Monday, September 28, 2015

Audit Findings in small businesses!

My firm routinely audits business entities.  Many of our audits reveal a problem with segregation of duties (usually A/R and A/P and bank reconciliations performed by a  "trusted" employees or volunteers).  I raise the issue and the entity will try to placate my objections by saying I am going overboard with my audit. 
Well, Mr.Yigal M. Rechtman of Grassi & Co. recently concluded a fraud investigation involving a cash-skimming scheme. Here he shares his findings to help give tax professionals performing audits new perspective.

The Scheme Investigated:
A clerk collected cash from customers and provided a sequentially numbered receipt. At the end of the day, the receipts were supposed to be entered into the accounts receivable system and reconciled with the deposit slip. Instead, the clerk pocketed the cash, and used one of several methods to conceal her acts:
1. She would record an unauthorized credit memo to the customer account.
2. She would take payments from other customers, and credit the account from which she stole. This is a kiting scheme where the clerk “robbed Peter to pay Paul.”
After roughly three years, the clerk was able to pocket an amount greater than $270,000 (that’s $90,000 a year!) and was caught when a customer complained about their account status, which was shorted due to the scheme.

How did the audit fail?
Although we don’t know what the auditors (not our firm) did in terms of their audit procedures, from what we can gather, here are a few points we think they missed:
• The auditors apparently failed to see that this is a high-risk area. Most of the receipts were in cash—this presents a high risk for fraud and theft of cash. It appears they did very little by way of sampling the paper receipts and tracing them to the accounts receivable system. Had they done it, they had a good chance of finding discrepancies and raising questions.
• The auditors appear to have not identified a lack of segregation of duties; the clerk was the one collecting the cash, entering the cash in the accounts receivable system, reconciling the cash collected, depositing the cash, and responding to customer complaints and questions regarding their accounts. At no time did the auditor inform management this is a lack of segregation of duties that should be addressed, nor did he/she recommend changes.
• The cash shortfall could have been identified if the auditors had simply looked at the top-level analysis of the credit-memo balances. They would have noticed the allowance for uncollectable accounts (or its equivalent) would have been "off" because of all the credit memos. The amount would be material, and that should have prompted more questions, an expanded scope in terms of the nature, timing and extent of the audit procedures for revenues.
• The auditors also did not confirm balances, review the reconciliations, or look at why it takes sometimes up to three weeks for daily reconciliations to be prepared. The delay in the daily reconciliations (between the system and the bank deposit) should have been noticed, and at least mentioned to management and the board. That didn’t happen.
What I see here is a lack of critical thinking by the auditors. Although we are not entirely sure what they did, it appears they did not think in a skeptical manner about the risks to revenues, especially when cash collection was a significant portion of the receipts. They also appear to have created a good analysis of the risks of fraud and may have done “check-list mentality” on their audit programs.
Bottom Line:
• Think about what you see and hear.
• If you think there is a chance that the audit plan is not responsive to what’s needed, say something.
• If you think something is fishy, follow that trail.
• And most importantly, be skeptical of what you're told and verify the facts.
I hope this scenario helps all us auditors and accountants do a better job!
Yigal M. Rechtman, CPA, CFE, CITP, CISM, is a principal in Grassi & Co.’s Forensic

Thursday, September 24, 2015

The Shared Responsibility Payment and its consequences

How Coverage You Offer (or Don’t Offer) May Mean an Employer Shared Responsibility Payment for Your Organization
Under the Affordable Care Act, certain employers, based on workforce size – called applicable large employers – are subject to the employer shared responsibility provisions. The vast majority of employers fall below the workforce size threshold and, therefore, are not subject to the employer shared responsibility provisions.
If you are an employer that is subject to the employer shared responsibility provisions, you may choose either to offer affordable minimum essential coverage that provides minimum value to your full-time employees and their dependents, or to potentially owe an  employer shared responsibility payment to the IRS.  Many employers already offer coverage that is sufficient to avoid owing a payment.
If your organization is an applicable large employer, and you choose not to offer affordable minimum essential coverage that provides minimum value to your full-time employees and their dependents, you may be subject to one of two potential employer shared responsibility payments.
More specifically, you may need to make an employer shared responsibility payment to the IRS if you are an applicable large employer and either of these circumstances applies for 2015:
  • You offered minimum essential coverage to fewer than 70 percent of your full-time employees and their dependents, and at least one full-time employee enrolled in coverage through the Health Insurance Marketplace and received the premium tax credit.    
  • You offered minimum essential coverage to at least 70 percent of your full-time employees and their dependents, but at least one full-time employee enrolled in coverage through the Health Insurance Marketplace and received the premium tax credit.  A full-time employee could receive the premium tax credit because the coverage that was offered was not affordable, did not provide minimum value, or was not offered to the full-time employee. 
For both of these circumstances, the 70 percent threshold changes to 95 percent after 2015.
The terms “affordable” and “minimum value” have specific meanings under the Affordable Care Act that are explained in questions 19 and 20 on the employer shared responsibility provision questions and answers page on  Transition relief for offers of coverage to dependents for 2015 is described in question 33 on the same page.  

