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The Tax Aspects of Disasters like Hurricane Harvey

Between Hurricane Harvey, the fast-approaching Hurricane Irma and the various wildfires ravaging the west, unfortunately natural disasters have been all too common this summer.

The last thing on anyone’s mind living in those areas is taxes, but nonetheless, there are various tax aspects of a disaster that people should be aware of. Fortunately, this is one area that the IRS makes rapid decisions to help those in need. Below is a sampling of the latest relief for victims of Hurricane Harvey from the IRS. Those impacted by disasters should check the IRS’s page frequently as other disasters may get similar relief from the IRS in the near future.

Finally, for those who want to help and support those victims of any natural disaster, be cautious of who you make donations to. In order for donations to be tax deductible, they must be made to recognized charitable organizations under the IRS. For instance, Go Fund Me donations are typically not deductible as they go to a person and not a charitable organization. If you are donating online, make sure you are on the legitimate website for the charity. Unfortunately, it is all too common for charity scams to pop up during disasters with fake websites that are very similar to legitimate ones. You should ensure that the organization clearly has their Employee Identification Number (EIN) posted and you can use that and their name to check their exempt status on the IRS website. If you are donating a significant sum, that little bit of homework on your part is well worth it.

 

A month or so ago, while on Facebook a sponsored ad came up on my news feed for Acorns, an investment app that allows you to open an account via your smartphone and in essence, invests your spare change.I was curious so clicked on it and was introduced to a whole new world of robo investing applications that I apparently had missed hearing about when they were first introduced.

For many millennials like myself, investing can seem daunting, and most don’t have the initial large deposits that are required with traditional investment companies in order to use the services of a financial advisor. Our money is going to other things like weddings, starting a family, paying off student loans, mortgages, and hopefully also contributing to a retirement account.

That is why I was intrigued with Acorns, which links to your bank account and invests your spare change from purchases you make every day (essentially, rounding up every purchase to the nearest dollar). There is no minimum deposit and the investment fees are a $1/month for accounts under $5,000 and .25% for accounts over $5,000. However, students and anyone under 24 can invest for free on accounts of any size.

I then came across another investment app called Betterment. Betterment allows you to set up retirement accounts while Acorns does not. Betterment chooses your portfolio for you automatically based on one of the 5 general investment goals you select. Similar to Acorns, you need no initial minimum deposit. The fees are $3 a month, or .35% with a minimum auto deposit of $100 a month. The fees drop to .25% once you exceed $10,000.

Wealthfront is another investment app I looked into that also supports retirement accounts, but does require a minimum account balance of $500. However, there are no annual fees for accounts up to $10,000.

There are many other robo investment companies out there, some with apps, some available via website only. They all utilize similar investment theories for their automated investment guidance based on what you select as your goal or risk profile, which may or may not earn you more than a traditional financial advisor or yourself if you have the skills and time to manage your own investments. Investorjunkie.com provides some great reviews on many of the ones available if you want to give robo investing a try.

 

According to an article on CNBC this week, this year millennials will surpass baby boomers and GenXers to become the largest generation in the American workforce. Adults age 18 to 34 now make up 1 in 3 American workers. There have been numerous articles, seminars and training sessions built around how to effectively lead and work with different generations in the work force. At every conference I’ve gone to in the past 3 to 5 years, there has been at least one session on the issue and at each of those sessions, there is always at least one person in the room that seems frustrated with their millennial generation employees and trying to “figure them out”.

So what are the current issues important to millennials? According to the Hartford’s 2014 Millennial Leadership Survey, millennials noted that work-life balance (or more importantly work-life integration) stood as one of the top issues of importance. Millennials also want to know that their work is a place of growth and development, and they are accustomed to open communication and accessibility.

As a millennial myself, I happen to agree with the above survey results, and I have witnessed the impact of my generation within the company I work for. When career and advancement paths were not clearly defined or established within my firm, I personally asked for that clarification so I could understand my opportunities for advancement and how I could go about getting there. Now, career paths are defined and documented for everyone to see. What was once mandatory Saturdays during tax season turned into a flexible work schedule where the staff could work which days and hours they pleased as long as the hours were met.

Not every millennial meets the stereotype of a millennial, and the best way to find out what is important to your employees of any generation is to simply ask. I have found that my generation is usually more than willing to be honest and open with what priorities are important to us.

 

As most of you are probably aware, the Nevada Legislature approved and Governor Sandoval signed the new commerce tax into law effective July 1, 2015. If a “business entity” is engaged in business in Nevada with Nevada-sourced gross revenue over $4,000,000, the excess of that revenue over $4,000,000 is subject to the tax at various rates (.051 percent to .331 percent respectively). Though the estimate of businesses that will be impacted by this tax are somewhere around 10%, all businesses will be required to determine their Nevada-sourced revenue and fill out the form regardless.

