All posts by Pam Williams

Renewable Energy Credits

 

On December 31, 2013, the Residential Energy Credit expired.  This credit allowed homeowners to deduct 15% of qualifying nonbusiness energy efficient improvements up to a maximum allowable credit of $500.00.  While this credit has been allowed to sunset, the Residential Renewable Energy credit offered by the federal government will be in effect until December 31, 2016.  The state of North Carolina offers a more generous Renewable Energy Tax Credit through December 31, 2015.  These credits are available to any taxpayer installing eligible renewable energy technology on their primary residence.  The two main viable sources of renewable energy available in North Carolina are geothermal heating and cooling systems and solar power.   Both energy sources qualify for the Renewable Energy Credits.Plug-and-Outlet

Solar power has two options under the existing credits.  If a homeowner installs a solar hot water heater, they are eligible for a 30% federal credit on the cost of the system including installation.  There is no limit to the dollar amount of the federal credit.  However, the federal credit does not apply to a heater for a swimming pool or a hot tub.  The North Carolina credit is 35% of the cost of the system including installation.  This credit has a cap of $1,400 but it can be used for a solar pool heating system.

The other solar option is the installation of photovoltaic solar panels.  The photovoltaic panels actually generate power from solar energy.  If a homeowner installs photovoltaic panels for their personal residence, they are eligible for a 30% credit on the cost of the system including installation with no dollar limit.  North Carolina offers a 35% credit on the cost of the system including installation.  The credit caps at $10,500.  The combined credits can cover up to 65% of the cost of the entire system.  Add that to the savings in energy costs and the breakeven time of a solar system becomes very short.

Another type of renewable energy that is eligible for the Renewable Energy Credit is a geothermal heating and cooling system.  Any homeowner installing a geothermal system will also be eligible for a 30% federal credit on the cost of the system including installation.  This credit, like the solar credit, has no dollar limitations.  The state of North Carolina offers a 35% credit on the cost including installation.  For a geothermal system, the credit has a dollar cap of $8,400.

For questions about either of these credits, please contact our office.  Langdon & Company LLP would love to answer any questions you may have.

 

On the Horizon: Revenue Recognition

by Lee Byrd

content updateOn May 28, 2014, Financial Accounting Standards Board’s (FASB) released Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606). The ASU replaces more than 600 pieces of current revenue recognition guidance with a five-step model. Under the current guidance, entities recognize revenue when earned and realizable. Under the new ASU, entities will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. As such, the application of the revenue recognition criteria is based on the terms of the contract with the customer rather than on industry specific guidance. The standard requires entities to make more estimates and use more judgment than current guidance.

The five-step model is as follows:

Step 1 – Identify Contracts with Customer

Step 2 – Identify Performance Obligations

Step 3 – Determine Transaction Price

Step 4 – Allocated Transaction Price to the Performance Obligations

Step 5 – Recognize Revenue When (or as) Performance Obligations are Satisfied

The standard becomes effective for public and private companies in 2017 and 2018, respectively. Early adoption is not permitted for public companies. While this gives entities time to become familiar with the new guidance, entities will need to use this time wisely to analyze the cost and benefits of the two approaches to implementation. Entities can choose the full retrospective method, which requires that the standard be applied retrospectively to each prior reporting period presented, or the modified retrospective method, which allows the cumulative effect of initially applying the update recognized at the date of initial application with disclosure of the amount by which each financial statement line item is affected in the current year. If the full retrospective method is chosen, the ASU allows some practical expedients to be used during implementation.

Langdon & Company LLP can provide further information or assist with implementation of ASU 2014-09. Please contact our office for more information.

Lee ([email protected]) is an audit manager focused primarily on single audit procedures associated with healthcare clients.

President Signs Extenders – What Does this Mean for Filing Season?

by Tony Pandisciairs

If you hadn’t heard by now, Congress passed a temporary extenders bill Dec. 16, which was signed into law by the President today. The Tax Increase Prevention Act of 2014 retroactively extends for one year (to Dec. 31, 2014) all the provisions that expired last year. So yes, that means those very same provisions will expire in just a few weeks, leaving the question of longer term extensions to the new Congress.

The larger question is what impact this will have on filing season. The Tax Girl blog (written by Kelly Phillips Erb, Forbes) suggested that this bill will delay the start of filing season, even though it merely extended existing provisions and did not result in significant forms delays or other operations changes to IRS. She observed, “The IRS Commissioner has not yet announced a start date to the 2015 season: I would expect a late January to early February date.” Many were already anticipating another challenging filing season, perhaps the most difficult season the profession has seen in many years.

Compounding the problem is that a separate bill passed by Congress on Dec. 13 cut the IRS budget by nearly $346 million. Last September, the AICPA recommended Congress fully fund the IRS, stating that “we believe that proper funding of the IRS’s budget is essential to the IRS’s ability to carry out its mission,” which includes providing assistance to taxpayers and tax practitioners. These additional cuts to the IRS budget could mean even longer wait times when calling IRS, additional delays in responses to inquiries and issuance of administrative guidance, as well as a further slowdown in the release and update of tax forms and instructions.

Individual extenders

The following provisions which affect individual taxpayers are extended through 2014:

… the $250 above-the-line deduction for teachers and other school professionals for expenses paid or incurred for books, certain supplies, equipment, and supplementary material used by the educator in the classroom;

… the exclusion of up to $2 million ($1 million if married filing separately) of discharged principal residence indebtedness from gross income;

… parity for the exclusions for employer-provided mass transit and parking benefits;

… the deduction for mortgage insurance premiums deductible as qualified residence interest;

… the option to take an itemized deduction for State and local general sales taxes instead of the itemized deduction permitted for State and local income taxes;

… the increased contribution limits and carryforward period for contributions of appreciated real property (including partial interests in real property) for conservation purposes;

… the above-the-line deduction for qualified tuition and related expenses; and

… the provision that permits tax-free distributions to charity from an individual retirement account (IRA) of up to $100,000 per taxpayer per tax year, by taxpayers age 70 and ½ or older.

