2016 Municipal Payroll Withholding Deadline Change

As of January 1, 2016, changes to Ohio’s municipal income tax law made by House Bill 5 are in effect. CPAs who assist their clients with payroll tax and business owners who withhold municipal income tax for their employees should determine if they will be affected by these changes.

The deadline for municipal income tax remittance for monthly and quarterly filers is now the 15th of the following month.  Previously, many municipalities had allowed until the end of the month.  The wage withholding schedule depends on the amount the employer withheld during the previous year or the amount the employer withheld during any month in the previous quarter.  See the below withholding schedule for these thresholds:

Withholding

Also, municipalities can require semimonthly remittance if an employer’s withholding for the previous year was greater than $11,999, or greater than $1,000 in any month of the preceding year.   Some municipalities are only requiring that payment from quarterly remitters be postmarked by the due date while others require that the payment be received by the due date.  You may need to consult your city to determine which rule they are administering. Be sure to check with your payroll preparer if you are unsure how this change will affect your business.

Ohio Business Income Tax Deduction

Virtually all businesses are now eligible for a 75% tax deduction on the first $250,000 of business income.  The business deduction enables a business owner to deduct 75% of business income from the Ohio adjusted gross income (OAGI) they report on their Ohio personal income tax return. If the business has multiple owners, each is eligible to claim the deduction.  This 75% deduction is available on up to $250,000 of business income, meaning the deduction is capped at $187,500 for each investor or owner, with limitations based on filing status. The remaining business income will be taxed at a graduated rate up to 3%.

New for taxable year 2016 and forward, the business income deduction will enable a business owner to deduct 100% of business income from the adjusted gross income they report on their Ohio personal income tax return. The deduction will be limited to $250,000 for individuals with a filing status of married filing.   For more information, please click here.

Tax Extenders – PATH Act of 2015

On December 16, Finance Committee Chairman Orrin Hatch (R-UT), House Ways and Means Committee Chairman Kevin Brady (R-TX), and Senate Finance Committee Ranking Member Ron Wyden (D-OR) announced that an agreement had been reached on extenders and other tax provisions in the “Protecting Americans from Tax Hikes (PATH) Act of 2015.” The bipartisan, bicameral deal makes permanent many of the extenders—i.e., the 50 or so temporary tax provisions that are routinely extended by Congress on a one- or two-year basis and that have been expired since the end of 2014. A number of other extender provisions are extended through 2019, while others are extended for two years through 2016.  The agreement is expected to be quickly passed by Congress and signed into law by the President.

PATH Act provisions include the following:

Extension of tax-free distributions from individual retirement plans for charitable purposes. The provision permanently extends the ability of individuals at least 70½ years of age to exclude from gross income qualified charitable distributions from Individual Retirement Accounts (IRAs). The exclusion may not exceed $100,000 per taxpayer in any tax year.

Extension of 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements. The provision permanently extends the 15-year recovery period for qualified leasehold improvements, qualified restaurant property, and qualified retail improvement property.

Extension and modification of increased expensing limitations and treatment of certain real property as section 179 property. The provision permanently extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014 ($500,000 and $2 million, respectively). These amounts currently are $25,000 and $200,000, respectively. The special rules that allow expensing for computer software and qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) also are permanently extended. The provision modifies the expensing limitation by indexing both the $500,000 and $2 million limits for inflation beginning in 2016 and by treating air conditioning and heating units placed in service in tax years beginning after 2015 as eligible for expensing. The provision further modifies the expensing limitation with respect to qualified real property by eliminating the $250,000 cap beginning in 2016.

Enhanced child tax credit made permanent. The child tax credit (CTC) is a $1,000 credit. To the extent the CTC exceeds the taxpayer’s tax liability, the taxpayer is eligible for a refundable credit (the additional child tax credit) equal to 15 percent of earned income in excess of a threshold dollar amount (the “earned income” formula). Until 2009, the threshold dollar amount was $10,000 indexed for inflation from 2001 (which would be roughly $14,000 in 2015). Since 2009, however, this threshold amount has been set at an unindexed $3,000 and is scheduled to expire at the end of 2017, returning to the $10,000 (indexed for inflation) amount. The provision permanently sets the threshold amount at an unindexed $3,000.

Enhanced American opportunity tax credit made permanent. The Hope Scholarship Credit is a credit of $1,800 (indexed for inflation) for various tuition and related expenses for the first two years of post-secondary education. It phases out for AGI starting at $48,000 (if single) and $96,000 (if married filing jointly) – these amounts are also indexed for inflation. The American Opportunity Tax Credit (AOTC) takes those permanent provisions of the Hope Scholarship Credit and increases the credit to $2,500 for four years of post-secondary education, and increases the beginning of the phase-out amounts to $80,000 (single) and $160,000 (married filing jointly) for 2009 to 2017. The provision makes the AOTC permanent.

