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FASB released a Proposed Accounting Standards Update (ASU) for Not-for-Profit Entities.  The proposed update is intended to improve not-for-profit financial statements and the note disclosures to those statements.   The ASU is available at www.fasb.org. (Look under Latest News for 04/22/15, Click on the Exposure Document)  

Some of the more significant changes include:

1.Changing net asset classifications from three classes to two classes.  The two classes of net assets would either be those with donor restrictions or those without.

2.Presenting the cash flow statement on the direct method of reporting.

3.Changing the classification of certain items on the statement of cash flows

The effective date of any changes will be determined by FASB after considering stakeholder’s feedback.  Stakeholders are invited to comment on the proposed ASU until August 20, 2015.   

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Achieving a Better Life Experience ActThe "tax extenders" legislation that became law in December 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 and can be as powerful and beneficial. Give us a call so we can help you make the most of this new opportunity.

 

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To many people, an income tax refund might be one of the largest single cash receipts for the entire year. Avoid the temptation to spend your refund on consumption items. There are several places you can invest the refund to enhance your long-term financial goals. You can pay off current debt, invest in the stock market, make home improvements, or invest in a pension plan for retirement.

Let's assume you will be getting a $5,000 tax refund. The best return on your investment may well be to pay off current amounts you owe that have high interest rates. If you are carrying a credit card balance at 15% interest, a reduction in the balance is the equivalent of earning a 15% return on your money. Your $5,000 payment will save you $750 in interest expense over the next year. This is an outstanding return when compared to most other investments. If you leave the $5,000 balance on the credit card and make only the minimum monthly payment, you can pay up to twice that amount in interest, depending on your interest rate.

A second choice might be to pay down the principal balance on your home mortgage. A $5,000 reduction in a 4% thirty-year loan will save $11,000 in interest expense over the life of the loan.

Consider putting the cash into your retirement program. Only one out of five Americans can retire with adequate resources to live independently. $5,000 invested at a 6% compounding return will be worth $28,000 in thirty years. Your retirement fund could grow to almost $450,000 if you invest $5,000 each year for thirty years at a 6% compounding return. Have you ever heard anyone say that they retired with too much money?

 

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April 15 deadline circled on a calendar

If you can't file your 2014 tax return by the April 15 deadline, file for an extension to get until October 15, 2015, to file. You can request the extension on paper, by phone, or online. You don't need to explain why you need more time, but be aware that an extension doesn't give you more time to pay taxes you owe. To avoid penalty and interest charges, taxes must be paid by April 15.

 

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File cabinet with Retirement lableYou may be approaching an important deadline if you have retirement accounts and you turned 70½ last year. Generally, you must begin withdrawing money from tax-favored retirement plans in the year you turn 70½. However, you may postpone your first withdrawal until April 1 of the year after you turn 70½. That means you have until April 1, 2015, to complete your required 2014 distribution.

The minimum distribution rules don't apply to your Roth IRA accounts. And if you are still working at age 70½, you are generally not required to withdraw funds from a qualified employer-sponsored plan until April 1 of the calendar year following your actual retirement.

If you postponed your first distribution, you must take two distributions this year – one for 2014 and one for 2015. Your 2014 distribution must be completed by April 1, while your 2015 distribution must be completed by December 31, 2015. After that, you must take a distribution by December 31 each year until your retirement funds are depleted.

Generally, the amount of the RMD for any year is based on your age. You take the balance in all your traditional IRAs as of the last day of the previous year, and divide by a factor representing your life expectancy. The IRS has published a standard life expectancy table to use in the calculation. Special rules might apply if your spouse is more than ten years younger than you are and is the sole beneficiary of your IRA.

Make sure you notify the holder of your retirement account in time to complete your distribution. Follow up to ensure that the transaction will be completed on time. You may withdraw more than the required amount, but if you fail to take at least the minimum distribution on time, you are subject to a 50% penalty tax.

Don't overlook this important distribution deadline. Call our office if you would like assistance in planning your retirement withdrawals.

 

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Social Security TaxableDid you sign up for social security benefits last year? If so, you may have questions about how those payments are taxed on your federal income tax return.

The good news is the formula is the same as prior years. That's also the bad news, because the thresholds for determining taxability are not indexed for inflation, and did not change either. Those thresholds, or "base amounts," remain at $32,000 when you're married and file a joint return, and $25,000 when you're single.

How much of your social security benefit is taxable? To determine the answer, calculate your "provisional income." That's your adjusted gross income plus tax-exempt interest, certain other exclusions, and one-half of the social security benefits you received.

When you're married filing jointly, your benefits are 50% taxable if your provisional income is between $32,000 and $44,000. If your provisional income is more than $44,000, up to 85% of your benefits may be taxable. For singles, the 50% taxability range is $25,000 to $34,000.

In some cases, diversifying the types of other retirement income you receive can reduce the tax burden on your social security benefits. Contact us if you want more information or planning assistance.

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IRS Scams

The FTC's Bureau of Consumer Protection is advising consumers about a tax scam that has resulted in an "explosion of complaints about callers who claim to be IRS agents – but are not." These IRS impersonation scams count on people's lack of knowledge about how the IRS contacts taxpayers. The IRS never calls a taxpayer about unpaid taxes or penalties; the initial contact is made by a mailed letter. If you get a call purporting to be from the IRS telling you to send money for unpaid taxes, hang up and report the scam to the FTC and the Treasury Inspector General for Tax Administration at www.tigta.gov.

