Monthly Archives: January 2015

Tax breaks reinstated for 2014

When does a year last only two weeks? Answer: When Congress addresses “extenders,” also known as tax provisions that expire on a regular basis. The current extender renewal took place in December 2014 and lasted until year-end. However, the revived rules are retroactive to January 1, 2014.

What does that mean for you? For one thing, it means you can benefit from tax breaks such as bonus depreciation, expanded section 179 expensing, and residential and business energy improvement incentives on your 2014 federal income tax return.

The downside? The tax breaks expired again on December 31, 2014, leaving uncertainty about tax planning for 2015.

Here are details on three of the rules that are back in place for 2014 and that may affect your 2014 tax return.

  • State and local sales tax deduction. If you itemize, you can choose to deduct sales taxes you paid during 2014 instead of state and local income taxes. You can claim your actual expenses or use optional IRS tables.
  • Educator expenses. If you’re a teacher who spends your own money for classroom supplies, you can deduct up to $250 of your expenses as an above-the-line deduction. You may be able to deduct additional out of pocket expenses if you itemize.
  • Charitable donations from your IRA. When you’re age 70½ or older, you can make a tax-free distribution of up to $100,000 from your IRA when the money is paid directly to a qualified charity.

Please give Heinemann CPAs, your Chattanooga CPA, a call for a complete list of the extended provisions that are available for 2014.

Adjust your tax-saving contributions for 2015

Have you adjusted to the new year? That is, have you adjusted your tax planning to reflect the new year’s increased limits on contributions to tax-favored accounts? These changes will affect your 2015 federal income tax return, and the sooner you incorporate them into your planning the more tax dollars you can save.

Here are some new contribution amounts for 2015.

  • Retirement plans. The 401(k) contribution limit increased to $18,000 this year. In addition, if you’re turning 50 during 2015, you can add another $6,000.

    SIMPLE plan contributions increased for 2015 also. You can put up to $12,500 in your SIMPLE account this year, plus another $3,000 if you’re age 50 or over.

    Contributions to employer-sponsored retirement plans reduce your taxable income because your employer deducts amounts you specify from your paycheck before taxes. You might also be able to benefit from a “savers” credit of up to $2,000.

  • Health savings accounts (HSAs). For 2015 you can contribute up to $3,350 to your HSA when you have a qualifying health policy offering individual coverage. The contribution limit is $6,650 for family coverage. If you’re age 55 or over, you can add an additional $1,000.

    An HSA is a special savings account that offers a tax-advantaged way to offset your medical expenses. You can make tax-deductible contributions to an HSA when you purchase a qualifying health insurance policy. Your contributions are deductible even if you don’t itemize.

Give Heinemann CPAs, your Chattanooga CPA, a call for updates on other tax-sheltered accounts offering significant breaks for 2015.

Review your business policies for 2015

As the calendar turns over to a new year, updating your business tax planning will give you a head start on saving tax dollars. Here are three areas to review.

  • Vehicle records. As a general rule, you have two choices for deducting business auto expenses. You can use the standard mileage rate or the actual cost method. Whichever you choose, the “strict substantiation” rules make recordkeeping a must to claim a deduction for vehicle expenses.

    Set up an auto log and make the first entry your beginning-of-the-year odometer reading.

  • Retirement options. If you haven’t already established a retirement plan, give us a call. We’ll review your options and help you decide which plan is best for you. For example, a Simplified Employee Pension plan, generally referred to as a SEP, can be established by any size business and has no federal tax filing requirement. For 2015 you can contribute up to $53,000 to a SEP plan.

    If you already have a retirement plan in place, make sure the documents are current. Keeping up with tax law changes is crucial to maintaining your tax deductions.

  • Penalty exposure. Review your health insurance plan to make sure you’re in compliance with the requirements for offering health coverage to employees. Penalties under the health care laws are typically based on the number of workers you employ.

Take time to verify you’re following the rules for determining whether workers are truly independent contractors.  Call Heinemann CPAs, your Chattanooga CPA, with any questions.