Thursday, September 17, 2015

Health car law and letters sent from the IRS

The Health Care Law and You: Nine Facts about Letters Sent by the IRS
The IRS sent letters to taxpayers this summer who were issued a Form 1095-A, Health Insurance Marketplace Statement, showing that advance payments of the premium tax credit were paid on the taxpayer’s behalf in 2014. At the time, the IRS had no record that the taxpayer filed a 2014 tax return.
Here are nine facts about these letters and the actions you should take:
  • IRS letters 5591, 5591A, or 5596 remind you of the importance of filing your 2014 federal tax return along with Form 8962, Premium Tax Credit.
  • You must file a tax return to reconcile any advance credit payments you received in 2014 and to maintain your eligibility for future premium assistance.
  • If you do not file, you will not be eligible for advance payments of the premium tax credit in 2016.
  • Even if you don’t usually file or if you requested an extension to Oct. 15, you should file your 2014 tax return as soon as possible.
  • Until you file a 2014 tax return to resolve the issue with your Marketplace, you will not be eligible to get advance payments of the premium tax credit to help pay your health coverage premiums in 2016 from the Marketplace.
  • You should have received a Form 1095-A, Health Insurance Marketplace Statement, earlier this year if you or a family member purchased health insurance coverage through the Marketplace in 2014.  This form provides the information you need to complete Form 8962. You must attach Form 8962 to the income tax return you file.
  • Contact your Marketplace if you have questions about your Form 1095-A.
  • If you have recently filed your 2014 tax return with Form 8962, you do not need to file another tax return or call the IRS about these letters.   In general, if you filed your tax return electronically, it takes three weeks before it is processed and your information is available. If you mailed your tax return, it takes about six weeks. However, processing times can vary based on other circumstances.
  • You should follow the instructions on any additional IRS correspondence that you receive to help the IRS verify information to process your tax return.
In addition to these letters from the IRS, your health insurance company may contact you to remind you to file your 2014 federal tax return along with Form 8962. In some cases, they may contact you even if you did not receive advance credit payments in 2014. If you are not otherwise required to file a tax return, you do not have to file a return if you or anyone on your return did not receive advance credit payments in 2014.

Friday, September 11, 2015

Business returns on extension coming due

Business returns are due to the IRS 9/15/15.  They need to be postmarked by then at least.  At my firm we finished our remaining few yesterday....but would enjoy the chance to help any business get finished on time.  Call direct to my cell phone at 8133090504 if you need to get your returns filed!

Wednesday, September 09, 2015

Traditional IRA vs. a Roth IRA

Traditional IRA vs. Roth IRA

A Traditional IRA or a Roth IRA? Here are the differences.

A Comparison
The type of individual retirement account you choose can significantly affect you and your family’s long-term savings. So it’s worth understanding the differences between traditional IRAs and Roth IRAs in order to select the best one for you.
Here are the key considerations:

Income Limits

Anyone with earned income, who is younger than 70 ½, can contribute to a traditional IRA. Roth IRAs, however, have income-eligibility restrictions: Single tax filers, for instance, must have modified adjusted gross incomes of less than $129,000 in 2012 to contribute to a Roth IRA. (Contribution limits are phased out starting at $114,000 in modified AGI, per IRS guidelines.) Married couples filing jointly must have modified AGIs of less than $191,000 in 2012 in order to contribute to a Roth; contribution limits are phased out starting at $181,000. You can also see the full income limits here.

Tax Incentives

Both traditional and Roth IRAs provide generous tax breaks. But it’s a matter of timing when you get to claim them. Traditional IRA contributions are tax deductible on both state and federal tax returns for the year you make the contribution, while withdrawals in retirement are taxed at ordinary income tax rates. Roth IRAs provide no tax break for contributions, but earnings and withdrawals are generally tax-free. So with traditional IRAs, you avoid taxes when you put the money in. With Roth IRAs, you avoid taxes when you take it out in retirement.

Future Tax Rates

Do you expect your income to increase or decrease in retirement?
Deciding to contribute to a traditional or Roth IRA should depend on whether you expect your income tax rate in retirement to be higher or lower than what you currently pay. That’s because it determines whether the tax rate you pay on your Roth IRA contributions (today’s tax rate) is higher or lower than what you’d pay on your traditional IRA’s withdrawals in retirement.
Of course, it’s hard to predict what federal and state tax rates will be 10, 20 or even 40 years from now. But you can ask yourself some basic questions to help determine your personal situation: Which federal tax bracket are you in today? Do you expect to your income including Social Security to increase or decrease in retirement? Although conventional wisdom suggests that gross income declines in retirement, taxable income sometimes does not. Think about it. Once the kids are grown and you stop saving for retirement, you lose some valuable tax deductions and tax credits, leaving you with higher taxable income in retirement.
What about tax rates? Do you expect your tax rate will be higher or lower when you retire? Given today’s historically low federal tax rates and large U.S. deficit, many economists believe federal income tax rates will rise in the future — meaning Roth IRAs may be the better long-term choice.

