The NC $21.7 billion budget plan was released late yesterday, with the first votes scheduled to happen this week. The plan includes tax cuts for NC residents, reforms to Medicaid, teacher raises, and driver’s education will be protected. You can find the actual bill on the NC General Assembly’s website.
by Russell Barker
You might think 1099-MISC filing is a year-end job and does not need attention before that. That couldn’t be farther from the truth. You should always gather W-9 forms from applicable vendors whom you have paid year round. A W-9 form is an IRS form in which the vendor provides name, address and tax identification number. This number can either be a social security number or Taxpayor Identification Number (“TIN”). 
Generally, a 1099-MISC should be filed if the vendor is unincorporated AND amounts paid are:
The reason to start gathering this information is because at year end, you may not have contact with a vendor or cannot reach them.
What are the ramifications if you do not get this information and you should have? The expense that you are trying to claim may not be valid and you might not have a credit on your books for the expense. In some cases, this can cause an increase to your net income and more taxes you will have to pay at year end.
The old saying of an ounce of prevention is worth a pound of cure. By obtaining and filing all W-9 forms, you will avoid a lot of unnecessary stress at year end. Langdon & Company LLP has a team of accounting service professional who are available to help with any of your Form 1099 questions. Please contact our office for more information.
Russel Barker ([email protected]) is a Quickbooks ProAdvisor in our Accounting Services Department. He works primarily with physician’s practices and other small businesses.
by Jessica DuPree
When taking early distribution from a retirement plan or IRA, it is important to remember the 60 day rule for the distribution to be considered “rolled over”. To rollover a retirement plan means depositing the amount distributed from one retirement plan and placing these funds into another retirement plan or IRA.
Why roll over?
When you roll over a retirement plan distribution, you generally don’t pay tax on it until you withdraw it from the new plan. By rolling over, you’re saving for your future and your money continues to grow tax-deferred.
If you don’t roll over your early distributions, then this income is taxable (other than qualified Roth distributions and any amounts already taxed) and will also be subject to additional tax unless you’re eligible for one of the exceptions to the 10% additional tax on early distributions. See IRS website for more information on exceptions for early distribution additional tax.
When should I roll over?
You have 60 days from the date you received the distributions from the retirement plan or IRA to roll it over to another plan. It is up to the IRS to waive the 60 day roll over requirement based on the situation if it is a circumstance beyond the taxpayer’s control. This is decision is at the IRS’s will and should not be heavily relied on.
IRA one-rollover-per-year rule
Beginning after January 1, 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own.
The one-per year limit does NOT apply to:
Once this rule took effect, the tax consequences are:
Your retirement plan is not required to accept rollover contributions. Check with your new plan administrator to find out if they are allowed and, if so, what type of contributions are accepted. You can roll your money into almost any type of retirement plan or IRA. Click this link to access the Rollover Chart located on the IRS website for more information.
Contact Langdon & Company LLP for more information about retirement plans and other ways to be prepared for retirement.
Jessica ([email protected]) is an intern in our tax practice. She works on various projects from individuals to corporate clients.
by Rebecca Lunn
For many organizations, the board of directors is one of their most important tools. A good board of directors can steer the organization in the right direction by adopting comprehensive governance and financial management policies, and ensuring the prudent use of all assets. However, in order to provide sound financial oversight, board members must have a certain level of financial literacy to properly understand the organization’s financial statements.
L&C audit partner, Pam Williams, notes that a board member orientation including information on the financial statements and accounting and audit processes, as well as mission and operational matters, is a good way to educate new board members. An effective board should also have at least one member with a financial background. The organization could even consider having the board member with financial expertise, or the organization’s CFO or Controller, conduct an annual training session for the full board.
Audit partner Karen Stanley states, “You will often rely on the financial experts on the board and outside consultants, such as the organization’s CPA, to interpret the statements for you. But it’s important to remember that everyone has a duty of care to the board.” Perhaps most importantly, board members should be encouraged to ask questions when trends or budget versus actual comparisons appear unreasonable. A simple task, such as reviewing the board financial packets prior to the meeting, can help a board member increase their financial knowledge and be more prepared to ask questions during the board meetings. By taking steps such as these, board members can increase their level of financial expertise in order to fulfill their role and responsibility to the organization.