Extension and modification of deduction for certain expenses of elementary and secondary school teachers. The provision permanently extends the above-the-line deduction (capped at $250) for the eligible expenses of elementary and secondary school teachers. Beginning in 2016, the provision also modifies the deduction to index the $250 cap to inflation and include professional development expenses.

Extension of deduction of State and local general sales taxes. The provision permanently extends the option to claim an itemized deduction for State and local general sales taxes in lieu of an itemized deduction for State and local income taxes. The taxpayer may either deduct the actual amount of sales tax paid in the tax year, or alternatively, deduct an amount prescribed by the Internal Revenue Service (IRS).

Extension and modification of research credit. The provision permanently extends the research and development (R&D) tax credit. Additionally, beginning in 2016 eligible small businesses ($50 million or less in gross receipts) may claim the credit against alternative minimum tax (AMT) liability, and the credit can be utilized by certain small businesses against the employer’s payroll tax (i.e., FICA) liability.

Extension of exclusion of 100 percent of gain on certain small business stock. The provision extends the temporary exclusion of 100 percent of the gain on certain small business stock for non-corporate taxpayers to stock acquired and held for more than five years. This provision also permanently extends the rule that eliminates such gain as an AMT preference item.

Extension of reduction in S-corporation recognition period for built-in gains tax. The provision permanently extends the rule reducing to five years (rather than ten years) the period for which an S corporation must hold its assets following conversion from a C corporation to avoid the tax on built-in gains.

Extension and modification of exclusion from gross income of discharge of qualified principal residence indebtedness. The provision extends through 2016 the exclusion from gross income of a discharge of qualified principal residence indebtedness. The provision also modifies the exclusion to apply to qualified principal residence indebtedness that is discharged in 2017, if the discharge is pursuant to a written agreement entered into in 2016.

Extension of mortgage insurance premiums treated as qualified residence interest. The provision extends through 2016 the treatment of qualified mortgage insurance premiums as interest for purposes of the mortgage interest deduction. This deduction phases out ratably for a taxpayer with AGI of $100,000 to $110,000.

Extension of above-the-line deduction for qualified tuition and related expenses. The provision extends through 2016 the above-the-line deduction for qualified tuition and related expenses for higher education. The deduction is capped at $4,000 for an individual whose AGI does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers).

Improvements to section 529 accounts. The provision expands the definition of qualified higher education expenses for which tax-preferred distributions from 529 accounts are eligible to include computer equipment and technology. The provision modifies 529-account rules to treat any distribution from a 529 account as coming only from that account, even if the individual making the distribution operates more than one account. The provision treats a refund of tuition paid with amounts distributed from a 529 account as a qualified expense if such amounts are re-contributed to a 529 account within 60 days. The provision is effective for distributions made or refunds after 2014, or in the case of refunds after 2014 and before the date of enactment, for refunds re-contributed not later than 60 days after date of enactment.

Rollovers permitted from other retirement plans into simple retirement accounts. The provision allows a taxpayer to roll over amounts from an employer-sponsored retirement plan (e.g., 401(k) plan) to a SIMPLE IRA, provided the plan has existed for at least two years. The provision applies to contributions made after the date of enactment.

Other provisions include:

Enhanced earned income tax credit made permanent.

Extension of parity for exclusion from income for employer-provided mass transit and parking benefits.

Extension and modification of special rule for contributions of capital gain real property made for conservation purposes.

Extension and modification of charitable deduction for contributions of food inventory.

Extension of modification of tax treatment of certain payments to controlling exempt organizations.

Extension of basis adjustment to stock of S corporations making charitable contributions of property.

Extension and modification of employer wage credit for employees who are active duty members of the uniformed services.

Extension of treatment of certain dividends of regulated investment companies.

Extension of subpart F exception for active financing income.

Extension of temporary minimum low-income housing tax credit rates for non-Federally subsidized buildings.

Extension of military housing allowance exclusion for determining whether a tenant in certain counties is low-income.

Extension of RIC qualified investment entity treatment under FIRPTA.

Extension of new markets tax credit.

Extension and modification of work opportunity tax credit.

Extension and modification of bonus depreciation.

Extension of look-thru treatment of payments between related controlled foreign corporations under foreign personal holding company rules.

Extension of Indian employment tax credit.

Extension and modification of railroad track maintenance credit.

Extension of mine rescue team training credit.

Extension of qualified zone academy bonds.

Extension of classification of certain race horses as 3-year property.

