On Tuesday, January 15, 2013 the IRS announced that going forward, there is a simplified option for taxpayers who take the home office deduction. While the credit is capped at $1,500 a year (this may be adjusted in future years), taxpayers choosing this method will not have to deal with complex calculations of allocated expenses, depreciation and carryovers from prior years. What’s that you say? Your amazing CPA does all of these calculations for you so what does it matter? Well most importantly, the safe harbor method is an alternative to the substantiation (i.e. recordkeeping) of actual expenses. That means you don’t have to keep every utility, internet and any other home bill as substantiation for the deduction and in case of an IRS audit.

There are some important factors to consider, however. The allowable square footage used in the calculation cannot exceed 300 square feet. Also, home expenses like utilities, homeowner’s insurance, etc are not deductible under this method. Depreciation is also not allowed. Mortgage interest and real estate taxes would still be fully deductible on Schedule A (rather than apportioning it between the deduction and Schedule A) if you itemize.

The election to use the safe harbor method can be made each year, meaning you can use the safe harbor method in one year and use actual in the next. So if for some reason the filing cabinet with all of your paid bills walks out the door, you could take the safe harbor method that year and still get a deduction. Taxpayers may want to look at what their home office deduction has been in the past and see if this simpler method would be worth it on an annual basis.

Many large companies are determining how they will handle the changes coming in January 2014 with the Affordable Care Act. For a company who employs 50 or more full-time employees that is already offering health care benefits, one option that I am reading about over and over is:

Employers would terminate their current health insurance plan; pay the penalty for each employee, (approx $2,000); and force employees to shop in the state and federal exchanges. While this may seem cheaper, companies need to consider that they will lose their tax deduction for providing health insurance benefits not to mention the consequences on employee morale and recruiting efforts.

Another option that has emerged is to continue to offer health insurance but through a Corporate Exchange instead. According to the Wall Street Journal, both Sears Roebuck and Darden Restaurants (which operates Olive Garden, Red Lobster and other dining establishments) announced in October they had signed on to Aon Hewitt’s Corporate Exchange. Sears has approximately 90,000 employees while Darden has about 45,000 that will be participating in the exchange. Through the Corporate Exchange, not only can an employee pick different insurance coverage, but they can pick different insurance providers. These options are similar to the ones that will be available under the public exchanges, but large companies with more than 100 employees are not eligible to participate in the public exchanges at least until 2017.

Under this option, there is no penalty as the group health plan is still fully compliant with the Affordable Care Act. The employer then decides how much of a subsidy to provide employees to purchase coverage. Ideally, this subsidy provided to employees would be evaluated annually to keep up with the potential increase in cost of coverage. The employee then takes their subsidy and can evaluate various provider options and levels within the exchange and pick the best plan for them. The more exchange participants, the greater the economies of scale. This type of exchange will supposedly keep costs for the employers lower because insurers are forced to compete with one another to attract members in the exchange to their plan. Besides the potential cost savings for the employer, employees are happier under exchanges because they can pick the type and level of insurance that they want. A single person in their 20’s can choose a relatively less expensive plan while someone in their 50’s can opt for more coverage.

This is a novel concept that if it works as Aon plans, will sure to be replicated and remain a viable option for employers.

Having given financial literacy presentations to children in our community, I found the recent survey results published by the AICPA (American Institute of Certified Public Accountants) dismaying. According to the survey conducted by Harris Interactive, three in 10 parents never talk to their children about money, or have only had one big talk with their children regarding the subject.

 Just 13% of the parents surveyed talked daily to their children regarding financial matters. Instead, they spent time talking to their children about good manners, good eating habits, getting good grades, and the dangers of drugs and alcohol.

While I don’t disagree that those topics are important, I would argue that speaking to children about good personal financial habits is equally as important. And I’m not alone. Federal Reserve Chairman Ben Bernanke was quoted as saying early financial education is important for individual well-being and also the economic health of the United States. Think about how you yourself learned these skills. Was it the hard way or were you fortunate enough to learn these skills at a young age?