Additional information can be found online here and here. Please also feel free to contact our office with any questions you have!
Rebecca is an audit senior with Langdon & Company LLP. She has experience working with various non-profits, across many industries.
by Dwayne Murphy
Are expense reports frustrating to fill out? Can’t find that receipt you need? Keeping up with travel expenses can be a nightmare but with our technology today and smartphone capability, keeping up with travel expenses can be, and should be easy. There are a number of apps that will make the difficulty of expense tracking and reporting a thing of the past. Below is a brief description of just a few of the very many apps that that are available to help track and report expenses.
We all have enough to worry about and expense reports should not be one of them. There are plenty of apps out there to make life easier and hopefully the list above can give you an idea of which one will be the perfect fit for you.
Dwayne ([email protected]) is an audit senior with Langdon & Company LLP. He works with a variety of non-profit clients
by Lee Byrd
For many organizations, an audit is an annual process that requires the Organization’s personnel to devote additional time and effort above and beyond their day-to-day responsibilities. It can be tiresome and unwelcome to those assigned with task of handling the audit. However, there are many ways in which an Organization can prepare for an audit which could lead to less time the auditor’s spend on site, decreased stress around deadlines, and an overall more efficient audit process.
It is equally important to the audit firm and the Organization for the audit to be as efficient and seamless as possible. The above suggestions should aid in creating a pleasant audit experience for all parties involved.
Langdon & Company LLP’s audit team is here to help. Contact us with questions regarding your audit engagement. Lee Byrd ([email protected]) is an Audit Manager at our Firm and has over 7 years of experience with a variety of clients.
by Susan Dean
Have you discovered an error after filing your personal income tax return? Did you forget to report income or claim deductions? Have you received a “corrected” tax reporting document such as a Corrected Form 1099? What should you do if you fall into one of these categories? Depending on the circumstances, you may need to amend your tax return.
To amend your Form 1040, U.S. Individual Inco
me Tax Return, you should file a Form 1040X, Amended U.S. Individual Income Tax Return. Form 1040X will become your new tax return, changing your original return to include any new information.
Page one of Form 1040X is a summary of your 1040 information, both as previously filed and what you are currently reporting. Column A reports the “Original amount” as reported on a prior Form 1040 (or prior 1040X). This is the amount(s) you are updating or “amending.” Column C reports the “Corrected amount” or the amount that should have been reported on the original return, the amount you are updating. That leaves Column B. Column B shows the “Net change” between Column A and Column C. Column B reports the difference in what was reported (Column A) and what should have been reported (Column C). Form 1040X gives a visual comparison of your 1040, both before and after the change(s). The form shows the increase or decrease to your taxable income and/or tax liability.
When filing an amended tax return, you must explain the reason for the amendment. This explanation is reported on Part III, Explanation of changes. In this section you should communicate to the Internal Revenue Service (IRS) why you are filing Form 1040X. The reason can vary from receiving a late or corrected Form 1099; forgetting to claim a deductible charitable contribution or business expense; reporting additional taxable income; or changing the originally filed filing status. No matter the reason, the IRS wants to know why you are amending and what form(s) and line numbers have changed as well as any supporting schedules that have been affected by the change(s).
Once you have completed Form 1040X by reporting the corrected information, explained the reason for the change(s) and attached any necessary forms and/or schedules, you are ready to sign and file your amended return. Depending on the change in your overall taxable income and/or tax liability, you may owe additional tax to the IRS or you could be due a tax refund. The state you live in and the outcome of your tax liability determines where you file your amended return. Before mailing your amended return, please confirm the correct address in the current year Form 1040X instructions.
Please note if you are amending your federal income tax return, you also may need to amend your state income tax return. Refer to your state income tax return form instructions on when and how to amend your state income tax return or contact your personal certified public accountant.
