Changes on the Horizon for Workers and Employers

businessman looking at city

New Overtime Rule

December 1, 2016, is the effective date imposed by the Department of Labor (DOL) to increase the standard salary level for employees from $455 per week to $913 per week. Employees earning less than that amount (or $47,476 annually) must be paid time and a half for hours over 40 per week, even if they are classified as a manager or professional.
As expected, many small businesses, nonprofit organizations and higher education institutions are finding the new rule difficult to swallow. Reclassifying employees as nonexempt and restricting their work hours to no more than 40 per week is their solution, rather than increasing pay.
For the first time, employers may also use nondiscretionary bonuses, commissions and incentive payments tied to productivity and profitability. For employers to use these payments toward a portion of their employees’ salary, the payments need to be made at least quarterly and permit a “catch-up” payment.
The Final Ruling of the DOL did not change any of the existing job duty requirements to qualify for an exemption. Bona fide teachers will continue to be exempt, as they currently are. The salary threshold will increase every three years and is expected to be more than $51,000 on January 1, 2020.

Minimum Wage to Increase on January 1

Ohio’s minimum hourly wage for non-tipped employees will increase by 5 cents to $8.15 per hour because of inflation. Tipped workers must be paid $4.08 an hour. These rates go into effect on January 1, 2017. The Consumer Price Index rose .7 percent in the past year, which means the minimum wage must increase by that amount.
About ten years ago, Ohio voters approved annual increases tied to inflation through a 2006 amendment to the State Constitution. In 2016, Ohio’s minimum wage increased by 15 cents to $8.10 an hour and the minimum wage for tipped workers increased 7 cents to $4.05 an hour.
The new wages applies to organizations and companies with annual gross receipts of more than $297,000 a year. The federal minimum wage of $7.25 per hour applies for smaller companies and for workers 14 or 15 years old. That wage can only be adjusted by Congress.

-Sharon Trabbic, COO

Looking to Sell?

240_F_101916353_CLAc4e3dzc1FPbfNwJctpwVCrbqBZclbAre you looking to sell your business? Maybe you’re considering retirement, in poor health, or just ready to cash in. Whatever your reason, you should be aware of the complexity of your venture, as well as the tax consequences that come along with it. The very first step should always be consulting with your WVC adviser. You can obtain an accurate business valuation and develop a tax planning strategy to minimize capital gains, and any other taxes from the sale, to maximize your profits.

Most business owners do not know how much their business is worth. This can result in severely under or overestimating a proper selling price. Obtaining a third party business valuation allows owners to sell at a price that is realistic for potential buyers, while maximizing the total value and profit at the same time.

As a business owner, you may think of your business as a single entity sold for one lump sum. However, it is actually a combination of assets to be sold that will be subject to different taxes under federal and state laws. The IRS requires each asset to be classified as capital assets, depreciable property used in the business, real property used in the business, goodwill or property held for sale to customers. The gain or loss on each asset is figured separately, classified as capital or ordinary, and taxed accordingly.

The sale of depreciable property can be tricky. Section 1231 gains and losses are the taxable gains and losses from the sale or exchange of real or depreciable property held for longer than one year. Whether you have a net gain or loss from all 1231 transactions determines if they will be treated as ordinary or capital. When section 1245 or 1250 property is sold at a gain, you may have to recognize all or part of the gain as ordinary income due to depreciation recapture rules. The remaining gain would be considered a 1231 gain.

The way a business is taxed when sold also depends on the business structure. “Pass-through” entities such as sole proprietorship, partnerships, and limited liability companies are required to sell each asset separately. This provides much more flexibility when structuring a sale to benefit both the buyer and seller with regard to tax consequences.

Corporations and s-corporations are subject to more complex regulations when selling assets and stock. For example, when a corporation is sold, the seller is taxed twice for all assets. The corporation pays any gains tax when the assets are sold, and the shareholders pay capital gains tax when the corporation is dissolved. On the other hand, s-corporations are only taxed once. Income or loss flows through to the shareholders who then report it on their individual tax returns.

Are you thinking of selling your business soon? Our team of business valuation and tax planning experts can help you make the most money with the least amount of consequence.

-Halie N. Baker, Staff Accountant

Disaster Recovery Planning: Protecting Your Business

Fire, floods, hurricanes, earthquakes. When they happen, they can destroy buildings, equipment, and hard-to-replace data, and even injure or kill employees. It can take a business weeks, sometimes months, to resume operations after a disaster. Some businesses never recover. You can’t pin down the time or day when a disaster may strike your business. However, you can certainly prepare for one. Preparing for a disaster can minimize the potential damage and may protect you and your employees from harm.

