New regulations that went into effect on January 1, 2012 provide expanded guidance on regulations for tangible property acquisitions, improvements, and dispositions.  Because these regulations affect any taxpayer that acquires, produces or improves tangible property, virtually every business is affected.

The major changes include:

-          Expanded guidance on whether maintenance expenditures incurred should be treated as repairs or are required to be capitalized, and a safe harbor for routine maintenance.

-          A modified definition of “material and supplies” and an election to treat certain materials and supplies under a new de minimis rule.

-          Expanded definition of “dispositions” to allow the write off of an old component if replaced with a capital improvement.

For your business to stay in compliance with the changing regulations, several steps must be taken today.  A detailed assessment of your capitalization policies should be analyzed.  If it is found that non-conformity with the new regulations exists, your William Vaughan Company representative can assist you in determining the tax effect, and modifying your company policies to achieve conformity.

It is likely that all taxpayers who use fixed assets in their business will be required to make a change in accounting method to comply with them.  The IRS is providing automatic consent to switch to a method of accounting provided in the new regulations, beginning with the 2012 tax filings.

William Vaughan Company can assist you today in carefully reviewing current ,future and past transactions to ensure these new regulations will work favorably for your unique business.

By: Lindsey Wisnewski, CPA

Although notices can be sent for a number of reasons, some of the most common reasons include: a change to the return has been proposed, there is a variance between estimated taxes paid as reported on the return compared to actually paid, or because additional information is required to support the information as reported on the return. As I mentioned, these are only a few of the most common reasons. A more comprehensive list can be found on both the IRS and Ohio Department of Tax websites, including the codes that categorize the notice.

Notices may be sent from a variety of taxing agencies, including the Internal Revenue Service (IRS), states, cities and school districts. If there is an issue and you receive a notice from the IRS, it is not unusual to receive a notice from another taxing agency for the same issue. It is important to respond to each notice you receive, even if it is for the same issue. Resolving an IRS notice will not resolve a notice for any state or local notice automatically.

When you do receive a notice, do not just put the notice under a pile of papers and hope it goes away! Just because you can’t see it, does not mean the taxing agency will forget about it. It is important to open and read the notice so that you have an understanding of what the notice is for, then provide a copy of the notice to your tax advisor.  If you ignore a notice the taxing agency will assume that you accept whatever changes they are claiming should be made to the return. If these changes result in an amount due, interest and penalties will begin to accumulate on the amount they consider unpaid, even if a response would have resolved the matter with no additional amount due.

In many cases, notices simply require additional information be provided to support the return as originally filed and changes are not made to the return. Often times, notices are computer generated and pick up any items considered discrepancies, even if the return is correct as originally filed. This is not always the case though, so it is important to provide a copy of the notice to your tax advisor to analyze and prepare the appropriate response or action. If you receive a notice with an amount due, do not just pay the amount due. Notices provide time for the claim being made by the tax agency to be reviewed, so your tax advisor will be able to let you know how much to pay, if there is still an amount due.

Also note, if you receive a notice from Ohio and you actually do have an amount due remember the Ohio tax amnesty program currently in act. The program runs until June 15, 2012. Additional information can be found on our blog or on the Ohio Department of Tax website.

So, what will you do if a notice comes for you? Don’t panic, open and read the letter, then provide us a copy here at William Vaughan Company. We will review the notice and provide you with guidance to resolve the matter and give you peace of mind.

By: Mark Sawyer, CPA

Example:  A receptionist who is an employee who makes extra money by cleaning offices during non-business hours as an independent contractor.

If the job the independent contractor is hired for ends up paying more than $599 in a calendar year, a 1099 Misc form will have to be issued.  The IRS pays close attention to individuals who receive a both a W-2 and 1099 form from the same company in the same year.  A possible employment tax audit for the entire business could be triggered from doing this.

