The New-and-Improved Research Credit is Now Permanent

The research credit is back — this time for good — and it’s better than ever for some small companies. The Protecting Americans from Tax Hikes (PATH) Act of 2015, signed into law by the president on December 18, does much more than extend this credit. Under the PATH Act, the research credit is restored retroactive to January 1, 2015, and has finally been made permanent. The new law also provides two additional tax benefits that take effect in 2016 for certain employers.

What Is the Research Credit?

The research credit was introduced in 1981 to encourage spending on research and experimentation activities by cutting-edge companies. But it was enacted on a temporary basis, and subsequent extensions — generally lasting only a year or two — have also been temporary. The last extension, approved by Congress as part of the Tax Increase Prevention Act of 2014, was the 16th extension of the credit and applied only for one year before the credit expired again on January 1, 2015.

Over the years, the research credit has been modified several times. Currently, the credit equals the sum of the following items:

20% of the excess of qualified research expenses for the year over a base amount,
The university basic research credit (that is, 20% of the basic research payments), and
20% of the qualified energy research expenses undertaken by an energy research consortium.

The base amount used in this calculation is a fixed-base percentage (not to exceed 16%) of the average annual receipts from a U.S. trade or business, net of returns and allowances, for four years prior to the year in which you claim the credit. It can’t be less than 50% of the annual qualified research expenses. In other words, the minimum credit equals 10% of qualified research expenses (50% of the 20% credit).

For an expense to qualify for the research credit, it must meet the following criteria:

It qualifies as a “research and experimentation expenditure” under Section 174 of the tax code. See, “Another Tax Break for Research Expenses” for more information.
It relates to research undertaken for the purpose of discovering information that’s technological in nature and the application of which is intended to be useful in developing a new or improved business component, and
Substantially all of the activities of the research constitute elements of a process of experimentation that relates to new or improved functionality, performance, reliability or quality.

Is There a Simpler Way to Calculate the Research Credit?

In lieu of claiming the basic research credit as described above, Congress has authorized an alternative simplified credit (ASC). Currently, the ASC equals 14% of the amount by which qualified expenses exceed 50% of the average for the three preceding tax years.

The ASC may be preferable to the regular research credit for some companies. For example, your company possibly may opt for the ASC, rather than the regular credit, under the following conditions:

You have a high base amount for the regular calculation,
You lack detailed records to support qualified expenses during the base period years,
You’ve experienced significant growth in receipts in recent years, or
You have a complex history of organizational activity (such as a recent merger or disposition of a business line).

The ASC, which first became available in 2007, replaced the alternative incremental research credit (AIRC).

How Does the New-and-Improved Research Credit Measure Up?

The practice of periodically allowing the research credit to expire and then be reinstated, often on a retroactive basis, has made it especially difficult for companies to plan ahead. Previously, managers frequently made decisions about incurring expenses and authorizing projects without knowing whether those expenditures would be eligible for the research credit. This likely had a dampening effect on the research and experimentation activities at companies that heavily rely on the credit to help defray the costs.

Now that uncertainty is over. The research credit has finally been made permanent by the PATH Act, without any interruption since it was last extended in 2014. The new law also improves the credit for some small companies in the following two ways:

1. AMT liability. Effective for 2016 and thereafter, a qualified small business may claim the research credit against its alternative minimum tax (AMT) liability. For this purpose, a qualified small business is one with $50 million or less in annual gross receipts.

2. Payroll taxes. Also effective for 2016 and thereafter, a qualified startup company may claim the research credit against up to $250,000 in FICA taxes annually for up to five years. For this purpose, the company must have less than $5 million in gross receipts.

It’s important to note that the bill that worked its way through Congress also included a provision to increase the base figure for the ASC from 14% to 20%. Although this particular modification didn’t make it into the final version of the PATH Act, it’s likely that supporters of such an increase will renew their efforts to have the ASC modified in subsequent legislation.

Take Advantage of This Tax Planning Opportunity

Now qualifying companies can count on claiming the research credit when they plan for their research and development projects. Before doing so, meet with your tax adviser to develop a plan that maximizes the benefits allowed under the new law.

