Hawkins Ash CPAs https://hawkinsashcpas.com Part of your business. Part of your life. Mon, 21 Jan 2019 16:24:21 +0000 en-US hourly 1 Podcast: To Gift or not to Gift… https://hawkinsashcpas.com/to-gift-or-not-to-gift-podcast/ Mon, 21 Jan 2019 16:19:59 +0000 https://hawkinsashcpas.com/?p=6986 To gift or not to gift …. That is question. When it comes to giving gifts to family (or non-family) members there are a lot of things to consider, including the fact that some of those gifts might have tax consequences later. Click the orange circle below to learn more. I THOUGHT THAT YOU CAN […]

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To gift or not to gift …. That is question. When it comes to giving gifts to family (or non-family) members there are a lot of things to consider, including the fact that some of those gifts might have tax consequences later. Click the orange circle below to learn more.

I THOUGHT THAT YOU CAN GIVE TAX FREE GIFTS UP TO A CERTAIN AMOUNT? IS THIS CORRECT?

Yes, you can. For 2018, you can give a gift to anyone you want of up to $15,000 with no gift tax returns and no questions. You can also, over your lifetime, give a gift of $5.6 million to individuals. In addition, that $15,000 that you can give each year does not count towards the $5.6 million. Therefore, you can give $5.6 million on top of $15,000 each year, but the $5.6 is a one-time shot.

ARE THERE ANY GIFTS THAT DON’T COUNT TOWARDS THE LIMITS YOU JUST MENTIONED?

Yes, there are. If you have a gift from husband to wife or from one spouse to another, or gifts to charitable organizations, those are not counted towards these limits. However, there are a couple other things that people don’t really think about. If you give a gift to a parent or you pay for their medical expenses directly to their healthcare providers, this is not counted as a gift. Either is tuition that you would pay for a student, assuming that student is not a dependent on your return. Those are not considered gifts.

SO ESSENTIALLY YOU CAN GIFT SOMEONE UP TO $15,000 PER YEAR, AND YOU CAN PAY FOR THEIR COLLEGE OR THEIR HEALTHCARE AND THAT IS O.K.?

That is correct. Not student loans, but college tuition.

SO WHERE DO TAXES COME IN?

Normally, if you just give cash, there is no tax consequences. Where you run into tax consequences is when you give away stocks or marketable securities, because it has what is called carryover basis. Carryover basis means, whatever I bought the stock for, that is what now you have the stock for, and if you sell it you have to pick up the gain on your return. The same thing goes for homes. Right now you can exclude between $250,00-$500,000 on the gain on a sale of a home. If you gift that home to your children, they may not have that same exclusion.

ARE THERE THINGS YOU CANNOT GIFT?

Absolutely! Number one, you cannot give away your income or your wages, your W-2 type income. You also cannot give away an IRA or your retirement plan. You essentially have to take the money out of those plans and then give cash, and then of course, you have to pick up that income on your return.

WHAT ABOUT PAYING EXPENSES FOR A CHILD? IS THAT A GIFT?

No it is not. There are two ways to think about it. The first is, if you are just paying normal expenses for your dependent children, that is not considered a gift. A gift would be if you give them some kind of stock or some kind of large gift on top of their normal living expenses.

WHAT ABOUT PAYING EXPENSES FOR GRANDCHILDREN? IS THAT A GIFT?

It would be considered a gift up to that $15,000, assuming they are not a dependent on your tax return.

SO YOU REALLY NEED TO KEEP TRACK OF WHERE YOUR MONEY IS GOING?

Most people don’t give away $15,000 in gifts, but if you know you are going to come close, then you will definitely want to keep track of it.

WHAT ARE THE REASONS WHY SOMEONE WOULD WANT TO MAKE SUCH A LARGE GIFT IN THEIR LIFETIME?

There are a couple of reasons. Let’s say someone’s parents are in a higher income tax bracket. What they could do is gift marketable securities, stocks and things like that to their children, and their children could later on sell that and maybe pay a much lower tax than what their parents would. Now we talked about Kiddie Tax rules earlier, and this would not apply for Kiddie Tax, but it is a way for the parents to either lower their estate or get that income tax at a lower bracket.

