Dear Clients and Friends,
By now most of you have heard about new legislation affecting retirement accounts. Here is a brief overview of the most pertinent provisions of the Act.
What is the SECURE Act?
The SECURE Act stands for: Setting Every Community Up for Retirement Enhancement Act. It was signed into law on December 20, 2019 and is effective January 1, 2020. The bill is designed to make significant changes to the current retirement system structure. Here is our simplified summary.
• Extends the beginning date of required minimum distributions (RMD). Under the old law if you had money in a traditional investment retirement account (IRA) or employer-sponsored retirement plan, distributions were required to begin at age 70 1/2. The SECURE Act extends the beginning RMD age to 72. This rule applies to account owners turning 70 1/2 after December 31, 2019. It is not retroactive to those already taking distributions.
• Additional time to contribute to your IRA. Before the SECURE Act an individual was prohibited from making contributions to a traditional IRA if they were over age 70 ½. After December 31st, 2019, contributions to a traditional IRA can be made at ANY age (with certain restrictions regarding earned income).
• Alteration of “Stretch” Provision for beneficiaries of retirement accounts. If the account owner dies on or after the required date to begin taking their RMD and the beneficiary of the account is other than a surviving spouse, disabled and chronically ill individual, minor child, or individual no more than ten years younger than the deceased, the entire account balance must be distributed within 10 years.
• A break for new parents. Parents can withdraw up to $5,000.00 from a retirement account within a year of a child’s birth or adoption without being subject to penalties. Under the old law the above distribution would have resulted in a 10% penalty on the entire amount of the distribution. Such a distribution is still subject to income tax.
What should we do?
Review your beneficiary designations, contact your retirement plan administrator to update existing plans as necessary, and call us with your questions.
The above are highlights of the SECURE Act and as with most new legislation, questions remain. The Act contains other provisions not universally applicable and thus not described here. We will of course be communicating with you individually with planning opportunities as they apply to you.
- The Vanderbilt Team
Document dated 1/22/2020
The new Tax Cuts and Jobs Act made some significant changes to what employers can and cannot deduct in regards to meals and entertainment. Below is a BRIEF overview of the changes effective in 2018.
Under the new tax law a deduction can't be claimed for an activity generally considered to constitute entertainment, amusement or recreation, or with respect to a facility used in connected with such an activity. So that means cost of tickets to sporting events, stadium license fees, private boxes at sporting events, theater tickets, club dues, etc. are no longer deductible. It appears the meals consumed during the entertainment event are also no longer deductible but we hope for clarification from IRS on this point soon.
But there is some good news (sort of)…
Business meals are deductible so long as significant business occurs immediately before, during or after a meal that is not considered lavish or extravagant. The deduction for the meal is still limited to 50% of the cost of the meal.
Costs for employee recreational or social activities such as office parties are still 100% deductible by the employer. Employee training sessions do not fall under the category of recreational or social activities and are therefore subject to the 50% limitation.
Please keep in mind this is an extremely simplified version of the new rules and as always we welcome your questions.
Historically partnerships are not subject to income tax – income, gains, losses, deductions, or credits flow through to the partners on their respective K-1’s. However, as part of a budget agreement enacted last November, Congress has replaced the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) with the Bipartisan Budget Act of 2015 which governs the rules of partnership audits. These new rules say that any adjustments made to any items of income, gains, losses, deductions, or credits are taxed at the partnership level and the partnership is liable for any penalties or underpayments of tax at the highest rate of tax in effect for the reviewed year.
The new rules take effect 1/1/2018
Yes, if the following applies:
Talk to your business attorney about how the new rules may impact your partnership. Consider possible amendments to current partnership agreements already in place.
If you have any questions feel free to reach out to us or stop by our office.
- Jan and Team.
Document dated 7/12/2017
We want to take this opportunity to remind you of the process for Vanderbilt CPAs accessing your "MyFTB" accounts and make you aware of some updated Federal and California filing dates.
We access your account to confirm that the amounts that the FTB has credited to your account agrees to your records and ours. It saves significant time now and avoids unwanted correspondence with the FTB later.
You will receive a letter from the FTB indicating someone has accessed your account with them. The probability is the person is one of the VCPA team members.
The letter will be titled “Access Granted to Your MyFTB Account” and will contain your name, your FTB account number and a brief paragraph notifying you of who has accessed your account and how long that person has access to your account.
Vanderbilt staff accesses your account to confirm tax payments made and other information related to your tax return. It may be any one of us: Jan Vanderbilt, Tom Atherton, Carmen (Carmine) Lepiane, Piper Magallanes, Angie Negrete or Kyle Shatraw. We are attempting to streamline the process by requesting information early this year. If the FTB reports access to your account by someone other than Vanderbilt staff, please notify us immediately and we will help you with the "next steps".
