Blogs

Wittenberg CPA Staffing - we are extremely happy to announce the hiring of a new staff member, Brittany Fladager, who will be working in our Shelton office. Brittany has worked for several years in the accounting field, including in construction and landscaping services, as well as in the non-profit sector. Please feel free to reach out to meet and get to know Brittany when the opportunity arises. 

We also want to let you all know that Victoria, who had been working in our Shelton office over the past two and a half years has recently transferred to our Olympia office. Victoria will continue to work with many of the clients that she’s been working with and she will also establish new client relationships with our Olympia area clients.

Please let us know if you have any questions relative to these staffing changes, and thank you for your patronage and support as these changes are implemented. We look forward to continuing to provide all of our clients with the best possible service, so don’t hesitate to let us know how we can better serve you and your company.  Mike and Staff

Delayed Implementation of the New Long Term Care Tax - on January 27, 2022, Washington Governor Inslee signed House Bills 1732 & 1733, delaying and amending the Washington Cares Act (often referred to as the Long-Term Care tax).

Employer Takeaway: The bills delay the obligation to withhold the premiums until July 1, 2023, and instructs employers to refund employees for any premiums already collected within 120 days of the original withholding.  

So, while In theory, the Washington Employee Security Department (ESD) should not have accepted any WA Cares premium payments for the first quarter of 2022. However, if any premiums were remitted to ESD, the amended law instructs ESD to refund the premiums to the employer, who shall then return the premiums to their employees. Please note that ESD will send out additional guidance later this month, or you can check their website here.  Mike and Staff

New Long Term Care Program – the State of WA will become the first state in the nation to implement a publicly managed long-term care plan, effective in 2022.  The program otherwise known as the “Washington Cares Fund” is based on an employee assessed payroll tax, at a rate of .58% of wages paid.  There are exemptions from the upcoming payroll tax, including the “self-employed”, Federal employees and recognized tribal members, as well as individuals who currently have or plan on obtaining a qualifying privately issued long term care plan, by no later than 10/31/21. While this deadline is critical for those who intend to purchase a privately issued plan, thus opting out of the public plan, the employee must also submit an exemption application to the Employment Security Department to request a life-time exemption from the program.  It’s critical to remember that signing up for an eligible long term care plan, by 10/31/21, and then applying for exemption out of the public plan by 12/31/22 is up to employees, whereas collecting the new payroll tax and remitting it to the State of WA is required of all employers. Please contact us if you have any questions, either as an employee or an employer relative to the implementation this new program. Mike & Staff    

Child Tax Credit: Changes in 2021 – Due to recent changes in tax law, the IRS began making advance payments, in the amount of half the total eligible child tax credit amount in monthly payments, beginning July 15^th - the additional half can be claimed when you file your 2021 income tax return.

To qualify for advance Child Tax Credit payments, you and your spouse, if you file jointly, must have:

• •Filed a 2019 and/or a 2020 tax return, and claimed the Child Tax Credit on the return, or
• •Provided your information in 2020 to receive the Economic Impact Payment, as a Non-Filer, and
• •Resided in the United States for more than half the year, or file a joint return with a spouse who has a main home in the United States for more than half the year; and
• •Claim a qualifying child who is under age 18 at the end of 2021, and who has a valid Social Security number; and
• •Made less than certain income limits – under $150k for a couple filing jointly, $112.5 for head of household, and $75k for single filers.  There are AGI phase outs for otherwise eligible tax return filers over these income thresholds, who otherwise qualify, which will result in partial advance payments.

It’s important to keep in mind that even if you don’t receive an advance payment for the child tax credit, you still may be eligible for the credit, or a partial credit, and you will have the opportunity to claim the child tax credit when you file your 2021 tax return, if you are otherwise eligible.  Please let us know if you have any questions regarding the child tax credit, or if there is anything else we can assist you with.

Our Best,

Mike and Staff 

Dear Clients and Friends -

On June of 2019, Governor Inslee signed the Long-Term Services and Support Trust Act into law. It has since been renamed the “Washington Cares Fund”, but its purpose is unchanged: to create the first in the nation publicly operated long-term care insurance program.

The program will be funded by a payroll tax on all compensation of employees in the state of Washington, to be assessed starting January 1, 2022, through mandatory wage withholding. There is a one-time window to qualify, permanently opt-out of the program, or to be exempted from the program.

The Washington Cares Fund provides long-term care benefits of $100/day with a maximum lifetime benefit of $36,500. The program will be funded with a new payroll tax of 0.58% on the wages of all employees, however employers are not required to pay into the program.  Self-employed individuals, business owners not receiving wages, are exempt from the tax by default, however there is a window to opt into the program, beginning January 2022.

To receive benefits under this new program, one must meet several requirements:

•Unable to perform 3 of 10 activities of daily living (ADL)

•Reside in the state of Washington at the time of the claim

•Paid the tax for at least 10 years (with no more than a 5-year break), or for at least 3 of the last 6 years immediately preceding filing for benefits.

You can permanently opt out of this program (and avoid the payroll tax), so long as you have your own long-term care (LTC) policy in place before November 1, 2021, and your policy provides benefits equal to or better than the new program. Depending on one’s wage income, it will nearly always make sense to opt-out and obtain your own policy, if possible, due to limitations of the new program such as these:

•Benefits are only available if unable to perform 3 of 10 ADLs (most policies are 2 of 6 ADLs) •Benefits are not portable (cannot be used outside of Washington state).

•Benefits are not LTC partnership qualified (in brief, partnership programs help protect assets from Medicaid’s asset recovery program).

•Benefits are likely more expensive for many people, due to the fact that there’s no wage cap on the tax.

For our clients who are employees, and/or owner/employees, especially higher wage employees without a current LTC policy, we strongly suggest you contact your insurance broker or investment advisor to inquire as to the cost of obtaining a private LTC policy of at least comparable coverage, so you’ll be eligible to consider opting out of the program by the October 31, 2021 deadline. 

For our business clients who we provide payroll services for you can be assured that we will be ready to implement this additional withholding tax and related reporting at the start of the new year, for you and/or your employees, if not eligible to opt out of the program.

Please let us know if you have any questions, and/or would like to discuss your options further, as you consider whether to be part of the new LTC program, or instead will choose to opt out of it.

Our Best, Mike, Heather, Kristy, Maria, and Victoria

Emergent Tax Season Developments – the IRS just announced an automatic extension of the 2020 filing deadline for individual tax returns to May 17^th.  This extension of time means that you can file timely by the 17^th of May, as well as pay your taxes owing by this date.  It does not mean however that you can delay your 1^st estimated tax payment, which is still due on the 15^th of April, for those who pay their taxes during the year by quarterly installment payments, rather than through FIT withholding from income. 

Two additional important considerations for the 2020 tax year due to COVID relief have to do with economic impact payments, and charitable donations.  For those taxpayers who did not receive their full economic impact payments (EIP), which for most taxpayers was $1,200 per person in 2020, and $600 per person in early 2021, a tax credit can be requested with the filing of their 2020 tax return, in order to recover the EIP.  Additionally, for those taxpayers who made charitable contributions of at least $300 last year to qualifying charitable entities, the taxpayer may claim an “above the line” tax deduction on their 2020 tax return, which will directly offset taxable income, without itemizing deductions.

Please contact our office if you have questions about any of these developments, and thank you for your patience, as we work with you to prepare your income tax returns and help you navigate through these and many other recent tax law changes,

Mike, Kristy, Victoria, Maria and Heather

Tax Season News - Due to the complexity of incorporating the changes from the various COVID relief programs, the IRS won't be ready to accept individual tax return filings for the 2020 tax year until 2/12/21. One of the primary changes impacting almost all taxpayers is the reconciliation of the economic impact payments, which eligible taxpayers should have received in 2020, and then again in early 2021.  The good news for those who didn’t receive their anticipated payments is the ability to file for a tax credit on your 2020 tax return, for payments not received directly. 

For those taxpayers concerned with identity fraud the IRS now offers anyone the opportunity to sign up for an identity protection PIN.  If you are interested in learning more about this opportunity and the requirements please follow this link -  identity protection PIN.

As a reminder, with the start of the new calendar year it's a very good time to update your income tax withholding from wages with your employer, which can be done by completing a Form W-4.  The IRS offers a useful "withholding calculator" tool, for your use in determining how much withholding to have taken out of your wages or retirement benefits.  Finally, please note that we have updated our firm's website for tax and payroll related resources and links, and certainly contact us, if we can answer your questions, or if you'd like to schedule a remote income tax appointment with our firm.  We also offer a free monthly e-newsletter, which you can sign up for on our firm’s home page.  Thank you!  Mike, Kristy, Victoria, Maria and Heather

New Form 1099-NEC Reporting Requirements –

 In the past, payments of at least $600 to attorneys, independent contractors, or directors, among others, were required to be reported on Form 1099-MISC. Other payments, such as rents, royalties, and prizes, also were reported on this same form, but in different boxes. For the 2020 tax year, a new form, Form 1099-NEC, is required to be filed for all nonemployee compensation payments. Other payments that are not nonemployee compensation payments will continue to be reported on Form 1099-MISC.

