Hochschild, Bloom and Company professionals have drawn from decades of experience helping all manner of clients from business start-ups to Fortune 500 companies. In the process of gaining this wealth of knowledge, our team has created several resources that we have made available for general use. Below are valuable articles written by our team. Also feel free to explore our additional resources such as our e-organizer, guidebooks and presentations.
In Volume 3 of our 2017 Newsletter, we highlight:
- Washington Office is Celebrating 60 Years
- Renting Residential and Vacation Property
- Is a Living Trust Right for You?
- Leave Your IRA to Charity
- Managing Costs for the Bottom Line
- Financial Statement Changes for Nonprofit Entities
- Alzheimer’s Association Walk to End Alzheimer’s
Hochschild, Bloom & Company LLP
The Washington office is celebrating 60 years of business — 1957 to 2017.
The history of the Firm started in the late 1930s, when a young man arrived in the United States from Germany, just ahead of the rising tide of Hitler and World War II.
Peter Hochschild worked for a time in his uncle’s department store in Baltimore, took courses in accounting, and moved to St. Louis for a position in a large accounting firm.
After completing the accounting courses, Mr. Hochschild took the CPA exam. He received the second highest grade in the national CPA examination at that time and continued gaining experience until, in December 1946, he went out on his own. The Firm continued to grow with the addition of Melvin Bloom who became a partner in 1952.
A few years later in 1957 Lee Young, an attorney and CPA, decided to sell his accounting practice in Washington and devote full time to his law practice. The Firm saw Washington as a growing area and decided to buy the practice. Leon Dardick moved to Washington and became the first managing partner of the Washington office. The first office was located in the 100 block of West Main Street. Several years later the office was moved to the 400 block of East 5th Street. Finally in 1972 the Washington office was moved to the Washington Square Shopping Center, where it remains today.
Several of the clients that were purchased from Mr. Young are still clients of the Firm today. The Washington office, in the past 60 years, has had many long-term employees and promoted three to partner: John Politte, Tom Buescher, and Rita Griesheimer.
The office has definitely grown over the years and has seen many changes. The Firm is very proud of its service and commitment to the community.
Average Prices In 1957:
- Average new home $12,220.00
- Average monthly rent $90.00
- Average yearly wages $4,550.00
- Gallon of gas $0.24
- Gallon of milk $1.00
- Pound of bacon $0.60
- Dozen eggs $0.28
- Pound of butter $0.75
- Pound of ground beef $0.30
- Head of lettuce $0.19
- Loaf of bread $0.19
- Postage stamp $0.03
Renting Residential And Vacation Property
If you receive rental income for the use of a dwelling unit, such as a house or an apartment, you may be able to deduct certain expenses. These expenses, which include mortgage interest, real estate taxes, maintenance, utilities, insurance, and depreciation, will reduce the amount of rental income that is subject to tax.
There is a special rule if you use a dwelling unit as a residence and rent it for fewer than 15 days during the year. In this case, do not report any of the rental income and do not deduct any expenses as rental expenses. If you do receive a Form 1099, you will need to report the income and then list the same amount as nontaxable under the fewer than 15 days rule. Your expenses, including mortgage interest and property taxes, should be deducted on Schedule A as usual.
If you are renting to make a profit and do not use the dwelling unit as a residence, then your deductible rental expenses may be more than your gross rental income. Your rental losses, however, will generally be limited by the “at-risk” rules and/or the passive activity loss rules.
However, if you rent a dwelling unit that you also use as a residence, limitations may apply to the rental expenses you can deduct. You are considered to use a dwelling unit as a residence if you use it for personal purposes during the tax year for more than the greater of:
- 14 days, or
- 10% of the total days you rent it to others at a fair rental price.
It is possible to use more than one dwelling unit as a residence during the year. For example, if you live in your main home for 11 months, your home is a dwelling unit used as a residence. If you live in your vacation home for the other 30 days of the year, your vacation home is also a dwelling unit used as a residence unless you rent your vacation home to others at a fair rental value for 300 or more days during the year.
A day of personal use of a dwelling unit is any day that it is used by:
- You or any other person who has an interest in it, unless you rent your interest to another owner as his or her main home and the other owner pays a fair rental price under a shared equity financing agreement.