If the job is performed outside of the normal employee’s work hours and the job has no relation to the regular work of that employee then it could be an exception, but be prepared to have to prove that to the IRS.  If the employee has a legitimate independent business with separate Federal ID number and works for other companies who pay the employee for that job would be the safer option.

Even though it may be easier to hire a current employee, it could open your company up to an audit risk and isn’t usually advised.   You can have the independent contractor fill out the IRS form SS-8 (Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding) and let the IRS determine the status of the work performed.

By: Sandra Stone, Accountant

An appropriate analysis provides the following:

1. A thorough review of the same information and documentation that an Ohio auditor would request (readying your business for audit should one occur).
2. As assessment of your operations/business activities to determine if your business qualifies for an exemption from sales and/or use tax (reducing your tax exposure).  Many companies are not aware of the exemptions for which they qualify.  The study would underscore applicable exemptions and identify the support needed to substantiate these exemptions.
3. Application for Ohio sales tax amnesty if applicable.  This amnesty program is only available from May 1^st, 2012 until June 15^th, 2012.  This program allows you to avoid penalties and one half of the interest owed on prior unreported sales taxes.
4. Application for Ohio use tax amnesty if applicable.  Use tax amnesty is available until May 1, 2013.  This program allows your business to report activity from January 1, 2009 and forward, avoid penalties and all of the interest owed on prior unreported use taxes.  What this means is that your potential liability will be waived from before January 1, 2009 and your business will only owe the tax incurred on purchases from January 1, 2009 and forward.
5. Issuance of a report highlighting your business’s deficiencies, if any, and providing suggestions for ongoing best practices.

The June 15, 2012 deadline for the Ohio sales tax amnesty program of is quickly approaching.  Consequently, now is a great time for your business review its sales and use tax position.

William Vaughan Company offers an Ohio Sales and Use Tax Analysis based upon guidance provided in the Ohio Revised Code and applicable court cases.  In addition, William Vaughan Company’s analysis is conducted by professionals who have direct experience in the application and reporting process associated with Ohio’s amnesty programs.  Please contact your William Vaughan Company representative for further information regarding this opportunity.

By: Nate Bernath, CPA

Most dental practices have great profit potential, but often that potential remains unrealized for a large portion of a dentist’s career because he or she never received the business training to fully maximize it.

Practice success depends on combining both excellent clinical skills and excellent business skills. The best leaders realize that they can’t do everything, and perform effectively. That’s why highly successful dentists surround themselves with excellent management systems and professionals. This allows them to focus on what they do best—practice superior dentistry and provide excellent patient care. William Vaughan Company can help you with best practices and assist your staff in getting the systems in place that allow you to focus your time on what you best.

By: Jennifer L. Furey, CPA

Additionally, there is an exception for those plans that routinely fluctuate between slightly more or less than 100 participants at the beginning of the plan year that would not require the plan to switch between being categorized as a “small” plan or a “large” plan due to inconvenience.   This rule is known as the 80-120 Participant Rule.  This basically states plans with between 80-120 participants at the beginning of the plan year may elect to complete the current year return using the same category (“small” versus “large”) that was used in the prior year.  Thus, if your plan had 110 participants at the beginning of this plan year but was considered a “small” plan in the prior year, then in the current year your plan is considered a “small” plan, which would generally not require an audit.  Also, in this instance, the plan would not require an audit in subsequent years until the number of participants exceeds 120.  On the other hand, if the plan had 110 participants at the beginning of this year, and was considered a “large” plan in the prior year, the plan would be considered a “large” plan in the current year and would need to meet the audit requirement.

The following table provides a summary of the 80-120 Participant Rule:

This is just a general guideline.  There are other factors that may influence whether an audit is required or not required by the DOL.  Contact your William Vaughan Company representative for further information.

By: Ryan Leininger, CPA

Nurses work to promote good health and prevent illness.  They educate patients and the public about various medical conditions,  treat patients and help in their rehabilitation, and provide advice and emotional support to their patient’s families.  Being a nurse is more than being a caregiver.  They embrace technology and new ways of thinking .

