The 529 Savings Plan: A Tax-Smart way to Fund College Expenses

If you’re saving for college, consider a Section 529 plan. Although contributions aren’t deductible for federal purposes, plan assets can grow tax-deferred. (Some states do offer tax incentives for contributing.)

Distributions used to pay qualified expenses (such as tuition, mandatory fees, books, equipment, supplies and, generally, room and board) are income-tax-free for federal purposes and typically for state purposes as well, thus making the tax deferral a permanent savings.

529 plans offer other benefits as well:

They usually offer high contribution limits, and there are no income limits for contributing.
There’s generally no beneficiary age limit for contributions or distributions.
You can control the account, even after the child is of legal age.
You can make tax-free rollovers to another qualifying family member.

Finally, 529 plans provide estate planning benefits: A special break for 529 plans allows you to front-load five years’ worth of annual gift tax exclusions and make up to a $70,000 contribution (or $140,000 if you split the gift with your spouse).

The biggest downside may be that your investment options — and when you can change them — are limited. Please contact us for more information on 529 plans and other tax-smart strategies for funding education expenses.

Donations to qualified charities are generally fully deductible, and they may be the easiest deductible expense to time to your tax advantage. After all, you control exactly when and how much you give. But before you donate, it’s critical to make sure the charity you’re considering is indeed a qualified charity — that it’s eligible to receive tax-deductible contributions.

The IRS’s online search tool, Exempt Organizations (EO) Select Check, can help you more easily find out whether an organization is eligible to receive tax-deductible charitable contributions. You can access EO Select Check at http://apps.irs.gov/app/eos. Information about organizations eligible to receive deductible contributions is updated monthly.

Also, with the 2016 presidential election heating up, it’s important to remember that political donations aren’t tax-deductible.

Of course, additional rules affect your charitable deductions, so please contact us if you have questions about whether a donation you’re planning will be fully deductible. We can also provide ideas for maximizing the tax benefits of your charitable giving.

From the Thanksgiving kick-off of the holiday season through December 31, many businesses find themselves short-staffed as employees take time off to spend with family and friends. But if you limit how many vacation days employees can roll over to the new year, you might find your workplace to be nearly a ghost town as employees scramble to use their time off rather than lose it.

A paid time off (PTO) contribution arrangement may be the solution. It allows employees with unused vacation hours to elect to convert them to retirement plan contributions. If the plan has a 401(k) feature, it can treat these amounts as a pretax benefit, similar to normal employee deferrals. Alternatively, the plan can treat the amounts as employer profit sharing, converting the excess PTO amounts to employer contributions.

A PTO contribution arrangement can be a better option than increasing the number of days employees can roll over. Why? Larger rollover limits can result in employees building up large balances that create a significant liability on your books.

To offer a PTO contribution arrangement, you simply need to amend your plan. However, you must still follow the plan document’s eligibility, vesting, rollover, distribution and loan terms, and additional rules apply.

To learn more about PTO contribution arrangements, including their tax implications, please contact us.

Employers must implement a number of 2016 payroll tax changes to accurately process payroll. Provided below is a list of scheduled changes that will affect employers beginning next year.

Social Security Wage Base. The 2016 wage base will be $118,500. The employee and employer match will be 6.2%. The maximum deduction will be $7,347 ($118,500 x 6.2%).
Medicare Tax. As in prior years, there is no limit to the wages subject to the Medicare Tax; therefore, all covered wages are still subject to the 1.45% tax. Wages paid in excess of $200,000 will be subject to an extra 0.9% Medicare tax that will be withheld only from employees’ wages.
Health Flexible Spending Arrangements. The dollar limitation on voluntary employee salary reductions for contributions to a health flexible spending arrangement (FSA) is $2,550.
Medical Savings Accounts. A high-deductible health plan is a plan with an annual deductible of $2,250-$3,350 for individual coverage and $4,450-$6,700 for family coverage.
IRA Contribution Limits. The 2015 contribution limit for Simple IRAs is $12,500. The catch-up contribution for those age 50 or older by December 31, 2015, is $3,000.
401(k), 403(b) and 457 Contribution Limits. The contribution limit for these plans’ employee deferrals is $18,000. The catch-up contribution for those age 50 or older by December 31, 2015, is $6,000.
2016 Federal Standard Mileage Rates: The 2016 mileage rates have not yet been released. Continue to visit yeoandyeo.com for updates.
Dependent Care Limits. The maximum exclusion from gross income under a dependent care program is $7,500 for an individual or a married couple filing jointly.

