Crowdfunding: Where Can We Go From Here?

In 2014, pop star Kenny Loggins launched a campaign on the crowdfunding site Kickstarter to finance the recording of a new album. As is typical of crowdfunding campaigns, rewards were offered to various levels of donations. If someone was willing to contribute $10,000 to the campaign, Loggins would perform a concert in the donor’s living room. One particularly dedicated Loggins fan started a Kickstarter campaign of his own to fund a contribution large enough to get a concert in his living room, raising over $30,000 in the process.

Whimsical? Certainly. However, crowdfunding has become serious business. In a tight credit market, it is an attractive, streamlined alternative method of raising capital for small businesses. Crowdfunding can be a useful means of assessing demand for a new product or service. In total, $16.2 billion was raised via crowdfunding platforms such as Kickstarter and GoFundMe in 2014, up from $6.1 billion in 2013, financing a wide variety of causes, projects, and new products.

crowdfundingWhat forms can crowdfunding take? There are three main categories: donation-based, equity, and reward-based.

Donation-based crowdfunding is for individuals, groups, and non-profit organizations to raise funds for causes such as medical bills, school trips, or disaster relief. Typically, funds raised through donation-based crowdfunding would be considered non-taxable gifts to the creators of the campaign. If the recipient is a charity, the donor would be able to deduct the gift on their tax return.

Equity-based crowdfunding provides an opportunity for businesses to offer their securities to a broad pool of investors. The Securities and Exchange Commission cleared the way for this process in March 2015 with new regulations allowing businesses to raise up to $50 million in a 12-month period and accept investments from unaccredited investors. The regulations created two tiers of companies based on offering size: Tier 1, for companies seeking $20 million or less, and Tier 2, for companies seeking $20 million to $50 million. Tier 1 companies must have at least a reviewed financial statement while Tier 2 companies must have their financial statements audited and publish annual reports. Individual investments to a Tier 1 company are unlimited while individual investments in a Tier 2 company are limited to ten percent of the greater of their annual income or net worth.

Perhaps the most familiar form of crowdfunding is reward-based crowdfunding, offering products, services, or other perks in exchange for pledges from potential backers. Companies set a fundraising goal to be achieved within a set timeframe. Generally, this is an all-or-nothing proposition – if the goal isn’t reached, the campaign creator doesn’t receive any money. If the goal is reached, the campaign creator receives their funds, less the fees to the crowdfunding platform and its payment processors. Most likely, this would be regarded as taxable income to the campaign creator. Regulatory guidance has been slow in coming from the Internal Revenue Service in this area though other regulatory bodies have started to weigh in. Washington state has indicated that crowdfunding proceeds may be subject to state sales and business taxes. Canada also generally requires reward-based crowdfunding proceeds from carrying on a business or profession to be included in income.

If crowdfunding proceeds are considered income, the question of the extent to which expenses can be deducted against those proceeds is raised. Several factors come into play:

  1. Is the activity a business or a hobby? If the crowdfunding activity is a business, then all trade or business expenses should be deductible. If it’s a hobby, expenses are only deductible to the extent of the income.
  2. Is the activity a startup? Some of the startup costs over $5,000 may have to be amortized under IRC sections 195, 248 or 709 over a 15-year period.
  3. What method of accounting does the activity use? Income from the campaign would be taxable in the year that it is received, but the expenses of fulfilling the obligations to backers may not be incurred until the following year. Cash-basis taxpayers especially should be mindful of the timing of their campaigns, ending them early in the year to allow the opportunity to incur expenses against those proceeds.
  4. What are the rewards to the backers worth? If the value of any of the rewards offered is difficult to assess (for example, a campaign creator may offer to come to a donor’s house to tend bar for a party), then some or all of a pledge may be considered a nontaxable gift or other contribution.

Until further guidance comes from the Internal Revenue Service, a common-sense assessment based on the above factors will be necessary to correctly report crowdfunding income and related expenses.

Jacob Freppel, CPA

2015 Year-End Payroll Tax Highlights & Updates

940 FUTA Unemployment Tax

The 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 yet to repay the money owed. In 2015, there are 4 states listed on this credit reduction list. Some of the state changes include:

  • Ohio .015 – still owes on the loan
  • Indiana .00 – repaid loan
  • New York .00 – repaid loan
  • North Carolina .00 – repaid loan

This means that instead of paying the 0.6% in 2015 for Ohio, there is an additional 1.5 % added, for a total of 2.1% for Ohio. The credit reduction will add up to approximately $105 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. Tax deposits must be made at the end of each quarter if your liability is more than $500. Line 11 of the 2015 Form 940 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 by January 31, 2016 along with any other outstanding liability.

