Will Taxes Mean the End of Marijuana Reform?

Last November, Maine voters approved the legalization of recreational marijuana. Since then, entrepreneurs in the industry have begun gearing up now for what will become a real growing frenzy. Warehouse space is being gobbled up by speculators looking to participate in what is already a multibillion-dollar industry. However, all parties should be wary of IRS Code Section 280E.

The states that have legalized marijuana impose sales or excise taxes which are generally passed directly to the consumer of between 10% and 30%. Colorado alone is expected to report sales in excess of $1,000,000,000 with a tax structure that includes a 2.9% sales tax, a special recreational sales tax of 10% plus a 15% excise tax. Needless to say, State and local governments in Colorado are cashing in. What is not so widely known is that the federal government is also cashing in and the entire industry is at risk.

By my count, 23 states now allow for medical or recreational use but the federal government has made no headway in removing marijuana from its list of Schedule 1 controlled substances. The significance of this categorization is important because IRS Code section 280E denies most deductions incurred by businesses trafficking any substances listed on Schedule 1. Since the Maine tax code piggybacks the federal code, it also disallows trafficking/selling related expenses. Currently, corporations in Maine face a federal and state tax rate of 45% on its gross profit. Without the ability to deduct ordinary business related expenses, the industry could see effective tax rates between 80-90% of income.

So how does Congress protect Maine’s marijuana industry? The fix is simple. Congress should remove marijuana (sold legally under state law) from the list of Schedule 1 drugs. To a limited degree, many bills addressing parts of this issue have been put forth and sit in committee somewhere, each seemingly stonewalled. The most recent bill introduced into the House, “States’ Medical Marijuana Property Rights Protection Act” gives some insight to the magnitude of the problem of using your property to grow marijuana. The bill removes real estate from the list of items that can be forfeited as a result of a violation of the Act.

The Controlled Substances Act currently imposes forfeitures which include, among other things, the forfeiture of “All real property, including any right, title, and interest… any lot or tract of land and any appurtenances or improvements, which is used…a violation of this subchapter…”. The aforementioned bill only sets out to remove from the penalty section the forfeiture of real property but does not remove Marijuana from the list of Schedule 1 substances.

This should be a reminder to all, even those merely renting warehouse space, that until the federal law removes legal marijuana from its Schedule 1 list, the life of the industry is on the line.

Jamie Boulette, CPA has 30 years of tax experience and is managing director of Perry, Fitts, Boulette & Fitton CPAs with offices in Bath and Oakland. He can be reached at jboulette@pfbf.com or 371-8002.

 

Tax Season is for Nonprofits, Too

“Tax season” is a term that most of us are familiar with and things are certainly getting into full swing at tax firms across the country. Typically, people think of Forms 1040, 1120 and 1065 at this time of year. There is however, another very important form that non-profit organizations (NPO) need to file, which is IRS Form 990 – Return of Organization Exempt from Income Tax. Unlike individuals, NPO’s have varying year ends which keep CPA firms busy year-round.

Form 990 presents the organization’s financial picture for the year. In addition, it provides information on governance, compliance with other tax filings, specific information on programs and overall general operations. In short, it is a one-stop shop for users to learn about an organization. Consequently, it’s important for the NPO to complete the return accurately and of course timely.

There are 16 schedules to the 990 that a nonprofit organization needs to be aware of. Management, along with assistance from the auditor/accountant, should go through the “Checklists of Required Schedules” on pages 3 and 4 of the 990 to determine which schedules pertain to them and that will in fact need to be filed. The following are some of the more common schedules required: Schedule A – Public Charity Status and Public Support, Schedule B – Schedule of Contributors, Schedule D – Supplemental Financial Statements, Schedule G – Supplemental Information Regarding Fundraising or Gaming Activities, Schedule J – Compensation Information, Schedule L – Transactions with Interested Persons and Schedule O – Supplemental Information to Form 990.

For nonprofits with gross receipts of less than $200,000 and total assets at the end of the year of less than $500,000, the Form 990-EZ should be filed. Smaller tax-exempt organizations who’s annual gross receipts are normally $50,000 or less can comply with their annual reporting requirement by electronically submitting Form 990-N (e-Postcard). The due date for the Form 990 series is the 15th day of the 5th month following the year-end. For NPOs with a December 2016 year-end, the initial due date is May 15th.

Form 990 is not only an IRS compliance requirement, but more importantly it is a way for the NPO to educate potential donors and board members, tell their story, explain their mission and market their organization and programs. It can be a key tool in an organization’s fundraising and marketing efforts.

