Be Prepared, AMT Ahead

Tax_AdviceWhat began as a well-intentioned tax on the wealthy has presently morphed into one of the most disliked (and complicated) taxes in US history. Originally, alternative minimum tax (AMT) was enacted in 1969 to alleviate the tax gap between the upper and lower classes. That year, some 155 high-income households earned over $200,000 and did not owe any federal income tax.

Today, the middle class is the largest group affected by this tax and, as a result, important deductions claimed by these individuals are being phased out. These disallowed deductions include: personal exemptions (including those of your child and dependents), state and local income taxes, property taxes, private activity bond interest, investment fees, other miscellaneous itemized deductions and more.

What can you do to mitigate this tax? Unfortunately, Congress has made tax planning in this area very difficult. However, there are steps you can take to lessen its impact. If you know you are subject to AMT and have property taxes due, wait until after year-end to pay them—prepaying offers no benefit as the deduction will be disallowed for AMT tax purposes. Similarly, see if your financial advisor will allow for fee payment after year-end. Consider whether deducting taxes on a Schedule C or Schedule E might make more sense. Taxes which qualify for a deduction on these schedules are not subject to the strict add back rules that would otherwise apply. Consider investing in tax-free non-private activity bonds. Assuming the yield on the bonds are similar, this can avoid the add back that follows private activity bonds resulting in an overall higher net yield.

Courtney Elgin, CP

InvestOhio Returns!

The InvestOhio program provides a non-refundable tax credit that can be used against Ohio’s personal income tax for investors in qualifying Ohio small businesses. It was introduced in September 2011 and has since been renewed for July 1, 2015, through June 30, 2017, biennium. The program was developed to encourage Ohio small business growth and drive job creation.

The credit is a non-refundable Ohio income tax credit which is equal to 10% of the total investment. Investments cannot exceed $10 million and total credits cannot exceed $1 million per taxpayer or $2 million if a joint return is filed. The credit is claimed on the tax return for the year that includes the last day of the 5-year holding period.

Who is eligible?

To qualify all the following requirements must be satisfied:

  • At the time of a qualifying investment, the enterprise’s total assets must not exceed $50 million, OR the enterprise annual sales are $10 million or less.
  • The enterprise must have a presence in Ohio. More than half of your employees must be in Ohio, OR you have more than 50 full-time equivalent employees in Ohio.
  • After making an eligible investor’s qualifying investment, the enterprise invests, or incurs the cost in one of five categories of allowable expenses in an amount at least equal to the amount of the qualifying investment.

InvestOhio_320x240Qualifying Investment

A qualifying investment is an investment of money made on or after July 1, 2015, to acquire capital stock or other equity interest in a small business enterprise. It does NOT include equity (cash) an eligible investor derives, either directly or indirectly, from a grant or loan from the federal government or the state.


Eligible investors and businesses must apply and register investments with the Ohio Department of Development to be issued an InvestOhio certificate. Please note, at the time of registration, an application fee will be due. The fee is calculated at the greater of $100 or 0.10% of the investment amount (on a $1 million investment, the possible credit would be $100,000 and you would have to pay a $1,000 application fee).

Contact your William Vaughan Company representative if you have any questions regarding your eligibility or application process.

By: Katie Mokry, Senior Accountant

The Early Bird Gets the Tax Savings

You may be thinking more about raking leaves than reviewing your taxes. After all, your 2015 income-tax return isn’t due to the IRS for several months. However, waiting too long can rob you of the opportunity to use planning strategies to help reduce your tax bite. Here are a few suggestions of some areas for review.

Paying Less by Saving More

You may be able to lower taxes by increasing your pretax contributions to an employer-sponsored retirement plan. Since you don’t pay current taxes on the money you contribute, deferring a greater amount of your pay means less money is withheld for taxes. If you’re age 50 or older and are already contributing the maximum annual amount through salary deferrals, your plan may allow you to make catch-up contributions.

Another strategy is to contribute to a traditional individual retirement account. Contributions made by the April tax-filing deadline may be deductible on your 2015 return. The 2015 contribution limit is $5,500 ($6,500 if you’re age 50 or older). Talk to your tax advisor about the deduction requirements.

Being Charitable

Taxes5Making donations to your favorite charitable organizations by the end of the year positions you to claim an itemized deduction for charitable contributions. Donating with a credit card or with a check mailed by December 31 allows you to take the deduction on your 2015 return even though you won’t pay your credit card bill or have your check processed until 2016. Verify that the organization qualifies to receive deductible contributions. Remember to keep your receipts and bank/credit card records as proof of your donations. Deduction limits apply.