Withdrawal Rules

One major difference between traditional IRAs and Roth IRAs is when the savings must be withdrawn. Traditional IRAs require you to start taking required minimum distributions (RMDs) at age 70 1/2. Roth IRAs, on the other hand, don’t mandate withdrawals during the owner’s lifetime. So, if you don’t need the money, Roth IRAs can continue to grow tax-free throughout your lifetime, making them ideal wealth-transfer vehicles. Beneficiaries of Roth IRAs don’t owe income tax* on withdrawals and can stretch out distributions over many years.
*Beneficiaries may still owe estate taxes—particularly if congress drops estate tax exclusion limits after 2012.
Both traditional and Roth IRAs allow owners to begin taking penalty-free, “qualified” distributions at age 59 ½. However, Roth IRAs require that the first contribution be at least five years before qualified distributions begin.

Extra Benefits & Considerations

It’s also worth factoring in some of the specific rules and benefits of traditional and Roth IRAs. Here’s a breakdown:

Traditional IRAs:

  • Contributions to traditional IRAs lower your taxable income in the contribution year. That lowers your adjusted gross income, helping you qualify for other tax incentives you wouldn’t otherwise get, such as the child tax credit or the student loan interest deduction.
  • Up to $10,000 can be withdrawn without the normal 10% early-withdrawal penalty to pay for qualified first-time homebuyer expenses. However, you’ll pay taxes on the distribution.

Roth IRAs:

  • Roth contributions (but not earnings) can be withdrawn penalty- and tax-free any time, even before age 59 ½.
  • five tax years after the first contribution, you can withdraw up to $10,000 of Roth earnings penalty-free to pay for qualified first-time homebuyer expenses.
Keep in mind that Congress can change these rules at any time. So while these are the rules today, they may be very different when you retire.
Thanks to Kelly Spors of who compiled much of this information.

Wednesday, August 19, 2015

Education Tax Credits are available!

Back-to-School Reminder for Parents and Students: Check Out College Tax Credits for 2015 and Years Ahead
WASHINGTON ― With another school year just around the corner, the Internal Revenue Service today reminded parents and students that now is a good time to see if they will qualify for either of two college tax credits or other education-related tax benefits when they file their 2015 federal income tax returns.
In general, the American Opportunity Tax Credit or Lifetime Learning Credit is available to taxpayers who pay qualifying expenses for an eligible student. Eligible students include the taxpayer, spouse and dependents. The American Opportunity Tax Credit provides a credit for each eligible student, while the Lifetime Learning Credit provides a maximum credit per tax return.
Though a taxpayer often qualifies for both of these credits, he or she can only claim one of them for a particular student in a particular year.  To claim these credits on their tax return, the taxpayer must file Form 1040 or 1040A and complete Form 8863, Education Credits.
The credits apply to eligible students enrolled in an eligible college, university or vocational school, including both nonprofit and for-profit institutions. The credits are subject to income limits that could reduce the amount claimed on their tax return.
To help determine eligibility for these benefits, taxpayers should visit the Education Credits Web page or use the IRS’s Interactive Tax Assistant tool. Both are available on
Normally, a student will receive a Form 1098-T from their institution by Jan. 31 of the following year. (For 2015, the due date is Feb. 1, 2016, because otherwise it would fall on a Sunday.) This form will show information about tuition paid or billed along with other information. However, amounts shown on this form may differ from amounts taxpayers are eligible to claim for these tax credits. Taxpayers should see the instructions to Form 8863 and Publication 970 for details on properly figuring allowable tax benefits.
Many of those eligible for the American Opportunity Tax Credit qualify for the maximum annual credit of $2,500 per student. Students can claim this credit for qualified education expenses paid during the entire tax year for a certain number of years:
  • The credit is only available for four tax years per eligible student. 
  • The credit is available only if the student has not completed the first four years of postsecondary education before 2015.
Here are some more key features of the credit:
  • Qualified education expenses are amounts paid for tuition, fees and other related expenses for an eligible student. Other expenses, such as room and board, are not qualified expenses.
  • The credit equals 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.
  • Forty percent of the American Opportunity Tax Credit is refundable. This means that even people who owe no tax can get an annual payment of up to $1,000 for each eligible student.
  • The full credit can only be claimed by taxpayers whose modified adjusted gross income (MAGI) is $80,000 or less. For married couples filing a joint return, the limit is $160,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $180,000 or more and singles, heads of household and some widows and widowers whose MAGI is $90,000 or more.
The Lifetime Learning Credit of up to $2,000 per tax return is available for both graduate and undergraduate students. Unlike the American Opportunity Tax Credit, the limit on the Lifetime Learning Credit applies to each tax return, rather than to each student. Also, the Lifetime Learning Credit does not provide a benefit to people who owe no tax.
Though the half-time student requirement does not apply to the lifetime learning credit, the course of study must be either part of a post-secondary degree program or taken by the student to maintain or improve job skills. Other features of the credit include:
  • Tuition and fees required for enrollment or attendance qualify as do other fees required for the course. Additional expenses do not.
  • The credit equals 20 percent of the amount spent on eligible expenses across all students on the return. That means the full $2,000 credit is only available to a taxpayer who pays $10,000 or more in qualifying tuition and fees and has sufficient tax liability.
  • Income limits are lower than under the American Opportunity Tax Credit. For 2015, the full credit can be claimed by taxpayers whose MAGI is $55,000 or less. For married couples filing a joint return, the limit is $110,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $130,000 or more and singles, heads of household and some widows and widowers whose MAGI is $65,000 or more.
Eligible parents and students can get the benefit of these credits during the year by having less tax taken out of their paychecks. They can do this by filling out a new Form W-4, claiming additional withholding allowances, and giving it to their employer.
There are a variety of other education-related tax benefits that can help many taxpayers. They include:
  • Scholarship and fellowship grants — generally tax-free if used to pay for tuition, required enrollment fees, books and other course materials, but taxable if used for room, board, research, travel or other expenses.
  • Student loan interest deduction of up to $2,500 per year.
  • Savings bonds used to pay for college — though income limits apply, interest is usually tax-free if bonds were purchased after 1989 by a taxpayer who, at time of purchase, was at least 24 years old.
  • Qualified tuition programs, also called 529 plans, used by many families to prepay or save for a child’s college education.
Taxpayers with qualifying children who are students up to age 24 may be able to claim a dependent exemption and the Earned Income Tax Credit.
The general comparison table in Publication 970 can be a useful guide to taxpayers in determining eligibility for these benefits. Details can also be found in the Tax Benefits for Education Information Center on