About the Author: Danielle D. Martin, CPA is a Senior Audit Manager at PFBF CPAs with 24 years of experience in the accounting world. She can be reached at danielle@pfbf.com or 873-1603.

Business Owners: On Your Mark, Get Set, Go!

The start of the New Year marks the beginning of the IRS  informational reporting season that will keep most business owner’s heads spinning. None are overbearing or difficult unless, of course, you don’t get them right the first time. Failure to correctly file W-2 and 1099 forms could get 2017 off to a not-so-happy start.

Wage reporting statements:

W-2 forms must be furnished to employees and filed with the Social Security Administration no later than January 31, 2017. It is possible to request a 30 day extension by submitting Form 8809. If errors are made with the initial filing, W-2c forms can be used to correct them. My advice is to work with your tax professional to make sure that you get them right the first time.

The IRS list the most common mistakes such as omitting decimal points and cents, using a font that is too small or large, (12-point Courier font is recommend), and incorrectly checking the “Retirement plan” box.

My experience suggests that a more careful look into the numbers that make up taxable wages will save you both time and money. Here are our top suggestions to correctly file W-2 forms:

    • Incorporated businesses filing form 1120S are required to include fringe benefits into > 2% shareholder’s taxable income. Fringes include: health insurance, HSA plans, and personal use of company owned vehicles. You should contact your payroll provider to make sure they have the information needed.
    • Employee business expense reimbursements made under an accountable plan are generally not required to be included on form W-2. Payments made as part of a non-accountable plan must be reported as taxable wages. Be sure to communicate any reimbursement plans to your payroll and tax providers as the substantiation requirement are very strict.
    • Employers Earned Income Credit notice. All employers must notify employees who have no income tax withheld that they may be able to claim an income tax refund as a result of the Earned Income Credit (EIC)

Penalties for failure to correctly file W-2 forms by the due date can range from $50 to $260 per W-2.

Informational returns:

Warning, this is not for the faint of heart! There are over 30 informational returns that a business might be required to be file including payments for: interest, dividends and rents. Reporting is also required for payments to: foreign persons, crew members of fishing boats, and attorneys.

1099 MISC Forms that report nonemployee compensation are required to be filed for all non-incorporated service providers, not considered to be employees, who have been paid more than $600.

Many business owners consider these filings as trivial and not worth the effort. Sound familiar? Please heed my warning, these informational returns are essential to the U.S. Treasury that failure to correctly file them can and carry penalties ranging from $50-260 per informational return. Small Business Owners do have the special privilege of having the penalty capped at $1,064,000 per year.

As you look to start 2017 on the right foot, I suggest that you take the time to meet with your tax professional and payroll provider to make sure that your informational returns are filed right the first time.

About the Author: Jamie Boulette, CPA has 30 years of tax experience and is managing director of Perry, Fitts, Boulette & Fitton CPAs with offices in Bath and Oakland. He can be reached at jboulette@pfbf.com or 371-8002.

 

Cyber Security Threats. Are you a victim?

You may (or may not) have heard about cyber threats in the news, especially those targeting tax professionals. We want to reassure you that all of us at Perry, Fitts, Boulette & Fiton CPAs have been taking every precaution to protect your personal tax information. Your trust and the security of your information are crucial to us.

The latest round of threats are fake IRS tax bills that may arrive by email, as an attachment, or by mail purportedly related to the Affordable Care Act (ACA). You will NOT receive correspondence from the IRS via email. You can safely delete any such email. Never open the attachment. If you receive correspondence by mail it has many signs of being fake:

  • The CP2000 notices appear to be issued from an Austin, Texas, address;
  • The letter says the issue is related to the Affordable Care Act  and requests information regarding 2014 coverage;
  • The payment voucher lists the letter number as 105C;
  • Requests checks made out to I.R.S. and sent to the “Austin Processing Center” at a post office box.

IRS impersonation scams take many forms: threatening phone calls, phishing emails and demanding letters. Learn more at Reporting Phishing and Online Scams. The IRS does not initiate unsolicited email contact or contact by social media.

An authentic CP2000 notice is used when income reported from third-party sources such as an employer does not match the income reported on the tax return. Unlike the fake, it provides extensive instructions to taxpayers about what to do if they agree or disagree that additional tax is owed. A real notice requests that checks be made out to “United States Treasury.” (Source www.irs.gov)

At Perry, Fitts, Boulette & Fitton CPAs, we have formed a special security committee, updated password protocol, continue to have an on-site technology professional monitoring our systems and continue to follow safe practices in safeguarding your data. We password protect your tax return when sent by email and will also redact social security numbers for an additional layer of security. We have ongoing security training in place for our staff. We will call if you send us an attachment that we are not expecting or to let you know we are sending a safe, secure attachment to you.

