Author Archives: jemvaughn


Play or Pay, Affordable Health Care

Is your business ready for play-or-pay?
If you’re a “large” employer, time is running out to prepare for the Affordable Care Act’s (ACA’s) shared responsibility provision, commonly referred to as “play-or-pay.” It’s scheduled to go into effect in 2015.Under transitional relief the IRS issued earlier this year, for 2015, large employers generally include those with at least 100 full-time employees or the equivalent, as defined by the ACA. However, the threshold is scheduled to drop to 50 beginning in 2016, and that threshold will apply beginning in 2015 for the ACA’s information-reporting provision.The play-or-pay provision imposes a penalty on large employers if just one full-time employee receives a premium tax credit. The credit is available to employees who enroll in a qualified health plan through a government-run Health Insurance Marketplace and meet certain income requirements — but only if:

  • They don’t have access to “minimum essential coverage” from their employer, or
  • The employer coverage offered is “unaffordable” or doesn’t provide “minimum value.”

The IRS has issued detailed guidance on what these terms mean and how employers can determine whether they’re a large employer and, if so, whether they’re offering sufficient coverage to avoid the risk of penalties.

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What about taxes when I sell my home?

If you’ve put your home on the market, you need to know the tax consequences of a sale
Summer is a common time to put a home on the market. If you’re among those who are following this trend, it’s important to be aware of the tax consequences.If you’re selling your principal residence, you can exclude up to $250,000 ($500,000 for joint filers) of gain — as long as you meet certain tests. Gain that qualifies for exclusion also is excluded from the Affordable Care Act’s 3.8% net investment income tax.

A loss on the sale of your principal residence generally isn’t deductible. But if part of your home is rented out or used exclusively for your business, the loss attributable to that portion may be deductible.

If you’re selling a second home, be aware that it won’t be eligible for the gain exclusion. But if it qualifies as a rental property, it can be considered a business asset, and you may be able to defer tax on any gains through an installment sale or a Section 1031 exchange. Or you may be able to deduct a loss.

If you have a home on the market, please contact us to learn more about the potential tax consequences of a sale.

© 2014

+1 866 240 8477             pdiglobal.com   |   bizactions.com

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Why you need to know the value of your assets

 

With the gift and estate tax exemptions currently at $5.34 million, you might think that estate valuations are less important. But even if you believe that your estate’s value is under the exemption amount, it’s still important to know the value of your assets.First, your estate might be worth more than you think. For example, if you own an insurance policy on your life, the death benefit will be included in your estate, which may be enough to trigger estate tax liability.Second, obtaining a qualified appraisal can limit the IRS’s ability to revalue your assets. If you make gifts that exceed the $14,000 annual gift tax exclusion, you’ll need to file a gift tax return, even if the gift is within your lifetime exemption. Generally, the IRS has three years to audit gift tax returns and challenge reported values for gifted assets. But that period doesn’t begin until the gift has been “adequately disclosed.”For assets that are difficult to value — such as closely held business interests or real estate — the best way to satisfy the adequate-disclosure requirements and avoid an IRS challenge is to include a qualified professional appraisal with your return.

Please contact us for more information on properly valuing your assets. We can help you comply with IRS requirements and keep taxes to a minimum.

© 2014

+1 866 240 8477             pdiglobal.com   |   bizactions.com

 

 

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Have you misclassified employees as independent contractors?

Have you misclassified employees as independent contractors?

An employer enjoys several advantages when it classifies a worker as an independent contractor rather than as an employee. For example, it isn’t required to pay payroll taxes, withhold taxes, pay benefits or comply with most wage and hour laws. However, there’s a potential downside: If the IRS determines that you’ve improperly classified employees as independent contractors, you can be subject to significant back taxes, interest and penalties.

To determine whether a worker is an employee or an independent contractor, the IRS considers three categories of factors related to the degree of control and independence:

1. Behavioral. Does the employer control, or have the right to control, what the worker does and how the worker does his or her job?

2. Financial. Does the employer control the business aspects of the worker’s job? Does the employer reimburse the worker’s expenses or provide the tools or supplies to do the job?

3. Type of relationship. Will the relationship continue after the work is finished? Is the work a key aspect of the employer’s business?

Determining the proper classification under these factors may not be easy. If you’re concerned you may have misclassified workers, please contact us.

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What to do with your old retirement plan when you change jobs

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 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 a 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.

 

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.

 

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Cost Segregation Studies

A great way to save some money on taxes if you own property. It basically moves the depreciation forward so you get the benefit now rather than later. Call us about it.

Jim Vaughn

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Summer Camp — Might save you taxes

The passing of Memorial Day marks the beginning of summer in the minds of many Americans. Although the kids might still be in school for another week or two, summer day camp is rapidly approaching for many families. Summer Camp — might save you taxes, what a great double benefit.  If yours is among them, did you know that sending your child to day camp might make you eligible for a tax break?