Tuesday, August 18, 2015

Truckers and Taxes

Truckers: For Most, Highway Use Tax Return is due Aug. 31
Truckers and other owners of heavy highway vehicles that in most cases their next federal highway use tax return is due Monday, Aug. 31, 2015.
The deadline generally applies to Form 2290 and the accompanying tax payment for the tax year that begins July 1, 2015, and ends June 30, 2016. Returns must be filed and tax payments made by Aug. 31 for vehicles used on the road during July. For vehicles first used after July, the deadline is the last day of the month following the month of first use.
Though some taxpayers have the option of filing Form 2290 on paper, the IRS encourages all taxpayers to take advantage of the speed and convenience of filing this form electronically and paying any tax due electronically. Taxpayers reporting 25 or more vehicles must e-file. A list of IRS-approved e-file providers can be found on
The highway use tax applies to highway motor vehicles with a taxable gross weight of 55,000 pounds or more. This generally includes trucks, truck tractors and buses. Ordinarily, vans, pick-ups and panel trucks are not taxable because they fall below the 55,000-pound threshold. The tax of up to $550 per vehicle is based on weight, and a variety of special rules apply, explained in the instructions to Form 2290.
For more information, visit the Trucking Tax Center or just call us!

Monday, August 03, 2015

FIFO, LIFO, what is up with inventory valuation?

The Financial Accounting Standards Board (FASB) issued new guidance on July 22 that is intended make the measurement of inventory in financial statements less complex.  Stakeholders told the board that guidance on the subsequent measurement of inventory is unnecessarily complex because there are several potential outcomes. Inventory (Topic 330) currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin, according to the FASB.
Under Accounting Standards Update No. 2015-11, Inventory (Topic 330), Simplifying the Measurement of Inventory, the FASB decided to exclude inventory measured using last-in, first out (LIFO) or the retail inventory method, after stakeholders said there could be significant transition costs. Instead, the amendments apply to all other inventory, including inventory measured using first-in, first out (FIFO) or average cost. Stakeholders said inventory measured using FIFO or average cost would reduce costs and increase comparability.
The new guidance states that an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method.
In addition, the FASB amended some of the other guidance in Topic 330 to more clearly articulate the requirements for the measurement and disclosure of inventory. However, the board does not intend for those clarifications to result in any changes in practice.
For public business entities, the amendments will take effect for fiscal years beginning after Dec. 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments take effect for fiscal years beginning after Dec. 15, 2016, and interim periods within fiscal years beginning after Dec. 15, 2017. The new guidance should be applied prospectively, and earlier application is permitted as of the beginning of an interim or annual reporting period.

The FASB launched its simplification initiative in June 2014, with the objective of identifying, evaluating, and improving areas of US Generally Accepted Accounting Principles for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to financial statement users.

Thursday, July 30, 2015

Employers and the ACA

Overview of the Employer Shared Responsibility Provisions
The Affordable Care Act contains specific responsibilities for employers. The size and structure of your workforce – small, large, or part of a group – helps determine what applies to you. Employers with 50 or more full-time equivalent employees will need to file an annual information return reporting whether and what health insurance they offered employees. In addition, they are subject to the Employer Shared Responsibility provisions. All employers that are applicable large employers are subject to the Employer Shared Responsibility provisions, including federal, state, local, and Indian tribal government employers.
An employer’s size is determined by the number of its employees. Generally, if your organization has 50 or more full-time or full-time equivalent employees, you will be considered a large employer. For purposes of this provision, a full-time employee is an individual employed on average at least 30 hours of service per week. 
Under the Employer Shared Responsibility provisions, if an applicable large employer does not offer affordable health coverage that provides a minimum level of coverage to their full-time employees and their dependents, the employer may be subject to an Employer Shared Responsibility payment. They must make this payment if at least one of its full-time employees receives a premium tax credit for purchasing individual coverage through the Health Insurance Marketplace.
The Employer Shared Responsibility provisions generally are effective at the beginning of this year. Employers will use information about the number of employees they have and those employees’ hours of service during 2014 to determine if they are an applicable large employer for 2015. 
If you are a self-insured employer – that is, an employer who sponsors self-insured group health plans – you are subject to the information reporting requirements for providers of minimum essential coverage whether or not you are an applicable large employer under the employer shared responsibility provisions.
For more information, visit the employer shared responsibility page. For information about transition relief available for employers related to the shared responsibility provision, visit

Tuesday, July 21, 2015

Self Insured Employers have to file Health Coverage Info Returns also!