- A member of your family or a family member of any other person who has an interest in it, unless the family member uses it as his or her main home and pays a fair rental price.
- Anyone under an agreement that lets you use some other dwelling unit.
- Anyone at less than fair rental price including use by a charity.
If you donate the use of your rental property to a charity for a fund-raising auction, the use by the successful bidder is deemed to count as personal use by the owner. The charitable deduction for the fair rental value is also not allowed because the gift of the use of the property is not a deductible contribution.
If you use the dwelling unit for both rental and personal purposes, you generally must divide your total expenses between the rental use and the personal use based on the number of days used for each purpose. You will not be able to deduct your rental expense in excess of the gross rental income limitation (your gross rental income less the rental portion of mortgage interest real estate taxes, and rental expenses such as realtors’ fees and advertising costs).
However, you may be able to carry forward some of these rental expenses to the next year, subject to the gross rental income limitation for that year. If you itemize your deductions, you may also be able to deduct your personal portion of mortgage interest and property taxes on Schedule A.
Some states and local governments impose an occupancy tax. You may collect the tax directly from the renter and remit it to the taxing authority. Some companies like Airbnb, HomeAway, and VRBO may remit this tax for you.
If you rented part of your personal residence out, this may create a taxable gain upon the sale of your home.
If you have questions regarding any of the above information, please call us.
Is A Living Trust Right For You?
Revocable living trusts have become popular estate planning tools. Whether a living trust is right for you, however, depends on a number of factors.
A living trust is a trust that you set up during your lifetime, to which you transfer most or all of your assets. You get the income from the trust, and also have the right to withdraw principal. You can revoke or cancel the trust any time during your life. At death the trust becomes irrevocable and its income and assets are disposed of under terms specified by you in the trust papers.
Why would you do this? The main advantage of the living trust is that its assets are distributed without going through the court probate process. That avoids a filing fee in probate court. Also, trustee fees generally are lower than nonfamily executor or personal representative fees would be. However, even if probate is avoided, there will be the expense of preparing an estate tax return, valuing and transferring assets, and making a formal accounting and settlement. Also, to avoid probate, all probate assets must be included in the living trust. If some are left out, a probate proceeding still would be necessary. As a result, those with living trusts usually also have a will to direct any extra property into the trust.
Some of the other benefits and pitfalls to consider are:
- Quicker distributions — Probating a will and gathering assets into the estate for distribution can take quite a bit of time. With a living trust, by contrast, all assets already are gathered together, so the trustee can make immediate distributions and continue paying bills as usual.
- Protecting minors — Living trusts can help avoid the need to appoint a guardian to represent children’s financial interests, which can cause delay and add to administration costs.
- Privacy protection — Since probate records are public, the size of your estate, the names of beneficiaries, and the amounts each received can come into anyone’s possession. The size and terms of a living trust, by contrast, are not necessarily public matters.
- Income taxes — If you create a living trust, you will be taxed on its income in much the same way as if you continued to own the property outright.
- Estate taxes — It’s a fairly common misconception that living trusts save estate taxes, but that is not necessarily the case. The trust assets within a revocable living trust will be subject to estate tax just as if you continued to own them outright. Therefore, basic estate planning techniques are important in the context of living trusts as well as transfers at death by will.
As we said, living trusts make a lot of sense for some people and not for others. You have to consider all of the pros and cons as they relate to your particular situation to make an informed choice about a living trust. We would be happy to assist you in making the decision that is right for you. Please call if we can be of assistance.
Leave Your IRA To Charity
If you are considering leaving a bequest to a charity upon your death, consider leaving the charity money in an IRA rather than cash or other assets. IRAs are taxable to the beneficiary upon your death, but charities do not pay tax on any donations given to them, therefore, the distribution will be tax free to them. So in conclusion, if you leave money in an IRA to the charity of your choice, they will not be taxed on this distribution, however, if your heirs would receive this same IRA distribution, they would be taxed on the money when they receive it.
Managing Costs For The Bottom Line
Your company’s profitability depends not only on sales, but also on effective cost management. Are you adequately addressing the cost side of the business equation?
You probably can readily identify the products and/or services that are generating your greatest sales volume. But can you identify all the costs associated with providing each product or service? Only when you know your true costs can you effectively allocate resources to the work that is most profitable for your company.