We are notifying you of this change now so you can take the opportunity to properly identify those payments that may require Form 1099-NEC reporting, and ensure you have all the required information on file. To gather the tax information of independent contractors or other noncorporate or legal service providers, you may use Form W-9.

Forms 1099-NEC for the 2020 tax year are required to be filed with the IRS on or before 2/1/21, using either paper or electronic filing procedures. Forms 1099-MISC for the 2020 tax year are required to be filed with the IRS by 3/1/21, if you file on paper, or 3/31/21, if you file electronically. Both forms are required to be provided to recipients (payees) by 2/1/21. (If you are reporting payments in box 8 or 10 of Form 1099-MISC, you have until 2/16/21 to provide that form to recipients.)

If you need assistance or would like to engage our firm to help guide you through the reporting process, please contact us.

Mike and Staff

Who is eligible for the second round of Economic Impact Payments -
Generally, U.S. citizens who are not eligible to be claimed as a dependent on someone else’s income tax return are eligible for this second payment. Eligible individuals will automatically receive an Economic Impact Payment of up to $600 for individuals, or $1,200 for married couples and up to $600 for each qualifying child. Generally, if you have adjusted gross income for 2019 up to $75,000 for individuals and up to $150,000 for married couples filing joint returns you will receive the full amount of the second payment. For filers with income above those amounts, the payment amount is reduced.
You can check the status of your first and second payments by using the Get My Payment tool, however please note that the tool is being updated with new information, and the IRS anticipates the tool will be available again in a few days for taxpayers.

Taxpayers with direct deposit information on file with the IRS will receive their payment that way, and taxpayers without current direct deposit information on file, you will receive the payment as a check or debit card in the mail. For those eligible but who don’t receive the payment for any reason, it can be claimed by filing a 2020 tax return, since the Economic Impact Payments are an advance payment of what will be called the Recovery Rebate Credit on the 2020 Form 1040.
Those taxpayers who don’t receive a direct deposit by early January should watch their mail for either a paper check or a debit card instead.

Happy Holidays! 

Mike and Staff

PPP Loan Forgiveness – general guidance from the Department of Treasury states that if a business reasonably believes a PPP loan will be forgiven, expenses related to the loan are not deductible, regardless of whether the business has yet filed for forgiveness. However, in the case where a PPP loan is expected to be forgiven in the future, but ends up not being forgiven, the applicable business expenses can be deducted.

This tax reporting treatment makes sense, as per a Department of Treasury release on 11/18/20, “Since businesses are not taxed on the proceeds of a forgiven PPP loan, the expenses are not deductible. This results in neither a tax benefit nor tax harm, since the taxpayer has not paid anything out of pocket.”

This Department of Treasury guidance not only reiterates its previous guidance it also in support of the IRS’s position taken in Notice 2020-32 , against so-called “double-dipping," it further clarifies that regardless of when loan forgiveness is requested or granted, if forgiveness is reasonably expected, any covered expenses paid for with PPP loan proceeds are not income tax deductible.  

Additionally, as noted above, Treasury and the IRS on November 18 released Rev. Proc. 2020-51, which provides a safe harbor for certain PPP loan participants, whose loan forgiveness has been partially or fully denied, or who decide to forego requesting loan forgiveness, to claim a deduction for certain otherwise deductible eligible payments.

Please contact us if you have questions about PPP loan forgiveness in general, or if we can assist you in applying for loan forgiveness with the SBA through your business lender.  Sincerely, Mike and Staff

Staffing at our Firm - we are very happy to announce that we’ve recently hired Heather Ward as a staff accountant in our Olympia office. Heather has an associate’s degree in accounting, as well as several years of experience working in the accounting industry. In her free time, Heather enjoys spending time walking, reading and listening to music. We also wanted to take this opportunity to make sure you know that since our firm’s overall approach is to function as a team, while you’ll have a primary staff member assigned to your account to provide payroll, excise and accounting support services, you can be assured in knowing that our other staff members are available to work with you on your account over time. As this year winds down, we want to thank those of you who currently work with our firm for your continued patronage, and we also want to encourage those of you who have formed a new business recently, or are possibly considering making a change in your accounting services provider to reach out to us to see how we can assist you with your business set up, and/or your company’s ongoing accounting and reporting needs.  Sincerely, Mike & Staff

PPP (paycheck protection program) Update –

Congress recently passed legislation to ease the requirements of the forgiveness aspect of the program, extending the usage term from 8 to 24 weeks, and the percentage that must be used for “payroll” purposes from 75% down to 60% of the total loan proceeds received.

Therefore, if at least 60% of the loan proceeds are used to pay for “payroll” type expenses, which are essentially salary and wage compensation for the employees of the company, including owner/officers, as well as payroll benefits, including health insurance and retirement plan contributions, as well as state and local payroll taxes then the borrower will have the opportunity to request forgiveness. The other eligible expenses, in the 40% category, must be used to pay for occupancy costs, including rent, utilities and interest on mortgage payments paid for the acquisition of real property.  Additionally, expenses incurred for fuel used for transportation are considered allowable deductions.

So, while this program has benefited many businesses, it’s important to remember that it was set up to offer emergency loans, with the opportunity to obtain partial or full forgiveness, if used for the intended purpose, which is primarily to maintain your company’s employment.  Another significant consideration is that if forgiveness of some or all of the loan is achieved, then the underlying expenses that were paid from the loan proceeds are not income tax deductible. 

Please contact us if you have any questions, Mike and Staff

Economic Impact Payments – even though this part of the CARES (Coronavirus Aid, Relief and Economic Security) Act was intended to be the most direct and expedient aspect of the aid program, many questions seem to be coming up, especially about eligibility for receiving the payment.  Generally speaking, as long as a taxpayer doesn’t have too high of AGI (Adjusted Gross Income), which for this purpose means in excess of $99k for a single filer and $198k for a married filing jointly filer, and the taxpayer has filed at least through the 2018 tax year, then you’ll be eligible for at least a partial payment.  The full payments are $1,200 for adults and $500 for dependents, and all US citizens, even those who aren’t required to file a tax return, based on their level of taxable income, are eligible.  While many taxpayers have already received their payments, many have not because they haven’t been using their bank accounts to receive income tax refunds from the IRS in the past. If this is the case then you can either update your banking info on the IRS’s website, or wait until your payment is mailed to you later this year.  If neither of these methods work for you, and you still haven’t received your payment by the end of the calendar year then the method of last resort is to receive your payment as a credit on your 2020 tax return, which while perhaps not ideal, is an available option. To recap, while the program was intended to be simple and efficient in design to send out funds to as many taxpayers as possible, there are some complexities in the qualifications, and the method of payment that have delayed the release of funds, so be patient and know that if you are eligible you’ll eventually receive your payment, or credit, over the next several months. Please let us know if you have any questions and thank you for your support during these challenging times!  Mike and Staff

Income Tax Filing and Payment - Automatic Extension – Update – just a reminder that there’s now an automatic extension of time for the filing and payment of taxes for 2019 individual, and calendar year corporate and fiduciary tax returns, until 7/15/20, without needing to file for an extension, and without incurring any interest and penalties.  If you make estimated tax payments, your first payment is not due until 7/15/20 for the 2020 tax year. However, it’s important to keep in mind that there weren’t any changes made to the due date for the 2^nd estimated tax payment, which is still due on 6/15/20.  Additionally, if you haven’t made but would still like to consider making either Traditional/Roth IRA contributions, or HSA contributions for the 2019 tax year you have until 7/15/20 to make them. Also, Non-profit entities facing tax deadlines from April 1 to July 14 now have until July 15 to file their returns, which means that calendar year non-profits, which typically file by 5/15/20, now have until 7/15/20, in order to file timely without the need for a formal extension of time request with the IRS.  Although it’s difficult for all of us to get used to the concept of an automatic extended filing season, we are thankful our business and individual tax clients have more time, as we all get through these challenging times together. Thank you for your patience as we continue to work with you remotely - we are here to help and support you.  Mike and Staff