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 2015 is $118,500. In 2016 the wage base will remain the same at $118,500.

For 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.


Ohio Wages and Withholding
The Ohio minimum wage is $8.10 per hour for 2015 and will remain the same for 2016. The tipped employee minimum wage is $4.05 per hour. The Ohio withholding tables were updated as of August 1, 2015, if your software has not been updated or manual payroll calculations, please check for the new amounts.

If you have any other questions, please contact William Vaughan Company.
Sandra Stone, Accountant

Health Care Tax Tip: Report Life Changes to the Marketplace

If you are enrolled in insurance coverage through a government Health Insurance Marketplace, it is particularly important you report changes in circumstances to the Marketplace to prevent unwelcomed surprises when your tax return is prepared. Plans and prices change every year and you may find a new health care plan that’s more affordable or works better for you, especially if your expected income or household for 2016 will change.

Reporting the changes will help you avoid having too much or not enough premium assistance paid to reduce your monthly health insurance premiums. Getting too much premium assistance means you may owe additional money or get a smaller refund when you file your taxes. On the other hand, getting too little could mean missing out on monthly premium assistance that you deserve.

Changes in circumstances that you should report to the Marketplace include:

  • Healthcare_RecordsMarriage or divorce
  • Birth or adoption of a child
  • Changes in income
  • Getting health coverage through a job or a program like Medicare or Medicaid
  • Changing your place of residence
  • Having a change in disability status
  • Gaining or losing a dependent
  • Other changes that may affect your income and household size

There is still time left this year to report changes. Update your income and household information by December 15, 2015. This will ensure any changes to your savings and plan take effect January 1, 2016.

By: Katie Mokry, Senior Accountant

Affordable Care Act: Reporting Coverage

Healthcare_PolicyUnder the Affordable Care Act, any entity providing minimum essential health coverage to individuals must report such coverage to the IRS and to the covered individual. Information reporting was voluntary for 2014; no one was required to file. However, the first information reporting returns are due to be filed in 2016 covering the 2015 year. Required employers that are “applicable large employers” (ALE) and employers of any size who maintain self-insured health plans will have to report their 2015 coverage to the government.

Generally, an employer will look to its employment numbers for 2014 to determine if it is an ALE for 2015. If the employer had at least 50 full-time employees, including full-time equivalent employees, during 2014, it will be considered an ALE for 2015.

Those required to file information returns will need to report information including:

  • The name, address, and employer ID number of the provider
  • The responsible individual’s name, address, and taxpayer ID number
  • The name and taxpayer ID number of every individual covered under the policy (employee, spouse, and dependents) and the specific months for which each individual was enrolled in coverage
  • For coverage under a group health plan, the name, address, and EIN of the employer sponsoring the plan; the SHOP plan’s identifier number, if applicable
  • Name and phone number of the provider’s designated contact person

Employers should be taking steps now to prepare for the upcoming filing season. In most cases, the health insurance carriers or issuers will prepare and file the necessary forms. Employers should be having discussions now with their carriers to verify filing responsibility. Those with self-insured plans will need to review their personnel records to ascertain they have all the required information. If an employer utilizes the services of a third-party payroll service, it should make sure all the information is available. Employers will also need to obtain monthly counts of full-time employees and total employees, and how many of these were offered coverage. Special rules apply where an employer offers a group medical plan and a separate Health Reimbursement Account (HRA).

The IRS has issued forms designated as 1094 and 1095 to be used to report the health insurance information. Forms must be filed with the IRS by Feb 29, 2016; employees must be furnished their forms by Feb 1, 2016. Filers with more than 250 forms must file electronically with the IRS. Don’t wait until early next year to start reviewing your records—make sure you can capture the necessary information from your payroll system now to avoid unnecessary problems later!

By: George Monger, CPA

Tax Planning: Recent Legislation Effects on Social Security

Miscellaneous_Time8Tax planning is always a helpful tool throughout the year, especially towards year-end. Each year accountants assist their clients with strategies to help ease the tax burden from Uncle Sam. The constant changing tax code and new legislation brought to you by our friends in Washington, sometimes is enough to make a taxpayer’s head spin. This year is no different.

On November 2, 2015, the Bipartisan Budget Act of 2015 was signed into law by President Obama. While this legislation doesn’t appear to deal with taxation issues on the surface, there are several items that were written into this law that are unrelated to the law’s actual intent.

One of these new provisions which comes into play with this new two-year deal limits a couple of planning strategies that were used by those benefiting from Social Security income.