The US Department of Labor’s Bureau of Labor Statistics states registered nurses are the largest healthcare occupation and are projected to create the largest number of new jobs among all occupations through 2014.  They also spend the greatest amount of time in delivering patient care as a profession.  Nurses therefore have valuable insights and unique abilities to contribute with other health care professionals in improving the quality and safety of care as envisioned in the Affordable Care Act.

According to the Association of American Medical Colleges, by 2020 our nation will have a shortage of about 45,400 primary care physicians.  In order to deal with this potentially harmful shortage, many medical professionals believe it is important to train more nurses to become nurse practitioners.  In addition to providing many of the same services less expensively than physicians, nurse practitioners are focused on patient-centered care and preventive medicine.  Nurse practitioners may have less medical education than doctors, but they have far more training in skills like bedside manner and counseling.

Most individuals have some contact with a nursing professional. They may be a relative, friend or acquaintance and National Nurses Week is an excellent time to let them know we understand and appreciate the importance of their roles in the healthcare profession.

By: Diane Allman, CPA

Q. What can a charity do with a donated vehicle so not to affect its tax-exempt status?

There are four actions a charity can take with a donated vehicle that have no adverse effect on its tax-exempt status:

1. Sell the donated vehicle and use the proceeds to fund its charitable programs.
2. Use the vehicle for a significant period of time to conduct activities that further its charitable programs.
3. Make significant improvements to the vehicle, then sell it and use the proceeds to exclusively further its charitable programs.
4. Distribute the vehicle at a price significantly below fair value to needy individuals if its charitable purpose is to provide the needy with means of transportation.

Q. What filings and disclosures are required of a charity receiving a donated vehicle?

Scenario 1 – Vehicles with a fair value of less than $250 - no filings or disclosures are required by the charity.

Scenario 2 – Vehicles with a fair value of at least $250 but not more than $500 – the charity must send by the date on which the donor files his or her individual federal income tax return an acknowledgment (using its own written or electronic statement or Form 1098-C – Copy C only) to the donor that includes the name of the charity, a description (but not value) of the vehicle, and one of the following:

• A statement that no goods or services were provided by the charity in return for the donation, if that was the case
• A description and good faith and good faith estimate of the value of goods or services, if any, that the charity provided in return for the donation, or
• A statement that goods or services provided by the charity consisted entirely of intangible religious benefits, if that was the case

Scenario 3 – Vehicles with a fair value of more than $500 up to $5,000 – the charity must send within 30 days of the date it sells the vehicle or, if it does not intend to sell the vehicle, 30 days from the date of the contribution, an acknowledgment (using its own written or electronic statement or Form 1098-C – Copy C only) to the donor that includes the donor’s name and taxpayer ID number, the vehicle identification number, the date of the contribution, and one of the three bullet points noted above in Scenario 2.

All Scenario 3 acknowledgements must also include information on what the charity did or intends to do with the vehicle (see pages 5-8 in the pamphlet for additional required information) AND the charity must also report to the IRS on Form 1098-C – Copy A by February 28 (March 31 if filing electronically) of the year following the year in which the charity provides the acknowledgment to the donor.

Scenario 4 – Vehicles with a fair value of more than $5,000 – the charity must prepare the same information as in Scenario 3, plus an authorized official of the charity must complete  a portion of Section B of Form 8283 provided by the donor and sign it.   If the charity sells or otherwise disposes of the vehicle within three years after the date it received the vehicle, it must file Form 8282, Donee Information Return with the IRS within 125 days after the charity disposes of the vehicle.  The charity must give the donor a copy of the completed Form 8282.

By: Brent Ringenberg

The general amnesty program, created in the biennial budget, will run May 1 through June 15 this year and applies to several taxes, with a notable exception of the consumer’s use tax, which is the subject of a standalone amnesty program.

