Yeo & Yeo Promotes Kristi Krafft-Bellsky

Yeo & Yeo is pleased to announce that Kristi Krafft-Bellsky, CPA, has been promoted to Director of Quality Control.

Krafft-Bellsky is responsible for internal quality control throughout Yeo & Yeo’s nine offices. She oversees the development and implementation of policies and processes to comply with professional standards and regulatory requirements. She also assists in the standardization of work papers and financial statements across the firm to ensure technical compliance and efficient processes. Krafft-Bellsky, with the assistance of the Yeo & Yeo Quality Assurance Committee, will oversee the peer review process and conduct the internal inspections of files to guarantee that Yeo & Yeo continues to provide quality services for clients.

Krafft-Bellsky joined Yeo & Yeo in 2003, most recently holding the position of Senior Manager in the firm’s audit group. In 2013, she led the development of the firm’s award-winning LEAN Audit Process that continues to significantly benefit the firm, the professional staff and the firm’s clients. Krafft-Bellsky is a member of the firm’s Audit Services Group and Education Services Group.

Krafft-Bellsky is based in Yeo & Yeo’s Saginaw accounting firm office. She holds a Bachelor of Professional Accountancy and a Master of Science in Accountancy from Western Michigan University. In our community, Krafft-Bellsky is a member of the Frankenmuth Jaycees and treasurer of the Frankenmuth Community Foundation’s Legacy Ball Committee. She is a graduate of the 1000 Leaders and Leadership Saginaw programs.

We welcome you to connect with Kristi on LinkedIn.

If you opt to purchase one of these energy-efficient vehicles, you can qualify for a federal income tax credit in 2015 and 2016:

Fuel cell vehicles. You can claim a credit for a qualifying vehicle that’s propelled by chemically combining oxygen with hydrogen to create electricity. This credit expired at the end of 2014, but the PATH Act extended it to cover qualifying vehicles purchased in 2015 and 2016.

The base credit is $4,000 for vehicles weighing 8,500 pounds or less. Heavier vehicles can qualify for credits of up to $40,000. An additional credit of between $1,000 and $4,000 is available for cars and light trucks that meet specified fuel economy standards.

Two-wheeled, plug-in electric vehicles. You can claim a 10% credit for buying a qualifying electric-powered, two-wheeled vehicle that’s manufactured primarily for use on public roads and capable of going at least 45 miles per hour (in other words, an electric-powered motorcycle). The maximum credit is $2,500. This credit had previously expired, but it was restored by the PATH Act for qualifying vehicles acquired in 2015 and 2016.

Yes, the federal income tax filing deadline is slightly later than usual this year — April 18 — but it’s now nearly upon us. So, if you haven’t filed your return yet, you may be thinking about an extension.

Extension deadlines

Filing for an extension allows you to delay filing your return until the applicable extension deadline:

Individuals — October 17, 2016
Trusts and estates — September 15, 2016

Two considerations

While filing for an extension can provide relief from April 18 deadline stress, it’s important to consider the following:

If you expect to owe tax, keep in mind that, to avoid potential interest and penalties, you still must (with a few exceptions) pay any tax due by April 18.
If you expect a refund, remember that you’re simply extending the amount of time your money is in the government’s pockets rather than your own.

A tax-smart move?

Filing for an extension can still be tax-smart if you’re missing critical documents or you face unexpected life events that prevent you from devoting sufficient time to your return right now. Please contact us if you need help or have questions about avoiding interest and penalties.

From mobile apps to the Internet, technology has transformed our lives. It facilitates financial transactions and the transmission of information. But it also brings risks. There are weekly news stories about sensitive personal data being hacked online and sold on the black market.

Thieves use personal data to access accounts, open new ones, complete fraudulent transactions, file phony tax returns and obtain access to personal contacts. In addition, many fraud scams are perpetrated through the Internet, often from foreign locations, which makes it harder for authorities to prosecute.

Risk Factors

Here are seven questions to help gauge whether you’re at risk for online fraud or identity theft:

1. Do you shop online or using mobile apps?

2. Do you pay bills online or with mobile payment apps?

3. Do you use Facebook, Instagram or other social media sites?

4. Do you use the same password or personal identification number (PIN) for multiple accounts?

5. Do you carry your Social Security card in your wallet?

6. Do you wait until the last minute to file your tax return?

7. Have you given up personal information — such as your birthday, phone number, postal or email address, or Social Security number — for entry into a sweepstakes contest or to receive a free gift card?

If you answered “yes” to any of these questions, you’re completely normal. But you’re also at risk for online fraud, and you should take precautionary measures to protect your identity and your accounts. This doesn’t mean you have to avoid using technology. You just need to be smarter about security.

Even if you answer “no” to all of these questions, you’re not safe from identity theft and fraud. Just about anyone’s personal information may be stolen from paper tax records, medical and death documents, loan applications, or their employer’s payroll files. Then the thief may go online to anonymously use your personal data for illicit gain. Either way, technology provides opportunities for creative thieves to commit fraud.

Simple Protection Efforts

You don’t have to be especially tech-savvy to thwart these scams. Simply putting your Social Security card in a secure location in your home, installing antivirus software on your personal computer, downloading the latest updates for the apps on your smart device and turning down free offers in exchange for disclosing personal information are steps in the right direction.