More guidance will be coming from the Nevada Department of Taxation, and there are numerous exclusions from gross revenue as well as allowable deductions, but there are a few key takeaways that Nevada taxpayers should be thinking about now:

  1. The calculation is based on the tax year as defined in the law: July 1, 2015-June 30, 2016, regardless of whether or not that coincides with your fiscal year. Therefore, you need to ensure your accounting software can track the necessary information for that time period.
  2.  Since the tax is on Nevada-sourced revenue, if you have revenue sourced from other states you will need to ensure you are tracking that if not already doing so.
  3.  If your business operates within multiple categories or NAICS codes, there could be some difficulty in determining which category your business would fall into. As noted above, the tax rates vary substantially between the various 26 business categories.

The form is due 45 days from the end of the tax year, essentially August 14, 2016, though a 30 day extension can be requested. This is not a long turn around time so that is why planning for this new law needs to be happening now.

The new law also increased the Modified Business Tax from 1.17%to 1.475% for most businesses effective July 1, 2015, as well as reduced the exemption from $85,000 per quarter to $50,000. Make sure your payroll department or outsourced payroll company is aware of these changes.

Business license fees increased to a flat $500 for corporations as well as the law increased the initial and annual list for corporations with authorized stock by $25 for all fees.

If you have questions regarding the new law or need assistance, please contact us.

 

 

According to a recent survey performed by Bankrate.com, a third of people (roughly 36%) in the U.S. have nothing saved for retirement. Of the 1,003 adults surveyed, 69% of those with no retirement savings were between the ages of 18 to 29. That’s not entirely shocking given the fact that not only are most adults at that age not even concerned with retirement, but generally things like moving out on your own, higher education expenses, etc. take precedence. However, 33% of those surveyed between the ages of 30 to 49 had no retirement savings and 14% of those age 65 and older had no retirement savings. Most of those surveyed acknowledged that they were not on track in saving for retirement. One can only assume that these individuals are relying in part or in whole on social security.

Given the fact that most reports have predicted the Social Security Trust Fund will run out of money in 2033 and benefits from that point forward would need to be reduced, these statistics are troubling. Those surveyed between the ages of 30 to 49 won’t have even reached retirement age before the Fund runs dry, and the life expectancy of the average American continues to increase.

The Social Security Administration actually has some fairly decent calculators, one of which is the life expectancy calculator. Also, almost all banks and investment companies have free calculators online that can give someone at least a rough of idea of what you would need saved along with Social Security benefits in order to retire. Remember, it’s never too late to start saving!

 

 

 

The Foreign Account Tax Compliance Act (FATCA) became law in the United States in 2010. The provisions of the law focus on reporting for both U.S. taxpayers and foreign financial institutions to prevent tax evasion by U.S. citizens and residents through the use of offshore accounts. U.S. individuals must report information about certain foreign financial accounts and offshore assets on their income tax return if the total value exceeds certain reporting thresholds. The law also requires foreign banks and other financial institutions (like investment and insurance companies) to give information to the IRS about Americans’ accounts worth more than $50,000. If the foreign bank or financial institution fails to enter into an agreement with the IRS, all relevant U.S. sourced payments will be subject to a 30% withholding tax.

From a recent article published in the Financial Advisor, it appears that this law is having an unintended consequence: foreign banks are turning American clients away, even if they are U.S. expatriates living in and being paid in that foreign country by their U.S. employers. In the article, one such expatriate received a notice from Deutsche Bank that her account was being closed. Many of the account-closing complaints are coming from Americans living in Switzerland, which is most likely due to Swiss banks failing to meet the reporting requirements. UBS paid a $780 million fine to the IRS for failure to disclose information on American accounts and just this May Credit Suisse was fined $1.2 billion for similar charges. With American expats numbering between 5 and 6 million, this could become a potential nightmare for those individuals with limited options to open or maintain a foreign bank account.

 

 

 

 

On Monday, February 10, the IRS announced that it is delaying the shared-responsibility requirement under Sec. 4980H of the Affordable Care Act (also known as Obamacare) for employers who have 50 to 99 full-time equivalent employees in 2014. These employers will now have until 2016 to offer health care coverage to their employees.  However, these employers will still be required to report on their workers and health care coverage in 2015. The penalty had already been postponed last summer (its original effective date was 2014).

To be eligible for the delay, employers must not reduce their workforce or hours of service in order to qualify and they must maintain their previously offered health coverage.  This change was part of final regulations issued Monday by the IRS that also made a number of improvements in response to the proposed regulations issued back in 2012.

For instance, the final regulations ensure that volunteers such as firefighters and emergency responders do not count as full-time employees.  Also, for employers with 100 or more full-time equivalent employees, the regulations phase in the percentage of full-time workers to whom such employers need to offer minimum essential coverage.  The percentage is 70% in 2015 and 95% in 2016 and beyond.  Employers with 100 or more full-time equivalent employees that do not meet these percentages will be required make an employer shared-responsibility payment for 2015. The final regulations also contain transition guidance for noncalendar-year plans. There was no change for small businesses with fewer than 40 employees, which is about 96% of all employers; they are still not required to provide coverage or fill out any forms under the Affordable Care Act.