Self-Insured Employers Must File Health Coverage Information Returns
Regardless of size, all employers that provide self-insured health coverage to their employees are treated as coverage providers. These employers must file an annual return reporting certain information for each employee they cover.
As coverage providers, these employers must:
  • File a Form 1095-B, Health Coverage, with the IRS, accompanied by a Form 1094-B transmittal. Filers of more than 250 Forms 1095-B must e-file. The IRS allows and encourages entities with fewer than 250 forms to e-file.
  • Furnish a copy of the 1095-B to the responsible individual – generally the primary insured, employee, parent or uniformed services sponsor. You may electronically furnish the Form 1095-B.
If a provider is an applicable large employer also providing self-insured coverage, it reports covered individuals on Form 1095-C instead of Form 1095-B. Form 1095-C combines reporting for two provisions of the Affordable Care Act for these employers.
The information reporting requirements are first effective for coverage provided in 2015.  Thus, health coverage providers will file information returns with the IRS in 2016, and will furnish statements to individuals in 2016, to report coverage information in calendar year 2015.
The information that a provider must report to the IRS includes the following:
  • The name, address, and employer identification number of the provider.
  • The responsible individual’s name, address, and taxpayer identification number, or date of birth if a TIN is not available.  If the responsible individual is not enrolled in the coverage, providers may, but are not required to, report the TIN of the responsible individual.
  • The name and TIN, or date of birth if a TIN is not available, of each individual covered under the policy or program and the months for which the individual was enrolled in coverage and entitled to receive benefits.
For more information, see Questions and Answers on Information Reporting by Health Coverage Providers on  Employers who provide self-insured coverage should review Publication 5125, Responsibilities for Health Coverage Providers. Applicable large employers should review Publication 5196, Reporting Requirements for Applicable Large Employers

Thursday, July 16, 2015

We received the acceptance of the Offer in Compromise

IRS accepted another Offer in Compromise that my office prepared!  Great for us and my client!

Friday, July 10, 2015

Another IRS Offer In Compromise being accepted

Some good news to report, our firm is on the cusp of having another Offer in Compromise accepted by the IRS.  This is good news for us and it is GREAT news for our client!  If you could use the assistance of an Offer in Compromise, and you meet the stringent guidelines, we can help!  Call today!

Monday, June 29, 2015

Summer Wedding and taxes

Include a Few Tax Items in Your Summer Wedding Checklist
If you’re preparing for summer nuptials, make sure you do some tax planning as well. A few steps taken now can make tax time easier next year. Here are some tips from the IRS to help keep tax issues that may arise from your marriage to a minimum:
  • Change of name. All the names and Social Security numbers on your tax return must match your Social Security Administration records. If you change your name, report it to the SSA. To do that, file Form SS-5, Application for a Social Security Card. The easiest way for you to get the form is to download and print it on You can also call SSA at 800-772-1213 to order the form, or get it from your local SSA office.
  • Change tax withholding. When you get married, you should consider a change of income tax withholding. To do that, give your employer a new Form W-4, Employee's Withholding Allowance Certificate. The withholding rate for married people is lower than for those who are single. Some married people find that they do not have enough tax withheld at the married rate. For example, this can happen if you and your spouse both work. Use the IRS Withholding Calculator tool at to help you complete a new Form W-4. See Publication 505, Tax Withholding and Estimated Tax, for more information. You can get IRS forms and publications on at any time.
  • Changes in circumstances. If you receive advance payments of the premium tax credit you should report changes in circumstances, such as your marriage, to your Health Insurance Marketplace. Other changes that you should report include a change in your income or family size. Advance payments of the premium tax credit provide financial assistance to help you pay for the insurance you buy through the Health Insurance Marketplace. Reporting changes in circumstances will allow the Marketplace to adjust your advance credit payments. This adjustment will help you avoid getting a smaller refund or owing money that you did not expect to owe on your federal tax return.
  • Change of address. Let the IRS know if you move. To do that, file Form 8822, Change of Address, with the IRS. You should also notify the U.S. Postal Service. You can change your address online at, or report the change at your local post office.
  • Change in filing status. If you are married as of Dec. 31, that is your marital status for the entire year for tax purposes. You and your spouse can choose to file your federal tax return jointly or separately each year. It is a good idea to figure the tax both ways so you can choose the status that results in the least tax.

