On July 31, 2015, President Obama signed into law P.L. 114-41, the “Surface Transportation and Veterans Health Care Choice Improvement Act of 2015.” This included many updated tax provisions, including revised due dates for partnership and C corporation returns as well as revised extended due dates for several tax returns. This article includes an overview of these new tax provisions.

New Due Dates for Partnership and C Corporation Returns

Currently corporations (including S corporations) must file their returns by the 15^th day of the third month after the end of their tax year. For corporations using a calendar year, the due date currently is March 15. Partnership tax returns have been due on the 15^th day of the fourth month after the partnership’s tax year, or April 15 for calendar year partnerships.

Under the new law, effective generally for returns filed for tax years beginning after December 31, 2015, the new filing dates are:

• Partnership and S corporation returns will be due by the 15^th day of the third month after the end of the tax year, or March 15 for calendar year entities. S corporation deadlines remain the same as under current law, but partnership returns are due one month earlier than they were previously.
• C corporation returns will be due by the 15^th day of the fourth month after the end of the tax year, or April 15 for calendar year entities.

These new filing dates generally will not go into effect until the 2016 returns have to be filed. There is also a special rule for certain C corporations with fiscal years ending on June 30 – the change will not apply until tax years beginning after December 31, 2025.

New Extended Due Dates for Various Returns

Effective for tax years beginning after December 31, 2015, the new law includes a longer extension period for a number of tax returns. To qualify, a taxpayer must have filed an application for an automatic extension by the original due date of the tax return.

Partnership returns (Form 1065) will have the same extended due date as under current law, or September 15. However, the new laws allows for a maximum extension of six months.  Current law only allows for a five month extension.

Trust and estates filing Form 1041 will have a maximum extension of five and a half months under the new law. Under current law these returns can only extend for five months. The extended due date will be September 30 for calendar year taxpayers.

The Form 5500 series (Annual Return/Report of Employee Benefit Plan) will have a maximum extension of three and a half months. Under current law these returns can be extended for two and a half months. The extended due date will be November 15 for calendar year filers.

New Due Date for FinCEN Report

Taxpayers with a financial interest or signature authority over certain foreign financial accounts must file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR). Under current law, the due date is June 30 of the year immediately following the calendar year being reported, and there are no extensions allowed.

Under the new law, for returns for tax years beginning after December 31, 2015, the due date of FinCEN Report 114 will be April 15. However, taxpayers can receive an extension of up to six months. The extended due date will be October 15.

Conclusion

The AICPA and state CPA societies have been advocating for the new due dates included in P.L. 114-41 for several years. The idea is to create a more logical flow of information while allowing for taxpayers and tax professionals to file timely and accurate tax returns. While these due dates will not take effect for a couple of years, we feel it is important to relay this information to our clients as early as possible. Should you have any questions, please don’t hesitate to contact us.

The wedding bells are ringing, waves are crashing onshore at your honeymoon in Hawaii, and then it hits you!  How is getting married going to affect my taxes? Okay, so maybe no one is thinking about taxes on their honeymoon, but it is something that every couple should understand. The tax system of the United States is setup so that combined tax liability of a married couple may be higher or lower than their combined tax bill if the couple had remained single.

This is where the idea of marriage penalty and marriage bonus comes from. The marriage penalty often affects taxpayers that have very high and very low incomes, and the marriage bonus affects several middle-income couples who have disparate incomes. The extent to which the marriage penalty or bonus affects a given couple depends on factors such as the level of their combined income, the proportion of their individual incomes being similar, and how many children they have.

A marriage bonus typically occurs when one individual with a higher income marries and files a joint return with an individual who has a much smaller income, and the additional income is not usually enough to push the combined income into a higher tax bracket. Married couples fall into the married filing joint tax brackets, which are wider in terms of income limits and result in a lower tax bill.

A marriage penalty occurs when two individuals with equal incomes marry and relates to individuals who have very low and high incomes. A high-income couple falls into this trap because income tax brackets for married couples at the top of the income tax schedule are not twice as wide as the equivalent brackets for single filers.  

An example is the 33% tax bracket, which for 2015 single filers start out at $189,301, but for married filing joint filers it starts out at $230,451. Two high incomes when combined could easily put a couple’s income into a higher bracket than filing as single, thus resulting in a penalty.