If you have any questions or concerns, please contact us! 207-873-1603 or 207-371-8003. Your security is our priority.

About the Author: Lynn Stover is an integral part of the PFBF CPAs tax team and a valued senior tax specialist. She operates primarily from our mid-coast Bath location, meeting with clients for tax planning and preparation. She can be reached via email, lynn@pfbf.com or by the above phone numbers.

 

Maine Educational Opportunity Tax Credit. Are you receiving it?

The Maine Educational Opportunity Tax Credit seemingly, silently began in 2008. I say silently because many people still don’t know about it. The program provides a Maine income tax credit for Maine residents who received an associate’s or bachelor’s degree from an accredited Maine college. You must be working in Maine and repaying student loans. In 2016, the credit expanded to include an associate’s or bachelor’s degree from a non-Maine college. It also now includes graduate degrees obtained from a Maine college after 2015. If your degree is in science, technology, engineering or mathematics (referred to as a “STEM”degree) the credit is refundable. For other degrees, the credit can reduce your tax to zero and any unused portion will carry forward for up to ten years.

In its’ simplest form, the credit works like this:

Maine resident student started college in 2008, received a bachelor’s degree in 2012 from a Maine college and begins paying student loans January of 2013. The individual makes 12 equal loan payments of $342. This amount is coincidently the “benchmark amount” which is the maximum the state allows for the credit. This individual’s credit would be $4,116 (12 x 342). If they obtained a STEM degree this credit would be refundable, meaning if their Maine income tax was zero, they would receive a refund of $4,116. If they did not obtain a STEM degree, still assuming the Maine income tax was zero, the $4,116 would apply to a future Maine income tax liability. Either way this can be a powerful credit.

However, as with any tax credit, it isn’t that simple. The student could have started college before 2008, transferred to a college outside of Maine for a period of time, worked outside of Maine for a period of time, made unequal or sporadic loan payments, all which alter the calculation, perhaps drastically. Let Perry, Fitts, Boulette & Fitton CPAs help you sort out the complexities and variations of the credit to ensure you get the maximum benefit.

About the Author: Lynn Stover  is an integral part of the PFBF CPAs tax team and a valued senior tax specialist. She operates primarily from the mid-coast Bath location, meeting with clients for tax planning and preparation. You can contact her at lynn@pfbf.com or 207-371-8003.

 

Recording a Barter Trade Transaction in QuickBooks Desktop, QuickBooks for Mac and QuickBooks Online

Do you have clients that want to trade their services with you? Possibly you performed a service for them and they provided you with goods and services or vise versa. If that’s the case, the following describes how to best handle this barter transaction inside of QuickBooks. The net effect on your income is zero, but you will gain a more accurate picture of your total income and expenses for that period of time.

In this Example you will be Lucy’s Landscaping: Johnny’s Plumbing installed a new Shower for Lucy’s Landscaping business and Lucy’s Landscaping spruced up the yard with new shrubs and flowers at Johnny’s Plumbing Office.

Let’s begin by going to your Chart of Accounts and creating a New account (the type=Bank) and let’s call it Barter/Trade Clearing Account.

Enter in an invoice for landscaping services for your (Customer) Johnny’s Plumbing representing the amount of income you would have received had you not traded services.

Next enter in a Bill for the Shower installation under Johnny’s Plumbing (Vendor) for the amount you would have paid had you not traded services.

Receive a payment against the landscaping invoice. When depositing this money into your bank account (In QuickBooks) choose the Barter/Trade Clearing Account.

Now pay the Bill for the Shower install using the Barter/Trade Clearing Account.

At this point, you will need to reconcile the Barter/Trade Clearing Account. Begin the reconcile by choosing the Barter/Trade account and entering a zero in the ending balance amount and proceed to reconcile like you would any normal bank account. Always reconcile this account once you have completed your trade transactions.

About the Author: Deb Rockwell was chosen as one of Intuitive Accountant’s 2016 Top 100 ProAdvisors » in the U.S. She has been recognized as one of the leading consultants who have embraced the ProAdvisor program and have leveraged it in order to better serve her clients and grow their own businesses. She can be reached at 207-873-1603 or deb@pfbf.com.

