Great news! Wittenberg CPA is currently offering some great promotions from now through the end of 2016. We are offering free, initial set up for any new business clients needing payroll and other business accounting services, in addition to a $150 account credit to our existing clients for the successful referral of any new business client. For those business owners who are considering making a change in their accounting services provider, but who are not quite sure of the possible benefit, we are also offering a free review, where we would go over your financial information and tax returns with you, to determine what changes could be made in order to benefit your business.
You may have heard rumors that the Department of Labor was issuing updated requirements, pertaining to salaried, overtime-exempt employees. These requirements have been finalized, and a new Final Ruling has been issued, with an effective date of December 1, 2016.
In the past, in order for an employee to qualify for the overtime exemption, three tests had to be met; (1) the employee had to be paid a predetermined and fixed salary, not subject to reduction because of variations in the quality or quantity of work performed (“salary basis test”); (2) the amount of salary paid had to meet a minimum specified amount (“salary level test”); and (3) the employee’s job duties had to primarily involve executive, administrative, or professional duties, as defined by the regulations (“duties test”).
With the new Final Ruling, the employee must still continue to meet the required three tests, in order to qualify for the exemption; however, the salary level test has now increased from $455 to $913 per week. The good news is, for the first time ever, employers are able to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.
Remember that non-discretionary bonuses and incentive payments are forms of compensation promised to an employee, in accordance with any pre-determined standards. Holiday bonuses are considered discretionary, and therefore, do not count towards the salary threshold; nor does any benefit paid to an employee, such as medical insurance, retirement, HSA contributions, etc.
These bonuses and incentive payments must be paid on a quarterly or more frequent basis, in order to count towards the standard salary level. In the event that an employee does not meet the standard salary level in a given quarter, in conjunction with the incentive payments, employers are allowed a “catch-up” payment, which must be paid within one pay period of the quarter ending, in order for the employee to meet the standard salary level requirement.
To prepare for the upcoming changes, you’ll first need to decide whether or not your current salaried overtime–exempt employees still qualify under the duties test, as well as the salary basis test. If the employee’s annual salary threshold is currently more than the updated requirement of $913 per week ($47,476 annually), then there is nothing further that you will need to do.
However, if your employee’s salary is less than the required threshold, you’ll need to either raise their annual salary to at least the new threshold, or switch the employee over to an hourly wage. If you decide to switch over to the hourly compensation method, the employee will no longer be overtime exempt, since the requirement of the exemption is to meet all three requirements (duties, salary basis, and salary level).
Please contact us at your earliest convenience to discuss how these changes impact your business specifically, so that we can help you prepare for the transition, before its upcoming implementation date of December 1, 2016.
We always appreciate the opportunity to explain why you should engage a CPA (Certified Public Accounting) firm like ours, as compared with hiring a bookkeeping or a tax preparation only service, especially since our fees can be higher on average, relative to those other types of services. Probably the most significant benefit of engaging a CPA firm like ours is the education and experience levels that we can offer you and your company, inherent in the services we provide. Whereas anyone can put out their “shingle”, advertising bookkeeping, and/or income tax preparation services, CPA firms are held to a much higher standard of education, knowledge and ethics. For example, CPA’s are required to not only have a college degree in accounting, we are also required to have a minimum of 40 hours of continuing education on an annual basis, in the fields of accounting, tax law, business finance, personal financial planning, and other related studies. Unfortunately the nationally syndicated companies, advertising their income tax and/or payroll preparation services by “professionals”, are instead staffed by individuals with minimal training and experience, in a mass production type of atmosphere, without requiring these same educational standards or ethics. Please contact us if you’d like to discuss how we can assist you, and/or your company with its accounting, business start-up, income or business tax preparation, or any of the other types of services we provide. Thanks! Mike and Staff
Since the implementation of the new health care act has been so complicated, especially for those who participate in either the Federal or a state based health insurance marketplace (exchange), the IRS’s Taxpayer Advocate Service has developed some new web based tools. The Premium Tax Credit Change Estimator is a tool that can be used when your life circumstances change (e.g. changes in income, marital status, etc.), so you can figure out how much your “Advance Premium Tax Credit” will change based upon the changes in your life circumstances.