Knowing the potential tax ramifications of a gift is important to make sure that the gift is having the effect that was intended.

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Not-for-Profit: Revenue Recognition Standard https://hawkinsashcpas.com/not-for-profit-revenue-recognition-standard/ Fri, 18 Jan 2019 18:55:33 +0000 https://hawkinsashcpas.com/?p=6980 In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09 – Revenue from Contracts with Customers (Topic 606), which attempts to clarify the principles for recognizing revenue. Although the ASU was issued in 2014, the FASB provided a long implementation period. For entities that are not considered public business entities […]

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In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09 – Revenue from Contracts with Customers (Topic 606), which attempts to clarify the principles for recognizing revenue. Although the ASU was issued in 2014, the FASB provided a long implementation period. For entities that are not considered public business entities (PBEs), the standard becomes effective for annual reporting periods beginning after December 15, 2018, which means January 1, 2019 for calendar year-ends.

To achieve the core principle, ASU 2014-09 provides a list of steps to be taken.

1. Identify the contract(s) with a customer.
2. Identify the performance obligations in the contract.
3. Determine the transaction price.
4. Allocate the transaction price to the performance obligations in the contract.
5. Recognize revenue when (or as) the entity satisfies a performance obligation.

Each Organization will apply the five-step approach listed in this document to determine when revenue and gains included within the scope of the standard should be recognized.

Download the Guide>

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Board-Designated Net Assets https://hawkinsashcpas.com/board-designated-net-assets/ Tue, 15 Jan 2019 21:13:31 +0000 https://hawkinsashcpas.com/?p=6972 With the upcoming implementation of the new FASB Accounting Standards Update 2016-14 (the standard) there will be changes occurring with the disclosures regarding board-designated net assets. For starters, board-designated net assets are net assets without donor restrictions that are subject to self-imposed limits by action of the governing board. Board-designated net assets may be earmarked […]

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With the upcoming implementation of the new FASB Accounting Standards Update 2016-14 (the standard) there will be changes occurring with the disclosures regarding board-designated net assets. For starters, board-designated net assets are net assets without donor restrictions that are subject to self-imposed limits by action of the governing board. Board-designated net assets may be earmarked for future programs, investments, contingencies, purchase or construction of fixed assets or other uses.

Under FASB No. 117 the disclosure of board-designated net assets was optional. However, with the standard, nonprofits will be required to disclose information about the amounts and purpose of board-designated net assets on the face of the statement of financial position or in the notes to the financial statements. You are not required to board-designate your unrestricted net assets. However, some non-profits find it beneficial to do so because it allows them to show commitment to a certain plan, program, or strategy.

Keep in mind that board-designations will have an impact on the new disclosures regarding the liquidity and availability of financial assets, so it is important you are taking availability of funds into consideration when assigning these internal designations. If your nonprofit decides to board-designate any unrestricted net assets, it is important that you take a look at your current policies and procedures to make sure you are prepared for the additional disclosure requirements under the standard.

Important Pieces of Your Board-Designated Net Assets Policy

1.) Purpose of designating unrestricted funds: It is important to set clear objectives in regards to what the goals are in designating funds. Examples could include:

  • To create an internal line of credit to manage cash flow and maintain financial flexibility
  • To enable the organization to sustain operations through delays in payments of committed funding
  • To pay for one-time, nonrecurring expenses that will build capacity, such as staff development or research and development

2.) Calculation of designated amounts: How will your nonprofit determine the amount of designated money set aside? With the new disclosure requirements you will be required to disclose specific dollar amounts, so it is important you set guidelines on how those figures will be calculated. Examples could include:

  • Estimation of reserves based on average recurring monthly operating costs
  • Estimated cost of certain one-time expenses

3.) Intended use of the designated funds: How will the funds be used? Some objectives will be clear if you are designating funds for a specific project or item. However, in the case of maintaining reserves for operations, you may need to set specific guidelines for when the reserves may be used.

4.) Determined chain of command to designate funds and release funds for use: Will the board of directors have authority over the designation and release of funds? Or will this be delegated to management? It is important to set clear procedures regarding management of the funds to avoid misuse of funds.