Here’s a small summary for those that may be affected by this change:

  • Those that would benefit from the ‘file and suspend’ strategy. Listen up. This strategy has been eliminated by this Act being signed into law. “File and suspend” refers to when one of the taxpayers files for retirement benefits after reaching full retirement age and then they choose to turn around and suspend those newly requested benefits. This would in turn enable their spouse to be able to apply for spousal benefits. Effective in six months for new ‘file and suspend’ claims, if a taxpayer decides to hold off on receiving their Social Security benefits, neither the taxpayer or spouse can receive spousal benefits during that period. Since this is only affecting new claims after the effective date, those still considering doing this have six months to implement this strategy.
  • An additional strategy that has also been eliminated with this Act deals with one of the taxpayers filing for spousal benefits initially and then changing to receive their own, potentially more lucrative, benefit later by delaying their application for their retirement benefits. This strategy will still be available for those who are 62 on or before December 31, 2015.

The tax code is constantly changing and this is just one of many items that could affect how you wealth and tax plan for the future. If you have questions or require assistance is making sure you have an optimum tax strategy, give us a call at (419) 891-1040.

By: Jill Blakeman, CPA

Paying Down Student Loans

Graduating from college is exciting. Having to repay student loan debt, not so much. According to a recent analysis of government data, average loan debt for 2015 graduates was approximately $35,000.* Finding ways to get out of debt faster should be a priority. Here are some strategies that may help reduce student debt sooner.

On Track with a Budget

Everyone — not just new college grads — should have a spending plan that shows income and expenses and allocates money accordingly. Creating a budget is the best way to see how much discretionary money is available to apply toward a student loan and save for retirement at the same time.

Paying from the Get-go

Borrowers may have a grace period (usually six months) after graduation before loan payments are due. But starting the repayment process as soon as possible saves on borrowing costs, since interest that accrues during that time is added to the loan principal. Even paying only the interest can save money.

Loan Forgiveness

Education_College99Borrowers in certain career fields, including public service and education, may be eligible to have their loans partially or completely forgiven. Length of service and other eligibility requirements apply. Information on loan forgiveness programs is available at

 Paying Extra

Since federal and private student loans can be prepaid without penalty, paying more than the required minimum every month — even if it’s a small amount — can help reduce the balance faster. Borrowers should specify in writing that the extra amount should be applied to the loan principal. To save more in overall interest, extra payments should first go to the loan with the highest interest rate.

A Break on Taxes

Student loan interest of up to $2,500 may be deductible on a borrower’s federal income-tax return. Using a tax refund to make extra loan payments can be a valuable strategy.

Cash Contributions

Borrowers might consider using a bonus at work or gifts of cash to help prepay student loans.

* The Wall Street Journal, May 8, 2015

Accounting For Leases: Capital or Operating?

As business owners you may or may not be aware of the differences in accounting for a capital lease vs. an operating lease, or the future changes to be made to accounting standards. We are here to help!

Let’s begin with the basics of how we have historically accounted for leases under Generally Accepted Accounting Principles (GAAP). Capital lease or operating lease?

A capital lease is a lease which transfers substantially all of the benefits and risks of ownership of the leased item from the lessor to the lessee. A lease is considered a capital lease if it meets one or more of the following criteria:

  • The lease transfers ownership of the property to the lessee by the end of the lease term.
  • The lease contains a bargain purchase option. This is an option permitting the lessee to renew the lease or purchase the leased property for an amount that is sufficiently below expected future market value at the date the option becomes exercisable.
  • The present value of the minimum lease payments is at least 90% of the fair value of the leased property.
  • The lease term is at least 75% or more of the estimated economic life of the leased property.

Legal_Contract1For a capital lease, the transaction is treated as if an asset were being acquired with a corresponding liability incurred. At the beginning of the lease, the lessee records the present value of all future lease payments as the cost of the lease then record only the interest portion of each payment as an expense then recognize the disposal of the asset at the end of the useful life. The asset and liability are recorded at the lower of the present value of the minimum lease payments over the lease term; or the fair market value of the asset at inception of the lease.

An operating lease is any lease that does not meet one or more of the criteria for a capital lease. When accounting for an operating lease, the rented asset and the corresponding long-term liability are not recorded. Instead, rent expenses are debited periodically and cash (or a short-term accrued liability) is credited.

The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) have been working together to modify accounting for the rights and obligations regarding leases. The proposed accounting standards update primarily affects accounting for operating leases. The project has proposed recording long-term operating leases onto the lessee’s balance sheet. All long term leases will be recognized as either a capital lease or an operating lease for amortization purposes. Therefore, a leased asset and a leased liability will be recognized by capitalizing the present value of the operating lease commitments.