Income Tax Filing and Payment Extensions – the good news is that the Treasury has allowed an extension of time for the filing of 2019 individual, corporate and fiduciary tax returns, as well as the payment of income taxes until 7/15/20, without needing to file for an extension, and without incurring any interest and penalties.  Additionally, if you are used to making estimated tax payments, your first payment is not due until 7/15/20 for the 2020 tax year. However, it’s important to keep in mind that there weren’t any changes made to the due date for the 2^nd estimated tax payment, which is still due on 6/15/20, a month before the 1^st estimated tax payment is due!  Also, for those of you who owe taxes with your 2019 tax return, you can wait to pay by check or through the IRS’s “my pay” on line access until 7/15/20, however if you’ve already filed and you’ve set up your payment to be electronically debited from your bank account, then you’ll need to call the following number in order to change the due date for your payment to 7/15/20, since the IRS will not automatically defer your 2019 income tax payment – call the U.S. Treasury Financial Agent at  888-353-4537.  As always, please contact us if you have any questions, or if we can help you during these uncertain times….we are here to help!
Mike and Staff

The 2019 tax filing deadline for individuals, corporations and fiduciaries (estates and trusts) has been extended to from April 15, to July 15, 2020.  The good news is that now the filing deadline and required payment deadline are the same, so if you owe taxes and also need more time to file, you won’t need to file for an extension of time and/or make a payment of your taxes until the 15^th of July, without any associated penalties or interest.  Additionally, if you typically make estimated tax payments, the first quarterly payment for the 2020 tax year can be made on July 15^th, instead of the 15^th of April, when it’s normally due  Of course, if you are due a Federal tax refund and are ready to file your 2019 tax return it’s a good idea to do so in order to expedite your refund.

As we continue to take precautions to protect our staff and you our clients from the spread of the Covid-19 Virus we are here to serve you and your business.  Our office doors are closed to the public for now, however we plan on continuing to serve you and we can be reached on the phone or via email Monday through Friday from 9 am to 5 pm, and you can also transfer data to us through our secure portal from our website - https://wittenbergcpa.filegenius.com/index.php#, or you can drop items off at either of our office locations in our secure drop boxes, located outside on the left hand side of our main office doors, any time, at your convenience.

Please call or email us with you questions and we’ll do our best to get back to you as soon as possible during these uncertain times. 
Sincerely, Mike and Staff

Dear clients and friends –

Today the U.S. Treasury Department, Internal Revenue Service (IRS), and the U.S. Department of Labor (Labor) announced that small and midsize employers can begin taking advantage of two new refundable payroll tax credits, designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees. This relief to employees and small and midsize businesses is provided under the Families First Coronavirus Response Act.

The Act will help the United States combat and defeat COVID-19 by giving all American businesses with fewer than 500 employees funds to provide employees with paid leave, either for the employee’s own health needs or to care for family members. The legislation will enable employers to keep their workers on their payrolls, while at the same time ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus. Here’s a recap:

Paid Sick Leave for Workers - for COVID-19 related reasons, employees receive up to 80 hours of paid sick leave and expanded paid child care leave when employees’ children’s schools are closed, or child care providers are unavailable.

Complete Coverage:

Health insurance costs are also included in the credit.
Employers face no payroll tax liability.

Self-employed individuals receive an equivalent credit.
Employers receive 100% reimbursement for paid leave pursuant to the Act.

Fast Funds:

An immediate dollar-for-dollar tax offset against payroll taxes will be provided
Where a refund is owed, the IRS will send the refund as quickly as possible.
Reimbursement will be quick and easy to obtain.

Small Business Protection - Employers with fewer than 50 employees are eligible for an exemption from the requirements to provide leave for employees to care for a child whose school is closed, or child care is unavailable in cases where the viability of the business is threatened.

 Ease in Compliance - Requirements subject to 30-day non-enforcement period for good faith compliance efforts.  In order to take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released next week.

The IRS has established a special section focused on steps to help taxpayers, businesses and others affected by the coronavirus and we’ll continue to provide additional information as these programs develop.  Thank you for your patience in the process and we hope you are doing your best to stay well and sane through all of this. We’ll be back in touch again soon!  Mike and Staff

To help keep our clients and our employees safe from the spread of the coronavirus (COVID-19), beginning March 19th, Wittenberg CPA is closing its Shelton and Olympia offices to the public.  We will continue to provide the services you rely on, so please plan on working with us over the phone and/or via email for now. Also, know that you can safely drop your data off in one of our secure drop boxes, located outside of our office doors, and at the top of the stairs in the Shelton office. We also want to offer you access to our firm’s portal from our website at https://wittenbergcpa.filegenius.com/index.php#. 

Thank you!  Mike and Staff

New Retirement Plan Changes – overall the changes made in the SECURE Act are generally positive. Here’s a quick recap of some of the more important changes:

Expansion of Opportunities to Increase Savings:

1. Repeals the maximum age for traditional IRA contributions, effective 1/1/20.
2. Raises the required minimum distribution age from 70½ to 72, effective 1/1/20.

Increases Access of Small Employers to Qualified Retirement Plans:

1. Allows unrelated employers to band together to create pooled employer plans effective for plan years beginning after 12/31/20.
2. Increases the annual limit on the credit for small employer pension plan start-up costs to a maximum of $5,000 for years beginning after 12/31/19.

Administrative Simplifications:

1. Allows a group of similar qualified plans to file a consolidated Form 5500, effective for plan years beginning after 12/31/21.
2. Adds a fiduciary safe harbor for satisfying the “prudent man” requirement with respect to the selection of annuity providers, effective 12/20/19.

Despite these more taxpayer-friendly rules, there are two provisions in the SECURE Act that are generally seen as negative. The first is the elimination of the “stretch IRA.” The SECURE Act changes the stretch period applicable to non-spousal inherited IRAs, generally from a lifetime distribution period to a 10-year maximum distribution period, effective for distributions with respect to participants/IRA owners who die after 12/31/19. The second negative provision is the significant increase in penalties in failing to file Form 5500 and provide certain notices to participants for those plans required to do so.

Please contact us if you have any questions about these changes, and otherwise stay healthy and well!  Mike and Staff

2019 Tax Law Changes – even though most of the tax law in effect this year is unchanged from the prior year, there were a few important changes I wanted to bring to our attention.  In particular the IRS is asking about virtual currency this year as a point of emphasis, so if you acquired or sold virtual currency in 2019, you must disclose it, and report any resulting gains/losses from any dispositions. Another important change this year is the deductibility of “mortgage premium” insurance, which was not deducible in the prior year, although there are some gross income restrictions. Additionally, for those taxpayers who aren’t able to take the tuition credit due to income limitations, they are allowed to take a deduction for tuition & related fees, as an adjustment to income instead. Also, for those taxpayers who are able to itemize their deductions the AGI threshold for including medical costs was reduced back down to 7.5% of AGI, whereas it had previously been 10% in the prior year for taxpayers under 65 years of age.  Please contact us if you have any questions about these tax law changes implemented for the 2019 tax year. Mike and Staff

Non-Deductible Expenses Under the Current Tax Law – just a reminder that many formerly deductible expenses are no longer tax deductible under the current tax law, including “entertainment”, “employment” and “investment” type expenses.   So, if you own a business you can no longer take a deduction for costs that are considered “entertainment” in nature, even if they were incurred to maintain or build your business.  Additionally, if you are still able to itemize your individual income tax deductions, given the new higher standard deduction on your personal income tax return, you can no longer take a tax deduction for employment related costs, such as union dues, work related supplies or training, etc.  Furthermore, if you incur investment related expenses, such as management fees with respect to your brokerage account, or carrying costs on real estate, for example, these costs are also no longer allowed to be deducted under the new tax law.  While this list is not intended to be comprehensive, we wanted to remind you of several of the more common expenses that once were but no longer are tax deductible.  Please contact us if you have any questions, or if you want specific advice in relation to your particular circumstances.  Happy Holidays! Mike and Staff      

FIT Withholding and ES Tax Payment Adjustments – if you haven’t already done so it’s a good idea to check your FIT (Federal Income Tax) and/or ES (Estimated) tax payments before the end of the 2019 calendar year to make sure you are on track.  One very helpful tool is the IRS’s Withholding Calculator, which allows you to determine the adequacy of your FIT withholding in time to make any necessary changes by the end of the year.  If you need some additional help, or if you are either self-employed or own your own company, our firm provides income tax projection services, so we can assist you in determining the adequacy of your 2019 FIT withholding and/or ES payments. Please contact us if you have any questions. Happy Holiday Season!  Mike and Staff