5.)Plan for monitoring designated funds: How will the available funds be tracked and monitored? Will the amounts be set aside in a separate checking account or simply left co-mingled with other operating funds? If funds are being designated, it is important that the amounts be maintained and made available for the designated uses.

If you have any questions regarding board-designated net assets or the new disclosure requirements, please contact your Hawkins Ash CPAs representative.

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Lease Standard Effects on Lessee https://hawkinsashcpas.com/lease-standard-effects-on-lessee/ Mon, 07 Jan 2019 17:45:35 +0000 https://hawkinsashcpas.com/?p=6938 In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02 – Leases (Topic 842) which provided a new model for lease accounting aimed to improve transparency and comparability across entities. Although the ASU was issued in 2016, the FASB provided a long implementation period. For entities that are not considered […]

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In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02 – Leases (Topic 842) which provided a new model for lease accounting aimed to improve transparency and comparability across entities. Although the ASU was issued in 2016, the FASB provided a long implementation period. For entities that are not considered public business entities (PBEs), the standard becomes effective for annual reporting periods beginning after December 15, 2019, which means January 1, 2020 for calendar year-ends.

This document outlines all the relevant information you need to document for each existing lease starting with the date of the adoption and going forward into 2020 and beyond.

View the guide>

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529 Plans and Saving for Education https://hawkinsashcpas.com/529-plans-and-saving-for-education/ Thu, 03 Jan 2019 17:36:31 +0000 https://hawkinsashcpas.com/?p=6933 According to the Wall Street Journal, the average college graduate has student loan debt of over $37,000, and as a group, the Federal Reserve Bank of New York says the amount is over 1.3 trillion dollars. This student loan debt is really affecting the new graduate’s ability to start their lives and even buying a […]

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According to the Wall Street Journal, the average college graduate has student loan debt of over $37,000, and as a group, the Federal Reserve Bank of New York says the amount is over 1.3 trillion dollars. This student loan debt is really affecting the new graduate’s ability to start their lives and even buying a home. A lot of these things are being delayed because they have a large student loan debt.

Starting a college savings plan can help reduce this debt and help with the student loan crisis. Click the orange circle below to listen in.

OTHER THAN TAKING OUT LOANS, WHAT CAN STUDENTS AND PARENTS DO TO SAVE FOR COLLEGE AND MAYBE EVEN SAVE SOME MONEY ON TAXES?

The biggest thing is to start early. The IRS really gives you two ways to be able to save for college on a pre-taxed or on a tax-deferred kind of basis.

Education Savings Account (ESA)

  • $2,000 after-tax per year per child
  • Grows tax-free if used for college expenses
  • There are income limits
  • Must be used by age 30
  • Can be transferred to other family members

529 Plans

  • Contribution limit is much higher (after tax federal)
  • Tax deduction available in some states
  • Grows tax-free if used for college expenses
  • No income limits on contributions
  • Can be transferred to other family members

The first one above is an Education Savings Account, sometimes called an “ESA”. What the ESA says is that you can put up to $2,000 per child into an account. You don’t get a tax deduction for this, but you do get to put the $2,000 away. This amount grows tax-free as long as those funds are used for college. The disadvantages are that you have to fit within certain income limits in order to take advantage of this plan, and these funds must be used by the age of 30. On the other hand, it is nice because you can transfer these funds to other family members.

WHAT HAPPENS IF THESE FUNDS ARE NOT USED BY THE AGE OF 30? DOES THAT MONEY JUST GO AWAY?

It does. What happens is that money has to come out and you have to pay taxes on it as it comes out, along with potential penalties.

But another thing you can do that has become very popular is set up a 529 Plan. 529 Plans are state sponsored plans with much higher contribution limits. Each state has their own, but you can put significantly more dollars into a 529 Plan. Once again, after-tax dollars is what gets put into here. Some states, such as Wisconsin, will allow a tax deduction for some of the money that you put into these accounts. So, although you don’t get a federal tax benefit for it, at least you get a partial state benefit for it. These funds grow tax-free and if used for college expenses, what you are really saving is the tax on that growth along the way. For 529 Plans there are no income limitations so anyone can do it. You can do it, your parents can do it, and grandparents can do it, which is really nice. This can also be transferred to other family members and it doesn’t have that age 30 limitation.

