Garage Sale Taxes

garage-sale-signThe chilly spring days are in the rear view mirror and summer weather is rolling in. That can only mean one thing, garage sale season is finally here. After a festive holiday season of receiving shiny new toys and a long winter of piling up old, outdated and unwanted things, it’s time to clear out your house and turn your junk into another’s treasure.

Hosting a garage sale seems like it should be easy. Step 1: Put your junk in the garage; Step 2: Put out a sign; Step 3: Watch your junk disappear and get paid for it! Is it really this easy, or are there some steps missing?

Are there tax consequences to hosting a garage sale?

Per the IRS website, if you have infrequent garage sales you generally do not have to report the sales on your income tax return. This is because you are reselling items you purchased to use personally rather than purchasing with the intent to resell the items for a profit. For items that are sold for less than you originally paid for them, the sales are not reportable, but the losses are not deductible either. However, if you are lucky enough to sell an item for more than you paid for it, you will generally be required to report this gain as taxable income. Some examples of items that commonly increase in value are art, antiques, and collectibles.

Another tax to be aware of is sales tax. Sales tax regulations for garage sales can vary from state to state, so you should check with the state you live in to confirm its regulations. In Ohio and Michigan, garage sales are referred to as “casual sales” and are typically not subject to sales tax. Per the Ohio Department of Taxation, “casual sales are not taxable transactions, as sales tax was paid on these items the first time they were purchased.”

However, items sold at a garage sale may occasionally be subject to sales tax. This typically occurs if an item is purchased very inexpensively, with the intention of reselling the item at your own sale with a significant price markup. Since the item was not originally purchased for personal use, it is considered a retail sale rather than a casual sale. Thus, sales tax should be charged on the transaction. To remit the sales tax, you will need to register with the state and file a sales tax return.

There are a few other items to keep in mind when you decide to have a garage sale. This includes checking with the local ordinances for where you live to see if a permit is required to have a garage sale, or if there are other regulations you are required to follow. If permits are required, they are typically very inexpensive to acquire. Additionally, the Consumer Product Safety Improvement Act of 2008 has made it illegal to sell children’s items that have been recalled or are considered dangerous. If this law is violated, you could be subject to fines of up to $100,000 per violation up to a maximum of $15 million. These large fines are intended to defer large corporations, but even individuals running a garage sale are subject to the same rules. You can check the Consumer Production Safety Commission website for information regarding products that cannot be sold.

So garage sales are fairly easy to set up and are a good way to rid your house of some clutter, but there is some planning required beforehand to ensure that your garage sale is in compliance with all laws and regulations. The good news is that you will typically not have to worry about tax consequences and will be able to keep all that extra cash for some summer fun in the sun.

By: Mark Sawyer, CPA

Small Businesses & Cash Flow Management

The entrepreneurial spirit that compels people to start their own business does not necessarily translate into them being good business managers and this can lead to a stumbling block for many small business owners.

One of the most troubling aspects of running a small business can be learning how to manage cash flow. Understanding the basics of cash flow can help owners plan for large and small upcoming events in their business.

Cash is what you have at any given time to meet your daily expenses. The cash that you spend to buy inventory or business equipment is cash that is an asset on your balance sheet, but that cannot be easily converted to pay monthly expenses. Profit on an income statement does not equate to cash in the bank if you have accounts receivables waiting to be paid. You cannot spend profit. A profit on the income statement does not always indicate financial health unless the company also has a positive cash flow that correlate to those profits.

Finance_MoneyFaucetMany business owners use a cash flow statement to help them understand the movement of cash in their business. A cash flow statement will tell them the sources and uses of their cash. A typical statement has three areas:

Operating Cash Flow – The cash generated from the day-to-day operations of the business including the sales of products, the collection of accounts receivable, and the payments of vendors.

Investing Cash Flow –  The cash that is used to purchase equipment.

Financing cash flow – The cash from outside normal business operations, money from lenders or shareholders. A new loan or the repayment of a loan creates the cash inflow or outflow.

Good cash flow management requires the business owner to be forward thinking – when and how will cash be needed. How will I acquire the cash needed? Through better accounts receivable collection or from a bank in the form of a loan?

Adapting to cash flow management could mean the difference the success or failure of a business.William Vaughan Company has the skills and expertise to help our clients with all aspects of their business management. Contact us today to find out more about how cash flow management can help your business.

By: Christine Schultz, Accountant

Audit Confirmations

If your company is audited by an independent CPA and you are involved in the audit process, you are likely familiar with audit confirmations. When confirmation procedures are performed, you might think to yourself, “why does my auditor have to confirm this information with a third party, don’t they trust me?” A lack of trust is not the case at all. An audit confirmation is a common test that is performed in the completion of most audits.