For more information, view our 2016 Payroll Planning Brief, which includes a list of items to consider before December 31, 2015.

QuickBooks Desktop 2016 is now available for purchase or download. Many new and minor improvements to the program’s interface and features were implemented with this new release.

The key features of QuickBooks 2016 are easily tailored to your industry.

“Bill Tracker” provides a dedicated dashboard to view data for purchase orders and bills.
Instant view of the money-out in “Bill Tracker” without having to run reports.
Bulk clear is now available to delete or void multiple transactions.
New reporting features that allow for advance filtering such as, “This year to last month.”
Easy access to data such as business growth and top customers on the homepage.
Single step improvements that allow for easy form management.
Simplified reminders all accessible from one window.
Other industry-specific upgrades to improve efficiency for general business, contractors, manufacturing, Non-Profit, professional services and retail.

In order to access the new features of QuickBooks 2016 and have the most updated interface, an upgrade is needed. If you have not upgraded by May 31, 2016, QuickBooks 2013 add-ons will be discontinued and no longer supported.

Yeo & Yeo has the ability to order QuickBooks 2016 at a discounted price for clients. If you are interested in upgrading to or purchasing the newest version of the software, or if you would like more information to determine if the program is the right fit for your company, please contact your Yeo & Yeo professional and we will align you with a QuickBooks ProAdvisor to assist you.

Learn more about QuickBooks and the Yeo & Yeo Client Accounting Software Solutions Team.

Starting in 2016, applicable large employers (ALEs) under the Affordable Care Act (ACA) will have to file Forms 1094-C and 1095-C to provide information to the IRS and plan participants regarding their healthcare benefits for the previous year. Both the forms and their instructions are now available for ALEs to study and begin preparations for required filings. In addition, organizations that expect to file Forms 1094 and 1095 electronically can peruse two final IRS publications setting out specifications for using the new ACA Information Returns system.

Keep in mind that ALEs are employers with 50 or more full-time employees or the equivalent. And even ALEs exempt from the ACA’s shared-responsibility (or “play or pay”) provision for 2015 (that is, ALEs with 50 to 99 full-timers or the equivalent who meet certain eligibility requirements) are still subject to the information reporting requirements in relation to their 2015 healthcare benefits.

If your company is considered an ALE, please contact us for assistance in navigating the ACA’s complex requirements for avoiding penalties and properly reporting benefits. If you’re not an ALE, we can still help you understand how the ACA affects your small business and determine whether you qualify for a tax credit for providing coverage.

Yeo & Yeo CPAs & Business Consultants is pleased to announce that Eric J. Sowatsky, CPA, CGMA, and Tara L. Stensrud, CPA, have achieved the National Social Security Advisor certification from the National Social Security Association LLC in Cincinnati.

The certification allows Sowatsky and Stensrud to counsel clients on the best way to claim Social Security benefits in order to optimize lifetime Social Security income.

Sowatsky specializes internal control reviews, business consulting, financial reporting and tax planning issues, with an emphasis in agribusiness. He is the leader of Yeo & Yeo’s Agribusiness Services Group, and a member of the firm’s State and Local Tax Group and healthcare Reform Group. Sowatsky has 11 years of public accounting experience and is a senior manager in the firm’s Saginaw office.

Stensrud provides accounting, tax planning and preparation, and business consulting services. She has nine years of public accounting experience and is a senior manager in the firm’s Alma office. She is a member of the firm’s Manufacturing Services Group, Tax Services Group, and Client Accounting Software Solutions Group. She is accredited as an Advanced Certified QuickBooks ProAdvisor.