For lessees, recognizing lease-related assets and liabilities could have significant financial reporting and business implications. A couple implications that might be affected are debt covenants and borrowing ability, decisions about whether to lease or buy significant assets, and possibly the cost of borrowing, etc. Currently, these items have an effective date of January 1, 2018 or later. There is still a lot up in the air right now. Things could change and there are potential revisions to be made before it becomes effective.

By: Aubrey Forche, Staff Accountant

A Guide To Gifts & Taxes

Leaving a financial legacy is a wonderful achievement. However, there’s something to be said for sharing the wealth when you can experience the joy of giving. If you’re worried about taxes taking a bite, you might be surprised at how much you can give away before the federal gift tax becomes an issue. Here’s what you need to know.

How much can you give away tax-free?

For starters, you can make gifts of up to $14,000 (per person) to as many people as you wish during the 2015 calendar year and generally no gift tax will be due.* This gift-tax annual exclusion (which is periodically inflation adjusted) allows you to give away a substantial amount. For example, you could give eight grandchildren $14,000 each this year — $112,000 total — and no gift tax would be due. Your gifts can be cash, securities, or other property. And you can make the gifts to anyone, not just relatives.

Finance_Money6Married couples who satisfy certain tax law requirements can agree to split their gifts. With gift splitting, all gifts made by either spouse to third parties during the calendar year are considered made one-half by one spouse and one-half by the other. That way, a couple’s combined annual exclusion gifts can be as much as $28,000 per recipient.

What if you exceed the limit?

Gifts that aren’t protected by the gift-tax annual exclusion generally count against the cumulative amount that can be protected from gift and estate tax by your unified credit. This basic exclusion amount is currently $5.43 million.

Are there other times when the gift tax doesn’t apply?

An unlimited tuition exclusion allows you to pay tuition at qualifying educational institutions. An unlimited medical exclusion allows you to pay medical providers for unreimbursed medical costs. Note that payments must be made directly to the institution and/or care provider and may be made on behalf of any individual, related or not.

Transfers to spouses generally are not subject to gift tax due to a marital deduction (exceptions apply). Similarly, gifts to charities aren’t taxed in most circumstances because of a charitable deduction.

* To use the gift-tax annual exclusion, the gift generally must be of a “present interest” (i.e., the gift recipient’s enjoyment of the property can’t be postponed until sometime in the future).

Common Accounting Software Pitfalls

As an accountant, I have worked with many small businesses that purchase QuickBooks for their accounting software. Over the years, I have observed many of these businesses, large and small, make many of the same accounting errors. Here are just a few of the most common oversights and some tips to help avoid such mistakes.

Lack of accounting software understanding. QuickBooks is capable of offering meaningful reports and functions to assist small business owners. However, if the software is not set up correctly or wrong information is entered, reports will be incomplete. Your unhealthy reporting can lead to bad decision-making about the future of your organization.

Hiring the wrong person to handle your accounting. Be it a family member or even yourself, having the wrong person in charge of entering all the financial information into QuickBooks can be a disaster. It is essential to employ someone who understands general accounting principles, knows a debit from a credit, how to properly classify business expenses, and accurately record journal entries.

open laptop & reading glasses backlit and glowing from desk lampNot reconciling bank accounts on a monthly basis. Skipping routine accounting tasks due to an increase in business may seem like a good idea, but more often than not, it leads to wasting valuable time. At some point, you will have to address your accounting issues spend time reviewing prior months to check for errors. Take the time on a monthly basis to reconcile your general ledger.

Entering incomplete and delayed financial data into the software. In order to be able to reconcile your bank accounts, monthly posting of cash receipts and disbursements must be entered in a timely fashion. Simply recording cash receipts and disbursements into the bank without posting to the corresponding invoices will lead to critical errors on the financial statements. This brings to mind the adage “garbage in –garbage out” which will be no benefit in trying to make sound business decisions.

Underutilization of the accounting software. Many business owners use the accounting software to record their financial activity but never take the time to explore the various reporting options available. For example, accounts receivable aging will determine those customers behind in payment and possible issues with cash-flow. Profit and loss statements can help businesses determine if expenses are exceeding the budget and pinpoint the cause of excess costs. Making the most of your system and its report capabilities will guide you in the decision-making process and clearly state the profitability and efficiency of a company.

Not recognizing the need for accounting help. A business owner may have the next great product idea, but when it comes to the financial aspect they are clueless. An accounting professional is there to help you make sense of your financial data. Having a trusted partnership with an accountant will allow you to focus on what you do best, running a business.

Need help choosing the right software for your business? What about training? William Vaughan has qualified QuickBooks professionals who can guide you in software selection and implementation. We can also train your personnel. Sometimes just a quick email or phone call can save you valuable time and money William Vaughan offers a variety of  small business solutions. Click here to find out more!

By: Christine Schultz, Accountant