Does your health plan need a check-up?

When was the last time you reviewed your small business's health plan to ensure it was in compliance with IRS reporting requirements?  Health and other welfare benefit plans must file a Form 5500 annually unless they are specifically exempt by the IRS.  

The following summary of basic reporting requirements may be the tool you need in order to give your health and welfare benefit plan(s) an annual “check up”:

(A) Did your welfare benefit plan have fewer than 100 participants as of the beginning of the plan year?  (DO NOT COUNT covered dependents but DO COUNT former employees who are still covered by the plan.) 

  

If you answered ‘NO’ to (A), your plan must file a Form 5500.

If you answered ‘YES’ to (A), see (B) below. 

(B) Is your plan ANY of the following: unfunded, fully insured, or a combination of both?  See below for more information on these terms.

- "Unfunded" – The employer pays all of the benefits of the plan; there are no employee contributions and/or the employer does not use a trust to hold assets of the plan.

- "Fully Insured" – Benefits of the plan are paid entirely from insurance contracts/policies.  Premiums are paid directly to the insurance company by the employer using employer’s assets, employee contributions, or a combination of both.

- "A combination" – An IRS example of combination funding would be a single plan that provides both unfunded medical benefits and fully-insured life insurance.

If you answered ‘YES’ to (B), your welfare benefit plan does NOT need to file a Form 5500.

If you answered ‘NO’ to (B), you must file a Form 5500 for your welfare benefit plan(s) and it may require an audit. 

  

Welfare benefit plans that use a voluntary employees’ beneficiary association (VEBA), must file a Form 5500. 

The Form 5500 is due 7 months after a plan’s year end (e.g., a  12/31 year end would need to file by 7/31).   The Form 5500 is an information return, so there is generally no tax due.  However, the IRS does assess penalties for failure to file or late filings. 

Your CPA is an excellent resource if you need to file a Form 5500 for your plan or have questions about the filing requirements.  

Most importantly, remember to give your health plan a “check up” annually. 

  

Daria  Cruzen, CPA, MBA

Manager—Audit Department

Quick guide to the Small Employer Health Insurance Credit

Qualifying small businesses with fewer than 25 employees and average wages under $50,800 can qualify for tax credits of up to 50% (35% for tax-exempt entities) of the health insurance cost if they pay at least half the premiums for their employees and have purchased the policies from a SHOP exchange.  Small businesses are allowed to claim the credit for only two consecutive years after the tax year 2013.  To be eligible to receive the credit, the following prerequisites must be met:

1.      There are fewer than 25 full-time equivalent employees.  The full-time equivalent employee calculation is relatively simple, all you need to do is follow the 3 steps:

• Step 1: Compute the sum of the employees' hours worked (No greater than 2,080 hours per employee)
• Step 2: Divide the sum from Step 1 by 2,080
• Step 3: Truncate the decimal part of the result (e.g. 6.8 is 6 full-time equivalent employees)
• Do you have seasonal employees?  If yes, then seasonal employees who work fewer than 120 days in the tax year are not included in the full-time equivalent employee calculation, but premiums paid on their behalf are included in the calculation for the credit.  Please note, the employee must be seasonal and not just terminated/quit before 120 days worked.
• NOTE that sole owners, partners, and shareholders who own more than 2% are not included as employees.

 2.      The average annual wages is less than $50,800.  To calculate the average annual wages, divide total wages paid divided by the number of full-time equivalent employees.  NOTE that sole owners, partners, and shareholders who own more than 2% wages are not included in the average annual wage calculation.

3.      Health insurance premiums must be paid by the employer in a uniform percentage of at least 50%.

4.      The qualified health plan must be purchased through a SHOP exchange.  This is new for 2014.  For more information on SHOP exchanges, please visit this site. 

If the 4 prerequisites above are met, use the chart below to estimate of how much of a credit you can claim:

Brian Koleszar, CPA

Tax planning for 2014 year-end and 2015

With 2014 quickly coming to a close, now is the right time to analyze your income tax situation for 2014 and 2015. After the recent mid-term elections swung both houses of Congress to a Republican majority, the immediate year-end tax planning revolves around a "tax extenders" package of expired individual and business tax breaks that await retroactive reinstatement to the start of 2014. Final passage will not happen until later this month (any day now) or possibly January 2015 (which will cause tax-season delays for the IRS in accepting returns and issuing refunds). It's unclear which extenders will be affected, and whether they will be made permanent, extended for one or two years, or scrapped. Stay tuned...

