Author: Kevin Sickels

On Wednesday, April 26th, President Trump’s administration revealed the core principles of his tax reform plan.  This proposal still has a long way to go before it becomes the law of the land and the chance of it passing through Congress as presented is very small.   The proposal is probably better described as a “first offer.”

Here is a summary of some of the key points for individuals:

• Pass-Through business income (S Corporations, Partnerships, & LLCs) would be taxed at 15%, down from a maximum of 43.4%.
• The current seven tax brackets would be reduced to three brackets: 10%, 15%, and 35%.  This means the highest individual rate drops from 39.6% to 35%. However, where these brackets start and stop was not proposed.
• Double the standard deduction – the 2017 standard deduction is set to be $12,700 for married filing joint – it would increase to $25,400 based on this proposal, which means more income would be free of tax for those who do not otherwise itemize.
• The Alternative Minimum Tax (AMT) would be repealed. This 2^nd tax system is impacting more and more individuals each year.
• The 3.8% Net Investment Income Tax (NIIT) would be repealed.
• The estate tax would be repealed (this would mean we would also lose the step-up in basis upon death)
• Some “tax breaks” would be repealed, including the deduction for state and local income/sales taxes.  Sacred deductions would be kept, including home mortgage interest, charitable donations, and retirement savings.

Here is a summary of some of the key points for Corporations:

• The top tax rates for corporations would be 15%, down from 35%.
• There would be a one-time small repatriation tax to bring home offshore earnings.
• A shift from a worldwide tax system to a territorial one…

There was nothing in the proposal that discussed what revenue raising offset provisions, if any, would be included in order to make the proposal revenue neutral.

The administration has stated that itis determined to get tax reform passed before the end of 2017.

I retired and started receiving social security payments.  Do I have to pay taxes on my social security benefits?

Social security benefits include monthly retirement, survivor and disability benefits.  They do not include supplemental security income (SSI) payments, which are not taxable.  The amount of Social security benefits you receive are not taxable until your income reaches certain thresholds.  The income threshold is in excess of $25,000 for single filers or $32,000 for married filers.  Only a maximum of  85% of your social security benefits will be subject to income tax.  Ketel Thorstenson LLP can assist you in these computations and help plan to minimize the tax effect to you.

If you have other questions about social security benefits or the preparation of your tax return call the Tax professionals at Ketel Thorstenson today, 605-342-5630.

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This greatly depends on the type of mistake you made.  Many mathematical errors are caught by the IRS during the processing of the tax return.  The IRS will mail you a notice to inform you of the change.  If, however, you claimed an incorrect status or need to make a change of dependents or deductions, you need to file an amended tax return.  The amended return can be filed within three years of the original filing.  If the change causes you to owe more tax to the IRS, there will be interest and potentially penalties also.

If you have other questions about mistakes on filed tax returns or the preparation of your tax return call the Tax professionals at Ketel Thorstenson today, 605-342-5630.

To claim a child as a dependent they must be younger than age 19 at the end of the tax year.  If the dependent is a “student” they must be younger than age 24.  However, there are special rules that can allow you to claim a dependent at any age.  A permanently and totally disabled child qualifies under this special rule. Another example is a person that meets the qualifying relative test who you are supporting who has little or no income of their own. This may allow you to claim a sibling or parent you might be caring for.  If you have a situation like this, you should consult your CPA to make sure you meet the qualifying rules.

If you have other questions about claiming dependents or the preparation of your tax return call the Tax professionals at Ketel Thorstenson today, 605-342-5630.

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If it is your first time visiting a CPA, please bring your last three year’s tax returns.  This allows the CPA to review the returns to find opportunities for amendments which could result in refunds.  You also need your tax documents you receive that relate to your current tax return such as W-2s and 1099s.  If you purchased or sold a home during the year, bring a copy of the closing documents.  If you started or purchased a business or property, we want to see all documents related to it.