In addition, the Federal Trade Commission offers these recommendations to safeguard your personal and financial data from unauthorized hacking:

Be alert to impersonators. Don’t give out personal information — including names and addresses, account numbers or biometric data, such as eye color or height — over the Internet unless you initiated the contact or know the person or company you’re dealing with. If a company that claims to have an account with you sends an email asking for personal information, don’t click on links in the message 100c. Instead, type the company name into your Web browser, go to its site and contact them through customer service. Or call the customer service number listed on your account statement (not in the email) and ask whether the company really sent the request.
Safely dispose of technology equipment. Before you dispose of a computer, get rid of all the personal information it stores. Use a wipe utility program to overwrite the entire hard drive. Likewise, check your owner’s manual or the manufacturer’s website before throwing or giving away a mobile device. You want to make sure all of your personal information — including phone books, voicemails, Internet search history, photos and passwords — is permanently erased.
Encrypt your data. Guard online transactions with encryption software that scrambles information you send over the Internet. A “lock” icon on the status bar of your Internet browser means your information is safe when it’s transmitted. Look for the lock before you send personal or financial information online.
Keep passwords private and complex. Use strong passwords with your credit, bank and other accounts. Instead of using your mother’s maiden name or birth date, think of a special phrase and use the first letter of each word as your password. For example, “I want to go to Australia” could become “!W2go2Au.” Combine symbols, numbers, and upper and lower case letters. Use long passwords.
Limit your social networking footprint. If you post too much information about yourself and your family on social media sites, an identity thief can find details about your life and then use them to answer “challenge” questions on your accounts — or to access your money and personal information. Consider limiting access to your networking or profile page to a small group of people.

Tax Scams

The IRS also warns taxpayers about tax fraud scams. Tax-related identity theft typically occurs when someone uses stolen personal information to file a tax return and claim a fraudulent refund. Often, victims are unaware that their data has been stolen until they receive letters from the IRS stating that returns had already been filed using their Social Security numbers.

Always file early in the tax filing season — before an identity thief beats you to it. Also, if you receive a notice from the IRS, respond immediately to the name and number printed on the notice or letter. If you believe someone may have used your Social Security number fraudulently, you’ll need to fill out IRS Form 14039, “Identity Theft Affidavit.”

Call for Help

Dishonest individuals are continually finding clever new ways to exploit technology for their personal gain. If you feel you have fallen victim of identity theft or fraud, Yeo & Yeo CPAs Fraud and Forensic accountants can be valuable resources to help safeguard your data and investigate losses when fraud strikes.

The Office of Retirement Services (ORS) recently issued a 14-page document to update school districts (including academies and intermediate school districts) on the federal tax treatment of certain contributions made to the Michigan Public School Employees Retirement System (MPSERS) Healthcare Trust. This document was in response to the recent rulings made by the Internal Revenue Service (IRS) against certain protective claims for refunds filed by districts related to such contributions. However, be aware that the IRS has not issued an inclusive determination as to the federal tax treatment of the retiree healthcare contributions provided under the Michigan Public Act 300 of 2012.

The document also states that the ORS will submit a Private Letter Ruling (PLR) request. The request will petition for the IRS to set aside the rulings recently made as discussed above for two reasons:

1. The 3% mandatory contributions that were made under the MPSERS retiree healthcare plan and deposited into the MPSERS Healthcare Trust pursuant to Michigan state law are treated as employer contributions and are excludable from employees’ gross income.

2. Such contributions are not wages in the sense that they would be subject to FICA taxes, FUTA taxes or income tax withholdings.

Below is a link to the document in its entirety:

Overview and Analysis Supporting Favorable Tax Treatment

As we receive more information about the PLR or other updates on this situation, we will communicate it. If you are not subscribed to our Education Advisor, sign-up HERE to receive updates on important education updates. As always, if you have questions please reach out one of Yeo & Yeo’s Education CPAs.

Functional expense allocation can be challenging for nonprofits. Expenses must be divided among various functions, according to the purpose for which the costs are incurred.

What are the differences between the types of functional expense classifications — program services, supporting services, management and general expenses, and expenses incurred for fundraising?
Which expense allocation method should be used — direct or indirect?
Does expense allocation change for a federal grant?

Yeo & Yeo is pleased to offer a whitepaper, Functional Expense Allocation for Nonprofits, that explains functional classifications and other issues to consider in allocating expenses for your organization.

Beyond meeting compliance requirements, there are very good reasons to care about the functional classification of expenses, as they help tell the story of a nonprofit. If you have a question, reach out Yeo & Yeo’s Non-Profit experienced professionals.

Here are 10 quick ideas for growing your business from the Small Business Administration:

1. Open another location.

2. Offer your business as a franchise or similar opportunity. It can result in growth without requiring you to manage a new location.

3. License your product. This can be an effective, low-cost growth medium, particularly if you have a service product or branded product.

4. Form an alliance. One powerful way to expand is to align yourself with a similar type of business.

5. Diversify. Look for multiple streams of income to fill seasonal voids, increase sales and boost profit margins. Ideas: Sell complementary products or services, become a paid speaker or teach a class.

6. Target other markets.

7. Win a government contract.

8. Merge with, or acquire, another business.

9. Expand globally. Look for a foreign distributor that can carry your product and resell it in its markets. You can locate foreign distributors by scouring your city or state for a foreign company with a U.S. representative.

