Monthly Archives: February 2016

Will the IRS be calling you?

Expect to hear from the IRS again about phone calls regarding tax debts. What will differentiate this announcement from those made in the past? This time the IRS may say that some calls can be legitimate. Under a law that went into effect in December, the IRS is required to use private debt collectors to arrange payment of certain back taxes. Does that mean your phone will be ringing?

Maybe, as scammers try to capitalize on the new requirement. But here’s a good rule of thumb: Generally, if you’re not expecting to hear from the IRS, the caller is probably not the IRS.

The type of debt the law requires the IRS to turn over to the collectors is known as “inactive tax receivables.” Those are amounts that are potentially collectible, yet are not being actively pursued by the IRS. The debt must meet certain criteria such as the IRS not being able to collect due to a lack of resources or to the inability to locate the person who owes the back taxes.

The law also specifies what debt the IRS cannot turn over to collectors. For example, if you have a pending or active offer-in-compromise or installment agreement, the IRS can’t send your tax bill to a private collection center.

Contact Carl Heinemann, your Chattanooga CPA, if you receive any communication from the IRS — or from someone purporting to represent the IRS. We’re here to help.

Administrative requirements eased for ABLE accounts

Are you ready to establish an Achieve a Better Life Experience (ABLE) account? If so, a recent IRS notice can help ease the administrative requirements. Here’s what you need to know.

ABLE accounts were created by the Tax Increase Prevention Act of 2014. These tax-advantaged accounts are designed to help you build savings to care for yourself or a loved one with disabilities while maintaining eligibility for benefit programs such as Medicaid. Generally you’ll qualify for an ABLE account if your disability occurred before age 26.

While states will create the programs that allow ABLE accounts, the IRS issues the tax guidance, and the rules are similar to those for Section 529 college savings plans. That means ABLE accounts grow tax-deferred and you can take tax-free distributions when you use the funds to pay qualified disability expenses. Anyone can contribute to an ABLE account, up to the maximum limit of $14,000 for 2016.

Under the latest notice from the IRS, three ABLE account requirements have been changed.

  • Use of distributions. The ABLE program no longer needs to determine whether distributions from the accounts will be used for qualified disability expenses. However, you or the family member you’ve designated as the account beneficiary must maintain records that substantiate the tax status of your withdrawals.
  • Request for taxpayer identification numbers. The ABLE program no longer needs to ask for a taxpayer identification number from account contributors. Note that amounts in excess of the annual limit of $14,000 must be returned to the contributor, and an identification number may need to be provided at that time.
  • Less restrictive documentation of eligibility. Instead of providing private medical information to establish an account, ABLE account beneficiaries can sign a statement of qualification under penalty of perjury. The beneficiary must keep the detailed medical records proving eligibility, and provide the documents to the IRS if requested.

Give Carl Heinemann, your Chattanooga CPA, a call for more information about these accounts and other tax-related disability benefits.

Is your capitalization policy up to date?

It’s February— time to update your capitalization policy! A recent IRS notice increased the safe harbor amount for deducting tangible property expenses currently, starting January 1. That means you’ll need to review the written policy you use to set a threshold for which qualifying costs you’ll record as assets and which you’ll charge to expense.

As you may remember, the “repair regulations” became effective in January 2014. This guidance from the IRS on the capitalization and repair of assets applies to all businesses, including sole proprietorships, rentals, and farms. The guidance explains the federal income tax treatment of expenditures you make for materials and supplies, repairs and maintenance, and business property you buy, produce, or improve. In general, you’re required to capitalize these items.

However, the regulations provide a de minimis safe harbor for expensing certain costs. The amount of the safe harbor depends on the type of financial statement you have prepared. For instance, if you have an applicable financial statement, the safe harbor is $5,000. (An example of an applicable financial statement is a certified audited statement with a report by an independent CPA that you use for credit or reporting purposes.)

If your business does not have an applicable financial statement, the de minimis safe harbor was originally set at $500. Beginning January 1, 2016, the safe harbor is $2,500 per invoice or item with a supporting invoice.

Please give Carl Heinemann, your Chattanooga CPA, a call to discuss how this change to the capitalization and repair regulations will affect your business and what you need to do to update your accounting policy.

Plan your 529 account withdrawals

January is the start of a new college semester, and parents and grandparents may want a refresher course on 529 college savings plan withdrawals. Here are two things to consider.

  • Qualified withdrawals are tax-free. “Qualified” withdrawals are those you use to pay for college education expenses such as tuition, fees, books, supplies, and equipment. Be aware that some withdrawals may be taxable, such as when the account beneficiary receives a scholarship or other tax-free assistance. In addition, you must coordinate 529 withdrawals with Hope and lifetime learning credits, as well as distributions from Coverdell education savings accounts. These rules prevent the use of the same expenses to obtain multiple tax benefits.
  • Non-tax implications may affect timing of withdrawals. Financial aid may play a role in when you take money from your 529 account. For example, when grandparents own a 529 plan, withdrawals to pay for a student-grandchild’s college costs may affect the amount of income the grandchild must report on a federal financial aid form.