Action required if your district filed claims with the IRS regarding Michigan Public Act 300 of 2012

At the end of December, the Office of Retirement Services (ORS) sent notification that the Internal Revenue Service (IRS) will soon issue determinations on certain protective claims (Form 941-X*) filed by individual districts in regard to the federal tax treatment of the retiree healthcare contributions (HCC) remitted under Public Act 300 of 2012. While no official determinations have been issued, the IRS has informally indicated that it will be considering the retiree HCC under both Public Act 75 of 2010 and Public Act 300 of 2012 as exempt from federal income taxes. Furthermore, ORS announced that although the IRS had informally indicated that Public Act 75 of 2010 retiree HCC will be considered as exempt from FICA taxes, conversely, the final informal indication from the IRS is that the judgements on the protective claims will state that Public Act 300 of 2012 retiree HCC are subject to FICA taxes.

What’s next?

At this time the presumption of the judgment of the IRS on the protective claims is informal.

The ORS stated they are planning to file a Private Letter Ruling request with the IRS seeking a final determination on behalf of the Michigan Public School Employees’ Retirement System (MPSERS) regarding the federal tax treatment of the retiree HCC provided under both Public Act 75 of 2010 and Public Act 300 of 2012.

What does this mean for you?

If your district filed protective claims with the IRS regarding Public Act 300 of 2012 retiree HCC, you should notify ORS and the Michigan School Business Officials of the status of those claims. If you have questions, please contact a member of Yeo & Yeo’s Education Services Group.

History of the 3% healthcare contribution

Public Act 75 of 2010 required each active member of MPSERS to contribute up to 3% of their compensation to the Retiree Healthcare Fund to help the cost of retiree healthcare (which became the HCC discussed above). Those contributions, being mandatory in nature and “picked up” by the district as “employer contributions,” were collected from July 1, 2010, until September 3, 2012. The retiree HCC remitted thereunder continue to be held in escrow awaiting a final determination regarding the legality of Public Act 75 of 2010.

On September 4, 2012, in response to the Michigan Court of Appeals’ decision with respect to Public Act 75, the Governor signed into law Public Act 300 which obligated all active members of the MPSERS, as of September 3, 2012, to elect one of two options regarding their retirement healthcare, within a limited window of time:

1. Active members hired on or before September 3, 2012, could select to continue having the 3% deduction.

2. Members hired on or before September 3, 2012, could elect to participate in a two-part retirement program.

Whereas the courts have yet to issue a final ruling on the legality of Public Act 75 of 2010, on April 8, 2015, the Michigan Supreme Court released its opinion holding that the optional healthcare contributions under Michigan Public Act 300 of 2012 (“PA 300”) do not violate the Michigan Constitution.

In view of the fact that the Michigan Supreme Court has upheld the constitutionality of Public Act 300 of 2012, the IRS has indicated that it is preparing to issue rulings on the protective claims that have been made by individual districts regarding the treatment of the retiree HCC under Public Act 300 of 2012. As discussed above, the IRS has informally indicated that, for federal tax treatment purposes, it views a distinction between the retiree HCC remitted under Public Act 75 of 2010 and Public Act 300 of 2012, respectively. Accordingly, it is expected that the IRS’s ruling will recognize that the retiree HCC remitted under Public Act 300 of 2012 (i.e., from September 4, 2012, to present) are subject to FICA taxes.

*Form 941-X is the Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, which was filed if your district subjected the 3% healthcare contributions to FICA taxes between July 1, 2010, and September 3, 2012. This form was completed for each quarter that a claim was made for.

Chip-enabled cards are now available in the United States after years of use in other countries around the world. EMV, the new credit card payment standard, is meant to make credit transactions more secure. “EMV” stands for Europay, MasterCard, and Visa, who are the developers of this standard. Although EMV does not represent Discover or American Express in its name, the two are also participants in the new payment standard.

On October 1, 2015, all credit card companies transitioned to chip-enabled cards and have made them available to their users. In the past, liability risk for fraudulent transactions was placed upon the credit card issuer. However, after October 1, 2015, if the merchant has not updated their card reading technology, the merchant will assume all fraud liability for payments made using a magnetic stripe card reader with a chip-enabled card.

