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Please note: Our offices will be closed on July 16 and 17 for Employee Appreciation Days.
Summer hours are in effect: Our offices close at NOON on Fridays from May 17th to July 12th
Please note: Our offices will be closed on July 16 and 17 for Employee Appreciation Days.
If you’ve been bitten by the net investment income tax (NIIT) in the past three years, you may now be ready to explore strategies that avoid or reduce your exposure. This surtax can affect anyone with consistently high income or with a big one-time shot of income or gain.
Let’s review the basics of the NIIT. Congress passed the 3.8% Medicare surtax on investment income in 2012 to help pay for the Affordable Care Act. The surtax became effective for tax years beginning after December 31, 2012. The NIIT affects taxpayers with modified adjusted gross income (MAGI) above $200,000 for a single person, above $250,000 for a couple, and above $125,000 for a married person filing separately. (MAGI is generally the last number on page 1 of your Form 1040 – your gross income less certain allowable deductions.) Notably, a marriage penalty is built into this surtax and the surtax threshold levels are not indexed for inflation going forward.
The amount of net investment income subject to the NIIT is the lesser of (1) your net investment income or (2) the amount by which MAGI exceeds the threshold discussed above.
What income is subject to the NIIT? Generally net investment income includes the following:
Strategies to Reduce Your Net Investment Income:
Strategies to Reduce Your Modified Adjusted Gross Income:
As you can see, higher income taxpayers with investment income have some planning options when it comes to limiting the impact of the surtax, but in many cases, there may not be a way to avoid it. Bottom line? The NIIT is complex and all strategies should be discussed with your tax and investment advisors before implementation to avoid other unintended tax consequences.
In a update issued January 28, 2016, the Internal Revenue Service stated that beginning February 29, 2016, Form 990-N electronic submissions will be accepted through IRS.gov instead of Urban Institute’s website.
Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or Form 990EZ, is used by small, tax-exempt organizations for annual reporting and can only be submitted electronically.
Aside from the submission site change, 990-N filers will be required to complete a short, one-time registration before submitting their electronic form to IRS.gov.
Previously-registered organizations may continue using the Urban Institute website through February 28, 2016.
For more information, visit the Form 990-N webpage.
As the calendar dates begin to move ever closer to tax filing time, the anxiety may also begin to build. Most people do not eagerly anticipate the task of gathering their information for their taxes. For that reason, we have put together some steps that many of our clients have used that not only streamline the process for your tax preparer, but more importantly increase your efficiency and reduce the amount of stress associated with tax filing season.
Develop a filing system that works best for you. It could be a simple folder or a multi-file box. When you receive tax documents, place them in the filing system to keep them all in one place and avoid misplacing any of your tax information.
Tax forms typically come through the mail. Some issuers, however, are now offering the option to access your year-end tax forms online or via email. If you receive your forms electronically, you should set up a folder on your computer to gather and organize tax documents. This creates a similar system to the one discussed above for paper documents.
If you itemize deductions, you will need to gather additional documentation. The major categories of itemized deductions include:
Stockman Kast Ryan + Co mails tax organizers to all of our tax clients during the month of January. If you are a client and we prepare your Form 1040, but you have not received a 2015 tax organizer, please contact your tax preparer and we will make sure that you receive a copy of the tax organizer. The organizer contains questions about current year taxable events, and it also lists the detail for income and expenses from the prior year tax return. Using the prior year tax return information is a great starting point to to see if anything was overlooked while collecting tax forms. We also suggest updating any information that is no longer applicable to your particular tax situation and using the questionnaire portion of the organizer to help identify any events during the year that would have tax implications.
As you begin to collect tax documents and review the prior year information in the tax organizer, it is a good idea to develop a list of missing items. While you work on gathering the missing items, you should go ahead and schedule your tax appointment with our firm. It is better to do this early on because we can discuss any additional documentation that might be necessary for the current tax year and also determine if your tax return should be extended. Extending the tax return while waiting for missing items may provide peace of mind.
In today’s world, criminals are finding new ways to steal a person’s personal information and eventually their identity. Tax forms contain personal information and should be transmitted with care when sent electronically. AT our firm, we have a secure email system that allows you to send us files securely. You can access this feature directly from our website, www.skrco.com, on the Contact tab here. Please feel free to ask your tax professional if you need help with this feature or to inquire about a client portal.
By following the previous four steps, gathering your tax documents and submitting them to our firm will be less of a burden. Not only will you feel more organized, but your tax preparer will appreciate your effort!
For the most part, the Affordable Care Act has flown under the radar of many dental professionals. Yet the reality is that “Obamacare” includes provisions that will impact the dental profession. Make time now to bone up on the ACA’s potential impact to your practice’s bottom line.