Day camp is a qualified expense under the child and dependent care credit, which is worth 20% of qualifying expenses (more if your adjusted gross income is less than $43,000), subject to a cap. For 2014, the maximum expenses allowed for the credit are $3,000 for one qualifying child and $6,000 for two or more.

Be aware, however, that overnight camp costs don’t qualify for the credit.

Additional rules apply, so please contact us to determine whether you’re eligible.

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HEARTBLEED BUG

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The “Heartbleed” bug has sent businesses and individuals into attack mode in order to prevent passwords from being disclosed, personal information from being compromised — and ultimately, assets from being stolen.

The IRS issued the following statement about Heartbleed:

“The IRS continues to accept tax returns as normal. Our systems continue operating and are not affected by this bug, and we are not aware of any security vulnerabilities related to this situation. We continue to monitor the situation and remain in contact with our software partners.”

The problem, which was disclosed last week, involves encryption software called Open SSL, which is extensively used by thousands of websites. The Heartbleed bug can cause sensitive information stored on servers to be disclosed, including passwords, usernames, personal information and credit/debit card numbers.

The vulnerability “can potentially impact Internet communications and transmissions that were otherwise intended to be encrypted,” according to an alert issued by the U.S. Department of Homeland Security (DHS).

The nature of the bug is complex and it is not yet clear exactly how long it has been a security flaw.

Many websites quickly applied patches to fix the vulnerabilities. CNet, an Internet consumer technology site, compiled a list of the 100 most popular websites and checked whether the Heartbleed bug was patched. According to the site, Google, Facebook, YouTube, Yahoo!, Reddit, Yelp, Dropbox and others have fixed the vulnerability.

However, as with any hacking threat, you should take the Heartbleed bug seriously and consider following these steps:

1. Change your passwords. This is a good idea to do periodically, but in the wake of Heartbleed, you should do it ASAP. The DHS says that you should only change passwords after the vulnerability has been fully addressed at individual websites. Use strong passwords with letters (including capitals), numbers and symbols. Keep passwords long, 10 or 12 characters if possible. To keep track of your various passwords, use a password manager.

2. If you have the option to do “two-factor authentication,” take it. This security feature is just as it sounds — to access accounts, you have to type in two factors. For example, it might require a password and then a code sent to your smartphone. It’s not available everywhere yet but it can add protection to help keep your data safe.

3. Clear your Internet browser cache, history and cookies. Again, this is a good idea to do on a regular basis. Exactly how to do this depends on the browser you use but here are some instructions for a couple of popular browsers:

  • For current versions of Internet Explorer. Go to Tools (an icon with gears). Choose “Safety” and then “Delete Browsing History.” There you can check “Temporary Internet files, Cookies, History,” etc.
  • For current versions of Firefox. Click the Firefox button at the top of the window. Select “History,” then select “Clear Recent History.” This opens up a pop-up box that asks for a time range to clear. Select “Everything” and check “Browsing and Download History, Cookies and Cache.” Then, click “Clear Now.”

4. Beware of e-mail messages promising instant solutions. Unfortunately, when crisis strikes, many unscrupulous people try to take advantage of others. In the coming days, you may receive e-mails that ask you to click on links to rid your computer of Heartbleed. Don’t fall for it.

5. Check your credit card and bank accounts and statements thoroughly. If you see suspicious or false charges, contact the issuer or institution immediately to limit your liability.

6. Closely monitor your e-mail accounts, social media accounts and other online assets for irregular or suspicious activity, such as abnormal purchases or messages.

7. Ask businesses that have your data if they are vulnerable and what they have done to patch the bug.

8. Check for the “s.” After a website you are visiting has addressed the vulnerability, the DHS states you should “ensure that if it requires personal information such as login credentials or credit card information, it is secure with the HTTPS identifier in the address bar. Look out for the “s,” as it means secure.

These are general Internet security tips. There is no way to guarantee that you will not be affected by Heartbleed or other attacks but you can make yourself less vulnerable by taking certain steps.

 

© Copyright 2014. All rights reserved.
Brought to you by: Vaughn CPA, LLC

 

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INTEREST RATES

On the heels of the financial crisis, banks tightened their lending policies and many companies couldn’t qualify for inexpensive fixed-rate loans. Instead, they took on variable-rate loans. Interest payments that fluctuate based on the U.S. prime rate or London InterBank Offering Rate (LIBOR) index are a viable option, as long as rates continue to hover near historic lows. But if market indices rise, borrowers with substantial variable-rate loans could be in for a rude awakening.

Ready to Make a Deal?

Many Baby Boomers are planning to sell their businesses over the next few years. If you’re contemplating a sale, rising interest rates could affect the price you’ll fetch in the marketplace. As long as debt is cheap, buyers can afford to pay higher prices. But if the cost of debt suddenly increases, it could reduce your probable selling price — all else being equal.

