Agribusiness Tax Savings – Hire Your Spouse!

In small family farm operations it is common for spouses to provide a variety services such as bookkeeping, payroll, providing meals for workers, feeding livestock, moving workers from field to field, and even taking grain to the elevator. If your spouse does any of these and  more for the family farm, it may be tax advantageous for your to pay them a fair wage. These wages can either be paid as cash wages or commodities.

Agribusiness_Combine10Cash wages are subject to Social Security and Medicare taxes in addition to any federal and state withholdings. Commodities are not subject to Social Security or Medicare taxes and are also not subject to the federal income tax withholding rules.

If you feel commodity wages are the route you wish to take, you must make sure the following:

  • payment is for agricultural labor
  • the employee exercises control of the commodity,
  • the payment is not equivalent to cash
  • the employer puts the fair market value of the commodity (at the time of transfer) in box 1 of the W-2. If there is any gain or loss when it comes time for the employee to sell the commodity, they will record the gain or loss as a short-term gain or loss on Schedule D of their tax return.

If you feel that cash wages are the way to go, know they can be used to calculate the Domestic Production Activities Deduction.

Farmers who are subject to self-employment tax have the ability to deduct their health insurance before Adjusted Gross Income is calculated. While this is a great deduction, it does not help the farmer save on any of their self-employment tax liability. If the farmer employs his or her spouse, they have the ability to pay family coverage in the spouses name and deduct it through the business. Be careful as this will be disallowed if the spouse works for another employer that provides subsidized health insurance.

Talk to your farm tax advisor to see which option is most tax advantageous for you.

By Ella Herr, Staff Accountant

EMV Credit Card Liability Shift

Over half of the world’s credit card fraud occurs within the United States where magnetic stripe credit card technology remains standard. Outside the U.S., EMV technology has significantly reduced counterfeit fraud levels and has become the model of the future.

EMV, or Europay, MasterCard and Visa, is the global standard for cards equipped with computer chips and the technology used to authenticate chip-card transactions. A small, “smart” microprocessor computer chip embedded in the card makes it nearly impossible to counterfeit. Unlike current payment terminals which require customers to ”swipe” their card, EMV technology involves the insertion of the card into a processor so the chip can be read and customer data received.

emvThe EMV shift has finally arrived in the United States! October 15, 2015 marks the deadline for compliance required for both merchants and card issuers. Merchants must obtain new devices to read customer’s card. In addition, the card issuer will issue new cards with embedded chips. Currently, if a merchant processes a fraudulent card, the card issuer absorbs the cost. However, as of October 15, if someone pays with a fraudulent chip card and a merchant has failed to upgrade to an EMV reader, the liability falls on the merchant, hence the term “liability shift.”

There are multiple ways in which an EMV payment system will take payments. It is recommended that merchants review their existing POS equipment or systems to learn if upgrades are possible or whether new EMV-compatible POS hardware must be purchased. Merchants should take into consideration their business setting when determining what equipment is best (contact, contactless, etc.). It is suggested that merchants contact their current processors and ask about potential equipment upgrades. EMV-compatible terminals have been on the industry’s radar for a while now, and it is very likely that most processors have an offering that will work with the merchant.

So why the change?

It is estimated that credit card fraud costs card issuers over $8 billion a year. In the wake of numerous large-scale data breaches and increasing rates of counterfeit card fraud, U.S. card issuers are migrating to this new technology to protect consumers and reduce the costs of fraud. Most of the world, including Europe, has been using chip cards for years. The United States is actually the last major market still using magnetic-stripe-only cards.

If you haven’t considered making the upgrade to EMV, now is the time to start thinking about making the change. Discuss the upcoming liability shift with your POS provider to ensure you’re ahead of the game. Although upgrading to an EMV system may seem costly now, the cost of a security breach will be much, much higher.

By: Jessica Sloan, Marketing Manager

Do You Own An Interest In A Foreign Business?

Every five years the U.S. Department of Commerce, by way of the Bureau of Economic Analysis (BEA), requires individuals, estates, trusts, or businesses who own more than a 10% interest in a foreign company to complete a survey on Forms BE-10. The entity owning a foreign business is required to file at least two forms, one based on their own data, and one based on the data of each foreign company they own. The last such survey was conducted based on 2009 data, which means the BEA is now requesting the survey to be completed based on 2014 information.