10. Increase your Internet presence. Make sure prospective customers can find you through an online search engine.

Taking costs out of a business can be deceptively easy to do — at least initially. Cutting low-hanging fruit such as providing coffee in break rooms, consulting services, laying off temporary employees or removing a layer of management can result in considerable savings. However, these savings are often not sustainable. Slowly but surely, decisions will be made by front line employees and managers alike that add costs back into the business. Within short order, many companies find themselves back in the exact same place they were before the costs were cut; only now employee morale has suffered and there is a general resistance or apathy to cost-cutting throughout the organization.

Implementing sustainable cost reductions that “stick” over time requires a different approach. Instead of pursuing cost reductions to satisfy a short term goal, consider adopting a longer term approach that focuses on identifying value within business processes.

Depending on the size and complexity of your company, there may be thousands of complex processes in place to deliver the end product or service to customers. Unfortunately, complex processes often include waste, abuse and fraud. Consider the following approach to improving your internal processes:

Document the processes. Before changes can be implemented, the existing processes must be fully understood. Many companies view this step as redundant as the current processes will ultimately be replaced. However, the existing elements of a process must be understood before they can be changed. Changing a process that is not understood will likely result in mistakes being made, an increase in costs, as well as a decrease in customer satisfaction.

Focus on adding value. While reviewing and documenting an existing process, now is the time to identify elements that are value-added. A value-added element of the process includes an activity that the client is willing to pay for or is crucial to preparing the product or service for the marketplace. Conversely, non-value-added elements include steps that have appeared in the process over time, are in place to account for technology deficiencies, or steps that were just badly designed and implemented in the first place. Once the entire process has been divided into value-added and non-value-added elements, the work to design the future state can begin.

Envision the future. Having identified the value-added steps in the current state will allow your company to build the future state around those elements. Eliminating waste entirely from a process is exceptionally difficult to do. However, focusing on the “must haves” or value-added steps will bring waste to light. Once value is identified, waste in a process can be more readily minimized. In addition, once waste is removed, it will potentially be harder to add back into the process.

For example, the process for granting pricing exceptions for large customer contracts will likely include a review by representatives from sales, operations, manufacturing, legal and finance. Creating a streamlined contract pricing exception process means that only the departments that add value are included in the process while the non-value-added steps, such as departments that merely “rubber stamp” the exception, are removed.

Measuring the financial impact. Before a revised process is implemented, take the time to document the desired financial impact of the new process. For example, the financial benefits could include a reduction in staff needed to perform the process, a reduction in office supplies such as paper or an increase in revenue generated attributable to the process. A dedicated process improvement scorecard can help justify the time and effort expended to revise the process and also provide sufficient information to monitor the process over time to ensure that costs and inefficiency do not creep back in.

People respond to incentives. Launching sporadic cost reduction exercises results in big costs savings that are often unsustainable. Once the financial goals are achieved, employees and managers tend to resort to their previous behaviors and costs slowly escalate. Engaging employees in the process can help break this vicious cycle. Instead of periodically launching cost cutting efforts, your company should consider adopting a continuous improvement mindset that focuses on baking value into every process, not just removing costs. When employees are able to demonstrate that they increased the percentage of value-added tasks in a process, they should be recognized and rewarded.

For example, a front line employee with a golf club manufacturer suggested his department perform the final cleaning of the finished club instead of passing it to a separate department to be cleaned. Removing one step in the process without compromising the end product helped reduce costs and resulted in the finished product being shipped to customers one day after it had been finished versus two days after, under the old process.

When a senior executive launches a one-time cost cutting exercise, the results can be fleeting. Employees “hunker down” and wait for the initiative to falter or fade from the corporate consciousness. When your company and its employees embrace the concept of adding and maintaining value within a process over time, the results may not only be sustainable, they may ultimately provide your company with a competitive advantage.

If you’re reporting travel and entertainment (T&E) expenses on your tax return and you’re audited, there’s a good chance an agent will take a hard look at those items.

Often the challenge won’t be whether the expense was appropriate for the business, but whether your records meet the letter of the law. And the IRS and courts take a strict position on recordkeeping — miss one element and the deduction is most likely to be disallowed.

The Basics

The rules for travel recordkeeping are slightly different from those for entertainment. For travel expenses, you’ll need records to support the:

Cost of each separate expense for travel, lodging and meals (though incidental expenses may be totaled in reasonable categories such as “taxis” and “fees and tips”),
Dates you left and returned for each trip and the number of days spent on business,
Destination or area of travel (typically the name of the city or town), and
Business purpose or benefit gained or expected.

For entertainment, you’ll need to go into more detail. You must note the cost of each separate expense, though incidental expenses (such as taxis or public transportation) may be totaled on a daily basis. You’ll also have to record the date of the event, and the name and address (or location) of the entertainment. In addition, you’ll need to describe the type of entertainment if it’s not readily apparent. For example, was it a dinner, a show or a sporting event?

But that’s not all. You must also write down the business purpose or benefit gained or expected from the entertainment. This means describing the nature of the business discussion or activity. If the entertainment was directly before or after a business discussion, you’ll have to express the date, place, nature and duration of the discussion, as well as the identities of the persons who took part in both the discussion and the entertainment.

Last, you need to record your relationship to the persons entertained. Include their occupations or other information (such as names, titles or other designations) that show their business relationships with you.