For our QuickBooks clients who utilize the Intuit GoPayment, Intuit has announced they will extend the EMV liability shift by six months for its QuickBooks Payments customers. The extension is intended to allow additional technology transition time. Intuit will cease to assume fraud liability for any purchase administered by a chip card processed via a magnetic stripe on March 31, 2016, and the merchant will then assume all fraud liability.

EMV cards feature “smart chips,” which encrypt data for every sale, making card transactions more secure. The cards are designed to be inserted into the reader and remain in place throughout the entire transaction. Rather than utilizing a magnetic stripe which can be easily cloned, the chip provides a one-time transaction code, decreasing the simplicity of duplication. When processing a transaction by means of a chip-enabled card, payment details are stored and can be referenced by noting their unique code.

While magnetic stripe cards are not extinct, nor will they be in the near future, their modern counterpart is significant. EMV cards require updated processing technology in order to avoid the transfer of fraud liability from the credit card issuer to the merchant.

For assistance with ordering a new EMV chip card reader, contact a member of the Yeo & Yeo Client Accounting Software Team.

The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) extended a wide variety of tax breaks, in some cases making them permanent. Extended breaks include many tax credits — which are particularly valuable because they reduce taxes dollar-for-dollar (compared to deductions, for example, which reduce only the amount of income that’s taxed).

Here are two extended credits that can save businesses taxes on their 2015 returns:

1. The research credit. This credit (also commonly referred to as the “research and development” or “research and experimentation” credit) has been made permanent. It rewards businesses that increase their investments in research. The credit, generally equal to a portion of qualified research expenses, is complicated to calculate, but the tax savings can be substantial.

2. The Work Opportunity credit. This credit has been extended through 2019. It’s available for hiring from certain disadvantaged groups, such as food stamp recipients, ex-felons and veterans who’ve been unemployed for four weeks or more. The maximum credit ranges from $2,400 for most groups to $9,600 for disabled veterans who’ve been unemployed for six months or more.

Want to know if you might qualify for either of these credits? Or what other breaks extended by the PATH Act could save taxes on your 2015 return? Contact us!

The importance of written policies and procedures for a nonprofit organization is evident now more than ever before. By definition, they are a set of principles, rules and guidelines formulated and adopted by an organization to reach its long-term goals, typically published in a booklet or other form that is widely accessible. Well written policies and procedures allow management and employees to clearly recognize their roles and responsibilities within the organization’s established guidelines. They are important for ensuring continuity in the event that an employee leaves the organization for any reason. The need for written policies will become more obvious as many organizations begin seeing the retirement of experienced management and key employees, and as baby boomers continue to exit the workforce. Written policies and procedures will help ensure an easier transition for the new wave of management and other employees.

Outside of the benefits of written policies and procedures from an operational standpoint, depending on the organization’s funding sources, certain written policies and procedures may be required. Specifically, an increasing number of policies are required under the implementation of the new Uniform Grant Guidance. Also, written policies could provide a base for legal protection for an organization while providing employees a clearer understanding of their responsibilities. Furthermore, an organization’s IRS Form 990 provides donors and other users of the Form 990, information about some of the organization’s existing policies.

We recommend developing and implementing written policies and procedures, or reviewing those already in place, to ensure they are operating effectively and addressing the organization’s needs and goals. Some key policies to consider implementing or revisiting at an organization level include but are not limited to:

Procurement (purchasing) policy
EFT/ACH policy
Capitalization policy
Vacation/Sick time policy (including payout and carryover guidelines)
Investment policy
Whistleblower protection policy
Document retention/destruction policy
Conflicts of interest policy
Gift acceptance policy (to include the receipt of non-cash gifts including gifts-in-kind, land, vehicles, etc.)

On January 7, the IRS withdrew proposed regulations that would have provided for an optional donor reporting process that could be used by charitable organizations instead of individual donor substantiation letters. Charitable nonprofits would have had the option to collect and provide to the IRS the name, address, and Social Security numbers of their donors to serve as evidence of contributions for tax purposes.

Since its issuance, the proposed rule has been strongly opposed by charitable nonprofits across the United States. Yeo & Yeo was one of many accounting firms that submitted a response to the IRS on behalf of its clients, pointing out potential unintended consequences, including security risks of charitable organizations maintaining tax reporting information on donors and potential reductions in donations as a result.

Contact your Yeo & Yeo professional for more information.

