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2017 Tax Season Update/Reminders

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by Tony Pandiscia

Updates to Important 2016 Income Tax Return Filing Deadlines:

  • Individuals                  Tuesday, April 18, 2017
  • C Corporations           Tuesday, April 18, 2017
  • Trust/Estates              Tuesday, April 18, 2017
  • Partnerships       Wednesday, March 15, 2017
  • S-Corporations   Wednesday, March 15, 2017

HIGHLIGHTS OF FEDERAL TAX CHANGES

  • The Standard Deduction amount for Married Filing Joint couples has increased by $100 for 2017 to $12,700; all other filing status standard deductions have increased by $50.
  • The maximum annual “profit sharing” contribution limit for certain retirement plans has increased to $54,000 for 2017.
  • The annual compensation limit for certain retirement plans has increased to $270,000 for 2017.
  • The Social Security maximum earnings base for application of FICA tax has increased to $127,200 for 2017.
  • The thresholds for each of the Individual Income Tax Brackets for 2017 have been increased slightly due to annual Cost of Living Adjustments.
  • The gross income levels for which a 2017 income tax return is required have been increased to $ $20,800 (Married Filing Joint filers) and $10,400 (Single filers).
  • Effective January 1, 2017, Business-related travel expense “standard mileage rate” has been revised to 53.5 cent per mile for business miles driven. The “standard mileage rates” for medical or moving expense purposes is now 17 cents per mile, but the rate for charitable activities remains unchanged at 14 cents per mile.
  • Tax Exempt Organizations can now receive an automatic six-month extension of time to file using Form 8868 prior to the initial due date for their 2016 tax returns.

HIGHLIGHTS OF NORTH CAROLINA TAX CHANGES

  • The standard deduction has been increased by $1,000 for married individuals who file jointly (or as “head of household”) and $500 for all other individuals.
  • Effective January 1, 2017, many service businesses will now be subject to Sales & Use Tax collection and reporting when providing “repair, maintenance, or installation” services that are not “Capital Improvements.” In addition, a new exemption form has been issued for service businesses to qualify for a “Capital Improvement” exemption.

HELPFUL REMINDERS

  • Charitable Contribution:
    • Tax deductible contributions can be made in the form of cash or noncash but not “service” to a qualified 501(c)(3) organization. Out-of-pocket costs and travel expenses incurred may be subject to deduction.
  • Any single donation larger than $250 to a “qualified organization” requires acknowledgement (or receipt). For noncash donations, fair market value assessment is the responsibility of the donor and if over $5,000, a certified appraisal is required.
  • Reporting of Foreign Bank and Financial Accounts (FBAR):
    • If you have a financial interest in or signature authority over a foreign financial account with overall value exceeding $10,000 at any time during the calendar year, you are required to file an FBAR. (As a protective measure, many of our clients file this report regardless of the threshold in order to run the statute of limitations for audit.)
    • The annual due date for filing has been revised to April 18, 2017. All taxpayers will be granted an automatic six-month extension to October 15.

This is a summary of 2017 tax changes.  If you have any questions regarding the details of the changes and how they may affect your specific situation, please feel free to contact us to discuss.

Tony ([email protected]) is the Tax Partner with Langdon & Company LLP.  He is a CPA and also an attorney, advocating for clients on many levels-including with the State and the IRS.

IRS REVISES FORM 990 EXTENSION PROCEDURES FOR TAX EXEMPT ORGANIZATIONS

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by Tony Pandiscia

In guidance released in January, 2017, the Internal Revenue Service [“IRS”] announced a new extension procedure for organizations required to file Form 990, “Return of Organization Exempt from Income Tax”.  Tax Exempt Organizations seeking an extension will now file a “single” Form 8868 to request an automatic 6 month maximum extension of time to file the annual tax return.  Previously Tax Exempt Organizations intending to avail themselves of the full statutory extension period would be required to file 2 consecutive 3 month extensions, provide a valid reason for the extension request and sign the extension “under penalty of perjury”.  The new Form 8868 filing procedure will also apply to filers of other annual returns such as Form 990EZ [“Short Form Return of Organization Exempt from Income Tax”], Form 990PF [“Return of Private Foundation”], and Form 5227 [“Split Interest Trust Information Return” used by Charitable Trusts].  Note that Form 990-T [“Exempt Organization Business Income Tax Return”] that is required for Tax Exempt Organizations who generate Unrelated Business Income Tax [“UBIT”] has always been subject to a 6 month extension and will continue to do so under the new Form 8868 process.

