Monthly Archives: October 2016

Track your tuition expenses for the most benefit under new rules

Do you have the receipt for your fall semester tuition? Keeping track of your tuition and other qualified education costs may be more important than ever. That’s because several laws enacted over the past few years, including thePATH Act from last December, made changes to the requirements for claiming education benefits such as the American Opportunity Credit. One change to note: In order to claim an education tax credit or deduction when you file your 2016 federal income tax return, you’ll generally need a copy of the information statement sent by your school.

You may be familiar with Form 1098-T, Tuition Statement. If you’re a student, you’ve probably received this information form from a college or other school. In the past, schools could choose to report amounts you actually paid or amounts that were billed to you. Beginning with your 2016 return, schools are generally required to report only the tuition and qualified expenses that you actually paid.

While the new reporting requirement may make claiming the credit easier, you’ll still want to track your actual expenses. Why? In some cases, you may buy books and credit-eligible materials from a supplier other than your school. Those costs would not be on the Form 1098-T that you receive. To include the expenses in the calculation of your tax benefit, you need to have proof of your payments.

If you have questions about what costs are considered qualified educational expenses and how the rule changes will affect you, please contact Carl Heinemann, your Chattanooga CPA.

Gear up for new partnership rules

No one likes to hear “audit” and “IRS” in the same sentence. But when the rules change, you need to be prepared — and change is definitely what has happened to IRS partnership audit rules. Here’s an overview.

Under the old rules, the IRS audited partnerships using three sets of procedures based primarily on the number of partners. Those procedures have been replaced with a single set of rules that apply to all partnerships. The major change: Under this new approach, adjustments made by the IRS during an audit of a partnership will be applied to the partnership instead of the individual partners. That means your partnership will have to pay any amount due related to the adjustment. Since the tax will be payable in the year the audit is completed, the current partners will bear the burden.

If your partnership is made up of 100 or fewer partners, you can elect out of the new rules when you meet certain requirements. Once you opt out, your partnership and partners will be audited under the rules that apply to individual taxpayers.

The new rules take effect for returns you file for your partnership beginning after 2017, though you can choose to apply many of them for tax years beginning after November 2, 2015.

What do you need to do now? One smart move is to update your partnership agreement to reflect the changes.

Contact Carl Heinemann, your Chattanooga CPA, for information. We’ll work with your attorney to make sure you’re in compliance with the new rules.

Is it time to update your trust?

Do you have trust issues? If you’ve established a trust as part of your estate plan, the answer may be yes — and you might be unaware of those issues. Fortunately, getting your trust back on track can be straightforward. Here are three areas to review.

  • Funding. Setting up legal documents to establish a trust is only part of the process. You also need to add property to your trust, known as “funding” the trust. Funding allows your trust to function so you can achieve your goals, and can involve legally retitling assets into your trust’s name. As part of your update, review the assets you used to fund your trust and make sure they are properly identified and that any tax issues have been considered.
  • Trustee. The trustee is the individual or entity who manages your trust. Depending on the type of trust, you may initially choose to serve as the trustee. Later, you might decide to appoint a family member, or a professional, such as a bank officer or a lawyer. You can also choose to have more than one trustee. Because managing a trust can involve a lot of responsibility, periodically reconfirm that the person you have asked to serve wishes to continue doing so. If you are paying a professional trustee, assess the value you are receiving for the fees being charged. Take time to talk to your successor trustee periodically as well, as that person will have to assume trustee responsibilities in case your original choice is unable to.
  • Beneficiaries. The beneficiaries are the recipients of the trust assets. Reasons to update your beneficiaries include changes in marital status, the death of a beneficiary, or the establishment of a different type of trust for a beneficiary, such as a special needs trust.

Reviewing and updating established trusts is a vital aspect of estate planning. As part of your financial team, we’re here to help. Contact Carl Heinemann, your Chattanooga CPA, for assistance.

Time your new car purchase to save money

Are you in the market for a new car? If so, you’re probably wondering if there’s a “best” time to buy — besides when you need one. Here’s an overview of some common suggestions.

