Collaboration with your Arizona accounting firm should be a part of your process when making business decisions. You should feel your accounting firm listens and helps you make strategic moves to grow your company. Your firm should have insights into expanding your business and guidance for avoiding obstacles. Only an accounting firm with experience directing other growing companies can help your company.
Signs You Have Outgrown Your Accounting Firm
The following signs may mean you have outgrown your accounting firm:
+ You need more help in many business areas to be better positioned to grow.
+ You feel you can improve efficiency and security.
+ You have problems consolidating information.
+ You have difficulty accessing data from anywhere at any time.
+ You need help getting your systems to talk to each other.
+ You do not mind paying more for knowledge and guidance.
+ You need additional help beyond administrative tasks.
+ You are concerned your current firm is keeping you looking backward, instead of aiding in your company’s growth.
Your accounting firm should identify strategies for achieving your goals and invigorate your desire for success. Does your current firm mention spending the majority of their time managing the sheer volume of paperwork that flows in and out of its practice on a daily basis, such as payables, receivables, and employee payroll? Perhaps, you have heard your accountants refer to themselves as a crossing guard directing traffic, hoping everyone makes it across safe and sound. You see this scenario as a call for help, but what you need is a firm that automates management of running its business so it can spend more time serving your company. You want a partner that focuses on helping your company reach new levels.
What is Your Plan?
Consider the following features a new accounting firm may offer:
+ An integrated approach to working with your company so you can be more efficient.
+ Less reliance on paper billing to balance money coming in and going out.
+ Intuitive platforms that automate processes with payment scheduling.
+ A full line of services to deal with financial complexity.
+ Document management, smart archiving of records, and digitizing forms.
+ Greater security and faster retrieval of documents.
+ Applications that are user-friendly.
Are you ready to create an action plan for your company’s strategy? Contact us today to discuss your next steps.
Have You Outgrown Your Accounting Firm?
Retirement Planning | Agriculture | Farming
What are you going to do when you no longer are operating your agriculture business? One large factor in retirement planning is fear of retirement. Do you have interests outside of agriculture or farming? Can you visualize yourself retired? Do you have confidence that you can fund a retired lifestyle?
You may want to use a phased retirement approach. Maybe, you can transition from being a full-time farmer to ownership of the land; meaning releasing managing operations.
If you did not have any geographical, health, or financial limitations, what is your ideal retirement? Do you see it as a time of opportunity or uncertainty? Would there be roles you want to assume, such as providing leadership to groups once you are free of time constraints?
The default phased retirement may work for many operators, including bringing in family or nonfamily members to continue as a viable business.
Preparation and Financial Groundwork
Farming and agriculture families may be perceived as having a lower cost of living than nonfarm families. Your farm home may be mortgaged through a land note paid by the farm business. Meaning, rent or purchase of a new home needs to be built into the budget if you and your family plan to move off the farm in retirement. Home utilities may have been heavily mingled with farm utility expenses, making accurate estimates a challenge. Your health insurance may have been covered by the business. Medicare components and supplemental insurance needs to be budgeted.
Recognize that a simple monthly or annual ballpark estimate of costs of living allocated across a 25-to-30-year period is too simplistic, but worth figuring out.
Financial Planning and Monthly Cost of Living
A second step is to budget non-monthly costs, such as trips. Consider the variations of income production from different sources. Some streams, such as Social Security, have incentives to delay the beginning of income. Others, such as withdrawals from a 401(k), have penalties related to early withdrawal. There also are assets that can result in rental income, such as land, while others such as stocks have valuation risks that may be unwelcome in retirement. Estimating the impact of inflation on retirement living expenses and incomes is unpredictable, as life expectancies increase and impact of inflation remains a variable.
Seek Professional Guidance
Agriculture and farming is capital-intensive and, as land is leased or sold, financial returns may just turn out to be your primary source of retirement income. Meet with and take advice from financial professionals. There are factors such as depreciation recapture and capital gains taxes that can act to diminish the returns from the outright sale of assets.