According to the IRS, you don’t need to record the elements of every expense on a contemporaneous basis. Maintaining a weekly log should be sufficient. But the longer the delay, the more dubious the log’s credibility becomes.

Receipt Rules

You generally need receipts, canceled checks, bills and the like to support your expenses. But there are three exceptions:

1. You use the per diem allowance method for meal and/or lodging expenses.

2. You incur transportation expenses for which a receipt isn’t readily available (such as taxis, buses or light rail).

3. The expense, other than for lodging, is less than $75.

The per diem method provides for a fixed allowance based on the area to which you’re traveling. For example, Boston has one rate and Springfield, Mass., has another. While you won’t need receipts, you’ll still have to document the other elements of the expense. There are a number of other rules and restrictions, and the allowances may not fully cover your expenses.

Saving receipts for expenses less than $75 may be helpful in providing additional documentation for the date, place and type of expense. Employers should consider requiring receipts for expense reports — even if they’re not required for tax purposes.

The receipt should show the date, place and essential character of the expense. In addition, for a hotel receipt, you’ll need a breakdown of charges such as lodging, meals, phone calls and other services. For a restaurant receipt, you’ll need the date, place, amount and number of people served.

A canceled check or line on a credit card statement, by itself, is insufficient documentation. You’ll need a bill, receipt or something similar from the provider. Because many receipts are now printed on heat-sensitive paper that can fade quickly, consider making copies for your files.

There are a number of smartphone and tablet apps available that make recording T&E expenses much easier. Some can even integrate with a company’s accounting software. Just make sure any app you download or approve for employees captures all of the required IRS elements and you’ve got a backup system in place.

Additional Points

Many taxpayers are diligent about recording T&E expenses, and sometimes even describing the people involved, but they fall short on establishing a business purpose. This element is just as critical as the others. The amount of detail here depends on the situation. Taking an important customer to dinner after an afternoon meeting discussing and taking product orders may not need as much detail as entertaining a prospective client and discussing only theoretical sales. Keep in mind that you won’t be penalized for providing too much information.

The type of entertainment can also be important. It’s not unusual to discuss business during dinner when it’s just you and a customer. But that’s not true for a sporting event or play — particularly when you’re taking spouses along. Then you have to show the discussion took place before or after the event. And, for an expense to be classified as business entertainment, an employee must be present. Give two tickets to a basketball game to one of your good clients and it’s just a gift, subject to those rules — not a T&E expense.

What if you’re mixing business with pleasure on a trip? It’s doable, but you want to be especially careful with your recordkeeping. If the primary reason for the trip is business, you can deduct travel costs to and from the business location and expenses while on business there. But you can’t deduct nonbusiness expenses such as transportation and meals on a side trip to visit friends or family.

You also can’t deduct expenses associated with your spouse on the trip unless:

1. He or she is an employee of the business, and

2. There’s a clearly demonstrable business purpose for his or her presence.

Proper and Reasonable

If you’re an employee, you must provide your employer with an expense report that includes the details discussed above. And if you’re the employer, you’ve got to ensure that you’re receiving proper, reasonable documentation from employees.

Yeo & Yeo CPAs & Business Consultants, a leading Michigan accounting firm, has been named one of West Michigan’s 101 Best and Brightest Companies to Work For by the Michigan Business & Professional Association for the twelfth consecutive year.

The annual competition is a program of the Michigan Business & Professional Association (MBPA) and identifies organizations that display a commitment to exceptional human resources practices and employee enrichment. Organizations are assessed based on categories such as communication, employee engagement and retention, education and development, compensation and benefits, diversity, work-life balance, community initiatives and more. This year, 452 companies completed the entire application process. The winning companies will be honored at MBPA’s annual Workforce Symposium & Awards Luncheon on May 5 in Grand Rapids.

“We are thrilled to be named among the top companies in West Michigan again,” said Carol Patridge, CPA, managing principal of Yeo & Yeo’s Kalamazoo accounting firm. “We understand the significance of caring for our employees, which encompasses numerous aspects of rewards and career development. It is our commitment to support our employees both professionally and personally.”

Mark Perry, CPA, managing principal of Yeo & Yeo’s Lansing accounting firm says, “This distinction is a strong endorsement of our work and will inspire us to continue to do even more to attract and retain top talent and create additional opportunities for our employees. We are very honored to receive such prestigious acknowledgement of our efforts to provide the best working environment possible for our team.”

Yeo & Yeo offers accounting jobs in Michigan for individuals who have the desire and drive to grow as leaders in the accounting profession. More than 200 employees in offices throughout Michigan take pride in the firm’s reputation for personal service, commitment to clients and community support. Yeo & Yeo has a culture of developing future leaders through its in-house training department, professional development training and formal mentoring, while sustaining work-life balance. The firm also offers an award-winning CPA certification bonus program. Yeo & Yeo employees benefit from collaboration across offices and teams, and have access to advisors and resources that help them succeed.

Are you receiving the maximum credit allowed for property taxes paid on your farm?

When it comes to farmers and the Michigan Homestead Property Tax Credit, taxes paid on property other than your residence may also be eligible for the credit. Depending on your total gross receipts from farming activities and other sources of income you may have in a given year, all or a portion of the property taxes you pay on agricultural property may be claimed for the credit.