Another item to consider for the marriage penalty with high-income earners is the new 3.8% investment income tax. This tax is imposed on single filers who have adjusted gross income of $200,000 or more and for married filers with gross income of $250,000.

Two individuals who both made $150,000 would not be subject to the net investment income tax if filing as single. But if these two filed as married they would be subject to the additional tax, which is the lesser of their net investment income or the amount of their adjusted gross income over the threshold, times 3.8%.

When else can a penalty occur?

A marriage penalty can also occur when two low-income individuals file as married. Two individuals who file single can be eligible for a large earned income credit depending on how many children they have to claim. The other advantage of claiming a dependent is the opportunity to file as head of household instead of just single. Head of household tax brackets are wider and there is also a larger standard deduction. Filing married eliminates the benefits of head of household and could potentially lower the amount of earned income credit available due to the combined incomes.

So what options do we have?

The idea of a marriage penalty or bonus causing a couple to tie the knot or to wait it out seems extraordinary, but it could affect one’s decision to work, work less, or not work at all. A married couple could have one individual who makes $40,000 and falls into the 25% tax bracket filing single, but who would fall into the 15% tax bracket filing married. The reverse could be true for the other spouse who didn’t work as single and would have been in the 0% bracket, but then married if they decided to work could possibly be in the 15% to 25% bracket.

Will the US ever change this policy?

There are ways to eliminate the marriage penalty and bonus, but it would require large changes to the US tax code. The US tax code is designed to be progressive in nature, but to also be equal in treatment among married and unmarried couples. If the United States adopted a flat tax and removed all provisions, then the marriage penalties and bonuses could be elmiminated. The United States could also eliminate the marriage penalty and bonus by keeping  the progressive tax structure, but requiring everyone to file single. Without a major overhaul of the United States tax code, solutions such as widening the tax brackets for high-income earners filing joint and a permanent extension of the marriage penalty relief of the Earned Income Tax Credit will have to suffice as potential short term solutions.

E-Commerce and internet sales taxation is one of the most contentious areas in sales tax today. There have been many arguments for and against the taxation of internet ​sales. Some states contend they’re losing billions in sales tax revenues as a result of uncollected sales tax on internet sales, while many on-line retailers maintain that a 1992 Supreme Court decision prohibits states from imposing a sales tax collection requirement.

Who must collect sales taxes?

According to the Small Business Administration:

• If your business has a physical presence in a state, such as a store, office or warehouse, you must collect applicable state and local sales tax from your customers.
• If you do not have a presence in a particular state, you are not required to collect sales taxes.

In legal terms, this physical presence is known as a "nexus." Each state defines nexus differently, but most agree that if you have a store or office of some sort, a nexus exists. If you are uncertain whether or not your business qualifies as a physical presence, contact your state's revenue agency. If you do not have a physical presence in a state, you are not required to collect sales taxes from customers in that state. This rule is based on the 1992 Supreme Court ruling, also known as the Quill case, in which the justices ruled that states cannot require mail-order businesses – and by extension, online retailers –  to collect sales tax unless they have a physical presence in the state.

Are there any differences in Colorado?

Effective March 1, 2010 through June 30, 2012, standardized software was subject to sales and use tax in Colorado, regardless of how the software was acquired by the purchaser or downloaded to the purchaser’s computer. Effective July 1, 2012, the tangible personal property definition excludes standardized software that is not delivered via a tangible medium. Software provided through an application service provider, delivered by electronic software delivery, or transferred by a load-and-leave software delivery is not considered delivered to the customer in a tangible medium. The legislation effectively reinstates an exemption for electronically delivered software that was in effect prior to March 1, 2010.

Additionally, there has been some uncertainty about how Colorado taxed SaaS during the brief period that electronically delivered software was subject to tax. This is a perfect illustration of how difficult it is for taxpayers to track the numerous changes in the sales tax treatment of these items, even changes that happen in a single state. It should be noted that, although Colorado does not tax SaaS at the state level, this may not be true locally.

In Conclusion

Determining which sales tax to charge can be a challenge. Many online retailers use online shopping-cart software services to handle their sales transactions. Several of these services are programmed to calculate sales tax rates for you.