Yeo & Yeo is a member of the AICPA’s Governmental Audit Quality Center (GAQC). One benefit of our membership is that we are provided the opportunity to participate in periodic continuing professional education (CPE) Web events. Occasionally, due to the nature of certain topics, the GAQC opens its Web events to non-members.

In January a webinar was held by the GAQC titled, Preparing for a Single Audit: An Auditee Perspective. This web event was intended to assist auditees in the very important role they play in the single audit process under OMB’s Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards at 2 CFR 200 (Uniform Guidance).

If you wish to view the recorded webinar, Preparing for a Single Audit: An Auditee Perspective, visit the GAQC Webcast Archives .

Please consider taking advantage of this great opportunity, especially in light of the Uniform Guidance and all of its new requirements.

For more information, contact one of Yeo & Yeo’s experienced Audit & Assurance CPAs. Yeo & Yeo’s professionals can help you through the audit process and offer valuable insights.

Last week the IRS issued Notice 2016-4 extending the due dates of the new Affordable Care Act employer and insurance company reporting forms, 1095-B and 1095-C and related Forms 1094.

Forms 1095-B and 1095-C requirements were extended two months and must now be provided to insureds and employees by 3/31/16 instead of 2/1/16.

Forms 1094-B and 1094-C, with copies of the related Forms 1095-B and 1095-C due to the IRS were extended three months and must now be submitted if paper-filed by 5/31/16 rather than 2/29/16 and if electronically filed, by 6/30/16 rather than 3/31/16.

These filing requirement delays could have an impact on some individual income tax filers and determination of their eligibility for premium tax credits related to insurance received from the Health Insurance Marketplace.

Learn more about the employer reporting requirements effective now.

Have you achieved all of the goals you set for 2015? If some of your 2015 New Year’s resolutions remain unresolved, don’t get discouraged. There’s no time like the present to cross a few items off your to-do list after the holidays. Doing so will ward off the post-holiday blues and set a positive tone for achieving the rest of your personal financial goals in 2016. Here are a few simple ideas.

1. Refinance Your Mortgage

In December, the Federal Reserve announced that it would increase the target range for the federal funds rate to 0.25% to 0.5%. Although the central bank has kept this rate near zero since December 2009, it concluded that economic activity — including household spending, business fixed investment and labor market conditions — has been expanding at a moderate pace. So, it’s calling for “gradual adjustments” to monetary policy throughout 2016, depending on economic conditions. Despite this increase in the federal funds rate, mortgage rates are still low compared to the historical averages. And, according to the Federal Reserve, “The federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”

If you’ve been meaning to refinance your mortgage but haven’t started the process yet, now may be your last chance to act before rates return to historical norms.

Most banks reserve their best rates for people with excellent credit scores who have at least 20% equity invested in their homes. You can lower your rate further by reducing its term (20-year loans are generally cheaper than 30-year loans) and providing a lump-sum payment towards equity at closing. Adjustable-rate loans usually have lower interest rates, too. But beware: These can be risky over the long run, because your mortgage rate can reset significantly higher as inflation rises.

Whether refinancing makes sense depends on more than the differential between your home’s existing interest rate and today’s prevailing interest rate. It also depends on how long you plan to live in your home, the closing costs and the term of your new loan.

2. Evaluate Your Insurance Coverage

Take stock of your insurance needs, including:

Life and disability;
Homeowners;
Flood and disasters
Auto;
Medical and dental; and
Long-term care.

You might need more or less coverage (or higher or lower deductibles) than last year, as life situations evolve. Employer-provided policies usually can be modified at the company’s fiscal year-end (or if your life situation changes). Consider shopping around now for other types of coverage.

Although it’s easier to maintain the status quo, don’t automatically renew without obtaining some competing bids. Often, bundling all your policies with one provider can lower costs.

Life insurance is a product that many people purchase — and then like to forget about. Every year, ask yourself whether existing coverage (combined with your savings and investments) will give your loved ones enough cash for a decent lifestyle if you should die prematurely.

One rule of thumb for a “primary breadwinner” is that coverage should be equal to six to ten times income. For example, if you have income of $75,000, purchase $450,000 to $750,000 of death benefits. You may want to be on the higher end of this range (or above) if you have young children, dependents with special needs, large debts or other out-of-the-ordinary considerations.