As the business owner of a small business, you cannot be everywhere at all times. You do need to stay in circulation, regularly observing the day-to-day operations of your business, and talking to your managers and employees. By staying visible and encouraging an open dialogue, you will be in a better position to uncover costly problems before they seriously erode your company’s bottom line.
Even if you are satisfied with a current vendor, you may want to talk to the competition from time to time. You will not necessarily want to switch vendors simply because you are quoted a better price, however, you may be able to use that price in negotiations for more favorable terms from your existing supplier.
In the interests of cash flow, your company may routinely pay its bills only when they come due. While this generally is a sensible strategy, it may not be wise if you are passing up generous cash discounts for earlier payments. In the current low interest rate environment, borrowing the funds you need to take advantage of discounts may be a better move. For example, suppose a vendor offers your company a 2% discount for paying a $10,000 invoice 20 days early. Passing up the discount will cost you $200. Instead, you might borrow $9,800 from your bank, pay the discounted invoice, and repay the loan in 20 days. If the rate on your bank line of credit is 8%, you will owe about $45 of interest for a net savings of $155 on just one invoice.
Effective cost management requires good information and careful planning. If we can be of assistance, please contact us.
Financial Statement Changes Ahead For Nonprofit Entities
By: Ashley Straatmann, CPA
A new Accounting Standard Update from the Financial Accounting Standards Board (FASB) will have a significant impact on the financial statements of all nonprofit entities. Last year, FASB passed ASU 2016-14, which makes many changes to the presentation of the financial statements for nonprofit entities, including changes to the net asset classes that are presented and enhanced disclosures related to liquidity and availability of funds, governing board designations, functional and natural classification of expenses, and cost allocation methods.
Nonprofit entities will now be required to present amounts for two classes of net assets instead of the currently required three. The two new classes are “net assets with donor restrictions” and “net assets without donor restrictions”. These will replace the current net asset classes of unrestricted, temporarily restricted, and permanently restricted. The significant differentiating factor between the two new classes of net assets are whether or not a donor-imposed restriction exists. Donor-imposed restrictions can be temporary or perpetual in nature. Net assets that are restricted or designated by the nonprofit’s Board are included in net assets without donor restrictions.
Under the current guidance, nonprofit entities are allowed to choose to use either the direct method or the indirect method to report operating cash flows on the statement of cash flows. This has remained unchanged under the new standards. However, if the nonprofit entity chooses to report operating cash flows using the direct method, it will no longer be required to present a reconciliation from change in net assets to net cash from operating activities under the new guidance. This change simplifies the reporting requirements for entities who choose to use the direct method.
Under the new guidance, nonprofit entities will be required to report investment return net of external and direct internal investment expenses. This eliminates the requirement to disclose investment expenses that have been netted. Nonprofit entities will also be required to use the placed-in-service approach to report expirations of restrictions on gifts used to acquire or construct long-lived assets under the new guidance. This change eliminates the option to release the donor-imposed restriction over the estimated useful life of the acquired asset.
In addition to the changes already noted, the new standards implement many new disclosure requirements for nonprofit financial statements. Nonprofits will need to add or enhance their disclosures related to governing board designations and appropriations, as well as those related to net assets with donor restrictions. The new standards also will require quantitative and qualitative disclosures regarding a nonprofit’s liquid resources available to meet cash needs for general expenditures within one year of the balance sheet date. This includes items such as the nonprofit’s contractual agreements that make certain financial assets unavailable to fund general expenditures, goals for maintaining financial assets, and policies for investing excess cash, among others.
Additionally, the new standards will require that all nonprofit entities present an analysis of their expenses by both functional and natural classifications, and disclose the method(s) used to allocate their costs between program and supporting functions. (This analysis and disclosure used to be only required by voluntary health and welfare entities). Finally, if a nonprofit entity has underwater endowment funds (funds for which the fair value is less than either the original gift amount or the amount required to be maintained by donor or law), there will be some additional disclosures required under the new standards that are not currently required.
These changes are effective for annual financial statements issued for fiscal years beginning after December 15, 2017 or for interim periods within fiscal years beginning after December 15, 2018. Early application is permitted, but the changes should be initially adopted only for an annual fiscal period or for the first interim period within the fiscal year of adoption.