Under the ACA, pediatric oral care benefits are considered to be “essential health benefits” that must be covered by all insurance policies, whether purchased through the insurance exchange or not.
Each state determines what will be covered as part of essential health benefits. In Colorado, for example, all children ages 0 to 18 years must have dental coverage through the purchase of a pediatric dental benefit, or by enrolling in Child Health Plan Plus (CHP+) or Medicaid. Currently, the Colorado health insurance exchange offers 14 dental plans through five carriers.
Note that dental benefits can be purchased as a “stand-alone” dental plan or through a dental plan that is “embedded” into the general medical coverage. This means that your office administrator and billing staff will need to learn how to file claims for dental coverage embedded within a general medical insurance policy.
Plain and simple, the Affordable Care Act will increase the number of patients who are eligible for dental services. According to the American Dental Association, expansion of dental benefits under the ACA (including Medicaid expansion) will generate some 11 million pediatric dental visits and 1.7 million adult dental visits.
This means you’ll need to gear up for two distinct challenges:
Many dentists find that there are far fewer administrative issues and fewer disputes over payment when working with Medicaid than with private insurance providers. According to Colorado’s Cavity Free at Three initiative, the state is considered to be one of the best for doing business with the Medicaid population. The state is responsive to concerns, reimburses for services quickly, and doesn’t require a lot of wait time for prior authorizations.
Dental practices would be well served to perform a financial analysis of the ACA’s impact on their bottom line. That would include determining if accepting this new crop of dental patients makes financial sense — as well as deciding how many new patients to accept if it does.
For example, dental practices that are used to collecting at the time of service will need to adjust to the often-lengthy claims process. They will also incur costs to hire or train staff who are experienced in filing medical claims. (Filing a “clean claim” can mean the difference between a profitable visit and one that drains the bottom line.)
Dentists also need to keep in mind that the new 2.3 percent medical device excise tax imposed by the ACA may well drive up their costs. The tax is imposed on the manufacturers of medical devices, yet many believe that these costs will be passed down to the dentist and eventually the patients they serve.
According to the ADA, the Affordable Care Act may increase dental spending by $4 billion, with the largest effect seen in the Medicaid population. Ultimately, practices that are prepared to handle these newly insured patients could benefit. Please feel free to contact our office for assistance with performing a financial forecast to understand how the Affordable Care Act could affect your practice.
Nonprofits often struggle with valuing noncash and in-kind donations, including the value of houses or other buildings. Whether for record-keeping purposes or when helping donors understand proper valuation for their charitable tax deductions, the task isn’t easy.
Although the amount that a donor can deduct generally is based on the donation’s fair market value (FMV), there’s no single formula for calculating FMV for every type of gift. (Note: This article focuses on valuing gifts for tax purposes rather than financial accounting purposes.)
The IRS defines FMV as the price that property would sell for on the open market. (A donor can’t claim a deduction for the contribution of services.) For example, if a donor contributes used clothes, the FMV would be the price that typical buyers actually pay for clothes of the same age, condition, style and use.
If the property is subject to any type of restriction on use, the FMV must reflect that restriction. Say a donor contributes land to your not-for-profit and restricts its use to agricultural purposes. The land must be valued for agricultural purposes, even though it would have a higher FMV for nonagricultural purposes.
Ultimately, FMV must consider all facts and circumstances connected with the property, such as its desirability, use and scarcity.
According to the IRS, there are three particularly relevant FMV factors:
1. Cost or selling price. The cost of the item to the donor or the actual selling price received by your organization may be the best indication of the item’s FMV. Because market conditions can change, though, the cost or price becomes less important the further in time the purchase or sale was from the date of contribution.
For example, you may have paid $2,500 for a top-of-the-line computer in 2010. But that computer certainly isn’t worth $2,500 in 2016 because it’s no longer top of the line. It may still have some value, though.
A documented arm’s-length offer to buy the property close to the contribution date may help prove its value to the IRS. The offer must have been made by a third party willing and able to complete the transaction.
2. Comparable sales. The sales price of a property similar to the donated property often is critical in determining FMV. The weight that the IRS gives to a comparable sale depends on:
The degree of similarity must be close enough that reasonably well-informed buyers or sellers of the donated property would have considered that selling price. The greater the number of similar sales for comparable selling prices, the stronger the evidence of the FMV.
It’s important, though, that the transactions take place in an open market. If the sales were made in a market that was artificially supported or stimulated, they might not be representative or indicative of the FMV. For example, liquidation sale prices typically don’t indicate FMV.
3. Replacement cost. FMV should consider the cost of buying, building or manufacturing property akin to the donated item, but the replacement cost must have a reasonable relationship with the FMV. And if the supply of the donated property is more or less than the demand for it, the replacement cost becomes less important to FMV.
