Tax Filing Reminder: July 31 is the deadline for filing 2015 retirement or employee benefit returns (5500 series) for plans on a calendar year.
The “tax extenders” legislation that became law in December 2014 included the “Achieving a Better Life Experience Act” (also called the ABLE Act). This law provides for tax-exempt accounts that can help you or a family member with disabilities pay for qualified expenses related to the disability. These “ABLE accounts” are exempt from income tax although contributions to an account are not deductible on your federal income tax return. ABLE accounts are generally not means tested and some can provide limited bankruptcy protection.
You or a family member are eligible to open an ABLE account if:
1. You’re entitled to social security disability benefits due to blindness or other disability, and that blindness or disability occurred before age 26; or
2. You file a disability certification with the IRS for the tax year.
Annual contributions to an ABLE account are limited to the amount of the annual gift tax exclusion ($14,000 for 2015). Distributions are tax-free as long as they are less than your qualified disability expenses for the year. The list of qualified disability expenses includes housing, education, employment training/support, health prevention/wellness services, financial management, legal fees, and funeral expenses. Other expenses are also approved under the regulations.
Distributions exceeding qualified disability expenses are included in taxable income and are generally subject to a 10% penalty tax. Distributions can be rolled over to another ABLE account for another qualified beneficiary and beneficiaries can be changed between family members. Funds in the account can earn interest or dividends and are not subject to federal income tax as long as distributions are used for qualified disability expenses. ABLE accounts do not have a “use it or lose it” feature and funds can carry over to future years.
The balance remaining in the account after the beneficiary passes away can be used to reimburse state Medicaid payments made on behalf of the beneficiary after the account was established. The remainder goes to the deceased’s estate or to another qualified designated beneficiary. After-death distributions that are not used for qualified disability purposes are subject to income taxes, but not the 10% penalty.
If you are thinking many of these rules sound familiar, you’re correct. ABLE accounts are modeled on 529 college savings accounts.
Cash flow management is a huge priority for any business. However, many business owners do not have a clearly defined cash flow strategy in place, nor do they have any idea of how to implement one.
The initial step is to determine the true cost of carrying accounts receivables. Some of these costs include: Time, Financing, Administrative, Opportunity, Bad Debt and Predictability of Cash Flow.
The three critical reports that are needed to initiate an evaluation of the true cost is a Detailed Aging Report, Open Invoice Report and Effectiveness of Collection Policy.
Businesses that quantitatively measure this cost have the necessary data to begin implementing measurable change to increase cash flow.
Fraud Alert: According to ACFE recent data, Fraud is on the rise.
The three elements to an employee committing fraud are 1) opportunity, 2) Incentive/Pressure and 3) Attitude/Rationalization.
Fraud typically occurs for just under two years from the time it began until the time it is discovered.
What is the best tool to prevent fraud: Segregation of Duties and Internal Control Design.
Please contact me for a complimentary Fraud Risk Assessment Tool to assess the probability of a fraudulent event occurring within your organization.
Steve L. Broyles, CPA, CFE, CFF, MBA
I am teaching a series of QuickBooks® Classes this fall in Middleton, Wisconsin. Please find the information below. If you know of someone who could benefit from learning QuickBooks® to transform information into meaningful managerial data to assist in increasing profitability, then please share this post. Thank you, Steve.
Training • Connection • Inspiration
The best reason to improve your QuickBooks® skills is to run your business better. Pick from a variety of classes: Core Skills, Advanced, Enterprise and Online.
Why learn how to use QuickBooks®: To develop an understanding of how the data is entered, processed and reviewed. To develop a stronger knowledge base, policy and accountability. To use reports to manage your business and build cash flow.
What get’s measured, get’s managed.
For over a fifteen years, it has been my mission to assist others in focusing on the 20% of their business that is fun and drives 80% of the profits to the bottom line. This is information that can be tracked and reported from within your QuickBooks® data file.
Fall 2015 Schedule:
Date Class Time
3-Dec-15 Learn QuickBooks Online Skills Class 9am to 1pm
Registration Fee: $147, includes workbook and lunch.
Location: Staybridge Suites Middleton/Madison-West, 7790 Elmwood Avenue, Middleton, WI 53562, Phone: 608-664-5888.
Currently we accept credit card and PayPal payments when registering online. If you wish to pay by check please mail to Broyles & Company CPAs, LLC, PO Box 620326, Middleton, WI 53562. Check payments need to be received 7 days prior to date of class. Your seat in the class is NOT reserved until Payment is received.
Three easy ways to register: 1) Click the date above, 2) visiti www.broylesco.com or 3) call 608-203-9164. Class size is limited to 8 so please register early.
Preserve tax breaks with MAGI management
How close to the edge are you when it comes to tax phase-outs? As you begin your midyear tax planning, consider the effects of these benefit-limiting provisions. Knowing how close you are to the “edge” can help preserve tax breaks for 2015.
Many phase-outs are based on modified adjusted gross income, or MAGI. MAGI is the adjusted gross income shown on your tax return as “modified” by adding back certain deductions. The “add-backs” vary with specific phase-outs. That means you might have to choose between conflicting opportunities. For instance, if you have a child in college this semester, the American Opportunity Credit and the Lifetime Learning Credit may be on your mind. Both benefits are education-related, yet the qualifying rules differ – including the MAGI threshold.
Here are some common federal tax benefits with MAGI phase-outs.
- Education credits
The American Opportunity Credit is a partially refundable, dollar-for-dollar reduction of your tax bill, with a maximum of $2,500 per student. This year the credit starts to shrink when your MAGI reaches $160,000 and you’re married filing jointly ($80,000 when you’re single). The credit disappears completely when your MAGI is greater than $180,000 for joint returns ($90,000 if your filing status is single).
For 2015, the Lifetime Learning Credit begins to phase out at $110,000 when you’re married filing a joint return and $55,000 when you’re single. Once your MAGI reaches $130,000 (married) or $65,000 (single), the credit is no longer available.
- Retirement plans
Phase-outs affect retirement planning too. The deduction for contributions to your traditional IRA is limited when you are eligible to participate in your employer’s plan and your MAGI exceeds $98,000 ($61,000 when you’re single).
While Roth IRA contributions are not tax-deductible, the amount you can contribute for 2015 begins to phase out when your MAGI reaches $183,000 and you’re married filing jointly ($116,000 if you’re single).
In addition, the federal “saver’s” credit for contributing to retirement plans phases out when your 2015 MAGI is more than $61,000 and your filing status is married filing jointly ($30,500 for singles).
- Social Security
The phase-out for the exclusion of social security benefits from taxable income is calculated on the amount of your “combined income” (one half of social security benefits plus other income) over the base amount of $32,000 when you’re married filing jointly. The base amount is $25,000 when you’re single.
Phase-outs also reduce personal exemptions, itemized deductions, and the alternative minimum tax exclusion. Contact our office for guidance in managing your income for maximum tax breaks.