When claiming the Michigan Homestead Property Tax Credit, be sure to include any amounts received in the prior year from the Farmland Preservation Tax Credit in your total household income. On the contrary, do not include any amounts received in the prior year from the Michigan Homestead Property Tax Credit.

To learn more about the Michigan Homestead Property Tax Credit and the types of property taxes that can be claimed for credit see, General Information – Homestead Property Tax Credit (MI-1040CR) provided by Michigan.gov.

The professionals of Yeo & Yeo’s Agribusiness Services Group are experienced in agricultural accounting needs such as farm tax credits. Our CPAs and business consultants can work with you to develop a farm tax strategy that will assure you are taking advantage of all the available deductions, incentives and tax credits.

Contact our team of Agribusiness tax specialists here.

If you suffer damage to your home or personal property, you may be able to deduct these “casualty” losses on your federal income tax return. A casualty is a sudden, unexpected or unusual event, such as a natural disaster (hurricane, tornado, flood, earthquake, etc.), fire, accident, theft or vandalism. A casualty loss doesn’t include losses from normal wear and tear or progressive deterioration from age or termite damage.

Here are some things you should know about deducting casualty losses:

When to deduct. Generally, you must deduct a casualty loss in the year it occurred. However, if you have a loss from a federally declared disaster area, you may have the option to deduct the loss on an amended return for the immediately preceding tax year.

Amount of loss. Your loss is generally the lesser of 1) your adjusted basis in the property before the casualty (typically, the amount you paid for it), or 2) the decrease in fair market value of the property as a result of the casualty. This amount must be reduced by any insurance or other reimbursement you received or expect to receive. (If the property was insured, you must have filed a timely claim for reimbursement of your loss.)

$100 rule. After you’ve figured your casualty loss on personal-use property, you must reduce that loss by $100. This reduction applies to each casualty loss event during the year. It doesn’t matter how many pieces of property are involved in an event.

10% rule. You must reduce the total of all your casualty or theft losses on personal-use property for the year by 10% of your adjusted gross income (AGI). In other words, you can deduct these losses only to the extent they exceed 10% of your AGI.

Have questions about deducting casualty losses? Contact us!

The Michigan Department of Treasury has increased security measures in an effort to protect Michigan taxpayers and the state from tax-related identity theft. If an income tax return is selected for identity confirmation, the taxpayer will receive a letter from the Department of Treasury asking them to confirm their identity by completing a short online quiz. After confirmation of passing the quiz, refunds will be issued in 14-21 days.

If you receive a letter, visit the Treasury’s Identity Confirmation website for instructions and a video tutorial. Additionally, if you suspect you may have been a target of identity theft, immediately contact the Department of Treasury at Treasury-ReportIDTheft@michigan.gov and the Internal Revenue Service (IRS) at 1-800-829-0433.

Michigan Department of Treasury has also warned taxpayers of fraudulent phone calls being made to taxpayers from a “spoof” phone number, which has the appearance of being from the Department of Treasury. Taxpayers are told they have committed tax fraud and must pay immediately or they could be arrested. Neither the Treasury, nor the IRS, will ever demand immediate payment by phone without first making contact through the U.S. Postal Service, nor will either threaten arrest for not paying.

If you have any questions, contact Yeo & Yeo’s Michigan Accountants and tax professionals.

This year’s presidential election has drawn significant attention, but the elections you make on your 2015 personal tax return can be just as important to your financial welfare. Here’s a list of 10 potential elections for individuals (including self-employed taxpayers) to consider making before tax day on April 18, 2016.

1. Joint vs. Separate Returns

One of the first decisions for a married couple to make is whether to file jointly or separately. Most couples will fare better with a joint return, but that’s not always the case.

For example, one spouse might have a disproportionately high amount of casualty losses or deductible medical or miscellaneous expenses. Due to the floors for those deductions, which are based on adjusted gross income (AGI), the couple collectively may benefit from filing separately. However, this election could affect other line items on your tax return, so discuss it with your tax adviser before deciding.

2. Sales Tax Deduction

Under the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act), the deduction for state and local sales taxes has been made permanent and is available for 2015.

The sales tax deduction may be elected in lieu of deducting state and localincometaxes. You can write off sales tax based on your actual receipts or use a more convenient state-by-state table. If you opt for the table, you can add sales tax paid in 2015 on certain “big-ticket items,” such as cars and boats.

Electing to deduct sales tax is a no-brainer for residents of states with no state-level income tax. But other taxpayers should discuss the option with their tax advisers first.

3. Education Credits vs. Tuition and Fees Deduction

If they qualify, parents with children in college normally will choose to claim one of these higher education tax credits:

American Opportunity Tax credit (up to $2,500 per student), or
Lifetime Learning credit (up to $2,000 per tax return).

Both credits are subject to phaseouts based on modified adjusted gross income (MAGI).

Through 2016 and retroactive to 2015, the PATH Act also revives an alternative deduction for tuition and related fees. This deduction, also subject to a MAGI phaseout, is either $2,000 or $4,000.

Typically, an education credit will provide greater tax savings, because it reduces taxes dollar for dollar. A deduction reduces only the amount of income that’s subject to tax. But the eligibility requirements for these education breaks vary. So multiple factors should be reviewed with a tax adviser before determining which break to claim.

