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If you haven’t heard the buzz over the past few weeks, there has been a significant change in federal overtime rules for employees. For business owners it is important that you be aware of these changes. If you have employees you need to prepare to be in compliance and possibly fork out more cash when the law goes in to effect on December 1, 2016.
Under the current system, salaried employees earning in excess of $23,660 ($455/week) are excluded from time-and-a-half pay for hours worked over 40 in a week. Under the new rules the salary threshold more than doubles to $47,476 ($913/week). This rule does not apply to employees employed as bona fide executive, administrative, professional and outside sales employees.
Business owners will need to prepare themselves to face these changes as they could have significant effect on cash-flow not only in the increased wages but in administrative costs of keeping track of time.
The first step an employer should take is identifying the workers who will be affected. Employers who are not currently keeping track of exempt employees’ hours should start doing so they can predict how much overtime they will owe under the new laws. This will give baseline with which to work with in planning on whether your business can handle the increased expense.
Once you have figured out if your business will be affected and if so whether it can withstand the increase expense, you will be faced with some decisions to make. Unfortunately if your business will not be able to tolerate the expense burden you will need to make some changes and cut some costs. Looking at your financials and budgets will be a first step. 
Many businesses may have to cut in other areas to balance the increase in wages. Businesses who cannot find places to cut will be faced with tough decisions on changing your pay structure. Here are some steps that can be taken to lessen the burden of the new rules:
You also may need to invest in a better time-keeping system so that should be kept in mind as well.
Remember when all is said and done, being proactive rather than reactive is going to benefit your business. Take your time to understand the rules and if they will apply to you and take the necessary steps to keep your business in the best financial shape it can be. If you have any questions about the law or need an expert to evaluate the potential financial impact give your CPA a call.
An issue that can still have tax ramifications today, years after the great recession hit Reno, is that of debt forgiveness. If you think that since you never received any cash, debt forgiveness is not taxable, think again!
Whenever there is a loan balance that gets reduced in any way, either with debt forgiveness, a foreclosure, a short sale, or a cancellation of debt, there is a taxable event. Depending on whether the debt held was recourse or nonrecourse makes a difference as to whether the forgiveness will be classified as cancellation of debt income or a capital gain.
A taxpayer wants cancellation of debt income when they are either insolvent, the home is their principal residence or they are in bankruptcy. In these situations the income is excluded from taxable income. If these situations don’t apply then the debtor wants a capital gain. In this instance the gain will be taxed at lower rates and if they have any capital losses then the gain can be reduced by these losses.
Generally, if a loan is nonrecourse and the property backing the loan is foreclosed upon to satisfy the nonrecourse debt, then the excess of the debt over the tax basis of the property is a gain. However, if the lender merely reduces the principal of the nonrecourse debt, then cancellation of debt income occurs.
The rules are different for recourse debt. If there is a foreclosure of property to satisfy recourse debt than the taxpayer recognizes cancellation of debt income by the difference between the fair market value of the debt versus the debt discharged. The difference in the fair market value versus the tax basis is then recorded as a gain or loss.
This brief summary just hits the surface of the complex rules regarding debt forgiveness. When this situation occurs, consult a Reno CPA to figure out the tax consequences.
There are a number of beneficial tax provisions that have been implemented to help military members who have been deployed to combat zones and their families. Two substantial benefits are extensions of filing deadlines and military pay exclusions. To be able to take advantage of these special tax treatments, however, specific requirements need to be met. The following takes a brief look at some of the regulations affecting military members when serving in combat zones. More information can be found on the IRS website or in IRS Publication 3 – Armed Forces’ Tax Guide.
Per IRS Publication 3, the U.S. Armed Forces comprise officers and enlisted personnel in all regular and reserve units subject to control by the Secretaries of Defense, Army, Navy, Air Force, and Coast Guard. The U.S. Merchant Marine and the American Red Cross are not included.
Per the IRS website, combat zones are specified by executive orders from the President. They are regions (including the airspace above them) in which the U.S. Armed Forces currently are or previously were engaged in combat. At this time, there are three combat zones:
In addition to these designated combat zones, the Department of Defense has ordered several other areas to qualify for combat zone tax benefits. These regions have played crucial roles in supporting military operations under either Operation Enduring Freedom or Operation Iraqi Freedom. A few examples are Pakistan, Tajikistan, Jordan, Yemen, and Somalia.