With tax rates expected to remain the same for 2014 and 2015 as they were for 2013, traditional year end planning techniques remain important to maximize benefits, such as:

• Defer/receive bonuses before January.
• Hold/sell appreciated assets
• Accelerate income to use available carry-forward losses.
• Postpone/complete Roth conversions.
• Minimize/maximize retirement contributions.
• Bunch itemized deductions into 2014 and take standard deduction in 2015 or vice-versa.
• Pay bills in 2014/postpone payments until 2015.
• Pay 4th quarter 2014 state estimated tax installment in 2014 or delay payment until 2015.
• Watch AGI limitations on deductions/credits.
• Watch net investment income restrictions.
• Match passive activity income and losses.

The year end is almost here!  Don't wait to contact your tax professional if you have questions or need to make year-end tax planning decisions.

Jim Story
Manager - Tax Department

Looking for deductions at year-end?

Are you looking for a few extra tax deductions before the end of the year?  Take a look at your stock portfolio for investments that are sitting in a loss position.  Many people have bank or energy company stocks that are below or far below the price at which they purchased them.  Anytime these stocks are sold for a loss, that loss can be used to offset income or gains from stock sales.  To the extent that your losses outweigh your gains, you can only deduct $3,000 more per year than your gains, but the left-over losses will carry forward indefinitely, able to be used as a $3,000 deduction per year, or until that windfall stock gain that we all hope for every year. 

What if you are thinking, “But I think this stock will go back up” or “I feel really attached to this company stock and don’t want to leave them.”  If you don’t expect the stock to surge in the next 30 days, wait the required 30 days so as not to come into conflict with the wash sale rules, and then re-purchase the stock with the proceeds you have from your sale.  You will own the stock again, and you will be putting your losses to use as a deduction against your income. 

John Robert Voynich, CPA

Year-end tax tips for individuals

With December 31^st right around the corner, it still isn't too late to make financial decisions to minimize your tax bill.  Individuals have many questions they can ask themselves about ways to save on their 2014 or future tax bills.  One of the best ways to save on tax is by accelerating or deferring income and deductions.

Taxpayers may want to accelerate income or defer deductions if they expect that their current tax bracket is going to be lower than their future tax brackets.  This could include having bonuses paid to you before year-end, accelerating IRA distributions, selling capital gain stocks or possibly converting a traditional IRA to a Roth IRA.  These are all ways to increase current year taxable income if you expect that this year’s tax rate will be lower than the future years’ tax rates.  Taxpayers who are not able to itemize their deductions in the current year may want to delay charitable contributions, mortgage payments, or state tax estimates until after January 1 in hopes that they will be able to itemize their deductions in the following year.

Most taxpayers, however, are concerned with lowering the tax bill in the current year, and there are several ways that this can be done with year-end planning.  Some of the best methods include:

• Selling stocks that have lost value since date of purchase
• Increasing 401(k) or traditional IRA contributions
• Paying the 4^th quarter state estimated tax payment in December
• Paying the January mortgage payment in December
• Making charitable contributions in December

These are just a few ways to effectively manage your individual tax liability.  Almost all of the ideas are decisions that will be made anyway, but if timed properly can provide the greatest tax benefit.

William A. “Bo” Taber, III

Current Tax Benefits for IRA Contributions

As an incentive to promote personal investing, the IRS allows individuals with earned income to deduct contributions made to a traditional Individual Retirement Account (IRA) in calculating adjusted gross income. There are certain limits to deductibility of contributions for those who are active in an employer sponsored retirement plan, such as a 401(k). However, those not considered active can contribute $5,500 per person or $6,500 for those 50 years old and over (see http://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits for deduction qualifications and contribution limits). Contributions must be made by the due date of your income tax return, excluding extensions, which means April 15.

Many couples are unaware that a spouse who does not have earned income can still receive a deduction provided the couple files a married filing joint return and meets certain requirements. This can be especially beneficial to couples in high tax rate brackets that are looking to reduce current tax liability by deferring it through traditional IRAs. It doesn't seem like much, but can start to add up if you consider the long term effects.

The 28% and 33% tax rate tables in 2014 for a joint return start at $148,850 and $226,850 for taxable income, respectively. If a couple under the age of 50 years old has $11,000 or more of taxable income over these thresholds, then the tax deferred savings will be maximized based on their marginal rate. Assume, for example, that a couple has taxable income of $159,850 ($148,850 + S11,000) and they do not have the option to defer income through employment. The deferred tax savings by each spouse contributing $5,500 would be $3,080 ($11,000*28%). The same would apply for those in the 33% bracket. If taxable income was $11,000 or more over the $226,850 threshold, then deferred tax savings would be $3,630 ($11,000*33%).