The changes in these new standards should be applied retrospectively. However, if the nonprofit is presenting comparative financial statements, it has the option to omit the new disclosures about liquidity and availability of resources and the analysis of expenses by both natural and functional classification for any periods prior to the period of adoption.
Nonprofit entities should begin planning for these changes now, even if they do not plan to early-adopt. We are available and happy to assist you in planning and implementing this new guidance.
Alzheimer’s Association Walk To End Alzheimer’s
The Alzheimer’s Association Walk to End Alzheimer’s is the world’s largest event to raise awareness and funds for Alzheimer’s care, support, and research. The Walk is held annually in more than 600 communities nationwide. This year Hochschild, Bloom & Company participated in the Walk held in Washington, MO. HB&Co. had a total of 10 employees and 6 family members participate on our team. Washington’s Walk raised a total of $197,890.42 and had 788 participants with 84 teams.
Alzheimer’s disease is the sixth-leading cause of death in the United States and it’s the only cause of death in the top 10 in America that cannot be prevented, cured, or slowed. In the United States someone develops Alzeheimer’s every 66 seconds and of them almost two-thirds are women.
Money raised from this event will go towards funding a free 24/7 helpline offering information and referrals. It connects those facing the disease with a network of providers in their community. The funds will also be used to support legislation to create a national plan for fighting the disease.
HB&Co. is a proud sponsor of the Alzheimer’s Association to help find a cure to end Alzheimer’s.
The IRS has announced that they will be sending letters to a select group of S Corporation shareholders. The letter is in relation to S Corporate shareholders claiming a loss on their personal return in excess of their basis in the Corporation.
A shareholder’s basis in an S Corporation starts with the cost that was paid for the stock or the acquired basis if the stock was gifted or inherited. From that point the major adjustment items include adding any income, subtracting any losses (even if nondeductible), and subtracting distributions to shareholders. These items are all reported to the shareholder by the Corporation on their K-1 tax reporting form each year. A shareholder also can add any loans that they have directly made to the Corporation. Loan guarantees do not count as additional basis, but direct loans to the Corporation do increase a shareholder’s basis.
It is uncertain who will be receiving this letter from the IRS and if any information will be requested. As always, be sure to give us a copy of any tax related correspondence you receive so we can determine if any action needs to be taken.
“Your Partner In Success”
“The most confident critics are generally those
who know the least about the matter criticized”
Ulysses S. Grant – 18th President of the United States
From 1869 – 1877
LEGAL DOCUMENTS FOR COLLEGE STUDENTS
With students going off to college, there are a couple of documents you may want or need to have:
- Healthcare and Healthcare Directive — This allows you to make medical decisions on behalf of the student should they become incapacitated and unable to make their own decisions.
- HIPAA Privacy Authorization Form — This allows healthcare providers to release and discuss medical issues with the parent. After a child turns 18 years of age, their medical information is no longer accessible by their parents without the proper authorization.
Make sure your student is not only ready for their school work but also for any emergencies.
The above-named healthcare forms are legal documents and as such, you should consult an attorney before signing. You can get additional information and generic forms regarding the healthcare documents on the public section of the Missouri Bar website (www.MoBar.org). Go to “Public” tab and then choose “Legal Guides & Forms”, then click “Read more” for “Durable Power of Attorney for Healthcare”. Will be under FILLABLE FORMS Section.
“Your Partner In Success”
“The glow of one warm thought
is to me worth more than money.”
3rd President of the United States
from 1801 – 1809
MISSOURI SALES AND USE TAX
Effective August 28, 2017, Missouri sales and use taxes no longer need to be charged on sales or paid on purchases for usual and customary delivery charges if they are separately stated on the invoice.
Mandatory gratuities which are charged in conjunction with providing food and beverages in a restaurant or banquet facility to a large party are still subject to sales tax.
Businesses who sell items to farmers, nonprofit agencies, manufacturers for equipment and parts used in manufacturing, and political subdivisions need to request a copy of an exemption certificate to substantiate they are exempt from sales tax. The exempt certificate should be retained for documentation upon audit by the Missouri Department of Revenue.
“Your Partner In Success”
“If we succeed, it will not be because of what we have,
it will be because of what we are; not because of
what we own, but, rather because of what we believe.”
