Wrap up #TaxBenefits for Year-End Charitable Gifts

Are you contemplating gifts to charity at the end of this year? Not only do you help out a worthy cause, you can also reduce your 2016 tax bill if you itemize your deductions. Here’s how to make sure you’ll get the full benefit.

 
The general rule. Generally, you can deduct the full amount of contributions you make to a qualified charitable organization, up to 50% of your adjusted gross income for the year. Did you make a large contribution? You can carry the excess forward for five years. Just remember that you have to get written acknowledgment from the charity for monetary gifts of $250 or more.
     Tip: A contribution made by credit card late in the year is still deductible if posted to your account this year. You can charge an online donation on December 31, and take a deduction on your 2016 return, even if you don’t pay the credit card bill until 2017.

 
“This for that” gifts. When you make a gift of more than $75 that entitles you to receive goods or services in return, the charity must provide a good faith estimate of the goods or services received and the amount of payment exceeding the value of the gift. You can deduct the portion that exceeds the fair market value.

 
Gifts of your time. Although you can’t deduct the value of volunteer services you provide, you can write off out-of-pocket expenses incurred on behalf of a charity. Examples include long-distance travel, lodging, and local transportation.

 
Gifts of property. In general, the annual deduction for gifts of property is 30% of your adjusted gross income. You can carry the remainder forward for five years. If you donate appreciated property you’ve owned for more than a year, in most cases you can deduct the property’s fair market value. You’ll need an independent appraisal for gifts over $5,000.
     Tip: To claim the full deduction, the gift must be used to further the charity’s tax-exempt mission. For instance, if you donate a painting to your alma mater, it must be displayed where students can study it.
If you have questions about charitable giving tax rules, contact us. We’ll help you lock in deductions before January 1.

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Insurance Enrollment Begins This Month

Beginning this month, you can sign up for a new 2017 health insurance policy on the health insurance Marketplace. You can also change or renew the policy you purchased during the last enrollment period. Even if your current policy has an automatic renewal feature, you’ll want to verify that you’re getting the best deal, and that you are still eligible for the federal premium tax credit.
What if you didn’t sign up last winter and didn’t have health insurance coverage in 2016? You may owe a penalty on your 2016 federal income tax return. The penalty is calculated in one of two ways: as a percentage of your income, or on a per-person basis. You pay whichever is higher.
For 2016, the penalty is 2.5% of your annual household income, up to a maximum of the national average premium for a Bronze plan. The per-person penalty is $695 per adult and $347.50 per child under 18 (up to a maximum per-family penalty of $2,085).

#TaxTipTuesday-Beware of income-based limits on itemized deductions and personal exemptions

Many tax breaks are reduced or eliminated for higher-income taxpayers. Two of particular note are the itemized deduction reduction and the personal exemption phaseout.

Income thresholds

If your adjusted gross income (AGI) exceeds the applicable threshold, most of your itemized deductions will be reduced by 3% of the AGI amount that exceeds the threshold (not to exceed 80% of otherwise allowable deductions). For 2016, the thresholds are $259,400 (single), $285,350 (head of household), $311,300 (married filing jointly) and $155,650 (married filing separately). The limitation doesn’t apply to deductions for medical expenses, investment interest, or casualty, theft or wagering losses.

Exceeding the applicable AGI threshold also could cause your personal exemptions to be reduced or even eliminated. The personal exemption phaseout reduces exemptions by 2% for each $2,500 (or portion thereof) by which a taxpayer’s AGI exceeds the applicable threshold (2% for each $1,250 for married taxpayers filing separately).

The limits in action

These AGI-based limits can be very costly to high-income taxpayers. Consider this example:

Steve and Mary are married and have four dependent children. In 2016, they expect to have an AGI of $1 million and will be in the top tax bracket (39.6%). Without the AGI-based exemption phaseout, their $24,300 of personal exemptions ($4,050 × 6) would save them $9,623 in taxes ($24,300 × 39.6%). But because their personal exemptions are completely phased out, they’ll lose that tax benefit.

The AGI-based itemized deduction reduction can also be expensive. Steve and Mary could lose the benefit of as much as $20,661 [3% × ($1 million − $311,300)] of their itemized deductions that are subject to the reduction — at a tax cost as high as $8,182 ($20,661 × 39.6%).

These two AGI-based provisions combined could increase the couple’s tax by $17,805!

Year-end tips

If your AGI is close to the applicable threshold, AGI-reduction strategies — such as contributing to a retirement plan or Health Savings Account — may allow you to stay under it. If that’s not possible, consider the reduced tax benefit of the affected deductions before implementing strategies to accelerate deductible expenses into 2016. If you expect to be under the threshold in 2017, you may be better off deferring certain deductible expenses to next year.

For more details on these and other income-based limits, help assessing whether you’re likely to be affected by them or more tips for reducing their impact, please contact us.