The new extension form will apply commencing with the filing of “2016 tax returns” during calendar year 2017 [i.e. fiscal years with a “beginning date” in 2016] and must be filed prior to the due date for filing of the respective tax return.  As a reminder, a Form 990 is initially due 4 ½ months following the organization’s fiscal year end.  For “control or affiliate groups,” a separate extension form must be filed for each respective organization or affiliate that has an annual filing requirement.  Payments required (i.e. such as for “UBIT”) should accompany the extension form.  The Form 8868 may at the discretion of the filer be submitted via regular mail to the Ogden, UT IRS Service Center or electronically filed using any approved “EFILE” processing system.  Finally, note that this revised extension procedure applies to annual Federal Form 990 (and similar) filings for a Tax Exempt Organization and does not directly affect any State-mandated annual filing requirements.

We will be discussing with our respective clients the new extension procedures during the next few months, however anyone may contact Langdon & Company LLP should you have any questions.

Tony ([email protected]) is the Tax Partner with Langdon & Company LLP.  He is a CPA and also an attorney, advocating for clients on many levels-including with the State and the IRS.

Nonprofits: Choosing or Changing the Fiscal Year-End

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by Lee Byrd

What is a fiscal year? A fiscal year is the period used for calculating annual (“yearly”) financial statements in businesses and other organizations. Many nonprofits have a fiscal year-end of June 30th. However, this is not a requirement and the organization’s fiscal year can end whenever the nonprofit should chose, as long as the end date is specified in the organizational documents.

So how should a nonprofit chose the best fiscal year-end for the organization? Some things to consider include:

  • Program year – the organization’s fiscal year should coincide with its program year so that one year’s program activities should not fall into two fiscal years. For example, if the majority of the nonprofit’s programs fall during the summer months, June 30th is most likely not the best option for that nonprofit’s fiscal year-end.
  • Grant cycles – Some organizations may find it helpful to align their fiscal year-end with the terms of the organization’s major grants and/or funders. This enables the organization to develop a clean cut-off for grant reporting and simplifies the grants process.
  • Audit evidence – Nonprofits who require an audit generally need time subsequent to year-end to close out the books and gather audit evidence in preparation for the audit. Having a year-end that falls during the organization’s busiest time of year may impact the availability and timeliness of sufficient audit evidence.
  • Debt covenants – For organizations with significant debt covenants, the cyclical nature of the organization’s operations and the impact on the calculation of those covenants should be considered when choosing a year-end.

Once the above factors have been considered and a year-end has been chosen, many nonprofits question the audit and reporting impact of a fiscal year-end change. A year-end change will affect how the nonprofit presents its audited financial statements in the year of change and in the subsequent fiscal year. An organization can chose to extend the period under audit in the year of change or undergo an audit for the short period, plus the original fiscal year. For this reason, it is often common for single year financial statements to be presented rather than comparative statements in the year of change. The need for a comparative financial statement presentation and the costs of an extended or additional audit period should be considered in the year of change.

Lastly, in order to change the organization’s year-end with the IRS, Form 1128 “Application to Adopt, Change, or Retain a Tax Year” will need to be filed along with Form 990 for the short period to bridge the gap between the original year-end and the new year-end. A copy of the nonprofit’s tax exempt ruling letter from the IRS will need to be submitted with along with Form 1128. If an extension is needed for the short-period Form 990, the extension must be filed prior to the initial due date of the new fiscal year. Additionally, the nonprofit will want to review and amend any organizational documents (such as bylaws) that refer to the fiscal year-end.

If you are considering a change to your nonprofit’s year-end, contact Landon & Company LLP for further guidance on your specific situation.

Lee ([email protected]) is an Audit Manager with Langdon & Company LLP.  She works with many healthcare nonprofit organizations.

Gift Tax Exemptions and Avoidance Strategies

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by Eric Murphy

Under current IRS regulations, when a donor makes a gift in excess of $14,000, they must file Form 709 to report the gift and pay tax on the excess above $14,000.  This exemption is applicable to each donee the donor makes a gift to in 2016, so they can make one gift for $11,000 to one person and another gift of $12,000 to a different person and they won’t be subject to the tax liability or filing requirement.  Under IRC Sec. 2513, this threshold is increased for married couples to $28,000 per donee, with the donor and spouse having the option of making “Split Gifts”, which essentially result in each of them making half of a gift to a particular donee.  An example of this is a donor giving his friend $26,000 in cash to buy a car.  Under the rule of “Split Gifts”, the donor and his spouse each made a gift of $13,000 to the taxpayer’s friend, therefore neither exceeds the exemption threshold.  However, a gift tax return would need to be filed indicating the gift split option was utilized, even though no tax would be due.

