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

Outsourcing Mistakes to Avoid

Outsourced_mistakesWith today’s advanced technologies, many companies are enjoying the benefits of outsourcing. Whether you’re outsourcing your accounting, human resources or IT function if an experienced firm can do it smarter and faster, why not let them do it, right?

Experience has taught us that this theory may have significant truth. However, if you do not completely understand outsourcing and what it entails, success can be hindered. Whether you are new to outsourcing or considering switching providers, it is important to avoid these outsourcing mistakes to ensure a successful outcome.

Internal disorganization. If you are looking to outsource simply because everything is in disarray, it is time to “straighten up your house” first. Using outsourcing as a quick remedy may generate other obstacles which ultimately leads to poor results. Outsourcing the accounting function provides great standardized procedures for the pieces that are being outsourced, but if part of the workflow starts or ends in your office, you must first build your internal workflow to support the outsourced process.

Focusing solely on the price. While outsourcing is generally much more efficient than in-house processing, the old adage “you get what you pay for” is applicable. You should look for cost-effectiveness combined with accuracy, not necessarily cheaper.

Inability to identify your outsourcing needs. In some situations, it is not best to outsource every function. Only those processes outside of your core competencies. For example, a nonprofit that has customized contract billing on a governmental website. Is this something you want to outsource? One wrong entry and your funds could be held up for months. Let the program manager continue to do the invoicing and your outsourcing team can record the receipt of the funds!

Eliminating company guidance. If you choose to outsource your accounting function, you have moved the functional task from your plate onto another. But don’t kid yourself into thinking that you never have to think about it again. Your company must be involved with the numbers on a daily basis. The end goal is to have a clearer picture and be able to make quality business decisions based on real-time data. Communication and collaboration are key to ensuring your objectives and goals are being achieved and this involves internal participation.

Lack of internal processes. Outlining guidelines, processes and procedures are necessary to ensure success. Internally, these procedures must be set in place. If you have major cash flow challenges or a complicated and unique system that requires day-to-day decisions about what to pay and what to hold, outsourcing may complicate your system. If your challenges are a result of poor processes or lack of transparency, having a plan in place will make your outsourcing experience efficient and painless.

Remember the goal of outsourcing is to eliminate inefficiencies and provide clarity to make better business decisions. Taking the time to prepare your organization and avoid common mistakes will make the process much smoother and less costly. Now that you have taken the time to recognize what to avoid, download our presentation on how cloud accounting services can change your business

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By: Jessica Sloan, Marketing Manager

Hobby or Business? Significant Tax Implications of Both

Who knew you had a green thumb? You started gardening as a way to de-stress. Now, you’re growing exotic orchids in your family room. It was a pricey hobby until you learned how to propagate orchids and started selling them to other hobbyists. And now you’re thinking you might be able to turn growing orchids into an income source — and your hobby into a business.

Obusiness-vs.-hobbynce people start making money from their hobbies, they frequently start to deduct all of their hobby-related expenses. At this point, the IRS can become very interested in the nature of the taxpayer’s hobby/business. There are certain tax guidelines to keep in mind.

Deducting Expenses

If you earn income from your hobby, you generally can deduct bona fide hobby-related expenses up to the amount of the annual income your hobby generates. You must itemize to claim the deduction. Hobby expenses fall into the “miscellaneous” category, so they are grouped with any other miscellaneous expenses you have, and only the amount exceeding 2% of your adjusted gross income is deductible.

These restrictions don’t apply to business expenses. If you operate an active business, your business-related expenses generally will be deductible, even if they exceed your business income (limitations apply).

Passing the Test

The IRS won’t just take your word for it. It has a set of guidelines to determine whether a hobby qualifies as a business. First and foremost, you must be pursuing the activity with the goal of making a profit. If you’ve made a profit in three of the last five years (two of the last seven if your activity is horse breeding, showing, or racing), the IRS assumes you had a profit motive.

If you don’t meet the profit criteria, here are a few of the other questions the IRS may ask:

  1. Do you keep accurate books and separate your venture’s finances from your personal finances?
  2. Do you spend significant time and effort carrying out the venture?
  3. Does the activity involve a significant element of personal pleasure or recreation?

If you are not sure whether your hobby is a business, or you have questions about the criteria provided by the IRS, give us a call. We can help you accurately determine your expenses and ensure you are filing your taxes appropriately.