When serving in combat zones, military members and their spouses are allowed an extension to file their Forms 1040. 
The deadline is extended for 180 days after the service member’s last day in a combat zone. Additionally, any period of time before the regular filing deadline that the service member spent in a combat zone is added to the 180 days. For instance, if a service member deployed to a combat zone on January 15, 2016 and returned November 15, 2016, the deadline for filing his 2015 Form 1040 would be extended for 274 days (180 days plus the 94 days he was deployed prior to April 18, 2016) after he returned on November 15, 2016, making his filing deadline August 16, 2017. The IRS has listed many examples on its website and in its Publication 3 for guidance.
Enlisted members, warrant officers, and commissioned warrant officers, who serve in combat zones during any part of a month, can exclude all of their military pay for that month from their gross income. This rule applies to commissioned officers as well, but with one limitation. The amount of the income tax exclusion is limited to the highest rate of enlisted pay, plus any hostile fire or imminent danger pay received. For 2015, the exclusion amount is $8,119.50 per month ($7,894.50 for the highest enlisted pay plus $225 for imminent danger pay).
There are many other tax regulations that affect individuals serving in the military. As mentioned, the foregoing is intended to take a glimpse at some of the tax benefits received by service members deployed to combat zones. The IRS has a section on its website dedicated to giving military members tax information and, more specifically, rules regarding combat zone service. IRS Publication 3 is also a useful resource.
When I think of 7-Eleven I think of Slurpees. When I think of the IRS, well, I don’t think of Slurpees. Now, thanks to a partnership between the IRS, ACI WorldWide’s OfficialPayments.com and the PayNearMe Company, we can all pay our taxes at over 7,000 7-Eleven stores throughout the USA and pick up that Slurpee while we’re there. 
The bonus here is no bank account or credit cards are needed as you can now pay in cash. The IRS can now literally nickel and dime us (though I’m not sure the 7-Eleven will be so happy with all that change).
“We continue to look for new ways to provide services for our taxpayers. Taxpayers have many options to pay their tax bills by direct debit, a check or a credit card, but this provides a new way for people who can only pay their taxes in cash without having to travel to an IRS Taxpayer Assistance Center,” IRS Commissioner John Koskinen said in statement released on Wednesday.
Individuals who want to use this payment option should head to IRS.gov payments page and click on the “Cash” hyperlink in the “Other Ways You Can Pay” section. There are a few things to be aware of to make sure you can pay your entire tax bill and that you pay on time. First, the payment limit per day is $1,000 and there is a $3.99 fee per payment. 
Second, the payment may take a few days to post to your account, so make sure you pay before the tax deadline in order to ensure the payment is received timely. Also, make sure you’ve initiated this payment online as you can’t just walk into a 7-Eleven without a payment code. Other than that, there doesn’t seem to be too much to this process and remember – don’t drink that Slurpee to fast or you’ll get a brain freeze.
According to a recent article in the Journal of Accountancy, passwords continue to be a major security risk. SplashData’s report compiling millions of leaked passwords has found that since 2011 the most frequently used passwords are “123456” and “password”. In addition to using weak passwords people often use the same one for everything. 
This obviously puts other systems one uses at risk. Further, audits of IT systems security find passwords written down in all sorts of places and unsecured password documents stored in employee computers and mobile devices.
Managing a lot of different passwords can be a daunting task. Some advisors suggest you may want to consider a password manager that securely stores your passwords for various sites. This way you only need to remember only the STRONG password you create to access the password manager. Just search online and you will find several options.
One CPA has devised a standard approach to organizing all his passwords. 
He starts with his first old ten-digit phone number, followed by the name of the account (i.e. Delta, Amazon, etc.) and ending with a four-digit personal identification number (PIN). This results in a strong password and you only have to remember the PIN.
With a little creativity, one could create a similar organized system to manage what for many has become an overwhelming challenge.
The name says it all – it is just that, a tax on athletes. Well, at least it started out that way. The Jock Tax has its beginning in 1991 in California, when Michael Jordan beat the Lakers in the NBA finals. California decided they wanted to tax Jordan for his wages while in the state of California as earnings in California. 