Business_Globe3In the past, this survey was a backburner item for most, as it was only required to be completed if the BEA specifically contacted an entity, requesting them to complete the forms. This meant that the majority of entities were able to get by without ever actually completing the survey. However, this all changed in November of 2014 when the BEA announced it was broadening its scope of those required to complete the forms. As a result of this modification, the BEA is now requiring the completion of the forms by any entity who, at any point during a given year, owned 10% or more of a foreign company, regardless of whether or not they were actually contacted by the BEA.

This is an extremely significant change since it is likely that most entities subject to this requirement are not aware that these forms even exist. In addition, failing to complete the survey could result in some fairly large fines, including civil penalties starting at $2,500 and capping at $25,000, and criminal penalties of up to $10,000. Also, if the entity required to file is an individual, and they fail to do so, they may be subject to imprisonment for up to one year. These hefty fines and penalties mean that it is important for entities to know if they may be subject to the reporting, and to make sure they complete the reporting on time.

As previously stated, the general requirement is that the forms should be completed by any individual, estate, trust, or business, who at any time during 2014 owns a 10% or greater interest in a foreign company. It is important to note that this ownership interest includes both direct and indirect ownership. Indirect ownership means that if an entity owns an interest in a business, and that business in turn owns a greater than 10% interest in a foreign business, the first entity may be required to complete the forms, since they may indirectly own more than 10% of the foreign company. With that being said, there are some exceptions to this general requirement, which means it is important to consult with your WVCO advisor as to whether or not your specific situation falls under the requirement umbrella.

Probably the most important item to keep in mind is the due date of the forms. Depending on how many forms an entity is required to file, the due date may differ. For 2014 data, the due date for entities filing less than 50 forms was May 29, 2015, and the due date for entities filing more than 50 forms had been pushed back from its original June 30, 2015 deadline. The BEA may grant extensions until July 31  or August 31, 2015, and are to be considered granted otherwise unless the BEA contacts you. With this deadline fast approaching, please feel free to give our office a call so we can aid in determining your status, and assist in getting the required forms submitted on time.

By: Ruben Becerra, Staff Accountant

Mid- Year Tax Planning Ideas

The earlier in the year you have an opportunity to talk to your accountant about 2015 tax planning opportunities, the more likely you will be able to take advantage of them before the filing season begins. More often than not, accountants only talk to clients at year-end and there have been changes in your life that can affect tax planning. Some of the areas to consider are education planning, retirement, marriage or even divorce.

Education planning is important to parents and their college-bound children. The cost of college is increasing at an alarming rate. The tax-favored 529 plan is an option for both parents and grandparents in planning for tuition. The 529 plan contributions accumulate untaxed and if spent on qualified education expenses are never subject to income tax.

Retirement planning can be beneficial to help you achieve your long-term goals. The maximum 401k contribution for 2015 is $18,000, an increase of $500. The catch-up contribution for those over 50 years old has increased to $6,000. If you are thinking of retiring before being eligible for Medicare, the cost of health care coverage needs to be considered.

Family16When clients are about to get married, financial issues need to be discussed. Review all financial accounts and decide whether they should be jointly registered. The future spouse will need to know where investment accounts are and how to access. Clients should update wills and beneficiaries or even speak with an attorney about a prenuptial agreement. Health insurance and life insurance coverage should be updated. There is also the Medicare surtax on higher income earners. The threshold for being subject to the 3.8 percent surtax on net investment income is $250,000 for married filing jointly. Also, making any needed adjustments to tax withholding to help ensure there is not a huge bill on April 15 or a large overpayment.

Then there is the unfortunate reality of clients getting divorced. The same items discussed when getting married will apply. Financial accounts separated, wills changed and tax planning for a single income. The client may have to restrain spending in the short-term future until matters are settled.

Some clients might come out of a mid-year tax review session without needing to change anything. Even so, it is a reminder that your accountant is another valuable resource in planning for your future.

By: Diane Cook, Accountant

Relief for Small Non-Profit Organizations Seeking 501(c)(3) Status

Our firm has recently received a number of questions from non-profit organizations asking about the simpler method that the IRS now offers to apply for 501(c)(3) tax-exempt status. The fact is that there is now a streamlined Form 1023-EZ that can be used to apply for 501(c)(3) status, however, it doesn’t apply to all organizations.

