Can Your Business Save More by Paying More?

A client recently sent me a notification they received from the Ohio Department of Job and Family Services (ODJFS) informing them that they could reduce their unemployment tax rate by making a voluntary additional payment. Usually, paying more taxes in is something employers try to avoid doing, but for certain employers, making this voluntary payment may save them money.

Unemployment application Form with pen, calculator

The unemployment rate that employers pay is largely based on their experience rate – the lower their experience rate, the lower their tax rate. The experience rate is dependent on factors such as how much the employer has paid into its account, how much has been paid out in claims, as well as what the average annual taxable wage amount is. If the employer has paid in enough contributions, their account could reach a certain threshold that could reduce the experience rate. The ODJFS will usually notify the employer whether an additional voluntary contribution would help the employer reach that threshold to reduce its rate.

A basic calculation is included with the ODJFS notification that allows the employer to estimate whether the tax savings is more than what the voluntary payment would be. In the case of my client, it did not benefit them enough to make the voluntary payment, but depending on how many employees your business has, the voluntary payment could end up saving you tax dollars. Please contact your William Vaughan Company representative should you need any further guidance.

2014 Year-end Payroll tax information and 2015 updates

Social Security and Medicare withholding
The employee’s and employer’s portion of social security taxes withheld has remained unchanged (6.2%). The wage base for 2014 is $117,000. In 2015 the wage base will increase to $118,500.

For 2014 and 2015 the Medicare tax calculation rates are unchanged. The employee’s and employer’s Medicare tax remains at 1.45% with no wage limits. Earners making more than $200,000 in a year are subject to an extra 0.9% Medicare tax. The extra 0.9% tax is not matched by the employer like the 1.45% Medicare tax.

year-end940 FUTA Unemployment tax
The 2014 and 2015 FUTA rate remains at 0.6%. This rate includes the 5.4% credit for State Unemployment paid. There are still credit reduction states published by the IRS and listed on Schedule A (Form 940). A “credit reduction state” is a state that has borrowed money from the federal government to pay unemployment benefits and has not yet repaid this money. In 2014, there are 7 states listed on this credit reduction list. Some of the state changes include:

  • Ohio – .012
  • Indiana .015
  • New York – .012
  • North Carolina – .012

This means that instead of paying the 0.6% in 2014, there is an additional 1.2 % added (or 1.5% for IN), for a total of 1.8% for Ohio. The credit reduction will add up to approximately $84- $126 of extra tax liability per employee for this year. Each year the % will increase another .003 until the state is no longer on the list published by the IRS each fall. Line 11 of the 2014 940 Form is where the amount from Schedule A, calculating your state credit reduction amount is entered. The extra 940 deposit will need to be paid thru EFTPS.gov by January 31, 2015.

1099 Misc forms
These forms are the most common. They are issued to independent contractors who received $600 or more for their services in the calendar year. Make sure you have their address and social security/Federal ID number and any DBA company name in your software. Now is the time to contact the vendors for any missing information and ask them fill out a W-9 form with their current information.
If you have any other questions with other 1099 forms, please contact our company.

Sandra Stone, Accountant

2015 Inflation-Adjusted Items and Tax Tables Released

irs-logoThe annual inflation adjustments for 2015 for more than 40 tax provisions along with the 2015 tax rate tables for individuals and estates and trusts have recently been released by the IRS.

Personal exemption will increase from $3,950 in 2014 to $4,000 for 2015, as well as the standard deduction, which will increase from $12,400 in 2014 to $12,600 in 2015 for married taxpayers filing joint returns. The adoption credit under Sec. 23 is inflation-adjusted from $13,190 in 2014 to $13,400 in 2015.

The revenue procedure also contains the inflation-adjusted unified credit against the estate tax, which is $5.43 million for 2015. One amount that will remain unchanged is the annual gift tax exclusion which will remain at $14,000.

The AMT exemption amount for 2015 is $83,400 for married taxpayers filing joint returns and $53,600 for single taxpayers. The Sec. 911 foreign earned income exclusion increases from $99,200 for 2014 to $100,800 for 2015.

The revenue procedure also includes the inflation adjustments for the Sec. 24 child tax credit, the Sec. 25A Hope scholarship and lifetime learning credits, the Sec. 32 earned income tax credit, and the Sec. 221 deduction for interest on qualified education loans.

The 2015 contribution limits and other figures for pension plans and other retirement-related items have been released as well, along with the Social Security Administration announcing the Social Security wage base will increase from $117,000 in 2014 to $118,500 in 2015.

By: Rachel Mossing, Accountant

House Approves the Renewal of Tax Breaks

United_States_House_of_Representatives.svgLast Wednesday, the U.S. House of Representatives voted to renew more than 50 expired tax breaks for individuals and businesses through the end of 2014. With an overwhelming pass of 378-46 for the one-year retroactive renewal, it now moves on to the Senate, who is increasingly likely to follow suit.

Among the biggest breaks for businesses are a tax credit for research and development, an exemption that allows financial companies such as banks and investment firms to shield foreign profits from being taxed by the U.S. and several provisions that allow businesses to write off capital investments more quickly.

The biggest tax break for individuals allows people who live in states without an income tax to deduct state and local sales taxes on their federal returns. Another protects struggling homeowners who get their mortgages reduced from paying income taxes on the amount of debt that was forgiven.