Also, review your life insurance beneficiaries. In some cases, you may want to add (or remove) a loved one, depending on changes in your family situation, such as divorce and the birth or adoption of a new child.

3. Cut Extraneous Spending

Take a hard look at your monthly expenses to decide what you can realistically eliminate. Many vendors — such as health clubs, magazines, online greeting card companies, anti-wrinkle (or acne) creams and anti-virus software — automatically renew monthly or annual memberships in accordance with the fine print on the original contract. Consumers who lose interest in these products are often too preoccupied to cancel them. Doing so can save hundreds of dollars over a year.

Also, compute how much you spend on dining out. Yearly totals might be sobering!

Other extraneous items are a matter of common sense and changing times. For instance, do you still need a landline at home, or will a cell phone suffice? Are you really watching all premium cable channels (that may have started out free), or could you downgrade your cable services? Often bundling cable, phone, internet and cell services can result in annual savings.

4. Start College Savings Programs

If you have children (or grandchildren), rising college fees are probably a concern. The average annual cost of a four-year institution for the 2015-2016 academic year ranged from $19,548 to $43,921, depending on whether the student is in-state or out-of-state and whether the institution is public or private, according to the College Board. These amounts include tuition, room, board and fees.

Who’s going to pay for college in your family — and how? Fortunately, there are many college savings options, such as:

Section 529 plans,
Coverdell Education Savings Accounts, and
U.S. Savings Bonds.

Each option offers state and federal tax breaks, risks and rewards, restrictions and limitations. For more information, consult with your financial professional. The sooner you start saving for college, the more affordable it will be.

5. Make or Update a Formal Estate Plan

Begin estate planning with an inventory of your assets, including:

Cash and marketable securities,
Insurance policies,
Business interests,
Automobiles, and
Real estate.

Personal assets — such as jewelry and artwork — also can possess significant monetary (and sentimental) value. The difference between your assets and liabilities is your net taxable estate.

In 2016, you can transfer as much as $5.45 million of assets without incurring federal gift, estate or generation-skipping transfer tax. That doesn’t include the annual gift tax exclusion of $14,000 per year per donor and recipient. Estate tax is calculated on the net value of the decedent’s assets as of the date of death — or on the alternate valuation date, which is six months later.

Federal estate tax rates are currently as high as 40%. Quite a few states also impose estate or inheritance tax at a lower threshold (and possibly with a different lifetime gift exemption or portability provision) than the federal government does.

In addition to outright gifts, you can use other estate planning tools — such as qualified terminable interest property trusts, Crummey trusts and family limited partnerships — to minimize estate tax. They may also achieve other estate planning objectives, such as professional asset management, protection against creditors’ claims and preservation of the portability provision in generation-skipping transfers and remarriages.

6. Meet with Your Advisers

These are just a few ideas for a healthy start to the New Year. Your financial and legal advisers can help devise a more comprehensive plan for adding discipline and trimming the fat from your financial budget in 2016.

Yeo & Yeo CPAs & Business Consultants is pleased to announce that Christine Porras, CPP, was honored with the most prestigious award bestowed by the firm, the Spirit of Yeo award. The award recognizes an individual within the firm who exemplifies the attributes of the firm’s mission and core values.

Porras is the firm’s Payroll Manager. She has 17 years of experience in all aspects of payroll processing. Her areas of expertise include payroll checks, direct deposit, garnishments, vender checks and payment of state, city and federal taxes. Porras leads the firm’s Payroll Services Group and assists all Yeo & Yeo offices with providing payroll services to over 100 clients throughout Michigan. Porras was also featured among Yeo & Yeo’s women leaders in 2015. Read her story here.

“Christine is the type of person that makes you happy! She is truly a positive light within our firm,” says one of her nominators. Another stated, “Christine is always willing to help with client questions and goes above and beyond to provide exceptional client service.”

Porras holds the Fundamental Payroll Certification from the American Payroll Association and is a Certified Payroll Professional. She is a founder and president of the Great Lakes Bay Chapter of the American Payroll Association. Porras is based in the firm’s Saginaw office and serves as a trustee of the Saginaw County Veterans Memorial Plaza.