Obtaining guidance is essential. Contact Mark R. Dreher, CPA or Michelle Flynn, CPA for advice about your situation.
ACA Affordability Threshold to Rise in 2019
The ACA requires that employers with 50 or more full-time-equivalent employees provide minimum essential coverage that is affordable or face a penalty for not complying. The affordability requirement is satisfied if an employee’s premium for self-only coverage does not exceed a specific percentage of their household income or a certain safe harbor amount.
Percentage Increase for 2019
Each year, the affordability percentage for health coverage is adjusted for inflation. For 2018, the rate is 9.56 percent of the employee’s household income, down from 9.69 percent in 2017.
On May 21, 2018, the IRS released Revenue Procedure 2018-34, which states that for plan years starting in 2019, the affordability percentage will increase to 9.86 percent, the highest amount since the ACA’s passage. This means that employees’ premiums for the lowest-cost self-only coverage cannot be more than 9.86 percent of their household income.
Three Safe Harbor Options
The affordability percentage threshold applies to employees’ household income. Since it is difficult for employers to know their employees’ household income, the ACA provides three safe harbor alternatives, which can be used instead of household income. You are only required to meet one of the three requirements.
1. The employee’s W-2 wages, as shown in Box 1 of the form. For plan years starting in 2019, coverage is affordable if the employee’s premium does not exceed 9.86 percent of the amount in Box 1 of the W-2. Although this method is relatively simple to apply, keep in mind that it uses current-year wages. Therefore, you will not know whether the affordability requirement for an employee has been met until the end of the year.
2. The employee’s rate of pay. Coverage is affordable if the employee’s premium does not exceed 9.86 percent of their monthly salary or wages. To determine the monthly rate of pay for an hourly worker, multiply the hourly pay rate by 130 hours.
For example, an employee makes $15 per hour at the start of 2019. Multiply $15 by 130, which equals $1,950. Then multiply $1,950 by 9.86 percent, which comes to $192.27. Coverage is affordable as long as the employee’s premium does not exceed $192.27. For salaried employees, affordability is based on monthly salary.
The rate-of-pay method cannot be used for employees who are paid solely by commission, nor can it be used for tip wages.
3. The federal poverty level. The employee’s premium for the lowest-cost self-only coverage cannot be more than 9.86 percent of the most recently published FPL for a single person.
Applicable large employers should take the affordability standard into account when designing their 2019 health care plans since pricing below the threshold could trigger penalties, as mandated by Section 4980H(b) of the ACA.
IRS Clarification on State and Local Taxes
The IRS eased its new limits on state programs that let taxpayers trade donations for tax credits, issuing a clarification that allows some business owners to bypass the new $10,000 cap on the state and local tax deduction.
In August 2018, the government sharply limited that option for individuals when it issued new rules that cracked down on attempts by New York, New Jersey, and Connecticut to help their residents bypass the $10,000 cap. Those states had passed laws that used tax credits to turn nondeductible tax payments into deductible charitable contributions.
The August rule from the IRS had shut down that tactic by requiring taxpayers to subtract the value of the state and local tax credits from the amount they deduct as a charitable contribution. It reduced most of the federal tax benefit from pre-existing programs in states such as Arizona, South Carolina, and Alabama that enable taxpayers to claim tax credits for donations to private-school scholarship programs and other groups.
School-choice groups in Arizona, South Carolina, and Alabama complained about the August rules, arguing that their pre-existing tax breaks should not be pinched as part of the limits on the newer programs.
Clarification to the rule shows those programs could still be attractive to business owners seeking lower taxes, providing a potential path for some tax-credit programs to survive or expand. To qualify, instead of claiming deductions for charitable contributions that would have to be reduced by the size of the tax credit, businesses could claim the contributions as ordinary, deductible business expenses.
The change matters little to corporations, which do not face the $10,000 cap on state and local tax deductions. However, owners of partnerships and other businesses whose owners pay their business income taxes through their individual returns are subject to the $10,000 cap. By using the state tax-credit programs and the clarification, they could essentially turn nondeductible state taxes into deductible business expenses.