Monday, June 15, 2015

Child and Dependent Care Deductions

Don’t Overlook the Child and Dependent Care Tax Credit this Summer 
  1. Day camps are common during the summer months. Many parents pay for them for their children while they work or look for work. If this applies to you, your costs may qualify for a federal tax credit that can lower your taxes. Here are the top ten tips to know about the Child and Dependent Care Credit:
    1. Care for Qualifying Persons. Your expenses must be for the care of one or more qualifying persons. Your dependent child or children under age 13 usually qualify. For more about this rule see IRS Publication 503, Child and Dependent Care Expenses.
    2. Work-related Expenses. Your expenses for care must be work-related. This means that you must pay for the care so you can work or look for work. This rule also applies to your spouse if you file a joint return. Your spouse meets this rule during any month they are a full-time student. They also meet it if they’re physically or mentally incapable of self-care.
    3. Earned Income Required. You must have earned income, such as from wages, salaries and tips. It also includes net earnings from self-employment. Your spouse must also have earned income if you file jointly. Your spouse is treated as having earned income for any month that they are a full-time student or incapable of self-care. This rule also applies to you if you file a joint return. Refer to IRS Publication 503 for more details.
    4. Joint Return if Married. Generally, married couples must file a joint return. You can still take the credit, however, if you are legally separated or living apart from your spouse.
    5. Type of Care. You may qualify for it whether you pay for care at home, at a daycare facility or at a day camp.
    6. Credit Amount. The credit is worth between 20 and 35 percent of your allowable expenses. The percentage depends on the amount of your income.
    7. Expense Limits. The total expense that you can use in a year is limited. The limit is $3,000 for one qualifying person or $6,000 for two or more.
    8. Certain Care Does Not Qualify. You may not include the cost of certain types of care for the tax credit, including:
    • Overnight camps or summer school tutoring costs.
    • Care provided by your spouse or your child who is under age 19 at the end of the year.
    • Care given by a person you can claim as your dependent.
    1. Keep Records and Receipts. Keep all your receipts and records for when you file your tax return next year. You will need the name, address and taxpayer identification number of the care provider. You must report this information when you claim the credit on IRS Form 2441, Child and Dependent Care Expenses.
    2. Dependent Care Benefits. Special rules apply if you get dependent care benefits from your employer. 
    Remember that this credit is not just a summer tax benefit. You may be able to claim it for qualifying care that you pay for at any time during the year.

Wednesday, May 13, 2015

4 ways to help stop employee fraud

In the course of performing audits, I am often asked what the problem is with having one person do many different tasks for an organization.  Here is a brief explanation of some of the problems that are borne out of a single person performing incompatible duties and some things you can do to prevent fraud
Q: Which internal accounting controls can help prevent fraud?
A: This is a vast topic covered by countless books and consultants, so let’s narrow it down to employee fraud and theft. Aside from the obvious—conducting regular inventory checks and book audits, reconciling cash daily, and personally reviewing financial statements each month—there are several actions you can take to protect yourself and your business.

1. Establish a code of conduct.

Did you know that Walmart employees are not allowed to accept a bottle of water or cup of coffee from a vendor at a meeting without paying for it? That’s what I mean by a code of conduct. It’s a statement that you will not tolerate unethical or illegal behavior toward anyone—customers, suppliers, employees or the company itself.
While you may not be as strict as Walmart, you should write and post a code of conduct that clearly spells out the rules for employees and the repercussions for not following them. Give the code to everyone upon hire, and periodically thereafter, and require written acknowledgement that they have read, understand and agree to comply with it.
Now look in the mirror. It’s one thing to demand honesty from your employees, but the code of conduct goes both ways. So you, as the enforcer of the code, need to follow it to the letter. If employees see you take home merchandise or use company property for personal reasons, they may follow your lead—or worse. If you treat employees with respect, compensate them appropriately and offer opportunities to advance their careers, they’ll have less motivation to steal or cheat.

2. Set up organizational checks and balances.

In a small business, one person may wear many hats. But the most dangerous multitasker is a solitary administrator/bookkeeper who opens the mail, handles deposits and payments and files transaction documents. No one person should control that many aspects of the business—it’s asking for trouble.
At one of my companies that processed a high volume of mail, we convened a dozen senior managers and their assistants to open the mail every day. With all those hands, the task took about 15 minutes. All checks were set aside, with a tape of their total run. When the day’s bank deposit was prepared, the total had to match the tape run earlier.
Also avoid assigning the same person to handle purchasing and vendor payments, or allowing the same employee to manage accounts payable and accounts receivable. If you’re a manufacturer or distributor, you should have separate people managing receiving, warehousing and shipping.
At the very least, set up an operation in which one person controls what comes in (cash, checks, merchandise, supplies) and another handles what goes out (payments, orders, finished products).

3. Institute policies and procedures.

Someone other than the bookkeeper should settle bank and credit card statements every month—and the person who reconciles the bank statements should not have the ability to enter or modify transactions in the accounting system.
Here’s why: One of my partners started working with a new client and began routinely looking at their credit card statements. For one card, there were no records of purchases that matched the charges. An investigation uncovered that the client’s former controller had taken a company card with him when he left and had run up more than $200,000.
Another way to rein in fraud is to have payroll prepared and authorized by HR but entered by accounting, then checked by management before the funds are sent to the payroll company.
Also, keep everything locked up that should be locked up, and enforce rigorous key control and computer-system access, especially for departing employees. Changing locks and passwords company-wide when someone leaves or is dismissed is not an overreaction—it’s smart.