Now suppose the couple in the 28% bracket were 35 years old and made $11,000 ($5,500 each)of deductible contributions each year for 30 years and earned a compounded annual rate of 5% each year through investing the deferred tax savings amount. The potential future value just in the deferred tax savings of $3,080 each year could be up to $215,000 in 30 years from the initial payment. A more impressive figure is that your $11,000 annual investment for 30 years at 5% will have grown to approximately $767,000.

For those in higher tax brackets, the future value with equivalent assumptions would potentially yield an even higher amount. Keep in mind that withdrawals from one's traditional IRA will be taxable, so typically those who expect to have a lower taxable income rate at retirement or prefer more growth during investing years should consider this strategy.

Jon Holcomb

Musings on brainstorming

I have faced many situations where we put our smartest people on the problem at hand. We discover all the reasons why this option or that can’t work.  Then we limit ourselves, as good business people always do, to the small 5% space left of options that might be feasible, affordable, politically acceptable, etc.  I get that.  I do that every day.  But, for some issues, when everything around me says "No", I have witnessed the brilliant light of unexpected discovery.  This either happens through accident, such as the discovery of penicillin, or by involving others who didn’t know it wasn’t possible and who weren’t burdened by the facts.  These are people who are able to look at 100% of the space since they don’t know they can’t.  I would encourage you to enlist those right brained (rad) thinkers instead of always calling on your left brained (logical) contemporaries.  The hope is that they throw enough mud at the wall that we find that unexpected discovery overlooked by those who know it can’t be done.  Sometimes it works incredibly well.  Sometimes it confirms we just can’t get there from here – yet.  Naïve?  Maybe.  But don’t tell that to the long list of successful entrepreneurs who have made fortunes by doing just that.  Try it.  You just might find that elusive solution. 

S. Scott Voynich, CPA, CGMA

Managing Partner

Minimizing the risk and damage of identity theft

This is a follow-up to my previous post about credit card fraud.  Hopefully you won't ever need to worry about this, but with recent incidents at Target, Home Depot, and others, this is important information to keep handy. 

Minimizing the risk and damage of identity theft:

• There are companies that specialize in preventing and minimizing the damage done by identity thieves, and help in repairing your identity and credit history.  Investigate these companies to find the one that works best for you before subscribing.

• Take advantage of text, e-mail or phone alerts that your bank offers to allow you the quickest notification of suspicious activity.  Remember how I began my story, "My bank alerted me of the activity before I noticed it myself."  Your bank may have similar safeguards that are available. Ask a customer service representative to help you take advantage of them.

                                                           

Things to remember related to the security of your wallet/purse:

• Make a copy of all of the cards or documents contained in the wallet -- front and back. This serves as a record of everything that the thief might have access to, and provides you with a copy of the account numbers and contact numbers (back of card) to reach the bank or other credit card issuer.  Most cards have a special number to call and report lost or stolen cards.  Go ahead and copy everything: driver's license, rewards cards, medical insurance cards, membership cards, etc..  The information will be helpful in securing replacement cards and in helping prevent unauthorized use.  Keep these copies in a SAFE place at home, and take them along with you when you travel -- making sure to keep them in a very secure place while traveling (obviously not in your wallet or purse).  If the copy of your information is to be stored on your smart phone, secure it with appropriate password protection.

• Never keep your Social Security card in your wallet.  Also, don't keep infrequently used cards or any particularly sensitive information in your wallet. The Social Security website has information about what to do if your Social Security card is lost or stolen.

• When traveling, take only what you need in terms of cash, cards, identification and documents -- and keep them on your person, securely.  A handbag or backpack could be simply left behind by mistake, but the effect is the same as if the items were stolen.  Have a travel companion keep a card from a different account that you could access in the event another card is lost or stolen.  Do the same for your companion.           

Some of these lessons have been learned the hard way: by personal experience, or by the experience of friends and family.  Others have been avoided after taking advantage of advice from experts and by implementing new technology.  The most important thing to remember is that you must be diligent to protect your financial resources, and you should be quick to report suspicious activity and take action when you believe your information may have been compromised.

David Payne, Accounting Manager

What to do if you experience credit card fraud

I have always considered my credit card a loyal travel companion-until recently.  I have always taken it along with me on trips, whether if only for a day trip or an extended vacation.  Imagine how I felt when my bank texted, and then called me, to tell me my card had taken a trip to France without me… France!!!  I was consoled by my bank representative who reminded me that the card had been taken against its will and would never have traveled without me voluntarily.

