All posts by Pam Williams

Simplified Option for Home Office Deduction

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:

  1. Regular and Exclusive Use – You must regularly use part of your home exclusively for conducting business.
  2. 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

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 equityThe 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

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.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:

  1. Same alternative as listed above for private companies.
  2. Amortize goodwill with impairment tests over its useful life, not to exceed a maximum number of years.
  3. The direct write-off of goodwill at the acquisition date.
  4. 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

dhhsNorth 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

by Meagan Bullochsales 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:

  1. Hospitals not operated for profit
  2. Educational institutions not operated for profit
  3. 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 15th of the same year.  The claim for refund for the period July 1 through December 31 is due to be filed by April 15th 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, hereor 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.

Small Actions with Big Impacts: Internal Controls for Nonprofits

by Rebecca Lunn

Given the small size or small budget of many nonprofits, some organizations may find it tempting to skimp on the internal controls of the entity. However, there are many controls that are inexpensive or easy to implement that can create a big impact in your organization.balance pai

For example, although your organization may lack employees, you can involve individuals outside the accounting function, such as the receptionist, in tasks such as opening the mail or logging invoices, to increase segregation of duties. Limiting the number of people with access to checks, limiting check signers, and simply marking invoices “paid” can also strengthen controls around cash disbursements. Developing written policies, such as a code of conduct or capitalization policy, can provide a guideline for employees to follow, creating consistency across the organization. Also, even though it may seem like an unnecessary expense, often using a payroll service to process regular payroll and prepare tax filings is often the most efficient and cost-effective manner for ensuring all laws and regulations are met. Lastly, if your nonprofit has a board of directors, it is important to report the financial position to the board on a periodic basis. This will allow the board to take any necessary actions when things are not operating as planned. Also, keeping detailed board minutes will ensure that formal approval is documented for important decisions affecting the organization. These steps are just a few of the numerous ways implementing simple controls can strengthen your organization.

If your nonprofit needs assistance in developing stronger internal controls, or improving upon existing controls, please contact our firm for more information on how we can help.

Rebecca Lunn ([email protected]) is an Senior Accountant at Langdon & Company LLP.  She specializes in financial and compliance auditing for governments and nonprofit organizations.

Identifying Identity Theft

by Susan Dean

Identity theft is one of the fastest growing crimes nationwide, and refund fraud caused by identity theft is one of the biggest challenges facing the Internal Revenue Service (IRS). At the end of fiscal 2013, the IRS had almost 600,000 identity theft cases in its inventory. With more than 3,000 employees working on identity theft cases, the IRS is focused on preventing, detecting and resolving identity theft issues as soon as possible.identity_theft

There are several ways taxpayers can experience identity theft involving their tax returns. One of the most frequent encounters occur when identity thieves trying to file fraudulent refund claims using another person’s identifying information, such as their name and social security number. By filing early in the tax-filing season, thieves have a lower chance of being detected and a higher chance of receiving fraudulent refunds. More often than not, taxpayers are unaware identity theft has even occurred until they try to file their own personal income tax return. A rejection from an attempt to electronically file or a notice from the IRS stating that “more than one tax return was filed” may be a good indicator that the taxpayer has been a victim of identity theft.

A delay in receiving an expected tax refund is also an indicator of possible identity theft. Tax return identity theft delays legitimate taxpayer refunds because the return appears to be a duplicate return and therefore may be a sign of other fraud or identity problems. If a duplicate return has been filed, the taxpayer may receive notice from the IRS. A notice received from the IRS may indicate a duplicate filing, assess the taxpayer for additional tax due or indicate that an expected refund was used to offset a prior tax liability. If a taxpayer receives a notice from the IRS and suspects the possibility of identity theft they should contact the IRS Identity Protections Specialized Unit at 800-908-4490. It is also recommended that you contact a tax professional for assistance in resolving the matter as soon as possible.

Langdon & Company LLP has helped several clients in the Triangle with identity theft matters relating to filing their tax returns and receiving their income tax refunds. For questions about identity theft or assistance with resolving an identity theft issue, please contact our office.

Susan 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.

Accounting Services Requirements

by Russell Barker

The accounting services department at Langdon and Company LLP utilizes a customized approach to serve many companies by providing varied aspects of a “backoffice” accounting department.  We can perform the following functions: accounts receivable, accounts payable, invoicing, payroll and financial reporting.  We communicate with the client to ensure that we have the needed documentation to properly record transactions.  We process transactions on a monthly or quarterly basis for general ledger processing based on the clients’ needs.  We also provide payroll services and offer direct deposit.  To efficiently and effectively perform these functions, great communication is required.  There is supporting information and documentation that is needed.

Typically, for a small business items such as bank statements, invoices, billing records, loan records, amortization schedules, credit card statements, etc. are required in order post to the general ledger.  For payroll, employee information, hours and pay rate is needed.  In order to properly maintain fixed asset records, invoices and applicable financing records are needed.