March 15th (Extensions until September 15th)
The above dates are the due dates for the tax returns and also for the schedules K-1 that the entity must provide to its owners.
April 15th (Extensions until October 15th, unless noted below)
*It should be noted that June 30 fiscal year-end C Corporations have a due date of September 15th and can get extensions to April 15th. Other Fiscal year end C-Corporations are due the 15th day of the 4th month following their year-end and can be extended until the 15th day of the tenth month following their year end.
If you have any questions feel free to reach out to us or stop by our office.
Document dated 12/20/2016
With the conclusion of the 2016 Presidential election, it’s very likely that the tax law will receive a dramatic makeover. Although it’s tough to predict what tax reform will look like next year, it’s clear that President-elect Trump and the Republican-controlled Congress want to lower taxes. Now seems like the perfect time to explore tax planning strategies that align well with the new administration.
At the center of Trump’s tax proposal is the creation of three individual tax brackets—with 12%, 25%, and 33% rates. This would lower the top individual tax rate from 39.6% to 33%. In addition, Trump would like to get rid of personal exemptions, the Alternative Minimum Tax (AMT), and the 3.8% Net Investment Income Tax (NIIT). On the flip side, Trump has proposed to increase the maximum standard deduction from $12,600 (married filing jointly) to $30,000. However, both Trump and the House GOP Tax Reform Task Force would limit the use of itemized deductions.
From a business standpoint, Trump’s proposal cuts the top corporate tax rate from 35% to 15%. More importantly, Trump would like to limit the tax rate on income from pass-through businesses and sole proprietorships to 15%. That means that owners of S corporations, partnerships, and sole proprietorships would pay significantly lower taxes on business income (from 39.6% to 15% in some instances). In addition, Trump would get rid of depreciation deductions, but allow businesses to deduct the cost of asset acquisitions. Most other business deductions would be eliminated.
Given that lowering taxes is toward the top of Trump’s list, there may be opportunities to accelerate deductions in 2016 and defer income until 2017. Of course, these suggestions are based on what could happen. There is always uncertainty with the future of tax policy. Therefore, you can call us to sort through the potential risks of any of these strategies.
Accelerate Itemized Deductions in 2016. If you currently take advantage of itemized deductions, you may want to accelerate next year’s deductions into this year. This is because Trump’s plan would make it hard for many taxpayers to take these deductions. Consider—
Defer Income until 2017. There are various ways to defer income until the following tax year. Here are a few ideas:
Through careful planning, it’s possible you can take advantage of Trump’s tax reform plan. However, the items discussed in this letter are merely ideas at this point—we don’t know if or when they’ll become law. We’d be glad to set up a meeting with you to discuss the best way to plan for the changes that will most likely come. As always, please don’t hesitate to call us with questions.
Document dated 12/20/2016
Asset expense policy
The IRS has listened to the tax professionals and given businesses some administrative relief by not requiring them to capitalize and depreciate small items. By adding detailed descriptions to purchases in your accounting systems it will allow us to quickly determine whether certain items should be capitalized or not also relieving follow up questions from us.
We look forward to using this change to the regulations to help reduce your tax burden to the correct tax, which is the lowest legal tax, during this 2016 filing season and beyond.
What should I do?
Your business should have a written policy stating that it will deduct individual items that cost less than applicable amount of $2,500 or the maximum amount allowed under the Internal Revenue Code.
When entering the description into your accounting system for purchases of items where the cost is greater than $2,500 enter the number of items purchased. For example – if you purchase computers for $10,000 describe the number of computers purchased so it is obvious whether or not the items can be expensed currently or must be capitalized and depreciated. If two or three computers were purchased, the probability is that most, if not all, of the $10,000 should be capitalized and depreciated. If five or six computers were purchased, the probability is that most, if not all, of the $10,000 would qualify as a current year expense.
Are all purchases subject to this regulation?
No. Supplies that are used in day-to-day operations of your business are still currently deductible as they have always been. Materials and supplies used to produce inventory must still be included in the cost of the inventory. Materials and supplies used to produce a large asset, such as a building, must still be included in the cost of the asset and depreciated over the appropriate useful life.
Under the Internal Revenue Code a business is allowed to deduct ordinary and necessary expenses incurred during the tax year in carrying on a trade or business. There are also regulations on when an expense is currently deductible and when the cost of the item purchased must be capitalized and depreciated over a number of years.
Due to multiple court cases on the subject of what can be deducted vs. capitalized in years past there has been confusion and inconsistency of treatment from one company to another. For the tax year 2014 the IRS finalized regulations that stated most businesses could elect to expense items that cost less than $500 and would have to capitalize and depreciate items purchased that cost $500 or more. Because the dollar value was so low it caused significant discussion and complaints from tax preparers around the country. The IRS has modified its position and will now allow electing companies to deduct items costing up to $2,500 per unit. Individual items over the $2,500 limit are to be capitalized and depreciated over an appropriate number of years.