Illinois then came back with their “Michael Jordan’s Revenge” Tax, stating that they would impose the Jock Tax on any state that imposes a Jock Tax on their players.
More states took to the tax as it could not be voted out by the visiting players, due to their not being a resident. Missouri came on board with the tax in 2009 when the Cardinals lost to the Astros in the postseason, but took it another step further. A representative of the state was disappointed in how the umpires officiated the games in St. Louis; therefore, Missouri has imposed the tax on umpires that are working the games in their state.
How could taxing these pros that make millions of dollars sound bad? Well, the tax is also levied on team trainers and equipment managers, whom only earn a median income. Teams travel to fair amount of states and these trainers end up having to file 15-20 state tax returns, and the cost of having that many returns prepared piles up in a hurry.
In 2015, there was a court case in Cleveland involving two former NFL players regarding the Jock Tax. Cleveland was trying to levy the tax as if the only days that the players had worked in the state of Ohio were game days. 
Therefore, 5% of their salary was being taxed for playing a game in Cleveland, but the players claimed that they worked throughout the week at practice and video training; claiming that a typical NFL season is 170 workdays long for the players. The Ohio Supreme Court ruled in the favor of the players, stating that the tax being levied by Cleveland was “Unconstitutional.”
As of today there are only four states that have professional teams that don’t impose the Jock Tax: Florida, Washington, Texas and Tennessee (who repealed their version of the Jock Tax in 2014). All four states also have no state income tax, explaining why you see many professional athletes living in these states.
Small business accounting software that’s not available via the cloud can be tedious. Traditionally, it can suck up far too much of your business’ time and effort. This doesn’t add value, and takes the fun out of being in business. Cloud software can save your company time and money.
Why the cloud?Think about when you use internet banking. Every time you access this data, you’re using the cloud. The cloud is a platform to make data and software accessible online anytime, anywhere, from any device. Your hard drive is no longer the central hub.
You can use cloud-based software from any device with an internet connection. Online accounting means small business owners stay connected to their data and their accountants. The software can integrate with a whole ecosystem of add-ons. It’s scalable, cost effective and easy to use. In the cloud, there’s no need to install and run applications over a desktop computer. Instead, you pay for the software by monthly subscription.
As a small business owner, you might be concerned about a cloud service provider storing your data. But the cloud is one of the most secure ways to store information. For example, using cloud software, if your laptop is stolen, no one can access your data unless they have a login to the online account. 
With cloud software, this is where the data lives – as opposed to on your hard drive.
In the event of a natural disaster or fire, being in the cloud means business productivity doesn’t need to be affected because there’s no downtime. All of your information is safely and securely stored off site. As long as you have access to any computer or mobile device connected to the internet, you’re back up and running.
In addition to this, if you invite users to view your data, you can control the level of access. This is much more secure than the old-fashioned way of emailing your files or sending out a USB stick with your data on it.
Cloud-based software companies ensure that the security and privacy of data about you and your organization is always airtight. If you use online banking, then you’re already primed to use cloud accounting.
Work smarter with accessible data in the cloudThe beauty of this software is the flexibility it gives you to run your business from work, home, or on the go. You can be confident that you have an up-to-date picture of how your business is doing, no matter where you are.
Software updates can be developed and delivered faster and more easily in the cloud. This means you don’t need to worry about installing the latest version and you’ll get access to new features instantly. With cloud accounting software, you have the option to run your business remotely, from anywhere in the world. And when data is fluid and accessible, the possibilities are endless.
If you want your business to work smarter and faster, cloud accounting software is a wise investment. Working in the cloud will give you a better overview of your finances, and improve collaboration with your team.
If your business is interested in cloud accounting services, please contact Barnard Vogler & Co. We can seamlessly transfer data from your old software and have a new system up and running in no time. We can also help with your back-office needs; from a fully outsourced accounting department to CFO level advice, we can take work off your hands and give tremendous insight in to your business.
Another tax filing season means another season of opportunities for tax fraud. And to add insult to last year’s injury, some of the same people who were victims of the IRS’ data breach are being victimized once again.