Before July 1, 2014, the only way to apply for 501(c)(3) tax-exempt status was to complete Form 1023, which can be up to 26 pages long, depending on which schedules are applicable to the organization. Since July 1, 2014, there is an alternate 3 page online Form 1023-EZ application available to small nonprofit organizations meeting certain criteria. This new electronic application should help speed up the time it takes the IRS to process and approve the tax-exempt taxexemptstatus requests.

The instructions for Form 1023-EZ include an eligibility questionnaire comprised of 26 yes or no questions. If the organization answers “yes” to any of the questions, the organization is not eligible to file the Form 1023-EZ. Some of the main factors which may disqualify organizations are

  1. if the organization projects annual gross receipts will exceed $50,000 in any of the next three years,
  2. the organization has had gross receipts exceeding $50,000 in any of the past three years, or3) the organization has total assets in excess of $250,000. Organizations that do not qualify to file Form 1023-EZ would use Form 1023.
  3. the organization has total assets in excess of $250,000. Organizations that do not qualify to file Form 1023-EZ would use Form 1023.

Organizations that do not qualify to file Form 1023-EZ would use Form 1023.
If an organization qualifies to file the Form 1023-EZ, it must complete the form on www.pay.gov. The organization must have an Employer Identification Number and be a corporation, an unincorporated association or a trust. It also requires organizing documents (such as Articles of Incorporation, if a corporation) with a specific language required. A $400 fee is also required to be paid by the organization when filing the 1023-EZ that must be paid by a credit or debit card or automatic debit from a bank account.

More details regarding Form 1023-EZ can be found in Rev. Proc. 2014-40 or on the instructions for the Form 1023-EZ. Please also feel free to call our office at 419-891-1040 with any questions.

By: Brent Ringenberg, CPA

10 Things You May Not Know About an LLC

Object_MagnifyYou probably know of several businesses whose formal names end with the acronym LLC. And you probably also know that LLC stands for limited liability company. Here are ten things you may not know.

  1. An LLC generally protects its owners from personal liability for information on llcbusiness obligations in much the same way a corporation does, but an LLC is not a corporate entity.*
  2. Like a corporation, an LLC can do business in multiple states, although an LLC must be organized in a specific state.
  3. The owners of an LLC are called “members.” There is no limit on the number of members an LLC can have, and members don’t necessarily have to be individuals. Members’ management roles are typically spelled out in an operating agreement.
  4. Upon formation of an LLC, the members contribute cash, property, or services to the LLC in exchange for LLC shares or units.
  5. An LLC may borrow money in its own name and is responsible for repayment of the debt.
  6. An LLC is usually treated as a partnership for federal income-tax purposes. (The remaining four points assume partnership treatment.)
  7. Like partners, LLC members are not considered employees of the company. However, an LLC can have non-member employees.
  8. LLC members are taxed directly on company income. The LLC itself doesn’t pay federal income taxes.
  9. If an LLC has a loss, its members generally can deduct their share of the loss on their own tax returns.
  10. For tax purposes, an LLC’s income and losses are divided among its members according to the terms of their agreement. Tax allocations must correspond to economic allocations of profit and loss.

An LLC is but one structure you might consider using for a business venture. We can help you determine which type of arrangement will best meet your objectives.

* Each state has its own laws governing LLCs. Consult with an attorney before establishing an LLC.

Borrowing from Yourself — Not Always the Best Plan

Where can you turn if you need cash in an emergency? Some people turn to their 401(k) plans. After all, you’re borrowing your own money and paying it back to yourself with interest.

But taking a loan from your 401(k) plan may put you at risk of not reaching your retirement goals. Before you take any money from your retirement account, take the time to review its impact and the rules associated with 401(k) plan loans.

On the Plus Side

If your plan permits loans (and not all plans do), you’ll generally be able to borrow up to half of your vested plan balance, capped at $50,000. Taking a loan from your plan may be easier and faster than getting a loan from a traditional financial institution. And you’ll usually repay the principal and interest to your plan account through automatic payroll deduction.

Finance_Money9

On the Minus Side

The money you borrow will no longer be in your account benefiting from tax-deferred growth. Plus, you’ll be repaying the loan with after-tax dollars.

That means the money used for repayment will be taxed twice, since you’ll pay tax on it again when you withdraw it at retirement. And, if you have trouble contributing to your plan account while you’re making loan payments, you might end up with less saved for retirement than you need.