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Last year the IRS finalized regulations that are commonly referred to as the “repair regulations” (Treasury Decision 9636). Broadly speaking, these regulations provide comprehensive standards for determining whether a particular expenditure may be deducted on your tax return as a repair expense or must be capitalized and depreciated.

The IRS requires taxpayers to “adopt” the final regulations, effective for their 2014 tax year. Unfortunately, the adoption of the final regulations required virtually every business taxpayer that owns tangible property to file a Form 3115. This complex 8-page form is used to change a taxpayer’s accounting methods.

In order to file the Form and adopt the repair regulations it is necessary to review all of a taxpayer’s expenditures in tax years that began before 2014 and determine whether those expenditures were properly accounted for as repairs or capital expenditures on earlier tax returns by applying the principles of the repair regulations. As you might imagine, a complete review of this type is potentially a lengthy and expensive process.

The IRS received much criticism for requiring all taxpayers to undergo this type of comprehensive review in order to adopt the regulations. Gratefully, the agency recently responded with some significant relief for “small business taxpayers” (Revenue Procedure 2015-20). This relief allows a small business taxpayer to adopt all or most parts of the repair regulations without filing a Form 3115.

You are a small business taxpayer if your trade or business either has less than $10 million in assets on the first day of the 2014 tax year or the business has average annual gross receipts of less than $10 million over the three preceding tax years. If either test is satisfied, you may choose to adopt the repair regulations without filing the Form 3115.

If you are a qualifying taxpayer you may not necessarily want to exercise the option not to file Form 3115. First, if you take advantage of the filing relief you may not make a “late partial disposition election.” This election is a one-time opportunity available only in 2014 to treat prior-year retirements of structural components of buildings (such as a replaced roof) as a disposition that generates a retirement loss deduction. If you previously retired a structural component, you are likely still depreciating the cost allocable to the component. The partial disposition election allows you to claim a loss for the remaining undepreciated cost in 2014.

Secondly, if you choose to adopt the repair regulations without filing Form 3115, no deduction may be claimed in 2014 for amounts that you capitalized prior to 2014 but which are deductible under the final repair regulations. You must continue to capitalize and depreciate those amounts.

It should also be pointed that if you are selected for audit in some future year, the IRS has the authority to change the treatment of your prior expenditures to follow the treatment required by the final repair regulations even though you chose the relief.

The decision to opt out of filing Form 3115 needs to be made on a case-by-case basis by weighing the cost and inconvenience of the filing requirement against the value of any potential benefits.

If you do not qualify for filing relief or choose not to exercise it, a review of your prior year expenditures will be necessary to properly comply with the repair regulations. Generally speaking, this review may result in a deduction on your 2014 return if the amounts of prior capitalized expenditures that may be expensed under the repair regulations plus any retirement loss deductions for structural components under the partial disposition election exceed the amount of previously deducted expenditures that should be capitalized under the repair regulations. If the reverse is true, then the difference must be included in income over a four-year period. 

Our firm stands ready and able to help you comply with the repair regulations on your 2014 return. Please contact us so that we can help you address these rules.

 

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Divorce Tax Alternative
Are you a parent who is (or was) involved in a separation or divorce? If so, you’re aware that many important issues can be overshadowed by emotional concerns during this often contentious process. We would like to offer our family tax expertise to help you maximize the benefits of various child-related tax alternatives. In some instances, the value of these benefits can be quantified in order to offer them as a concession in your divorce or separation agreement. Even if your divorce is finalized, there may be issues that were not adequately addressed during your financial negotiations that can be revisited.

Raising children with an ex-spouse or partner can be very complicated. There are many interrelated tax issues that should be considered, such as:

·    Who gets to claim the dependency exemption for the children?

·    How does the tie-breaking rule work?

·    How does a multiple support agreement affect the dependency exemption?

·    How does a taxpayer qualify for head-of-household filing status?

·    When are children treated as a dependent of both parents?

·    How does a taxpayer qualify for the various child-related tax credits?

·    When can tax-favored education incentives be utilized by divorced or separated parents for their children?

·    How is the “kiddie tax” calculated for children of unmarried parents?

·    How do the tax consequences of child support differ from alimony or maintenance payments?

Taking advantage of the child-related tax benefits available to you can lower your taxable income significantly. By gathering and analyzing pertinent data, we can provide a tax plan tailored to your unique circumstances. Please call our office at your earliest convenience to arrange an appointment.

 

 

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Gunnip & Company LLP is pleased to announce that it has successfully completed a peer review of its accounting and auditing practice.  After a thorough study of its policies and procedures, the reviewer concluded Gunnip & Company complies with the stringent quality control standards established by the American Institute of Certified Public Accountants (AICPA). The firm received the highest possible rating which exemplifies its commitment to provide the highest standard of excellence in the quality of their work.

Robert D. Mosch, Jr. CPA, Partner, who heads quality control at Gunnip & Company, says “We are proud to once again successfully complete our peer review, especially given the increasing scrutiny of the accounting sector.”

Peer review is a periodic outside review, performed by another accounting firm, of a firm's quality control system in accounting and auditing.  The rigorous review is based on a series of standards for quality control set by the AICPA, the national professional organization of CPAs. 

Gunnip is committed to periodic peer reviews to enhance the quality of its accounting and auditing services.  To see the latest peer review report, please click here.

 

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