tax update for scarr

2014 Tax Prep

January 21, 2015

Jennifer Vacha, CPA636.754.0230jvacha@bswllc.com

Anne Ritter, CPA636.754.0209aritter@bswllc.com

Brown Smith Wallace LLC

– 2nd largest locally owned public accounting firm

– Staff of over 200

– Range of services

• Traditional audit, accounting and tax services

• Family wealth and estate planning

• Numerous advisory services

• www.BSWLLC.com for more info

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Overview

Jen Vacha, CPA

• Manager in the St. Charles office – 14 yrs. experience – specialize individual, small business, and NFP

• Work one-on-one with clients – minimize tax obligations and understand current tax position

• Member AICPA, MSCPA, Chair of MSCPA NFP Committee

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Overview

• Pens for writing new sales contracts!

• 2014 Quick Tax Facts

– See “Extenders” for updates!

• 2014-2015 Tax Planning Guide (TPG)

– See “Extenders” for updates!

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“Take Aways”

• Tax Changes for 2015

• Schedule C

– Tax Deductions

• Affordable Care Act

– Individual and Employer Mandates

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Agenda

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Tax Changes for 2015

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ExtendersPassed retroactively for 2014 – expired 12/31/2014

2014 2015

50% Bonus Depreciation* yes no

Section 179* $500,000 $25,000

*These figures update the information on the 2014-2015 TPG page 11 and the 2014 Quick Tax Facts back cover.

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Tax Changes for 2015

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ExtendersPassed retroactively for 2014 – expired 12/31/2014

2014 2015

Deduction for PMI as

qualified mortgage interest yes no

Exclusion of up to $2M of discharged principal residenceindebtedness yes no

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Tax Changes for 2015

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• New Tangible Property Capitalization and Repair Regulations– Effective 1/1/2014– Change of accounting method must be filed– Repairs (see 2014-2015 TPG p9):

• Routine maintenance• Small business safe harbor• Materials and supplies ($200)

– Capitalization: written policy• “Applicable Financial Statement” $5,000• No “Applicable Financial Statement” $500

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Schedule C Tax Deductions

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• Documentation/Compliance• Retirement• Health Savings Accounts• Mileage/Auto Expenses• Meals/Entertainment• Home Office• Other

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Schedule C: Documentation/Compliance

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• “The devil is in the details”– Poor documentation may cost you the deduction– Accurate and useable– Separate bank account/credit card

• Form 1099: Independent contractors– Commissions and referrals– Rent paid– Professional fees

• Form W2: Employees– Forms 941, 940/944 – IRS and State

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Schedule C: Retirement

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• Pay yourself first (TPG p12)

– 401(k) or other employer sponsored plan• $17,500 max 2014

– Traditional IRA or Roth IRA• $5,500 max 2014 ($1,000 catch-up >50yrs)• Roth MAGI income limits

– Joint filers: $181,000-$191,000– Single filers: $114,000-$129,000

– SEP• Max is based on compensation • 2014 $52,000 max

– (Effectively 20% of max comp $260,000)

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Schedule C: Health Savings Accounts

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• High Deductible Health Plans – Medical IRA– Max funding $3,300/$6,550 (2015 $3,350/$6,650)

• Catch up $1,000 if >55yrs.

– Nonqualified withdrawals – taxable– Qualified withdrawals – nontaxable

• Ultimate “savings” vehicle

• Self-employed health insurance deduction – Insurance for self, spouse, and dependents– Limited to net self-employment income (TPG p11)

– IRS Form 1040 p1 deduction (Sch A if limited)– Potential MO deduction/credit

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Schedule C: Mileage/Auto Expenses

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• Business vs. personal use DOCUMENTATION– Amount– Time/date– Place/description– Business purpose– Vehicle used

• Physical/manual log book• Smartphone Apps

– Mileage Tracker $2.99 Android– MileTracker $3.99 iPhone/iPad

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Schedule C: Mileage/Auto Expenses

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• Parking fees and tolls• Mileage