Treasury Secretary Steven Mnuchin stated, “The IRS clarification makes clear that the longstanding rule allowing businesses to deduct payments to charities as business expenses remains unchanged under the Tax Cuts and Jobs Act. The recent proposed rule concerning the cap on state and local tax deductions has no impact on federal tax benefits for business-related donations to school choice programs.”
For the deduction, a business would have to claim that its payments are directly related to the business and they are ordinary and necessary business expenses.
According to David Gamage, an Indiana University law professor, the limit would prevent most business owners from taking advantage of these programs. His guess is that a non-trivial number of taxpayers will be able to manufacture such reasons that are at least borderline plausible, and the IRS will have trouble policing. He stated, “But for states that want to redesign their programs, it should not be too difficult to design programs that large numbers of business-entity taxpayers should be able to qualify for.”
Before making any changes or assuming you can get a break, be sure to contact us for the latest guidance.
GoFundMe | IRS Rules
GoFundMe is an online platform that anyone can create to raise money for a family member’s cancer treatments, college tuition, new church building, or other cause. Anyone who makes a donation can obtain an official-looking receipt for tax purposes. Are these donations eligible for a charitable deduction? The short answer is no.
The government has very strict standards for organizations that can accept tax-deductible donations, known as 501(c)(3) organizations, from the section of the Internal Revenue Code that governs them. Setting one up and following the rules is a complicated process. Chances are someone raising money to finish their Master of Fine Arts in weaving has not gone through the process.
This does not mean causes on GoFundMe are not legitimate, although you should check the legitimacy of any online charitable requests. For example, it is legal to send $100 to help an amateur athlete attend the National Curling Championships. You can only deduct the $100 if the athlete created a 501(c)(3) organization for that purpose.
Of course, some legitimate 501(c)(3) organizations may be using GoFundMe as a fundraising outlet. In that case, your donations through the platform will be deductible. It is your responsibility to confirm the legitimacy of the organization.
If you are unsure about the status of any entity, ask for proof that it is a 501(c)(3) organization. You should also look up the organization on GuideStar. Keep in mind that not every nonprofit organization is a 501(c)(3) entity and allowed to accept deductible donations.
What if you have set up a GoFundMe account to raise money for a cause and are not an official nonprofit organization? Are you responsible for income tax on what you received? It is possible all donations you received are simply gifts and tax-free income. However, this is not always the case and it can get complicated. Be sure to consult a tax professional for further details.
Surviving a Tax Audit
A tax audit is the fear of every taxpayer and subject of comedians, TV shows, and social media posts. If you are well-prepared, you can make it go smoothly and increase the odds of a good outcome.
The IRS will assure you that you have been randomly selected for closer examination. You may feel totally unhinged, like you are entering Dante’s Inferno. For one New York man, an audit was the beginning of a five-month-long drama. He methodically gathered all his receipts and filled a box with documents to corroborate his business deductions as a self-employed writer. He heard stories from people who shared his predicament, such as one woman who was summoned to the IRS offices five times. Looking back, he is surprised that he was so smug about his preparations, even waving off his tax accountant with an offer to accompany him. He could handle it. Big mistake.
Losing sleep for two days before his initial meeting with IRS examiners, he was exhausted when he arrived at the IRS office. After passing through tight ground-floor security, he ascended a long escalator leading to another security desk as he towed documents in a cart behind him. He was greeted by an examiner with a shaved head — the bad cop, he decided. He rarely smiled. In a conference room, a second examiner, shorter and friendlier with shoulder-length hair — the good cop — took notes. Two examiners? He wondered, am I this important or in a lot of trouble.
It took three hours to learn his home-office deduction was in question. This time, he listened to his tax accountant, requested a second interview, and made sure his accountant was present. He had claimed 47.3 percent of his apartment for work. The examiner asked for proof of rent, actual floor plan, and square footage. A third meeting was scheduled.
At the third session, an IRS supervisor accompanied the bad-cop auditor. They went back and forth over business use of his apartment. A compromise was reached at 33 percent and the home office deduction was saved, to the great relief of the freelance writer.