According to AU Section 330 from the Public Company Accounting Oversight Board, a confirmation “is the process of obtaining a direct communication from a third party in response to a request for information about a particular item affecting financial statement assertions.” It is important to note in this definition that the communication should be directly between the auditor and the third party, excluding the auditee. This ensures that the auditor receives the information as it was originally provided by the responding third party and that the information was not tampered with.

The responding third party could be a variety of people, including but not limited to a bank, a vendor or a customer, depending on the type of confirmation being completed. The most common types of confirmations are for cash accounts, debt, accounts receivable and accounts payable, though confirmations can be customized to confirm almost any financial statement assertion that is made.

shutterstock_87621601Historically, confirmations have always been sent in the mail between auditors and third parties, but in 2007 auditing standards allowed the use of electronic confirmations. The predominate electronic confirmation service provider is Confirmation.com. Confirmation.com is used by a majority of the national and regional banks in the United States, including Huntington, PNC, Fifth Third, Key Bank and Wells Fargo, to name a few. There are several benefits to using electronic confirmations over paper confirmations. The main benefits are that electronic confirmations have higher response rates, have quicker turnaround times and are easier for the bank to complete.

When a confirmation is received by the auditor and it matches the information provided by the auditee, it provides the auditor a level of comfort that the information is correct. This level of comfort is required for the auditor to ultimately sign the report on the financial statements. If there are differences on the returned confirmation, the auditor will follow up with the auditee, and likely the third party, to reconcile the differences. If a confirmation is not returned from the third party, the auditor will have to perform alternative procedures to come to this same level of comfort. These alternative procedures will likely take significantly longer than the process of sending and receiving confirmations.

So when your auditor sends confirmations to third parties, it is not because they don’t trust you, it is just the most efficient audit procedure to test the information provided following the auditing standards generally accepted in the United States of America.

By: Mark Swayer, CPA

Choosing the Right Outsourced Accounting Partner

Selecting the right outsourced accounting firm can be a daunting task. Not all providers are created equal and the myriad of options can be overwhelming. A wrong decision can ultimately impact the overall financial well-being of business or organization. Here are few guidelines to consider when selecting the perfect outsourcing partner.

Quality of Service
Quality comes at a price. Take the time to find an experienced provider that is accurate and reliable. A reputable provider will offer personalization and a commitment to meeting the unique needs of each business or organization.

Communication
Communication is the key to a successful outsourcing transition. Many hours will be spent interfacing with the provider team and it will become one of the most important business relationships. Make sure to meet with the team to establish clear and open lines of communication. Having a trusted relationship with the provider and knowing they care about the organization to make recommendations is priceless.

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Domain Expertise
Advanced knowledge of accounting should be a requirement. A provider that does not have a background in the industry may lack the ability to fully recognize the issues surrounding the organization and ultimately leave the organization seeking additional guidance. Asking for references is recommended. Hearing from current clients will provide additional insight into the process and the result of engagement.

Leading Technology
The technology implemented should be the most up-to-date, secure and ensure a paperless experience. Seamless tracking, billing and invoicing and access to real-time data is essential. Choosing a provider that not only leverages advanced software, but also provides functionality from a tablet, smartphone or other internet-based electronics.

Finding the right outsourced accounting partner is essential. It is, after all, a partnership, one that will be long-term and will require fluid communication in order to be successful. To find out more about WVC RubixCloud and how we provide high-level, accurate and efficient outsourced accounting, visit our “What We Do” page. Take control of your accounting and contact us to discover how we are the right outsourced partner for your organization.

The Evolution of Costing Accounting and What Does It Mean For The Future?

One of the topics frequently brought up in my conversations with cost managers is the delayed conversion by today’s manufacturers to alternative costing methods. There seems to be a general lack of willingness for today’s businesses to consider changing their methods of costing to something that is perhaps more suitable to their needs.

I am constantly amazed by the number of very successful and technically advanced businesses which continue to employ costing models that were developed 40 or 50 years ago.

The IMA has completed formal research regarding common costing systems utilize in contemporary manufacturing companies. It is my recollection that close to 80% still use standard costing for their method of product costing, as well as valuing inventories. Based on my personal experience, I believe the percentage to be much greater as I rarely hear of organizations that are not using standard costing. Many businesses have attempted other methods, more specifically those that have converted to activity-based costing 10 or 20 years ago. However, almost all of them abandoned the system due to the complexities in maintaining ABC. I have heard of other companies that have actually developed two systems: one system to determine product cost for profitability and the another simply for the purpose of valuation of inventory.

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I believe in the second case that is overkill. I understand the desire for accurate and timely cost information but the expense and necessities of maintenance that go along with maintaining two systems is certainly onerous and probably not necessary if the one system is designed with enough versatility.