Losses You Can Use

Until you actually sell an underperforming investment, your “losses” are only on paper. Reviewing your taxable portfolio for investments that haven’t performed the way you expected them to may turn up potential “sell” candidates. A short period of lower values doesn’t necessarily make an investment a poor choice. But an investment that has lost value since you acquired it and consistently underperformed a benchmark may need another look. Selling the investment would give you a capital loss you can claim for tax purposes. Capital losses are fully deductible to offset capital gains and up to $3,000 of ordinary income each year ($1,500 if married, filing separately). Any losses you can’t deduct can be carried over for deduction in future years, subject to the same limitations.

Favorable Rates, More Profit

If you’ve been thinking of taking profits on appreciated stock you’ve held longer than one year, favorable capital gain tax rates may make this a good time to sell. Long-term capital gains from the sale of stocks and other securities are currently taxed at 15% for most taxpayers. The exceptions: Gains are taxed at 0% for taxpayers in brackets below 25% and at 20% for taxpayers in the top regular tax bracket (39.6%).

Now remember those losses you incurred by selling your underperforming investments? You can use them to offset your gains from the sale. Never make taxes your only reason for selling an investment. Before you decide, consider how the sale will affect your overall portfolio.

Bunching Expenses

You may be able to exceed the floor amount for medical deductions by scheduling and paying out-of-pocket medical costs before year-end. For 2015, medical expenses are deductible only in the amount that exceeds 10% of adjusted gross income (AGI) or 7.5% of AGI for taxpayers age 65 or older.

Ohio Bureau of Workers’ Compensation Prospective Billing Changes – Summer 2015

Many businesses have received refunds from the Bureau of Workers Compensation (BWC) over the last two years due to fewer and much quicker return to work injuries. This has left workers’ comp with a huge surplus for refunding  and to offer the new transition credits.

shutterstock_57862405BWC previously charged for coverage after payroll wages were paid. Starting with the 2nd half payroll 2015, the program has changed and requires installments or payments to be made before coverage period begins. This change includes more flexible payment options – including monthly, bi-monthly, quarterly or annual payments instead of the 2 times a year and 50/50 payment plan.

In May, you should have received a letter from BWC with details regarding the estimated payroll and premiums for the reporting period of July 2015 – June 2016. The letter also included how much and when your premium payments would be due. The majority of employers have been set up to pay bi-monthly for the first year.

The Ohio BWC has reviewed your prior annual wages to determine your annual liability. However, if your company wages are expected to substantially increase or decrease, you will need to contact the BWC for an adjustment to your current payments. At the end of the payroll year (June 2016), each company will have to determine gross wages and compare it to the BWC’s estimate for the period of July 2015 – June 2016.

Each company should have received the normal wage report for January – June. You will be required to complete the form as done in the past, but NO payment is due upon mailing. In addition, you should have received the first installment invoice for your payment. The payment for this invoice is due by August 31st. If you do not have the original letter, you can log-on to your account on the Ohio BWC website to learn more about your payment schedule and liability amount for the next year.

If you fail to file the 1st half of the wage report before August 31st, you will not receive the BWC transition credit. The credit has already been applied to one of the installment payments. The BWC is “crediting/paying” the 1st half premiums normally paid and a new bi-monthly July/August payment has been determined for your company.

By: Sandra Stone, Accountant

New Tax Filing Deadlines

On July 31, President Obama signed into law  H.R. 3236, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015. This bill affects various types of tax returns and their due dates. The purpose of these changes is to give the IRS an increased audit period from three to six years in many cases.

Starting after December 31, 2015 the law generally makes the schedule for filing tax returns:

Tax_TimeForTaxesPartnership tax returns are due March 15, NOT April 15 as in the past. If your partnership isn’t on a December 31st year end, the return is due on the 15th day of the third month following the close of your tax year.

C corporation tax returns are due April 15, NOT March 15. For non-calendar years, it is due on the 15th day of the fourth month following the close of the tax year.

S corporation tax returns remain the same—they are still due March 15, or the third month following the close of the taxable year.

C corporations with tax years ending on June 30 will continue to have a due date of September 15 until 2025. For years beginning after 2025, the due date for these returns will be October 15. Therefore, the due date of their returns will continue to be two and a half months after the close of the year (September 15) until their 2026 tax years.

In addition, the law modifies the automatic extension of filing deadlines for C corporations for returns for tax years beginning after 2015 and before 2026 to provide:

  • Calendar year C corporations with an automatic five-month extension
  • C corporations with a June 30 fiscal year-end with an automatic seven-month extension
  • Other fiscal year C corporations with an automatic six-month extension

Beginning with 2026 returns, the automatic extension period for all C corporations will be six months.

Additional modifications governing the due dates and extensions for returns for tax years beginning after 2015 have been made. Click here find out more.