WHAT KIND OF EDUCATION EXPENSES CAN THESE PLANS PAY FOR?

Pretty much everything you can think of for school. It can pay for tuition and fees. It can pay for room and board, including food. Now, you have to be at least a half-time student in order to have the room and board and food be an expense. In addition, it doesn’t matter if you live off campus or on campus. The only thing is that if you live off campus, the amount you can deduct is limited to what you would have paid if you lived on campus. Then there are also other things, such as books, supplies, and equipment. You can actually use these funds to reimburse yourself for a computer. Therefore, if a child needs a computer going into school, including software, that can be used also.

There are certain things a 529 Plan cannot be used for. It cannot be used to pay your student loans, and it cannot be used for travel expenses as you are bringing your child to and from school.

But there are other ways that you can pay for college, above and beyond an Education Savings Account or a 529 Plan, and that would be with scholarships. In addition, there is always gifts from parents and working.

DO YOU HAVE TO PAY TAX ON SCHOLARSHIPS AS INCOME?

No you do not, as long as your scholarships are not more than your tuition. Obviously, if you have scholarships and your tuition, and some of these other costs are less than that, the difference is generally taxable.

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2019 Key Tax Fact Sheet https://hawkinsashcpas.com/2019-key-tax-fact-sheet/ Thu, 27 Dec 2018 20:47:34 +0000 https://hawkinsashcpas.com/?p=6928 Download our 2019 Key Tax Fact Sheet to ensure you’re up to date. Rates included: Social Security, Medicare and Federal Unemployment Rates WI and MN Unemployment Rates Federal Minimum Wage Mileage Rates Retirement and IRA Contribution Limits Health Savings Accounts Contribution Limits Click here to view and print the fact sheet.        

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Download our 2019 Key Tax Fact Sheet to ensure you’re up to date. Rates included:

  • Social Security, Medicare and Federal Unemployment Rates
  • WI and MN Unemployment Rates
  • Federal Minimum Wage
  • Mileage Rates
  • Retirement and IRA Contribution Limits
  • Health Savings Accounts Contribution Limits

Click here to view and print the fact sheet.

 

 

 

 

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Employee Benefit Plan and IRA Quick Reference Table https://hawkinsashcpas.com/employee-benefit-plan-and-ira-quick-reference-table/ Thu, 27 Dec 2018 10:07:45 +0000 http://hawkinsashcpas.com/?p=5664 The Internal Revenue Service has announced the cost-of-living adjustments applicable to dollar limitations for various qualified retirement plans and other amounts for 2018. While the pension plan deferral and catch-up limits did not change, many of the annual pension plan limits and compensation thresholds did. Plan sponsors should verify that their administrative and payroll systems […]

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The Internal Revenue Service has announced the cost-of-living adjustments applicable to dollar limitations for various qualified retirement plans and other amounts for 2018. While the pension plan deferral and catch-up limits did not change, many of the annual pension plan limits and compensation thresholds did. Plan sponsors should verify that their administrative and payroll systems reflect the appropriate limits. Communications that specify benefit plan limits should be reviewed for accuracy before materials are given to participants.

View the Employee Benefit Plan and IRA Quick Reference Table.

 

 

 

 

 

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December 2018 QuickBooks Newsletter https://hawkinsashcpas.com/6831-2/ Thu, 13 Dec 2018 20:58:09 +0000 https://hawkinsashcpas.com/?p=6831 The December QuickBooks Newsletter from Hawkins Ash CPAs is now available. Headlines include the following: Setting Up User Access in QuickBooks Online Hawkins Ash CPAs Adds Location in Mequon, Wisconsin QuickBooks Connect Roundtable Q&A Benefits of calling a QuickBooks Certified ProAdvisor View it here>

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The December QuickBooks Newsletter from Hawkins Ash CPAs is now available. Headlines include the following:

  • Setting Up User Access in QuickBooks Online
  • Hawkins Ash CPAs Adds Location in Mequon, Wisconsin
  • QuickBooks Connect Roundtable Q&A
  • Benefits of calling a QuickBooks Certified ProAdvisor