The NSSA program includes one day of training and prepares professional advisors for the myriad of questions that their clients are asking. Also, with this training, advisors can guide their clients through the many Social Security options that are available. NSSA advisors are uniquely qualified to help the growing numbers of Baby Boomers.

The National Social Security Advisor program was created by CPA Marc Kiner and Jim Blair, a 35-year veteran of the Social Security Association. With 10,000 Baby Boomers turning 65 each day in the United States, Kiner and Blair believe that advisors must be educated regarding Social Security. There are 72 million Baby Boomers nationwide. Boomers are people born between 1946 and 1964.

“For more and more people, Social Security is going to provide an important part of their retirement income,” said Blair. “NSSA advisors are passionate about helping retirees optimize their benefits over the rest of their lives.”

For more information about Yeo & Yeo CPAs, go to www.yeoandyeo.com or call Eric Sowatsky at (989) 793-9830 or email erisow@yeoandyeo.com, or call Tara Stensrud at (989) 463-6108 or email tarste@yeoandyeo.com.

For more information about the NSSA certification program, go to www.nationalsocialsecurityassociation.com.

Medical expenses that aren’t reimbursable by insurance or paid through a tax-advantaged account (such as a Health Savings Account or Flexible Spending Account) may be deductible — but generally only to the extent that they exceed 10% of your adjusted gross income.

Taxpayers age 65 and older can enjoy a 7.5% floor through 2016. The floor for alternative minimum tax purposes, however, is 10% for all taxpayers.

By “bunching” nonurgent medical procedures and other controllable expenses into alternating years, you may increase your ability to exceed the applicable floor. Controllable expenses might include prescription drugs, eyeglasses and contact lenses, hearing aids, dental work, and elective surgery.

If it’s looking like you’re close to exceeding the floor in 2015, consider accelerating controllable expenses into this year. But if you’re far from exceeding it, to the extent possible (without harming your or your family’s health), you might want to put off medical expenses until next year, in case you have enough expenses in 2016 to exceed the floor.

For more information on how to bunch deductions or exactly what expenses are deductible, please contact us.

Yeo & Yeo CPAs & Business Consultants received the Association of Fundraising Professionals – Mid-Michigan Chapter’s Outstanding Corporation Award. The award recognizes outstanding commitment through financial support and through encouragement and motivation of others to take leadership roles toward philanthropy and community involvement.

On November 2, 2015, at a luncheon in Freeland, Michigan, the Mid-Michigan Chapter honored local individuals, foundations and businesses by presenting awards as part of National Philanthropy Day.

“We are proud to be recognized for the efforts of all our employees and their dedication to supporting the communities in which they live and work. Commitment to community service has been a long-standing part of Yeo & Yeo’s culture as evidenced by our employees’ investment of time, talent and resources in our communities,” says Suzanne Lozano, principal in the firm’s Saginaw office. Yeo & Yeo employees serve in leadership roles and volunteer in more than 200 cultural, business, civic and community endeavors in the Great Lakes Bay Region and throughout Michigan.

The Mid-Michigan Chapter of the Association of Fundraising Professionals works with the national organization to advance philanthropy through advocacy, research, education and certification programs.

Contributing to a traditional employer-sponsored defined contribution plan, such as a 401(k), 403(b) or 457 plan, offers many benefits:

Contributions are pretax, reducing your modified adjusted gross income (MAGI), which can also help you reduce or avoid exposure to the 3.8% net investment income tax.
Plan assets can grow tax-deferred — meaning you pay no income tax until you take distributions.
Your employer may match some or all of your contributions pretax.

For 2015, you can contribute up to $18,000. If your current contribution rate will leave you short of the limit, consider increasing your contribution rate through the end of the year. Because of tax-deferred compounding, boosting contributions sooner rather than later can have a significant impact on the size of your nest egg at retirement.