By: Aubrey Forche, Staff Accountant


QuickBooks Tip: Setting Up Memorized Transactions

QuickBooks is helpful when it comes to recording your company’s accounting information. There are multiple ways to save time and short cuts which create greater efficiency. One option which can really improve your timing is the memorized transaction feature.

Some examples of transactions that can be memorized include invoicing, billing, checking and monthly adjustments of journal entries. If you invoice clients on a monthly basis or charge a recurring fee, having the invoice automatically post can speed up your accounts receivable process. Ultimately, this results in improved cash flow. Automatic payments deducted from your checking account on a regular basis can also be memorized and posted. Furthermore, monthly adjusting journal entries for such items as depreciation and expensing of pre-paid insurance or taxes can also memorized. Both eliminate the possibility of forgetting to record these transactions and streamline your process to be more efficient.

There are multiple ways to memorize a transaction. When working on a transaction such as a bill or journal entry, go to the toolbar and click edit and then memorize. Or, you can right click somewhere in the transaction and select memorize. This will bring up a memorized transaction screen where you can name the transaction, add it to your reminders list and schedule the transaction to record (by choosing this option you have multiple options as to how often, next date, number remaining and days in advance to post ).


Once set up, you can view your memorized transactions list by going to the toolbar and clicking lists then memorized transactions. The list has columns which provide you details of each transaction. QuickBooks can customize the columns by using the memorized transaction drop-down list on the bottom of the screen. Choose customize columns, add or remove columns for relevant data related to your transaction such as type, amount, frequency and if it is automatic or not, etc. To edit the details or delete a memorized transaction, simply right click on the transaction and choose the appropriate option. To edit the amount of a memorized transaction, double click on the transaction to open it. Then change the amount, choose memorize and replace the transaction. This will update the amount of the memorized transaction. Make sure not to save and close the transaction until you are ready to post it on the software reports.

memorized transaction

By utilizing the memorized transaction feature, you can begin to use the full functionality offered by QuickBooks. If you need help using any QuickBooks feature, William Vaughan Company has a dedicated team of specialists who can assist you with any QuickBooks questions you may have.

By: Chris Schultz, Accountant

Tip Income: Maintaining Proper Records

In a recent tax court case, the IRS challenged a bartender’s income-tax return, arguing that he had made substantially more in tip income than he had reported. The judge ruled in favor of the bartender, finding that the bartender’s daily tip diary was more reliable than the IRS’s estimates. Like the bartender, all taxpayers who earn tip income need to maintain proper records.

Three General Rules

Tips are subject to both income and employment (Social Security and Medicare) taxes. To report their tips correctly, employees need to:

  1. Keep a daily tip record
  2. Report tips to their employers in a timely manner
  3. Report all tips on their income-tax returns

Keeping Records

reporting_tipsTo record daily tips, employees can either keep a tip diary or retain copies of relevant documents, such as restaurant bills and charge slips. The IRS has provided a convenient tip diary (Form 4070A) in Publication 1244, which can be downloaded from Alternatively, employers may provide an electronic form for recording daily tips — employees should just be sure to retain paper backups.

Employee records should include the following information:

  • Employee name and address
  • Name of the employer/establishment
  • Amount of both cash tips and charge/debit card tips received from customers and/or from other employees through a tip-sharing arrangement
  • Amount paid out each day to other employees through a tip-sharing arrangement and the names of those employees
  • Date each entry was made

Reporting to the Employer

Additionally, employees must make timely reports of their tip income to their employer. For any month an employee has $20 or more in tips (both cash and debit/credit card charges), the employee must report the amount by the 10th day of the following month.

Reporting on the Tax Return

Employers report both wages and reported tip income in Box 1 of a tipped employee’s W-2. The employee reports this amount on his or her tax return. Employees also are required to report any additional tips not already reported to their employers during the year.

Employer/IRS Tip Reporting Programs

Tipped employees may want to check with their employers to see whether they participate in one of the IRS’s tip reporting compliance programs. One such program is the Tip Rate Determination/Education Program (TRD/EP). Under the program, an employer can enter into a Tip Reporting Alternative Commitment (TRAC), which allows it to establish specific procedures for tip reporting. In return, the IRS agrees not to challenge employers or employees who are in compliance.


Family Business Succession Plan

You’ve devoted time and money and poured heart and soul into building a successful family business. But do you have a succession plan? If not, you should. Without a plan for transferring your business to the next generation, anything could happen.

Deciding on Your New Role

Start by deciding how much or how little you want to be involved in the business after the transfer is complete. Are you picturing a clean break? Or a period of shared responsibilities and gradual transfer? This is an important decision because it will likely influence other decisions, particularly financial ones.