Document dated 1/13/2016
It’s that time of year again, so blow the dust off your files and start clearing those reminders on your e-mail that we had you create last year! Our team came up with a short list of items that we need to complete your 2015 corporate and partnership returns. Please keep in mind that not all of these items will apply to your business:
In addition to providing us with the above documentation (as applicable) we will also ask that you answer the questions on your organizer and fill out the appropriate tabs/fields in the spreadsheet that comes with the organizer (look for it in your email soon).
Document dated 01/06/16
It came as a big surprise to just about everybody that on November 2nd President Obama signed a budget bill that included a huge “gotcha” for a certain segment of the Boomer generation who qualify for Social Security benefits.
Who is affected: Married couples in the age range of 62 and 70 who qualify to receive Social Security benefits.
Here’s what changed: Two planning strategies – file and suspend and restricted application for spousal benefits will be eliminated as of April 30, 2016.
It’s complicated to explain in an email, but we will do our best.
File and suspend is a strategy to obtain spousal benefits now while deferring the highest earner benefits to a later date, allowing those credits to continue to grow. Both spouses must be at least age 66 to employ this strategy.
Basically what this means is that the higher earner files an application, then immediately suspends the application. The claimant then continues to accrue credits until a later date, say age 70, therefore realizing up to four years of delayed retirement credits, or can lift the suspension at any time and request a lump sum payment of benefits back to the earlier claim date.
The spouse then files a restricted application to claim spousal benefits only, while accumulating delayed retirement credits prior to applying for benefits on his/her own earning record at a later date (typically age 70).
The Restricted Application Method allows a spouse who is eligible for both a spousal benefit based on his/her spouse’s earnings and a retirement benefit based on his/her own earnings to file a restricted application for spousal benefits only, then delay applying for retirement benefits based on his/her own earnings record to age 70. For those who turn 62 after 2015, the Act eliminates the ability to file a restricted application for only spousal benefits. The bill’s language appears to leave an open window to those 62 or older in 2015 to file restricted claims for spousal benefits only upon reaching full retirement age.
Our experience in the past has been that the Social Security Administration is - perhaps surprisingly – very helpful. Start by contacting them, and of course remember we are here to help.
Document dated 11/04/2015
We recently became aware of IRS’ latest tool in the fight against identity theft and want to share it with you. IRS Letter 5071-C looks like it might be a scam, but it is NOT – it’s the real deal. If you receive this letter in the mail, it means IRS has received a tax return in your name that for one reason or another they deem suspicious. The form will direct you to a website, idverify.irs.gov, that attempts to determine if your account with IRS has been “hacked.” Alternatively this letter offers an 800 number to call.
Please be aware that you will NEVER be asked to verify your identification via email and the IRS will NEVER initiate contact with you to verify your identification via phone.
Here are some facts from the IRS website (www.irs.gov) that give further insight and answer some questions that you may have regarding Letter 5071 C.
So, if you have gotten this letter what does it mean?
This letter is meant to inform you that the IRS received a tax return with your name and/or social security number and needs to verify that you filed the return (someone else did not file a false return).
What should I do if I receive this letter?
If you receive Letter 5071C, you should access idverify.irs.gov. Once on the site you will be asked a series of questions to verify your identity. After you verify your identity, you can confirm whether you actually filed the tax return that the IRS has flagged. If you did not file the tax return, the IRS will assist you in taking the necessary steps to remedy the situation.
What about my refund?
If you did file the return, your return will be processed and you’ll be issued a refund, if one is due.
Please note that if you are uncomfortable using the website or are unable to access the internet you can also call a toll free number that is listed on the letter (but it is the IRS you’re calling so expect a wait).
Identity theft is becoming more and more common so remember a few key things:
Please don’t hesitate to contact us if you have any questions regarding this issue or if you are ever unsure about a communication you receive from someone claiming to be from the IRS or another tax authority.
Have a great summer!
The VCPA Team
Document dated 07/15/2015
A new law effective July 1, 2015 requires California employers to provide paid sick leave benefits to their employees, including part time and temporary employees.
We encourage you to seek guidance from legal counsel experienced in employment practice matters to review your company’s compliance with the requirements of the new law and to assist you if revisions to your policies and procedures should be made.
Here is the “nutshell” version that hopefully will encourage your follow up as appropriate.
Who is eligible?
Employees who work at least 30 days in a year are eligible to receive paid sick leave. Employees can begin using accrued sick leave once they have worked for an employer for 90 days. To avoid the administrative hassles of the accrual and carryover requirements, an employer can make three days of paid sick leave available to each employee at the beginning of each year.
Who is not eligible?