Lyndon B. Johnson – 36th President of the United States from 1963 – 1969
HEALTH CARE EXCISE TAX
Reminder — the Patient Protection and Affordable Care Act excise tax on all health care providers is due July 31st.. Providers include not only insurance companies but also sponsors of self-insured accident and health insurance plans, and some companies that offer health reimbursement arrangements (HRA) and/or flexible spending accounts (FSA).
Most HRA sponsors are required to pay the tax, except for arrangements that only cover dental and vision benefits. FSAs are only covered by the law if the employer’s contribution exceeds the employee’s contribution and the employer offers health insurance coverage, whether through an insurance company or self-insured plan.
This tax is paid with the second quarter’s Form 720 excise tax return. If you are required to file Form 720 for other reasons, just include the fee on page two of the return for the quarter. If this is the only reason you are filing the return, you will not need to file the form for the 1st, 3rd, or 4th quarters.
IRS regulations offer a number of different ways to count the number of lives covered by your plan such as the actual method, the snapshot method, or the Form 5500 method. There is also a difference in the methods for self-insured plans, HRAs, and FSAs. Unfortunately, there is no de minimis exception for small employers.
For more information on how to calculate the number of lives covered or for any other questions concerning this tax, please call us in Chesterfield at 636-532-9525 or in Washington at 636-239-4785. “Your Partner In Success”
“I do not mistrust the future.
I do not fear what is ahead.
For our problems are large,
but our hearts are larger.”
George H.W. Bush – 41st President of the
United States from 1989 – 1993
In 1988, Marshall Cohen started Lift For Life Gym (LFLG), then, a youth weightlifting team in the basement of Globes Drugs in downtown St. Louis. The purpose of LFLG was to offer impoverished youth constructive, recreational opportunities as an alternative to idleness, crime, drugs, and violence. The program grew over the next 28 years into a full-service after-school youth activity center offering services that are designed to alleviate the burden of poverty and build a sense of resiliency that will help them archive success personally, academically, and professionally. LFLG is now located at 1415 Cass Avenue, serves over 440 youth each year, and provides over 30 different programs.
LFLG’s signature fitness program is the Olympic Style Youth weightlifting. The individuals on this team practice three to five times a week totaling over 4,120 hours each year. The team compiled 62 medals and trophies in 2015 and two of their elite lifters are ranked 4th and 6th in the country as youth (17 & under) athletes for the sport of weightlifting. The program continues to have much success and is an example of how to “Build Strong Minds and Strong Bodies.” LFLG recognizes the importance of physical health, but acknowledges mental health and development as just as essential. LFLG offers academic services such as one-on-one tutoring, homework assistance, college preparation classes, and a digital learning center.
Lift For Life Gym is located in one of St. Louis’ “urban food deserts.” Without a grocery store located within a minimum 5-mile radius, local youth not only lack money to buy affordable healthy food, but due to unreliable and unsafe transportation options, it becomes nearly impossible for inner city youth to gain access to quality food and establish healthy eating patterns. LFLG is dedicated to providing free, nutritious meals for its members daily, using fresh produce from their very own garden.
All of the programs are designed to build a better tomorrow for LFLG’s members. Life skills classes help develop practical lessons for living a productive, healthy life. In addition to “Strong Minds and Strong Bodies,” strong friendships are built within their walls. LFLG’s youth not only form friendships by working together, but also develop strong bonds with their mentors and coaches. Other mentoring services include life skills classes, college tours and job shadowing, social outings, and a teen transitioning program.
On May 6, 2017, Hochschild, Bloom and Company’s marketing partner, Jim Pursley, and his wife Samie, volunteered at the annual St. Louis Microfest, one of the premiere festivals in the St. Louis area. Microfest is a beer tasting festival that offers festival goers the chance to sample international and craft beers at 3 different session times over 2 days. The festival also includes live music, silent auction, food, live brewer, and chef demonstration. Profits from the festival went toward funding LFLG.
To learn more about LFLG, or to make a donation, please visit http://www.liftforlifegym.org/donate/.
Nonprofit Budgeting Essentials
By: Angela Dorn, CPA, Partner
Nonprofit organizations are often faced with a balancing act–striving to reach ambitious goals for their mission while dealing with the constraints of limited funding. In an effort to attract donors and achieve positive financial results, transparency is not only important, but it is imperative. One of the best ways to accomplish this task is to prepare an annual budget that is approved by the organization’s Board of Directors. But the process does not stop there: following the plan is key to success.