The Individual Shared Responsibility Provision Estimator is a tool to determine how much you can expect to pay as an “Excess Advance Premium Tax Credit Repayment”, upon the filing of your annual tax return, if you don’t have “minimum essential coverage”, and if you also don’t qualify for an exemption from this provision.
These tools are meant to provide you with information relative to these two aspects of the Affordable Care Act (ACA) compliance, however if you have any questions as to how these rules apply to your particular circumstances, please contact us for further assistance.
Effective April 1, 2016, the City of Shelton’s sales tax rate increased from 8.6% to 8.8%. This rate increase is due to the establishment of a Transportation Benefit District (TBD), and the taxes generated will be used for transportation services. As local consumers, we all just need to get used to paying a higher rate of sales tax, however for businesses the change requires some additional complexity.
If your business reports on a “cash basis” method with the Department of Revenue, invoices that were sent out at the old tax rate, but not received until after 4/1/16, will need to be reported during the period the actual sale occurred, in order to report and pay the correct sales taxes collected. This would mean for most businesses, that they would need to amend the excise return for the period in question, and include the sale that was received after the April 1st sales tax increase.
If your business reports on an “accrual basis” method with the Department of Revenue, the change should be seamless, aside from making sure that you setup any invoices after April 1st using the new rate of 8.8%.
If you need assistance with updating your accounting software, registers, etc., just contact us and we would be happy to assist you with implementing this change for your business.
Which category of individual income tax filer do you fall into, and how do you avoid the “Individual Responsibility Payment”? Are you covered under a “qualifying health insurance plan” (e.g. employer or medicare coverage), which offers “minimum essential coverage”, and are therefore exempt from the payment? Are you in an exempt category, due to your income level, or other qualifications, which allows you to avoid the payment? Or did you buy your health insurance on either the Federal or State of WA health care exchange and are therefore receiving an “Advance Premium Credit”, which means when your tax return is prepared you’ll either receive an additional premium tax credit, or else possibly you’ll pay the individual responsibility payment, depending on how your actual income turned out relative to your projected income? This tax year, in addition to Form 1095-A, which you’ll receive if you are part of the health exchange process, you might receive a Form 1095-B or 1095-C, which are issued by or for employers or a governmental entities, if your health insurance premiums are paid on your behalf. Whatever your circumstances please contact us if you have any questions or need our assistance. We also want to take a minute to welcome Kristy Coots to our staff – please tell her hello when you call or come by our office!
If you have a college age child in your household you are more than likely needing to file a FAFSA (Free Application for Student Aid) form this time of year, even if you don’t expect your child to qualify for grant type funds, they may qualify for a scholarship or other financial support. While it’s best to complete and file the FAFSA early during the tax season, you can use estimates from tools like this income estimator, in order to meet the required FAFSA filing deadline, and then later update the FAFSA with actual amounts from the most recent tax year. The good news is that once you’ve prepared the most recent year’s tax return, your financial information can be efficiently updated by using an IRS data retrieval tool, so you won’t need to spend the time to complete the FAFSA form all over again! Please contact us if you have any questions, or if we can assist you in the process of preparing a FAFSA form.
The Act delays the imposition following healthcare excise taxes:
- Medical Device Tax. The Act provides a two-year moratorium on the 2.3% excise tax imposed on the sale of medical devices. The tax will not apply to sales during calendar-years 2016 and 2017.
- Cadillac Medical Insurance Tax. A 40% excise tax imposed on high-cost employer sponsored health coverage (often referred to as the Cadillac tax) was scheduled to take effect for tax years beginning after 2017. The Act delays the tax for two years. It will now be imposed for tax years beginning after 2019. The Act also makes this tax a deductible business expense.