What You Should Do When Audited
1 – Gather your documents. Start going through your records to find relevant receipts and documents. If you cannot find a document, request a duplicate. Auditors will not accept the excuse records are missing or lost. What documentation should you bring? Receipts, mortgage statements, brokerage account statements, and pay stubs or W-2 forms. You may bring record books to substantiate certain claims on your tax return. This is important if you are unable to document the items in question to the IRS’s satisfaction, things get a little more complicated. The IRS will propose changes to your tax return.
2 – Contact your accountant, who can explain the audit process and help you prepare. In addition to your accountant, you may need a professional tax lawyer as well.
3 – You can challenge the agent’s assessment and set up a conference with an IRS manager to further review your case, or you can request a formal appeals conference. Keep in mind that interest will accrue on any unpaid tax from the date you filed your return, including the duration of the audit process. Typically, it is not worth appealing unless you are relatively certain you will win.
As long as everything you claim on your tax return is factual, an audit should be no more than a minor inconvenience. If you are an honest taxpayer who knows what to do in the unlikely event of an audit, you should sleep soundly.
After the Audit
What happens after the audit? You will be notified of the findings. The auditor will explain any adjustment to you and/or your representative before finalizing the audit. Promptly contact the auditors if you have information that has not been considered, or if you believe a mistake has been made. They will discuss future filing responsibilities and answer any questions you have concerning the audit.
Business News | Preparing for New Accounting Challenges
What accounting issue does every business leader need to be aware of heading into 2019? In addition to the Tax Cuts and Jobs Act of 2017, new changes in lease accounting, due in January 2019, will affect every public and private company in Arizona. Most business leaders are not ready for these accounting game-changers and should consult their accountant for details. See more from Randy G. Brammer, CPA, CCIFP, Audit Partner, and Michelle L. Flynn, CPA, Tax Partner, as featured in Az Business.
Business News | Preparing for New Accounting Challenges
What accounting issue does every business leader need to be aware of heading into 2019? A big change in lease accounting, due in January 2019, will affect every public and private Arizona company. Most Arizona business leaders are not ready for these accounting game-changers and should contact their accountant for advice. Read more from Randy G. Brammer, CPA, CCIFP, Audit Partner, and Michelle L. Flynn, CPA, Tax Partner, as featured in Az Business.
House in a Trust | Pros | Cons
You may have heard of a living trust that is created while you are still alive. It can be set up as a revocable trust, permitting you to change the terms of the trust or dissolve it entirely should circumstances change.
Such a trust can take the title to your home and transfer the control of the property to a trustee. When you die, the trust becomes an irrevocable trust, prohibiting future changes to the terms.
Two Advantages to Placing Your Home in a Trust
Avoiding probate – Most living trusts are structured to avoid probate and its costs. Some states have streamlined the probate process, but it still requires costs, time, and attendance at multiple hearings. If you wish to avoid probate and transfer the title to your home to your heirs, thereby avoiding probate, a trust is a strong advantage. Should you choose to transfer other properties, some of which are out of state, you can avoid probate in other jurisdictions too.
Future Incapacity Protection – Should you become ill and unable to properly manage your own finances, another trustee can be selected to manage your trust to protect your home. Living revocable trusts give you this benefit. If you have a co-trustee who is your spouse, this further simplifies and protects your home. Your spouse can remain as trustee, managing your home and other assets you have transferred to the trust.
Contrary to popular belief, trusts like these generally do not protect against the estate tax, but since there is such a high floor, relatively few estates are subject to the federal estate tax.
Regardless of your situation, such a trust should not be entered into lightly. You should know these key factors before signing on the dotted line:
(1) The complexity of designing a trust as compared with a simplified will can accelerate the costs to use this method of protection. Should you wish to shelter more than just your home, you will need to be diligent and transfer other assets to the trust as you acquire them and remove those you no longer own. All this attention can add legal costs to maintaining the trust. This does not mean you should not do it, but you should be aware of the costs.