4. Investment Interest Deductions

The tax law allows you to deduct investment interest expenses up to the amount of net investment income for the year. For this purpose, “net investment income” — not to be confused with the definition of this term for purposes of the 3.8% net investment income tax — normally doesn’t include long-term capital gains. For 2015, the maximum tax rate for such gains is only 15% (20% for upper-income investors).

But you can elect to include long-term capital gains in the net investment income total to the extent you forgo the favorable tax rate for those particular gains. Your tax adviser can run the numbers to determine whether this tax election will save you taxes overall.

5. Installment Sales

If you sell real estate, private business interests or other assets in installments spanning two or more years, the tax liability is spread out over the years in which you receive payments. In effect, installment sales allow you to postpone the tax due on a sale — and they also may possibly reduce your overall tax bill on the sale.

Installment sale tax treatment is automatic if you receive payments over two or more tax years. However, if it suits your personal needs, you can elect to pay the entire tax due in the year of the sale. This might be preferable on a 2015 return if you expect to be in a higher tax bracket in future years.

6. Home Office Deductions

Typically, a self-employed individual who runs his or her business from home may qualify for a home office deduction. He or she may be entitled to expenses directly attributable to the home office, plus a portion of the entire home’s expenses based on the percentage of business use of the home.

However, instead of keeping detailed records, you can elect to use a simplified method equal to $5 per square foot of the home office, up to a maximum of $1,500. In most cases, the actual expense method produces a bigger deduction, based on the expenditures. So, keeping track of actual costs could be worth the extra work.

7. Standard Mileage Rate

If you use your personal vehicle for business purposes, you may be eligible to write off a portion of your actual expenses based on business use, plus a depreciation allowance. But tracking actual expenses requires detailed recordkeeping for every business trip and documentation of all expenses.

Alternatively, you can use an IRS-approved standard rate deduction with fewer recordkeeping requirements and add business-related parking fees and tolls. The standard rate for 2015 is $0.575 per business mile (dropping to $0.54 in 2016). However, the standard rate isn’t available if you previously claimed accelerated depreciation for the vehicle.

8. Section 179 Deductions

The PATH Act makes permanent the $500,000 maximum deduction for expensing eligible business property under Section 179. The deduction begins to phase out when purchases of such property exceed $2 million for the year.

These figures apply to 2015 and will be indexed for inflation in the future. They provide self-employed individuals with plenty of room to plan ahead. You can make the Section 179 election to currently expense costs — as opposed to gradually depreciating assets over time — for both new and used property.

9. Child’s Tax Return

If your child has taxable income, he or she may be required to file a tax return, even if the child is a minor. Furthermore, the “kiddie tax” is triggered if a dependent child under age 24 has unearned income exceeding $2,100 in 2015. This results in the excess unearned income being taxed at the parents’ top marginal tax rate.

You can simplify matters by electing to report the child’s income on your own return, instead of hassling with a separate return. But be aware that combining income on one return could have other tax repercussions.

10. Filing for an Extension

Last, but not least, you may find that the filing deadline is fast approaching and you haven’t completed your 2015 return yet — especially if you’re still weighing some of the tax elections discussed above. Fortunately, you can gain more time by requesting a filing extension. The extension is automatic until October 17, 2016 — no questions asked by the IRS.

But be aware that this is only an extension to file your tax return, not an extension to pay tax. In other words, the IRS expects you to make a reasonable estimate of taxes due and pay that amount to the IRS no later than April 18. (Even if you comply with that requirement, you could still be subject to interest and penalties if you didn’t pay sufficient tax throughout the year via withholding and/or estimated tax payments.)

Important note: Before making any of these 10 elections, contact your Yeo & Yeo Michigan Accountant to perform a side-by-side comparison of your options and discuss the pros and cons. That way, you can make a fully informed decision.

Tax credits reduce tax liability dollar-for-dollar, making them particularly valuable. Two valuable credits are especially for small businesses that offer certain employee benefits. Can you claim one — or both — of them on your 2015 return?

Retirement plan credit

Small employers (generally those with 100 or fewer employees) that create a retirement plan may be eligible for a $500 credit per year for three years. The credit is limited to 50% of qualified startup costs.

Of course, you generally can deduct contributions you make to your employees’ accounts under the plan. And your employees enjoy the benefit of tax-advantaged retirement saving.

Small-business healthcare credit

The maximum credit is 50% of group health coverage premiums paid by the employer, provided it contributes at least 50% of the total premium or of a benchmark premium. For 2015, the full credit is available for employers with 10 or fewer full-time equivalent employees (FTEs) and average annual wages of $25,000 or less per employee. Partial credits are available on a sliding scale to businesses with fewer than 25 FTEs and average annual wages of less than $52,000.

To qualify for the credit, online enrollment in the Small Business Health Options Program (SHOP) generally is required. In addition, the credit can be taken for only two years, and they must be consecutive. (Credits taken before 2014 don’t count, however.)

Take all the credits you’re entitled to

If you’re not sure whether you’re eligible for these credits, we can help. We can also advise you on what other tax credits your business might be eligible for when you file your 2015 return.

When it comes to deducting charitable gifts, all donations are not created equal. As you file your 2015 return and plan your charitable giving for 2016, it’s important to keep in mind the available deduction:

Cash. This includes not just actual cash but gifts made by check, credit card or payroll deduction. You may deduct 100%.

Ordinary-income property. Examples include stocks and bonds held one year or less, inventory, and property subject to depreciation recapture. You generally may deduct only the lesser of fair market value or your tax basis.