Tax Commissioner Joe Testa said the state expects to bring in $36 million, plus $4.2 million for local jurisdictions whose taxes are covered under the amnesty, such as school district income tax. A similar amnesty program offered in 2006 brought in nearly $60 million, according to the department.

Any person with outstanding taxes due as of May 1 is eligible, no matter how far back the liability stretches, unless the department has already initiated an audit or issued an assessment for the amount due. Those opting for amnesty will have penalties forgiven and pay only half the owed interest, which Testa said is levied at 3% plus the federal short-term rate.

Eligible taxes include the following:

• Individual income
• Individual school district income
• Commercial Activity
• Sales and seller’s use
• Employer withholding
• School district employer withholding
• Corporation franchise
• Pass-through entity
• Estate
• Gross receipts of a natural gas company or combined electric and gas company
• Motor fuel
• Cigarette or tobacco products
• Dealers in intangibles

Tax Commissioner Joe Testa said increasingly sophisticated software is making it easier for the department to find those with outstanding taxes or identify areas where there likely are unpaid taxes.

Testa said the department decided to pursue a separate amnesty program for consumer’s use tax because audits in recent years have shown it to be the least understood tax. He said the previous administration had already been planning a public awareness campaign to address the problem, and the Kasich administration decided to redesign, extend it and pair it with an amnesty program.  “The feeling was it deserved special attention and a longer period of time and more forgiveness,” he said.

Call William Vaughan Company with your questions about the general or use tax amnesty programs.

 By: Sharon Trabbic, COO

HIGHER MEDICARE PAYROLL TAX ON WAGES

Effective for tax years beginning after December 31, 2012, an additional 0.9% hospital insurance (HI) tax is imposed on wages in excess of $250,000 for married taxpayers filing a joint return, $125,000 for married taxpayers filing separately, and $200,000 in all other cases (single or head of household).

This additional tax, subject to employees only, will effectively raise the rate on wages over the relevant thresholds mentioned above from 1.45% to 2.35%. Although the tax will not apply to the employer portion, employers do have a withholding obligation and are liable for the tax if they fail to withhold the required tax from employees.

There is a potential under-withholding problem faced by married taxpayers. Because employers are required to withhold the tax ONLY on wages in excess of $200,000 of the employee, and are NOT responsible for taking wages received by a spouse into consideration, the 0.9% HI tax will NOT be withheld and the additional amount will be reported when the couple files their tax return.

There is also a possibility for some married taxpayers to receive a tax credit for amounts overpaid when combined wages do not exceed $250,000. For example, taxpayer and spouse file a joint return. Taxpayer earns wages of $240,000 for 2013 and spouse has no earned income (wages). The employer would be required to withhold 2.35% (1.45% plus the additional 0.9%) on the excess of the taxpayer’s wages over $200,000. However, when filing their joint return, combined wages do not exceed $250,000 and the amount taxed at the additional 0.9% would be refunded.

Keep in mind the new 0.9% HI tax is a tax for purposes of the underpayment of estimated tax penalty and the couple may have to increase their withholding or make additional estimated tax payments to avoid a penalty for underpayment of estimated tax.

MEDICARE PAYROLL TAX EXTENDED TO INVESTMENTS

Also beginning in 2013, a new 3.8% Medicare contribution tax will be imposed on high-income individuals whose unearned income exceeds the same relevant thresholds mentioned above. This tax, the unearned income Medicare contribution tax (UIMCT), is equal to 3.8% of the lesser of: (1) Your net investment income (generally, net income from interest, dividends, annuities, royalties and rents, capital gains and income from a business that is considered a passive activity) or (2) your modified adjusted gross income.

Now is the time to begin planning for these new taxes in order to mitigate their impact in 2013. Opportunities to minimize this liability exist and include allocating assets that generate high income into an IRA, use of annuities to shield income, tax free investments, and the use of growth investments in lieu of income-generating holdings.

By: Katie Mokry, CPA