Business extenders

The following business credits and special rules are generally extended through 2014:

… the research credit;

… the employer wage credit for activated military reservists;

… the work opportunity tax credit;

… three-year depreciation for racehorses;

… 15-year straight line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements;

… 7-year recovery period for motorsports entertainment complexes;

… 50% bonus depreciation (extended before Jan. 1, 2016 for certain longer-lived and transportation assets);

… the election to accelerate alternative minimum tax (AMT) credits in lieu of additional first-year depreciation;

… the enhanced charitable deduction for contributions of food inventory;

… the increase in expensing (up to $500,000 write-off of capital expenditures subject to a gradual reduction once capital expenditures exceed $2,000,000) and an expanded definition of property eligible for expensing;

… the exclusion from a tax-exempt organization’s unrelated business taxable income (UBTI) of interest, rent, royalties, and annuities paid to it from a controlled entity;

… exceptions under subpart F for active financing income;

… look-through treatment for payments between related controlled foreign corporations (CFCs) under the foreign personal holding company rules;

… the exclusion of 100% of gain on certain small business stock;

… the basis adjustment to stock of S corporations making charitable contributions of property;

… the reduction in S corporation recognition period for built-in gains tax;

… the empowerment zone tax incentives;

Energy-related extenders

The following energy provisions are retroactively extended through 2014:

… the credit for nonbusiness energy property;

… the renewable electricity production credit, and the election to claim the energy credit in lieu of the renewable electricity production credit;

… the credit for construction of energy efficient new homes

Langdon & Company LLP advises and supports nonprofit organizations, commercial businesses and their owners, endeavoring to fulfill all of their tax planning, auditing, consulting, and outsource accounting needs.

Upcoming NFP Changes: Accounting for Shared Services

by Brittany Powellaccountant-real deal

In April 2013, FASB issued ASU 2013-06 – Not-for-Profit Entities (Topic 958): Services Received from Personnel of an Affiliate which requires not-for-profit organizations to recognize contributed services received from an affiliate that directly benefit the not-for-profit entity.  This means that a not-for-profit entity may have to record services provided by an affiliate that the affiliate does not charge the recipient not-for-profit entity for.  According to ASU 2013-06, contributed services should be recognized if they meet one of the following criteria:

  1. The services provided “create or enhance nonfinancial assets”, or
  2. The services provided “require specialized skills, are provided by individuals possessing those skills, and typically need to be purchased if not provided by donations.”

Typically, in accordance with ASU 2013-06, the contributed services should be recorded “at the cost recognized by the affiliate for the personnel providing those services.”  However, if recording the services at cost would significantly misstate the value of the services received, ASU 2013-06 allows the not-for-profit entity to elect to record the contributed services at either cost or at fair value.

ASU 2013-06 will be effective for fiscal years beginning after June 15, 2014, or in other words beginning with fiscal year ended June 30, 2015 for not-for-profit entities with a June 30 year-end.  Early adoption of ASU 2013-06 is permitted.

With the approaching implementation date of ASU 2013-06, please contact our office with any questions regarding the application of ASU 2013-06 or its applicability to your not-for-profit organization.

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

Six IRS Tips for Year-End Gifts to Charity

by Susan Dean

Many people give to charity each year during the holiday season. Remember, if you want to claim a tax deduction for your gifts, you must itemize your deductions. donationsThere are several tax rules that you should know about before you give. Here are six tips from the IRS that you should keep in mind:

  1. Qualified charities. You can only deduct gifts you give to qualified charities. Use the IRS Select Check tool to see if the group you give to is qualified. Remember that you can deduct donations you give to churches, synagogues, temples, mosques and government agencies. This is true even if Select Check does not list them in its database.
  2. Monetary donations.  Gifts of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. You must have a bank record or a written statement from the charity to deduct any gift of money on your tax return. This is true regardless of the amount of the gift. The statement must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, or bank, credit union and credit card statements. If you give by payroll deductions, you should retain a pay stub, a Form W-2 wage statement or other document from your employer. It must show the total amount withheld for charity, along with the pledge card showing the name of the charity.
  3. Household goods.  Household items include furniture, furnishings, electronics, appliances and linens. If you donate clothing and household items to charity they generally must be in at least good used condition to claim a tax deduction. If you claim a deduction of over $500 for an item it doesn’t have to meet this standard if you include a qualified appraisal of the item with your tax return.
  4. Records required.  You must get an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. Additional rules apply to the statement for gifts of that amount. This statement is in addition to the records required for deducting cash gifts. However, one statement with all of the required information may meet both requirements.
  5. Year-end gifts.  You can deduct contributions in the year you make them. If you charge your gift to a credit card before the end of the year it will count for 2014. This is true even if you don’t pay the credit card bill until 2015. Also, a check will count for 2014 as long as you mail it in 2014.
  6. Special rules.  Special rules apply if you give a car, boat or airplane to charity. For more information visit IRS.gov.

This article is an excerpt from the IRS Special Edition Tax Tip 2014-23. For more information, please visit, here, or call our office for additional details.

Susan ([email protected]is a tax manager at Langdon & Company LLP.  As an Enrolled Agent she focuses primarily on the non-profit industry, trust income tax reporting and multi-state filings.

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

by: Brittany Craig

According the to the IRS’ FBAR guidance[1], theforeign 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

by Taylor Elliott

booksThere 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

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.

Langdon & Company ADTony 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

dhhsWith 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

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.

tax balance0.9% 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.