(919) 662-1001[email protected]

Staff Link   


919-662-1001

Tag Archives: Langdon & Company LLP

Premium Tax Credit Reporting

Pam Williams0 Comment

by Kendall Tyson

Beginning in 2014, individuals and families with low or moderate income could purchase health insurance through the Health Insurance Marketplace, also known as the Exchange.  The premium tax credit is an advanceable, refundable tax credit designed to help those individuals and families.  The credit could be paid in advance to insurance companies to lower the monthly premiums or the credit could be claimed with the individual tax return.  If the credit was paid in advance, individuals must reconcile the amount paid in advance with the actual credit computed on the individual’s tax return.

Reporting and Claiming:

Will I have to file a federal income tax return to get the premium tax credit?  

For any tax year, if you receive advance credit payments in any amount or if you plan to claim the premium tax credit, you must file a Form 8962, Premium Tax Credit (PTC) and attach it to your federal income tax return for that year. If you receive any advance credit payments, you will use your return to reconcile the difference between the advance credit payments made on your behalf and the actual amount of the credit that you may claim. This filing requirement applies whether or not you would otherwise be required to file a return. If you are married and you file your tax return using the filing status Married Filing Separately, you will not be eligible for the premium tax credit unless you meet the criteria in Notice 2014-23, which allows certain victims of domestic abuse to claim the premium tax credit using the Married Filing Separately filing status for the 2014 calendar year.

Will I be eligible for the premium tax credit if I’m married but I file my tax return using the filing status Married Filing Separately?

If you are married and you file your tax return using the filing status Married Filing Separately, you will not be eligible for the premium tax credit unless you meet the criteria in section 1.36B-2T(b)(2) of the Temporary Income Tax Regulations, which allows certain victims of domestic abuse and spousal abandonment to claim the premium tax credit using the Married Filing Separately filing status.  Taxpayers may claim this relief from the joint filing requirement for no more than three consecutive years.

Note:  Generally, a married taxpayer who lives apart from his or her spouse for the last six months of the taxable year is considered unmarried if he or she files a separate return, maintains as the taxpayer’s home a household that is also the main home of a dependent child for more than half the year, and furnishes over half the cost of the household during the taxable year.

For purposes of the relief from the joint filing requirement for certain victims of domestic abuse and spousal abandonment, how are domestic abuse and spousal abandonment defined?

 Domestic abuse includes physical, psychological, sexual, or emotional abuse, including efforts to control, isolate, humiliate, and intimidate, or to undermine the victim’s ability to reason independently.  All the facts and circumstances are considered in determining whether an individual is abused, including the effects of alcohol or drug abuse by the victim’s spouse. Depending on the facts and circumstances, abuse of the victim’s child or other family member living in the household may constitute abuse of the victim.

A taxpayer is a victim of spousal abandonment for a taxable year if, taking into account all facts and circumstances, the taxpayer is unable to locate his or her spouse after reasonable diligence.

If I get insurance through the Marketplace, how will I know what to report on my federal tax return?

If you purchased coverage through the Health Insurance Marketplace you should receive Form 1095-A, Health Insurance Marketplace Statement from your Marketplace by early February. This form provides information you will need when completing Form 8962. If you have questions about the information on Form 1095-A for 2014, or about receiving Form 1095-A for 2014, you should contact your Marketplace directly.  The IRS will not be able to answers questions about the information on your Form 1095-A or about missing or lost forms.

Filing electronically is the easiest way to file a complete and accurate tax return. Electronic Filing options include free Volunteer Assistance, IRS Free File, commercial software and professional assistance.

How is the amount of the premium tax credit determined?

The law bases the size of your premium tax credit on a sliding scale. Those who have a lower income get a larger credit to help cover the cost of their insurance. In other words, the higher your income, the lower the amount of your credit.You will figure your credit on Form 8962. You must complete this form to claim the premium tax credit and reconcile any advance credit payments with the premium tax credit you are eligible to claim on your return. Form 1095-A from your Marketplace provides information you will need when completing Form 8962.(see question 14) Filing electronically is the easiest way to file a complete and accurate tax return. Electronic Filing options include free Volunteer Assistance, IRS Free File, commercial software and professional assistance

Additionally, the premium tax credit is a refundable tax credit. This means that if the amount of the credit is more than the amount of your tax liability, you will receive the difference as a refund. If you owe no tax, you can get the full amount of the credit as a refund. However, if you receive advance payments of the credit, you will reconcile the advance payments with the amount of the actual premium tax credit that you calculate on your tax return. If your actual allowable credit on your return is less than your advance credit payments, the difference, subject to certain caps, will be subtracted from your refund or added to your balance due. If your actual allowable credit is more than your advance credit payments, the difference will be added to your refund or subtracted from your balance due.

This excerpt and additional Q&A information on the Premium Tax Credit can be found on the IRS website: http://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/Questions-and-Answers-on-the-Premium-Tax-Credit#.VNO4_QFEocQ.gmail

Kendall Tyson ([email protected]), a Tax Manager at Langdon & Company LLP.  She specializes in physician/dentist practices, multi-state and nonprofit returns.