If a business contributes inventory, it can deduct the smaller of its FMV on the day of the contribution or the inventory’s basis. (The basis of donated inventory is any cost incurred for the inventory in an earlier year that the business would otherwise include in its opening inventory for the year of the contribution.) If the cost of donated inventory isn’t included in the opening inventory, its basis is zero and the business can’t claim a deduction.
Inventory that may receive a better valuation than other inventory includes that which is used solely for the care of the ill, needy or infants; book inventory or food for public schools; and scientific property for research. In addition, certain industries, such as the pharmaceutical industry, have specific standards for valuing donated inventory.
Even if a donor can’t deduct a noncash or in-kind donation (usually a piece of tangible property or property rights), in some instances you may need to record the donation on your financial statements. Recognize such donations (including the donation of services) at their fair value, or what it would cost if your not-for-profit were to buy the donation outright from an unrelated third party.
If you have questions about determining fair market value, we would be happy to help you.
Do you bite your nails before your entity’s external audit each year? Does your staff start showing signs of anxiety in anticipation of the auditors walking in the door?
If this sounds like your situation, take a deep breath. Here are five tips for making the audit experience run more smoothly for you and your auditors.
Ask your auditor for a list of items they’ll need during the audit, with deadlines for each item, if such a list isn’t provided automatically. Talk to your auditor before the fieldwork if you have questions about any of the items, and let your auditor know right away if you won’t be ready by the agreed-upon dates.
Because unpredictability is a required element in the audit, you’ll also need to produce some information on the spot, such as specific expense reports, journal entry support, or grantor or program reports. But you can still prepare by establishing files during the year to collect the information you may need.
Your expectations of the audit should mirror your engagement letter with the auditing firm. It will spell out what the audit will accomplish and your responsibilities.
Auditors once did accounting “clean-up” work for their clients during the audit, such as preparing year-end journal entries, fixed asset schedules, and various prepaid expense and accrued liability analyses. But today’s professional standards draw a clear line between accounting and auditing services, and your auditor must stay independent of your accounting processes, and as a result may be limited as to what he or she can do.
If there are accounting tasks you can’t do internally due to a lack of expertise, consider hiring a different firm to handle them. But if you’re fully capable and “own” the process, you can engage your audit firm to assist with certain analysis and adjustment information outside of the audit.
Your auditor will apply risk standards during the audit. AICPA AU-C Section 265, Communicating Internal Control Related Matters Identified in an Audit, defines deficiencies in internal control and other “material weaknesses” and “significant deficiencies.”
The auditor, for example, will look to see if there’s:
After reviewing the risk and internal control information you’ve assembled, your auditor could determine there is a “significant deficiency” or the more serious “material weakness.”
For any matter identified in the auditor’s AU-C Section 265 letter, prepare a written response including whether you have taken or intend to take any action in response to the finding. This is important to the audit committee and board as they oversee the audit and the overall system of checks and balances.
Don’t let the annual audit be the only time you talk to your auditor. If you save up all your questions, it’s likely to extend the length of the audit.
Also ask if there are new accounting pronouncements or changes for the year so you and the board aren’t surprised after year end. Be proactive in understanding the new guidance and its impact on your next audit and future financial reporting.
Although the audit — and the preparation that precedes it — requires some work, the benefits are plentiful. The audit not only assesses your overall financial condition, but also can pinpoint problems with financial management and financial reporting, identify ways to reduce risk and strengthen internal controls.
First in a Series
As healthcare reform inevitably moves forward, the concept of value-based care is one that physicians cannot afford to ignore.
At its core, value-based care focuses on rewarding good work rather than good workloads. It represents a wholesale shift by the federal government and private payers from paying for procedures and volume, to paying for outcomes and value.
What is driving the evolution to value-based care? In essence, employers, health plans and the federal government have expressed serious concerns related to:
– Perceptions of unsustainable costs
– Recognition that fee-for-service drives volume, not value
– Awareness of the potential for savings
– Current poor performance on quality indicators
These stakeholders have a desire for more value for the money spent.
Value-based care utilizes new payment models to reward better results in terms of cost, quality and outcome measures. These new payment methodologies include:
Accountable Care Organizations — The Affordable Care Act included a Medicare provision that allows healthcare providers to participate in accountable care organizations (ACOs). Utilizing shared savings/risk models, ACOs are incentivized to enhance quality, improve beneficiary outcomes and increase the value of care for a defined population across a broad scope of services.
Bundled Payments — Value-based care also seeks to incentivize coordination of care through bundled payments. For example, a cardiology group may partner with its local hospital to ensure coordinated care for patients admitted for angioplasty. The relationship might involve the hospital, the hospitalist, the discharge nurse, the cardiologist and even the primary care physician. A single payment is divvied up among the providers, with positive outcomes rewarded and negative ones penalized (legislation reduces Medicare payments for potentially preventable hospital readmissions).