Keep in mind that not every state and locality has a sales tax. Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon do not have a sales tax. In addition, most states have tax exemptions on certain items, such as food or clothing. If you are charging sales tax, you need be familiar with applicable rates.

If you have any questions on sales taxes, don’t hesitate to reach out to us. While we work more in the realm of income taxes we have the research tools and competency to assist with any sales tax issue that may come up in your business.

As professional advisors, one of our greatest concerns is employee theft in the practice. Medical and dental practices may be more vulnerable to theft because, understandably, the owners are so focused on treating patients rather than managing the business. That’s why they often delegate management responsibilities to practice managers, making the practice manager responsible for implementing proper safeguards and internal controls.

Practice Some Preventative Medicine

• Unusual employee behavior.
• Irregularities and inconsistencies in monthly reports.
• Employees experiencing personal financial pressures, such as calls from creditors at work, garnishments, missed child-support payments, or alimony. 
• Employees who appear to be living a lifestyle beyond their means.
• Negative events in an employee’s life, such as divorce, substance abuse, or significant investment losses.

• Segregate duties in the billing, collection, and bill payment functions.
• Cross train employees and require vacations of at least one week of consecutive days each year.  
• Make sure employees are fully aware of internal controls, their purpose and their value. Philosophically, the message to send is, “we trust you, but we will verify.”
• Consider an employee fidelity bond, which protects you if an employee embezzles from you or steals something from your office. Ask whether you can purchase a "blanket bond," which covers everyone in the office and will preclude you from having to update the names on the policy every time someone new comes on board.

You may not need or even desire to take money out of your Individual Retirement Account (IRA) or your employer-sponsored retirement plan, but at some point you will be required to take withdrawals from these accounts. They are retirement accounts after all and they were not created to hold our money forever. This mandatory withdrawal amount is called your required minimum distribution (RMD). You can always take more than your RMD amount but you can’t take less. If you errantly withdraw less than the required amount, the shortfall is potentially subject to a 50% penalty (ouch!).

When do you need to start taking required minimum distributions?

In general, RMDs begin in the year we turn 70 ½. If your birthday is from January 1 – June 30, your first RMD will be attributed to the year you turn 70 since you will turn 70 ½ during the year you celebrate your 70^th birthday. If your birthday is from July 1 – December 31, your first RMD will be attributed to the year you turn 71 since you will turn 70 ½ during the year you celebrate your 71^st birthday. No one is quite sure where our Congressional leaders came up with the 70 ½ year figure although some have speculated they hatched this idea in a Washington, DC watering hole. Regardless of the rationale, it is the law at present.        

How are they calculated?

RMDs are calculated by dividing your retirement account balance at the end of the previous year by a life expectancy factor based on your age.

When must they be taken?

Your RMD for a particular year must usually be taken by December 31 of that year. The only exception to this rule is for the first year you are required to take an RMD. For this first year only, you are permitted to wait up to April 1 of the following year to take your RMD without penalty. Please keep in mind that delaying this first RMD until April 1 of the following year will mean you will be required to take two separate distributions during that year as all RMDs (other than the first year RMD) are required to be paid out by December 31 each year.

The date you are required to take your first mandatory distribution is generally referred to as your required beginning date (RBD). For those who have a 401(k) or other employer-sponsored retirement plan, the RBD is the same April 1 date, unless they are still working for the company where they have the retirement plan. If the plan participant does not own more than 5% of the company and if the plan document permits, they can delay their RBD until April 1 of the year following the year they finally retire. This is sometimes called the “still working” exception but it only applies to required distributions from employer-sponsored retirement plans. It does not apply to IRA accounts. Additionally, it will not apply if the participant is not currently working for that company.

How do distributions affect the earnings in my retirement account?

RMDs begin at less than 4% of the fair market value of your account and steadily increase each year  For example, the life expectancy factor for a 70 year old IRA owner taken from the IRS Uniform Lifetime Table is 27.4.  When we divide this factor into 100, we come up with 3.65 which represents the percentage of the account balance that must be withdrawn.  Continuing on, the life expectancy factor for a 71 year old IRA owner is 26.5.  When we divide 26.5 into 100, we get a distribution percentage of 3.78% (rounded up).  Each year will produce a slight increase in this percentage.   