 

 

The fastest growing segment of the labor force is workers over the age of 65,  according to the U.S. Bureau of Labor Statistics.

If you plan on working past 65, there are some issues to be aware of that author Mark Miller points out in his Wealth Management.com article:

Social Security timing: It doesn’t make sense to take Social Security in your first year of eligibility (age 62) if you continue to plan on working for two main reasons: 1) you will only receive 75% of your primary insurance amount and 2) there are penalties incurred on Social Security benefits if you earn income. For example, if you have earned income of more than $15,480 in 2014, you will be hit with a penalty of $1 for every $2 over that amount. These withheld benefits are given back after you reach full retirement age, but it does not make much sense to take the reduced benefits early. Instead, if you continue to work and can wait until the age of 70, you will receive 132% of the primary insurance amount for the rest of your life, and that is nearly double the amount you would receive at age 62. After age 70 benefits stop accruing.

Medicare filing: The article notes that Medicare benefits are by the far the most important and the most complicated. If you already receive Social Security benefits, the sign-up for Medicare is automatic. If not, your window to sign up is the three months before turning 65 up through the three months following. Failing to do so can result in expensive premiums down the road. For example, monthly Part B premiums jump 10% for each full 12 month period that a senior could have had coverage but didn’t sign up. If you plan on working past age 70, you can delay starting Medicare without penalty if you are insured based on your active work status by an employer with more than 20 employees. However, if you are self employed, or your employer has fewer than 20 employees, you should sign up at age 65.

Required Minimum Distributions (RMDs): RMD’s are mandatory from IRA accounts and 401(k)s (unless you are working for an employer who sponsors the plan) starting the year you turn 70.5. If you are working, you do not have to take RMDs from the 401(k) of your current employer; it is only required from former workplaces if they were never rolled over. These distributions can affect what tax bracket you will fall into, so it’s important to plan accordingly.

 

 

 

If this week’s negotiations to raise the federal debt ceiling do not end well, there could be major consequences to the economy. Administration officials say that by Thursday they will have exhausted all borrowing authority and only have cash on hand. There would be enough money to make payments for a few days, but not more than two weeks.

According to an article in the Washington Post, economists on both sides agree that no matter which course the President chooses, a drop in federal spending that large would have an impact on economic growth. The administration would have to consider delaying or suspending tens of billions of dollars, as soon as Friday, to Medicare and Medicaid providers, food stamp recipients, unemployment benefits and Social security checks. This could be detrimental to seniors and low-income people. Veterans’ benefits and pay for active-duty troops could also be delayed. Nearly $60 billion is due in November to cover the aforementioned expenses.

Further, economists have estimated that if the government shutdown lasts through October, real GDP could be reduced as much as 1.5 percentage points in the fourth quarter. Hundreds of thousands of furloughed workers are expected to postpone purchases, which would be a major hit to growth through reduced consumer spending. Consumer sentiment hit a nine-month low in early October. Estimates for fourth-quarter GDP are being held steady or have been cut slightly in light of the shutdown. Citigroup’s chief U.S. economist Robert DiClemente stated that the longer the delay in authorized spending, the greater the incidence of negative spillovers to private activity. Though these impacts would be reversed once the furloughed workers return to work, there would still be drags on the economy that may continue into 2014.

 

 

In an interesting recent article “Your Clients and Their Children: The Problems With Joint Bank Accounts” by Andrew Rice there is a recurring question that pops up during elder and estate planning: should I add my child to my bank account? When a senior begins to lose their ability to manage their finances like paying the bills, these accounts can seem like a viable option. However, the article outlines five risks that both the parent and child should consider:

1. Withdrawal Rights: Each person on a joint bank account is legally considered a full owner when it comes to withdrawing money from the account. This means the child can fully deplete the bank account at any point in time should they choose to do so.

2. Creditor Issues: The bank account becomes an asset for both parties on the account. If the child should get into financial difficulties and has a creditor with a judgment against them, the creditor could legally garnish the entire bank account regardless of the parent’s involvement.

3. Divorce and Legal Issues: As noted above, the account becomes an asset of the child; therefore, it is also subject to potential claims by a divorcing spouse of the child or a lawsuit/judgment against the child.

4. Bypassing the Will: Joint bank accounts bypass the will of a deceased person, and the will does not impact the money in a joint bank account. This could create a dispute among other beneficiaries as the child on the joint account would get the entire proceeds from the account after the parent’s death, whether or not other assets stipulated in the will were to be divided equally.

5. Gift Taxes: adding a child to a parent’s bank account is indirectly making a gift, which may or may not be subject to gift tax for the parents.

One alternative to a joint bank account is a type of account commonly referred to as a “convenience account.” Certain states allow these accounts, which let others have access to the account and make deposits and withdrawals. The account legally obliges the helper to act as the elder’s agent, and any money in the account becomes part of the elder’s estate, to be divided in accordance with a will or the law. If there is a need for someone to provide this type of assistance to an elderly person and the children are not a viable option, your trusted accountant can always provide this service as well.

 





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