Staffing at our Firm - we want to introduce you to the two new staff members on the Wittenberg CPA team – Victoria Black recently joined our firm in our Shelton office, and Maria Silva will be joining our firm in our Olympia office beginning next Monday the 29^th of July.  Victoria recently received her AA degree in accounting and has several years of experience working with small businesses, as a long-time resident of Mason County.  Maria has business management and accounting experience as a long-time resident of Thurston County.  Please welcome them to the firm when you have a chance to meet them.  As the year so quickly moves on please contact us if we can assist you with any financial, business or tax planning issues, or compliance issues relative to your company.  We continue to offer an array of services, including payroll and business tax preparation, full-service accounting, and software and business consulting services.  We also want to take this opportunity to thank our loyal and devoted clients - we sincerely appreciate your ongoing support and patronage!  Mike and Staff

The New Business Deduction Relative to Rental Properties – under the current tax law most small business entities, which aren’t considered C Corporations, are allowed a 20% deduction against their net income.  This category of business entity includes sole proprietorships, pass through entities, such as S Corporations and LLC’s, as well as many rental activities, whether held in a business entity or not.  In order to qualify for the deduction as a rental activity, beginning with the 2019 tax year the owner must 1. Maintain a separate set of books to reflect the activity, 2. Perform all of the required rental services, or at least 250 or more hours per year, if not all services, and 3. Maintain contemporaneous records that show hours for services preformed, the dates of performance, as well as who performed them.  The typical rental activity services involved are advertising, lease negotiation, performance of repair and maintenance, and/or the management of the service provider, as well as rent collection and bill paying.  Please contact us, if you’d like to discuss these new 2019 record keeping requirements and how they apply to you and your rental activity.  Mike and Staff

Wittenberg CPA’s Olympia Office – We are Moving!  Effective Tuesday, December 18^th we will be settled into our new Olympia office location at 1401 4^th Avenue E., Suite 201, Olympia, WA 98506.   Wittenberg CPA’s main office will remain at the same Shelton location, along with all of our contact info, so please feel free to reach us at 360-426-0230 or 360-350-4460, or else just stop on by our new Olympia office location anytime from Monday through Thursday from 9 am to 2 pm to see us.  Please don’t hesitate to contact us if you have any questions or comments and Happy Holidays!  Mike and Staff

Paid Family & Medical Leave – State of WA – Beginning in 2019 all employers will be subject to the new reporting and withholding requirements under this new law, however employers with fewer than 50 employees will not be required to pay toward the combined .4% tax on gross wages.  The rules require that all employers withhold 63% of this tax from their employee’s wages, and for those employers with 50 or more employees, the remaining 37% of this tax will be paid by the employer.  Furthermore, employers will be allowed to pay this combined .4% tax on behalf of their employees, at their discretion.  The tax will be reported and paid on the employer’s quarterly Employment Security tax report, beginning with the first quarterly report for the 2019 calendar year, which is due on April 30^th of 2019.  Please note that employees who become eligible to receive paid “family” or “medical” leave won’t be eligible for benefits until at the earliest the 2020 calendar year, at which time they will be required to submit their request for benefits to Employment Security.  The Employment Security office, upon review of the benefit request, will provide the opportunity for review of the request to the employer, which we are assuming will be in a similar fashion for how the Department of L&I allows for the employer review of benefits relative to their employee’s unemployment benefits.  While this is a fairly complicated new set of rules and reporting requirements, thankfully Employment Security has been and will continue to issue informative correspondence in order to assist in the process.  Additionally, if you are our client please don’t hesitate to contact us if you have questions or concerns.  Happy Holidays!  Mike and Staff

End of Year FIT Withholding and ES Tax Payment Adjustments – if you haven’t already done so it’s a good idea to check your FIT (Federal Income Tax) and/or ES (Estimated) tax payments before the end of the 2018 calendar year to make sure you are on track.  While many of the tax law changes under the TCJA (Tax Cuts and Jobs Act) are beneficial when it comes to reducing your 2018 income taxes, several provisions are not, and may actually increase your overall income taxes.  Additionally, since the FIT withholding tables were adjusted to reduce an employee’s withholding, you’ll have paid in less than the prior year, even if no changes were made to your W-4 withholding status.  One very helpful tool is the IRS’s Withholding Calculator, which allows you to determine the adequacy of your FIT withholding in time to make any necessary changes by the end of the year.  If you need some additional help, or if you are either self-employed or own your own company, our firm provides income tax projection services, so we can assist you in determining the adequacy of your 2018 FIT withholding and/or ES payments. Please let us know if we can assist you. Happy Holidays! Mike and Staff

Changes in Meal and Entertainment Deductions under the New Tax Law (TCJA) – beginning with the 2018 tax year expenses for entertainment, amusement and recreation, commonly considered “entertainment” expenses, will no longer be tax deductible.  The tax deduction for “meal” expenses are still 50% deductible as under prior law, if the taxpayer is present and the food and/or beverages are not considered lavish in nature.  The meals may be provided to a current or a potential business client, consultant or similar business contact.  Food and beverages provided during entertainment events are not considered entertainment and are therefore still 50% tax deductible, if purchased separately from the event, and documented as such.  Please contact us if you have any questions or want to discuss the specifics of how this change in the tax law impacts you and your business.  Mike and staff

Itemized Deductions – Changes under the New Tax Law – for the most part individual taxpayers who’ve itemized their deductions in the past will continue to want to track their annual expenses for medical, property, and other relevant taxes, mortgage interest and charitable donations.  The biggest single change taking place effective in 2018 is the increase in the standard deduction, which for single filers increases from $6,350 in 2017 to $12,000 in 2018, and for married filing jointly taxpayers increases from $12,700 in 2017 to $24,000 in 2018. This of course means that the threshold to itemize has increased to the point where individual taxpayers who were on the bubble won’t be able itemize their deductions this year, if the total of eligible itemized deductions falls below these levels.  Additionally, individual taxpayers will no longer be able to itemize “miscellaneous” expenses that fall within the 2% AGI limited category, such as for unreimbursed employment costs, union dues and professional fees paid for tax preparation and investment management, etc.  An extremely important tax planning point is that while the standard deduction has been increased, the deduction for personal exemptions has been eliminated, so that a family of 4 for example will lose approximately $16,000 in personal exemption deductions, which more than offsets the potential increase in the standard deduction.  Please contact us if you have any questions or want to discuss the specifics of your particular income tax planning needs.  Mike and staff

Home Equity Lines of Credit – this once reliable source of financing may not be as useful under the new tax law.  Beginning in 2018 the use of the funds determines the deductibility of the interest payments paid on lines of credit using your home or your 2^nd home as the collateral for securing the loan.  The new law only allows the tax deduction of interest expense when the loan is taken out to “buy or improve” a primary or secondary home, not for the refinancing of personal loans such as credit cards, vehicle or student loans, etc.  Therefore, while securing a home equity line of credit may still make sense for you in terms of ease of approval and general loan terms, just keep in mind that the interest expense paid on this type of line of credit may not be deductible, depending on the underlying use of the proceeds.  Mike and Staff    

Form 1099 Compliance - Generally speaking you are required to prepare Form 1099's for payments made in the ordinary course of your trade or business to any unincorporated business or individual that you have paid more than $600.00 per calendar year for services, and/or for services combined with material use, such as is the case when paying a contractor or subcontractor. In addition, payments of $600 or more to attorneys or health care providers are reportable, even if the recipient is incorporated. The filing deadline for the Form 1099, which goes to the service providers, and the Form 1096, which summarizes the Form 1099 information and is remitted to the IRS, is the 31^st of January. Late filing penalties of $50 per Form 1099 filed within 30 days of the deadline, or $100 per form 1099, if filed after January 31^st but before August 1^st may be applied by the IRS. Please refer to this Summary of Form 1099 Reporting Requirements for additional information.  Also, as a business owner remember to provide service providers with a Form W-9 when they are paid during the year, so you’re ready to meet the Form 1099 filing requirements at year end.  Please contact us if you have any questions.  Mike and Staff   

New “paid sick leave” law effective January 1, 2018.  Employees (including part-time, seasonal and temporary staff) will accrue paid sick leave for ALL hours worked (including overtime). For each hour of paid sick leave used, an employee shall be paid their normal hourly compensation. Employees are eligible to use their accrued paid sick leave beginning on the 90th calendar day after the start of their employment. 

An employee shall accrue at least one hour of paid sick leave for every 40 hours worked.  Accrued, unused paid sick leave balances of 40 hours or less must be carried over to the following year.  The default accrual year is January 1 – December 31, but an employer may adopt a different fixed consecutive twelve-month period by an employer policy or collective bargaining agreement.  An employer may elect to provide employees with a more generous carry over at their discretion.

