by Stephen Reed | Accounting News, Audit and Accounting, Business Consulting, News, Tax, Tax Consulting, Tax Planning
As of December 20, 2017, the new tax laws were officially signed into law, ushering in a variety of cuts and changes for individuals and businesses alike. While there has been much talk around how the new laws will impact individual taxpayers and families of all income levels, it is also vital to consider how small businesses, startups and corporations will be affected.
Individual taxpayers will see a decrease in their income tax rate, a reduction of itemized deductions, a doubling of the standard deduction, and changes to elder care, child and business taxes. The Alternative Minimum Tax will remain for individuals and corporations alike, but the affected income bracket has been raised: $70,300 for single filers and $109,400 for joint filers.
So the question remains, will businesses stand to reap tax benefits for the new code? Undoubtedly. The real unknown is what businesses will do with the benefits they may reap.
What tax deductions can businesses expect then? A main provision of the plan is the lowering of the corporate tax rate from 35% to 21% in 2018, as well as lowering the income tax at almost every level for now. Corporations will be able to deduct state and local taxes, and estate tax exemptions will double, assisting the 1% who pay estate taxes while providing roughly 17 billion in taxes. For small business owners, they will be able to deduct the cost of depreciable assets in a single year rather than amortizing them over several years, which will hopefully stimulate investment and growth.
Under our current tax system, multinational taxpayers are taxed on any income earned overseas when those profits are brought back to the United States. But, the new system will not tax foreign profit. The intent here is to motivate those business owners to bring that money back overseas, reinvesting it in the US economy rather than allowing it sit overseas and aid another nation’s economy.
The new code is operating under a supply-side economics theory, which strives to invigorate economic growth across the nation for both consumers and businesses. The objective is to provide various tax deductions, placing more money in consumer’s wallets and ideally stimulate spending. The combination of lower taxes and a swell in spending on products and services is designed to allow employers to strengthen their workforce and create more jobs.
If business owners do reap benefits from the changes, any increased income or an improvement in sales should be viewed as an opportunity to develop, diversify and enhance their businesses, which would support the greater American economy and our nation.
by Jean Miller | Accounting News, Business Consulting, IRS, News, Resources, Tax, Tax Consulting, Technology
In the midst of identity scams and credit card hacking, the IRS has warned against another scam, this time targeted at businesses and employers. There is a growing W-2 email scam threatening sensitive tax information and the IRS wants to alert payroll and human resources officials so they can be on their guard.
A simple email beginning with a casual greeting has quickly become one of the most dangerous phishing attacks. Hundreds of employers fell victim to the scheme last year, which left thousands of employees vulnerable to tax-related identity theft.
Since there have been significant improvements made in curbing stolen identity refund fraud, criminals are now seeking more advanced personal information in order to fraudulently file a return. W-2’s contain a wealth of detailed taxpayer income and withholding information, which is exactly what frauds are searching for and why they are targeting employers to acquire such information.
The scam has only grown larger in recent years, attacking a variety of businesses, from public universities and hospitals to charities and small businesses. The IRS wants to educate employees and employers, particularly payroll and HR associates who are often targeted first, to hopefully limit the number of successful attacks.
The scammer will likely spoof the email of someone high up in the organization or business, sending an email to someone with W-2 access using a subject line similar to “review” or “request.” The “request” will likely be a list of all the employees and their W-2 forms, potentially even specifying the file format. Since the employee believes they are corresponding with an executive of some sort, they may send the information without question, meaning weeks could go by before it is even evident they have been scammed. This gives frauds plenty of time to file numerous fake returns.
Because this scam poses such a major tax threat at both the local and state level, the IRS has set up a specific reporting process to alert the proper individuals, which is outlined briefly below:
- Email [email protected] to notify the IRS of a W-2 data loss and provide contact information. Type “W2 Data Loss” into the subject line so that the email can be routed properly and do not attach any employee personally identifiable information.
- Email the Federation of Tax Administrators at [email protected] to get state specific information on reporting victim information.
- Businesses or payroll service providers should file a complaint with the FBI’s Internet Crime Complaint Center (IC3.gov). They may be asked to file a report with local law enforcement as well.
- Notify employees so they are able to take protective steps against identity theft. The Federal Trade Commission website, www.identitytheft.gov, provides guidance on steps employees should take.
- Forward the scam email to [email protected].