Can your business survive these seven scary disasters?

Disasters, natural or otherwise, could ultimately lead to your company’s demise. Fortunately, advance planning can keep you on track. Here are seven scenarios to be prepared for.

 
1. A natural disaster. To paraphrase the old saying, you can talk about the weather, but there’s not much you can do about it – except have a plan in place in the event a natural disaster damages your business premises. Two tips: Maintain adequate insurance and store valuable business data at a secure off-location site.

 
2. A key employee quits. Cross-training can avoid business interruptions if a key employee leaves unexpectedly. You might also want to consider asking key employees to sign a reasonable non-compete agreement to protect confidential information. Typically, these agreements prohibit an employee from working for a competitor for a certain period.

 
3. An employee embezzles company funds. To safeguard your business assets, divide responsibilities so one person doesn’t have complete control over the books. Set up a system of checks and balances.

 
4. Your biggest customer leaves. To keep your business from going under, update your marketing plan, stay in touch with former customers, establish an emergency budget, and diversify your revenue stream.

 
5. You become disabled. “Key-person” disability insurance can provide funding to keep your business afloat. The policy may also cover employees who are vital to operations.

 
6. Your company or partnership splits up. Draft a buy-sell agreement to ensure a smooth transition due to the sale of a business interest, including a forced sale on the death of one of your shareholders or partners. The agreement can establish the terms of a buy-out and set a value for the respective business interests.

 
7. Your computer system crashes. Extra hardware, such as tablets or laptops, regular off-site backups, and cloud storage for important documents can avoid a crisis when your computer fails.

10 Ways to Keep an EYE on Your Company’s #Cash

Do you regularly monitor your company’s cash accounts? Being aware of where your cash is going can help prevent theft or improper expenditures, which are among the chief sources of loss for small companies.
What can you do to reduce the risk of losses? The textbook answer is to implement “internal controls.” Internal controls are standard procedures for assuring the integrity of your financial processes. For example, segregation of duties, such as having more than one person involved in preparing, signing, and reconciling checks, is an internal control.

 
Here are suggestions for safeguarding your company’s cash.
● Make sure all invoices have an approval signature before being paid.
● Personally verify that new vendors exist.
● Require sign-off of employee expense reports by a higher-level employee.
● Don’t permit the person who prepares a company check to sign that check.
● Consider requiring two signatures on checks.
● Maintain a list of void checks and compare them to your bank statement.
● Use a bank stamp to endorse checks immediately upon receipt.
● Personally open bank statements and other mailings from the bank.
● Review and reconcile your bank statement regularly.
● Monitor online access to your business account.

 
Please contact our office for details or for assistance in improving controls over your company’s cash.

Do you own your own business? Here are two factors to consider when determining how much to pay yourself

As the owner of your business, you are the decider of salaries for your staff. That’s true for your own salary too. While there is no one-size-fits-all formula for determining how much to pay yourself, here are two factors to consider.

 
● Profitability. Regularly review and update your firm’s cash flow projections to determine the salary level you can sustain while keeping the business profitable. Your compensation may be minimal as you start up your business. However, beware of going too long without paying yourself a salary, and be sure to document that you’re in business to make a profit. Why? Otherwise the IRS may view your perpetually unprofitable business as a hobby – a sham enterprise aimed at avoiding taxes. That can lead to unfavorable tax consequences.

 
● The market. If you were working for someone else, what would they pay for your skills and knowledge? When you’ve answered that question, discuss salary levels with small business groups and colleagues in your geographic area and industry. Check out the Department of Labor and Small Business Administration websites for salary information and national compensation surveys. In the early stages of your business, you may not be able to afford to pay yourself a salary commensurate with the higher ranges, but you’ll learn what’s reasonable.

 
For assistance with payroll issues or salary concerns, contact our office.

 

 

 

 

 

 

 

 

Are you changing jobs? Here are tax-smart options for your old retirement plan

There’s a lot to think about when you change jobs, and it’s easy for a 401(k) or other employer-sponsored retirement plan to get lost in the shuffle. But to keep building tax-deferred savings, it’s important to make an informed decision about your old plan. First and foremost, don’t take a lump-sum distribution from your old employer’s retirement plan. It generally will be taxable and, if you’re under age 59½, subject to a 10% early-withdrawal penalty. Here are three tax-smart alternatives:

 
1. Stay put. You may be able to leave your money in your old plan. But if you’ll be participating in your new employer’s plan or you already have an IRA, keeping track of multiple plans can make managing your retirement assets more difficult. Also consider how well the old plan’s investment options meet your needs.

 
2. Roll over to your new employer’s plan. This may be beneficial if it leaves you with only one retirement plan to keep track of. But evaluate the new plan’s investment options.