Also, please note that the State of Washington’s minimum wage will increase to $11.50 per hour, effective January 1, 2018.  For planning purposes, the minimum wage will increase to $12.00 in 2019 and $13.50 in 2020.  After that all future minimum wage rate increases will be tied to inflation.

Please contact our office if we can answer your questions, and if you haven’t already, please sign up for WCPA’s e-newsletter on our website’s home page. 

Happy Holidays!  Mike and staff

Year End Business Planning – now that the calendar year is quickly winding down, if you have any questions about your company’s year-end accounting procedures which should be implemented please contact us.  One of the procedures that should be considered is to have your company’s annual meeting, especially if it’s a corporation. It’s also that time of year to consider putting additional funds into your retirement plan account, as well as to consider making intended capital purchases, so you can include them as tax deductions this year.  Please also keep in mind that in the coming weeks before year end we can work with you to determine your 2017 income tax liability, while you still have a chance to do something about increasing your FIT withholding, if needed, before year end.  Please let us know how we can help you and your company with its end of year planning needs, and thank you for your ongoing patronage!  Mike and Staff

Hobby versus Business Activities - If you are on the fence as to whether to classify your activity as a business or a hobby, it’s important to understand the differences as well as the reporting requirements relative to hobby activities:

1. Is it a Business or a Hobby?  A key feature of a business is that people engage in it to make a profit.  Consider nine factors when determining whether an activity is a hobby or a business. Make sure to base the determination on all the facts and circumstances.
2. Allowable Hobby Deductions.  Within certain limits, taxpayers can usually deduct ordinary and necessary hobby expenses. An ordinary expense is one that is common and accepted for the activity. A necessary expense is one that is appropriate for the activity.
3. Limits on Hobby Expenses.  Generally, taxpayers can only deduct hobby expenses up to the amount of hobby income. If hobby expenses are more than its income, taxpayers have a loss from the activity. However, a hobby loss isn’t allowed to offset other taxpayer income.
4. How to Deduct Hobby Expenses.  Taxpayers must itemize deductions on their tax return to deduct hobby expenses. Expenses may fall into three types of deductions, and special rules apply to each type. See Publication 535 for the rules about how to claim them on Schedule A, as Itemized Deductions.

Please contact us if you’d like to discuss whether your activity more resembles a “hobby” as compared with a business activity.  Mike and Staff

Tax Return Extension Requests – now that its April and the individual tax filing deadline of 4/18/17 is right around the corner it may be time for you to consider an extension request, to allow you some additional time to file your tax return. The request for additional time is made with a Form 4868, Application for Automatic Extension of Time, which must be completed and remitted to the IRS by the initial filing deadline of 4/18/17. The process is fairly straightforward, and will allow you up to 6 months of additional time to file your individual tax return. The most important step in preparing an extension request is to determine whether you’ll owe taxes when your return is filed later in the year.  If you are projecting that you will owe taxes when you eventually file, you can make an extension payment, either by check, which should be mailed along with your extension request or by direct debit from your bank account. Not only will the extension request provide you with additional time to complete and remit your tax return, it will allow you peace of mind, so you aren’t later subjected to a late filing & payment penalties. Please contact our office if you have any questions, or if we can assist you in making an extension request.  Mike and Staff

Business Entity Procedures – whether you own an LLC, INC, LLP, or another hybrid type of legal entity for your business, the following are some important procedural reminders to make sure the business entity you set up is well maintained and protecting you from potential legal and compliance pitfalls.  One the simplest and most important procedures is to be sure that you sign all documents as the “Member” of your LLC, the “President” of your INC, etc.  This is especially true when signing legally binding documents, such as lease agreements, note agreements, etc.  Another important task is to title and insure all real property, vehicles, etc., in the company’s name, not in your personal name(s).  Also, now that 2017 is well underway, if you haven’t had an official company meeting to discuss the policies and procedures of the company, now is the time to do so, and be sure to document the decisions made.  Finally, if you company is a corporation (INC), it’s extremely important to set up your owner compensation at a “reasonable” level, both in terms of adequacy, and in terms of allowing you as the owner to consider funding your company sponsored retirement plan.  Please contact us if we can answer any questions, or help you along the way with setting up these business entity procedures.

 As business owners it’s important to take the time, at least once a year, to think about your business and make plans for the coming year.  Whether or not your plans are translated into annual “minutes” for your business or not, there are a few key considerations:

• Employee reviews – have you taken the time to meet with each of your employees to hear their perspectives and plans?

• Financial review – have you reviewed your company’s performance to determine fiscal trends that might need to be looked into further, so you can adjust operations accordingly?

• Business succession and long term planning – if you haven’t prepared a business plan for your company in a while, or ever, it would be wise to go through the process of preparing a plan for your company, in order to refine your goals and plans.  The SBA provides some very useful guidance in setting up a business plan.

  Please contact our office if we can assist you in the planning needs for your company.  Mike and Staff

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Wittenberg CPA, PS

The IRS will begin accepting electronically filed tax returns for the 2016 tax year on Monday, the 23^rd of January.  This tax season the initial filing deadline for individual tax returns is 4/18/17, however all pass through entities (e.g. LLC’s and S Corporations) must file by 3/15/17 this year, which is a change from prior tax seasons.  Another change for this tax season is that tax returns generating refunds and reporting either EITC’s (earned income tax credits) &/or ACTC’s (additional child tax credits) will be delayed at least until 2/15/17.  A couple of reminders for business owners as we move rapidly into 2017; the first is that the State of WA’s minimum wage rate increased to $11 per hour effective the first of this year. Also, at the beginning of each calendar year it’s always a good idea to complete a new Form W-4, in order to update your income tax withholding for the coming year, especially if you’ve had a change in personal circumstances, such as marriage, children, additional itemized deductions, etc.  Also, if your company, no matter how small, has paid for services (e.g. professional services, subcontractors, etc.) please review the Form 1099 reporting requirements to find out if you should  issue Form 1099’s.  Also, keep in mind that a new requirement this year is that Form 1099’s must be issued by 1/31/17 to all qualifying recipients.  Please  contact us if we can be of assistance to you and/or your business over the tax season, and throughout the year!

 As the year rapidly comes to a close there still might be some end of the year actions you can take in order to soften your 2016 tax bill.  For business owners, making the needed purchase of an asset, and/or making bonus and/or retirement plan payments are useful income tax savings maneuvers.  For individuals, there’s still some time to maximize your retirement plan contributions through payroll.  It’s also worth considering making year end donations, or paying for medical expenses if you believe you’ll be able to “bunch” them into the current year and benefit from taking them as itemized deductions.  One type of deduction that is often missed is that for the use of your vehicle, whether for business or personal use.  For the 2017 calendar year, the standard mileage rates have been announced by the IRS; for business related vehicle use its 53.5 cents per mile, for charitable vehicle use its 14 cents per mile, and for medical vehicle use its 17 cents per mile.  Please contact us if you have any questions or need our assistance in making some last minute maneuvers over the next couple of weeks, and certainly let us know if you’d like our help in determining your 2016 projected income tax liability. Mike and

Dear Business Clients, We wanted to follow up with you about a memo that we sent out in June of this year, regarding the Overtime Rule that US Department of Labor was implementing, effective December 1, 2016. On November 22, 2016, a US District Court Judge granted an Emergency Motion for Preliminary Injunction, which stopped the Department of Labor from implementing and enforcing the rule from taking place.

What this means, is that the previous salary threshold of $455 per week ($23,666 per year), still stands, until further notice. However it is still extremely important to determine whether or not your employee continues to qualify as salaried , overtime-exempt, not only by the salary threshold, but also by the “Duties” test, even though the salary threshold is currently unchanged.

We will be closely following the status of this injunction, and will certainly notify you as we know more. If you have any questions about how this update affects your company, and your employees, please don’t hesitate to contact our office.

If you haven’t checked out our website in a while please go and review the new features and tools we’ve added @ www.wittenbergcpa.com.  Now you can sign up for our e-newsletter, access tax and financial tools, research issues in our financial guides section and generally get to know our firm and the services we offer.  As the year winds down please let us know if you have any business or personal tax or financial planning needs that we can assist you with.  We also want to take the time as we near the holiday season to say thank you to our clients for your trust and loyalty in working with our firm – we sincerely appreciate you!  We also want to thank our professional associates for your collaborative efforts in meeting the needs of our mutual clients.  Thank you, Mike and Staff

Most business owners will likely need some financial and general business planning advice from time to time.  Unfortunately, there are what we like to call “insulting” firms out there, which approach businesses and their owners, falsely guaranteeing better performance and more profits.  The problem is that these firms, and the “insultants” they send out in the field, posing as business consultants, are actually focused on bettering themselves and the companies they represent, by charging outrageous fees, for advice that at best might be considered common sense solutions.  So, if you are approached by someone like this, you should be very skeptical, and you should also let them know that you’ll be contacting your trusted accountant, and/or your financial advisors for advice instead.  Please contact us if you would like to talk about your personal and/or your business planning needs – we are always here to help you and your business succeed! 