 

Exceptional Customer Service: Everyone Wins

“Customer Service is not a department, it’s everyone’s job.” – Anonymous

Customer service is a smile, a genuine warm welcome, a patient, listening ear for what is being said, and always remember the old adage of “Kindness Matters”; it really does matter. Recognizing that when our clients call us or come in with questions and concerns, they are not an interruption in our day, they MAKE our day!

Our clients are the primary reason we show up everyday, ready to work with and for them. The best customer service begins in the workplace, treating the folks we see and work with everyday with the same respect and positivity that we’d expect to receive. That customer service “culture” flows through to interactions with our clients, whether by phone, email or face to face meetings.

As Martin Oliver said, “Whether you are big or small, you cannot give good customer service if your employees don’t feel good about coming to work.” I believe that when the workplace mindset is to provide out-of-the-ordinary customer service, for clients and for co-workers, we are all winners.

About the Author: Peg Campbell  joined the PFBF CPAs team in 2006 to bring excellent support to our team and superior customer service to our clients.  Peg takes the time to welcome every client who calls or visits our office, making sure all of their needs are met. She co-manages the front office, processes tax returns, and supports our team of accountants.

MARK YOUR CALENDARS FOR NEW TAX RETURN DUE DATES AND EXTENSIONS

Here at  Perry, Fitts, Boulette & Fitton CPAs, we’re already looking forward to next tax season! While we’ll try to enjoy the beautiful Maine summer weather, we’re always thinking of taxes. We have some good news and bad news. The good news is: partnership returns will be due March 15 rather than April 15. The bad news is: partnership returns will be due March 15 rather than April 15. So, on one hand, it will be easier to prepare your 1040 by April 15 because your K-1’s will (should) be ready. But on the other hand, we’ll all have to start gathering our information earlier to meet this new deadline. Note: the due date for an S Corporation remains March 15.

If you are an employer distributing W-2s or required to issue 1099s – these forms need to be filed with IRS/SSA by January 31 (the same day they are due to the taxpayer). They used to be due to IRS/SSA by February 28.

This new legislation made other changes to due dates and extension due dates.

If you have any questions, please call us for details. Enjoy your summer and rest assured we’ll be watching the tax news for any changes that pertain to you.

IT’S BETTER TO GIVE THAN TO RECEIVE

Since moving to the Mid-Coast area a few years ago, my wife and I have been called upon many times to help a number of local charities. We are very strong believers that it is our obligation to make our community stronger during our brief stay in this wonderful world so we choose to help where we can. We ask all readers to support their favorite local charities as they are the heartbeat of society, making a difference in all of our lives.

Two of our favorites include the Bath YMCA and Big Brothers Big Sisters. For over 150 years, the Bath YMCA has promoted healthy living and provided youth with a safe place to grow. BBBS has been creating nurturing relationships for children facing adversity since 1904. Clearly both organizations make a positive impact on the lives of youth in our area. What they also have in common is that they are both qualified charitable organizations defined under the IRS Code.

As most already know, donations to nonprofit groups like the YMCA and BBBS are tax deductible if you itemize deductions. By definition, a donation is voluntary and is made without getting, or expecting to get, anything in return. To be deductible, a donation must also meet other strict criteria as outlined in IRS Publication 526.

Most of you reading this column have a good handle on what is deductible. Donations to the annual appeal at church, the building fund at the hospital and expenses paid when you volunteer at the museum are all examples. What you cannot deduct are the cost of raffle tickets bought to benefit a charity, the value of your volunteer time, the value of your blood given at the local blood drive, political contributions or the cost of your girl scout cookies. (…sigh)

Donations can get a little sticky when goods or services are received as a result of the contribution. Take for example, the local fundraising silent auction that you pay $1,000 to stay a beach house. If the fair value of that stay is $1,000, you have not made a contribution and no deduction is allowed. If, however, you pay $1,500 for the same stay you could be entitled to a $500 deduction.

For those who think that there is a safe amount that can be deducted be warned, the IRS has many strict rules for deducting charitable contributions. The rule that impacts most people is the requirement that individual contributions of $250 or more be backed with a written acknowledgement from the qualified organization. The acknowledgement must be in your possession before you file your return, include a description of the gift and a statement as to whether you received any goods or services as a result of the contribution.

My wife and I firmly believe that we all have an obligation to give back. Giving back is the life blood for local charities, and the tax deduction feels good too. The next time you attend a charity auction, bid high and bid often.

THE MANY FACES OF TAXABLE INCOME: GAMBLING & LOTTERY WINNINGS

Code Section 61 defines gross income, “except as otherwise provided,…gross income means all income from whatever source derived,” Regulation 1.61-1 further states that Gains from wagering transactions are included in gross income.