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With the client providing all appropriate documentation on a monthly basis and L&C recording proper transactions, this will enable our year end process to be more efficient, precise and timely in order for the tax department prepare the clients tax returns in a timely fashion.

 

Russell Barker is a QuickBooks Pro Advisor in the Accounting Services department at Langdon & Company LLP.  He specializes in periodic reviews for a variety of physician’s practices.

 

L&C Promotions

It is with great pleasure that we announce the following promotions within L&C this year.

Lee Byrd, Audit Manager

Lee Byrd, Audit Manager
[email protected]

Lee joined L&C’s audit department in 2007. She has served on numerous engagements including nonprofit organizations with single audit requirements, as well as healthcare, manufacturing, real estate and small businesses.  She also routinely consults in the areas of accounting and internal controls for clients in these industries. Lee is a CPA.  She graduated from North Carolina State University where she obtained her BSBA and Masters in Accounting.

 

 

 

 

 

 

 

Susan Dean, Tax Manager

Susan Dean, Tax Manager
[email protected]

Susan joined L&C’s tax department in 2009.  Prior to joining our firm Susan served as tax senior with McGladrey and Pullen, LLP.  Susan is an Enrolled Agent with the Internal Revenue Service.  With over ten years of experience in tax, Susan has spent the majority of her career providing services to corporate, pass-thru, non-profit and individual clients. She has significant tax experience with the non-profit industry, trust income tax reporting and multi-state tax filings. Susan obtained her Bachelor of Science and Masters of Science in Accounting from East Carolina University.

 

 

 

 

 

 

 

 

Taylor Elliott, Tax Manager

Taylor Elliott, Tax Manager
[email protected]

Taylor also joined the L&C tax department in 2009.  Prior to joining our firm she served as a tax senior with McGladrey and Pullen, LLP.  Taylor provides tax services to corporate, pass-through, nonprofit and individual clients. She frequently works with owners of closely-held businesses on matters related to tax planning, consulting and state and local taxation.  She has extensive experience in healthcare, bio-medical engineering, manufacturing, construction and real estate. Taylor is a CPA and obtained her undergraduate degree from Meredith College and received her Masters in Accounting from North Carolina State University.

 

 

 

 

 

 

 

Kendall Tyson, Tax Manager

Kendall Tyson, Tax Manager
[email protected]

Kendall joined the L&C tax department in 2011.  Prior to joining our firm she served as a tax senior with McGladrey and Pullen, LLP.  Kendall provides tax planning and compliance, reporting and special projects for closely-held businesses, including physician and dental practices. She also has significant experience with nonprofit tax reporting and multi-state tax filings.  Kendall is a CPA and obtained her undergraduate degree from Meredith College and received her Masters in Accounting from North Carolina State University.

 

 

 

 

 

 

Brittany Powell, Audit Senior

Brittany Powell, Audit Senior
[email protected]

Brittany joined L&C’s audit department in 2013. She has served on numerous engagements including nonprofit organizations with single audit requirements, as well as healthcare and small businesses.  Brittany is a CPA and obtained her undergraduate degree from Campbell University and received her Masters in Accounting from East Carolina University.

 

 

 

 

 

Please join us in congratulating them on their promotions!

Does your Nonprofit Need an Audit?

baudity Brittany Powell

The National Council of Nonprofits’ Audit Guide (“Audit Guide”) can provide your organization with a starting point for making the decision on whether or not your nonprofit organization needs an audit.

As the Audit Guide points out in its “Does your nonprofit need to have an independent audit?” section, nonprofits may be required to have an audit for various reasons including, but not limited to, compliance with specific grant agreements or loan covenants.  Additionally, a nonprofit organization may be required to have a Yellow Book or Single Audit depending on its level of Federal or State expenditures.  A nonprofit with federal expenditures equal to or exceeding $500,000 is required to have a Single Audit.  As discussed in our February 10, 2014 blog post, this threshold will increase to $750,000 beginning with fiscal years beginning on or after December 26, 2014.  This Audit Guide provides a summary for each state’s audit requirements.  North Carolina requires “a non-governmental entity that receives $500,000 or more annually in state funds” to submit a Yellow Book audit.

However, an audit may not be necessary or cost effective for all nonprofit organizations.  A review, while substantially less in scope than an audit, provides limited assurance over an entity’s financial statements.  Therefore, a review can be a viable, less costly alternative to an audit for some nonprofit organizations.

If you are considering an audit or review for your nonprofit, contact someone at our office to help you determine the engagement type that best fits your organization’s needs.  See the Audit Services & Consulting section of our website for more information about audits, reviews, and other services we provide.

Brittany Powell is a Senior Accountant with Langdon & Company LLP.  She specializes in audit, serving a wide variety of nonprofit organizations.