Extension Means Businesses Can Take Bonus Depreciation on Their 2015 Returns – But Should They?

Bonus depreciation allows businesses to recover the costs of depreciable property more quickly by claiming additional first-year depreciation for qualified assets. The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) extended 50% bonus depreciation through 2017.

The break had expired December 31, 2014, for most assets. So the PATH Act may give you a tax-saving opportunity for 2015 you wouldn’t otherwise have had. Many businesses will benefit from claiming this break on their 2015 returns. But you might save more tax in the long run if you forgo it.

What assets are eligible

For 2015, new tangible property with a recovery period of 20 years or less (such as office furniture and equipment) qualifies for bonus depreciation. So does off-the-shelf computer software, water utility property and qualified leasehold-improvement property.

Acquiring the property in 2015 isn’t enough, however. You must also have placed the property in service in 2015.

Should you or shouldn’t you?

If you’re eligible for bonus depreciation and you expect to be in the same or a lower tax bracket in future years, taking bonus depreciation (to the extent you’ve exhausted any Section 179 expensing available to you) is likely a good tax strategy. It will defer tax, which generally is beneficial.

But if your business is growing and you expect to be in a higher tax bracket in the near future, you may be better off forgoing bonus depreciation. Why? Even though you’ll pay more tax for 2015, you’ll preserve larger depreciation deductions on the property for future years, when they may be more powerful — deductions save more tax when you’re in a higher bracket.

We can help

If you’re unsure whether you should take bonus depreciation on your 2015 return — or you have questions about other depreciation-related breaks, such as Sec. 179 expensing — contact us.

By purchasing stock in certain small businesses, you can not only diversify your portfolio but also enjoy preferential tax treatment. And under a provision of the tax extenders act signed into law this past December (the PATH Act), such stock is now even more attractive from a tax perspective.

100% exclusion from gain

The PATH Act makes permanent the exclusion of 100% of the gain on the sale or exchange of qualified small business (QSB) stock acquired and held for more than five years. The 100% exclusion is available for QSB stock acquired after September 27, 2010. (Smaller exclusions are available for QSB stock acquired earlier.)

The act also permanently extends the rule that eliminates QSB stock gain as a preference item for alternative minimum tax (AMT) purposes.

What stock qualifies?

A QSB is generally a domestic C corporation that has gross assets of no more than $50 million at any time (including when the stock is issued) and uses at least 80% of its assets in an active trade or business.

Many factors to consider

Of course tax consequences are only one of the many factors that should be considered before making an investment. Also, keep in mind that the tax benefits discussed here are subject to additional requirements and limits. Consult us for more details.

The latest manufacturing industry statistics are generally encouraging and most observers remain cautiously optimistic as 2016 approaches.

But news coverage usually focuses on output. What about handling inventory in this environment of varying supply and demand? This is a constant concern for manufacturers, and possibly you’re among them. By improving inventory management, you may be able to brighten your firm’s immediate outlook by maintaining good customer service and trimming costs.

Potential Problem Areas

Naturally, different sorts of problems arise in different markets, whether its pharmaceuticals, packaged goods or some other industry. But there are common indicators. Here are several examples.

Data management: What is especially troubling in this area is that firms often have the means to achieve better results, but managers either take no action or incorrectly analyze information. For instance, inaccurate procurement and manufacturing lead times will often result in poor inventory judgments. End result: The company ends up with overstocked shelves in anticipation of needs that never come up.
Coordination of activities: Many managers emphasize that cutting down the manufacturing cycle time and filling orders faster will provide a competitive advantage. While that is true, individual elements of overall cycle time must be coordinated to meet overall objectives.
Lack of communication: Similarly, a lack of communication within the firm or between supply chain partners can create inventory-related problems. Departments must remain in close and frequent contact. Gaps in information can lead to overstocking.

