Monthly Archives: March 2016

What You Need to Know about Health Savings Accounts in 2016

121671842 (2) (1)There is very little that is certain in life, but one thing you can count on is tax changes when a new year begins. That’s true for Health Savings Accounts, (HSA), as well. The IRS put out new guidelines for 2016 that you’ll need to know as they will affect how you may want to proceed with HSA going forward.

For those employees that are enrolled in high-deductible health plans, Health Savings Accounts can be very enticing. HSA provide a way to set aside untaxed contributions that can be applied to cover medical expenses while, at the same time, reducing their tax liabilities to the IRS.

Another popular aspect of the HSA program is that unused funds can be rolled over year after year. This differs from Flexible Spending Accounts, (FSA), as FSA have a use it or lose it policy. Meaning if you don’t use all of the money contributed in the fiscal year, you will lose it. In addition, those that take advantage of Health Savings Accounts can earn interest on the unused contributions. This, in turn, actually reduces the cost of health care in the future.

With all the advantages in mind, there have been some changes for 2016. For individuals, the out-of-pocket limits may not exceed $6,550 which is a $100 increase from 2015, and for families the annual out-of-pocket limits has increased $200 to not exceed $13,100. In addition for families, the annual contribution limits increased $100 to $6,750.

While these amounts may not be earth shattering, they will have an affect on your Health Savings Account and should be taken inconsideration when making health care decisions in 2016.

Why Foreign Bank Account Violations are Ultra Expensive

realestate (1)If you have a foreign bank account that has not been reported to the IRS, then you could be facing serious civil penalties and even criminal penalties. These penalties fall under the Foreign Bank Account Report, (FBAR) violations.

First, it is important to determine if you are required to report your foreign bank account.
It comes down to being able to say yes to the following four questions:

  • You are now a US citizen or permanent resident or have been in the last six years.
  • You have had a foreign bank account for a year or longer since 2008.
  • Your balances in all of your foreign accounts exceed $10K
  • You have not reported the account through the FBAR paperwork to the IRS.

The civil penalties for not filing the FBAR will be the greater of 50% of your bank account or $100K. The IRS has also indicated that it is willing to charge these penalties cumulatively for up to four or even six years.

This means that you can be charged these penalties for each year you have had the foreign bank account and not reported it to the IRS regardless of the fact that the penalties may well out pace the actual dollar amount in your account.

In addition to expensive civil penalties, you can also face criminal penalties. If the IRS determines that you willfully knew that you should have filed a FBAR and didn’t, they can charge you under FBAR violation laws as well as normal criminal tax prosecution laws.

A criminal prosecution typically occurs when a person has a large amount of taxable income in their foreign bank account that has not been claimed on their tax return.

A tax accountant or tax attorney can walk you through your options if you find yourself in this situation, as the IRS does offer voluntary disclosure programs, but even with taking advantage of one of these programs, you will still suffer the sting of IRS penalties.

Are You Claiming All of Your Tax-Deductible Business Expenses for 2015?

Haven’t completed your 2015 taxes yet? You’re cutting it close. Don’t short-change yourself on business expenses, though.

If you’ve been in business for several years, you have a pretty good idea of what expenses can be claimed on your income taxes. But even if you think you know or you’re filing a business return for the first time, you may be missing out on some legitimate deductions.

The IRS says that business expenses must be both ordinary (commonly used in your business) and necessary (“helpful and appropriate”). Some of the allowable business expenses are obvious, like office rent, advertising, and travel. But there are others that you may not know about. And even the obvious ones come with rules and exceptions.

Figure 1: If you use accounting software, you may have seen a listing similar to this in your Chart of Accounts.

Cost of Goods Sold. Whether you make products yourself or buy and resell them, the IRS requires that you make this calculation; it tells you what costs were involved in producing the items you sold. You’ll be able to deduct at least some of these costs (there’s an entire section on the Schedule C about this).

Warning: If you include an expense in the COGS, it can’t be deducted again as a business expense elsewhere in your return.

Depending on your business, you may have expenses related to, for example:

  • Factory overhead
  • Storage, and,
  • Raw materials used in the manufacture of your products.

Note: “Cost of Goods Sold” is a complex concept. If you sold products for the first time in 2015, you should have valued your inventory at the beginning and end of the year.

Let us help you sort this out.

Insurance. Policies that are directly related to your business, trade, or profession can usually be deducted.

Taxes. Some federal, state, and local taxes may have a direct tie-in to your business and might be deductible.

Business Use of Home (the “home office deduction”). If you use a room or space in your house for your business, you may be able to deduct expenses like utilities, mortgage interest, and insurance on your Schedule C (again, these expenses can’t be reported elsewhere). The IRS created a simplified method of reporting this deduction a few years ago, but it’s still complicated. In fact, there’s an entire IRS publication devoted to it. We can work with you on assembling the necessary information and reporting it.

Personal and business expenses. It goes without saying that you can’t claim personal expenses as business deductions. But what if you purchase something that’s used for both? The IRS says that you’ll need to determine what percentage of the expenditure went to personal use (not deductible) and to business (deductible). Again, a bit of a complex issue. We can advise you on this.

Employee compensation. Yes, these expenses may be deductible – if they are, says the IRS, “reasonable…and for services performed.” There are numerous factors involved in making this determination.

Capital vs. deductible expenses. This is an area where you really have to understand the IRS’s official distinction between these two types of expenses. Take motor vehicles, for example. If you buy a car to use in your business, you’ll usually report that as a capital expense and claim annual deductions for depreciation.

But there are dollar limits on how much depreciation you can claim every year if you buy a passenger car and use it for business purposes. Do you know what those are? And do you know whether repairs to that vehicle are deductible? What about reconditioning and overhauling it?

How do you report those expenses?

Figure 2: Business expenses look so simple as they’re listed on the Schedule C. But the IRS has many rules about precisely what can be claimed.

If you just look at what’s printed on the Schedule C, you might think it’s not that difficult to determine which of your business expenses can be legitimately claimed is that difficult. But it is.

Business deductions are subject to many rules – rules that sometimes come with their own exceptions.

Your business expenses may be simple and few, requiring little study of IRS instructions on your part. But the slightest bit of complexity can lead to an inaccurate return. We’re very familiar with IRS regulations where business expenses are concerned, and we’d be happy to help you be absolutely compliant.