Monthly Archives: October 2014

Should you be filing FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)?

Pam WilliamsOctober 29, 20140 Comment

by: Brittany Craig

According the to the IRS’ FBAR guidance [1], the foreign currency list of U.S. persons who may be required to report their foreign bank and financial accounts annually to the United States Treasury include, but is not limited to the following who have a financial interest or signature authority in a foreign account or asset:

U.S. citizens
Resident aliens
Trusts
Estates
Certain domestic entities

The Department of the Treasury indicates that if the aggregate value of all foreign account(s) or asset(s) is at least $10,000 in U.S. dollars at any time during the calendar year, then the maximum value of the financial account(s) maintained by a financial institution physically located in a foreign country should be reported.

While the reporting threshold is $10,000, some U.S. persons may choose to report their foreign bank and financial account(s) even if they are below the aforementioned threshold in an effort to instill good faith with the Department of Treasury.

Form 114 must be received by the U.S. Department of Treasury no later than June 30, via FinCEN’s BSA E-Filing System. Note, this report is not filed with a federal tax return and there are no extensions of time. In addition, if the report is not filed on time non-willful penalties may be up to $10,000 and willful penalties may be up to the greater of $100,000 or 50% of account balances. Criminal penalties may apply, too.

Our tax department is incredibly knowledgeable about miscellaneous forms and other tax issues. Please feel free to contact our office for more information.

Brittany ([email protected]) is a tax senior at Langdon & Company LLP. She has experience in tax planning for a variety of clients including corporate and pass-through to individuals.

[1] http://www.irs.gov/pub/irs-utl/IRS_FBAR_Reference_Guide.pdf

The Scoop on Educational Tax Credits

Pam WilliamsOctober 15, 20140 Comment

by Taylor Elliott

books There are several educational tax credits and deductions available, but how and when do they apply? The IRS recently published the article “IRS Summertime Tax Tip 2014-23” to help taxpayers understand the tax benefits that are available when educational expenses have been incurred during the year. The following excerpt from that article outlines some key factors:

American Opportunity Tax Credit. The AOTC can be up to $2,500 annually for an eligible student. This credit applies for the first four years of higher education. Forty percent of the AOTC is refundable. That means that you may be able to get up to $1,000 of the credit as a refund, even if you don’t owe any taxes.
Lifetime Learning Credit. With the LLC, you may be able to claim a tax credit of up to $2,000 on your federal tax return. There is no limit on the number of years you can claim this credit for an eligible student.
One credit per student. You can claim only one type of education credit per student on your federal tax return each year. If more than one student qualifies for a credit in the same year, you can claim a different credit for each student. For example, you can claim the AOTC for one student and claim the LLC for the other student.
Qualified expenses. You may include qualified expenses to figure your credit. This may include amounts you pay for tuition, fees and other related expenses for an eligible student. Refer to IRS.gov for more about the additional rules that apply to each credit.
Eligible educational institutions. Eligible schools are those that offer education beyond high school. This includes most colleges and universities. Vocational schools or other postsecondary schools may also qualify.
Form 1098-T. In most cases, you should receive Form 1098-T, Tuition Statement, from your school. This form reports your qualified expenses to the IRS and to you. You may notice that the amount shown on the form is different than the amount you actually paid. That’s because some of your related costs may not appear on Form 1098-T. For example, the cost of your textbooks may not appear on the form, but you still may be able to claim your textbook costs as part of the credit. Remember, you can only claim an education credit for the qualified expenses that you paid in that same tax year.

The article also points out that income limitations as well as residence status must be considered. If you, a family member, or dependent has recently started college or gone back to school, please contact our office so that our dedicated tax professionals can help you navigate your particular facts and circumstances to determine what educational benefits are best for you.

Taylor Elliott is a tax manager with Langdon & Company LLP. She specializes in tax compliance and planning.

Tax Exempt Status Does Not Imply Freedom from All Taxes and Related Filing Requirements

Pam WilliamsOctober 10, 20140 Comment

by Tony Pandiscia,

As a CPA firm, we often encounter new or existing organizations inquiring about becoming tax exempt under a misconception that “tax exempt status” provides a broad immunity from all taxes and tax return filings. As a refresher, Tax Exempt Organizations (or “TEOs”) attain a legal existence under the province of state law (such as North Carolina’s “Nonprofit Incorporation Statutes”) before applying for “tax exempt status” with our Federal Government. Once the Internal Revenue Service grants a TEO Federal exempt status, a key benefit is the exclusion from income tax on all program service related revenue (i.e. revenues generated from activities directly related to a TEO’s exempt purpose). However the following represent other tax-related filings and liabilities that nevertheless apply to TEO:

INCOME TAX FILINGS AND UNRELATED INCOME. Although enjoying an exemption from income tax liability on “program service revenue”, to preserve its tax exempt status a TEO must annually file Form 990, Return of Organization Exempt from Income Tax and disclose all relevant financial information and exempt function policies and procedures. In addition, whenever income is generated via activities that are not related to an organization’s stated exempt purpose, “Unrelated Business Income Tax” (or “UBIT”) is earned. A UBIT tax return must be filed with both the Internal Revenue Service and North Carolina Department of Revenue and corresponding UBIT tax payments remitted.

SALES TAXES. Apart from the income tax reporting requirements, TEOs are put on a nearly level playing field with all businesses and consumers with respect to North Carolina Sales & Use Tax. North Carolina’s “Sales & Use Tax” is an ad valorem tax typically levied at the point of purchase, although a TEO may later recoup (via filing of a refund claim form) any taxes paid for purchases used directly in furtherance of its exempt purpose.