As long as your earnings are more than 4% in your IRA during the initial, early years after reaching age 70 ½, and you are withdrawing only your RMD, your account value will continue to increase. Although the withdrawal percentage increases each year, this does not mean that your actual RMD, in dollars, will always be greater than the prior year. This will be determined by the actual investment performance of your account.

Conclusion

The Required Minimum Distribution rules can be quite confusing and there are different twists for different types of retirement accounts. We are very knowledgeable in this area and invite you to call us should you need any assistance with ensuring you stay compliant with these rules.      

Because many of our clients use a vehicle for both business and personal use, we thought a refresher on this topic would be useful. It is quite acceptable to use a vehicle for both business and personal use but important to understand the deductibility of expenses associated with the vehicle.

Business use is determined by the number of miles traveled between two business locations. The business use percentage is simply the ratio of total business miles for the year to total miles for the year for the vehicle. As a reminder, commuting miles to and from your normal place of business are not considered to be business miles.

When you use a vehicle for business purposes, the business portion of depreciation and ordinary and necessary vehicle operating expenses are deductible. The tax regulations provide two methods for calculating the business portion of vehicle expenses which can be used by self-employed taxpayers and employees:

(1) the deduction may be computed using the standard mileage rate for the number of business miles driven during the year, or

(2) the business portion of actual vehicle expenses, including depreciation and the Section 179 deduction, may be deducted.

Standard Mileage Rate Method:

The standard mileage rate varies from year to year and is computed by the IRS to represent the cost of fuel, oil, insurance, repairs and maintenance and depreciation or lease payments for the vehicle. The standard mileage rate method is available regardless of the cost of the vehicle. For 2015, the standard mileage rate is $.575 per mile.

In addition to the standard mileage rate, the costs of business-related parking and tolls are 100 percent deductible. The standard mileage rate can only be used if this method was used to compute the business auto deduction for the first year the vehicle was placed in service and each subsequent year. If the standard mileage rate is used to calculate the vehicle expense deduction for a vehicle, straight-line depreciation must be used if there is a subsequent switch to the actual expense method.

Actual Expenses Method:

To use the actual expense method, first determine the entire cost of operating the vehicle for the year, including vehicle depreciation and Section 179 expense, if any.

Taxpayers who use a vehicle more than 50% of the time for a qualified business use can deduct Section 179 expense and/or MACRS accelerated and bonus depreciation, as well as other ordinary and necessary expenses. If the vehicle is used less than 50% for qualified business use, straight line depreciation over a 5-year life must be used to compute depreciation on the vehicle and the Section 179 deduction is not available for the vehicle.

The above rules are subject to the limitations on luxury vehicles. Certain trucks, vans and sports utility vehicles with a gross loaded vehicle weight rating exceeding 6,000 pounds  are not subject to the luxury auto depreciation limits. However, vehicles with a weight rating of 6,000 pounds or less are considered passenger autos and are subject to the luxury vehicle limitations.

To satisfy the more than 50% qualified business use test, only use in a trade or business can be considered. Investment use and other use in other activities conducted for the production of income are not included in the qualified business use test, although total business and investment use can be used for determining the deductible portion of vehicle expenses.

If qualified business use falls below 50% in subsequent years, then depreciation and Section 179 deductions in excess of the straight-line method and deducted in previous years must be recaptured in the year that qualified business use falls below 50%.

Of course, we recommend that you keep excellent vehicle expense documentation and contemporaneous usage records. We have included a vehicle mileage log (click here) that we recommend you keep to corroborate auto usage documentation from repair and maintenance records.

If you have questions regarding the information in this article or if you’re interested in special tax deductions related to the purchase of a truck, van or sports utility vehicle in 2015, please give us a call at (719) 630-1186 to learn more.

 

 

Purchasers and lessee’s are potentially eligible for up to a $6,000 credit on their individual or business Colorado income tax return for purchases/lease agreements of alternative fuel and/or electric vehicles made during the 2013 tax year through tax year 2021, thanks to  House Bill 13-1247, signed into law by the Colorado Legislature on May 15, 2013. The bill  extends the availability of credits for certain “innovative” vehicles and simplifies the calculation of these credits. 