While it’s typically not on the top of anyone’s “to do” list, if you either don’t have a will in place, or haven’t updated your will in a while, it’s extremely important to take care of it right away. We recommend meeting with an attorney, because your will should be tailored to your needs and requirements, however there are also some "do it yourself" options out there on the web, if consulting with an attorney isn't an option for you. The main thing is that you establish a current will and durable power of attorney, in order to take care of the details of what will happen to your assets, your children, as well as your medical requirements, upon your death or incapacitation. Another consideration is for you to set up a “living trust”, otherwise known as a revocable trust, which can be very useful in transferring one’s assets to beneficiaries, while avoiding the hassle and publicity of the probate process. Finally, one of the most important and often overlooked tasks, is to review the “beneficiary designations” stated on your retirement plans, whether company sponsored, or in your personal name, to make sure you have the correct beneficiaries of these plans named for that particular retirement asset. Please contact us if we can answer your questions, or help you sort out what needs to be done under your specific circumstances, as well as to assist you and/or your attorney in completing these extremely important legal and financial tasks.

Great news!  Wittenberg CPA is currently offering some great promotions from now through the end of 2016. We are offering free, initial set up for any new business clients needing payroll and other business accounting services, in addition to a $150 account credit to our existing clients for the successful referral of any new business client. For those business owners who are considering making a change in their accounting services provider, but who are not quite sure of the possible benefit, we are also offering a free review, where we would go over your financial information and tax returns with you, to determine what changes could be made in order to benefit your business.

For more information about how we can better serve you, contact us at 360-426-0230, or visit our website at www.wittenbergcpa.com.

You may have heard rumors that the Department of Labor was issuing updated requirements, pertaining to salaried, overtime-exempt employees. These requirements have been finalized, and a new Final Ruling has been issued, with an effective date of December 1, 2016.

In the past, in order for an employee to qualify for the overtime exemption, three tests had to be met; (1) the employee had to be paid a predetermined and fixed salary, not subject to reduction because of variations in the quality or quantity of work performed (“salary basis test”); (2) the amount of salary paid had to meet a minimum specified amount (“salary level test”); and (3) the employee’s job duties had to primarily involve executive, administrative, or professional duties, as defined by the regulations (“duties test”).

With the new Final Ruling, the employee must still continue to meet the required three tests, in order to qualify for the exemption; however, the salary level test has now increased from $455 to $913 per week. The good news is, for the first time ever, employers are able to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.

Remember that non-discretionary bonuses and incentive payments are forms of compensation promised to an employee, in accordance with any pre-determined standards. Holiday bonuses are considered discretionary, and therefore, do not count towards the salary threshold; nor does any benefit paid to an employee, such as medical insurance, retirement, HSA contributions, etc.

These bonuses and incentive payments must be paid on a quarterly or more frequent basis, in order to count towards the standard salary level. In the event that an employee does not meet the standard salary level in a given quarter, in conjunction with the incentive payments, employers are allowed a “catch-up” payment, which must be paid within one pay period of the quarter ending, in order for the employee to meet the standard salary level requirement.

To prepare for the upcoming changes, you’ll first need to decide whether or not your current salaried overtime–exempt employees still qualify under the duties test, as well as the salary basis test. If the employee’s annual salary threshold is currently more than the updated requirement of $913 per week ($47,476 annually), then there is nothing further that you will need to do.

However, if your employee’s salary is less than the required threshold, you’ll need to either raise their annual salary to at least the new threshold, or switch the employee over to an hourly wage. If you decide to switch over to the hourly compensation method, the employee will no longer be overtime exempt, since the requirement of the exemption is to meet all three requirements (duties, salary basis, and salary level).

Please contact us at your earliest convenience to discuss how these changes impact your business specifically, so that we can help you prepare for the transition, before its upcoming implementation date of December 1, 2016.

We always appreciate the opportunity to explain why you should engage a CPA (Certified Public Accounting) firm like ours, as compared with hiring a bookkeeping or a tax preparation only service, especially since our fees can be higher on average, relative to those other types of services. Probably the most significant benefit of engaging a CPA firm like ours is the education and experience levels that we can offer you and your company, inherent in the services we provide. Whereas anyone can put out their “shingle”, advertising bookkeeping, and/or income tax preparation services, CPA firms are held to a much higher standard of education, knowledge and ethics. For example, CPA’s are required to not only have a college degree in accounting, we are also required to have a minimum of 40 hours of continuing education on an annual basis, in the fields of accounting, tax law, business finance, personal financial planning, and other related studies. Unfortunately the nationally syndicated companies, advertising their income tax and/or payroll preparation services by “professionals”, are instead staffed by individuals with minimal training and experience, in a mass production type of atmosphere, without requiring these same educational standards or ethics.  Please contact us if you’d like to discuss how we can assist you, and/or your company with its accounting, business start-up, income or business tax preparation, or any of the other types of services  we provide.  Thanks!  Mike and Staff

Since the implementation of the new health care act has been so complicated, especially for those who participate in either the Federal or a state based health insurance marketplace (exchange), the IRS’s Taxpayer Advocate Service has developed some new web based tools.  The Premium Tax Credit Change Estimator is a tool that can be used when your life circumstances change (e.g. changes in income, marital status, etc.), so you can figure out how much your “Advance Premium Tax Credit” will change based upon the changes in your life circumstances. 

The Individual Shared Responsibility Provision Estimator is a tool to determine how much you can expect to pay as an “Excess Advance Premium Tax Credit Repayment”, upon the filing of your annual tax return, if you don’t have “minimum essential coverage”, and if you also don’t qualify for an exemption from this provision. 

These tools are meant to provide you with information relative to these two aspects of Affordable Care Act (ACA) compliance, however if you have any questions as to how these rules apply to your particular circumstances, please contact us  for further assistance. 

If you have a college age child in your household you are more than likely needing to file a FAFSA (Free Application for Student Aid) form this time of year, even if you don’t expect your child to qualify for grant type funds, they may qualify for a scholarship or other financial support. While it’s best to complete and file the FAFSA early during the tax season, you can use estimates from tools like this income estimator, in order to meet the required FAFSA filing deadline, and then later update the FAFSA with actual amounts from the most recent tax year.   The good news is that once you’ve prepared the most recent year’s tax return, your financial information can be efficiently updated by using an IRS data retrieval tool, so you won’t need to spend the time to complete the FAFSA form all over again!  Please contact us if you have any questions, or if we can assist you in the process of preparing a FAFSA form.

We are writing to remind you to update certain pertinent information on behalf of your employees, as is either required by law, or is relevant to your company’s record keeping needs. Please refer to our website, for relevant government forms including; Form W-4, INS Form I-9, and the DSHS New Hire Reporting information, which are discussed below.

Also, please note that the State of Washington’s minimum wage will remain $9.47 per hour, effective January 1, 2016.

Please have each of your current employees complete a 2016 Form W-4. The annual completion of this form allows your employees to assess their withholding status, as well as confirm their social security number, marital status and mailing address.

Each new employee must complete a 2016 Form W-4 (lines #1-7) along with their signature, date of hire and date of birth. As the employer, you need to complete lines #8-10 of the Form W-4. Remember that you must also complete and retain a form I-9, making sure that all sections are filled out completely. The I.C.E. (Immigration & Customs Enforcement) can fine your company up to $50 per incomplete, and/or incorrectly completed section, which can add up to $200 per form.

Please let us know if we can answer any questions about these requirements, or assist you with the DSHS New Hire Reporting requirements.

We’d also like to remind you that Washington State law requires (under RCW 50.12.070 and WAC 192-12-050) that the following information be maintained by all employers:

• Name (in full) of the employee
• Date of birth 
• Social Security number
• Days and weeks when work was completed
• Dates and hours worked (specific time in and time out)
• Wages paid for each separate pay period
• Location where work was performed
• Date when hired or re-hired to work
• Date when the individuals name was removed from the payroll
• Cause of separation from work due to discharge, quit, etc.

According to the State of Washington these employee records are to be kept for at least four years, but our office recommends seven years. We also recommend that you maintain an employee policy and procedure manual, and that you review the overall content of your employees’ files annually for completeness.