If you have other questions about what records to bring or the preparation of your tax return call the Tax professionals at Ketel Thorstenson today, 605-342-5630.

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There is no set guidance from the IRS. The IRS can audit the three previous tax years. However, Ketel Thorstenson LLP recommends you keep tax returns and supporting documents permanently. Cost basis of investments, business interests, and property is very important to maintain. Other records such as bank statements and invoices are kept for three years in case of an IRS audit. Keep employment tax records for at least four years. If you have a business we recommend you keep your records as long as needed to prove the income or deductions on a tax return.

If you have other questions about saving records or the preparation of your tax return call the Tax professionals at Ketel Thorstenson today, 605-342-5630.

To listen to Kevin Sickels and the audio version of this blog press play.

How to Choose a CPA?

A CPA, Certified Public Accountant, is a licensed professional that can help you with tax planning, estate and gift planning, retirement planning and other accounting issues. To be a licensed CPA you have to have a college degree, pass the CPA exam and meet specific experience requirements.  There is also a strict code of conduct to follow.  When choosing a CPA, you should look for professionals that are licensed with a state board and a member of the AICPA a trade organization for CPA’s.

Why Tax Refund Delays?

In an attempt  to curb fraudulent filed tax returns, the IRS has slowed down how quickly returns will be issued. If you have a credit on your return, related to education, child or earned income credit, there is a chance those refunds will be held until the middle or end of February. This year the IRS sped up the requirement for all W-2s and 1099s to be filed by the end of January. This is in an attempt to match them up prior to issuing returns. That is the reason for the delay.

If you have other questions about choosing a CPA or the preparation of your tax return call the Tax professionals at Ketel Thorstenson today, 605-342-5630.

To listen to Kevin Sickels and the audio version of this blog press play.

The U.S. House and Senate recently passed the 21st Century Cures Act of 2016 (Act) and the President has signed it into law.  One of the provisions of this Act may have a direct impact on how you offer health insurance benefits to your employees if you are a small business owner.

The provision allows small employers (less then 50 full time equivalent employees) to set up a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).  A QSEHRA can be used to facilitate the purchase of individual health insurance coverage (or qualified medical expenses).  Prior to this law passing, small employers were prohibited from paying for or reimbursing individual health insurance premiums and could have been subject to a $100 per day per employee discrimination penalty for a violation. Starting January 1st, 2017, a small employer can offer a QSEHRA to its employees as a tax free fringe benefit, which can help with employee recruiting and retention.  QSEHRAs are funded through tax deductible contributions made by the employer (no employee contributions are permitted).  Employees may use the funds contributed to cover the costs of individual health insurance, including policies purchased through the ACA Marketplace, or other qualified medical expenses.

QSEHRAs do have an annual cap, which will be adjusted by inflation.  For 2017, the maximum limit is $4,950 for those with individual coverage and $10,000 for those with family coverage.  These limits are prorated by month if an employee is ineligible for part of the year.

For an employee to receive reimbursement for any qualified expenses, an employee must submit proof to the employer that the employee has minimum essential health insurance coverage.  The employer must offer this benefit to all eligible employees, but may exclude the following: 1) employees having fewer than 90 days of service with the employer, 2) employees under the age of 25, 3) Seasonal and Part-time employees, and 4) Employees covered under a collective bargaining agreement.

Not later than 90 days before the beginning of a year in which a QSEHRA is offered, the employer needs to provide a written notice to all eligible employees outlining the plan. For 2017 the employer has until March 13, 2017 to issue the notice to the employees.  The notice must include the amount of the employee’s benefit for the year.  It also needs to include a statement that the employee should inform the Health Insurance Marketplace when applying for insurance. Third, the employee must be informed that there will be a tax on reimbursements for any month he or she does not have minimum essential health coverage.

The employer will need to reporton the employee’s W-2 the amount of permitted benefits provided to the employee.  In addition, the QSEHRA is not a group health plan and thus is not subject to the COBRA provisions.