– $.56/mile 2014 ($.575 2015)– Personal property taxes

• Actual expenses– Depreciation or lease payments

• Limits/restrictions (luxury auto, SUV, etc. see p9 TPG)

– Insurance– Maintenance/repairs– Personal property taxes

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Schedule C: Meals/Entertainment

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• Ordinary and necessary– Common and helpful and appropriate– Document who, when, where, why

• Directly-related test– Main purpose active conduct of business– Did engage in business– >General expectation of business benefit

• Associated test– Associated with active conduct of your business– Directly before/after substantial business discussion

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Schedule C: Meals/Entertainment

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• Substantial business discussion– Facts based– Must show actively engaged in discussion,

meeting, negotiation, etc. to get income– Must be substantial in relation to the expense

• 50% Limitation• Country club payments

– Dues: Non-deductible– Separately identify meals/drinks/golf fees

• Other limitations (skyboxes/luxury suites, etc.)

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Schedule C: Home Office

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• Office used exclusively, regularly for business– i.e. not the kitchen table

• Full home office deduction– Partial mortgage interest, R/E taxes, insurance,

utilities, depreciation, etc.• Some normal itemized deductions

• Safe harbor deduction– $5 per square foot, limited to 300 sq. ft.

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Schedule C: Other

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• Gifts – limited $25 per person/year• Advertising – print/online/business cards• Office supplies

– Computer equipment (depreciable)– Supplies – paper, staples, etc.– Postage– Trade magazine subscriptions

• Business insurance• Professional fees – legal/accounting

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Schedule C: Other

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• Continuing education • Professional organization dues• Dedicated home telephone/long distance• Employer reported expenses

– Items withheld from your commission checks

Best practice – don’t spend money on itemsjust for a tax deduction – IRS may not consider it to be a necessary expense. Good businessmanagement > tax driven choices.

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Affordable Care Act

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• ACA or Obamacare – Individual Mandates– Effective 1/1/2014– Report on 2014 tax return– Form 8962

• “Shared responsibility payment”• No “minimum essential coverage”; greater of:

– 1% household income or – $95/adult $47.50/child

» Max $285 for 2014

• Payment amount increases annually

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Affordable Care Act

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• ACA or Obamacare – Employer Mandates– Not offering “minimum essential coverage”

• To at least 70% FTE (95% in 2016)

– At least 1 FTE obtains premium tax credit• Penalties are non-deductible

– Effective 1/1/2015 > 100 FTE– Effective 1/1/2016 50-100 FTE– Exempt < 50 FTE

• “FTEs” – Full time equivalents

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Materially Participating Real Estate Professional

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• Requirements– Materially participate >750 hours/year in real

property trades/businesses– >50% personal services performed in all trades/

businesses were in real property trades/ businesses in which you materially participate

• Advantages– Rental activities are not passive; thus losses not

subject to PAL limitations– Income not subject to new 3.8% NIIT (Net

Investment Income Tax)

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Resources

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• www.IRS.gov– IRS Publication 463

• Travel, Entertainment, Gift and Car Expenses

– IRS Publication 535• Business Expenses

– IRS Reg. Section 1.469-5T• Material participation test and passive activity rules

• Brown Smith Wallace– 2014-2015 Tax Planning Guide - PDF– 2015 Quick Tax Guide

• Leave a business card to receive

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Follow Up Items

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• Questions?

• Next Steps– Look over your prior year returns– Start pulling 2014 records– Prepare for 2015

To ensure compliance with requirements imposed by the IRS, we are required to inform you that any U.S. federal tax advice contained in this communication (including attachments and handouts) is not intended or written to be used, and cannot be used, for the purpose of:

1) Avoiding penalties under the Internal Revenue Code or

2) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

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Circular 230 Disclosure

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Thank You!

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1520 S. Fifth St., Suite 309 │ St. Charles, Missouri 63303 │ 636.255.3000

2220 S. State Route 157, Ste. 300 │ Glen Carbon, Illinois 62034 │ 618.654.3100

1.888.279.2792 │ bswllc.com

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