Outcomes-based Reimbursement — This pay-for-performance financial model links a portion of a provider’s revenue to a quantifiable performance standard that reflects process or outcome criteria.
Patient Center Medical Home —In this financial model, a group of primary care providers agree to accept responsibility for managing the health of and delivering services to a defined population for a per-patient payment.
Another component of value-based care is what pundits are calling “show-me medicine.” Healthcare providers will increasingly be incentivized to track outcomes and quality metrics and, at some point, will be penalized for not participating in quality reporting programs (e.g., Medicare’s Physician Quality Reporting Initiative). Ultimately, payers will reward positive outcomes and adherence to best practices.
It is estimated that 50 percent of physician compensation in the next 10 years will be value-based. As that happens, physicians will certainly face new issues and opportunities.
Opportunities will arise because physicians are so integral to health care delivery and health care stakeholders will be concerned with physician success in a value-based world. As a result, physicians will have critical choices to consider. They will want to work with healthcare partners that fully and fairly enable an equitable approach to compensation. Equally attractive to physicians will be hospitals and health systems that provide clinical and business resources that promote effective collaboration — everything from care coordination and patient engagement tools to predictive models for health outcomes.
Value-based care is a complex issue requiring careful analysis of its potential impact on physician practices. Please look for our continuing blog articles on this topic.
Small and medium-sized businesses should be aware that inspections of Form I-9, Employment Eligibility Verification, are on the rise. Penalties resulting from inspections where Form I-9 violations are found can be significant. Employers who conduct self-audits and correct procedural or form deficiencies can be prepared and potentially avoid heavy fines.
Governmental inspections of a business’ Forms I-9 may be conducted by officials from or employees of the Department of Homeland Security Immigration Customs and Enforcement (ICE), the Department of Justice, or the Department of Labor. Employers are generally given three business days’ notice of an inspection.
The Notice of Inspection (NOI) requires the employer to produce I-9 forms for all its employees and former employees for whom retention requirements were still in effect. Officials generally choose where they will conduct a Form I-9 inspection. For example, officials may ask that an employer bring Forms I-9 to an ICE field office. Sometimes, employers may arrange for an inspection at the location where the forms are stored.
Investigators will then inspect the I-9 forms to determine violations. Violations of a lesser nature, such as technical violations, may include a failure from the employer or employee to fill out all required information. The more serious offenses, referred to as substantive violations, include such failures as not verifying or reviewing the required document presented by the employee, or failing to fill out an I-9 for an employee. They have found that 76 out of every 100 Forms I-9 have errors with paperwork violations costing $110 to $1,100 for each individual.
Accordingly, employers should ensure that proper I-9 procedures are in place to avoid penalties.
On December 17, 2015 ICE and the Department of Justice Office of Special Counsel for Immigration-Related Unfair Employment Practices (OSC) published guidance for employers who seek to perform their own internal Form I-9 audits. Their guidance is intended to help employers structure and implement self- audits in a manner consistent with employer sanctions and anti-discrimination provisions of the Immigration and Nationality Act (INA).
The guidance is very specific, answers most questions, and spells out how to correct errors and omissions. To view or download a copy of the Guidance for Employers Conducting Internal Employment Eligibility Verification Form I-9 Audits, Click Here.
After conducting a self-audit it may be helpful to determine your penalty exposure. Add up the number of missing forms and major problems to calculate your exposure. Missing forms are generally penalized at around $1100 per form for the record-keeping violation plus around $1500 per person for a knowing employment violation. (ICE assumes that persons without forms are illegal.) Major problems usually result in fines of between $800 and $1000 per form. If your exposure is significant, consider a training seminar for staff completing I-9 forms.
For additional guidance, see Self-Auditing Your I-9 Forms? Know These Rules, from the Society for Human Resource Management.
On January 8, 2016, the Internal Revenue Service and the Treasury Department withdrew a controversial proposal to alter Internal Revenue Code section 170(f)(8) that would have allowed charitable nonprofits to collect and report personal information, including Social Security numbers, from donors who contribute $250 or more. Tim Delaney, president and CEO of the National Council of Nonprofits, had rallied against the effort, arguing the rule could have a chilling effect on donors.
Nearly 38,000 Americans agreed and submitted their comments. "The Treasury Department and the IRS received a substantial number of public comments in response to the notice of proposed rulemaking," the IRS said in its statement. "Many of these public comments questioned the need for donee reporting, and many comments expressed significant concerns about donee organizations collecting and maintaining taxpayer identification numbers for purposes of the specific-use information return."
"This is a prime example of the power of nonprofit advocacy and what can be achieved when charitable nonprofits speak up to protect the public, our missions, and the communities we serve," said Delaney.