The QSEHRA will impact the employee’s opportunity to receive in full or in part the premium tax credit available on the insurance marketplace.

We do not know what the future of health care will look like under the new federal administration.  QSEHRAs provide a viable option for small employers who are not required to provide health insurance under the ACA but, nevertheless, find it in the businesses’ best interest to provide some form of healthcare benefits to their employees.  With these complex rules, please reach out to Ketel Thorstenson, LLP for guidance and clarification.

President Donald Trump signed an executive order related to the Affordable Care Act (ACA), also known as Obamacare, on his first day in office. That order gave agencies the right to curb or reduce penalties to individuals and businesses. However, that order does not change anything with Obamacare until one of those agencies, the IRS or Health and Human Services, issues regulations or notices to change the rules.

Until this occurs, all of the ACA rules and penalties for business and individuals would still apply. As far as a repeal of Obamacare, that won’t happen until the Congress and Senate act because the President does not have the power to override legislation on his own.

Obamacare still affects your 2016 individual and business tax returns. President Trump’s executive order does not change the rules for 2016.

If you have other questions about the Affordable Care Act or the preparation of your tax return call the ACA and Tax professionals at Ketel Thorstenson.

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With the tax return filing deadlines behind us, this is an ideal time to think about giving your business a post-tax season tune-up.  This will make the next tax return filing season easier and may improve your financial situation.  Here are a few key areas to consider analyzing:

Day-to-day accounting:  With the rush of preparing for the tax return filing season, on top of the regular hectic pace of running your business, it can be tough to keep your financial records up-to-date.  If you fell behind, now is the time to get caught up, before the lag in record keeping hinders your business.

Start by reconciling all of your business accounts, making sure your balances are accurate, and that you are current on your bank deposits and bill payments.  By investing some time to make sure your day-to-day accounting is on track, you will have the data you need to evaluate important metrics including your profit and loss statements, annual financial comparisons, and cash flow.

If you feel this would be overwhelming, we can provide you with a service of catching up on these items by one of our trained accounting service specialists.

Your current financial and tax situations:  It is time for a mid-year review to ensure your business is on track financially. Now is an ideal time to schedule a mid-year planning session with our firm to discuss your current business financial statements and your operational plans for the rest of the year.  You should also plan to address any new business or personal developments that may affect your tax liability this year so we can work with you to lower your tax obligations.

Capital Purchases:  As we have discussed before, the state of how to depreciate fixed assets has been in flux.  Congress passed a law in December 2014 which renewed provisions for Section 179 expensing and 50% bonus depreciation for 2014, but did not address these provisions for the 2015 tax year.  As it stands today, 50% bonus depreciation is no longer available and Section 179 expensing is capped at $25,000 for 2015.  This could impact your tax situation for 2015 if your business invests in capital assets.  Absent renewal of one or both of these provision for 2015, you will recover those costs over a much longer period than we have seen over the last decade.  There is nothing preventing Congress from retroactively extending one or both of these favorable provisions again, but it is not a given.

Adjust estimated tax payments:  If you had a large tax liability or a large refund on your 2014 tax return, you may want to revisit your 2015 estimated tax payments and adjust your calculations to avoid owing too much at the end of the year, or leaving your business cash-poor due to overpayment of taxes. As the year progresses, monitor your bottom line and adjust your 2015 tax estimates accordingly.

Employee benefits:  If your business has employees, you may wish to consider providing them with enhanced fringe benefits, while your business reaps tax savings as well. Adding pre-tax benefits such as health insurance, group term life insurance, and child care subsidies to an employee’s pay, saves your business money because you are not required to pay the employer’s share of payroll taxes on these forms of reimbursement.

While you are probably glad to have your business tax returns filed for last year, it can be extremely beneficial to fine-tune your business finances and tax situation now, rather than waiting to see where you stand at the end of the year. By being proactive, you can benefit from valuable tax savings and opportunities to improve the accuracy of the financial information that you use to manage your business. Please contact our office with any questions you may have — we are here to help you.