Accelerated Due Date for Reporting Employee and Nonemployee Compensation. Currently, a business that pays nonemployee compensation totaling $600 or more in any tax year to a single payee must file a Form 1099-MISC (Miscellaneous Income) with the IRS by the last day of February of the year following the calendar year to which such returns relate (or March 31 if filed electronically). Similarly, employers must file Form W-2, Wage and Tax Statement, to report wage paid to employees with the Social Security Administration (SSA) by that same date.
The Act accelerates the date that Forms 1099-MISC and W-2 must be filed with the IRS and SSA. Starting with 2016 calendar year Forms 1099-MISC and W-2, which are to be filed in 2017, the returns must be filed with the IRS (or SSA) by January 31 of the year following the calendar year to which such returns relate and they are no longer eligible for the extended March 31 filing date for electronically filed returns.
Penalty Relief for De Minimis Errors on Information Returns. Substantial penalties can apply for failing to file correct information returns and to furnish correct information to payees. The penalties are the same regardless of the size of the error in the amount reported. For returns required to be filed after 2016, the Act establishes a new safe harbor from penalties if the return is otherwise correctly filed but includes only a de minimis error of $100 or less ($25 or less in the case of errors involving tax withholding). In this case, the issuer is not required to file a corrected return and no penalty is imposed, unless the recipient of such the incorrect return requests a corrected return.
Tax Breaks Made Permanent. Business provisions made permanent by the Act include the following:
- Research and Development (R&D) Credit. The Act retroactively and permanently extends the R&D credit. Additionally, beginning in 2016, eligible small businesses ($50 million or less in gross receipts) may claim the credit against Alternative Minimum Tax (AMT), and the credit can be utilized by certain small businesses against the employer’s payroll tax (i.e., FICA) liability.
- Break for S Corporation Built-in Gains. When a C corporation converts to S corporation status, the corporate-level Section 1374 built-in gains tax generally applies when built-in gain assets (including receivables and inventories) are turned into cash or sold within the recognition period. The tax is only assessed on built-in gains (excess of FMV over basis) that exist on the conversion date. The recognition period is normally the 10-year period that begins on the conversion date. However, for S corporation tax years beginning in 2012 through 2014, the recognition period was five years. The Act makes the five-year recognition period permanent retroactive to tax years beginning in 2015. In other words, for gains recognized in 2015 and beyond, the built-in gains tax won’t apply if the fifth year of the recognition period has gone by before the start of the year.
- Differential Pay Credit for Small Employers. The Act retroactively and permanently extends the credit for eligible small employers that provide differential pay to employees while they serve in the military. The credit equals 20% of differential pay of up to $20,000 paid to each qualifying employee during the tax year. Additionally, beginning in 2016, the Act modifies the credit to apply to employers of any size, rather than employers with 50 or fewer employees, as under current law.
Work Opportunity Credit (WOTC) Hiring Deadline Extended through 2019. The Act retroactively extends the general deadline for employing eligible individuals for purposes of claiming the WOTC to cover qualifying hires who begin to work before 2020. With respect to individuals who begin work for an employer after 2015, the PATH Act also modifies the WOTC to apply to employers who hire qualified long-term unemployed individuals (i.e., those who have been unemployed for 27 weeks or more) with the credit with respect to such long-term unemployed individuals equal to 40% of the first $6,000 of wages.
Tax Breaks Extended through 2016. The following business tax breaks were retroactively extended for two years through 2016:
- Credit for Building Energy-efficient Homes. The Act retroactively extends the $2,000 or $1,000 (depending on the projected level of fuel consumption) per-home contractor tax credit for building new energy-efficient homes in the U.S. to qualifying homes sold by December 31, 2016, for use as a residence.
- Energy-efficient Commercial Building Property Deduction. The Act retroactively extends the deduction for the cost of an “energy efficient commercial building property” placed in service during the tax year for two years, for property placed in service before 2017. The maximum deduction for any building for any tax year is the excess (if any) of the product of $1.80, and the square footage of the building, over the total amount of the Section 179 deductions claimed for the building for all earlier tax years.