Beyond just educating employees, payroll officials and HR associates about the scam, employers are encouraged to set up policies or practices to avoid being hacked. Suggested policies include requiring verbal communication before sending sensitive information digitally, or requiring two or more individuals to receive and review any sensitive W-2 information before it can be sent out. The IRS is fighting diligently to protect taxpayers and lower the number of tax-related scams, so employers are encouraged to be on the defense as well and safeguard their own tax paying employees.
by Stephen Reed | Accounting News, Bookkeeping, Business Consulting, IRS, News, Professional Services, Resources, Tax, Tax Consulting, Tax Planning, Tax Planning - Individual, Tax Preparation - Individual
With their first plan shot down in Congress, the GOP has released another, broader tax framework as the Trump Administration attempts to shift the tax code. This new plan has many elements that Congress will need to hash out before anything is signed into law, but taxpayers of all income levels are wondering how this plan may affect them personally. Below are five major developments in the new plan that could affect you come tax season:
- Rate Shift
Our current code has seven different income tax brackets, but the new plan would drop that number down to three: 12, 25 and 35 percent. Although the plan does not specify which income levels would be taxed at each new rate, the wealthy would likely see the greatest benefit since the current top bracket at 39.6% would drop to 35%. The current lowest bracket (at 10%) would see an increase to join the 12% bracket, but the plan claims to aid families in that bracket through an increase in the standard deduction and a greater child tax credit.
- Deduction Increase (for most)
For many taxpayers, the new plan would almost double the current standard deduction. Filers who claim multiple children would not see as high of a increase, but could potentially see that offset by a steeper child tax credit. Presently, about 70% of taxpayers take the standard deduction as it is higher than itemizing. However, experts believe that number would increase significantly if the standard deduction is doubled. The GOP’s plan would remove other deductions to offset the increased standard deduction, but the charitable contribution and mortgage interest deductions would be kept.
- Some Taxes and Deductions Eliminated Entirely
The largest deduction that would meet its end with the new GOP plan is the local and state tax deduction. This deduction is often taken in states where taxes, and average income, is higher, states that are often Democratic. Other taxes that would be eliminated include the alternative minimum tax and the estate tax for those who inherit funds in excess of $5.49 million.
- New Tax Rate for “Pass-Through” Businesses
S corporations, sole proprietorships and partnerships could see a new tax rate at 25% under the new plan. Currently, those “pass-through” businesses pay at the individual rate of their owners, and those businesses make up about 95% of the nation’s business demographic. Although many business owners currently pay a rate lower than 25%, just under 2% of those business owners pay the top rate of 39.6%, which means they could see a significant drop in rate if they are permitted to incorporate as a “pass-through.”
- Change in the Corporate Tax Code
The current plan taxes corporations at 35%, but the new plan would drop that rate to 20%. To offset this steep drop in rate, the proposal submits to eliminate certain business deductions and credits. The plan suggests that the deduction for domestic production could be eliminated, while maintaining exceptions for low income housing and research and development, but leaves many of those choices up to Congress.
Congress must still comb through the GOP’s newest plan and make adjustments before a finalized plan is voted upon, so taxpayers should prepare for more adjustments to be made before anything is signed into law. As developments arise, MKR will continue to keep our clients up to date in future newsletters.
by Jean Miller | Accounting News, Fraud, News, Professional Services, Resources, Tax, Tax Consulting, Tax Planning, Tax Planning - Individual, Tax Preparation - Individual, Technology
Although Equifax has yet to reveal specifics about the individuals who were affected by their data breach, as many as 143 million Americans may have been impacted. With that in mind, anyone with credit should consider taking measures to protect their identity and funds. Many experts are suggesting individuals freeze their credit, but this may not be the most effective method. While freezing your credit is not a bad decision, it only protects you from new accounts being opened in your name, a form of identity theft that is actually quite rare.
While many taxpayers are now deeply concerned about their lives being destroyed from identity theft, there are many other ways to guard your identity and your money that may be more beneficial than freezing your credit:
- Use two-step verification and secure passwords
Most identity theft occurs on existing accounts, so making it difficult for hackers to access your accounts with financial information is one step you can take to safeguard your personal data.
- Choose ID-verification questions and answers cautiously
Consider choosing questions whose answers cannot be easily found online. Questions such as “Where were you born?” or “What was your high school mascot?” could be easily discovered by checking your social media accounts, so be wise when creating those protective measures.