Knowing what to do if a disaster strikes your business is half the battle. Savvy business owners draw up a disaster plan and update it regularly. They consult with experts and draw on the lessons learned from the past. Moreover, they designate alternate business sites, emphasize data preservation, and ensure that the business’ insurance coverage is sufficient.

Drawing Up a Disaster Plan
If your business does not already have a disaster plan, now may be a very good time to develop one. Consider forming a disaster planning committee and assign it the task of crafting and implementing a disaster plan for your business. Give committee members the opportunity to attend seminars, meet with experts, and take training courses related to disaster planning.

If your disaster plan is to have any value at all, it must, at a minimum, outline in detail all of the steps managers and employees need to take if disaster hits your business. An effective and workable disaster plan should cover personnel safety and management succession.

Personnel Safety and Management Succession

An effective disaster plan should clearly identify safety areas for employees as well as an evacuation route. Specific individuals should be responsible for confirming that all employees have reached the safety area. The plan should outline a chain of command, indicating the responsibilities and duties assigned to each manager or employee during a disaster.

A list of emergency phone numbers — hospitals, doctors’ offices, and the company’s lawyers and accountants — is an important part of the plan. Be sure to include the home phone numbers of employees and the names of family members who can be contacted in an emergency.

Ensuring management continuity after a disaster should also be a top priority. That requires establishing procedures that detail the responsibilities and duties of each member of the management team in the days and weeks after a disaster. The procedures should clearly define a line of succession and give instructions on how to communicate any changes or information to employees, customers, vendors, and professional advisors. Creating and implementing these procedures helps keep your business operational during a difficult time.

Alternate Business Sites
Getting your business up and running after a disaster is much easier if you have an off-site facility for storing backed-up data vital to your operations. You’ll need to be able to access customer and vendor lists, accounts receivable records, and other critical records if you are to resume operations quickly. Make sure you identify and classify corporate data according to its importance and begin to back it up as soon as possible.

It may be worthwhile to look into alternate business sites, essentially office complexes with computers, work areas, and phones. When disaster strikes, you move your personnel to the alternate site.

Insurance Coverage
Review your business insurance policies to identify any potential shortcomings in your coverage. Business interruption insurance, which compensates a business for the loss of operating income when normal operations are disrupted by disaster, is a key element in business insurance planning. Take the time to periodically reexamine your business’ umbrella liability, fire, vehicle, and property insurance. Keep several copies of all your policies at different locations.

Don’t Let Your Plan Gather Dust
Make sure key employees receive a copy of the disaster plan. Keep it updated. Practice emergency drills. A proactive approach can potentially minimize the impact of a disaster.

Tax Implications Of A Divorce

Divorce can be stressful enough without discovering down the road the assets weren’t divided equitably even when spouses were in agreement about the division of their property. Failing to take taxes into account may be to blame when one spouse receives a smaller net share than expected.

Here are some issues to consider if divorce is on your horizon.

Taxable or Not Taxable?

Legal_Balance3Payments from one spouse to the other can have tax consequences for both spouses depending on how the payments are designated. Alimony generally is deductible by the spouse who pays it and is taxable to the recipient. Child support isn’t tax deductible by the person paying it nor is it taxable income to the recipient.

Who Claims the Exemptions?
The IRS has specific rules for determining which spouse is entitled to claim the dependency exemptions for the couple’s children. Who claims the exemption can also affect eligibility for certain tax credits, such as the child tax credit. Typically, the custodial parent claims the dependency exemption. However, parents can also choose to alternate claiming the exemption. And couples with more than one child may decide to split the exemptions.

The QDRO and Retirement Benefits

A qualified domestic relations order (QDRO) is a court order that specifies the property rights regarding qualified retirement plan assets of a spouse or dependent during a divorce. A QDRO allows the transfer of all or a portion of the assets in a qualified retirement plan from one spouse to the other without loss of the plan’s tax advantages. A QDRO should be carefully executed to avoid costly mistakes.

What’s Its Future Worth?

The value of assets that seem equal may no longer be equal once taxes come into play. Selling an asset in the future may create a tax liability. So spouses will need to consider more than current value when dividing investments and similar property.

Issues related to dividing assets during a divorce can be complex. Couples should seek professional advice.

Protect Your Business with a Buy-Sell Agreement

The unexpected can always happen. That’s why, if you’re the co-owner of a business, you need to prepare for the possibility that you — or the other owner — won’t be at the helm one day. The fact is, either of you could die tomorrow. What would happen then?

Business_Handshake7When you enter into a buy-sell agreement, you face this issue head on. A buy-sell agreement is a legal contract between you and the company’s other owners. In it, you each agree that your ownership interest will be sold (or offered for sale), at a certain price, to the company or to each other when you die. Often, the company or the owners buy life insurance policies so they’ll have the cash to make any agreed-upon purchase.