The following five steps can help improve inventory management at your firm:

1. Assess business functions and processes. Be sure you understand the current order-to-delivery (OTD) process. Identify any significant gaps or improvement opportunities to accelerate change among cross-functional teams, including sourcing, planning, commercial operations, stockroom and manufacturing. Some of the key elements are:

Question individuals who perform the same job within each function of the OTD process, hold follow-up meetings with others from each function to clarify their roles and duties and obtain input that can be used to measure current processes and share responsibilities.
Use a scoring system encompassing several planning and execution categories to summarize your findings and seek third-party help for a broader and more objective view.
Prepare for the transition by gradually migrating toward the new processes.
Find ways to make the new processes more palatable to long-term workers, who may resist change and ensure that everyone within the business is informed about pending improvements and how the changes will be integrated.

2. Develop the plan. Ensure that the data being used to create the inventory plan is complete, accurate and up-to-date. Fill in any gaps. Next, establish the operational definitions for effective inventory controls. These definitions are critical for standardization and improvements, especially if your firm has expanded through acquisitions and is using multiple data sources.

The plan may be driven by data relating to on-hand inventory, open orders, lead time, standard or average costs and your bill of materials (BOM). Typically it could feature these steps:

Independent planning for each manufacturing segment,
Classifying into raw materials, work-in-process or sub-assembly, and finished goods,
Categorizing into stock and non-stock categories,
Calculating minimum order quantities by parts to optimize inventory and transaction costs,
Identifying initial inventory impact and investment, and
Planning for transitional changes to transactional systems.

3. Execute the plan. Although the plan doesn’t have to be etched into stone, management should approve any deviations. This requires discipline from both managers and floor workers. The following steps will help:

Adhere to inventory planning and ordering policies for each segment.

Install strict controls to ensure data quality and consistency.
Link production schedules with materials.
Establish a supplier performance management process that captures effective contract management, provides metrics and reviews performance.
Simplify and standardize processes for routine tasks. Delegate authority needed to ensure consistent best practices.

4. Measure the results. It’s virtually impossible to improve inventory management without some measurement. To sustain improvements, your firm may establish key performance indicators and metrics for each process during periodic reviews.

Metrics can provide insights into performance for service levels, safety stock investment, ordering costs and total excess inventory value. Grade your firm’s suppliers based on delivery, costs, quality, responsiveness and reliability. Search for ways to minimize rework and related wastes. Encourage workers to document and share successes and failures.

5. Keep improving. If this methodology provides results, continue to seek improvement. Conduct periodic reviews to discuss potential changes, review agreements with key suppliers, minimize ordering quantities and train workers to operate at maximum efficiency.

Optimal Timing

Don’t accept the status quo for inventory management. With another new year rapidly approaching, this is an optimal time to consider these five steps. They can lead to a more profitable operation in 2016.

The Affordable Care Act (ACA) seems to be making Health Savings Accounts (HSAs) more popular than ever. A recent report issued by Devenir, an HSA industry participant, highlights two key findings:

1. As of June 30, 2015, the number of HSAs climbed 23% from the previous year to 14.5 million, and

2. Account balances jumped 25% to approximately $28.4 billion over the same time period.

In 2010, the Employee Benefit Research Institute reported that there were 5.7 million HSAs with balances totaling $7.7 billion. Clearly, these accounts are becoming more popular.

ACA Effect

Under the ACA, health insurance plans are categorized as bronze, silver, gold or platinum. Bronze plans have the highest deductibles and least-generous coverage, so they’re the most affordable. At the opposite end of the spectrum, platinum plans have no deductibles and more coverage, but they’re also much more expensive. In many cases, the ACA has led to significant premium increases — even for those who prefer more basic (and economical) plans.

Fortunately, some of the more basic plans also can make you eligible to make tax-saving HSA contributions. Those tax savings partially offset premium increases and skimpier coverage, leading to a surge in the popularity of HSAs.

HSA Basics

An HSA is an IRA-like trust or custodial account that you can set up at a bank, insurance company or any other entity the IRS declares suitable, such as brokerage firms or credit unions. (You can find suitable HSA trustees with a simple Internet search.)