New Tax Cuts Approved By Governor Kasich

Governor-John-Kasich-Signs-Ohio-BudgetJust over a week ago, a two-year, $71.2 billion state operating budget was signed by Ohio’s Governor, John R. Kasich. This bill will provide income tax cuts for small businesses and individual taxpayers beginning in the 2015 tax year. Impending changes as a result of the new budget include:

  • Taxpayers may deduct the lesser of 75% of small business income or $187,500 ($93,750 per spouse) if the annual business earnings are less than $250,000. Taxes are to be eliminated for these small businesses altogether by 2016.
  • Small businesses earning over $250,000 will be taxed at a flat rate of 3%.
  • Individual income tax rates will be lowered to 0.495% for individuals earning less than $5,000 of income and max out at 4.997%.
  • The exemption for tangible personal property of a qualified energy project using renewable energy resources has been extended from 2016 to 2021 –  as long as the property meets all necessary requirements. In order for the exemption to be extended, the tangible personal property was exempt beginning in tax years 2011 through 2021 and the property’s certification must not have been revoked.
  • Municipal corporations and townships are permitted to levy a tax on sales in the tourism development district. This tax will be paid by the person making the sales at a rate of 0.5%, 1.5%, or 2% of gross receipts from sales within the tourism development district.
  • The tax on the use, consumption or storage of cigarettes will increase by $0.35 to $1.60 per pack.

After vetoing 44 provisions, most of which would have provided benefits to large businesses and industries, Kasich’s new budget will provide an overall 6.3% income tax cut in 2015 as part of a $1.9 million net tax reduction. Along with income tax cuts, the bill is expected to increase funding to schools grades kindergarten through 12 and police training. In addition,  it requires all state colleges to propose ways to cut student costs by at least 5%.

Additional information regarding Ohio’s new operating budget can be found here.

By: Halie Baker, Staff Accountant

Overtime Pay Proposal

W-white_room_workerRecently President Obama announced a major change in labor laws by introducing a proposal to update rules that would extend overtime pay to almost 5 million workers. Below are a few important points that are part of this proposal:

  • The threshold for salaried employees who are guaranteed overtime is proposed to increase from $455/week or $23,660/year to $970/week or $50,440 per year beginning in 2016. This new proposal guarantees overtime to equal the 40th percentile of weekly earnings for full-time salaried employees.
  • Minimum wage and overtime pay will be extended to almost 5 million workers within the first year of the proposal.
  • Millions or workers and employers will be provided more clear definitions of who should actually be receiving overtime pay.
  • Salary threshold for overtime pay will be adjusted automatically for inflation or wage growth over time.

This new proposal is estimated to cost new employers between $240 and $255 million per year in direct costs, according to the Obama administration. The administration plans for this proposal to be adopted by the end of 2015, resulting in implementation by January 2016.

By: Kristin Metzger, CPA

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

Ohio Means Internships and Co-ops Grant Program (OMIC)

The OMIC Grant Program was formed to connect businesses and higher education for the purpose of integrating academic work with experience in the business world. This program has been funded through one-time casino licensing fees.

Ohio_InternsThe OMIC grant is awarded to educational facilities to build  internship and co-op programs as they play such an important role in the in the State’s effort to attract, retain and reward students and businesses. The whole goal of the program is to prepare students to be work-ready when they graduate, allow businesses to interact with educational institutions and to help be responsive to the needs of students and businesses.

Student offerings:

  • Provides students the opportunity to assess career opportunities in key Ohio industries.
  • Allows them to apply the skills and knowledge they have learned in the classroom.
  • Exposes students to the work environment and ethics of the business world.
  • Means of income while working towards a degree.

Employer Offerings:

  • The opportunity to observe the skills and work ethic of potential future employees.
  • Creates opportunity for new ideas and creativity.
  • Wages are fully paid through the grant so there is not cost to the employer.

Employers who qualify for the grant must fall under Ohio’s targeted industry list:

  • Aerospace and Aviation
  • Automotive
  • Advanced Manufacturing
  • BioHealth
  • Consumer Products
  • Financial Services
  • Energy
  • Information Technologies and Services

Business Functions include:

– Headquarters and Consulting
– Back Office
– Logistics
– Research and Development

The following educational institutions have partnered with the State of Ohio for the OMIC grant program:

The University of Akron
Antioch College
Bowling Green State University
Central State University
Cincinnati State Technical & Community College
University of Cincinnati
Clark State Community College
Cleveland State University
Cuyahoga Community College
University of Dayton
Edison Community College
The University of Findlay
Kent State University
Lorain County Community College
Lourdes University
Marietta College
Miami University
The Ohio State University
Ohio University
Owens Community College
Rhodes State College
Southern State Community College
Stark State College
Terra Community College
Wright State University
Youngstown State University

This grant will allow businesses in key Ohio industries to hire students as interns or co-ops at no cost to them, making it a win-win situation for students and businesses. If you have questions regarding your organization’s qualifications, please feel free to contact us or go online to www.ohiomeansinternships.com

 

By: Amy Slates, CPA

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