  • The end of December. Reasons abound for buying at year-end. For instance, during the winter months, you won’t be competing with as many consumers. Colder weather tends to discourage people from venturing out. Holiday shopping drains bank accounts so people are less likely to buy new vehicles. In December, sales staff and dealerships want to move inventory because their bonuses and incentives are tied to end-of-year sales targets. All these are good reasons to buy late in the year. Waiting also includes a risk: Others may have picked over the inventory and you may not find a vehicle in your preferred trim or color.
  • August to October. Some studies have shown that late summer to fall is an opportune time to buy certain kinds of cars because car dealers are rolling out next year’s models. Dealerships have an incentive to move inventory. They need the space.
  • Black Friday. Some dealerships offer discounts on the day after Thanksgiving because it’s close to the end of the month. They may be willing to negotiate a lower price to meet their quotas.
  • Late in the day. The idea is this: Show up when the dealership is preparing to close, and salespeople won’t resist your negotiations. They’re tired and eager to go home. But don’t count on this tactic. Many people who work at auto dealerships are accustomed to long hours, and they’re more than willing to stick around to close a deal.

Whenever you choose to buy your new vehicle, sound purchasing practices can save you money. One example: Remaining flexible. Don’t set your heart on a specific model to the exclusion of every other consideration. There are plenty of models available and many quality sellers. Get quotes from at least three dealerships in your area. Take your time. Do your research. Know your market. And if you need help running the numbers, contact Carl Heinemann, your Chattanooga CPA. We’re always here to help.

Save on business travel costs while nurturing relationships

You may view corporate travel as a necessary evil. But you also know that successful companies thrive on relationships, and nurturing those relationships can require face-to-face contact with clients, vendors, and potential customers. So when you have to cut travel costs, you may struggle with a balancing act. If you cut too much, business relationships may deteriorate. Cut too little and profits may suffer. Here are five ideas that can help bridge the gap.

  • Video conferencing. You may remember early issues with this technology, including hardware and software glitches and slow internet connections. However, today’s advanced systems and networks have reduced the incidence of low-quality graphics and choppy audio and video feeds. You don’t need your own video conferencing studio to take advantage of high-definition systems. Look into pay-by-the-hour rental options instead.
  • Discounts. Investigate price reductions for corporate customers offered by hotels, car rental companies, and airlines. The savings can be significant when your staff regularly travels to the same destinations. Make sure your employees know about and use these vendors.
  • Cost-cutting ideas. If your travel plans are flexible, take advantage of mid-week flights and less-frequented airports. In some cases, train transportation may be a viable alternative. When possible, purchase tickets at least two weeks in advance to get better deals. Research hotels at your destination, and book rooms at those that offer complimentary breakfasts and free internet service.
  • Employee surveys. Employees who spend a lot of time on the road tend to develop definite opinions about everything travel-related. Your sales staff and other travelers can be a valuable resource when you’re reworking travel policy.
  • Travel audits. Don’t cut costs or change policies haphazardly. First make sure you understand how much you’re spending and where the money’s going. Get a firm grasp on the details behind the numbers. Then act.

Need more business cost-saving and budgeting advice? Contact Carl Heinemann, your Chattanooga CPA, for suggestions.

Save time at year-end by getting your payroll records in shape now

October’s here! Time for falling leaves to wave goodbye to summer and for you to turn your attention to pumpkins, pies, and payroll reports. Here are three tasks to complete as the fourth and final quarter of 2016 begins.

  • Review worker classifications. Business relationships can change over time, and you want to be sure that workers you have been treating as independent contractors still fit that description. Reassess using the three sets of common factors: behavioral control, financial control, and your business relationship. Document your answers and your final decision.While you’re completing your review, check Forms W-9, “Request for Taxpayer Identification Number and Certification.” Are the forms in your files up-to-date? If not, request a Form W-9 before year-end so you can properly report the payments your business made to an independent contractor during the year. You’ll use Form 1099-MISC to report those payments. Having the correct information on hand is especially important this year, because the due date to issue and file Forms 1099-MISC for 2016 is January 31, 2017, if you are reporting nonemployee compensation in box 7.
  • Add up your full-time employees. If you’re an “applicable large employer” under Affordable Care Act rules, you may have to report information to the IRS. You meet the definition if your business had an average of at least 50 full-time employees during the prior year. That number includes full-time equivalent employees, so be sure to count carefully. Contact us for details on making the determination.
  • Clean out old files. In general, federal requirements say you’ll need to keep payroll records for a minimum of four years. Four years from when? You start counting from the due date of the employee’s personal income tax return (typically April 15) for the year in which you withheld payroll taxes from the wage payment. You may need to hang on to certain types of records for a longer period, and your state may have different guidelines. Keep an inventory list of the records you dispose of, and shred documents that contain personal identifying information.

Do you have payroll questions? Give us a call. We’re happy to help.