Since surveys show that parents, not teachers, have the greatest influence on a child’s financial literacy, parents should start having talks about financial habits as soon as a child is able to express a want. Here are some helpful suggestions: make sure you speak about financial habits at their level. Help them understand how to save birthday money or allowance money to pay for toys and other items they want. It has to be something they care about (trust me, hearing about saving for college at the ripe old age of 7 doesn’t mean much). Repeat these talks often and make them a part of daily life. Share with your children about how you are saving for a family vacation, a new car and how that might affect the family budget.

 Some great websites regarding financial literacy are 360 financialliterary.org   and feedthepig.org. I encourage you to check them out.

Have you ever wondered just how much you pay in taxes over a year? Not just big tax items like income and property taxes, but even the taxes on the gas you pump into your car to the taxes on your utility bill?

Maybe you haven’t because you’re not obsessed with taxes like us CPAs, but if you are curious, the American Institute of CPAs has come out with a nifty tax calculator that is designed to give U.S. taxpayers a complete picture of their estimated total federal, state, and local tax obligation.

To give you fair warning, you will not be able to just plug in a few numbers and get your calculation.  For the calculation to be accurate, you will need your prior year’s tax return, your estimated income, and a good idea of what you spend a month on expenses like gasoline, cable, cell phone, electric and gas, alcohol, clothing, etc. With just a click of the button you will be provided with a total estimated annual tax liability and exactly what percentage of your income is paid over to the taxing authorities.  If you have a moment – check it out; the results just might shock you! http://www.totaltaxinsights.org/Calculator

The calculator is also available on our website – bvcocpas.com, in the resources/links section.

If you have a CIO or IT manager who is in the know, you may have already had discussions about the following items. If you manage the IT functions yourself, then read carefully so you don’t miss the boat!

• The consumerization of IT. No surprise here, consumer technologies like the iPhone and the Droid, tablets, etc. are creeping into the workplace. If you haven’t dealt with this issue, the time has come to allocate a portion ofyour IT budget to secure and support these new technologies. These “cutting-edge” technologies (well, they were “cutting edge” at the writing of this blog-in a week they could already be dated) can allow employees to be more productive and most likely little training would need to be involved as employees are already using these technologies outside of the work environment.

Handling all that data. A push for developing business intelligence and analytical tools is on the rise to help businesses manage the massive amounts of data they have. Experts agree that utilizing analytical tools will be a key competitive advantage in 2012. Why just store all that data? Why not try and get something out of it? Before building a giant data integration and business intelligence strategy, CFOs need to ask themselves one main question: What kind of data does the business value most? How can your IT staff deliver information and reports that your company needs most if they don’t know the answer to question 1?

 
Cloud computing. The Cloud is not going away. If you don’t even know what the Cloud is, it’s an umbrella term for delivering hosted services over the Internet. Low-cost cloud services are expected to become increasingly available, as well as traditional vendors are offering or will be offering cloud services. The ability that business leaders will have to reach out and download a new cloud service without the assistance of an IT staff will only increase in 2012. One key thing to think about if you move to the Cloud is how to keep all those services integrated and secure.

Blog based on article at CFO.com “How 3 Big IT Trends Will Affect You and Your CIO in 2012”

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According to the NY Times, credit scores are getting a facelift.

A company called CoreLogic has introduced a new type of credit report which contains additional consumer data than what the traditional credit bureaus (TransUnion, Experian, Equifax) show.
Have you missed a rental payment that is now in collections or are you behind on HOA dues? Have you been evicted or served child support judgments? Ever taken out a payday loan? All of this is included in the new credit report. There is also the possibility to show that your house is worth less than what you owe.

Since most of this information is already available to the public, it was only a matter of time before someone decided to compile this data to help lenders determine credit worthiness. An estimated 100 million American consumers will have a CoreScore credit report. The actual score will only be available to mortgage and home equity lenders at this time. Next year, CoreLogic will begin to evaluate whether the report should include even more data, like your payment history on utility and cellphone bills.

The positive: the added information can help illustrate positive behaviors otherwise not noted.

The obvious negative: consumers may now have additional dings in their credit history that previously went undetected. Consider yourself warned.

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