Long-term capital gains property. You may deduct the current fair market value of appreciated stocks and bonds held more than one year.

Tangible personal property. Your deduction depends on the situation:

If the property isn’t related to the charity’s tax-exempt function (such as an antique donated for a charity auction), your deduction is limited to your basis.
If the property is related to the charity’s tax-exempt function (such as an antique donated to a museum for its collection), you can deduct the fair market value.

Vehicle. Unless it’s being used by the charity, you generally may deduct only the amount the charity receives when it sells the vehicle.

Use of property. Examples include use of a vacation home and a loan of artwork. Generally, you receive no deduction because it isn’t considered a completed gift.

Services. You may deduct only your out-of-pocket expenses, not the fair market value of your services. You can deduct 14 cents per charitable mile driven.

Finally, be aware that your annual charitable donation deductions may be reduced if they exceed certain income-based limits. If you receive some benefit from the charity, your deduction must be reduced by the benefit’s value. Various substantiation requirements also apply. If you have questions about how much you can deduct, let us know.

Yeo & Yeo CPAs & Business Consultants welcomes Cara Newby. She joins Yeo & Yeo as the firm’s Talent Manager.

Cara will develop and execute strategic talent management initiatives to recruit the best candidates, engage and retain current employees, and help drive a high-performance culture in the multi-office firm.From college recruiting, screening talent and onboarding new hires, to assisting in the firm-wide evaluation process, managing the mentor program and actively participating in the firm’s Career Advocacy Team, Cara will play a critical role in helping to hire and retain the best people.

“The expertise and leadership Cara brings to the firm not only benefits our employees, but also our clients as we continue to provide access to the best and brightest accountants to meet their needs. She will lead our efforts in hiring and retaining experienced candidates and a new generation of professionals. Cara is committed to helping our professionals grow in their careers and succeed,” says Thomas E. Hollerback, president & CEO of Yeo & Yeo.

Cara has nearly ten years of experience in talent acquisition and human resource management functions. Most recently she worked for Olympia Entertainment in metropolitan Detroit, serving as the recruiting manager for the Detroit Red Wings, Fox Theater and Hockeytown Café. Cara holds a Bachelor of Arts, majoring in organizational communications and English, from Western Michigan University. She is based in Yeo & Yeo’s Auburn Hills Accounting Firm office.

We welcome you to connect with Cara Newby on LinkedIn.

It has been a few months since the audit deadline and hopefully everyone has had a chance to breathe a sigh of relief after surviving the implementation of GASB 68. However, it is always important to identify ways that the district can continue to streamline the accuracy and efficiency of its financial records. In hopes of helping Michigan school districts in this process, we have identified the three audit issues that arose most frequently during the 2015 audit season. Don’t worry, we left GASB 68 out of it!

Proper Recording of a Lease Agreement

School districts may enter into two different types of leasing transactions. It is important to know which type of lease your district is dealing with as there are also two different methods of recording the lease on the books.

The first type of lease is an operating lease. This type of lease is fairly simple and lease payments are recorded on the books when paid in the same manner as other expenses. The annual budget would only include the amount of the current year lease payments. There is no effect on debt or capital assets for your district-wide statements.

The other type of lease is a capital lease. This is where it gets tricky. To determine if you have a capital lease, remember this useful acronym: OWNS.

O – Ownership: The ownership of the asset is shifted to the district at the end of the lease period.

W – Written option for bargain purchase: The district can buy the asset from the lessor at the end of the lease term for a below-market price (often $1).

N – Ninety percent of the leased property’s fair market value exceeds the present value of the lease payments.

S – Seventy-five percent or more of the asset’s useful life is being committed in the lease term.

If any one of these four items are met, the transaction is considered a capital lease. Following is a summary of the effects of a capital lease on the district’s financial statements:

One hundred percent of the principal portion of all lease payments will be recorded as an Other Financing Source on the fund statements and also as a capital outlay expense. Do not forget to consider the additional capital outlay in your budget amendment, or there is a chance that the district will be over budget in these accounts.
All lease payments should be allocated between principal and interest. If the lease agreement does not provide this information, an amortization schedule should be created.
The district-wide statements will need to include the asset related to the lease transaction, and the asset will be depreciated accordingly. This is often missed by external fixed asset management companies, unless the district requests that the asset is added.

Bond Refundings in the Fund Statements

What is a bond refunding? It is the issuance of new debt whose proceeds are used to repay previously issued (old) debt. Most bond refundings today are considered “current refundings” and the new debt is used to pay off old debt almost immediately. The other type of refunding is an “advance refunding,” which occurs when the new debt is placed with an escrow agent and invested until it is used to pay principal and interest on the old debt in the future. Due to the favorable rates, most refundings since the late 90s are “current refundings.”

Bond refundings are becoming more frequent, but typically districts do not have a lot of experience recording the transactions related to them. As with anything that is not a routine part of accounting, it is easy to mix up the journal entries necessary to record a bond refunding on the district’s fund statements. Keeping this in mind, we compiled the following guidelines for proper recording:

New debt should be recorded as an Other Financing Source in the governmental fund receiving the proceeds.
Payments to the escrow agent from the resources provided by the new debt should be recorded as an Other Financing Use.
If payments are made to the escrow agent from other resources of the district, this should be reported as debt service expenditures.