The real question is why are companies continuing with standard costing when there are other methods available? I believe the answer lies in several common themes. The first is that business managers must have, at least, a rudimentary understanding of their cost system to be able to utilize it effectively. Many of today’s managers started their careers with standard costing systems and, as a result, have become comfortable. To suggest a new approach is not well received.

Secondly, I believe standard cost is viewed as being a relatively simple system which is easier to implement and sustain. Therefore, it is labeled worthwhile for those purposes alone.

Thirdly, product costing and overall costing techniques have been de-emphasized over the last 20 years for reasons I do not fully understand. I imagine the amount of resources devoted to accurate product costing in today’s society is just a fraction of what was required 30 or 40 years ago which could explain why companies have de-emphasized the need for costing information. To me, this signifies that today’s manufacturing managers have found other methods of handling production.

I continue to hear over and over that the main purpose for modern costing is simply for inventory valuation. In my mind, this change is by far the most significant cause for the de-emphasis of new and robust cost system and management’s unwillingness to consider the investment of resources it takes to make that conversion. As I work in this arena more and more, I have come to accept the status quo and am now more concerned about getting American businesses to get their standard cost systems working.

What have your experiences been? What is the purpose of your cost system and does it get the attention it requires? Check out our blog dedicated to cost accounting, Costing for Profitability.

By: William J. Horst, CPA, CMA, CGMA

NFL Dropping Its Tax-Exempt Status

The term “nonprofit” is commonly misused when referring to an organization, as it assumes that nonprofits fail to actually turn a profit. So it is no surprise that some eyebrows were raised earlier this week when news broke that the National Football League (NFL) announced it would be giving up it nonprofit status.

Finance_Money5What the NFL really did was made an election to forgo its tax-exempt status for the head office located in New York. Just like trade associations, professional sports organizations like the NFL have historically be granted a tax exempt status under code section 501(c)(6). The rationale behind this is that they merely work to promote the members of their leagues, and it is the individual teams themselves that make the profits and pay the taxes. Another example of a 501(c)(6) is the AICPA, which doesn’t have a profit motive itself, but promotes and supports its for-profit members. The NFL’s individual teams are not tax-exempt, and although all but one of the NFL teams receive don’t disclose financial information, it is assumed that they pay corporate income tax rates on their profits.

The reasoning for the league’s sudden change is unclear, but many believe it has to do with the disclosure of public information. Upon request, organizations that file Form 990 are required to disclose the information included on the form. Some of this information that is notable is the compensation of officers and key executive, and the money the NFL collected from fines and penalties. The NFL has run into its fair share of PR blunders in the past year and may want to keep as much information private as possible.

Remember, just because the NFL was a “nonprofit” doesn’t mean they weren’t making any money. The move to drop the tax-exempt status will cost them. By looking up the organization’s Form 990 it filed in 2013, one can see that revenues for the NFL accumulated to about $327 Million for that year. The Joint Committee on Taxation has estimated that the NFL will now have to pay approximately $10 million a year in taxes. In the end, the privacy the league gains may be worth the tax dollars in the minds of the NFL.

By: Anthony Mifsud, CPA

Higher Level of Service: The Compilation, Review or Audit

Many companies are required to provide lenders or other outside parties financial statements prepared by independent certified public accountants. A higher level of service requires the CPA to spend more time preparing and completing the engagement and will in turn be more costly to the client. So what are the differences between the three levels or services: compilation, review or audit?

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Compilation

  • The most basic level of service that a CPA provides relative to a financial statement
  • The CPA firm provides management assistance in presenting financial statements without providing any assurance that there are no material modifications that should be made to the financials
  • The CPA must comply with the Standards for Accounting and Review Services (SSARSs) and should have an understanding of the industry in which the client operates, obtain knowledge from the client and read the financial statements to make sure they are free from obvious material errors
  •  The CPA does not perform any inquiries, analytical procedures, understands the client’s internal controls, assess fraud risk nor test accounting records
  • The accountant’s report associated with the compiled financial statements does not express an opinion or provide any assurance about whether the financial statements are in accordance with the applicable financial reporting framework

Review

  • A review says the accountant is not aware of any material modifications that should be made to the financial statements
  • A review consists of performing mostly inquiry and analytical procedures which will provide limited assurance that there are no material modifications that need to be made to the financial statements
  • During a review, the CPA required an understanding of the client’s industry and knowledge of the client, but still is not responsible for understanding the client’s internal controls, fraud risk, or test accounting records
  • The accountant’s report associated with the reviewed financial statements does not express an opinion, but does provide assurance that the financial statements are in accordance with the applicable financial reporting framework