I suspect that most households participate in one way or another in the gambling industry. We purchase lottery tickets, enjoy an afternoon at the casino, a day at the race track, a night out for beano or maybe a little fantasy football. When we have a lucky day, how should the winnings be reported on a tax return?

Like much of the Code, gambling income and loss deductions are generally misunderstood. Gambling gain is defined as winnings less the cost of the winning bet. Gain transactions are included on line 21 on the front page of the 1040 and add to adjusted gross income. Substantiated gambling losses however, are allowed only to the extent of gambling gain transactions and must be reported on Schedule A. If you do not itemized deductions there is no benefit realized from the loss deduction.

What does the term gain “transactions” mean? I know, you all think that you learned the term in grade school; one bet is one transaction, right? Fortunately, that is not always the case. When it comes to a horse race or the lottery, a transaction is a single bet. It is not so clear when it comes to one hand of a poker game or one pull of a slot machine lever. Rather than define a transaction as a single pull of the lever, the definition is broadened to include all pulls until the winnings or tokens are cashed out for the “session”. Major relief, you can net gains and losses during a session, but what the heck is a session?

Notice 2015-21 helps gamblers better understand. The Notice takes no less than eight pages and seven examples to define a “session” of play. The abridged version is this: A session of play begins with the first wager of the day and ends with the last wager on the same type of game but not later than the end of the calendar day. Winning sessions are reported as gross income while losing sessions are deducted on schedule A.

A weekend of winning $20,000 on Saturday followed by losses of $20,000 on Sunday (two separate sessions), lead to increased gross income of the entire $20,000 with a deduction of $20,000 on Schedule A. Who cares? Well you might if you collect Social Security, receive advanced premium credits or take other deductions which might be limited when adjusted gross income exceeds certain thresholds.

Who would ever imagine that a breakeven weekend at the casino could cost thousands of dollars in income tax? Quit while you’re ahead. All the best gamblers do.

Jamie Boulette, CPA has 30 years of tax experience and is managing director of Perry, Fitts, Boulette & Fitton CPAs with offices in Bath and Oakland. He can be reached at jboulette@pfbf.com

WHO SHOULD PREPARE MY TAXES?

If you read my last blog on Getting Organized for Tax Time,  you remember that over 150,000,000 Americans will file a tax return this year. Tax preparers and software vendors will dominate advertising space over the next few months. They want to convince you that using their product or service will net you the largest refund, or make filing your taxes easy. Recent ads suggest that you would have to be an idiot to not be able to figure out how to file your return. To top it off, most products even advertise Free filing.

To get a better feel for “Free” tax filing, I logged on to a number of online tax services and found that “Free” is only for the very simplest of returns 1040EZ/A. Once on their website you generally find that they offer other, not so free, products that “Maximize” deductions or guarantee accuracy. (Understand that they guarantee the accuracy of the calculations that their software provides and not the accuracy of your input.) Many online products offer audit defense insurance at a price that is just as expensive as the tax filing fee. I suggest that you weigh your risk of audit and the likelihood that changes could be made against the additional cost of defense insurance before clicking that box.

If after preparing your returns online you are still anxious, don’t feel alone. Each year I have a handful of clients who ask me to check over their self-filed returns. The majority need some tweaking, not because the people are not smart but because they do not understand the tax code and do not know what the outcome should look like. They check a box here or there and click “Next” without really understanding the underlying tax code. If this fits your description, I suggest that you schedule an appointment with a Volunteer Income Tax Assistance program (VITA) or professional tax preparer.

By professional, I mean someone who is credentialed as an Attorney, CPA or EA. These people have passed rigorous exams to practice before the IRS and have annual education requirements to give them a better understanding of the tax code. Never engage a person to prepare your return who guarantees you a refund or who is not willing to sign it.

How do you find a professional that will be a good fit for you? Do a little homework before scheduling an appointment; visit a few websites, ask your attorney, banker or investment advisor who they suggest. Finally, set up an appointment to make sure that the relationship will be a good fit for you. A good preparer should have years of experience with your personal situation and be willing to give you an estimate of their fees before you make a commitment.

A good professional understands your personal situation and the tax code, and should be able to help you to pay the lowest amount of tax allowed under the law without sleepless nights worrying about the IRS.

Jamie Boulette, CPA has 30 years of tax experience and is managing director of Perry, Fitts, Boulette & Fitton CPAs with offices in Bath and Oakland. He can be reached at jboulette@pfbf.com or 207-873-1603.