4. Watch employees’ behavior. 

If you notice changes in an employee’s behavior—files have been misplaced; they don’t want help with a project; they’re giving a customer excessive attention—look into it. The same goes for an employee with access to critical parts of the company’s operations or finances who never takes vacation time, or who routinely works early or late when no one else is around.
Trust me, they’re not working those extra hours because they love their job. It might be because they don’t want anyone else to see what they’re doing. Insist that people use their vacation time and stick to regular business hours.
Pay attention to any blips in your operation, no matter how minor. At one manufacturing company I worked for, a customer sent back an expensive item for warranty repair. We couldn’t find any record of the sale. Upon further inquiry with the customer, we discovered that our vice president of manufacturing and a foreman were building equipment inside the company, then shipping units out the back door along with their own company’s invoices. We were able to recover hundreds of thousands of dollars in losses before turning the two over to the police.
The key in all this is to trust your gut and recognize that no one knows your company as well as you do. If something doesn’t look or feel right, it’s probably not. By all means, investigate.  Thanks to Entrepreneur website for concise reporting on this topic.

Tuesday, May 05, 2015

Non Profits need to file form 990

Many Tax-Exempt Organizations Must File with IRS by May 15; Do Not Include Social Security Numbers or Personal Data
The Internal Revenue Service today reminds tax-exempt organizations that many have a filing deadline for Form 990-series information returns in mid-May.

With the May 15 filing deadline facing many tax-exempt organizations, the Internal Revenue Service today cautioned these groups not to include Social Security numbers (SSNs) or other unneeded personal information on their Form 990, and consider taking advantage of the speed and convenience of electronic filing.

Form 990-series information returns and notices are due on the 15th day of the fifth month after an organization’s tax year ends. Many organizations use the calendar year as their tax year, making Thursday, May 15 the deadline for them to file for 2014.

Many Groups Risk Loss of Tax-Exempt Status

By law, organizations that fail to file annual reports for three consecutive years will see their federal tax exemptions automatically revoked as of the due date of the third required filing. The Pension Protection Act of 2006 mandates that most tax-exempt organizations file annual Form 990-series informational returns or notices with the IRS. The law, which went into effect at the beginning of 2007, also imposed a new annual filing requirement on small organizations. Churches and church-related organizations are not required to file annual reports.

No Social Security Numbers on 990s

The IRS generally does not ask organizations for SSNs and in the form instructions cautions filers not to provide them on the form. By law, both the IRS and most tax-exempt organizations are required to publicly disclose most parts of form filings, including schedules and attachments. Public release of SSNs and other personally identifiable information about donors, clients or benefactors could give rise to identity theft.

The IRS also urges tax-exempt organizations to file forms electronically in order to reduce the risk of inadvertently including SSNs or other unneeded personal information. Details are on

Sunday, April 12, 2015

Home Foreclosure and Debt Cancellation

The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualify for this relief.
This provision applies to debt forgiven in calendar years 2007 through 2014. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion doesn’t apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
The amount excluded reduces the taxpayer’s cost basis in the home. More details. Further information, including detailed examples, can also be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.
The questions and answers, below, are based on the law prior to the passage of the Mortgage Forgiveness Debt Relief Act of 2007.
1. What is Cancellation of Debt?
If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.

2. Is Cancellation of Debt income always taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:
  • Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
  • Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you.You are insolvent when your total debts are more than the fair market value of your total assets.Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.
  • Certain farm debts:If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.The rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception.
  • Non-recourse loans:A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral.That is, the lender cannot pursue you personally in case of default.Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income.However, it may result in other tax consequences, as discussed in Question 3 below.

3. I lost my home through foreclosure.  Are there tax consequences?  
There are two possible consequences you must consider:
  • Taxable cancellation of debt income.(Note: As stated above, cancellation of debt income is not taxable in the case of non-recourse loans.)
  • A reportable gain from the disposition of the home (because foreclosures are treated like sales for tax purposes).(Note: Often some or all of the gain from the sale of a personal residence qualifies for exclusion from income.)
Use the following steps to compute the income to be reported from a foreclosure:
Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section.  You have no income from cancellation of debt.)
1. Enter the total amount of the debt immediately prior to the foreclosure.___________
2. Enter the fair market value of the property from Form 1099-C, box 7. ___________
3. Subtract line 2 from line 1.If less than zero, enter zero.___________

The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C.  This amount is taxable unless you meet one of the exceptions in question 2.  Enter it on line 21, Other Income, of your Form 1040.
Step 2 – Figuring Gain from Foreclosure
4. Enter the fair market value of the property foreclosed.For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure ________
5.    Enter your adjusted basis in the property.(Usually your purchase price plus the cost of any major improvements.)                                    ____________
6. Subtract line 5 from line 4.  If less than zero, enter zero.   
The amount on line 6 is your gain from the foreclosure of your home.  If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income.  If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.

4. I lost money on the foreclosure of my home.  Can I claim a loss on my tax return? 

No.  Losses from the sale or foreclosure of personal property are not deductible. 