If you’ll be age 50 or older by December 31, you can also make “catch-up” contributions (up to $6,000 for 2015). So if you didn’t contribute much when you were younger, this may allow you to partially make up for lost time. Even if you did make significant contributions before age 50, catch-up contributions can still be beneficial, allowing you to further leverage the power of tax-deferred compounding.

Have questions about how much to contribute? Contact us. We’d be pleased to discuss the tax and retirement-saving considerations with you.

In 2014, Governor Snyder signed legislation increasing the Michigan minimum wage rate in stages.

The first increase took effect on September 1, 2014, increasing the hourly minimum rate to $8.15 per hour.
On January 1, 2016, the minimum wage increases to $8.50 an hour;
On January 1, 2017, to $8.90 an hour; and
On January 1, 2018, to $9.25 an hour.

Beginning in 2019, the rate will be adjusted annually for inflation, up to a maximum of 3.5 percent per year.

Note that the rate increases are effective for wages earned on or after the indicated date, and not the actual wage payment date.

On January 1, 2016, tipped employee hourly wage rates will also increase to $3.23 an hour. The State of Michigan has a reduced rate available for minors age 16 to 17; however, since it is below the federal minimum wage of $7.25 per hour, that rate takes precedence. A training wage of $7.25 per hour may be paid to employees 16-19 years of age for the first 90 days of their employment.

The full rate schedule is available on the Michigan Department of Licensing and Regulatory Affairs website.

Contact your Yeo & Yeo payroll professional for assistance.

Yeo & Yeo CPAs & Business Consultants received the Leading Edge Alliance’s (LEA) prestigious award for Process Improvement, for its Lean Audit Process implementation. The award was announced at the LEA’s 2015 Global Conference held in Miami, Florida. Each year the LEA recognizes accounting firms for their cutting-edge innovations that differentiate LEA members from their competitors.

“It is an honor to be recognized by our peers for implementing a successful Lean Audit process.” said Thomas Hollerback, CEO. “Yeo & Yeo strives to continuously improve processes to strengthen internal efficiencies and the relationships with our clients.”

Yeo & Yeo identified the need for a standardized firm-wide audit process in 2013. “We realized an opportunity existed to streamline our process to better serve the needs of our clients and professional staff,” said Kristi Krafft-Bellsky, senior manager. “Our solution was to eliminate the individual office approach and communicate a new process across our nine offices to efficiently distribute work and increase client satisfaction.” The firm sought out the expertise of LeanCPA, LLC, which uses the Lean Six Sigma methodology to help firms develop lean processes.

The methodologies used throughout the Lean Audit Process helped in identifying inefficiencies and aided in developing techniques that focus on process effectiveness and understanding client value. The new process was rolled out firm-wide in 2013, and all fieldwork performed since 2014 has been completed under the new Lean Audit Process.

“In 2015, we now have a full year of data to prove the benefits this process has garnered which include reduced on-the-job hours, a decrease in write-offs and a 5% increase in realization,” said Krafft-Bellsky. “But the most astute has been the positive feedback from staff and clients, resulting from quicker turnaround times and better communication throughout the audit engagement.”

Yeo & Yeo is a founding member of LEA Global, the second largest international professional association in the world, creating a high-quality alliance of 220 firms in 106 countries that are focused on accounting, financial and business advisory services.

The fate of 51 tax incentives is in the hands of our legislators in Washington. While some bills are pending in Congress, at this time none has gained enough traction to predict approval of extender legislation before December 31, 2015.

Tax extenders are a broad set of temporary tax breaks that sunset every few years and require a new vote to reinstate them. In December 2014 Congress retroactively extended numerous provisions, but only for 2014. As the end of 2015 rapidly approaches, we still have no clear indication that Congress will once again act to reinstate these tax incentives.

Individual tax incentives that expired at the end of 2014 include the above-the-line deduction for classroom expenses incurred by school teachers, above-the-line deduction for tuition and related expenses, the deduction for mortgage insurance premiums and the distribution of charitable contributions from individual retirement plans.