Anticipation of available resources can be difficult even in the best of times. Many dynamics beyond the control of the organization weigh into the outcome, such as the status of the economy. A conservative approach is often the best method for budgeting available resources. Several factors play into determining accurate revenue numbers. Expected donations from donors, grant opportunities, and capital campaign goals all play a role in developing the plan for funding. An additional consideration can be given to whether the organization has accessible fund balance or reserves that it plans to use in the current year.
By this time, fundraisers for the year should already be planned. The receipts the organization expects to raise needs to be compared to the costs of the events. These types of activities should support the nonprofit function rather than serve as distractions. Projected funds should include donations to be received at the events, as well as the amounts anticipated from ticket sales, raffles, auction items, etc. Then the amount these types of activities are expected to cost the organization should be examined to insure the fundraising events will be beneficial to the organization. Direct costs as well as indirect costs should be estimated at this point.
Once the available resources can be determined, the focus should switch to the expected use of the funds. Start with the bare minimums, such as the fixed costs. Many times this consists of payroll expenses of key employees, occupancy expenses, utilities, and insurance.
Then step back and take a look at the available funds left to directly support the mission. This is the amount to be expended on the program activities. Is there a goal to increase the reserves or are there projects that will require the use of reserves this year? What can be done to stretch the dollars for meeting the needs of the organization? The goal is to have the ability to adequately support the mission of the organization.
The next piece of the budget process would be to examine the expenses on a functional basis. The organization should have a written plan to define how it allocates shared expenses across program, management and general, and fundraising. Many donors look for this when making the decision to support the organization and they like to see their funds being used for the benefit of the mission.
After the budget is approved, the monitoring begins. Regular assessment of the organization’s actual results in comparison to the budget is as important as the preparation of the original budget. Throughout the year, if results are not lining up with the expectation, the plan should be reviewed and revised. Proposed amendments, if necessary, should be presented to the Board of Directors for approval. Knowing the financial goal and working to attaining it will go far in making the organization a success.
In Volume 2 of our 2017 Newsletter, we highlight:
- Property Acquired by Gift or Through Inheritance
- Medicare Part B Cost
- New Retirement Plan Determination Program
- Would a State Auditor Uncover These Findings in Your City?
- Vacation Home
- Profit Motive for Business
Property Acquired by Gift or Through Inheritance
Receiving a gift or a bequest or other inheritance carries with it a unique set of tax rules that must be observed. Knowing what the rules are will help you prepare for any tax consequences that may ensue upon the ultimate sale or other disposition of the property.
Generally, the recipient of a gift or a bequest pays no gift or estate tax. Those taxes, if they are due, are payable by the donor (the person making the gift) or the estate in the case of a decedent. Generally, no gift tax is due for gifts to any one person that do not exceed $14,000 for 2017 ($28,000 if the gift is given jointly by a husband and wife). Gift tax payable over those amounts can also be avoided by the donor using the unified estate and gift tax lifetime exclusion currently at $5.49 million and is adjusted for inflation annually.
The basis of property received by gift or bequest is used by the recipient to determine whether there is gain or loss on a subsequent sale or other disposition of the property. These rules can be complex.
If property has been acquired by gift, the gain basis to the donee (the recipient) for income tax purposes is the same as it would be in the hands of the donor. However, the basis for loss is the lower of the carryover basis or the fair market value of the property at the time of the gift. In some cases, there is neither gain nor loss on the sale of property received by gift because the selling price is less than the basis for gain and more than the basis for loss.
In the case of a gift on which gift tax is paid, the basis of the property is increased by the amount of gift tax attributable to the net appreciation in value of the gift. The net appreciation for this purpose is the amount by which the fair market value of the gift exceeds the donor’s adjusted basis immediately before the gift.
Property, real estate, and securities received from a decedent under a will or by operation of law generally enjoy a “stepped-up” basis set at the property’s fair market value at date of death (or several months thereafter at the election of the executor). Most recipients of property from an estate find the stepped-up basis advantageous since it lowers the potential amount of capital gain tax due upon the sale of the asset.
Depending upon the age of the donor, the advantage of stepped-up basis, therefore, can figure significantly into planning whether to give gifts during a lifetime or wait to pass property through your estate.