- Monitor current accounts as often as possible
Ideally, you should check your bank accounts daily to ensure all posted charges were made by you or whoever has access to the account. Since most financial institutions today have an app for accessing account information, monitoring your credit can be as simple as a quick log on from your phone. If you notice suspicious activity, you can then notify your bank immediately to avoid racking up more false charges.
- Set up alerts for new credit activity
Although you can set up a fraud alert or credit freeze, there are other free services that monitor your credit and any new account openings or activity.
- Check credit reports regularly
Every individual is allowed one free credit report annually from each of the three major credit bureaus through AnnualCreditReport.com, a site sponsored by the government. You can receive all three reports at once, or request one every 4 months to space out your monitoring tactics.
- File taxes early
One form of fraudulent behavior that is becoming more common is filing for taxes under someone else’s SSN. But, organizing your tax information quickly and filing as early as possible could lower the chances that someone will file in your name. Plus, if you are owed a refund, you will likely get it sooner than April if you file early.
While none of these methods are entirely foolproof, taking precautionary steps to protect your credit are always advised. If you do fall victim to identity theft, check out the Federal Trade Commission’s step-by-step recovery guide for helpful information.
by Pete McAllister | Accounting News, Audit and Accounting, Healthcare, IRS, News, Professional Services, Resources, Retail & Distribution, Tax Consulting, Tax Planning, Tax Planning - Individual, Tax Preparation - Individual
As the third year of the Patient Protection and Affordable Care Act (PPACA) approaches, employers need to be aware of additional fees that will be assessed on insurers and plan administrators of self-insured plans beginning in 2013. In addition, reporting health care costs to the government begins.
The new fees will increase the cost of providing group health plans for employees. They include:
- Fees to fund research on patient-centered outcomes
- Transitional reinsurance fees
- Pay or play penalties
- Cadillac tax
Fees to fund research on patient-centered outcomes
Health care reform created the Patient-Centered Outcomes Research Institute (PCORI), which is charged with promoting research to evaluate and compare the health outcomes and clinical effectiveness, risks, and benefits of medical treatments, services, procedures, and drugs. PCORI is to be funded in part by fees assessed on health insurers and sponsors of self-insured group health plans. This fee is commonly referred to as the “comparative effectiveness fee” or “PCORI fee.” The PCORI fee will be assessed at $1.00 times the average number of covered lives (employees and dependents) for the first plan or policy year ending on or after October 1, 2012. Employer plan sponsors must choose a method for calculating the average number of covered lives for their required annual fees by December 31, 2012, for calendar year plans.
Transitional reinsurance fees
The transitional reinsurance program will require health insurance issuers, as well as certain plan administrators on behalf of self-insured group health plans, to make contributions to a transitional reinsurance program for the three-year period beginning January 1, 2014. This fee is likely to result in additional costs for employer plan sponsors and – depending on whether the plan at issue is self-administered – certain additional reporting obligations.
Pay or play penalties
In 2014, large employers with fifty or more full-time equivalent employees could be subject to two potential penalties: the No Coverage Penalty and the Unaffordable Coverage Penalty. The No Insurance Penalty subjects certain employers to a $2,000 per full-time employee penalty (excluding the first thirty full-time employees) under specific conditions. The Unaffordable Coverage Penalty applies if an employer offers its full-time employees the opportunity to enroll in coverage under an employer plan that either is unaffordable (relative to an employee’s household income) or does not provide minimum value. This penalty is $3,000 for every full-time employee who receives a subsidy for coverage in a state exchange.
In some cases, the total cost of these penalties may be less than the total cost of providing coverage. CliftonLarsonAllen’s Health Insurance and Penalty Calculator provides information about the impact of reform on individual companies.
Cadillac tax
Starting in 2018, insurers of employer-sponsored plans or companies that self-insure their own plans will be subject to an excise tax if their premiums are in excess of $10,200 for individual coverage and $27,500 for family coverage. Roughly 60 percent of large employers believe their plans would trigger the tax unless they take action to avoid it, according to a 2011 survey by Mercer, a human resources consulting firm. Although the tax is to be imposed on insurers, the effects are likely to trickle down to consumers.
Many health care reform provisions will impact the cost to provide health care coverage for employees. Employers should be aware of the additional fees and reporting requirements and work with their benefits consultants to determine the financial impact of health care on their businesses. Plan sponsors should have already verified that they have the systems in place to determine and report the aggregate cost of applicable employer-sponsored coverage for 2012 on employees’ Forms W-2.
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