HSAs must be intended exclusively for paying qualified medical expenses. In other respects, they’re subject to rules similar to those that apply to IRAs. HSAs also may offer the same investment options as IRAs (stocks, mutual funds, bonds, certificates of deposit and so forth). But some HSA trustees may limit investment choices to more conservative options.

For the 2016 tax year, you can make a deductible HSA contribution of as much as $3,350 if you have qualifying high-deductible self-only coverage or as much as $6,750 if you have qualifying high-deductible family coverage. If you are age 55 or older as of the end of 2016, the maximum deductible contribution goes up by $1,000.

For 2015, the contribution caps are the same, except the maximum deductible contribution for family coverage is $6,650. These amounts are increased by $1,000 if you were 55 or older as of December 31, 2015. You have until April 18, 2016, to make an HSA contribution for the 2015 tax year.

You must have a qualifying high-deductible health insurance policy — and no other general health coverage — to be eligible for this HSA contribution privilege. For 2015 and 2016, a high-deductible policy is defined as one with a deductible of at least $1,300 for self-only coverage or $2,600 for family coverage.

For 2016, qualifying high-deductible policies can have out-of-pocket maximums of as much as $6,550 for self-only coverage and $13,100 for family coverage. For 2015, these amounts are $6,450 and $12,900, respectively.

If you are eligible to make an HSA contribution for a tax year, the deadline is April 15 of the following year (adjusted for weekends and holidays) to open an account and make a contribution for the earlier year. This is the same deadline as for IRA contributions. So there’s still time to make a contribution for the 2015 tax year.

The write-off for HSA contributions is an above-the-line deduction, so you needn’t itemize to benefit. Also, the HSA contribution privilege isn’t lost if you are a high earner.

Tax Treatment of Distributions

HSA distributions used to pay qualified medical expenses of the HSA owner and his or her spouse or dependents are free from federal income tax. You may build up a balance in the account if contributions plus earnings exceed withdrawals.

Any income earned is also free of federal income taxes. So, if you are in very good health, you can use your HSA to build up a substantial medical expense reserve fund over the years while collecting deductions and earning tax-free income along the way.

If you still have an HSA balance after reaching Medicare eligibility age, you can drain the account at any time. You will owe federal income tax on the withdrawals, but there’s no penalty. Alternatively, you can keep your HSA open and continue using it to pay medical expenses with tax-free withdrawals.

Thus, an HSA can function like an IRA if you stay healthy. Even if you have to empty the account every year to pay medical expenses, the HSA arrangement allows you to pay those expenses with pretax dollars. But there are some important caveats to bear in mind:

HSA funds cannot be used for tax-free reimbursements of medical expenses that were incurred before you opened the account.
If money is taken out of an HSA for any reason other than to cover qualified medical expenses, it will trigger a 20% penalty tax, unless you are eligible for Medicare.

Contribution Eligibility

According to the general rule, eligibility to make HSA contributions is determined on a monthly basis. So, when you have qualifying high-deductible health coverage for only part of the year, you can contribute and deduct one-twelfth of the annual limit for each month that qualifying coverage is in effect.

Under an exception to this rule, if you are eligible to make HSA contributions as of the last month of the year, you can be treated as eligible for the entire year and thus contribute the maximum for that year. While being able to make a full HSA contribution based on end-of-year eligibility is helpful, a harsh recapture rule may apply if you become ineligible for HSA contributions during the subsequent 12-month testing period.

The testing period begins with the last month of the tax year and ends on the last day of the twelfth month following that month. Any recapture amount must be included in your taxable income and incurs a 10% penalty. The risk of falling under the recapture provision may make it inadvisable to use the exception in order to make a bigger HSA contribution.

