Monthly Archives: September 2014

Simplified Option for Home Office Deduction

Pam WilliamsSeptember 30, 20140 Comment

by Kendall Tyson

Many individuals who have a home office will be happy to know that taxpayers may use a simplified option when figuring their home office deduction. Under the regular method, taxpayers must track their actual expenses, including mortgage interest, real estate taxes, insurance, utilities, repairs and depreciation. The taxpayer is then allowed a percentage of those deductions based on percentage of the taxpayer’s home devoted to business use. home office2

However, under the simplified option, the taxpayer’s deduction is $5 per square foot of home used for business, with a maximum of 300 square feet. Mortgage interest and real estate taxes are then claimed in full on Schedule A. There is no deduction for depreciation expense, but there is also no recapture of depreciation upon the sale of the home.

The taxpayer’s record keeping is greatly reduced under the simplified option, but the criteria for who may claim the home office deduction has not changed. The two basic requirements for your home to qualify as a deduction still include:

Regular and Exclusive Use – You must regularly use part of your home exclusively for conducting business.
Principal Place of Your Business – You must use your home as your principal place of business. If you use both your home office and another location outside of your home, but your home office is substantially and regularly used to conduct business, you may still qualify for the deduction.

The IRS began allowing the simplified option in tax year 2013 (returns filed in 2014). A taxpayer may use the simplified option for one year and then use the regular option the next year, but once a taxpayer has chosen a method for a taxable year, the taxpayer cannot later change to the other method for that same year.

Langdon & Company LLP has helped several clients determine which home office deduction method is most tax advantageous for them. For questions about which method would be best for you, please contact our office.

Kendall ([email protected]) is a Tax Manager at Langdon & Company LLP. She specializes in physician/dentist practices, multi-state and nonprofit returns.

The Fine Line: Debt vs. Equity

Pam WilliamsSeptember 22, 20140 Comment

by Bennett Strickland

Distinguishing between debt and equity has long been debated in the accounting world and is one of the most complex issues in practice today. Take an instrument like mandatorily redeemable preferred stock for example. Is it classified as a liability or as equity? This clearly affects reported amounts of liabilities and equity, and also things such as the debt-to-equity ratio and the asset-to-equity ratio.

debt equity The line between liabilities and equity is also critical in measuring income. So companies began to take advantage of manipulating their debt and equity and therefore manipulating their net income. Neither changes in the values of a company’s outstanding equity instruments or transactions between a company and its owners, affect reported income. Whereas, interest payments and at least some changes in the values of liabilities actually do affect reported income.

A lot of companies will try and classify their equity as debt and some may get away with it. However, the consequences can be substantial if the IRS deems that the company needs to reclassify. In Laidlow Transportation Inc. v. commissioner (TC Memo 1998-332), the taxpayer’s tax liability was increased by more than $55 million after the IRS made the company reclassify their debt as equity. So when companies are walking the fine line of debt versus equity they must ask themselves, is it worth it?

The staff at Langdon & Company LLP are all too familiar with such an issue and would be happy to help your company decide which classification is proper. Please contact our office for more information.

Bennett ([email protected]) is an auditor at Langdon & Company LLP. He primarily focuses on healthcare and nonprofit organizations.

Accounting Changes for Goodwill

Pam WilliamsSeptember 12, 20140 Comment

by Dwayne Murphy

The Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2014-02 is giving private companies another option when it comes to accounting for goodwill. Effective for new goodwill recognized in annual periods beginning after December 31, 2014 (early adoption is permitted). Private companies will be able to subsequently amortize goodwill on a straight-line basis over a period of ten years, or less if the company is able to demonstrate that a lower useful life is better suited. Before this update U.S. GAAP did not allow any amortization of goodwill.