WHAT DO SUPER BOWL SUNDAY AND TAX RETURNS HAVE IN COMMON?

Other than the time of year they occur, the one shining answer is Fantasy Football Leagues. The popularity of these leagues have forced the IRS and Certified Public Accountants all over the United States to begin asking the question: Are my winnings from these online leagues taxable?

What is Fantasy Football?

Fantasy Football is defined to work in such a way that, according to the NFL, “You decide what type of league you want to participate in, acquire a roster of players (either through a draft or through auto pick assignment), then set your lineup each week during the season and watch as touchdowns, field goals, yards gained, sacks, interceptions and much, much more generate fantasy points for or against your team. Whether you win or lose and climb or fall on the leader board all depends on how well you maximize the talent on your roster each week.”

How Does This Affect My Taxes?

Just like any other sort of income, a determination must be made as to the taxability of such income. Unfortunately, the IRS has not ruled specifically on the treatment of Fantasy Football winnings, but there are options that fall under the treatment of online game-playing tournaments (IRS Letter Ruling 200532025).

What Are The Options?

There are three methods defined by the above mentioned IRS letter ruling and they are as follows:

Option #1: The Gross Method: This method would require the league administrator to report total winnings for the year on a form 1099-MISC when the player wins more than $600.

Option #2: The Net Method: This method requires everything from the Gross Method, but then subtracts any entrance fees paid for the winning contests only, creating a net amount that would be reported on the 1099-MISC. if over $600.

Option #3: The Cumulative Net Method: Taking it one step further from the net method, this method allows all entrance fees to be deducted from the winnings, regardless of winning that contest. If this amount is still over the $600, it will be reported on form 1099-MISC.
What Should You Do Next?

If you feel that this applies to your Fantasy Football League activities, please give Jessica Marin, CPA a call at Perry, Fitts, Boulette & Fitton CPAs and we will help you determine the best way to report on your tax return.

Getting Organized for Tax Time

“…in this world nothing can be said to be certain, except death and taxes.” Benjamin Franklin.

Though Mr. Franklin understood clearly that paying taxes was a certainty, he could not have imagined just how complex tax filing would become.  The U.S. tax code is a daunting 75,000 pages and I suspect that the 150,000,000 Americans that file tax returns rely heavily on professional preparers or tax preparation software to get it right.

This year we know with certainty that April 19th will mark the end of tax season.  That is correct, April 19th for Maine and Massachusetts residents.  April 15th falls on a Friday which is Emancipation Day, a legal holiday in DC.  Monday, April 18th is Patriots’ Day, with holiday status in Maine and Massachusetts, so you procrastinators get an extra four days to file.

I know that it is early February, but what else have you to do on these cold dark nights other than to gather your tax information?  I recommend that you get started this weekend.  Begin by looking over last year’s return or tax organizer.  If you are like 80,000,000 Americans and have a professional preparer, make some notes for him/her on any changes that that might have taken place during the year.  Be sure to note, address changes, marriage or divorce, kids going off to college, job changes, real estate sales or home improvements, to name a few.  If you have provided bank account information for direct deposit or automatic tax payment, be sure to communicate any changes in banking information.  Remember, your tax professional may have a great understanding of the code but how it is applied can change, if your personal circumstances change.

Finally, it is important to organize your information.  Sometimes the most challenging part is to get clients to open their mail.  All of those envelopes stamped Important Tax Information should be opened and reviewed for accuracy.  Round up the W-2s, 1099s, Social Security statements, health care forms, college tuition information and mortgage interest.  Review your checking account for charitable contributions, estimated tax payments, excise taxes and medical expenses.  If you squirreled this important information to an ultra-safe place but can’t remember where that place is, most tax forms are readily available on line.

For many the real challenge of Tax Time is just facing the fact that preparing them is inevitable and best done early. Regardless of how well versed your tax professional is, it is not possible for them to correctly prepare your return unless you provide all of the necessary information.  Thus, I encourage you to get organized and start today.

Jamie Boulette has 30 years of tax experience and is the Managing Director of Perry, Fitts, Boulette & Fitton CPAs (PFBF CPAs) with locations in Oakland and Bath.

Protecting Americans from Tax Hikes Act 2015 – Its effect on the Timber and Wood Products Industries.

Kudos to congress for passing legislation and protecting the timber industry from a bevy of tax increases.  Importantly, the Act extends, and in some cases makes permanent, many provisions that will allow businesses more tax savings opportunities.