Beginning in 2015, TEOs who charge admission to attend a live function will be subject to Sales & Use Tax on the admission charge levied on attendees. Only TEOs that rely entirely on volunteer workforce and do not compensate any of the performers in the entertainment event will qualify for exemption. In addition, TEOs should properly designate those amounts that do not strictly represent a charge for admission (including membership fees, specific charitable donations, and payment for amenities such as parking or merchandise discounts) as they may excluded from the sales tax base.

SOLICTATION LICENSES. All TEOs that solicit contributions in North Carolina must register with the Secretary of State and obtain a “Charitable Solicitation License” [“CSL”]. Once obtained, the organization must annually renew the CSL with the filing of a renewal form, payment of a fee, and submission of financial data. A very narrow exemption from the licensing requirements applies for TEOs that solicit less than $25,000 of contributions per year and which are run entirely by volunteer labor. Upon request, the Secretary of State does permit affiliate organizations to request a “consolidated” license that covers all organizations in the group.

In summary, as a sound tax policy designed to incentivize organizations to engage in charitable activities, tax exempt status grants to a TEO a valuable freedom from income tax on program service revenue. However organizations must remember that the exemption from income tax is not a blanket exemption from all manner of taxes and filing requirements. Tax Exempt Organizations must plan accordingly to meet the filing and tax payment obligations, and avoid subjecting themselves to excessive penalties and exemption jeopardy.

Tony lead’s our tax department as an attorney and Certified Public Accountant with over twenty years of experience. Tony consults regularly with exempt organizations on matters related to recognition and preservation of tax status, unrelated business income tax, executive compensation, and internal policy matters. His expertise includes additional industries such as healthcare, real estate, research & development, manufacturing, and professional services. Tony is a frequent seminar instructor for the North Carolina Association of CPAs, for local trade groups and is regularly called upon by litigation counsel to provide expert witness testimony.

Please feel free to contact our office for more information. Tony and our highly qualified tax department are available to answer your tax questions and provide any assistance you may need.

Adult Care Update

Pam WilliamsOctober 9, 20140 Comment

With the recent announcement about the required Adult Care Home Cost Reports, we have been patiently waiting for more information. NC DHHS has published the software for these reports along with instructions. They have chosen to use the same software interface as in prior years – Microsoft Access. For providers with 21 beds or more, a cost report audit IS required, but details are pending. For those with a bed capacity from 7-20, this is NOT an audit year for this size home. For any home with 6 beds or less, there is NO cost report required this year.

Langdon & Company LLP has incredible breadth of experience with health care providers and the associated State requirements. Please contact our office if you have any questions or if we can help your Organization in any way.

Affordable Care Act: Additional Taxes – Effective 2013

Pam WilliamsOctober 6, 20140 Comment

by Lee Bowman

In addition to the healthcare mandates that become effective in 2013, there are two new taxes within the Act that begin in 2013 to help offset the costs of the healthcare act. They are the 3.8% Net Investment Income Tax and the .9% Medicare Tax on wages and self-employment income.

Net Investment Income Tax: The 3.8% net investment income tax will only affect taxpayers when their modified adjusted gross income (AGI) exceeds $250,000 for married filing jointly taxpayers and surviving spouses; $200,000 for single taxpayers and head of household filers, and $125,000 for married taxpayers filing separately. If you claim the foreign earned income exclusion, the excluded amount will be added back to your AGI to arrive at your modified adjusted gross income.

Net investment income includes interest, dividends, royalties, annuities, rents and net gains from property sales. Wages and net income from an active trade or business are not included in net investment income. Tax-exempt bond interest is excluded from the 3.8% net investment income tax. If your modified AGI exceeds the above amounts, you will be subject to the 3.8% tax which will be applied to the lesser of 1) your net investment income for the year or 2) the excess of your modified AGI for the tax year over your threshold amount. This tax will be in addition to the income tax that applies to that same income.

When selling your primary residence, you may be able to exclude up to $250,000 of net gain or up to $500,000 for MFJ taxpayers. This excluded gain will not be taxed. Gain in excess of those exclusions may be taxed. Distributions from Roth IRAs are excluded, however distributions from regular IRAs will be included in your modified AGI but is not subject to the 3.8% net investment tax, ut could cause other income to be subject to the 3.8% tax. When making estimated income tax payments, taxpayers must include the 3.8% net investment income tax in their estimated payments in order to avoid a penalty.

Please note that the modified AGI amounts listed above will NOT be adjusted for inflation.

0.9% Tax on Wage and Self-employment Income: The 0.9% additional Medicare Tax applies only to employees and self-employed individuals, not employers. The tax applies to wages in excess of $250,000 for MFJ taxpayers; $125,000 for MFS, and $200,000 for all other filers.

Once an employee’s wages exceed $200,000, employers must withhold the additional 0.9% tax from their wages. This may not be enough if the employee has another job, or if his spouse has wage or self-employment income. The taxpayer may file a new Form W-4 with his employer to have additional taxes withheld.

Self-employed taxpayers will pay the additional 0.9% tax on their self-employment income using the same wage brackets listed above. The 0.9% tax is in addition to the 2.9% Medicare tax on self-employment income; however, the taxpayer will not be allowed to deduct 50% of this additional Medicare tax on the front page of their return.

Because these new taxes are not inflation adjusted, more taxpayers will pay these taxes in the future. The current Federal tax schedules can be found here. 2013 NC Income tax rate is 5.7% on all NC taxable income.

Langdon & Company LLP is full of knowledgeable tax staff that would be happy to assist you with your tax needs. Please contact our office to get more information.

Lee Bowman ([email protected]) is a Manager in our Accounting Services practice at Langdon & Company LLP. She has over 25 years of experience in taxation and also specializes in multi-dimensional corporate accounting across various states.