Contribution Deadlines

HSAs can provide a smart tax-saving opportunity for individuals with qualifying high-deductible health plans. If you’re eligible to make an HSA contribution for the 2015 tax year, you have until April 18, 2016, to open an account and make a deductible contribution. (For the 2016 tax year, you’ll have until April 17, 2017.) Completing the necessary forms takes only a few minutes. Consult with your tax adviser for more information about HSAs.

The research credit isn’t the only tax break available for research activities. Section 174 of the tax code allows taxpayers to elect to either: 1) deduct “research or experimental expenditures” or 2) amortize the costs over a period of not less than 60 months. Qualified expenses are limited to the following:

In-house wages and supplies attributable to qualified research,
Certain time-sharing costs for computer use in qualified research, and
65% of contract research expenses, that is, amounts paid to outside contractors in the U.S. for conducting qualified research on the taxpayer’s behalf.

Important note. The Sec. 174 deduction must be reduced if you claim the research credit for the same expenses. Consult with your tax adviser to determine the best approach for your situation. Contact a Yeo & Yeo Tax Advisor for assistance.

In 2015, FASB finalized the long-awaited revenue recognition project. This impacts GAAP financial statements for all for-profits and any Non-Profit entities that have exchange transaction revenues (non-contribution revenues.) Non-public companies must adopt the revenue recognition standard for years beginning after December 15, 2018. FASB is still working through implementation questions that have come up and additional guidance is still being issued.

Why the long implementation period? It’s simple; many entities will need to make changes in their accounting and other computer systems to properly track and aggregate the data needed to implement these changes.

Download a PDF of Revenue Recognition Webinar here.

If you have questions, contact a Yeo & Yeo professional.

Don’t believe the rumors you’ve heard about telemarketers calling your cell phone. Placing telemarketing calls to wireless phones is illegal in most cases. The government doesn’t maintain a registry for wireless numbers — and it has no plans to establish one in the future — so compiling lists of wireless numbers is expensive and time consuming. And the Federal Communications Commission (FCC) promises that most calls to cell phones will continue to be illegal even if a 411 phone directory is established for wireless numbers.

FCC regulations prohibit telemarketers from using automated dialers to call cell phone numbers. Most telemarketers use automated dialers, so they’re generally barred from calling consumers on their cell phones without their consent. Consumers do not have to register wireless phones with the Do Not Call (DNC) Registry, although many cell phone users register for the list anyway.

Unfortunately, the rules don’t prevent exempt organizations — such as charities, researchers and pollsters — from calling your cell phone manually. In fact, many exempt organizations plan to increase the calls they make to cell phones to keep pace with people’s changing habits.

Nearly half of U.S. adults have only a cell phone, according to a recent Pew Research study. In general, these individuals tend to be younger, have lower income and education levels, and are more likely to live in urban areas than people with landlines. Reasons for opting out of landline telephone services include cost savings and frustration with unsolicited calls from telemarketing companies and researchers.

Interested in learning more? Read, 10 Facts You Should Know about the Do Not Call Registry.

The Governmental Accounting Standards Board (GASB) issued two new statements that are very similar to the pension standards GASB 67 and 68. The two new statements are GASB 74 and 75.

GASB 74 – Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans

Establishes new accounting and financial reporting requirements for school districts whose employees are provided with other postemployment benefits (OPEB).
Includes defined benefit and defined contribution plans administered through trusts.
Effective for financial statements for fiscal years beginning after June 15, 2016.

What does this mean for school districts? Just like GASB 67, this new standard requires enhanced footnote disclosures and additional schedules for the required supplementary information section of the financial statements. GASB 74 requires the net OPEB liability to be measured as follows: total OPEB liability less the amount of the OPEB plan’s fiduciary net position. This is usually determined through an actuarial valuation. If the OPEB plan has fewer than 100 plan members, both active and inactive, the school district can use a specified alternative measurement method. A new change in this standard requires these valuations or alternative measurements to be performed at least every two years. In the past, this was required every three years. However, the most significant changes will not occur until the implementation of GASB 75.