So what should you do if "don't leave home without it" leaves home without you?  Here are the top three tips:

1. Call your bank (or company issuing the card) immediately if you notice suspicious activity in your account. You can identify this activity by reviewing your monthly statement or by reviewing your account more frequently online.  Your bank can then close the account and reissue a card associated with a new account.

2. Contact one of the three credit reporting agencies to place a fraud alert-they will notify the other two agencies. Links are attached below for these three agencies: 

• Equifax
• Trans Union
• Experian

3. Contact the Federal Trade Commission (FTC) and report the fraudulent activity. A link is also attached to the FTC website.  This website also gives lots of information related to preventing identity theft and repairing your credit if you have been victimized.

David Payne, Accounting Manager

Communicating finances

Do you know what the number one cause of arguments is among spouses?  If you said children, dishes, or laundry, you would be incorrect.  Studies have shown that the number one cause of spousal arguments is money. 

Failure to communicate is most often the cause of money issues in relationships.  This sometimes originates before marriage, and sometimes after marriage.  Whether the lack of communication is intentional or not, spouses have more difficulty working together towards their financial goals if they are not both fully on the same page.  Talking about family finances on a regular basis is key to having a healthy financial relationship.  This usually isn’t a first-date topic, but should definitely be discussed before wedding bells ring, and continually after the echoes of the bells have faded away.  In 2012 the AICPA released some helpful tips on financial communication (AICPA press release).  It may not contain all of the answers, but it definitely holds a good starting point.

John Robert Voynich, CPA

Keeping an eye on your business

Does your secretary own multiple horse ranches?  Does your bookkeeper drive the latest Porsche to hit the market?  While these may be exaggerated situations (although a small town treasurer in Illinois did steal $53 million over the course of 20 years to fund her horse ranch hobby), it is a good idea for business owners to keep an eye on employees for out-of-the-ordinary indicators that could possibly involve fraud. 

Some examples of possible indicators are employees that are always in financial difficulty; strong resentment of superiors or constant job frustration; and employees living beyond their means, as far as you, the signer of paychecks understands.  These may be innocent situations.  The employee may just be in a rough patch in their life.  It is also possible that there may be family money, lottery winnings, or a spouse with a well-paying job that explains them living beyond the paycheck that you sign.  Overall it is good to have some level of trust of employees, but it is always a good idea to keep an eye out for indicators that something more disturbing may be going on.

John Robert Voynich, CPA

What is the difference between a Compilation, a Review and an Audit?

The financial statements and notes to the financial statements should look the same no matter what level of service is provided.  The only difference should be the CPA’s report that is attached to the financial statements.  The level of service is determined by your needs as the client, and what your creditors and/or investors require.  The higher the level of service required, the more time the CPA needs to complete the engagement and therefore the more costly the engagement.  The following is summarized from the full article on the AICPA's Web site.

Compilation

Compiled financial statements represent the most basic level of service CPAs provide with respect to financial statements.  In a compilation engagement, the accountant assists management in presenting financial information in the form of financial statements without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements.

 

Review

Reviewed financial statements provide the user with comfort that, based on the accountant’s review, the accountant is not aware of any material modifications that should be made to the financial statements for the statements to be in conformity with the applicable financial reporting framework.  A review engagement involves the CPA performing procedures (primarily analytical procedures and inquiries) that will provide a reasonable basis for obtaining limited assurance that there are no material modifications that should be made to the financial statements for them to be in conformity with the applicable financial reporting framework.

 

Audit

Audited financial statements provide the user with the auditor’s opinion that the financial statements are presented fairly, in all material respects, in conformity with the applicable financial reporting framework.  In an audit, the auditor is required by auditing standards generally accepted in the United States of America (GAAS) to obtain an understanding of the entity’s internal control and assess fraud risk.  The auditor also is required to corroborate the amounts and disclosures included in the financial statements by obtaining audit evidence through inquiry, physical inspection, observation, third-party confirmations, examination, analytical procedures and other procedures.  The auditor issues a report that states the audit was conducted in accordance with GAAS, the financial statements are the responsibility of management, provides an opinion that the financial statements present fairly in all material respects the financial position of the company and the results of operations are in conformity with the applicable financial reporting framework (or issues a qualified opinion if the financial statements are not in conformity with the applicable financial reporting framework.  The auditor may also issue a disclaimer of opinion or an adverse opinion if appropriate).

 

Brian B. Rutledge, CPA