The Why, Who, What and How of an effective audit committee for nonprofit organizations

Pam Williams0 Comment

by Meagan Bullochhands

The establishing and maintaining an audit committee is considered a best practice for nonprofit organizations.  An audit committee can greatly help the governing board perform their fiduciary and oversight roles over financial reporting, reducing risk and maintaining donor confidence.  Some organizations may utilize their finance committee as an audit committee.  What is important is not the form of the committee but the substance.

Q: Why should a nonprofit consider forming an audit committee?

A: In addition to Sarbanes Oxley and state requirements imposed for organization’s soliciting funds within certain states, the Form 990 asks if an organization has an audit committee.  Although, such a committee is not a requirement, the establishment of one is considered a best practice by the IRS.  As the Form 990 is a public document, answering “no” to this question may lead to funders questioning why the organization is not following a suggested best practice.  The American Institute of Certified Public Accountants’ (AICPA) Audit Committee Toolkit: Not-for-Profit Organizations, 2nd Edition (available at AICPA Store) lists numerous reasons as to why a nonprofit organization should consider forming an audit committee, including providing better: financial results, decision-making in terms of accuracy and quality of financial reporting; ability to build stronger relationships with stakeholders; as well as facilitating transitions in leadership.

Q:  Who makes the best audit committee members?

A:  Audit committee’s typically consist of 3-6 members with diverse backgrounds and experience all of which are considered “financially literate.”  To be financially literate, members should be able to read and understand fundamental financial statements and recognize when the numbers along with associated disclosures to not make business sense.  Additionally, the best audit committee members are fully involved and engaged with the organization and ensure that two-way constructive dialogue occurs at all times between all parties involved.  Members should also be independent in both fact and appearance.  To be truly effective, the committee must be able to resist any attempt by management to compromise financial reporting.  The following relationships are considered to impair independence:

  1.  An audit committee member who is or has been an officer or employee of the organization during the past 3 years
  2. A member who is an immediate family member of an officer or someone in management
  3. A member who has a direct business relationship with the organization in the past three years; such as a consultant

Q:  Who can serve as a financial expert on the audit committee?

A:  The inclusion of at least one financial expert is a highly recommended best practice.  The following attributed are deemed essential components of a financial expert:

  1.  An understanding of generally accepted accounting principles (GAAP) and nonprofit financial statements
  2.   The ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves
  3. Experience preparing, auditing, analyzing or evaluating financial statements that are comparable to those of the organization
  4. An understanding of internal controls and procedures for financial reporting
  5. An understanding of the audit committee function
  6. A general understanding of nonprofit financial issues and specific knowledge of the nonprofit industry in which the organization operates

It is worth noting that an audit committee financial expert has no greater obligations or liability than any other members of the audit committee and board of directors who are not designated as financial experts.

Q:  What should be the mission of an effective audit committee?

A:  Simply put, the mission should be oversight.  Specifically, the following areas should be their main focus:

  1.  Financial reporting
  2. Risk Management

Audit function – oversight of and communication with independent auditors, both internal and external

Langdon & Company LLP will be happy to assist with your audit needs.  Please contact our office!

Meagan Bulloch ([email protected]) is an audit manager at Langdon & Company LLP focused primarily on non-profit clients.

College Tax Credits 2014

Pam Williams0 Comment

by Cody Taylor

college-debtThere is often confusion surrounding who can claim college tax credits and for how much.  The two college tax credits are the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit.  You can only claim one of these credits per student on your federal tax return.  The American Opportunity Tax Credit is worth up to $2,500 per qualifying student for up to four years and is currently available through 2017.

Everyone wants to be able to claim a college tax credit but there are various rules, income limitations and exclusions that apply for each credit.  The source of the money used to pay for qualified tuition expenses matters in determining whether you can qualify for one of the college tax credits.  For example, 529 college savings plans are utilized by many taxpayers to plan for college expenses, but expenses that were used to calculate the tax-free portion of a distribution from a 529 plan may not also be used to calculate the American Opportunity Tax Credit.  There are ways to claim the AOTC in the same year as a tax-free distribution from a 529 plan is made, but it takes planning.

You should receive a Form 1098-T from your school in the mail.  This and other related costs (often textbooks) should be supplied to your tax professional along with your other tax information so that they can help adopt the best college tax credits for your particular situation.  Proper planning ahead of time can save you money in the long run.  A tax professional can help you discuss college tuition planning so that when the time comes for you or your child to go off to college, you will be able to claim the maximum credit allowable to you.

Langdon & Company LLP has a tax department full of experience to help you make the right choice for this deduction.  Please feel free to contact our office for more information.

Cody Taylor ([email protected]) is a tax staff who specializes in various issues related to individuals and their businesses.

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

Pam Williams0 Comment

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

Pam Williams0 Comment

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

Pam Williams0 Comment

by Tony Pandiscia,

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

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

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

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

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

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

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

Pam Williams0 Comment

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

Pam Williams0 Comment

by Lee Bowman 

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

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

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

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

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

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.

Simplified Option for Home Office Deduction

Pam Williams0 Comment

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

Pam Williams0 Comment

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.