5.  Can you provide examples?

A borrower bought a home in August 2005 and lived in it until it was taken through foreclosure in September 2007. The original purchase price was $170,000, the home is worth $200,000 at foreclosure, and the mortgage debt canceled at foreclosure is $220,000. At the time of the foreclosure, the borrower is insolvent, with liabilities (mortgage, credit cards, car loans and other debts) totaling $250,000 and assets totaling $230,000.
The borrower figures income from the foreclosure as follows:
Use the following steps to compute the income to be reported from a foreclosure:
Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section.  You have no income from cancellation of debt.)
1. Enter the total amount of the debt immediately prior to the foreclosure.___$220,000__
2. Enter the fair market value of the property from Form 1099-C, box 7. ___$200,000__
3. Subtract line 2 from line 1.If less than zero, enter zero.___$20,000__
The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C.  This amount is taxable unless you meet one of the exceptions in question 2.  Enter it on line 21, Other Income, of your Form 1040.
Step 2 – Figuring Gain from Foreclosure
4. Enter the fair market value of the property foreclosed.For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure. __$200,000__
5.  Enter your adjusted basis in the property.(Usually your purchase price plus the cost of any major improvements.)                                        ___$170,000__
6. Subtract line 5 from line 4.If less than zero, enter zero.___$30,000__

The amount on line 6 is your gain from the foreclosure of your home.  If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income.  If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.
In this situation, the borrower has a tax-free home-sale gain of $30,000 ($200,000 minus $170,000), because they owned and lived in their home as a principal residence for at least two years. Ordinarily, the borrower would also have taxable debt-forgiveness income of $20,000 ($220,000 minus $200,000). But since the borrower’s liabilities exceed assets by $20,000 ($250,000 minus $230,000) there is no tax on the canceled debt.
Other examples can be found in IRS Publication 544, Sales and Other Dispositions of Assets, under the section “Foreclosures and Repossessions”.

6.  I don’t agree with the information on the Form 1099-C.  What should I do?
Contact the lender.  The lender should issue a corrected form if the information is determined to be incorrect.  Retain all records related to the purchase of your home and all related debt.

7.  I received a notice from the IRS on this. What should I do?
The IRS urges borrowers with questions to call the phone number shown on the notice. The IRS also urges borrowers who wind up owing additional tax and are unable to pay it in full to use the installment agreement form, normally included with the notice, to request a payment agreement with the agency.

Friday, April 03, 2015

When you must report on a Trust Return?

Question: Do I need to file form 1041 for a small estate to indiacte that the estate has income or has terminated?

You would only be required to file a Form 1041 for your estate if the estate had gross income for the tax year of $600 or more or had a beneficiary who is a nonresident alien.

Tuesday, March 17, 2015

800,000 incorrect 1095~A forms issued by US Health Care

On February 23, 2015, the Treasury Department stated that the individuals who had filed their tax returns when they received their incorrect 1095A forms would not be required to file amended returns.

Wednesday, February 18, 2015

Peer review

Just received my firm's letter indicating my VOLUNTARY peer review must occur before July 31, 2016.  Not fun but hopefully enlightening!

Wednesday, February 04, 2015

Obamacare Premium Tax Credit

 Taxpayers Will Use New Information Statement to claim Premium Tax Credit
The Affordable Care Act is bringing several changes to the tax filing season this year, including a new form some taxpayers will receive. If you or anyone in your household enrolled in a health plan through the Health Insurance Marketplace in 2014, you’ll get Form 1095-A, Health Insurance Marketplace Statement.
You will receive Form 1095-A from the Marketplace where you purchased your coverage, not the IRS. This form should arrive in the mail from your Marketplace by early February. You should wait to receive your Form 1095-A before filing your taxes.
Form 1095-A will tell you the dates of coverage, total amount of the monthly premiums for your insurance plan, information you may use to determine the amount of your premium tax credit, and any amounts of advance payments of the premium tax credit.
You will use the information to calculate the amount of your premium tax credit and reconcile advance payments of the premium tax credit made on your behalf to your insurance provider with the premium tax credit you are claiming on your tax return.  To do this, you will use Form 8962, Premium Tax Credit (PTC), which you file with your tax return.
If you do not receive your Form 1095-A by early February, you should contact the state or federal Marketplace from which you received coverage. If you believe any information on your Form 1095-A is incorrect, you should contact the state or federal Marketplace from which you received coverage. The Marketplace may need to send you a corrected Form 1095-A.
You may receive more than one Form 1095-A if different members of your household had different health plans, you updated your coverage information during the year, or you switched plans during the year.
For more information about the Affordable Care Act and your 2014 income tax return, visit

Saturday, January 10, 2015

2015 Tax Planning, it is never to early to start!

While we all still think fondly of the holidays that have just passed, it is time to begin tax planning for the new year!  
It’s often wiser to get started early. That’s especially true wheen looking at contributions to tax-advantaged savings accounts. You should look to fund these as soon as you can, rather than putting them off to the last minute. The sooner you fund your 2015 IRA, your Health Savings Account, or your Section 529 education savings account (like College Savings Iowa), the sooner your funds are earning their returns tax-free.

So if you have cash on hand, here’s a new year’s resolution to keep today — fully fund your tax-advantaged savings accounts. Your limits for 2015:
  • Health Savings Accounts for qualifying taxpayers with single coverage can be funded up to $3,350 for 2015. For taxpayers with family coverage, the limit is $6,650. Read more here.
  • Section 529 plans have more flexible limits. The IRS explains:
Contributions can not exceed the amount necessary to provide for the qualified education expenses of the beneficiary. If you contribute to a 529 plan, however, be aware that there may be gift tax consequences if your contributions, plus any other gifts, to a particular beneficiary exceed $14,000 during the year.
Thanks to Roth & Co., P.C. for pulling these details together.