In addition to maintaining the above employee information, we also recommend that you maintain two binders separate from your employee’s files. One that holds copies of your employee’s W-4’s; present employees first, with past employees in the back. The second one should hold copies of your employee’s I-9’s, in the same order as your W-4 binder. Using this approach you would be able to provide the required employee information to an auditor, if requested, without pulling each employee’s personnel file.

Please don’t hesitate to let us know if we can assist you in completing the required employment forms, or to help you understand the rules, as they specifically apply to your company.

   First off, we are welcoming back Beccie Beck, who has returned to work as staff accountant in our new Olympia office location. Beccie is looking forward to working with our Olympia area clients, and will be providing accounting services, including payroll and excise reporting, as well as accounting software support and review services.

   Additionally, Katie Arnold is being promoted to the role of manager at our Shelton office. She will become more involved in the management of the overall firm, as well as responsible for managing the firm in Mike’s absence.  The Shelton office staff will remain the same, as Sheri Burgess and Chrissy Hammond will continue in their roles as staff accountants on the WCPA team.

   On the education front, Katie is continuing her studies in accounting so she can complete her bachelor’s degree, with the goal of obtaining her CPA certification.  Chrissy is nearing the completion of her master’s degree in business administration and also has her sights set on obtaining her CPA certification.  As is the case each year, all staff members will be participating in continuing education programs throughout the rest of the year, in order to fortify their knowledge in accounting principles, and payroll and excise compliance matters.

In addition to personnel news, we want to let you know that we’ve set up a new file share portal through File Genius, so if you’d like to send or receive confidential information, or software backups, to/from our office please let us know, and we’d be happy to send you the instructions for interacting with us via this new file share tool.

   We are pleased to announce the opening of a second office in Olympia on October 12th! Our new office will be located on the 3^rd floor of the Security Building at the corner of 4^th Ave and Washington Street in downtown Olympia. As we get underway at this new location, our office hours will be Monday through Thursday each week, from 9 am to 2 pm. Please stop by for a visit at 203 4^th Avenue E., Suite 307, Olympia, WA. Hours at the Shelton office will remain the same.

   With the opening of the new office, we plan on better serving our Olympia area clients and we also look forward to working with new clients. In order promote our Olympia office, we are offering free, one time set up for any new business clients to our firm needing payroll and other business accounting services. We are also offering our existing clients an account credit of $150 for the successful referral of any new business clients to our firm.

If your business doesn’t already have a retirement plan, now might be the time to take the plunge. Current retirement plan rules allow for significant deductible contributions. Even if your business is only part-time or something you do on the side, contributing to a SEP-IRA or SIMPLE-IRA can enable you to reduce your current tax load while increasing your retirement savings. With a SEP-IRA, you generally can contribute up to 20% of your self-employment earnings, with a maximum contribution of $53,000 for 2015. A SIMPLE-IRA, on the other hand, allows you to set aside up to $12,500 for 2015 plus an employer match that could potentially be the same amount. In addition, if you will be age 50 or older as of year-end, you can contribute an additional $3,000 to a SIMPLE-IRA.

Although a vehicle’s value typically drops fairly rapidly, the tax rules limit the amount of annual depreciation that can be claimed on most cars and light trucks. Thus, when it’s time to replace a vehicle used in your business, it’s not unusual for its tax basis to be higher than its value. If you trade the vehicle in on a new one, the undepreciated basis of the old vehicle simply tacks onto the basis of the new one (even though this extra basis generally doesn’t generate any additional current depreciation because of the annual depreciation limits). However, if you sell the old vehicle rather than trading it in, any excess of basis over the vehicle’s value can be claimed as a deductible loss to the extent of your business use of the vehicle.

A Roth conversion is treated as a taxable liquidation of your traditional IRA followed by a nondeductible contribution to the new Roth IRA. While the tax hit from converting is unwelcome, it may be a relatively small price to pay for future tax savings. After the conversion, all the income and gains that accumulate in your Roth IRA, and all withdrawals, will be totally free of any federal income taxes—assuming you meet the rules for tax-free withdrawals. In contrast, future withdrawals from a traditional IRA could be hit with tax rates that may be higher than today’s rates.

Of course, conversion is not a no-brainer. You have to be satisfied that paying the up-front conversion tax bill makes sense in your circumstances. In particular, converting a big account all at once could push you into higher 2015 tax brackets, which would not be good a good thing. You must also make assumptions about future tax rates, how long you will leave the account untouched, the rate of return earned on your Roth IRA investments, and so forth. If the Roth conversion idea intrigues you, please contact us for a full analysis of the relevant variables.

You may want to make gifts to favorite relatives and/or charities in conjunction with an overall revamping of your holdings of stocks and equity mutual fund shares held in taxable brokerage firm accounts. To get the best tax results from your generosity, do not give away shares that are currently worth less than you paid for them. Instead, sell the shares, and take advantage of the resulting tax-saving capital losses. Then, give the cash sales proceeds to the relative or charity.

On the other hand, do give away shares that are currently worth more than you paid for them. Because the charitable organization is tax-exempt, it can sell your donated shares without owing anything to the IRS. Most likely, your relative will pay lower tax rates than you would pay if you sold the shares. In fact, relatives who are in the 10% or 15% federal income tax brackets will generally pay a 0% federal tax rate on long-term gains from shares that were held for over a year before being sold. For purposes of meeting the more-than-one-year rule for gifted shares, count your ownership period plus the recipient relative’s ownership period, however brief. Even if the shares are held for one year or less before being sold, your relative will probably pay a lower tax rate than you (typically only 10% or 15%). However, gains recognized by a relative under the age of 24 may be taxed under the so-called Kiddie Tax rules.

For 2015, the federal income tax rate on long-term capital gains and qualified dividends is still 0% when those gains and dividends fall within the 10% or 15% federal income tax rate brackets. This will be the case to the extent your taxable income (including long-term capital gains and qualified dividends) does not exceed $74,900 for married joint-filing couples ($37,450 for singles). While your income may be too high to benefit from the 0% rate, you may have children, grandchildren, or other loved ones who will be in the bottom two brackets. If so, consider giving them some appreciated stock or mutual fund shares which they can then sell and pay 0% tax on the resulting long-term gains. Gains will be long-term as long as your ownership period plus the gift recipient’s ownership period (before he or she sells) equals at least a year and a day.

Giving away stocks that pay dividends may be another tax-smart idea. As long as the dividends fall within the gift recipient’s 10% or 15% rate bracket, they will be federal-income-tax-free.

Warning No. 1: If you give securities to someone who is under age 24, the Kiddie Tax rules could potentially cause some of the resulting capital gains and dividends to be taxed at the parent’s higher rates, instead of at the gift recipient’s lower rates. That would defeat the purpose. Please contact us if you have questions about the Kiddie Tax.

Warning No. 2: Also, be aware that if you give away assets worth over $14,000 during 2015 to an individual gift recipient, it will generally reduce your $5.43 million unified federal gift and estate tax exemption, as well as trigger the requirement of a gift tax return filing. However, you and your spouse can together give away up to $28,000, without reducing your respective exemptions.

The 2015 federal income tax rates on long-term capital gains are the same as last year: 0%, 15%, and 20%. However, the maximum 20% rate for higher-income individuals can only affect singles with 2015 taxable income (including long-term gains) above $413,200, married joint-filing couples with income above $464,850, heads of households with income above $439,000, and married individuals who file separate returns with income above $232,425. Higher-income individuals also could be hit by the 3.8% NIIT, which can result in an effective marginal federal income tax rate of up to 23.8% (20% + 3.8%) on 2015 long-term capital gains.

As you evaluate investments held in your taxable brokerage firm accounts, consider the tax impact of selling appreciated securities (currently worth more than you paid for them) before the end of this year. For most taxpayers, the federal income tax rate on long-term capital gains is still much lower than the rate on short-term gains. Therefore, it often makes sense to hold appreciated securities for at least a year and a day, before selling in order to qualify for the lower long-term gain tax rate.

Biting the bullet and selling some loser securities (currently worth less than you paid for them) before year-end can also be a tax-smart idea. The resulting capital losses will offset capital gains from other sales this year, including high-taxed short-term gains from securities owned for one year or less. The maximum rate on short-term gains is 39.6%, and the 3.8% NIIT may apply too, which can result in an effective marginal Federal income tax rate of up to 43.4% (39.6% + 3.8%).