If you have any questions on this topic, or how the rules apply to your specific situation, please do not hesitate to call.
* * * * * * * *
“Progress is impossible without change, and those who
cannot change their minds cannot change anything.”
George Bernard Shaw
Medicare Part B Cost
Most individuals who are enrolled in Medicare Part B pay approximately $109 on average per month. You may have to pay more than that in a few situations. There are five situations in which you will be billed a higher monthly charge, starting at $134 per month.
- You first enroll in Part B in 2017
- You do not get Social Security benefits
- You have both Medicare and Medicaid and Medicaid pays your premium
- You pay your Part B premiums directly
- Your modified adjusted gross income from 2 years ago (2015 income for 2017 premiums) is above a certain level
The following chart shows the amount you will pay based upon your income level.
If your yearly income in 2015 (for what you pay in 2017) was:
|Individual||Joint||Married Filing Separate||Each Month|
|Tax Return||Tax Return||Tax Return||(In 2017)|
|$85,100 or less||$170,000 or less||$85,000 or less||$134.00|
|Above $85,000 up to $107,000||Above $170,000 up to $214,000||Not Applicable||$187.50|
|Above $107,000 up to $160,000||Above $214,000 up to $320,000||Not Applicable||$267.90|
|Above $160,000 up to $214,000||Above $320,000 up to $428,000||Above $85,000 up to $129,000||$348.30|
|Above $214,000||Above $428,000||Above $129,000||$428.60|
If you have Medicare Part D coverage, there may also be an increase in your monthly fee for that coverage. You may want to keep this in mind when your income spikes in a particular year.
New Retirement Plan Determination Program
Effective January 1, 2017 new rules have been issued concerning individually-designed tax-qualified retirement plans in relation to required amendments and request for a determination letter.
A required amendment list will now be issued after October 1st of each year. The required amendments must be adopted by December 31st of the second calendar year after the list is published. All individually-designed plans must adopt these amendments in order to retain their qualified plan status.
Determination letters will only be issued under certain circumstances:
- An initial plan qualification
- Upon plan termination
- IRS makes special exception
These changes will make it easier to determine what amendments are required to be made and relieve the need to be submitting the individually-designed plans for approval every five years.
Would a State Audit Uncover These Findings in Your City?
By: Victoria Dailey, CPA
Recent audits by the State Auditor have given a few cities failing grades due to issues that can be easily avoided. These issues include segregation of duties, use of restricted monies, and allocation of property taxes. It’s important that cities and those governing the cities understand these issues fully and determine how they can overcome them.
Proper segregation of duties helps ensure all transactions are accounted for properly and assets are adequately safeguarded. For example, the same person should not be handling cash if they are entering the transaction in the city’s accounting system. One State audit found the City Clerk and two Deputy City Clerks all were able to receipt in and deposit monies and post transactions to the accounting system, including adjustments to customer account balances. The City Clerk was primarily responsible for making purchases, preparing checks, and reconciling the bank accounts. No reviews of the detailed accounting and bank records were performed by other city personnel or Board members. If proper segregation of duties cannot be achieved, documented independent or supervisory reviews of accounting and bank records should be performed.
Cities receive money that is restricted for certain purposes. For example, motor vehicle sales tax, gasoline tax, and road and bridge tax, in general, are to be used to improve the city’s streets. Cities should have a process to track those funds. If the money is receipted in the General Fund, amounts should be spent out of the General Fund for the restricted purpose, restricted in fund balance if not spent that year, or transferred to another fund to be spent on the restricted purpose. Cities can get in trouble when these funds get mixed up with other General Fund monies. For example, one of the cities the State audited receipted some restricted street monies in the General Fund, rather than the Street Fund, did not track these monies within the General Fund, and did not spend any money during the current year from the General Fund for street purposes. The State audit recommended that these revenues should be posted to the Street Fund to ensure they are spent for appropriate purposes.
Approved property tax rates are used to allocate the property taxes received. One State audit found that a city did not accurately allocate property taxes among various city funds. The city received property taxes for General Revenue, Parks and Recreation, Library, and Public Health Funds. Annually the city sets the tax levies and the County Collector collects and remits the property taxes to the city. City personnel should allocate the property taxes to the various city funds using each fund’s tax levy as compared to total tax levies. The State audit found that this city’s personnel did not update the formula and allocated 2015 property taxes received based on the 2013 tax levies, which had changed, causing errors in the allocation of property taxes among the various funds. It is essential the city properly allocate property tax revenues among funds to ensure restricted revenues are spent for approved purposes.