Tax Advantages
Buy-sell agreements offer more than simple protection for you and your family. You may also gain estate-tax benefits. Your estate can usually value your business interest according to the price or formula set in the agreement. This lets you plan in advance for what that value will be.

Buy-sell agreements can also help your estate avoid time-consuming and costly battles with the IRS. When an estate includes a closely held business interest, the IRS may see a red flag. The IRS wants to be sure that estates don’t come up with artificially low values for businesses in order to save taxes. If you have a buy-sell agreement in place, and follow all the tax law rules, the IRS is likely to accept your value.

What’s Your Interest Worth?
The key to making the value in your buy-sell agreement stick is to make sure that it is a “fair market” price. If you and the other owners aren’t relatives, this shouldn’t be a problem. You’ll probably bargain with one another to get the best deal possible. However, if you intend to pass your interest in the company on to a child or other family member, the IRS may argue that you and your close relative didn’t negotiate a fair price. That’s why it may be best to provide in the buy-sell agreement that a qualified professional will value the company annually or at the time of the sale.

Our team of business valuation experts can help you plan for the future through a buy-sell agreement. If you have questions or concerns about your business, contact Jack Hagmeyer at


Independent Contractor or Employee?

This seems like such a simple question. However, many companies and employees never take the time to consider their position. This is one of the most important decisions in the tax world. In fact, it goes well beyond taxes as it involves workers’ compensation, unemployment insurance, state and federal wage and labor laws, pension laws, nondiscrimination laws and more.

From an employer’s perspective, it’s often preferable to hire freelancers and contractors instead of employees. An employer is not required to pay for all the benefits offered to regular employees, such as health insurance, bonuses, 401(k) plan contributions, and so on. As a result, employers experience considerable incentives when utilizing independent contractors. More often than not, such employment follows the regulations set forth by the law. Nevertheless, some employers have been accused of misclassifying workers who should be considered employees as contractors instead.

The IRS has issued guidelines on the matter, stating “if you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.” Meanwhile, “If you can direct or control only the result of the work done — and not the means and methods of accomplishing the result, then your workers are probably independent contractors.” The distinction is important because there are penalties for misclassification.

For businesses of all sizes, the fines are everywhere and they’re not cheap. Take a look:

  • The Department of Labor ordered three construction companies to pay $491,100 in back wages and damages to 99 employees who were misclassified as independent contractors, in addition to another $108,900 in civil fines.
  • A prominent shipping company settled a series of class action lawsuits alleging worker misclassification for a total of $27 million. Previously, the IRS had already ordered the company to pay $319 million in back taxes and penalties.
  • The San Diego Union Tribune, owned by The Copley Press Inc., was ordered by a state court judge in California to pay $6.1 million in legal fees to the attorneys for a class of over 1,200 paper carriers to whom the court had earlier awarded $3.2 million in damages and another $1.75 million in interest. The final cost of the verdict against the newspaper for misclassification of the paper carriers as independent contractors totaled $11 million.

The IRS has given guidelines to its agents to determine worker status. In the past, a list of 20 factors compiled by the IRS had been used in court decisions to determine worker status. The list, sometimes called the “20-Factor Test” is still used as an analytical tool, although some of the factors are no longer as relevant as they once were.

Basically, the IRS’ 20-Point Checklist focuses on three main factors:

  • How much control the employer has over the worker’s behavior and work results. (Who controls training, where and what time the person works, what equipment they use?)
  • How much control the employer has over finances? (Does the employer have primary control over the person’s profit or loss?)
  • What is the relationship between the parties? (Does the worker receive benefits? Is it a long-term relationship?)
    Estimates are that 20% of businesses misclassify workers, so make sure your business understands the difference.

By: Mark Dietrich, Accountant

Changes Coming To The CPA Exam

For every CPA, the CPA Exam is a rite of passage, one of the first milestones on the path to a career in accounting. Long hours of study and prep work and the stress of the test itself are rewarded with the joy and/or relief of passing scores on all parts of the exam.

If you or anyone you know is planning to enter the field of public accounting, be aware changes are coming to the Uniform CPA Examination in April 2017, the first major update to the exam since 2011. Periodically, the AICPA conducts a practice analysis, seeking input from state boards of accountancy, state CPA societies, public accounting firms, and other stakeholders to assess whether the test is able to measure the skills and knowledge needed by newly licensed CPAs. This analysis determined that due to the automation and outsourcing of routine accounting tasks, greater critical-thinking skills were needed of new hires.

