Introduce investments. Create a portfolio, either real or paper, consisting of shares of one or more stocks or mutual funds. Make a game of charting the investment’s progress on a regular basis.
Cover credit. Take on the role of lender and let your child request an advance on a weekly allowance. Charge interest.
Talk taxes. Use word search or crossword puzzles to teach tax terminology. Consider creating a “Family Economy” game using examples from your own budget.
Lessons in financial responsibility can benefit your children now and in the future. Get them started on the right path.
The IRS has launched a new campaign to encourage you to protect your tax and financial data, both digital and paper. As part of the campaign, the IRS plans to release videos and consumer friendly tax tips, and sponsor local events across the country.
Many small business owners pay too little attention to their financial statements. This is due in part to not understanding just what the statements have to offer. In fact, many may not be able to tell you the difference between a Balance Sheet and an Income Statement.
Think of them this way. The Balance Sheet is like a still picture. It shows where your company is at on a specific date, at month-end, or at year-end. It is a listing of your assets and debts on a given date. So Balance Sheets that are a year apart show your financial position at the end of year one versus the end of year two. Showing how you got from position one to position two is the job of the Income Statement.
Suppose I took a photo of you sitting behind your desk on December 31, 2013. And on December 31, 2014, I took a photo of you sitting on the other side of your desk. We know for a fact that you have moved from one side to the other. What we don’t know is how you got there. Did you just jump over the desk or did you run all the way around the building to do it? The Income Statement tells us how you did it. It shows how many sales and how much expense was involved to accomplish the move.
To see why a third kind of financial statement called a Funds Flow Statement is useful, follow this case. A printer has started a new printing business. He invested $20,000 of his own cash and borrowed $50,000 from the bank to buy new equipment. After a year of operation, he has managed to pay off the bank loan. He now owns the equipment free and clear. When he is told his net profit is $50,000, he can’t believe it. He might tell you that he took nothing out of the business and lived off his wife’s wages for the year. And since there is no cash in the bank, just where is the profit? The Funds Flow Statement will show the income as a “source of funds” and the increase in equipment is an “application of funds.” The Funds Statement is even more useful when you have several assets to which funds can be applied and several sources of funds such as bank loans, vendor payables, and business profit or loss.
Don’t be afraid to ask your accountant questions about your financial statements. The more questions you get answered, the more useful you will find your financial
Who have you designated as beneficiaries for your insurance policies and retirement accounts? If you can’t remember, you’re not alone. But it’s worth checking. If you make the wrong decision, it could affect who inherits those assets. In some cases, it could also change the taxes your beneficiaries will pay and the value they’ll receive. Here are some key facts about beneficiary designations.
When you designate a beneficiary for an account, you are naming the person you want to inherit that account.
Your designation determines who will inherit the assets in the account, regardless of what your will might say. Generally, the assets will bypass probate and go straight to the person or institution you named.
You can designate a person or group of persons, a charity, a trust, or your estate. You may also want to designate a secondary or backup beneficiary in case the primary is no longer living.
Why are they important?
It’s important to keep beneficiary designations up to date because they determine who will inherit the assets in your accounts. Changing your will won’t change the beneficiaries.
There can be tax implications too. With a traditional IRA, your choice of beneficiary can affect how quickly withdrawals must be made and taxes paid. That can change the value of the IRA to your beneficiary.
How do I update them?
First, find copies of all your current designations. Contact your insurance company and plan trustees if you can’t locate the documents.
Review them and decide what changes you’d like to make. Make an appointment to go over the changes with your tax or estate planning advisor.
Send your updated designations to the account trustees. Make sure you receive confirmations and keep copies in your records.
Almost any taxpayer who owns commercial real estate can reduce his or her current income tax bill by using cost segregation. Just how much you save in taxes will depend on several variables. The greater the cost of your property, the greater the potential for current tax savings.
Any building that was constructed, purchased, or remodeled since 1987 may be eligible for cost segregation. Retroactive tax deductions are available on older buildings without the need to file amended tax returns.