The PATH act, signed by the President on December 18, makes tax planning considerably easier and grants a few new tax breaks that will greatly enhance industry write-offs.

Paul Ryan R-Wis suggests “…we are ending Washington’s days of extending tax policies one year at a time.”  Let’s hope Mr. Ryan’s words are true.

EXTENDERS IMPACTING THE TIMBER HARVESTING & WOOD PRODUCTS INDUSTRIES

Code Sec. 179: Expensing

The Act makes permanent an annual expensing limit of $500,000 with an overall investment limit of $2,000,000 (both amounts are now indexed for inflation).  The new law also adds increased expensing of qualified leasehold improvement property.

Bonus Depreciation

The Act extends Bonus Depreciation for all new equipment placed in service through 2019.  The percentage of allowed bonus is reduced from 50% through 2017 to 40% in 2018 and 30% in 2019.  After 2015, Bonus Depreciation will include qualified improvement property without regard to whether the property is subject to a lease or if it is placed in service more than 3 years after the date that the building was first placed in service.  Also, the Act included language that eliminates AMT adjustments for assets that are elected out of Bonus Depreciation placed in service after 2015.

Combined with the enhanced repair regulations, the above expensing provisions will significantly increase tax savings for our Timber Harvesting and Wood Products clients.

Timber Gains

C corporations are subject to a reduced tax rate of 23.8% for qualified timber gains.  Qualified timber gains means net gain described in Code Sec. 631(a&b) for the year, taking into account only trees held more than 15 years.

Research Credit is permanently extended, and for eligible small businesses the credit may be claimed against alternative minimum tax.  Qualified small business may even claim the credit against FICA tax liabilities.

S-Corp recognition period for Built-In Gains Tax is permanently extended.  The recognition period is now 5 years.

Work Opportunity Tax Credit Extended and Expanded.

The WOTC allows employers who hire targeted individuals to receive a credit against income tax for the first year wages, up to $6,000 per employee.  The credit also applies to employers who hire qualified long-term unemployed individuals (40% of the first $6,000 of wages).  The Act extends the WOTC so that it applies to eligible veterans and non-veterans who begin work by Dec. 31, 2019.  In light of recent mill closures, we might expect to see more people eligible for the WOTC.

If you have questions about how these changes will impact your business, please do not hesitate to call us at, 207-873-1603.

Don’t be the Victim of Identity Theft…

Today’s technology is amazing!  We have the ability to pay bills online, make deposits, shop, and share pictures and information with friends and family anywhere in the world.

Unfortunately, it has also provided the same benefits to identity thieves who use someone else’s personal financial information to access bank accounts and obtain credit, often destroying the life savings and good credit history of innocent victims.

Identity theft has increased so dramatically that the Federal Trade Commission has listed it as the top fraud-related consumer complaint for the past five years, with consumers reporting millions of dollars lost to fraud.

The “Summit”, is a group that includes IRS, state tax authorities, and tax industry firms that work in a collaborative effort to protect taxpayers from identity theft tax fraud.  They have put new procedures into place that will take effect during the upcoming 2016 tax filing season.

Software providers will enhance identity requirements and strengthen validation procedures for new and returning customers to protect against account takeover by criminals.  These will include: a) new password standards to access tax software that will require a minimum of eight characters with upper case, lower case, alpha, numerical and special characters; b) new timed lockout feature and limited unsuccessful log-in attempts; c) the addition of three security questions; and d) “out-of-band” verification for email addresses, which is sending an email or text to the customer with a PIN.  These enhancements will be the most visible to taxpayers in 2016.

MAINE CREDIT FREEZE FACT SHEET

You now have added free protection under the law to prevent identity theft by placing a credit freeze for free on your credit report with the three major credit reporting agencies.

Attorney General Janet Mills strongly encourages all consumers to take advantage of this benefit, which went into effect on October 15, 2015.  A credit freeze will prevent unauthorized parties from accessing your credit report unless you give them specific permission.  A current lender can access your report information for the purposes of account maintenance, monitoring credit line increases and account upgrades and enhancements.

Locking down your credit will not impact your credit score.

You can place a freeze with the three credit reporting agencies via their website, telephone or by letter.  Telephone calls and website requests are the quickest way to file the freeze.  It takes approximately 5-10 minutes per agency to place a freeze this way.  You will be asked to provide personal information, such as your social security number (SSN), date of birth, partial address, and zip code.

To request the freeze in writing, you will need to provide a letter with the information mentioned  in the previous paragraph, your full name, signature, current street address, any addresses where you have lived during the past two years, a copy of an official photo government ID, and a copy of a recent utility bill.