It is very important that city personnel fully understand these findings and take the necessary steps to ensure that city funds are properly accounted for and spent on the purpose intended.
This time of year many charities are having dinner auctions. It is common to find individuals donating the use of their vacation home or condo. This right to use your property is not a deductible contribution. There is no direct cost in allowing someone to use your property. Had you rented the property, you would have shown this as income on your return. You may consider the lack of reporting any income during the use by the charity as generous, but it is not a deduction.
If your vacation home is reported as rental property, then your expenses are limited for any personal use over 14 days per year. Any donated usage is counted as part of the 14 personal days of use by the owner.
There are many complex rules related to rental property. Please give us a call if you have any questions directly concerning these issues or any other questions about your rental activities.
Profit Motive for Business
The IRS has rules that limit the deductibility of expenses and losses from a hobby or activity not engaged in for-profit. If the IRS determines that an activity is not profit-driven, deductions from the activity are limited to the amount of income the activity generates. Losses from such activities cannot be used to offset other income, such as salary or investments.
You must be prepared to show that an activity that generates deductions is a business from which you intend to profit. It is not necessary that the activity actually earns a profit, so long as a profit is one of the motives for participating in the activity.
The IRS assumes that an activity is carried on for-profit if it makes a profit during at least three of the last five tax years, including the current year, or at least two of the last seven years for activities that consist primarily of breeding, showing, training, or racing horses. Otherwise, the IRS applies nonexclusive tests and factors to the surrounding facts to judge whether activities are more like a business with a profit motive, or are for personal satisfaction.
If you would like assistance in determining if your business is at risk of being challenged as a hobby, please give us a call.
Congratulations to Angela Dorn, CPA, Partner. She has successfully completed the AICPA’s Not-for-Profit Certificate. This certificate requires a comprehensive, foundational understanding of a not-for-profit organizations’ unique financial needs.
DIFFERENCE BETWEEN TIPS AND SERVICE CHARGES
The IRS is reminding employers about the difference in reporting of tips and service charges. Tips are amounts that a customer voluntarily pays to an employee. The payment must be discretionary and can be paid in the form of cash, credit, or debit card. A service charge is a fee that is added to a customer’s bill that the customer is required to pay. Service charges can be for items such as delivery charges, a required charge (e.g., 18%) for tables of six or more, room service, etc. Service charges are typically mandatory. Tips must be reported by the employee to the employer who then must withhold taxes (e.g., FICA and Medicare) for this income from their standard pay. Service charges are reported by the employer as regular wages.
HBC SUMMER OFFICE HOURS
As we have for the last several years, our offices will be closing at 4:00 p.m. on Fridays from Memorial Day through Labor Day. We hope this can allow our employees to spend more time with their families after the long hours during our busy season. We wish our clients and friends a safe and enjoyable summer.
“Plans are nothing; Planning is everything.”
Dwight D. Eisenhower – 34th President of the
United States from 1953 – 1961
“Your Partner In Success”
Many people recommend setting up trusts to protect an individual’s assets and assist in the transfer of their assets upon their death, but are they really necessary in all cases? Trusts are a great tax planning tool for individuals wanting complex asset dispositions, individuals who own assets in their name only (i.e., a business), or those for whom this is a second or third marriage in which there are children from a prior marriage. These are some of the main reasons an individual would want to setup a trust.
Another simple and easy way to transfer ownership upon someone’s death is to have all of their assets in joint name or transfer on death (TOD). Immediately upon their death the assets become the property of the other person. Neither joint nor TOD ownership eliminates the need for other estate and financial planning such as the creation of a durable power of attorney in the event of the owner’s disability and planning for qualified retirement accounts.
You need to discuss this with your attorney and/or CPA to determine which type of ownership is best for your personal situation.
“As powerful as our memories are,
our dreams must be even stronger.
For when our memories outweigh
our dreams, we become old.”
William (Bill) J. Clinton – 42nd President
of the United States from 1993 – 2001