In the award’s second year, 33 nominations were submitted by Yeo & Yeo employees. The firm’s Career Advocacy Team reviewed the submissions, and many individuals were nominated more than once.

“As a member of the Career Advocacy Team, I can honestly say that my favorite day of the year was the day I spent reading the nominations. It was amazing to read about all of the outstanding efforts that these individuals in our firm have made,” said Thomas Hollerback, CEO, as he presented the award at the firm’s holiday celebration at Horizons Conference Center in Saginaw.

Retirement plan contribution limits are indexed for inflation, but with inflation remaining low, the limits remain unchanged for 2016. Please view the table below.

Nevertheless, if you’re not already maxing out your contributions, you still have an opportunity to save more in 2016. And if you turn age 50 in 2016, you can begin to take advantage of catch-up contributions.

However, keep in mind that additional factors may affect how much you’re allowed to contribute (or how much your employer can contribute on your behalf). For example, income-based limits may reduce or eliminate your ability to make Roth IRA contributions or to make deductible traditional IRA contributions. If you have questions about how much you can contribute to tax-advantaged retirement plans in 2016, check with us.

Type of limit	2016 limit
Elective deferrals to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans	$18,000
Contributions to defined contribution plans	$53,000
Contributions to SIMPLEs	$12,500
Contributions to IRAs	$5,500
Catch-up contributions to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans	$6,000
Catch-up contributions to SIMPLEs	$3,000
Catch-up contributions to IRAs	$1,000

Yeo & Yeo CPAs & Business Consultants is pleased to announce that Danielle A. Cary, CPA, Jacob R. Sopczynski, CPA, and Jennifer M. Watkins, CPA, have been promoted to the position of principal.

Thomas E. Hollerback, president and CEO, says, “We are proud to recognize Danielle, Jacob and Jennifer for their leadership and expertise, and for their commitment to serving our valued clients. They have excelled in providing professional services and are committed to helping Yeo & Yeo’s clients succeed.”

Danielle Cary recently transferred from the firm’s Auburn Hills office to the Ann Arbor office. She has over 17 years of experience in tax planning and preparation for individuals and businesses, and business consulting for clients in many industries. She is a key member of the firm’s Tax Services team, helping to implement firm-wide advances in tax processes and client services. She is also a member of the firm’s State and Local Tax (SALT) team and Compilation & Review teams. She serves on the Michigan Association of Certified Public Accountants’ State and Local Tax Task Force. Cary is a Certified QuickBooks ProAdvisor, assisting clients with QuickBooks software consulting and accounting system design.

Learn more about Danielle:

Danielle Cary’s Professional Bio
Danielle was featured among Yeo & Yeo’s women leaders in 2015. Read her story here.

Jacob Sopczynski provides Audit & Assurance services. He is a member of the firm’s Audit Services Team and Manufacturing Services team. He also works with many clients as a consultant and specialist in the application of data extraction techniques. He joined Yeo & Yeo in 2005 and is based in the Flint office. Sopczynski serves as the Chair of the Michigan Association of Certified Public Accountants’ Manufacturing Task Force. He is a member of Automation Alley and serves on its finance committee, Michigan Manufacturers Association, Great Lakes Bay Manufacturers Association and the Government Finance Officers Association. He is a Leadership Bay County graduate and a 1,000 Leaders Initiative alumnus.

Learn more about Jacob:

Jacob Sopczynski’s Professional Bio

Jennifer Watkins provides Audit & Assurance services with a focus on school districts and Non-Profit organizations. She leads the firm’s Education Services team. She is a member of the Michigan Department of Education’s 1022 Committee and its A-133 Referent Committee, and presents new accounting and audit rules to school district officials throughout the state. She is a member of the Association of School Business Officials, Michigan School Business Officials and several regional School Business Officials organizations. She joined the firm in 2006 and is based in the Flint office. Watkins serves on the board of directors of Zonta Club of Flint and volunteers for Genesee County Habitat for Humanity, Carriage Town Ministries and United Way of Genesee County. She is a graduate of Leadership Genesee.

Learn more about Jennifer:

Jennifer Watkins Professional Bio
Jennifer was featured among Yeo & Yeo’s women leaders in 2015. Read her story here.