(2) Other assets may be subject to probate, meaning even modest bank or investment accounts must go through the probate process. Then, after you die, your estate may face more expenses—the trust must file tax returns and value assets, which potentially may negate the cost savings of avoiding probate.
(3) Do not count on a revocable living trust to automatically protect your home from creditors. There are other ways of protecting your house from creditors that should be discussed with a financial professional.
(4) A little-known major living trust benefit comes into play if the trustor becomes incompetent. Then, the alternate trustee takes over management of trust assets without court costs and delays of appointing a conservator.
(5) A trust is usually easy to change. Trust terms can be changed or revoked, until the trustor dies, when they become irrevocable. This prevents a surviving spouse from disinheriting a beneficiary named in the living trust, maybe a child from the deceased spouse’s first marriage.
Trusts are excellent tools for your home and other purposes. For guidance, contact Steve Buel, Chris Coots, or Jerry Miles to discuss whether putting a home in a trust is the right decision for you.
Future of Bitcoin?
The digital currency, bitcoin, has frequently been in the news. What is this controversial financial product and how does it work? Is it something you should invest in?
Bitcoin – A Cryptocurrency
Bitcoin is a decentralized digital currency known as a cryptocurrency. Essentially, it is a form of money that exists only as computer code and is not overseen by any central bank. Created in 2009, it is maturing as a recognized asset class on Wall Street. Already, bitcoin futures trade on major markets — allowing investors to bet on bitcoin’s price without holding the coin itself. Although it is not the only cryptocurrency, it has become the most famous.
New Highs and Volatility
This virtual currency surged to new highs as a frenzy of investors wanted to get in on the action. In fact, the price of all cryptocurrencies soared and then crashed back down. Prices of bitcoin approached $20,000 by the end of 2017 and then plunged to below $11,000. Some considered it a correction. The plummet took some of the shine off what had been an incredible year for bitcoin. In December, two major U.S. financial exchanges launched trading in bitcoin futures, giving it more clout. The question today: Is this only the beginning of cryptocurrency madness?
Another major consideration is extreme volatility, with scammers capitalizing on the booms and preying on victims of the busts. The hustles are diverse, including many different types of phishing, spamming and the notorious development of bogus initial coin offerings. It appears that social media impersonation has a role in many of the scams, where so much discussion, speculation and misinformation about cryptocurrency take place.
It is not surprising that the reliability of digital currency is questioned because no government or central bank is regulating the market. In fact, many doubters still cannot believe things have come this far. There are cryptocurrency exchanges. Coinbase is probably the best known, although there are others. At least one was shut down due to accusations about money laundering.
Slow and Expensive
Still, bitcoin is a difficult currency to use in the real world: The network is slow and too expensive for small transactions. The mined block is broadcast to the network to receive confirmations, which can take over an hour or longer, to process. Depending on the kind of traffic the network is receiving, bitcoin’s protocol will require a longer or shorter string.
Bitcoin can be exchanged for other currencies, products, or services. By 2015, there were already more than 100,000 merchants and vendors who accepted bitcoin as payment. International payments are easy and cheap because bitcoin is not tied to any country or subject to regulations. Also, there are no credit card fees for small businesses to pay.
Currency of Choice for Illicit Activities
In 2017, research produced by Cambridge University had estimated that there were 2.9 to 5.8 million people using a cryptocurrency wallet, most of them using bitcoin. Wallets exist in the cloud or on a user’s computer. They are not insured by the FDIC, and the names of buyers and sellers are never revealed; only their wallet IDs are made public. Unfortunately, this has made it the currency of choice for buying drugs or taking part in other illicit activities because buying and selling is not easily traceable to those responsible.
IRS Considers Bitcoin a Real Thing
Although secrecy surrounds these currencies, the IRS considers bitcoin a real thing and it is taxable. If you buy bitcoin and sell it at a profit, it is a capital gain, pure and simple. The bottom line? Be very careful regarding the largely unregulated world of digital currencies. Keep in mind that even though you will hear that these currencies are beyond government control, the IRS still wants its cut.