Individuals

Charitable Deductions

Charitable Travel

1. You must volunteer to work for a qualified organization. Ask the charity about its tax-exempt status. 
2. You may be able to deduct unreimbursed travel expenses you pay while serving as a volunteer. You can’t deduct the value of your time or services.
3. The deduction qualifies only if there is no significant element of personal pleasure, recreation or vacation in the travel. However, the deduction will qualify even if you enjoy the trip.
4. You can deduct your travel expenses if your work is real and substantial throughout the trip. You can’t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip.
5. Deductible travel expenses may include:

    

   • Air, rail and bus transportation
   • Car expenses
   • Lodging costs
   • The cost of meals
   • Taxi fares or other transportation costs between the airport or station and your hotel

Renting Your Vacation Home

Businesses

Traveling for Business

Entertaining Clients

Using Your Home Office  

Generally the two largest costs for most professional practices are staffing costs and space costs. Staffing at the proper levels to ensure practice efficiency and to meet all contingencies represents a difficult challenge for practice managers in an environment of increasing costs.

Where to start in evaluating your staffing levels and costs?

A good first step is to gather benchmarking data from reputable sources, such as the Medical Group Management Association, the American Medical Association (AMA), the American Dental Association and the American Medical Group Association (AMGA), as well as your local medical and dental societies. For the broadest perspective, consult multiple sources. As you do, look for data that address the following:

• The number of support staff per full-time-equivalent (FTE) provider

• The percentage of gross revenue spent on support staff salaries

As you review the benchmarking data, keep in mind that practices that have historically been identified as better performing practices consistently have higher staff ratios than their peers. For example, MGMA surveys have shown that better performing groups focus on the delivery of care and invest in additional staff so that providers work up to the level of their licenses and as a result spend more quality time with patients. “Right staffing” generally results in a stronger bottom line since practices with appropriate staffing levels provide a better patient experience and allow for more efficient patient flow in the office.

If your numbers don’t line up with those of similar practices, it might be time to dig a little deeper. As you do, remember that a “slash-and-burn” approach isn’t always the best answer (and can actually be counterproductive). Rather than reflexively eliminating personnel, seek out ways to utilize existing staff to make providers more productive.

Look for inefficiencies. Are clinical staff performing duties that non-clinical staff could perform at less cost? For example, are nurses and medical assistants performing clerical duties?

Cross-train. Train billers and medical records people to run the front desk or phone patients with appointment reminders. This can pay off when you don’t have to hire a temp to cover for a staff member who is out sick or on vacation. You might also consider developing a list of secondary duties for staffers to tackle when they’re not busy with their primary job function in non-peak hours of the day.

Control overtime. Generally, substantial overtime costs indicate poor planning and scheduling. If extra hours are necessary, make sure that overtime is approved in advance and closely monitored. In many cases, it may be cheaper to hire another full time employee and pay salary plus 15 to 20 percent benefits, than to pay overtime at 150 percent.

Try some alternatives. Run the numbers on outsourcing your billing, payroll processing or bookkeeping functions. And don’t be afraid to explore job sharing (e.g., two practice nurses each working 20 hours a week), which can reduce the cost of benefits. Just note that too many part-timers can result in inefficiencies and redundant training costs.

Avoid “salary creep.” Instead of automatically giving raises year after year, establish a salary range for each position (high, low and median) that is competitive with your area of practice and location. If a high-value employee hits the top of the salary range, consider an incentive-based bonus instead of a salary increase.

Bid out the benefits. Fringe benefits, such as health insurance, represent a substantial portion of staff costs. Be sure to solicit competitive bids for your benefits every year or two. Also consider alternative benefit options, such as 401(k) and cafeteria plans, which are perceived as high-value benefits yet actually come with little cost to the practice. 

Don’t get stingy. Finally, don’t be penny wise and pound foolish when it comes to compensating high-quality employees. Remember, great employees can get jobs anywhere. Ultimately, recruitment fees, training costs and the loss of productivity associated with turnover is much more costly than properly compensating high-quality staff.

Are you wondering if your practice’s staffing costs are appropriate for your practice?  Our experienced professionals can provide an objective, third-party perspective.