Agranovich Accounting

Sunday, May 1, 2016

May 2016 Letter

Spring is in the air and it is a time when tax refunds start arriving. Outlined here are five smart uses for your refund. Given all the recent tax law changes, please review the tax planning article to ensure you take full advantage of them. Articles on managing student debt and a recap of Roth IRA's round out this month's newsletter.
Should you know of someone who may benefit from this information please feel free to forward this newsletter to them.

Five Smart Uses for Your Tax Refund

So you were fortunate enough to receive a tax refund this year. What are your plans for the money? Here are five ideas worth considering.

	Pay down debt. Start with debts that carry the highest interest rates first, then move down the line. This is like savings on savings as you are freeing up future cash needed to pay the interest on this debt. Ideas: Pay off credit card debt. Lower your student loan debt. Make a principal payment on a mortgage.
	Add to savings. Save some of your refund for later use. Ideas: Add to your emergency fund to have enough to cover at least six months of your every-day expenses. Add to a college savings account or a tax-advantaged retirement account.

	Invest in yourself. Spend some money improving yourself or your well-being. Investing in yourself can have long-term benefits. Ideas: Take a class to develop a hobby into a career. Consider a fitness membership. Take up meditation. Become accredited in your chosen profession.
	Spend for permanence. Instead of spending your refund on day-to-day expenses, use some of it for capital purchases. Capital purchases are for items that last longer than one year. Ideas: Replace a worn out couch. Purchase a replacement bicycle. Upgrade an outdated light fixture. Consider a minor home improvement.
	Have some fun. Finally, consider using part of your refund for a well-deserved break. When balanced with using a portion of your refund to improve your financial condition, you can feel better about a little splurging in your life. Ideas: Shop last minute flight deals for a weekend getaway. Take a road trip to a favorite destination.

Tax Planning Season is Now

Take multiple years of last minute tax law changes, add major sections of the tax code that expire each year only to be extended, and mix in major pre-formulated tax code changes. All this adds up to lots of potential for tax savings, but only if you plan accordingly. This is especially true in the following cases.

	You have a child entering college. There are so many different college tax breaks, it is hard to determine which ones might make the most sense for your situation. This includes the American Opportunity Tax Credit, the Lifetime Learning Credit, Tuition and Fees Deduction, Coverdell Plans, 529 Plans, and student loan interest deductibility.
	You wish to explore charitable giving strategies. Consider donating appreciated stock instead of cash. If you are over the age of 70 consider donating directly from a qualified retirement account instead of using after-tax savings.

Tablet, spreadsheet, calculator, and coffee

Review the now permanent tax provisions. Late 2015 legislation made many popular tax breaks permanent. Do you know what they are and how they may impact you this year? These include an educator $250 expense deduction, sales tax as an itemized deduction alternative, expanded American Opportunity Tax Credit, and an expanded Earned Income Tax Credit.

Other changes may require a look. In addition to the tax provisions above, certain events may dictate a need for a quick tax review. Key among them are:

	Getting married
	Recently divorced
	Birth or death in the family
	Age triggering events (like retirement)
	Kids entering or leaving school
	Moving to a new state
	Major purchase or sale of key assets including your home
	Large refund or tax bill last year

Please call if you wish a review of your tax situation.

Small Business Tax Review May be in Order

The recent tax legislation addresses a number of tax credits and other provisions that impact small business. Planning your business' tax bill is now more important than ever. Here are some of the key changes:

	First year bonus depreciation is now available through 2019.
	Section 179 capital expensing is now $200,000 per year and will be indexed to inflation.
	The Research and Development Credit is now permanent.
	The Affordable Care Act requires many small businesses to carry qualified health insurance or face potential penalties.

Setting up your business accounting system

	Other General Business Credits have been extended or made permanent.
	The flow-through nature of the tax code may now be exposing shareholder income to additional surtax as part of the Affordable Care Act.

Time to Consider a Roth?

With interest rates close to zero and a newly received refund check in hand, you may wish to consider a contribution to a Roth IRA.

The Roth IRA basics

Using after-tax funds, you can contribute up to $5,500 each year in a Roth IRA. If you are at least 50 years old, you can contribute an additional $1,000. As long as your Roth IRA has been open for 5 years or more and your withdrawal of earnings occurs after 59½ years old, any earnings you receive from this account are yours tax-free.

The benefits

	Tax-free earnings. Unlike other retirement accounts, Roth IRA earnings are not taxed by the Federal government when withdrawn.
	Keep contributing. Most other retirement accounts have a contribution age limit of 70½. When you reach this age you not only need to stop contributing to the account, but you are required to make a minimum withdrawal from the account each year. These limits do not exist for Roth IRA accountholders.
	You can withdraw your contributions. Remember with a Roth IRA, your contributions were already taxed. So there is no penalty for withdrawing these funds. Just remember there can be a penalty for withdrawing any earnings before you reach age 59½ or before having the account for five years.
There are limits

If you earn more than $132,000 (single) or $194,000 (married filing joint) you are not allowed to make a Roth Contribution in 2016. You can, however, convert funds from a traditional IRA without these income limitations.