Here’s a simplified way to project your estate tax exposure. Take the value of your estate, net of any debts. Also subtract any assets that will pass to charity on your death.

Then, if you’re married and your spouse is a U.S. citizen, subtract any assets you’ll pass to him or her. Those assets qualify for the marital deduction and avoid potential estate tax exposure until the surviving spouse dies. The net number represents your taxable estate.

You can transfer up to your available exemption amount at death free of federal estate taxes. So if your taxable estate is equal to or less than the estate tax exemption (for 2015, $5.43 million) reduced by any gift tax exemption you used during your life, no federal estate tax will be due when you die. But if your taxable estate exceeds this amount, it will be subject to estate tax. Many states, however, now impose estate tax at a lower threshold than the federal government does, so you’ll also need to consider the rules in your state.

If you’re not sure whether you’re at risk for the estate tax or if you’d like to learn about gift and estate planning strategies to reduce your potential liability, please contact us.

After you reach age 70½, you must take annual required minimum distributions (RMDs) from your IRAs (except Roth IRAs) and, generally, from your defined contribution plans (such as 401(k) plans). You also could be required to take RMDs if you inherited a retirement plan (including Roth IRAs).

If you don’t comply — which usually requires taking the RMD by December 31 — you can owe a penalty equal to 50% of the amount you should have withdrawn but didn’t.

So, should you withdraw more than the RMD? Taking only RMDs generally is advantageous because of tax-deferred compounding. But a larger distribution in a year your tax bracket is low may save tax.

Be sure, however, to consider the lost future tax-deferred growth and, if applicable, whether the distribution could: 1) cause Social Security payments to become taxable, 2) increase income-based Medicare premiums and prescription drug charges, or 3) affect other tax breaks with income-based limits.

Also keep in mind that, while retirement plan distributions aren’t subject to the additional 0.9% Medicare tax or 3.8% net investment income tax (NIIT), they are included in your modified adjusted gross income (MAGI). That means they could trigger or increase the NIIT, because the thresholds for that tax are based on MAGI.

For more information on RMDs or tax-savings strategies for your retirement plan distributions, please contact us.

Personal Property Tax Reform was passed in Michigan during 2014 and established a seven-year phase-in for changes to personal property taxation on eligible manufacturing personal property in Michigan. It also established a new Essential Services Assessment (ESA) which will be due August 15, 2016, for the first time.

With the arrival of 2016, we are now at the first year of the phase-in for both the Eligible Manufacturing Personal Property exemptions from Personal Property Tax and the new ESA.

Eligible manufacturers need to file Form 5278 by February 22, 2016, to claim the exemption. The form will not be mailed to taxpayers; access the form on the State of Michigan website, www.michigan.gov/esa. Form 5278 is new and significantly different from the personal property tax form for commercial taxpayers or small businesses. A qualifying manufacturer will have both PPT and ESA payments due each year through the phase-in periods.

Michigan now has three Personal Property Tax forms, and taxpayers need to file the correct version for their business:

Form 5076 – Small businesses with less than $80,000 in personal property
Form 632 – Commercial and non-qualified industrial businesses
Form 5278 – Industrial businesses with Eligible Manufacturing Personal Property

Learn more about Personal Property Tax Changes for Manufacturers on our website or contact your Yeo & Yeo professional for more details.

On December 18, 2015, President Barack Obama signed the Protecting Americans From Tax Hikes Act of 2015. The Act extends dozens of favorable tax benefits that expired at the end of 2014. Following are some of the key provisions included in the bill.

Permanent extension of the following –

R&D tax credit, with AMT turn-off and start-up provisions for taxpayers with average gross receipts of under $50 million the past three years
Earned income tax credit
Child tax credit
American Opportunity Tax Credit
Section 179 expensing at the $500,000 level, with a $2,000,000 phase-out threshold – indexed for inflation starting in 2016
Deduction of state and local sales taxes
Up to $100,000 in qualified charitable distributions from an IRA without including the distribution in income for taxpayers over 70 ½
Reduction of the S Corporation recognition period for built-in gains tax to five years
Deduction for certain expenses of teachers up to $250, indexed for inflation beginning in 2016

5-year extension of the following –

Work Opportunity Tax Credit
Bonus depreciation (50% in 2015-2017; 40% in 2018; 30% in 2019)
New Markets tax credit
Some provisions for wind and solar, with phase-outs

2-year extension of the following –

179D provisions
Exclusion from income for discharge of qualified principal residence debt
Deduction for mortgage insurance premiums
Tuition deduction
Certain energy-related credits

The bill also delays for two years –

Imposition of the “Cadillac” healthcare tax
Imposition of the 2.3% medical device excise tax

The above represent just a handful of the provisions that were part of the legislation. Please see an article in the Journal of Accountancy for a more detailed list.