Extension of 7-year recovery period for motorsports entertainment complexes.

Extension and modification of accelerated depreciation for business property on an Indian reservation.

Extension of election to expense mine safety equipment.

Extension of special expensing rules for certain film and television productions

Extension of deduction allowable with respect to income attributable to domestic production activities in Puerto Rico.

Extension and modification of empowerment zone tax incentives.

Extension of temporary increase in limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands.

Extension of American Samoa economic development credit.

Moratorium on medical device excise tax.

 

Please contact our office if you would like a complete list of the PATH Act of 2015 provisions.   Have a safe Holiday Season!

ARM CPA

Tax Identity Theft

Background

The Federal Trade Commission (FTC) estimates as many as nine million Americans have their identities stolen each year.  According to a 1/26/15, FTC press release, tax-related identity theft was the most common form of reported identity theft in 2014.  The FTC received 109,063 complaints about tax identity theft, which accounted for almost one-third of the 332,646 total identity theft complaints.  In fact, 2014 marked the fifth consecutive year that tax-related identity theft topped the list of complaints.

IRS Timeline of Responding to a Tax Identity Theft Case

Taxpayers usually are unaware of an identity theft until they receive a notice from the IRS indicating that multiple returns have been filed or they received wages from an unknown employer.  The situation typically takes many months to correct, and some identity theft victims have experienced a year or more wait before receiving their refund.  In an audit report dated 3/20/15, the Treasury Inspector for General Tax Administration (TIGTA) concluded, based on a statistically valid sample of 100 taxpayer identity theft accounts, that on average the IRS took 278 days to resolve identity theft cases.

Identity Protection Personal Identification Number (IP PIN)

In an effort to help victims, the IRS issued approximately 1.5 million Identity Protection PINs (IP PINs).  The IP PIN is a unique, six-digit number that is assigned annually to victims of identity theft with resolved cases for use when filing their federal tax return.  An IP PIN helps the IRS verify a taxpayer’s identity and accept their electronic or paper tax return.  When a taxpayer has an IP PIN, it prevents someone else from filing a tax return with their SSN as the primary or secondary taxpayer (spouse).

The IRS sends a new IP PIN each December by mail.  When a taxpayer receives a Notice CP01A, the IP PIN is located in the left column, last paragraph, which states: “Your assigned 20XX IP PIN is: _____.”  Taxpayers who lose their IP PIN or don’t receive a new one can log into www.irs.gov through “Get an IP PIN” or visit “Lost or Misplaced IP PINs” for further information on how to retrieve it.

Taxpayers, who were assigned an IP PIN, must use it to confirm their identity on the current year federal tax return and any delinquent returns filed during the calendar year.  A return e-filed with the taxpayer’s correct SSN, but an incorrect or missing IP PIN will be rejected until the taxpayer submits it with the correct IP PIN or files a paper tax return.  If the same conditions occur on a paper filed return, the IRS will delay its processing and hold the refund until the rightful payee is determined.

Taxpayers are eligible for an IP PIN if they—

  1. received a Notice CP01A from the IRS containing the IP PIN;
  2. received a Notice CP01F from the IRS inviting them to apply for an IP PIN;
  3. filed last year’s federal tax return as a resident of Florida, Georgia, or the District of Columbia;
  4. reported identity theft to the IRS and received a Notice CP01 indicating that an identity theft indicator has been placed on their account; or
  5. were identified as a possible victim of identity theft by the IRS.

Conclusion

The IRS does not contact taxpayers by telephone, text message, or email to request personal or financial information.  Some identity thieves use a stick—angry or threatening demands for immediate payment, while others use a carrot—a payment or refund will be mailed if the requested information is provided.  Furthermore, first contact from the IRS will not be a phone call or email from out of the blue, but rather it will be through official correspondence sent via U.S. mail.

Suspicious online or emailed phishing scams can be reported to the IRS at phishing@irs.gov.  For phishing scams by phone, fax, or mail, call 800-366-4484.  IRS impersonation scams, which appear to be increasing, can be reported to the TIGTA at 800-366-4484.

Check Before You’re Charitable: IRS Releases Warning on SC Flood Relief Scams

The Internal Revenue Service has issued an official warning about charity scams in relation to the recent South Carolina flooding. “When making donations to assist flood victims in South Carolina and elsewhere, taxpayers should take steps to ensure their hard-earned money goes to legitimate and currently eligible charities,” said IRS Commissioner John Koskinen. “IRS.gov has the tools taxpayers need to check out the status of charitable organizations.” Unfortunately, this is not the first time that we’ve seen these type of scams occur during tragedies.  We’ve seen them occur after the Haitian earthquake, Hurricane Isaac, and Super Storm Sandy.