While interest rates are at historic lows, it might be a good time to put your business on the market. Conversely, it also could be a good time to shop around for businesses to invest in. If you’re looking to expand, you might be able to afford to buy more while rates are low.

However, the cost of debt is just one factor that affects a business’s value. Consult with your financial adviser to determine how rates might affect a firm’s market value and the optimal time to buy or sell.

Putting ‘Low’ Into Perspective

Just how low are today’s rates compared to historic levels? To put current interest rates into perspective, consider the U.S. prime rate, which is the basis for many companies’ variable-rate loans. It’s been set at 3.25 percent since 2008 — its lowest level since the mid-1950s.

By comparison, its 50-year high was 21.5 percent in 1980. The median prime rate from 1947 to present is 8.75 percent. And the most common prime rate (or mode) is 7.5 percent over the same period. If the prime rate jumps to 7.5 percent over the next few years, many companies will be unprepared to absorb the incremental interest expense.

How Long Can Low Rates Last?

A key determinant of prime and other variable-rate indices is the federal funds rate, which is the rate banks charge each other for overnight loans. In January, the Federal Open Market Committee (FOMC) voted to keep the federal funds rate near zero percent until unemployment falls below 6.5 percent. That unemployment level isn’t expected to occur until 2015.

Don’t let low rates lull you into complacency, however. Long-term commercial loan rates are influenced by more than the federal funds rate. And a spike in inflation or a faster-than-expected economic rebound could cause the Fed to tighten its monetary policy sooner rather than later. So, borrowers may need to have a backup plan in case interest rates start to climb.

Do You Need a Back-Up Plan?

If the following conditions apply, you might benefit from converting some of your variable-rate debt into fixed-rate debt:

  • Your balance sheet includes long-term debt;
  • Interest on your loans fluctuates according to changes in an index rate, such as LIBOR or the prime rate;
  • Interest expense is a significant line item on your income statement; and
  • You lack sufficient assets and cash flow to repay variable loans over the next 12 to 24 months.

Refinancing with a conventional fixed-rate loan is the most obvious way to lock in your rates. But what if you only want to lock in a portion of your variable-rate debt or prefer a different amortization period? In that case, a simpler, more flexible option might be an interest rate swap.

How Swaps Work

Swaps are derivative contracts that operate similar to insurance policies against rising interest rates. Essentially, a borrower can hedge its bets by placing a swap contract on top of a variable rate loan, effectively locking in a fixed rate. If index rates increase more than the bank expects them to, the swap agreement generally pays off for the borrower.

As an added bonus, the Financial Accounting Standards Board (FASB) recently made it easier for non public companies to report simple interest rate swaps. Now small and mid-sized businesses can opt to use settlement value rather than fair value when updating the value of the swap each period, under Accounting Standards Update 2014-13, Derivatives and Hedging (Topic 815): Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps — Simplified Accounting Approach.

This update reduces compliance costs and income statement volatility, especially for companies with large swaps subject to lengthy durations. Private firms — except for not-for-profits, financial institutions and employee benefit plans — can elect to apply the simplified hedge accounting method on a swap-by-swap basis to new or existing swaps that qualify.

Finding the Optimal Strategy

Today’s interest rates are low by historic standards, but they won’t last forever. Many borrowers may find it prudent to convert variable-rate payments into fixed-rate payments, using traditional fixed-rate loans, swaps or a combination of the two. Many variables factor into the decision, including your company’s sensitivity to interest rate volatility, the cost of swaps and expected future cash flows. A financial professional can help you develop an effective strategy to minimize your long-term debt costs.

 

© Copyright 2014. All rights reserved. Brought to you by: Vaughn CPA, LLC

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Don’t inadvertently miss filing deadlines

If you still file a paper return, it’s important to know the IRS’s “timely mailed = timely filed” rule: If your tax return is due April 15, it’s considered timely filed if it’s postmarked by midnight on April 15. But just because you drop your return in a mailbox on the 15th doesn’t mean you’re safe.
Consider this example: On April 15, Susan mails her federal tax return with a payment. The post office loses the envelope and, by the time Susan realizes what has happened and refiles, two months have gone by. She’s hit with failure-to-file and failure-to-pay penalties totaling $1,000.
To avoid this risk, use certified or registered mail. Alternatively, you can use one of the private delivery services designated by the IRS to comply with the timely filing rule, such as DHL Same Day service. FedEx and UPS also offer a variety of options that pass muster with the IRS. But beware: If you use an unauthorized delivery service — such as FedEx Express Saver® or UPS Ground — your document isn’t “filed” until the IRS receives it.
If you haven’t filed your return yet and are concerned about meeting the deadline, another option is to file for an extension. Doing so has both pluses and minuses, depending on your situation. Please contact us if you have questions about what you should do to avoid penalties for failing to file or pay.
© 2014

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