Brian Krebs of KrebsOnSecurity is reporting the Identity Protection (IP) PIN the IRS sent out to those affected by last year’s “Get Transcript” fraud has the potential of being obtained by those who are not you (i.e. fraudsters). The PIN is initially sent to a person who has been a victim of fraud in the mail. This isn’t where fraudsters are obtaining the PIN. 
The point of attack is actually back with the IRS on the “Retrieve Your Lost or Misplaced IP PIN” portion of their website. As often happens in this day and age of too many passwords to remember, people misplace or forget their IP PIN. The IRS has created an electronic way to retrieve this PIN, but the system uses the same retrieval method that allowed the “Get Transcript” fraud. The system uses knowledge-based authentication which will have you answer four questions from the credit bureau Equifax. These questions will be something in the ballpark of your previous address, loan amounts and other questions of a similar nature. The problem is the answers to these questions are easy to guess especially since a taxpayer who is using an IP PIN already had their information compromised. A good question is why is the IRS using the same authentication system that caused issues last year?
Additionally, more good news out of the IRS is further review of the “Get Transcript” incident from 2015 has identified an additional 390,000 taxpayer accounts that had potential access. This brings the total number of affected taxpayers to somewhere over 700,000. 
Not necessarily all had fraudulent returns filed, luckily, but those taxpayers will now most likely have to deal with the IP PIN. Not all is doom and gloom, though. KrebsOnSecurity does have a handy write-up on things you can do to keep yourself from being a victim of tax fraud.
Fundraising has gone digital. Millions of individuals are now utilizing social media sites such as kickstarter.com and gofundme.com to attract contributors or donations to support their cause. Few, though, are thinking about the income tax ramifications that are created by the crowdfunding environment.
Congress and the IRS have not yet addressed the crowdfunding income specifically, which leaves little guidance for CPAs and tax advisors preparing returns in the coming season. Applying common tax principles, along with some common sense, will help taxpayers and preparers alike to decide the appropriate reporting of funds received.
There are three types of crowd-funding:
Reward and donation-based funding use third party payment processing, such as PayPal. Any campaign creator who collects over $20,000.00 will receive a 1099-K reporting the funds received during the campaign. Pledges for donation-based funding are likely going to qualify as a non-taxable gift, unless an individual gifts more than the annual gift exclusion ($14,000 in 2015 and 2016). Funds received for reward-based funding for creative new ventures are likely to be treated as income to the recipients.
Kickstarter states that it cannot give tax advice, but does indicate that in the US, funds raised through campaigns on kickstarter.com will generally be considered income (see “Kickstarter and Taxes: A Guide for Your Accountant”). They suggest that expenses can offset the income, or that some may be considered gifts, but does not distinguish between the two.
Amounts received for reward-based funding are likely to be treated as income under Section 61 and should be reported by the creator of the campaign in the year of receipt. If it is an active trade or business, business expenses would likely be deductible against the income under Section 62. If this is a hobby, hobby loss rules would apply and limit expenses to the extent of income. Start-up business will also have additional requirements for expensing or capitalizing the organizational costs related to the start-up of the business.
As you can see, there are many different scenarios that will need to be considered when reporting crowd-funding during this period of limbo until the IRS addresses the topic. That makes it even more important as tax preparers and taxpayers alike to ask the right questions, document your position, and substantiate your reporting to the best of your ability.
With all of the talk of tax deadlines switching for 2016 tax returns it’s important to go over some of the deadlines for this current tax season. The deadlines for this year are the same as they have been in the past. Here are a few of those dates, but additional guidance can be found on the IRS website.
File form 1120 or 1120S for calendar year 2015 and pay any tax due
File form 7004 for an automatic 6 month extension, and deposit estimated tax
The return or extension must be postmarked or transmitted for e-filing by Monday, April 18, 2016
Your tax payment is still due by April 18 and can be submitted with the extension form
Non-profits can request an automatic three-month extension by submitting Form 8868
For taxpayers who have over $10,000 in total in foreign bank accounts
These forms must be filed electronically and there are no extensions
The organization can request an additional three-month extension (not automatically granted) by filing another Form 8868 and filing out the information in Part II
If you filed for an extension, this is the final deadline to file your individual tax return for 2015
All of the deadline changes will occur in 2017 for 2016 returns.