For more information on amending your Form 1040, please refer to the IRS website and their section on Amended Tax Return Frequently Asked Questions. If you think you may need to amend your personal income tax return and would like further advice on amending or would like to request assistance in amending your personal tax return, please contact our office.
Susan ([email protected]) is a Tax Manager working primarily with closely-held family businesses and corporations.
by Leonora Bowman
Like all financial questions, the answer to this question is, “it depends.” 
You can start drawing social security benefits based on your own work history as early as 62 and as late as 70. Currently, those of us, who are baby boomers, born between 1943 and 1954, 66 is our full retirement age. The full retirement age increases 2 months each year until it reached 67.
There are several factors, which will help to determine when you should start drawing social security, the most important being if you and your family can financially afford to delay drawing social security until a later date. For each month, after you reach your full retirement age, you will earn 2/3 of 1% delayed retirement credits, or 8% per year. You can only earn delayed retirement credits based on your work history. By suspending receipt of your social security between 66 and 70, your monthly benefit will increase by 32%. Obviously, if you can afford to do so, this is your best option. Spouses and widows do not earn delayed retirement credits.
If you are married and the family can financially afford to do so, there are some choices you can make to optimize your family’s social security monthly benefit.
The first choice that can be made, once full retirement age is reached, is for the higher earning partner to file and suspend collection of his/her benefit. This will allow two things to happen. 1) the spouse filing and suspending collection will begin to earn delayed retirement credits and 2) the lower earning spouse can begin drawing a spouse benefit, which may be higher than the amount he/she may have received based on his/her own work history.
File and restrict your benefit is another option that married couples can do if they are both over 62 and one is already drawing benefits. The partner not already receiving benefits can file and restrict the benefit he/she receives to 50% of the spousal benefit to which he/she is entitled and allow his/her own benefit to continue to earn delayed retirement credits until he/she reach 70. The partner choosing to file and restrict must have reached his or her full retirement age to choose this option.
Those who are divorced and were married to their former spouse for at least 10 years, are at least 62 and have not remarried, can elect to receive the divorced spouse benefit provided it is greater than the amount he/she would have received based on their own work history.
The Social Security Administration is a great resource if you have specific questions. To determine which social security benefit path is best for you and your family, please contact Langdon & Company LLP or your financial advisor.
Leonora “Lee” Bowman ([email protected]) is a Manager in our Accounting Services practice. She has over 25 years of experience in taxation and also specializes in multi-dimensional corporate accounting across various states.
by Kendall Tyson
Most parents and many grandparents often worry about the increasing college costs for their children and grandchildren. According to a recent article in USA Today, college tuition and fees have increased 1,120% since 1978. Edvisors reports 70% of students borrow to go to college and take on an average $33,000 in student loans.
One way to help plan for upcoming college costs is to open a 529 plan. A 529 plan is a qualified tuition program operated by a state or educational institution designed to help set aside funds for future college costs. Under IRC Section 529, a qualified tuition program is exempt from income tax. The earnings grow tax-free, and as long as the contributions and earnings are used for qualified educational expenses then the beneficiary does not report or pay tax on any distributions.
Almost every state now offers a 529 plan and the plan’s fund can be used to meet costs of qualified colleges nationwide. A North Carolina resident can invest in a Virginia plan for a beneficiary who attends a Tennessee college, as long as the college is an eligible institution. (Eligible institutions have been assigned a federal school code by the Department of Education).
Anyone can contribute to a 529 plan; the plan just needs a beneficiary. While the contributions are not deductible for federal tax, the contributor is not subject to AGI limitations and contributions are considered a completed gift, which is excluded from the contributor’s estates. The IRS even allows for contributors can elect to take contributions larger than the annual gift exclusion into account ratably over five years.
All distributions from the 529 plan must be used for qualified higher education expenses. Qualified higher education expenses include the following:
Distributions from the plan will be reported a Form 1099-Q, Payments from Qualified Education Programs, showing the earnings and basis related to the distribution. Any distributions not used for qualified expenses are included in income and subject to a 10% penalty. Many individuals confuse the idea of using 529 funds to repay student loans. Unfortunately, the repayment of prior year student loans does not meet the IRS definition of “qualified education expenses”. Any distributions used to repay student loans are included in income and subject to the 10% penalty.