GASB 75 – Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions

Establishes standards for recognizing and measuring liabilities, deferred outflows and inflows of resources and expenses and expenditures.
For defined benefit OPEB, this pronouncement applies to post-retirement healthcare provided to employees, which is generally provided through the Michigan Public Schools Employee Retirement System (MPSERS). This statement identifies the methods and assumptions that are required to be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service.
Effective for financial statements for fiscal years beginning after June 15, 2017.

Similar to the calculation of the “net pension liability” for GASB 68, GASB 75 will require school districts to record their “net OPEB liability” in their financial statements, specifically on the district-wide statements for the difference between the total OPEB liability and the OPEB plan net position. There are no significant changes to the accounting for OPEB in the modified accrual statements (governmental/fund level statements). The significant increase in the information required in the footnote disclosures will likely add an additional six to seven pages. GASB 75 also requires changes to the required supplementary information.

The changes in the net OPEB liability are recorded in a similar fashion as the changes in the net pension liability. The changes in interest on the total OPEB liability, terms of the OPEB benefits, and service costs are included in OPEB expense in the period of the change. The actual changes in the economic and demographic assumptions and changes in actual and expected experience differences are amortized over the expected remaining service lives of all employees who are provided with benefits through the Plan (both active and inactive), beginning in the current period. The difference between the projected earnings on the OPEB plan investments and the actual experience with regard to those earnings is amortized over five years, beginning in the year of implementation. Just like GASB 68, this statement also requires that employer contributions made to the OPEB plan subsequent to the measurement date be reported as deferred outflows of resources.

The impact of the changes of these two new OPEB accounting standards will be very similar to the changes seen with the pension standards. It is likely that the net OPEB liability could be larger than the net pension liability as the OPEB plans were never required to be funded like the pension plans were. A good thing to remember is that these plans are not new; most school districts have had these plans for many years and they have been disclosed in the footnotes. What is new, is that they are now required to report them on the full-accrual (district-wide) statements in the financial statements. This statement enhances the transparency and accountability by way of changes and updates to the footnotes and required supplementary information (RSI) schedules.

If you have questions about these new financial reporting requirements, please contact your local Yeo & Yeo office. As implementation gets closer, Yeo & Yeo Michigan accountants will communicate on this standard with clients. We will also provide further updates and key information that you need to know as it becomes available.

Kicking off February 1, organizations around the country will support American Heart Month, and Yeo & Yeo is joining in by being casual for a cause. Firm employees will dress in red shirts and wear jeans on Fridays throughout February. The Michigan accounting firm is proud to support the cause by promoting and providing opportunities for firm-wide support to unite in life-saving awareness-to-action movements.

Stay tuned throughout February to hear from David Schaeffer, managing principal of the firm’s Saginaw office, survivor of a “widow maker” heart attack and a truly positive light in his community. Also shared will be the heart-healthy stories of James Kuch, Jill Uhrich and Mark Kunitzer. Each one of the spotlights will highlight what has inspired them to be fit and healthy, as well as what motivates them to continue to make healthy lifestyle choices.

Read Yeo & Yeo’s Health & Wellness Stories here.

Yeo & Yeo was named one of Michigan’s Best and Brightest Companies in Wellness in 2014 and 2015, an initiative that recognizes and celebrates quality and excellence in worksite health. The program highlights companies that promote a culture of 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.

Yeo & Yeo supports the wellness of its employees by providing an AED for every office and encouraging life-saving training. The Michigan accounting firm offers a gold level healthcare plan, relieving its employees of a large portion of premiums. In addition to keeping healthcare costs low, the firm has a high percentage of participation in its wellness plan which includes a further healthcare premium reduction incentive. Another initiative is the firm’s Fitbit Fitness Program. Monthly, themed challenges for individuals and teams, along with prizes and friendly competition, have resulted in a high level of involvement. The firm also provides free flu shots for all employees who elect to participate.

Please join Yeo & Yeo in recognizing American Heart Month.

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