Many people are watching this bill as we are in the heart of tax planning season and a lot of these provisions could benefit business owners and individuals. The 10-year cost of the one-year bill is about $42 billion.

By: Amy Slates, CPA

Making the Most of Your Business Trip Abroad

If you travel outside of the United States and all of your time is spent doing business activities, then you can deduct the entire amount of travel expense. But say you fly to Madrid for a business meeting and you want to swing by and see Barcelona while you’re across the pond, is your travel still deductible?

Generally the rule states that for travel to be fully deductible, it has to be entirely for business purposes. But for every rule, there are exceptions. Here are four exceptions that can make your travel considered “entirely for business,” and thus making it fully deductible.

UPIMRF-00019855-001

1. You don’t have substantial control over arranging the trip.
This means you’re an employee and either not related to your employer or not a managing executive. Self-employed individuals usually have substantial control over their own business trips and need to meet one of the other exceptions.

2. You’re out of the country for no more than one week.
Any trip that doesn’t exceed 7 days (including travel days) can be fully deductible. This means that if you leave on a Wednesday and get back anytime before the following Wednesday, then you may deduct the full amount of travel.

3. You spend less than a quarter of the time on personal activities.
This means that if you’re overseas doing business for 10 days and spend 3 extra days sightseeing, then less than 25% (3/13 = 23%) is personal.

4. You don’t take major consideration into the vacation aspect of the trip.
This has a little more grey area than the other three and may be harder to prove. However, even if you do have substantial control over the arranging the trip, if you can establish that a personal vacation was not a major consideration during the planning of the trip, your travel can still be fully deductible.

Travel expenses include airfare, taxi or shuttles, or any other transportation related expenses. Of course, if you buy an additional plane or bus ticket for personal vacation or sightseeing purposes during your trip, those would not be deductible as business expenses. The same goes for other expenses that would normally be deductible; they must apply to a business purpose rather than a personal expense.

For the entire write-up on travel expenses see IRS Publication 453.

By: Anthony Mifsud, CPA

5 Strategies for Reducing/Eliminating Your Estate Tax

As many of you know the estate tax exemptions and rates have been all over the board in recent years. For many Americans, this isn’t an issue. However, when you begin amassing a large enough estate this becomes a huge concern. Historically, passing away with a large enough estate has imposed upwards of 55% tax. For 2014, this rate is at 40% with a $5,340,000 personal lifetime exclusion. Below are 5 strategies you can use now to help mitigate any future tax burden you should incur.

EstateTax1. Start gifting smaller amounts
There is an annual gift exclusion of up to $14,000 per person per year. Meaning a married couple could collectively gift 28,000 per year per person without eating into any of their lifetime estate tax exclusion.

2. Gift highly appreciable assets now
Gifts of over $14,000 will still need to be reported on the federal Form 709 (and will consequently count against your lifetime limit) but gifting these assets now, instead of waiting, allows the appreciation to build with the recipient instead of counting against your lifetime limit later on.

3. Buy life insurance
Life insurance proceeds are not includible in your taxable estate and are, therefore, a good way of sheltering your net worth. Doing this essentially transforms taxable assets into non-taxable income once a death occurs (assuming the estate is not the beneficiary of the policy and the decedent is not the owner).

4. Use both exemptions
Currently, the tax code allows for the husband and wife to each claim a $5.34 million estate/gift exemption. If elected timely, any unused portion of a spouse’s estate can be transferred to the surviving spouse (called portability).

5. Take advantage of unlimited exemptions
When in doubt, be charitable! The IRS allows you to contribute an unlimited amount to the qualified charities of your choice. So if you are considering donating a portion of your estate and are over the exemption limitation this would be a terrific way of sheltering those dollars from taxation.

Courtney Elgin, CPA

Tax-Free Employee Fringe Benefits

fringe_benefitsEmployer-provided fringe benefits can be an important part of an overall compensation package. Highly valued by employees, benefits are even more prized when they fall under an exception from being taxed. Below is a generalized, non-inclusive listing of some of the most commonly provided tax-free benefits. In most cases, they are not subject to social security or FUTA tax as well.

• Accident or health insurance premiums, including contributions to health savings accounts (HSAs)
• Achievement awards—property given for length of service or safety achievement
• Personal use of a company-provided cell phone provided primarily for business use
• Holiday gifts (non-cash) with a nominal fair market value
• Occasional parties or picnics for employees
• Coffee, doughnuts, or soft drinks provided on the employer’s premises
• Occasional meals or meal money provided to enable the employee to work overtime
• Group term-life insurance (limited)
• Educational assistance up to $ 5,250 under a formal written plan
• Reimbursement of deductible moving expenses
• Employee discounts on property or services you offer to your customers
• Qualified transportation benefits, including transit passes or qualified parking
• Reimbursed job-related expenses incurred by an employee under an accountable plan
• Contributions to qualified retirement plans
• Advice concerning the above retirement plan, and retirement planning in general

Note that cash and cash-equivalent fringe benefits (such as gift cards, prepaid cards, etc), no matter how small, are never excludable. They must always be included in the employee’s payroll amounts.

Many of the above items are tax-exempt only if paid under a formal, written plan which does not discriminate. Also, benefits are often limited for company owners, partners, and highly compensated employees.

If any of the above might be a useful addition to your company’s compensation package, be sure to contact your WVCO tax pro for details in implementing the benefit.

By: George Monger, Senior Manager