The IRS is sharing tips for people who wish to help the flood victims through charitable contributions.

  • Beware of charities with names that are similar to nationally known organizations. These phony charities usually have names that mimic legitimate charities.
  • Before donating, use the IRS.gov search engine, Exempt Organizations Select Check, to ensure that the charity that you are contributing to is a reputable and qualified charity.
  • If you have received emails soliciting disaster related contributions which you believe to be fraud, be sure to visit IRS.gov and follow the Report Phishing link to report the possible fraud.
  • Do not give out personal information such as your social security number, credit card numbers, and bank account numbers.
  • Do not donate cash. It’s hard to track cash for tax purposes and more difficult to confirm that you’re giving to a legitimate organization if you’re just handing over cash to solicitor on your doorstep.

New Version of the CPA Exam Scheduled for Launch in 2017

As most things eventually do, the CPA exam is in need of an update. The American Institute of CPA’s has decided that it’s time to revamp the licensing exam for accountants. This new version is expected to launch sometime in 2017. The AICPA’s goal is to make sure that the content and structure of the exam continue to measure the skills and knowledge of aspiring CPAs.

While the exam content is not expected to change much, the method in which it will be presented will be changing. Surveys have shown demand for more “critical thinking” questions, so they are considering increasing the weight of the task-based simulations section, and also adding more problem solving questions in general. Anyone who has taken the CPA exam most likely noticed how outdated the interface of the exam is and that it’s not the easiest thing to navigate. The AICPA is discussing the institution of a new Excel based program. Since most accountants frequently do their day-to-day work in Excel, this could be a big help to test takers. There is also talk of allowing candidates to re-test a failed section within the same testing window, reducing or even eliminating blackout times, and extending the period that the exam must be completed from 18 months to 24 months.

Drafting a new version of the CPA exam is not something that happens overnight. This process began in 2013 with discussions of the strategic direction of the exam by the Board of Examiners. In 2014, the idea was introduced to focus groups and surveys were issued. In 2015, an actual draft of the exam will be designed and then hopefully approved and finalized. The new version will be officially announced in 2016 and then launched at some point in 2017.

ARM Attends Career Fair for Ohio State Accounting Students

ARM recently attended another recruiting event at The Ohio State University for accounting students.  While the venue changed from the Horseshoe to the Ohio Union, the quality of accounting students who participated remained incredibly high.  ARM spoke with several outstanding candidates eager to start their careers in public accounting as the firm continues to add top talent to an already impressive roster.  Any accounting students who did not have a chance to speak with ARM at either Ohio State event or students at other universities interested in an accounting career with ARM can contact Chris Soderberg to receive information regarding open positions the firm is looking to fill or to learn more about the firm.

OSU Recruiting

Fisher College of Business Event at the Shoe

Several members of ARM attended the Master of Accounting (MAcc) Welcome Reception hosted by The Ohio State University’s Fisher College of Business at Ohio Stadium. ARM had a chance to meet several of the incoming students to the MAcc program for the second year in a row. Many of these talented students will gain employment in public accounting and are the future CPAs who will become trusted advisors for years to come.

In addition to meeting a number of students, ARM members also had the opportunity to tour the stadium and strike the O-H-I-O pose on the 50 yard line.

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Ohio Sales Tax Holiday

The state of Ohio has enacted a one-time only sales tax holiday to take place this summer. The holiday begins on Friday, August 7th, 2015 at 12:01am and concludes Sunday, August 9th, 2015 at 11:59pm. During these three days, there will be no sales tax on the following items: clothing priced at $75 or less, school supplies priced at $20 or less, and school instructional materials priced at $20 or less.

Keep in mind there are a few stipulations to this holiday. Most notably, any item used in a trade or business is not eligible for the tax exemption. For example, school supplies such as binders and notebooks to be used in a business are ineligible. Additionally, clothing accessories including jewelry and handbags do not qualify as clothing and are therefore not exempt from sales tax.

Items sold by mail, phone, or the Internet will qualify for the tax holiday if the consumer orders and pays for the item and the retailer accepts the order during the holiday period.  Shipping and handling charges shall also be exempt from sales tax if all items in the order qualify for the exemption. If some of the items in the order are ineligible, sales tax will be charged on the shipping and handling costs of those specific items.

ARM Announces New Audit Staff

ARM is excited to welcome Marissa Crawford as our newest staff accountant in the audit department.  Marissa is a 2015 graduate of The University of Akron’s College of Business Administration.  While attending Akron, Marissa was involved in a number of organizations including Accounting Association, Supply Chain Student Association, and Kappa Kappa Gamma.  Click here to learn more about Marissa.