Don’t make these 401(k) mistakes

In retirement seminars across the country, attendees are often advised to think of retirement income as a three-legged stool: social security, traditional company pension, and 401(k) plan. Over the years, the pension leg of that stool has been getting wobbly. In an effort to avoid long-term liabilities in today’s competitive environment, fewer companies are offering traditional pensions (also known as defined benefit plans). As a result, responsibility for retirement planning has increasingly fallen on employees.

All this makes 401(k) planning more important than ever. Unfortunately, easily avoided mistakes may sidetrack the accumulation of a sufficient nest egg to fund your golden years. A prudent employee will steer clear of these 401(k) blunders:

  • Failure to contribute. According to recent reports by the Department of Labor, in the United States there are over 638,000 defined contribution retirement plans. More than 80% of full-time American employees at large companies have access to, and participate in, such plans. That’s the good news. The bad news? Upwards of 10% of employees at those companies don’t participate. If you’re not taking full advantage of your firm’s 401(k) — or equivalent defined contribution plan — don’t wait. The retirement clock is ticking.
  • Not saving enough. First of all, take full advantage of any company match that’s offered. Say your firm offers to match 50¢ for every dollar you contribute up to a maximum of 8% of your income. That’s a whopping 50% return on your contributions. Try to beat that in the stock market! And don’t stop there. Depending on your age, you’ll want to set a goal of contributing at least 10% of your income to your retirement savings, more if you’re closing in on retirement and haven’t accumulated a substantial balance.
  • Failure to allocate. Contributions should be spread out or allocated among conservative and more aggressive (and, therefore, riskier) investments. That way your nest egg will have a better chance of weathering the inevitable vicissitudes of the market. In general, the closer you are to retirement, the more conservative your investment mix should be.

Remember: saving for a comfortable retirement is up to you. Contact Carl Heinemann, your Chattanooga CPA, if you have questions about saving for your retirement.

Use both general and subsidiary ledgers to make better business decisions

Prudent business managers don’t relegate their company’s recordkeeping to the accounting department — at least not entirely. That doesn’t mean managers have to be CPAs or debit-and-credit experts. But having a basic understanding of a business’s accounting records shouldn’t be considered optional. More than one firm has floundered because the company continued to spend beyond its means, suffering cash flow shortages while managers remained in the dark — until the accounting department showed up with bad news.

Central to any modern accounting system is the general ledger, also known as the book of accounts. It’s “general” because it contains all the accounts of the business. These include balance sheet accounts such as cash, accounts receivable, accounts payable, property and equipment, owner’s equity, and the like. Also included are accounts presented on the profit and loss statement: sales revenue, salary and administrative expense, cost of goods sold, and so on. If the accounts are accurate, a report from the general ledger known as a “trial balance” will show that debits (entries on the left side of the ledger) and credits (entries on the right) agree. That’s the essence of double-entry bookkeeping. It’s simply a way of making sure that financial transactions are recorded accurately.

A business may also maintain separate accounting journals and subsidiary ledgers, sometimes called “books of original entry” because that’s where transactions are first recorded before information is “posted” (transferred) to the general ledger. The detail in the subsidiary substantiates the account balance in the general ledger.

Why use subsidiary ledgers?

For one thing, recording every accounting transaction directly to the general ledger can make analysis challenging and tedious. Subsidiary ledgers focus on a single type of transaction such as accounts receivable or accounts payable. By analyzing an accounts payable subsidiary ledger, for example, a manager might discover problems with collections and payments that may have gone undetected if buried in the general ledger.

In a similar way, an accounts receivable subsidiary ledger contains the individual accounts of a company’s charge clients. Tracking customer payments and balances is, therefore, simplified. Maintaining separate cash receipt and disbursement journals may provide a similar benefit, making it clear, at a glance, where the company is getting and spending its cash.

A foundational knowledge of your company’s financial records can help you make better decisions and keep your business on track. Call Heinemann CPAs, your Chattanooga CPA, if you have any questions.