Tag Archives: CPA

2015 IRS Updates – Part 1

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Irs Federal Income Tax Forms 1040 And Schedule DWith the mid-term elections behind us and the end of the year approaching, the IRS is working to gear up for the upcoming tax season. As part of this process, they’ve released several updates for limitations, write-offs and expected filing dates. We expect to see more as the end of the year gets closer, but here are a few of the highlights so far. This will be one of at least two posts on the subject.

  • Standard Deduction:
    • $12,600 Married Filing Jointly (MFJ)
    • $6,300 Single
    • $9,250 Head of Household (HOH)
    • $6,200 Married Filing Separately (MFS)
  • Roth IRA Phaseouts – income at which ability to use a Roth IRA is reduced or eliminated:
    • $183,000 to $193,000 MFJ
    • $116,000 to $131,000 HOH
    • $0 and $10,000 MFS
  • Section 179 expensing (unless renewed by congress)
    • $25,000 of deduction for equipment placed in service in 2014
    • Dollar for dollar phaseout of deduction starts at $200,000 of equipment purchases, if purchases are over $225,000, no deduction is allowed

More to come as we near the end of the year.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

LLC vs S Corporation

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LLC Benefits List Check Marks Boxes ClipboardPeople always ask me, “Should I be an LLC or an S corporation”, and my answer is always the same, “It depends”. It’s as simple as that, it does depend on each individuals unique situation. LLC’s and S corps are similar in that they both provide limited liability protection to the members or shareholders. Both entities are also what’s called a “pass-through” entity, meaning the income is passed through to the owners and reported on the owners’ personal income tax return. This eliminates the double taxation issue incurred by C corporations.

An LLC offers ease of creation and flexibility down the road.  There are less restrictions on ownership, structure and reporting. An LLC allows for profits and losses to be split in a manner other than by ownership units.  But you may end up paying more in employment taxes as an LLC. A single-member LLC is also permitted to not file a separate tax return, but to rather report the activity on the owner’s personal income tax return.

An S corporation has restrictions as to who can be an owner and how many owners there can be. There can also be only one class of stock. An S corporation has no flexibility as to money distributed to shareholders, it is on a per share basis.

The biggest consideration in deciding between an LLC and an S corp is employment taxes.

An LLC owner is considered to be self-employed and as such all profits are subject to employment taxes. S corporation owners do not pay self-employment taxes on the profits, but rather on the wages paid to the shareholders. The company will pay it’s half of social security and Medicare and the employee, or shareholder, will pay the other half.  But herein lies the rub. The company MUST pay a reasonable wage first, and then profits may be distributed to owners. The IRS does not define what a “reasonable” wage is and it is up to the taxpayer to determine this.

So in the end, there is no single right answer to the question of whether to be an LLC or an S corp. Consult your tax advisor for the best fit for you.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

How to Write-off Your Kids for Tax Purposes

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Young children in business clothes in the business center with cEveryone knows you can generally claim your children as dependents on your personal tax return, but there may be a way to also deduct them as a business expense.  Put them to work!  That’s right, hire them as an hire-your-childrenemployee if you own your own business.  Just remember, the work performed needs to be necessary to the business.  You might need that company car washed or someone to run to the post office every day, or go pick up office supplies.  If it would be reasonable to pay someone else to perform these tasks, you can pay your child to do it.  But be careful that the job is reflective of the child’s age.  You may pay your computer savvy 17 year old to design a website.  But you wouldn’t have your 8 year old do the same task.

Just remember to treat your child as you would any other employee.  This means setting a schedule, punching a time clock or sending them to training courses.  Their compensation must also be reasonable and consistent with what you would pay an outsider.  And as always, keep good records.

Not only can you deduct the wages paid to your children, but in certain instances you can also save on payroll taxes.  This means they take home more money in their paycheck and the business may not be required to pay Social Security and Medicare taxes (FICA).  Further, it’s a great way to shift income from your higher tax bracket to your child’s lower tax bracket and they may not even be required to file a tax return.  It’s also a great way to jump start their retirement by putting money away into an IRA.

 

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

Getting Your House In Order

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In a recent Money Magazine article, a survey revealed that 61% of adults with children don’t have even a basic will in place. Many don’t want to think about death, and some believe that wills are only for people that are elderly or “rich”.

In reality, visiting an attorney and discussing your situation is money well spent.  Even if you don’t think you need one, you might.  Do you own your home? Do you have things that you want a specific person to have when you pass away? Do you have investments outside your retirement accounts, or want to use your money to provide for future generations? If your answer to any of these is “yes”, it would be wise to seek out an attorney who works with estate planning.

The American Bar Association (ABA) has a great FAQ section on estate planning, which can give you some additional items to consider, and can be found here. Should you decide contacting an attorney is right for you, ask your family and friends who they’ve used, reach out to other professionals like your CPA, or use the ABA’s website to find an attorney near you.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

Business Deductions Not Allowed Due To Lack of Substantiation

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In a recent tax court case, the taxpayer who is a self-employed nutritional supplement salesperson, deducted expenses for travel, vehicle, meals and entertainment allegedly related to his sales business.  Even though the taxpayer kept a mileage record on his calendar, the record lacked specific and necessary information on how and why the mileage was related to business.  The taxpayer supplied a spreadsheet to the court in support of his deducted meals.  However, he admitted that many of his meals were eaten alone.  The tax court concluded that the records and substantiation supplied were not reliable and could not be considered “adequate records” as required by the tax code.

The morale of the story…Document, document, document!  Each claimed meal and mile must be directly related to or associated with an active trade or business or for the production of income.  And specific documentation must be kept to substantiate the deduction.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.