Business tax incentives that expired at the end of 2014 include the research and development (R&D) tax credit, the work opportunity tax credit, the new markets tax credit and the wage credit for employees on active duty. Bonus depreciation and enhanced expensing allowances, which are often viewed as economic stimulus tools, also expired at the end of 2014.

Refer to Yeo & Yeo’s Tax Brief on Expiring Tax Provision to learn more about the specific expired tax incentives for businesses and individuals, as well as the expired energy tax incentives. It is important to consider whether the elimination or revival of these tax laws will impact your tax scenario and plan for it to go either way. You may want to determine the increase in your tax liability and prepare accordingly if they are not revived.

Year-end tax planning is especially challenging this year because Congress may not decide the fate of these tax breaks until the very end of this year or possibly not until next year. We invite you to contact us to discuss your particular tax situation.

If your business exports American-made goods or performs architectural or engineering services for foreign construction projects, an interest-charge domestic international sales corporation (IC-DISC) can help slash your tax bill.

An IC-DISC is a “paper” corporation you set up to receive commissions on export sales, up to the greater of 50% of net income or 4% of gross receipts from qualified exports. Your business deducts the commission payments, while distributions received from the IC-DISC are treated as qualified dividends, not capital gains.

Essentially, an IC-DISC allows you to convert ordinary income taxed at rates as high as 39.6% into dividends taxed at 15% or 20%. An IC-DISC also allows you to defer taxes on up to $10 million in commissions held by the IC-DISC by paying a modest interest charge to the IRS.

Think an IC-DISC might be right for you? Contact us for more information.

As we wind down the 2015 tax year, year-end tax planning will be especially challenging. Congress has yet to act on a host of tax breaks that expired at the end of 2014. Some of these tax breaks may be retroactively reinstated and extended, but Congress may not decide the fate of these tax breaks until the very end of this year or possibly not until next year.

Yeo & Yeo’s Year-end Tax Planning Checklist provides action items that may help you save tax dollars if you act before year-end. Yeo & Yeo’s tax professionals can help narrow down the specific actions that you can take and tailor a tax plan for your current situation and future changes.

Year-end tax planning should be a part of everyone’s financial routine. Usually there are many tax planning decisions you can make at year-end to drastically improve your tax situation when April 15 comes around. A thorough review of your tax picture before year-end can let you know where you stand and suggest potential tax-saving opportunities. Make sure you are doing all you can to minimize your taxes by taking action soon.

For more extensive tax information, visit Yeo & Yeo’s Tax Guide Online.

Yeo & Yeo CPAs & Business Consultants has been named one of Michigan’s Best and Brightest in Wellness, an initiative that recognizes and celebrates quality and excellence in worksite health. The program highlights companies that promote a culture of wellness, and those that plan, implement, and evaluate efforts in employee wellness.

“We are committed to the health and wellness of our employees, and our goal is to help them be empowered to make real changes in their health and lifestyle behaviors,” said Thomas E. Hollerback, president and CEO of Yeo & Yeo. “We are honored by this recognition and committed to continued advances in our wellness programs.”

Yeo & Yeo supports wellness for its employees by offering a gold level healthcare plan and paying a large portion of the premiums, helping to keep costs low for employees. The firm has a high percentage of participation in its wellness plan/healthcare premium reduction incentive. Another initiative is the firm’s Fitbit Fitness Program. Themed, monthly challenges for individuals and teams, along with prizes and friendly competition, have resulted in a high level of participation. The firm also provides free flu shots.

Nominees were evaluated by a selection committee of leading healthcare and wellness professionals. Criteria for selection included policies, environment, leadership, awareness and motivation, incentives, measurement, and healthcare cost, among others. A total of 300 companies and organizations were nominated for the award. Of those organizations, 142 completed the entire selection process, and 76 winners were chosen.

Yeo & Yeo was honored at a symposium and awards celebration on October 8 at The Henry in Dearborn. The program is co-presented by the Michigan Business & Professional Association, Michigan Food and Beverage Association and Corp! magazine. Winners are featured in the September/October Corp! magazine and Corp! online.

The IRS has released an official app to better serve smartphone users.