To pass an IRS audit for these deductions, you will want to use a cost-segregation specialist. This will usually be a construction engineer who can perform a detailed engineering study of all the building components (walls, ceilings, floors, plumbing, electric, telecommunications, heating and cooling systems, etc.) and assign the appropriate value to each. Those elements that qualify for five, seven, or fifteen year write off will provide the property owner with greater depreciation deductions and hence lower taxes in the early years.
The downside may be the cost to do the study versus the accelerated cash flow and possible penalties from the IRS for those who use cost segregation too aggressively.
The main elements of a proper cost segregation study are:
Conducted by someone with valid credentials as to experience and expertise.
A detailed description of the proper methodology.
Complete and proper documentation.
A full listing of all property that qualifies for shorter write off periods.
A properly conducted cost segregation study can provide a property owner with cash today that he or she would not otherwise get for several years.
An initial consultation with a cost segregation specialist can help you determine if your property is a candidate for a full blown study.
Your retirement funds are protected from creditors even if you file for bankruptcy, with only a few limitations. This protection extends to funds in all government-qualified pension plans, including IRAs (traditional and Roth), 401(k)s, 403(b)s, Keoghs, profit sharing, money purchase, and defined benefit plans. A recent U.S. Supreme Court decision has held, however, that an inherited IRA is not a “retirement fund” and therefore doesn’t qualify for bankruptcy protection.
An inherited IRA is a traditional or Roth IRA that a deceased owner has bequeathed to a beneficiary. It differs from a “true” retirement account in three ways:
The beneficiary is not allowed to contribute additional retirement funds to the inherited IRA.
The beneficiary, regardless of age, may withdraw funds from an inherited IRA in any amount and at any time without penalty.
The beneficiary, regardless of age, is required to take annual minimum distributions from any inherited IRA.
Based on the above characteristics, the Court unanimously concluded that with respect to beneficiaries, inherited IRAs are “not funds objectively set aside for one’s retirement” and instead constitute a “pot of money that can be used freely for current consumption.”
Although the Court didn’t specifically address it, there is a possible option available if (and only if) the beneficiary is the spouse of the decedent. Spouses are permitted to roll over funds from inherited IRAs into their own IRAs, which would presumably bring those funds back under bankruptcy protection. The funds would, however, become subject to the rules that apply to non-inherited IRAs, such as penalties for withdrawals before age 59½.
Certain other strategies may be available if you have inherited or are likely to inherit an IRA and you are interested in possible bankruptcy protection. Call us for an appointment to discuss your options.
For many companies, inventory is a significant dollar amount on the company’s financial statements. So it’s crucial that recorded inventory balances reflect actual values. When such accounts aren’t properly stated, the cost of goods sold and current ratios – numbers that often matter to decision makers – may be skewed. If banks discover that your company’s inventory accounts are overstated, they may not extend credit. If, when necessary, inventories aren’t “written down” (their values lowered in the accounting records), fraud may go undetected or the company’s net profits may appear unrealistically rosy.
Inventories decline in value for a variety of reasons. You might be in the business of selling electronic equipment to retail customers. Over time, yesterday’s “latest and greatest” gadgets become today’s ho-hum commodities. Such goods still have value, but they can’t be sold at last year’s prices. Your inventory is experiencing “obsolescence.”
Inventory “shrinkage” is another term that’s often used to describe declining inventory values. Let’s say you run a construction materials company. Unbeknownst to you, a dishonest supervisor is skimming goods from your shelves. A periodic inventory count that’s compared to your company’s general ledger might show that inventory is declining faster than it’s being sold. As a result, you may decide to investigate and to reduce inventory values in your accounting records.
Other examples of shrinkage might include a retail store that loses inventory due to shoplifting or a warehouse facility that’s hit by a storm. In both cases, inventories may need to be written down in the company books to more accurately reflect actual values. Under another scenario, a shady supplier might bill your company for goods that aren’t actually shipped or received. Your inventory may end up being overstated.
For some companies, several sources feed into inventory values. A manufacturing concern, for example, might add all the expenses needed to prepare goods for sale – including factory overhead, shipping fees, and raw material costs – into inventory accounts. When those supporting costs fluctuate, inventory accounts are often affected.
To ensure that your inventory numbers remain accurate, it’s a good idea to conduct regular physical counts and routinely analyze the accounts for shrinkage, obsolescence, and other evidence of diminishing value.