Equifax: 1-800-349-9960; https://www.freeze.equifax.com ;  Equifax Security Freeze, P.O. Box 105788, Atlanta, GA  30348

Experian; 1-888-397-3742; www.experian.com/freeze/center.html; PO Box 4500, Allen, TX  75013

Transunion: 1-888-9090-8872; www.transunion.com/securityfreeze; PO Box 2000, Chester, PA  19022

In all cases, the credit reporting agency will follow up with you in writing, confirming placement of the file freeze and providing you with a personal identification number or PIN.  A PIN is used to temporarily unfreeze your credit file for a specific period of time or for a specific creditor, or to permanently unfreeze your credit file.

Consider placing freezes on the accounts of your children too.  If their SSN gets in the wrong hands, someone could attempt to open credit in their name.  If successful, they become the victims of identity theft.  You can also place a freeze on a minors file; however, a credit reporting agency can charge $10 to create a file if one does not already exist.  The freeze can be placed for free.  Currently, Equifax is creating files for free.

A credit freeze cannot protect you from fraudulent credit or debit charges.  Regularly review your statements from credit card companies and your health care providers to catch any errant charges and dispute them promptly.

If you should have any questions, contact the Attorney General’s Consumer Information & Mediation Service at 1-800-436-2131 or consumer.mediation@maine.gov

If you believe that you have become a victim of identity theft, you must act immediately to minimize the damage and secure your legal rights.  It can be a frustrating and time consuming battle, but resources exist to help you.  You can find all the detailed steps to take on the following website : www.maine.gov/ag/privacy/index.shtml

Summer… The Best Time for Gardening, Boating, and Business.

If You Want It To Grow, Water It.

Sweet summertime. It is the season where beaches are overflowing with sunbathers, BBQs are filling the air, flowers are blooming, and most of us have forgotten about the long, cold winter. It is also the time of year for accounting firms to reel in new clients and grow their business. Continue reading Summer… The Best Time for Gardening, Boating, and Business.

How much does the IRS love thee? Let me count the ways…

You always file all of your payroll reports when they are due, and you know they’re right because you always send in what QuickBooks generates for you, right?  So why are you receiving love letters from the IRS?

In this technological day and age, tax agencies have the ability to “talk to each other,” and they make good use of it.  If your 941s  and your quarterly state reports don’t exactly match your W-2s and other yearend reports, you can expect to find love letters in the mail. Continue reading How much does the IRS love thee? Let me count the ways…

Can I deduct expenses for my home office?

Many people in today’s work environment use a designated space in their home as an office.  One of the most frequent questions I receive during tax season is “Can I deduct expenses for my home office?”  This often triggers no less than half a dozen questions on my part.  What the average taxpayer does not realize is that the IRS has some very specific rules relating to home office deductions. Continue reading Can I deduct expenses for my home office?

Your choice of entity can make a difference…

Too often professionals do not take the time to consider the impact to the client when recommending the proper choice of entity. The trend in the last five years or so has been to make most new entities LLCs taxed as sole proprietorships or partnerships. The attorney has a brief conversation with the client and LLC documents are drafted, filed, and a tax identification number is applied for. So what’s wrong with that? Continue reading Your choice of entity can make a difference…

Are you LinkedIn?

Using social media is just one of many ways to show off your “goods.”  Do you keep in contact with friends and family though Facebook? Why not do the same with your client base?  Develop a company Facebook Page, join LinkedIn, and Twitter. I often describe LinkedIn as the Facebook for business.  Instead of discussing your personal life with your connections, share valuable business information, opinions, and thoughts with your followers. Continue reading Are you LinkedIn?

The Swear Word for Accountants: Marketing…

We’ve all heard of marketing, but do we know exactly what it is and how to do it?  For accountants, some would like to erase the word from their memory bank.  Most accountants are not “marketers” and why would they be or learn how? That isn’t what they went to school for and most would like to stick to the “old-fashion” way of building their client base by referrals. Continue reading The Swear Word for Accountants: Marketing…

Tax Planning as a Family?

Yes, there are many tax breaks available to families, and at PFBF CPAs, we know that planning ahead can save taxes and teach children the value of earning and saving money. Whether you find yourself balancing caring for aging parents and funding your children’s educations, or you just want to have a plan in place so you’re not surprised at tax time, we can guide you with your needs in mind.

In addition to the child tax credits that reduce your tax bill dollar-for-dollar, there are other tax-advantaged savings opportunities. Continue reading Tax Planning as a Family?