Audit

  • This is the highest level of service that a CPA provides relative to a financial statement
  • An audit provides the user with the auditor’s opinion that the financial statements are presented in conformity with the applicable financial reporting framework
  • During an audit, the CPA is required to obtain an understanding of the entity’s internal controls and assess fraud risk
  • The CPA is required to obtain evidence to support the amounts and disclosures in the financial statements through inquiry, physical inspection, observation and third-party confirmations, examination of records and analytical procedures
  • The auditor’s report provides an opinion that the financial statements are presented fairly and the financial position of the company and results of operations are in conformity with the applicable financial reporting framework

By: Kristin Metzger, CPA

Keeping Up With Your Retirement

If you’re approaching retirement, it may seem like your hard work is almost done. You’re probably getting ready to relax and enjoy yourself. However, there are still a few more things you should do to complete your retirement planning. Doing them now, before you retire, can help you transition from saving to spending your savings. Here are a few ways to get the ball rolling.

Review Your Investments

First, look at your investment portfolio’s asset allocation. Your ability to recover from market downturns is generally reduced when retirement is getting closer. You may decide to shift a larger portion of your portfolio out of stocks. But keep in mind that inflation can reduce the buying power of your retirement assets. You’ll probably want to keep some stock investments in your portfolio since they have the potential to generate returns that outpace inflation.

Consider Your Distribution Options

Retirement_JarNext, take some time to learn about your plan distribution options. If you cash out your account balance, you’ll owe income taxes in the year you receive the distribution, leaving you with less money to spend or reinvest.* Instead, you may have the option of keeping the funds tax deferred in your plan account and taking periodic payments. Or you can arrange for the distribution to be transferred directly into a tax-deferred individual retirement account (IRA). With either option, you can spread out your tax liability by withdrawing the money over time.

Keep Contributing

Finally, continue contributing to your plan. Even if retirement is only a short time away, continuing to save can make a difference in your account value at retirement. If you’re age 50 or over, your employer’s plan may allow you to make “catch-up” contributions. If possible, take advantage of this opportunity so you can accumulate even more money for your retirement.

* Qualified distributions from a Roth account are not subject to federal income taxes.

Don’t Stop Saving

Continuing to save even as you near retirement can help your account grow.

                                                             Still Saving               Stopped Saving

Account Value at Age 57                      $100,000                                 $100,000

Average Annual Total Return                6%                                                6%

Annual Amount Contributed

from Age 57 to Age 67                                $3,600                                        $0

Account Value at Age 67                 $226,536                       $179,085

This is a hypothetical example used for illustrative purposes only and does not represent any specific investment product. Annual compounding is assumed. Your investment performance will be different.

Source: DST

Putting Your Tax Refund To Good Use

Are you expecting a tax refund from the IRS this year? Although it may be tempting to spend your refund on the newest electronic gadget, consider using it to meet one or more of your financial goals

Pay Down Debt

Credit card debt can grow quickly if left unpaid. Credit card interest typically accrues at a relatively high rate. Any unpaid interest is added to the principal balance each month, and interest then accrues on the new, higher balance. And on top of that, interest on personal credit card debt is not tax deductible.

You also may want to consider allocating part of your refund to an unpaid car loan. Like credit card interest, interest on a personal car loan is not tax deductible.

Save for Retirement

Money5The longer you delay saving for retirement, the less time you’ll have to benefit from any investment gains on your savings. You might consider using your tax refund to cover current expenses and then allocating an equivalent amount to a pretax retirement savings plan, such as a 401(k). This way, you would reduce your taxable income for the year and increase your investable savings, which can potentially compound tax-free until you retire. With this strategy, compounding works for you rather than against you.

Add to Your College Funds

Although the IRS does not allow a deduction for contributions to a Section 529college savings plan account, the tax law does provide that any earnings on your contributions will be tax deferred and ultimately tax free if applied to qualifying education expenses.

Create an Emergency Fund

Consider putting aside part of your refund in an account you can easily access to pay for unexpected expenses, such as car or plumbing repairs.

 

Your Child & Taxes

Education_Students3Even though junior is still your dependent, he may have to file a federal income tax return. This may be true even if junior have a job.

Your dependent child will be required to file an income-tax return for the 2015 tax year if he or she meets any one of the following criteria:

  • Your child has unearned income (investment interest, gains, dividends, etc.) of more than $1,050.
  • Your child’s gross income is more than the standard deduction, which is the greater of (1) $1,050 or (2) $350 plus the child’s earned income ($6,300 maximum deduction).child
  • Your child’s net earnings from self-employment (such as babysitting, yard work, etc.) are $400 or more.

Your child won’t be required to file a return if you elect to include your child’s income on your tax return. This election may be available if your child’s investment income from interest, dividends, and capital gains distributions is more than $1,050 and less than $10,500.