There are also some othgift moneyer ways a donor can make gifts in excess of the exemption without being subject to the filing requirement and liability on the excess, under IRS Publication 950.  Some of these include:

  • Paying the medical expenses for anyone, as long as the payments are made directly to a third party medical institution or physician. The gift can’t be given to the donee directly or else it’s subject to the exemption limit.
  • Paying the tuition expenses for anyone, as long as the payments are made directly to a third party educational institution. Similar to a gift for a donees’ medical expenses, the gift can’t be given to the donee directly or else it’s subject to the exemption limit.
  • Donors can make unlimited gifts to their spouses.
  • Donors can make gifts to qualified Political Organizations for their objectives. However, these gifts don’t qualify for a charitable contribution deduction on their personal Tax Return.  Gifts to qualified charitable organizations formed under IRC 501(c)(3) are allowed as deductible contributions on the donor’s return and are exempt from the limitation.

The preceding information is a summary of some basics of gift taxation.  If you are in the process of estate planning or want to help out someone in need, please contact Langdon & Company, LLP.  Our tax professionals can discuss your goals with you and develop a strategy that insures that you’ll have more to give to those you care for.

Eric ([email protected]) is a Tax Senior with Langdon & Company LLP.  He works primarily on medical practices, real estate holding companies, and multi-state corporations.

NC Adult Care Cost Report Update

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by Rachel Owens

Nursing-home

We have an official update from the NC Office of the Controller!

They have announced that NO Adult Care Cost Report will be due in 2016 after the General Assembly passed House Bill 1030, which changed the General Statute 131D-4.2 stating the ACH Cost Reporting requirements.  These reporting requirements changed to every OTHER year instead.

Therefore, the next cost report required will be for 2017.  The deadline has not been set, nor the year end for that cost report.  We will continue to be in communication with our contacts at the state to get information as it comes in, and pass it along to you.

Click here to see the official announcement.  If you have additional questions about cost reports or other ways Langdon & Company LLP can help your Organization, contact us!

Rachel ([email protected]) is an Senior Accountant who works primarily with healthcare clients, providing all their Medicare and Medicaid reimbursement reporting needs.

It is time for your CFO or Controller to become a Coach?

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by Dwayne Murphy

According to the book The Traits of Today’s CFO: A Handbook for excelling in an evolving Role, by Ron Rael, CPA, CGMA, coaching is a mix of technical and people skills combined in a unique fashion that produces great results, which helps the organization achieve its goals.dwaynes pic

Coaches try to foster personal relationships with each employee so that they can tell the truth when things are going well or going poorly. They are not managers or micromanagers because they are using knowledge and insight to help employees come into their own wisdom and trusting their employees and letting them successfully stumble so they quickly learn to succeed.

Coaching is not limited to employees; you can coach a boss or a colleague. The process of coaching is consistent and once it is mastered you will find many ways to use it to help others.  Coaching at the organization level requires the CFO or controller to be the conscience of the organization. You must be seen as the professional leader who does not have any biases or an agenda other than the organization’s success. Here are nine skills of a great organization coach:

  1. Teaching and Training: Leadership positions in finance are now being required to constantly train individuals. That is why a coach should be able to constantly teach others about finance, accounting and business management.
  2. Counseling: Coaches should be able to help guide other leaders and colleagues through difficult situations and tough decisions.
  3. Guiding: Coaches should step in to help shape other leaders’ behaviors and decisions so that they stay focused on solutions and plans that benefit the organization.
  4. Relating: Coaches should use analogies, examples and stories to help get your point across and speak at the same level as the person being coached to help foster trusting relationships.
  5. Learning: Coaches should be open to learning from other leadership team members as this will ensure future success at the organization.
  6. Questioning: Don’t be afraid to ask open-ended and probing questions. These often lead to new possibilities and help the organization reach its goals.
  7. Listening: Often managers will have hidden agendas or often deny anything is wrong, but by listening with your ears, eyes and intuition you will be able to bring forth those hidden things so they can be openly discussed.
  8. Using intuition: Coaches should be aware of what to say and what not to say by using your business intuition.
  9. Creativity: Coaches should be open minded to new tools, methods, or processes that the organization can use to remove obstacles and achieve goals.

Coaching can seem daunting but with the right attitude and plan it can benefit both the coach and the whole organization. The business world is challenging and always changing and coaching can help the organization stay on target and succeed.

Dwayne ([email protected]) is an Audit Senior in our firm.  He works with many non-profit clients as well as those in healthcare.

 

 

New Overtime Rule – What you need to know

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by Meagan Bulloch

On May 18, 2016, the US Department of Labor (DOL) published the Final Rule on overtime, which amended the Fair Labor Standards Act (FLSA).  This change is expected to affect approximately 4 million workers across the United States.