And the really bad news? If you leave your employer for any reason, you’ll usually have to repay the entire loan balance within 90 days or it will be considered a taxable distribution, requiring you to pay income tax on the amount of the loan. Furthermore, you may potentially owe a 10% early withdrawal penalty on the amount in addition to taxes.

Hardship Withdrawals: A Last Resort

If you’re faced with a financial emergency and you’ve already borrowed all you can, you may be able to take a hardship withdrawal from your 401(k) plan account. You must have an immediate and heavy financial need, such as medical expenses that aren’t covered by insurance.

You usually can withdraw the money you’ve contributed, but not employer contributions or earnings. You’ll owe income tax and, possibly, an early withdrawal penalty. You won’t be permitted to make contributions to your plan for six months after the hardship withdrawal is made. And, unlike a plan loan, withdrawals cannot be repaid to the plan.

Bike Your Way to Some Tax Savings

Summer is here! Almost. With the nice warm weather, who wants to be cooped up in their car every day on their way to work? Many American’s across the country have taken up alternative travel arrangements to get themselves out of the isolation of their cars. Finding other ways to get around town is a great thing for their health and the environment, but what many employees are unaware of is it could be good for their pocketbooks as well!

BikeToWorkGas is expensive! So, put aside the obvious fact that biking to work would save some serious dough and consider the possible tax benefits to making the daily environmentally conscious commute to work. That’s right…tax benefits.

The Internal Revenue Service has decided that Qualified Bicycle Commuting Reimbursement in the amount of twenty dollars ($20) per Qualified Bicycle Month can be excluded from their employees’ wages. A Qualified Bicycle Month is any month:

  • In which an employee uses their bicycle on a regular basis for a substantial portion of commuting to their residence and place of employment and,
  • The employee does not receive any transportation in a commuter highway vehicle. The employee doesn’t receive a transit pass or any qualified parking benefits.

Of course, the employer can provide a benefit over the twenty dollar threshold, but any amount over the exclusion limit would be required to be added to the employees’ wages. One of the nice benefits of this twenty dollar exclusion is the fact that even though the employees are not taxed on this exclusion amount; the employer can still deduct it as an expense against their own taxes.

So while twenty dollars per month isn’t a huge amount, wouldn’t it be nice to receive that benefit if you planned on the alternative traveling this summer! Save some money, good for the environment, and good exercise, seems like a win-win.

By: Jill Blakeman, CPA

Student Loan Deduction

With the ever-increasing cost of higher education, most students (or their parents) will have loan payments that extend long after the cap and gowns are put away. The good news is that the interest paid on student loans may provide you an income tax deduction.

The deduction can reduce the amount of your income subject to tax by up to $2,500. The student loan interest deduction is claimed as an adjustment to income—meaning you can claim it even if you don’t itemize deductions on Schedule A.

Education_Graduation11Deductible interest on a qualified student loan means a loan you took out to pay for qualified education expenses including tuition, room and board, and books, supplies and equipment for attendance at a postsecondary educational institution. This includes most accredited colleges, universities, and vocational schools. Loans for attending graduate school qualify as well.

The loan must be to pay educational expenses for you, your spouse, or a person who was your dependent when you took out the loan. The student must be enrolled at least half-time in a degree program.

The amount deductible is phased out for those with modified adjusted gross income of over $65,000 ($130,000 if married filing a joint return). Married individuals filing separately cannot take the deduction. You cannot take the deduction if you are claimed as a dependent on someone else’s return.

There are no time limits for taking the deduction; as long as you are making payments on the student loan, the interest is potentially deductible. The deduction is available only to persons legally obligated to make payments under the terms of the loan.

No one enjoys having outstanding student loans long past graduation, but realizing the income tax savings can help take out some of the sting of making the payments.

By: George Monger, CPA

The Ohio Sales Tax Holiday Will Soon be Upon Us!

Are you planning on doing any clothing or back-to-school shopping?

Make sure to mark your calendars as August 7th-9th is the Ohio sales tax holiday! Legislators in the Ohio House approved a Senate plan that will waive sales taxes for just this one weekend in August.

Shopping-SalesDuring the holiday, the following items are exempt from sales and use tax:
 An item of clothing priced at $75 or less;
 An item of school supplies priced at $20 or less; and
 An item of school instructional material priced at $20 or less.

Get ready and let the savings begin!

By: Courtney Elgin, CPA