The four basic content areas of the exam – Auditing and Attestation, Business Environment and Concepts, Financial Accounting and Reporting, and Regulation – are not changing. How those areas are tested, however, will be. There will be fewer multiple-choice questions, and a greater emphasis on task-based simulations that better assess higher-order critical-thinking skills. Because of this, total test time will be increased from 14 to 16 hours.

To aid new candidates with preparation for the exam, an array of preparation and support materials reflecting the new exam format are being rolled out. The current Content Specification Outline and Skill Specification Outline are being replaced by new “blueprints” that will contain about 600 tasks across the four exam areas that will align with the skills expected of new accountants. will offer a sample of the new exam at, as well as a LinkedIn group for exam candidates.

Based on historical trends in advance of previous changes to the exam, the AICPA expects a surge of exam candidates in 2016. Forty total testing days will be added – ten each quarter beginning in April 2016.

Jake Freppel, Senior Accountant

Seasonal Business Considerations

If you have a seasonal business, you may face challenges typically not encounters by a year-round businesses. After all, attempting to squeeze a year’s worth of business into a far shorter period can prove to be hectic. Here are some tips to help you deal with demands of owning a seasonal venture.

Cash Control
All small business owners have to be careful cash managers. Strict management is particularly important when cash flows in over a relatively short period of time. One very important lesson to learn: Control the temptation to overspend when cash is plentiful.

Arming yourself with a realistic budget and sound financial projections, including next season’s start-up costs, will help you maintain control. In addition, you may want to establish a line of credit just to be safe.

In the Off-season
It may be difficult to maintain visibility when you are not in business year round. However, continued marketing efforts and periodic updates via e-mail or snail mail can dramatically impact your client base. Such marketing efforts can also help you develop new leads and new business. When you re-open for the season, you will certainly want to announce the date well ahead of time. Maximize your efforts by utilizing social media to expand your reach.

SeasonsTime for R and R
Take some time for rest and relaxation, you deserve it. Nevertheless, you will also want to use this time to make any necessary repairs and take care of any additions or modifications. You can also use the off-season to shop around for deals on items you keep in stock and/or equipment you need to buy or replace.

Expansion Plans
If you’re thinking of making the transition from “closed for the season” to “open all year,” start investigating new product lines or services. If you diversify in ways which are complementary to and compatible with your core business, your current customer base may provide support right away. A well-thought-out expansion can be the key to a successful transition into a year-round business.

Being the owner of any type of business has its rewards — and its challenges. We significant experience working with small business and would be happy to assist in any possible.

You Are Being Audited: Now What?

Here is the situation:  you have received a letter from the IRS; they are reviewing a previous tax year and you must provide support for your tax position(s). Hence, you are being audited.

Tax_AuditDon’t panic! Numerous taxpayers are audited on a yearly basis. You won’t be the first or the last. Since the IRS is such a large government institution, the process will be slow. The best thing you can do is remain calm and begin to make a plan.

Read the Audit Letter. Once you have taken the time to thoroughly examine the letter and its contents, determine what they looking for? Audits vary in length and scope. Pay attention to the time frame the IRS has provided for you to compile the requested documents.

Gather all information requested. Begin gathering the info requested. If you maintain good records, the process may be easier. If you are having difficulty locating certain documents, you may call and request an extension . If necessary, you may send the information piecemeal as some auditors appreciate some information rather than none. It is important to send only those items requested. Obviously, the IRS has the power to open additional audits of anything/anyone they feel is questionable or suspicious. So while you may think offering additional supporting information would be helpful, it may in the end cause additional issues. Rule of thumb is to stick to their list, The IRS will notify you if additional information is necessary.

Work with the auditor. Auditors are people too! More often than not, auditors are willing to work with you. Being upfront and honest can go a long way. If you are unable to locate a receipt, tell them. They may allow a credit card invoice or some other proof of payment as alternative substantiation.

Talk through the results and ask questions. Once the auditor has reviewed your paperwork, they will inform you of any issues. In some cases, you may be asked to provide more substantive evidence for expenses. In other cases, the auditor may try to assess penalties. In all of these instances, make sure you ask questions to understand why such circumstances are occurring. Many times, penalties are negotiable and occasionally even completely abatable. Make sure you take the time to understand what’s happening and go from there.

Pay the tax. Once you’ve gone through the process and settle on what you believe to be the final tax owed, make sure you pay it! This sounds straight-forward, taxpayers often think they can deal with the balance at a later time. The IRS will assess additional penalties and interest on any outstanding amounts due. If needed, payment plans are available.

If you are the subject of an audit and are unsure of the actions being taken, or have questions about the process, feel free to contact a William Vaughan Company audit representative.

Courtney Elgin, CPA