Ideas to Manage the Burden of Student Debt

Each year a new crop of graduating high school seniors begin their collegiate careers while college graduates consider the opportunities that graduate school provides. As a result, the mountain of student debt continues to build. While this debt is unavoidable, here are some ideas to help make that mountain a little less insurmountable.

Know the note. Not all student debt is created equal. Understanding the terms of all your student loans is important. With this knowledge, select the correct loan option and know which loan to pay first. Things you should know about each loan include,

	The interest rate
	The term of the loan
	Amount of any up-front fees
	Pre-payment penalties (if any)
	When interest and payments start
	Payment amounts
	Payment flexibility
	How interest is calculated

Suggestion: Create a spreadsheet with a student loan in each column. Then note the variables from this list under each note. It will create a strong visual of your student loan situation.

	Pay the interest. Some student loans accrue interest while you are in school. With the compounding of this interest, your student loan amount continues to grow with each passing year before repayment begins. Banks love this. You should not. Suggestion: Figure out how to make the interest payments while in school. This will not only lock the amount you owe, it will reduce the amount of interest payments you will be paying on your interest.
	Pay a little extra in the early days. The math of loans benefits banks in the early years of the note. This is because the vast majority of interest is paid by you in the first years of repayment. The last year of your loan repayment is primarily principal payments. *Suggestion:* Pay extra every month as soon as payments start. While this seems impossible as you enter the workforce, even $10 extra a month can dramatically reduce the amount of total payments you make over the life of your loan.
	Small savings yield big results. Having a hard time finding a few extra dollars to make extra payments? Consider observing and then changing your spending habits. *Suggestions:* Purchase one less latte a week. Occasionally order water versus another beverage with a purchased meal. Drop one monthly service from a bill. Place these savings in an envelope and use them as a bonus payment on your student loan principal.

While student debt is an unavoidable outcome of getting a great education, it can be minimized if actively managed. Remember small changes can yield results if planned for in advance.

As always, should you have any questions or concerns regarding your situation please feel free to call.

Friday, April 1, 2016

April 2016 Letter

Happy tax filing month. To help celebrate, this month's newsletter includes a fun tax quiz exploring tax laws created by states trying to capture other state's tax revenue. There is a reminder to help your favorite charitable organizations retain their non-profit status and reasons to file a tax return even when you are not required to do so. An interesting article discussing the new Gig economy term used by our political candidates rounds out this month's newsletter.
Should you know of someone who may benefit from this information please feel free to forward this newsletter to them.

2015 Tax Quiz

The states must be crazy

Historically, nexus laws protect consumers and businesses from paying taxes to states where they do not visit or live. These laws are intended to protect interstate commerce. With the lack of strong federal tax guidance, many states are now passing fairly creative laws to reach into the pockets of their fellow states' tax revenues. Can you match the creative law with the state?

	Consultants pay more tax than employees. This state wants income tax on your consulting work as a non-resident but does not require you to pay tax if you are a non-resident "employee" doing the exact same work despite the fact you never set foot in their state.
	California

	A non-resident gets married and pays tax to a state he has never visited. A widower who lives and works in Florida marries a widow from another state. The widow's state demands income tax on the new husband's earnings made while living and working in Florida.
	Utah and others

	New gross receipts tax concept. This state's recent law introduces a Commerce Tax based on a business' gross receipts and the type of business they conduct. This departure from traditional sales/use tax and income tax is placed on any business that has $4 million or more in state gross receipts. The tax is owed even if the business is located in another state. To make matters worse, the law requires the out-of-state businesses to pay for any audit related expenses should the state wish to examine their books. Expense reimbursement could be required even if no tax is due as a result of the audit.
	Nevada

	Tax your inheritance. The federal government and most states will tax the estate of a person who passes away. But a few states also tax the other end of the death spectrum; those who receive an inheritance. If you expect money from a rich relative, you will not want to live in any of these states when your new found wealth arrives.
	Iowa, Nebraska, Pennsylvania, Kentucky, New Jersey, Maryland

Given the copy-cat nature of state revenue departments, it is possible that many more states have followed the lead of those mentioned here. Your best defense is to know the rules and support establishing legislative clarity at the federal level from our elected officials.

2015 Tax Quiz

The states must be crazy

These laws are intended to protect interstate commerce. With the lack of strong federal tax guidance, many states are now passing fairly creative laws to reach into the pockets of their fellow states' tax revenues. Can you match the creative law with the state?

Read full article

Non-profit Annual Filing Due

Annual reporting is required for all organizations that wish to keep their non-profit status intact. The due date for this filing is May 16, 2016 for calendar year organizations. How can you help ensure your favorite charities stay compliant?