 
3. Roll over to an IRA. If you participate in your new employer’s plan, this will require keeping track of two plans. But it may be the best alternative because IRAs offer nearly unlimited investment choices.

 
If you choose a rollover, request a direct rollover from your old plan to your new plan or IRA. If instead the funds are sent to you by check, you’ll need to make an indirect rollover (that is, deposit the funds into an IRA) within 60 days to avoid tax and potential penalties.

 
Also, be aware that the check you receive from your old plan will, unless an exception applies, be net of 20% federal income tax withholding. If you don’t roll over the gross amount (making up for the withheld amount with other funds), you’ll be subject to income tax — and potentially the 10% penalty — on the difference.

 
There are additional issues to consider when deciding what to do with your old retirement plan. We can help you make an informed decision — and avoid potential tax traps.

3 signs that a charity isn’t on the up-and-up

Times of crisis, when others are suffering and you want to help most, is also when heartless fraudsters tend to strike. If you’re planning a donation, watch for these signs that a charity isn’t on the up-and-up.

 
The fly-by-night charity. Every legitimate charitable association had a start date, and some are still being formed. But during a major crisis, such as a natural disaster, donate to charities that you trust, which means those with a proven track record. If you’re unsure, check out a charity watchdog group for details.

 
The evasive caller. If you get a phone call from a charity, don’t be afraid to ask direct questions and expect direct answers. A legitimate caller will be upfront about the charity, the percentage of funds allocated to administration and marketing, and what target groups will be helped by your donation. Beware of vague claims such as “educating the public” or “promoting awareness.”

 
The urgent online request. Social media postings, fake websites, and emails brimming with desperate pleas for money may originate from the backroom computer of a scam artist. Never divulge your financial information via email and don’t assume that social media messages about a particular charity are legitimate.

 
You want your donations to provide help where it is most needed, not line a fraudster’s pocket. Take time to make sure the charity you’re donating to is legitimate. If we can help, let us know.

How to calculate the amount of your loss and ease financial burdens when violent weather wreaks havoc.

Violent weather can wreak emotional and financial havoc. If your home, vehicle, or other personal property is damaged or destroyed by a sudden, unexpected casualty, an itemized tax deduction may help ease the financial burden.

 
In most cases, you claim a casualty loss in the taxable year the calamity strikes. However, if you’re in a federally declared disaster area, you have the option of amending your prior year return. Either way, to receive the maximum benefit you’ll need to calculate the amount of your loss. Here’s how.

 
File an insurance claim. If your property is insured, file a timely claim.

 
Get an appraisal. An appraisal determines the decline in fair market value caused by the casualty. Tax rules require that you measure the difference between what your home or property would have sold for before the damage and the probable sales price afterward.

 
Establish basis. Generally, adjusted basis is what you originally paid for the damaged property, plus improvements. If your records were lost in the casualty, recreate them using reasonable estimates or the best information you have.

 
Keep receipts for repairs. In some situations, repairs you make to restore your property to pre-casualty condition can be used as an indicator of the decline in the fair market value.

 
Remember, you’re not alone. In the aftermath of a casualty, we’re here to help you resolve the tax issues.

FSA or HSA? Choosing between health accounts

 

Are you confused about your choices for paying medical expenses under your employer’s benefit plan? Here are differences between two types of commonly offered accounts: a health savings account (HSA) and a health care flexible spending account (FSA).

 
Overview. An FSA is generally established under an employer’s benefit plan. You can set aside a portion of your salary on a pretax basis to pay out-of-pocket medical expenses. An HSA is a combination of a high-deductible health plan and a savings account in which you save pretax dollars to pay medical expenses not covered by the insurance.

 
Contributions. For 2016, you can contribute up to a maximum of $2,550 to an FSA. Typically, you have to use the funds by the end of the year. Why? Unused amounts are forfeited under what’s commonly called the “use it or lose it” rule. However, your employer can adopt one of two exceptions to the rule.
If you are single, the 2016 HSA contribution limit is $3,350 ($6,750 for a family). You can add a catch-up contribution of $1,000 if you are over age 55. You do not have to spend all the money you contribute to your HSA each year. You can leave the funds in the account and let the earnings grow.

 
Earnings. FSAs do not earn interest. Your employer holds your money until you request reimbursement for qualified expenses. HSAs are savings accounts, and the money in the account can be invested. Earnings held in the account are not included in your income.

 
Withdrawals. Distributions from both accounts are tax- and penalty-free as long as you use the funds for qualified medical expenses.

 
Portability. Normally, your FSA stays with your employer when you change jobs. Your HSA belongs to you, and you can take the account funds with you from job to job. That’s true even if your employer makes contributions to your HSA for you.

 
Because you generally can’t contribute to both accounts in the same year, understanding the differences can help you make a decision that best fits your circumstances. Contact us for help as you consider your benefit choices.