IRS2Go allows users a mobile-friendly way to:

Check the status of their tax refund
Make payments
Stay connected with the IRS on Twitter, Tumblr and YouTube
Sign up for helpful tax tips
Find local IRS Volunteer Income Tax Assistance (VITA) locations
Find local Tax Counseling for the Elderly (TCE) locations

By using the IRS2Go app, if you file your tax return electronically, you can check your refund status within 24 hours of the IRS receiving your return. The app allows you to access mobile-friendly payment options similar to IRS Direct Pay. The mobile pay option is a secure way to directly pay from your bank account, credit or debit card.

The IRS2GO App is available in both English and Spanish. Download the IRS2Go on Google Play, Amazon and iTunes.

Yeo & Yeo does not endorse this app, or the use of any type of software or apps. This information is meant to inform that such an app is available.

Beginning in 2015, the Affordable Care Act (ACA) enacted two reporting requirements that call for employers to file additional forms with the Internal Revenue Service. The reporting requirements are satisfied by filing Forms 1095-B and 1095-C, along with the respective transmittal Forms 1094.

Under the ACA, Applicable Large Employers (ALEs) will have to file Forms 1094-C and 1095-C to provide information to the IRS and plan participants regarding their healthcare benefits for the previous year. In addition, organizations that expect to file Forms 1094 and 1095 electronically can peruse two final IRS publications setting out specifications for using the new ACA Information Returns system.

Keep in mind that ALEs are employers with 50 or more full-time employees or the equivalent. And even ALEs exempt from the ACA’s shared-responsibility (“play or pay”) provision for 2015 (that is, ALEs with 50 to 99 full-timers or the equivalent who meet certain eligibility requirements) are still subject to the information reporting requirements in relation to their 2015 healthcare benefits.

Small employers and ALEs have different requirements. Learn more about the forms, reporting requirements for health insurance issuers, small employers and ALEs, and the reporting penalties. Please contact us for assistance in navigating the ACA’s complex requirements for properly reporting benefits and avoiding penalties.

The Michigan Department of Insurance and Financial Services (DIFS) will hold its second Reinventing MI Retirement program.

Michigan residents age 50+ are encouraged to take advantage of the educational program that will be held at the Doubletree Hotel in Bay City on October 19, 2015, from 9:00 a.m. – 3:00 p.m. The event is free to the public but requires advance registration.

The Director of Tax Services for Yeo & Yeo, Gary Riedlinger, will offer a confidential 1-on-1 “QuickCheck” to those in attendance. As a Personal Financial Specialist (PFS) Gary is delighted to help individuals become engaged, connected and informed with their retirement finances. To read more about Gary Riedlinger, view his bio.

Attendees will also benefit from:

- 12 in-depth workshops on topics crucial to those age 50 and older
- Access to subject matter professionals and guest speakers
- Financial resource fair
- Complimentary breakfast and lunch
- Free copy of the Reinventing MI Retirement Toolkit

To register, visit the DIFS website, the events Facebook page, or call 877.999.6442.

View the Reinventing MI Retirement informative flyer here.

If you’re a collector, donating from your collection instead of your bank account or investment portfolio can be tax-smart. When you donate appreciated property rather than selling it, you avoid the capital gains tax you would have incurred on a sale. And long-term gains on collectibles are subject to a higher maximum rate (28%) than long-term gains on most long-term property (15% or 20%, depending on your tax bracket) — so you can save even more taxes.

But choose the charity wisely. For you to receive a deduction equal to fair market value rather than your basis in the collectible, the item must be consistent with the charity’s purpose, such as an antique to a historical society.

Properly substantiating the donation is also critical, and this may include an appraisal. If you donate works of art with a collective value of $5,000 or more, you’ll need a qualified appraisal, and if the collective value is $20,000 or more, a copy of the appraisal must be attached to your tax return. If an individual item is valued at $20,000 or more, you may also be required to provide a photograph of that item.

If you’re considering a donation of artwork or other collectibles, contact us for help ensuring you can maximize your tax deduction.