	Check on-line. The IRS has a master list of charitable organizations recognized as non-profits in good standing. Here is a link: Exempt Organizations Select Check
	Remind the organization. Many small non-profits like youth sporting groups and local school booster clubs often forget about this reporting because officers are constantly rotating in and out of the organization.

	It is not too difficult. If the charitable organization has less than $50,000 in gross receipts, they can comply by sending in a Form 990-N e-Postcard. Larger organizations must fill out Form 990 or Form 990-EZ.
	Failure to file could cause your favorite charity to lose its non-profit status. This can have a cascading effect on all those donating who wish to deduct their donation on their tax returns.

Non-profit Annual Filing Due

Read full article

Understanding the Gig Economy

Some believe that by the year 2020 40% of all jobs will be part of the Gig Economy. So what is this phenomena and how can you take advantage of it?

It's all in the name

The "Gig Economy" is a morphed description of old titles like the "peer-to-peer" business model and crowd sourcing. What it refers to is the ability to control when and where you wish to work. Quite like the musicians of old who worked their music gigs, this gig concept is spreading far and wide.

Where the Gig is exploding

	Cab services. Cab services like Uber and Lyft allow workers to activate their ability to take riders through a phone app. Once activated, you can arrange to pick up fares close to your location.
	Home rental. Want to make a few dollars renting space in your home or apartment? Many services exist to make your home available when you want. Your peer-to-peer service provider matches what you offer with those who need accommodation.
	Delivery services. The options in this area are vast and expanding. You can offer to pick up and deliver meals, groceries, dry cleaning, pets and more. Even bicycle delivery services are available to you when you wish to earn a few extra bucks.

	Financial services. Even your savings can be put out on a "gig" service. Places like Lending Source and Funding Circle provide a platform to match lenders with those who wish to borrow your money for a time.
	Referees and game officials. Want to earn money officiating sporting events? Many services are popping up that allow officials to enter their available schedule and locations they are willing to travel to officiate games. They are then assigned games and paid through the same on-line app.

Does it work for you?

This new way to match labor supply with demand is becoming more popular. Here are some things to consider before getting too involved in the gig economy.

	Contractor versus employee. Almost all these service companies treat you as an independent contractor. You are responsible for your Social Security and Medicare taxes. You must get your own benefits and send in estimated tax payments.
	Part-time versus full-time. If you are a recently retired worker, picking up some part-time gigs will keep you socially connected and earn some extra income. Making this a full-time occupation can be more of a challenge.
	Legal landscape. As the gig economy booms, so does the potential for legislation that changes the landscape. Many local cab companies are trying to squash services like Uber. Local hotels are trying to limit the ability for you to rent lodging. Worker's liability coverage also needs to be considered if something goes wrong.
	Urban versus rural. Gig opportunities tend to be located in large metropolitan areas. Depending on this employment for your income in remote areas might be tough.

What's next

The problem the gig economy solves is more readily matching supply with demand. This puts the old business models at risk. Anticipate more attention in this area as legislative action tries to balance the power of this new job creation device with a dramatic redefinition of employment no longer centered within vast company payrolls.

Understanding the Gig Economy

Some believe that by the year 2020 40% of all jobs will be part of the Gig Economy. So what is this phenomena and how can you take advantage of it?

Read full article

You Still May Wish to File a Tax Return

Too many taxpayers fail to file a tax return under the false notion that one is not required to pay income tax. This assumption can cause problems. Here are some examples of when to file a tax return even when not required to do so.

Wish to qualify for Premium Tax Credit. This tax credit helps reduce the cost of health insurance for those who purchase their insurance through the new health insurance marketplace. Without a filed tax return you cannot have the Premium Health Credit applied towards your monthly premiums. In fact, non-filing could limit your ability to receive this credit in future tax years as the IRS continues to place controls on the payment of this credit.

	Receive refundable tax credits. There are certain tax credits that will provide refunds even if you do not owe income tax. The most common of these is the Earned Income Tax Credit.
	You wish to limit potential audits. The IRS typically has three years to audit a filed tax return. If no tax return is filed, this audit time limit never starts.
	You are applying for financial aid or loans. Banks and colleges will often use tax return information to qualify you for loans and financial aid. Even if not required to file, it is nice to provide this information if requested.

	You are filing a final tax return for a loved one. The IRS will eventually receive death information through the Social Security Administration. By filing a final tax return, you can put the breaks on unwanted communication from the IRS as they wait for this confirmation.
	You want withholdings returned to you. Always file a tax return if an employer or other supplier withheld tax funds. It is the only way you will receive them back from the federal government.
	You wish to protect against someone else filing a tax return. With the vast increase in identity theft from the IRS, filing a tax return can close the door on would-be thieves. Your filed tax return can block attempts by someone else who files a second tax return with fake information.

You Still May Wish to File a Tax Return

Read full article

As always, should you have any questions or concerns regarding your situation please feel free to call.