    Planning for this generally means waiting to use grandparent-owned 529 funds in the student’s last year or two, or transferring ownership of the account to the student’s parents. A recent change to financial aid rules may also help. Starting with the 2017-2018 school year, the federal financial aid form will use income data from an earlier tax year than is used under the present rules. This change means some financial gifts — such as distributions from grandparent-owned 529 plans — may be made earlier.

If you have questions or need help calculating 529 plan withdrawals, please give Carl Heinemann, your Chattanooga CPA, a call.

Is holiday debt weighing you down?

Picture this: December rolls around and credit cards emerge from your wallet. In a binge of holiday spending, you splurge on expensive gifts for your kids, grandparents, aunts, and uncles. You figure you’ll pay the charges off in January. But when January arrives, other expenses take priority. Credit card balances, instead of being paid off, accumulate. Does this cycle sound familiar? Studies estimate that a third of Americans acquire new debt during the holidays, and about 7% are still paying off bills from last year’s seasonal spree.

If you’re wondering how to tackle that big January invoice and make next year more manageable, consider these six tips.

  • Cut back on January and February spending. Eat out less. Skip the morning stop at the coffee shop. Cancel unused subscriptions and memberships. Pack a lunch. Then direct that freed-up cash toward outstanding credit card balances.
  • Sell unused or unwanted items. Scour the attic for stuff you haven’t used in years. Hold a garage sale or post saleable items on eBay or Craigslist. Add unwanted gifts or gift cards to the “for sale” listings.
  • Stop borrowing. It’s tough to trim credit card debt when you’re adding to the balance. So when you head to the shopping mall, leave your credit cards behind. Don’t fall for the “easy financing” appeals of furniture shops and car dealerships. Resist the urge to reach for the plastic.
  • Organize your debt. If you have several outstanding credit card balances, make two lists. Organize one by outstanding balances, smallest to largest. Organize the other by interest rate, highest to lowest. Paying off even one low-balance credit card can be motivating. Alternatively, you might want to tackle high-interest debt first because it makes the most sense from a mathematical standpoint. Either way, the goal is the same: whittle away debt until it disappears using the method that works best for you.
  • Start saving for next year. Set aside a small amount each week. Doing this by automatic bank transfers is a relatively painless way to accumulate funds for next December.
  • Reconsider holiday priorities. Take a hard look at your standard holiday processes. Call a family meeting. Consider downsizing holiday gift exchanges by putting cost restrictions on gifts or drawing names from a hat. You may find that friends and family appreciate your thoughtfulness, especially when faced with their own January bills.

Contact Carl Heinemann, your Chattanooga CPA, for more debt management tips. We’re here to help you make the most of your money.

Employee access to technology can pose a risk to your company

In this digital age, your company and your employees rely on computers and software applications for everyday transactions — and that reliance poses a very real risk. Why? Think about the information your employees can access. Examples include customer and vendor lists, proprietary databases, accounting systems, bank accounts, emails, and social media. Sensitive data may be stored on smartphones, laptops, external hard drives, flash drives, and third-party servers.

What happens to your proprietary data and company-owned hardware when an employee decides to pack up and walk out the door? Here are four suggestions for protecting hardware and sensitive information when an employee leaves.

  • Reclaim your equipment right away. As close as possible to an employee’s final hours with your company, retrieve all computers, cell phones, backup drives, and other company hardware. Use a tracking log to confirm that employees have returned each piece of equipment provided to them during their tenure.
  • Conduct an exit interview. When holding this final meeting, ask specifically whether all equipment has been returned and whether any company data remains in the employee’s possession. If so, make a plan for retrieving it. The exit interview is also a good time to reacquaint the employee with the terms of confidentiality agreements.
  • Cancel access immediately. Don’t wait to shut down an employee’s access to email accounts, or logins to proprietary databases and network files. If a departing worker has already copied sensitive information to another storage location, this step will only provide future assurance. Nevertheless, taking away an employee’s keys to the company store, digitally speaking, should be more than an afterthought.
  • Monitor activity. Even before you think an employee may be considering leaving, keep a close watch for evidence that files are being inappropriately transferred or sensitive information is making its way from an employee’s computer to an outside account.

Establishing strong controls over computer hardware and data is central to good security, as is hiring trustworthy workers and creating an environment of respect. Make your business a great place to work. Not only is that good business practice, but if employees decide to leave, they may be less likely to harm your company in the process.

Give Carl Heinemann, your Chattanooga CPA, a call. We can help you create controls that will keep your data safe.