FASB Accounting Standards Update (ASU) 2014-02 also permits private companies to use a simplified impairment model, which allows them to test for impairment only when a triggering event occurs that would indicate that the fair value of a company (or a reporting unit) may have fallen below its carrying amount. If the accounting alternative election is made, an additional election of whether to test goodwill for impairment at either the company level or the reporting unit level must be made. Before this update U.S. GAAP required that testing of impairment be done at least annually and in some cases more frequently if certain conditions were met.

These changes should be beneficial to private companies as it allows for amortization expense and it lessens the burden of not having to test for impairment every year.

For public companies and not-for-profit companies the FASB is still considering the following alternatives for goodwill accounting at their last meeting on March 26, 2014:

Same alternative as listed above for private companies.
Amortize goodwill with impairment tests over its useful life, not to exceed a maximum number of years.
The direct write-off of goodwill at the acquisition date.
A nonamortization approach that uses a simplified impairment test.

Dwayne Murphy ([email protected]) is a Senior Accountant with Langdon & Company LLP. He specializes in audit, serving a wide variety of nonprofit organizations.

Adult Care Provider News

Pam WilliamsSeptember 9, 20140 Comment

dhhs North Carolina General Assembly passed Senate Bill 744, section 12H.11 mandating the submission of Adult Care Cost Report under General Statute 131D-4.2. The deadline is December 31, 2014. Providers that do not receive State/County Special Assistance or Medicaid personal care are exempt from the reporting requirements of this section. However, these providers must file the Exemption Form, also due December 31. According to the Controller’s website the information for the 2013-2014 Cost Report, Instructions, and 2013-2014 Chart of Accounts are all “Coming Soon.”

Langdon & Company LLP will continue to stay current on the latest developments as well. Please call our office if we can provide any assistance in the submission process!

Nonprofit Organizations – Sales and Use tax refund Q&A

Pam WilliamsSeptember 3, 20140 Comment

by Meagan Bulloch sales tax

Q: Do nonprofit organizations have to pay sales or use tax on items they purchase?

A: Yes. NC does not exempt nonprofit organizations from paying sales or use tax on items they purchase for use.

Q: Are all nonprofit organizations eligible for refunds of the sales and use taxes paid?

A: No. The following entities may file for semiannual refunds of the sales and use taxes paid on purchases of tangible personal property for use in carrying on their nonprofit work:

Hospitals not operated for profit
Educational institutions not operated for profit
Churches, Orphanages, and Other charitable or religious institutions and organizations not operated for profit

Q: What information does the Department of Revenue need to determine whether an organization qualifies for sales and use tax refunds?

A: A nonprofit organization must furnish the Department of Revenue with a copy of the documents used to create the organization (Articles of Incorporation, Articles of Amendment and Bylaws).

Q: An organization has a Section 501(c)(3) Federal exempt status. Does the organization automatically qualify to receive sales and use tax refunds?

A: No. The Department must review the documents used to create the nonprofit organization to determine whether it qualifies for refunds of sales and use taxes paid.

Q: How does an organization file a claim for refund?

A: The organization should complete Form E-585, Nonprofit and Governmental Entity Claim for Refund State and County Sales and Use Taxes.

Q: How often do I file the Form E-585?

A: Claims for refund are filed semiannually. The claim for refund of sales and use taxes paid during the period January 1 through June 30 is due to be filed by October 15^th of the same year. The claim for refund for the period July 1 through December 31 is due to be filed by April 15^th of the following year.

Q: What is the organization’s claim for refund is filed late?

A: Claims can be filed up to three years after the due date. Any filed later than three years will be denied.

Q: Should the receipts or invoices be mailed with the organization’s claim for refund?

A: No. Receipts and invoices should be kept by the organization for a period of three years beyond the date the refund claim id due to be filed or three years beyond the date the claim is filed, whichever is later.

This article is an excerpt from a bulletin from the Department of Revenue for North Carolina called “State Taxation and Nonprofit Organizations” For more information, please visit, here, or call our office for additional details.

Meagan Bulloch ([email protected]) is an audit manager at Langdon & Company LLP. She is focused primarily on non-profit clients.