A potential downside of tax-deferred saving through a traditional retirement plan is that you’ll have to pay taxes when you make withdrawals at retirement. Roth plans, on the other hand, allow tax-free distributions; the tradeoff is that contributions to these plans don’t reduce your current-year taxable income.

Unfortunately, modified adjusted gross income (MAGI)-based phaseouts may reduce or eliminate your ability to contribute:

For married taxpayers filing jointly, the 2015 phaseout range is $183,000–$193,000.
For single and head-of-household taxpayers, the 2015 phaseout range is $116,000–$131,000.

You can make a partial contribution if your MAGI falls within the applicable range, but no contribution if it exceeds the top of the range.

If the income-based phaseout prevents you from making Roth IRA contributions and you don’t already have a traditional IRA, a “back door” IRA might be right for you. How does it work? You set up a traditional account and make a nondeductible contribution to it. You then wait until the transaction clears and convert the traditional account to a Roth account. The only tax due will be on any growth in the account between the time you made the contribution and the date of conversion.

This is the question on tax-savvy Americans’ minds. Many valuable tax breaks aren’t permanent, so Congress has to pass legislation extending them to keep them in effect. Unfortunately, Congress often waits until the last minute to do so.

For example, Congress didn’t pass 2014 extenders until December 2014, making the legislation retroactive to January 1, 2014 — but not extending the breaks to 2015. So we’re again in a waiting game to see what will happen with extenders legislation. Some believe Congress will act soon, while others think we’ll be waiting until the new year.

Here are several expired breaks that may benefit you or your business if extended:

The deduction for state and local sales taxes in lieu of state and local income taxes,
Tax-free IRA distributions to charities,
Bonus depreciation,
Enhanced Section 179 expensing,
Accelerated depreciation for qualified leasehold improvement, restaurant and
retail improvement property,
The research tax credit,
The Work Opportunity tax credit, and
Various energy-related tax incentives.

Please check back with us for the latest information. Keep in mind that quick action after extenders legislation is passed may be required in order to take maximum advantage of the extended breaks.

The first step to smart timing is to project your business’s income and expenses for 2015 and 2016. With this information in hand, you can determine the best year-end timing strategy for your business.

If you expect to be in the same or lower tax bracket in 2016, consider:

Deferring income to 2016. If your business uses the cash method of accounting, you can defer billing for your products or services. Or, if you use the accrual method, you can delay shipping products or delivering services.

Accelerating deductible expenses into 2015. If you’re a cash-basis taxpayer, you may make a state estimated tax payment before December 31, so you can deduct it this year rather than next. Both cash- and accrual-basis taxpayers can charge expenses on a credit card and deduct them in the year charged, regardless of when the credit card bill is paid.

If you expect to be in a higher tax bracket in 2016, accelerating income and deferring deductible expenses may save you more tax over the two-year period (though it will increase your 2015 tax liability).

For help projecting your income and expenses or for more ideas on how you can effectively time them, please contact us.

On November 25, 2015, the United States Department of Agriculture (USDA) designated 24 Michigan counties as primary natural disaster areas due to losses and damages as a result of the many natural disasters in 2015. Farmers in the selected counties are eligible for a low-interest emergency loan through the USDA’s Farm Service Agency, should all requirements be met. Applications must be received within eight months of the date of declaration and will be examined taking into account the assessment of all qualifying losses.

Yeo & Yeo’s agribusiness advisors can help applicants with the financial reporting requirements for the loan application, and put farmers in touch with bankers who are experienced with facilitating emergency loans and working with agribusiness operations.

A statement from the USDA, the declaration and a complete list of all counties that have been designated primary natural disaster areas can be found here.