The company that prepares the final bond documents should provide at least one schedule that will break out the individual pieces of the transaction to help when recording this on the district’s books.

It is important to remember that there are many pieces to the puzzle in a bond refunding, and we encourage you to consult your auditors when a bond refunding occurs. That one phone call could save you a lot of headaches in the long run.

Equipment Management

This deficiency is most commonly reported for district’s undergoing single audits; however, it is a good control to have in place regardless. In the past, most districts considered any equipment purchased in their food service department to be obtained using local or state sources, therefore not requiring the district to maintain the level of record-keeping mandated at the federal level. However, due to the large percentage of funding most districts receive from federal dollars to run their food service programs, it is becoming increasingly hard to argue that all equipment purchased is in fact locally or state funded.

Therefore, it is our recommendation to all districts to actively manage this equipment. The compliance standards require that all equipment over $5,000 purchased with federal funds be tagged and separately identified from those items not purchased with federal funds. These items must be listed with the following characteristics: serial number (or other identifying number), source, who holds title, acquisition date and cost, percentage of federal participation in the cost, location, condition, and disposition data (if applicable). Further, an inventory of food service equipment purchased with federal funds is required to be performed every two years. It might be extra work up-front, but it will contribute to smoother monitoring by the state and external auditors.

We at Yeo & Yeo thank you, our clients, for another great school audit season. We hope that these guidelines will keep your district on track in the future. If you have questions about these audit issues, please contact your local Yeo & Yeo office.

Making a tax deductible contribution to a traditional IRA is an easy and quick way to lower your tax liability. But this doesn’t work for everyone. Here’s a checklist to see if you might be eligible for this last-minute strategy:

1. Have you and your spouse (if you’re married) reported sufficient “earned income” in 2015 to offset what you plan to contribute to your IRA for 2015?

2. Were you younger than 70 1/2 on December 31, 2015? If you turned 70 1/2 last year, you can’t make a deductible contribution.

3. Were you covered by an employer-sponsored retirement plan in 2015? If so, your eligibility to make a deductible contribution to a traditional IRA in 2015 is phased out at the following income levels:

For single taxpayers who are covered by an employer-sponsored plan, it’s phased out for adjusted gross income (AGI) between $61,000 and $71,000.
For married taxpayers who were both covered by retirement plans in 2015, it’s phased out for both spouses for joint AGI between $98,000 and $118,000.
For married taxpayers with only one spouse covered by a retirement plan, the covered spouse’s eligibility to make a deductible contribution for last year is phased out for joint AGI between $98,000 and $118,000. The noncovered spouse’s eligibility is phased out for joint AGI between $183,000 and $193,000.

For example, suppose you’re a 40-year-old single taxpayer in the 25% federal income tax bracket who makes a $5,500 deductible IRA contribution on April 1. If you meet all of the eligibility requirements, this move would reduce your federal income tax bill by $1,375 (plus any state income tax savings).

On the other hand, if you’re married and file jointly and both spouses were over 50 years old on December 31, 2015, you could potentially make two $6,500 contributions (for a total of $13,000). If you meet all of the eligibility requirements, these contributions would reduce your joint federal income tax bill by $3,250 if you are in the 25% bracket (plus any state income tax savings).

Alternative investments are becoming more and more common as investment instruments for nonprofit organizations. Alternatives are not your typical investments in items such as stocks, bonds and cash. They are not traded on an active market, even though they are often listed alongside traditional investments on the financial statement. Examples of alternative investments include real estate investments, mortgage notes that are not debt securities, venture capital funds, partnership interest, oil and gas interest, and some equity securities that do not have a readily determinable market value.

Since alternative investments are becoming more widespread, it is important to understand some of the basic facts about alternative investments:

Valuation – These investments are not actively traded on the market; therefore, valuation is more difficult. Alternative valuation is often based on the net asset value of the investment. It is also important to note that the investment statement does not typically recognize the value of the alternative as of the statement date. There is often a lag between the investment statement date and the date the alternative was valued. For example, an investment statement dated December 31, 2015, may be showing the value of the alternative investment as of September 30, 2015.
Cost or Market – In the year the alternative investments are purchased, GAAP allows them to be valued at either cost or market. Valuing the investments at cost would eliminate some of the issues noted above. The organization should make a conscious decision in the year the investments are purchased on how they prefer to value them on their books.
Liquidity and Lock-up Periods – Many of the alternatives have a lock-up period where the organization is unable to withdrawn funds from the investment for a certain period of time. Also, there is often a pre-notification term of days or months before funds can be distributed. Finally, there can be a holdback on final payment until the fund’s audit is complete.
Partnerships and Limited Partnerships – If the alternative investment indicates it is taxed as a partnership for tax law, the organization may need to receive a K-1. The organization may be subject to unrelated business income tax as a result of the investment that needs to be reported on a Non-Profit’s 990T and the applicable taxes paid annually.
Reporting – If the organization owns more than 20 percent of the alternative investment’s total value, then the organization may have to consider reporting the investment under the equity method in accordance with generally accepted accounting principles.
Audit Scope – If the organization obtains an annual financial statement audit, there will likely be extended procedures and additional requests of information to the investment manager in order to audit these investments. This will also result in additional audit time and possibly additional audit fees.

Overall, an organization should have a good understanding of the details of each of its investments and work with financial professionals when considering investment vehicles, especially alternatives.