Choosing a Successor

Business_ManThis can get tricky, especially if there are several family members who may have an interest in — or expectation of — taking over the business. If there’s one clear candidate, that makes it easier. But don’t just assume someone (e.g., your oldest son) is the right successor. Do what’s best for the business. The best choice may be a grandchild, a niece, or even a relative paired with a trusted employee.

Estate planning is an important sidebar to a family business succession plan. There may be children who have no interest in being involved in running the business and are happy to let their siblings take over. However, they probably expect equal treatment when it comes to inheritances. If this is a likely scenario, make sure everyone communicates as clearly as possible and develop a plan you think is fair.

Grooming a Successor

Spend time grooming your successor, even if it’s a son or daughter who knows the business. He or she should understand how every part of the business operates. Before your successor starts representing your business publicly, make sure he or she meets your business contacts (clients, vendors, financial partners, etc.).

Figuring Out the Money

You probably don’t want to give your business away, even to your own offspring. Figure out how much you’re going to need to finance your next venture (retirement, a new business, etc.), and come up with an arrangement that meets your needs.

Tax Implications of Marriage

Thus far, the summer of 2015 has had its moments of sunshine but have you noticed all the…… WEDDINGS? I bet you thought I was going to say rain.
This is generally the time of year when couples decide to wed. If you recently tied the knot or are planning to sometime this year, this article is for you. Sure, there is plenty to look forward to as a married couple, but have you thought about all of the fantastic tax benefits? There are incentives specific to W-4 withholdings, itemized deductions, and your filing status.

Tax planning as a married couple is just as important as it was when you were single. When tax day finally arrives, you want to make sure you are not going to be way overpaid on your taxes. Even though receiving a large refund is nice, it is money that could have been invested elsewhere. As you know, a dollar today is worth more than a dollar tomorrow. By increasing your W-4 allowances, you can decrease the amount of withholdings from your wage. This would be especially important if you or your spouse decides not to work after getting married, as you would be living off one income while being able to capitalize on the benefits of being married. For the 2015 tax year, the standard deduction for taxpayers filing jointly is $12,600, and personal exemptions are $4,000 apiece.

Wedding2As a married couple, you may be able to itemize your deductions if you haven’t already done so in the past. Once you begin to pay real estate taxes, mortgage interest and are able to donate more to charity, your itemized deduction total may exceed the standard deduction of $12,600. Contact your personal tax planner to see if making an additional mortgage payment or donation to charity will put you over the standard deduction threshold.

Another question to ask yourself is whether or not it will be beneficial to file separately instead of jointly. Of 56 million married tax returns filed in 2009, only 4% of those returns were separately filed. However, filing separately with similar incomes will provide you better opportunity to claim medical expenses and miscellaneous deductions, which are deductible dollar-for-dollar only after exceeding 10% and 2% of your Adjusted Gross Income (AGI), respectively.
Speak with your friendly neighborhood accountant to figure out what tax planning strategy works best for you!

By: Jason Wenner, Staff Accountant

How To Choose The Right 529 Plan

A 529 Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. Almost every state offers a 529 plan and some even offer multiple types. 529 plans are available to everyone and have no income limitation. However, you can only contribute up to the gifting limits each year. Which plan will give you the most advantageous tax benefits? Which has the lowest cost? Which has the best performance? These are all questions you should ask when trying to choose the right 529 plan. Here are some tips to follow to ensure you get the right plan:

Understand your state’s plans and rules

Education_Colelge101Different states provide various incentives such as tax enticements, grants, and scholarships, for utilizing their plans. For example, in Pennsylvania contributions to a 529 plan can be deducted for state purposes. New Jersey offers a one-time scholarship of $1,500 to attend one of their state universities. In Ohio, the College Advantage 529 permits taxpayers to deduct contributions from their Ohio taxable income. In addition, each contributor can deduct up to $2,000 per beneficiary, per calendar year, with unlimited carry forward.

Two types of 529 plans

  1. Prepaid tuition plans – Allows you to buy credits for college at today’s price to be used when your child goes to college. Your money is keeping up with the cost of inflation this way. Check to see if your state offers this plan, since some do not.
  2. College savings plans – Allows you to contribute money into an account that is invested in mutual funds. You can start out aggressive when they are young and switch to more conservative later as they get older.

Purchase plan directly or through a broker
Nearly half of 529 plans are bought through a broker, which results in extra fees to open an account and contribute. However, almost all states offers direct-sold plans with lower overall fees.

No state incentives, still get rewards
You can still invest in other state plans and get the rewards of saving. For example, Vanguard offers the Vanguard 529 plan and Fidelity offers the UNIQUE College Investment plan.

Lastly, always make sure to check out the performance. Most plans have strict regulations and perform well, but you should always double check the performance and ensure that it’s invested in accordance to your risk tolerances.

By: Kelly Butler, Staff Accountant