529 plans can also be rolled into another qualified tuition program for the same beneficiary or transferred to another beneficiary within the same family with no adverse tax consequences.
With the proper planning, a 529 plan can help ease the burden of increasing college costs with relatively low maintenance for the contributor. For more information or help in finding a 529 manager or financial adviser, please contact our office.
Kendall Tyson ([email protected]), a Tax Manager at Langdon & Company LLP. She specializes in physician/dentist practices, multi-state and nonprofit returns.
by Cody Taylor
Over the last decade the Internal Revenue Service (IRS) has been faced with a brand new subject courtesy of our interconnected world: virtual currency. Bitcoin is the most well-known but there are over 150 virtual currencies worldwide with some of the other larger ones being Litecoin, Darkcoin and Peercoin. As these currencies have popped up and have become more popular the IRS needed to decide how to handle transactions conducted in these new currencies. Bitcoin for instance is accepted at mainstream retailers such as Overstock.com, Dish Network and Expedia, among others.
The IRS issued guidance in the form of answers to Frequently Asked Questions (FAQs). This setup tries to provide an overview for how transactions in virtual currencies will be handled for federal tax purposes. What follows is an excerpt of the FAQs from IRS Notice 2014-21:
Q-1: How is virtual currency treated for federal tax purposes?
A-1: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.
Q-2: Is virtual currency treated as currency for purposes of determining whether a transaction results in foreign currency gain or loss under U.S. federal tax laws?
A-2: No. Under currently applicable law, virtual currency is not treated as currency that could generate foreign currency gain or loss for U.S. federal tax purposes.
Q-3: Must a taxpayer who receives virtual currency as payment for goods or services include in computing gross income the fair market value of the virtual currency?
A-3: Yes. A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, 3 measured in U.S. dollars, as of the date that the virtual currency was received. See Publication 525, Taxable and Nontaxable Income, for more information on miscellaneous income from exchanges involving property or services.
Q-4: What is the basis of virtual currency received as payment for goods or services in Q&A-3?
A-4: The basis of virtual currency that a taxpayer receives as payment for goods or services in Q&A-3 is the fair market value of the virtual currency in U.S. dollars as of the date of receipt. See Publication 551, Basis of Assets, for more information on the computation of basis when property is received for goods or services.
Q-5: How is the fair market value of virtual currency determined?
A-5: For U.S. tax purposes, transactions using virtual currency must be reported in U.S. dollars. Therefore, taxpayers will be required to determine the fair market value of virtual currency in U.S. dollars as of the date of payment or receipt. If a virtual currency is listed on an exchange and the exchange rate is established by market supply and demand, the fair market value of the virtual currency is determined by converting the virtual currency into U.S. dollars (or into another real currency which in turn can be converted into U.S. dollars) at the exchange rate, in a reasonable manner that is consistently applied.
Q-6: Does a taxpayer have gain or loss upon an exchange of virtual currency for other property?
A-6: Yes. If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable gain. The taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of the virtual currency. See Publication 544, Sales and Other Dispositions of Assets, for information about the tax treatment of sales and exchanges, such as whether a loss is deductible.
The rest of IRS Notice 2014-21 and the remaining FAQs can be found at IRS Notice 2014-21 – Federal Taxation for Virtual Currencies. At the state level the details of how virtual currency will be handled is still being worked out. North Carolina currently has a bill in the state congress that addresses how the state wants to handle a number of issues associated with virtual currencies. They even have a Virtual Currency Corner on the North Carolina Commissioner of Banks website dedicated to current virtual currency news and legislation.
If you have any dealings with virtual currency or might in the future, we would be happy to help answer any questions you may have. Please contact our office for additional information.
Cody ([email protected]) is part of our tax staff at Langdon & Company LLP. He focuses on high-net wealth individuals, and other various types of tax projects.