Scammers and Fraudsters continue to try and scare and trick taxpayers, especially older Americans, into paying bogus taxes and penalties, and even giving out personal information that can lead to identity theft. We’ve had clients receive calls threatening collection action or potential lawsuits over false claims of taxes owing. These scam opportunists will even use caller ID spoofing tactics to make it look like they are calling from a legitimate phone number. They also use what appears to be official IRS letterhead for written correspondence, or official looking email addresses and content to fool email recipients into believing they are actual IRS representatives. Keep in mind that the IRS will never call to demand immediate payment, and they will not call to take your credit card or banking information over the phone. The IRS will also never make threats of sending the police or other authorities, or threaten a lawsuit if you don’t respond to their requests. Of course, if you have any concerns or any doubt whatsoever about the authenticity of anyone contacting you on behalf of the IRS, make sure you ask for their proof of their identity, and more importantly let them know you will be in contact with our office and/or reporting the incident on the Treasury Inspector General for Tax Administration’s website.

If you are considering making a solar, wind or other similar renewable energy improvement to your home, don’t forget to figure in the 30% Federal tax credit into your calculation of the overall net cost of the project. The tax code still allows for this significant tax credit for the installation of solar electric, solar water heating, small wind, geothermal heat pumps and fuel cell improvements to your primary residence, at least through 12/31/16. This Federal tax credit applies to the overall installed cost of the equipment, including the cost for new wiring, piping, etc., in the year the improvement is made. Also, if you aren’t eligible for the full credit in the tax year that the improvement is made the credit balance can be carried ahead and applied to a subsequent year’s tax return filing. There are some additional requirements that must be met in order to qualify for the credit, so please refer to this Department of Energy newsletter for these additional specifications. Please contact us, if we can assist you in determining whether making a renewable energy upgrade to your home would make sense for you!

This year marks our 20th year in business serving our clients in Mason and Thurston Counties. We have much to be thankful for and much to look forward to as we move ahead, so stay tuned for news of future plans. In the meantime we wanted to summarize our services, so you will keep us in mind as your and your company’s needs change. As a CPA firm we offer everything from one time consulting engagements to full charge accounting services, where we maintain your company’s accounting, prepare payroll, as well as all of the required excise and payroll tax reports. But why hire a CPA firm like ours? It’s because our firm can give you as the owner confidence that the accounting and compliance aspects of your company are in good order, allowing you as the owner to focus on the business operations of the company, instead of worrying about whether the company is in compliance with the myriad of reporting responsibilities, which can bog a company down, or worse, if not done properly. Additionally, when we review a company’s accounting, we make sure that the company’s accounting system is adjusted properly, so it reflects the company’s current financial position and operations. With access to the company’s fully adjusted and current financial information, the owner can adequately evaluate the company’s performance, and it can also be accessed by a potential third party user, such as a bank, for loan qualification. Please refer to our client’s testimonials to review what some of our business clients are saying about us, and please contact us to discuss how we can help you and your business succeed. Thank you clients and friends for 20 wonderful years! Mike and Staff.

We are writing to remind you of some of the year end procedures that your company should consider, now that we are in the final month of the calendar year. While not all of these issues are directly relevant for your company, they should be reviewed in order to determine their usefulness to your company’s needs.

1. 1099 Requirements – The first issue to consider is whether or not your company is required to prepare 1099 Forms for vendors and service providers that you have paid in 2015. Please refer to the general requirements for Form 1099/1096 reporting, to determine the circumstances under which your company would need to file these reports. We also want to provide you with access to the IRS website, where you can access the 2016 Form 1099, and instructions, as well as the related W-9 form.

2. Annual Company Meeting – If your company is incorporated (either C or S corporation) the officers and shareholders are required to hold at least one annual meeting in order to determine matters that are essential to the management and operations of the company. Please refer to your company’s articles of incorporation and bylaws, or consult with your company’s attorney to determine the annual meeting requirements for your company. Limited Liability Companies (LLC’s) are not required to hold annual meetings, however this practice is recommended to clarify company policies, and make changes in operational matters. In order to provide you with some guidance with respect to relevant issue, please look at some example topics to be considered for your company’s annual meeting.

3. Record Retention – The minimum required period for retaining financial records is 3 years, which is the standard statute of limitations look back period, which the IRS and other tax authorities enforce. However, our office recommends a 7 year archiving of relevant tax and accounting supporting information, in order to make certain that any prior year issue can be resolved, with the proper factual financial and employment data.  Please refer to our website for more specific record retention guidelines.

4. Re-seller’s Permit – If you are eligible for a re-sellers permit, as issued by the State of WA’s Department of Revenue (DOR), the re-seller permit can be applied for with the Department of Revenue, in order to allow your business to make wholesale purchases, including qualified contractors. The permits allow businesses to purchase items or services for resale, without paying retail sales taxes. However if your purchases are subject to sales taxes, typically for items used by your company, but were not paid at source, remember that you are required to pay use taxes, in lieu of sales taxes, at the time you file your combined excise tax report.

5. Retirement Benefits – If you haven’t already, remember to consider establishing an employee benefit type of plan, in which the employees, as well as the owners/officers of the company can all receive benefits. You may want to consider establishing a retirement type of plan, such as a SIMPLE IRA plan, which allows employees to defer a portion of their wages, along with a relatively modest company match, as a means to deferring taxable income of the employee as well as allowing a deductible, non-payroll taxable form of compensating your employees. Please refer to our Summary of Retirement Plan Options.

 6. Health Savings Plan – Another consideration is to set up a health saving account (HSA) plan, which when combined with a lower premium cost “high deductible” type of medical insurance plan, allows the employees of the company, as well as the company, at the discretion of the ownership, to contribute toward a medical savings account, which can be either used by the employee during the year of contribution, or else carried over indefinitely for future medical costs, and/or eventually as a retirement type of fund, similar to an Individual Retirement Account (IRA).  

7. Medical Insurance Premiums – If your business is an S corporation, remember that the medical insurance premiums paid out on behalf of the shareholders must be reported along with wages on Form W-2. The premiums can still be paid out by the S corporation on behalf of the shareholders, however the total premiums must be included as part of the shareholder’s wages, tips, other compensation, and also on lines 3 and 5, subject to Social Security and Medicare taxes. The amount of premiums paid should also be reported on Line 14, as a separately reported line item, so that the nature and amount of the payments is clearly stated. Please note that this reporting requirement, as per IRS Notice 2008-1, does not change the fact that these medical insurance premiums are deductible by the shareholder when paid.  

8. Written Consent for Copies of Tax Returns – Federal law requires that in order to directly provide 3rd party users (e.g. bankers, lenders, insurance agents, etc.) with a copy of your tax return, or with information from your tax return, we must obtain a written consent form from you prior to the release of this information.

9. Affordable Care Act – Given the implementation of the ACA (Affordable Care Act), we understand that as a company owner, you, as well as your employees, may have specific concerns or questions regarding various compliance aspects of the law, so please don’t hesitate to contact us if you’d like to discuss how the changes may impact you and your company.  

10. We are here to help! – As the year winds down and you complete your company’s accounting procedures, such as the counting of your company’s year end inventory, and the reconciling of your company’s annual accounting, please let us know if you have any specific questions and/or concerns that we can assist you with – we are here to help!

Which category of individual tax return filer do you fall into and how do you avoid the “Individual Responsibility Payment” (i.e. tax)? Are you covered under a “qualifying health insurance plan” (e.g. employer or medicare coverage), which offers “minimum essential coverage”, and are therefore exempt from the payment?  Are you in an exempt category, due to your income level, or other qualifications, which allows you to avoid the payment?  Or did you buy your health insurance on either the Federal or State of WA health care exchange and are therefore receiving an “Advance Premium Credit”, which means when your tax return is prepared you’ll either receive an additional premium tax credit, or else you’ll pay the individual responsibility payment?  Since this is the first year of required reporting of the ACA on your annual individual income tax return, along with its related taxes and credits, there is a new degree of complexity in preparing even the simplest of tax returns, so please contact us if you have any questions or need our assistance in preparing your 2014 income tax return. We also want to take a minute to welcome Chrissy Hammond to our staff – please tell her hello when you call or come by our office.

The IRS is now accepting all tax returns via their e-file program.  The biggest single change that is required this tax year for an individual taxpayer has to do with ACA compliance –   http://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/Affordable-Care-Act–What-to-Expect-at-Tax-Time.  As a reminder, with the start of the new calendar year it’s a very good time to update your income tax withholding from wages with your employer, which can be done by completing a Form W-4.  The IRS offers a useful “withholding calculator” tool, for your use in determining how much withholding to have taken out of your wages or retirement benefits. Also, please note the following IRS allowable mileage rates for the 2015 calendar year; business rate of 57 1/2 cents per mile, charitable rate of 14 cents per mile, and the medical and moving rate of 23 cents per mile.  Finally, please bear with us as we update our firm’s website for tax and payroll related resources and links, and certainly contact us, if we can answer your questions, or if you’d like to schedule an income tax appointment with our firm.