View it here>

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Benefits of Health Savings Accounts: Podcast https://hawkinsashcpas.com/benefits-of-health-savings-accounts-podcast/ Wed, 12 Dec 2018 20:54:53 +0000 https://hawkinsashcpas.com/?p=6822 As we discussed previously, the TAX CUTS AND JOBS ACT OF 2017 increased the standard deduction.  Because of that, it is estimated that 94% of taxpayers will now take the standard deduction.  One of the areas where you could itemize before and still can was in the field of medical expenses.  This is an area […]

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As we discussed previously, the TAX CUTS AND JOBS ACT OF 2017 increased the standard deduction.  Because of that, it is estimated that 94% of taxpayers will now take the standard deduction.  One of the areas where you could itemize before and still can was in the field of medical expenses.  This is an area where taxpayers can still see benefits of paying medical expenses.

For the average taxpayer, medical expenses have been difficult to deduct since there has always been this 7-1/2-10% income threshold.  This means that if you have income of $60,000, you would have needed to have $4,500 of medical expenses (not including pre-tax health insurance premiums that you pay) to get any kind of benefit.

ARE THERE OTHER WAYS THAT A TAXPAYER CAN DEDUCT THESE EXPENSES?

Absolutely.  There are really two main ones.  The first one has been around for a long time and that is called the Section 125.  It is also sometimes referred to as a Cafeteria Plan or a Flex Spending Account.  These are employer plans that an employee can contribute to up to $2,650 for 2018, and that is done on a pre-tax basis.  Then, that employee can use that account to reimburse themselves for medical expenses, dental expenses, optical expenses, and even prescriptions.  Over-the-counter medicines are not included, just prescriptions.   One of the disadvantages of this the entire time has been that it’s a use-it or lose-it system.  Therefore, if you decide to contribute $2,650 to it and you only have $1,000 worth of medical expenses, that extra money is lost.

Secondly, a number of years ago the IRS came up with an account called the “Health Savings Account,” and they kind of addressed a lot of these issues.  A Health Savings Account is actually an employee-owned account.  It is actually your own account and is not owned by your employer.  You can contribute $6,900 for a family or $3,450 for a self-only plan into that account for 2018 (excess amounts roll over into future years).  In addition, if you are over the age of 55 you can contribute an additional $1,000.  However, you must have a high deductible plan in order to do this.  Now with healthcare plans, a lot of the plans are considered to be high deductible plans, but you really want to double check with your employer to make sure that their plan is considered to be an “HSA Eligible Plan.”        

CAN YOU GIVE ME MORE DETAILS ON THE HEALTH SAVINGS ACCOUNT?

Other than the benefit of being individually owned and you can take them from job-to-job, and the fact that it can be rolled over from year-to-year: It is not a use-it or lose-it system.  The higher contribution limits are also a benefit.  In addition, the contributions are deductible whether you incur any medical expenses or not.  So in my example above, if you contribute $6,900 to your family plan and you only have $2,000 of expenses, that extra $4,900 can actually be carried over into the next year and years going forward.  You can also pay for your medical expenses with your regular after-tax dollars and get reimbursed for those expenses at a later date.  For example, what we have had clients do is they will pay their medical expenses over the years.  They will put money into their HSA and maybe five years from now they’ll want to buy a car or something like that, so now they can reimburse themselves for all five years of those expenses and be able to use that money as a down payment on a car.  There is a penalty if you take money out of an HSA and you don’t use it to reimburse medical expenses.  However, that penalty goes away at age 65, so some clients treat this as another IRA.  They put money into it over the years and then at 65 they start to withdraw the money.  Even if you don’t use it for medical expenses, yes you have to pay income taxes on it, but you don’t have to pay any penalties, so it’s very similar to an IRA treatment.     

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2018 Payroll and Year-End Reporting https://hawkinsashcpas.com/2018-payroll-and-year-end-reporting/ Mon, 10 Dec 2018 17:32:21 +0000 https://hawkinsashcpas.com/?p=6814 Click here to download the PowerPoint slides> Click here to download the sample spreadsheets>

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Click here to download the PowerPoint slides>
Click here to download the sample spreadsheets>

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