Beginning December 1, 2016, the salary threshold for non-exempt workers increases from $455/weekly ($23,660 annually) to $913/weekly ($47,476 annually).  Under this new rule, any worker regardless of their role or title who earns less than that amount will have to track their hours and will be entitled to overtime pay which equates to time and a half for any hours over 40 in a week.

How does this compare to the old rule?  Check out this comparison table.

What are my Options?

  1. Raise salaries for non-exempt “white collar” employees above the $47,476 threshold so that they will be exempt from overtime
  2. Limit the hours worked by these employees to 40 or fewer per week
  3. Hire additional workers to perform the extra hours
  4. Pay non-exempt employees overtime for any hours worked beyond 40 per week

What else should I consider?

  • Determine whether your organization is entitled to minimum wage and overtime pay protections on an enterprise or individual basis.
  • Review personnel records, job descriptions and worker classifications to make sure their actual job duties (not titles) are used to determine exempt or non-exempt status.
  • Review employee workload to evaluate current staff capacity considering weekend or seasonal workload fluctuations.
  • Review terms of any grant agreements or contracts and identify staffing needs. Keeping in mind that the organization may be contractually obligated to maintain services at a predetermined level.
  • Consider “what if” scenarios and estimate budget and cash flow impacts.
  • Revisit organizational policies and procedures including timekeeping, compensation and overtime to make sure they are in line with the new rule requirements.

Is anyone excluded?

The DOL has a non-enforcement policy for providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities with 15 or fewer beds.  From December 1, 2016 through March 17, 2019, the DOL will not enforce the updated salary threshold of $913 per week for the subset of employers covered by this non-enforcement policy.

Be sure to give Langdon & Company LLP a call if you have questions on how this affects your organization.

Meagan ([email protected]) is an Audit Partner at Langdon & Company LLP.  She works on various clients from associations to healthcare.

IT Controls: How to Keep Your Organization Safe

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by Rebecca Lunn

As organizations become more and more reliant on technology, the risks around technology also continue to grow. Recently, we have heard on the news of large hospitals being attacked with ransomware, which encrypts files. Hackers then refuse to give the key to unlock the files unless a ransom is paid, typically in the form of bitcoin, which is more difficult to trace. Although these particular hackers were after sensitive patient data, other types of organizations should also be aware of this risk. For example, non-profits who have large databases of member or donor data may also appeal to these types of hackers. In the face of increasing risk, it is vital that organizations re-evaluate their IT controls. Strong IT controls consist of the following:

  • The Organization has an IT strategic planning and risk management process in place to support financial reporting requirements.
  • The Organization maintains reliable systems that include appropriate data backup and recovery processes. This includes not only backing up data, but testing the backup restoration process on a periodic basis.
  • Physical security and access to programs and data are appropriately controlled to prevent unauthorized use, modifications, damage or loss of data.
  • Program and system changes are appropriately managed to ensure that the application software adequately supports financial reporting objectives.

If your organization would like additional information about implementing or improving IT controls, please contact Langdon & Company LLP.

Rebecca [email protected] is an Audit Senior who works primarily with non-profit organizations.

Partner Announcement

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meagan partner picLangdon & Company LLP is pleased to announce that Meagan L. Bulloch, CPA has been admitted as partner in our audit practice.  Meagan joined Langdon & Company LLP in 2008 and has over ten years of public accounting experience including work for Ernst and Young LLP in their Raleigh, NC office.  She is a graduate of North Carolina State University with a Bachelor of Science and Masters of Science in Accounting.

Meagan’s focus is to provide audit and attest services to clients primarily in the nonprofit, healthcare and small business industries.  She is also experienced in the preparation of Medicare and Medicaid cost reports.  Meagan was also recently published in the Common Ground newsletter, a publication of the N.C. Center for Nonprofits.  She is an active member of the American Institute of Certified Public Accountants and the North Carolina Association of Certified Public Accountants.

Meagan lives in Angier, North Carolina with her husband and two children.

The New Overtime Rule: Q&A

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by Kendall Tyson

If you are an employer, you should get ready for the new overtime and worker classification changes to the Fair Labor Standards Act (FLSA) that was recently published by the Department of Labor (DOL).  According the DOL, the rule, which goes into effect December 1st 2016, will:

  • Raise the salary threshold indicating eligibility from $455/week to $913 ($47,476 per year), ensuring protections to 4.2 million workers.
  • Automatically update the salary threshold every three years, based on wage growth over time, increasing predictability.
  • Strengthen overtime protections for salaried workers already entitled to overtime.
  • Provide greater clarity for workers and employers.

Please visit the DOL’s Question and Answers section of their website for more detailed information.

Langdon & Company LLP is also available to assist business owners and help determine the impacts for their businesses.

Kendall ([email protected]) is a Manager in our tax practice.  She works with various types of clients according to professional standards and tax laws.