Certain employees covered by collective bargaining agreements, certain individuals employed by air carriers, and employees of the California In-Home Supportive Services Program are not eligible to receive paid sick leave.
How is sick leave accrued?
Employees will accrue one hour of paid sick leave for every 30 hours worked. Paid sick leave must carry over from year to year, but employers can place a cap on accrual of 48 hours (or six days).
How is sick leave used?
Employers can limit an employee’s use of sick leave to 24 hours (or three days) per year. Employers can also require employees to take sick leave in at least two hour increments, but not more. Employers do NOT need to pay out accrued sick leave when an employee leaves the company, however if the employee is rehired within the year, accrued sick leave must be reinstated.
Will my current PTO plan qualify?
Maybe. Check out the website below for additional information and by all means, consult with your HR professional if you currently have a PTO plan in place.
What recordkeeping is required?
The amount of available sick leave must be recorded on each paystub. Employers must keep records of sick leave accrual and use for three years. A sick leave poster, available from the California Labor Commissioner, must be displayed at the workplace.
Additional information and resources are available on California’s website under the Division of Labor Standards Enforcement at http://www.dir.ca.gov/dlse/ab1522.html
Document dated 06/19/2015
To our business clients and colleagues:
In the “good old days” the CA Secretary of State mailed their Statement of Information forms to those businesses required to file (LLCs and corporations primarily). This was an effective system with few problems. However, in its wisdom, the Secretary of State, who has ceded its collection authority to the Franchise Tax Board, now sends a tiny postcard notification advising businesses to go online to file the statement. In 2014 many of our clients found themselves with a $250 penalty as their first inkling that something should have been done.
This is a tricky system, because the due date is different for each entity, based on the entity’s original organization date – NOT fiscal year end. If you would like us to handle this filing for you, please give us a call and we will research the appropriate filing date for your business and prepare the statement each year for you.
Our fee in 2015 will be $100 to prepare and file the statement, plus a one-time setup fee of $50. (Remember the fee payable to the Secretary of State is $25 annually, payable in addition to our fee, of course.)
Give our office a call if you are interested and we’ll set you up - Or, be on the lookout for that postcard!
Have a great summer!
Document dated 05/6/2015
This is a friendly reminder that you need to add health fringe benefits paid by the corporation to your W2 if you owned more than 2% of an S corporation’s stock or you are a family member of a 2% or more shareholder (regardless if you have stock in the S corporation).
Which benefits are subject to this treatment?
1. Health insurance premiums
2. Life insurance premiums
3. Disability insurance premiums
4. Long-term care insurance premiums
Your payroll company is set up to handle this but you will need to provide them with the dollar amounts paid before their year-end deadlines. Please do not hesitate to call Piper Magallanes in our office if you have questions at (831) 620-0811.
Document dated 12/19/2014
If your corporation owns or leases the car you drive, please remember the percentage that you use the car for personal purposes is taxable to you and must be included on your W-2 (the most common example of personal use of a vehicle is commuting to and from work). The taxable amount is a simple calculation based on IRS Tables that we can figure for you. If you have any questions please give us a call before the end of the year, we are happy to help.
Document dated 12/19/2014
With limited exceptions, every person, corporate or otherwise, engaged in a trade or business who makes payments aggregating $600 or more to another person (e.g., an independent contractor) in a calendar year must file an information return (Form 1099-MISC) setting forth the payee's name and address and the amount paid, and furnish a statement to the payee.
(1) Form 1099-MISC is required for noncorporate service providers. Employers must provide a Form 1099-MISC, Miscellaneous Income, by Jan. 31, 2012, to any noncorporate service provider who was paid at least $600 for services during 2011. The Form 1099-MISC does not have to be provided to a corporate service provider. Employers must provide Form 1099-MISC to sole proprietorships, partnerships, attorneys, and medical service providers who do business as corporations.
(2) Form 1099-MISC is not required if contractor paid electronically. There is no requirement to send a Form 1099-MISC to any contractor that was paid electronically, such as by credit card, debit card, PayPal, or gift card. The bank or credit card company that made the actual payment to the contractor will send the contractor Form 1099-K, Merchant Card and Third Party Network Payments.
(3) The first five digits of the TIN can be replaced with asterisks or Xs on the payees' paper copies of Form 1099, but copies filed with IRS must have their full TIN.
(4) If you are unsure whether a Form 1099-MISC is required to go ahead and send one. Employers can't go wrong by sending more 1099s than are required, but could be subject to penalties if they do not send all qualified service providers their Form 1099-MISC.
(5) File forms on time. Paper copies of Forms 1099-MISC must be mailed to the IRS no later than Feb. 28, 2012. The filing deadline is NOT extended to February 29, 2012. Forms 1099-MISC filed electronically must be submitted to the IRS by April 2, 2012.
As always, please give us a call if you have any questions or would like to discuss this matter further.