Budget cuts to impact IRS service levels

The IRS has revealed that its level of service to U.S. taxpayers is expected to decline due to a combination of factors – increased workloads and cuts to the agency’s 2015 budget.

The increased workloads are partly associated with new tax issues related to the Affordable Care Act. The budget cuts will impact how the IRS is able to respond to customer service telephone and written inquiries. Also notable: the budget cuts could result in taxpayers experiencing delays in receiving their refunds.

On top of all this is the expectation that the IRS will have fewer resources to conduct audits, thus resulting in less revenue collection. IRS Commissioner John Koskinen says the decreased service levels are “unacceptable” and looks forward to finding a resolution.

References and Citations
– IR-2014-116.

Analyze your breakeven point to make better business choices

Breakeven analysis is an important and useful tool in business. Whether starting a new business, expanding current operations, contemplating an acquisition, downsizing, or approaching banks and other potential lenders, one should know what the breakeven is.

Breakeven is simply the point at which costs equal income – no profit, no loss. It’s an excellent starting point for finding out where the business is and where it can go. It’s the first step in planning future growth. It shows how much sales volume is needed to cover fixed and variable expenses. Once a company has reached breakeven, all gross profit beyond that point goes directly to improving the bottom line.

There are certain limitations for the use of breakeven analysis. It ignores the importance of cash flow and makes the assumption that fixed and variable expenses will stay within the parameters used to calculate the breakeven. Sound business assessment will overcome these shortcomings.

Calculating breakeven

Breakeven is relatively easy to understand and use. First, review the annual financial statement in order to figure out fixed and variable expenses. Fixed expenses are those that don’t generally vary in relation to sales volume. Rent, for example, usually stays constant, whether sales are $400,000 or $500,000. The same is generally true for depreciation, utilities, insurance, and so on.

Variable expenses are the cost of goods sold and other costs of sales, such as direct labor and sales commissions.

There are, of course, some costs that are, or seem to be, part fixed and part variable. One must use good business judgment to split these items into reasonable proportions.

Knowing selling price and variable costs allows you to compute gross profit percentage. The rest is pure arithmetic. Divide your fixed costs by your gross profit percentage to arrive at breakeven. For example, if you have fixed costs of $10,000 and your gross profit percentage is 25%, your breakeven point is sales of $40,000 ($10,000 ÷ 25% = $40,000).

Call us; we would be happy to assist you with calculating your business’s breakeven point and evaluating your profit structure.

IRS adjusts 2015 tax numbers

The tax law requires that certain tax numbers be adjusted for inflation each year. Because inflation was minimal in 2014, most of these numbers are unchanged or change only slightly for 2015. Here are some of the 2015 tax numbers you’ll need to use in this year’s tax planning.

  • The standard mileage rate for business driving increases from 56¢ per mile to 57.5¢ per mile, effective January 1, 2015. The rate for medical and moving mileage decreases from 23.5¢ per mile to 23¢ per mile. The general rate for charitable driving remains at 14¢ per mile.
  • The maximum earnings subject to social security tax in 2015 is $118,500. The earnings limit for those under full retirement age is $15,720. For those at full retirement age, there is no earnings limit.
  • The “nanny tax” threshold remains at $1,900 for 2015. If you pay household employees $1,900 or more during the year, you’re responsible for payroll taxes.
  • The “kiddie tax” threshold increases from $2,000 to $2,100 for 2015. If your child under age 19 (under age 24 for students) has more than $2,100 of unearned income this year (e.g., dividends and interest income), the excess could be taxed at your highest rate.
  • The maximum individual retirement account (IRA) contribution you can make in 2015 remains unchanged at $5,500 if you’re under age 50 and at $6,500 if you are 50 or older.
  • The maximum amount of wages employees can put into a 401(k) plan increases from $17,500 to $18,000. The 2015 maximum allowed for SIMPLE plans is $12,500. If you are 50 or older, you can contribute up to $24,000 to a 401(k) and $15,500 to a SIMPLE plan.
  • Tax legislation could change these and other important tax numbers at any time. Before making important business and personal financial decisions this year, contact us for the latest rules.

For 2015, the maximum amount that can be contributed to a health savings account (HSA) increases to $3,350 for individuals and $6,650 for families.

References and Citations

– Notice 2014-79.
– Rev. Proc. 2014-61.
– IR-2014-99.
– www.ssa.gov

Note these upcoming tax deadlines

  • February 2 – Employers must furnish 2014 W-2 statements to employees. Payers must furnish payees with Form 1099s for various payments made. (The deadline for providing Form 1099-B and consolidated statements is February 17.)
  • February 2 – Employers must generally file annual federal unemployment tax returns.
  • March 2 – Payers must file information returns, such as Form 1099s, with the IRS. This deadline is extended to March 31 for electronic filing.
  • March 2 – Employers must send Form W-2 copies to the Social Security Administration. This deadline is extended to March 31 for electronic filing.
  • March 2 – Farmers and fishermen who did not make 2014 estimated tax payments must file 2014 tax returns and pay taxes in full.

Circle these tax date on your 2015 calendar

It’s tax return filing season once again. Among the tax deadlines you may be required to meet in the next few months are the following:

  • January 15 – Due date for the fourth quarterly installment of 2014 estimated taxes for individuals, unless you file your tax return and pay any taxes due by February 2.
  • February 2 – Employers must furnish 2014 W-2 statements to employees. Payers must furnish payees with Form 1099s for various payments made. (The deadline for providing Form 1099-B and consolidated statements is February 17.)
  • February 2 – Employers must generally file annual federal unemployment tax returns.
  • March 2 – Payers must file information returns, such as Form 1099s, with the IRS. This deadline is extended to March 31 for electronic filing.
  • March 2 – Employers must send Form W-2 copies to the Social Security Administration. This deadline is extended to March 3 1 for electronic filing.
  • March 2 -Farmers and fishermen who did not make 2014 estimated tax payments must file 2014
    tax returns and pay taxes in full.

Do you owe the “nanny tax”?

A good domestic worker can help take care of your children, assist an elderly parent, or keep your household running smoothly. Unfortunately, domestic workers can also make your tax situation more complicated.

Domestic workers of all types generally fall under the “nanny tax” rules. First, you must determine whether your household helper is an “employee” or an “independent contractor.” If you provide the place and tools for work and you also control how the work is done, your helper is probably an employee. For example, at one end of the spectrum, a live-in housekeeper is probably an employee. At the other end of the spectrum, a once-a-month gardening service may qualify as an independent contractor.

If your household worker is an employee, then you, as the employer, may be required to comply with various payroll tax requirements. For the years 2014 and 2015, the important threshold amount is $1,900. If you pay your employee $1,900 or more during either year, you are generally responsible for paying social security and Medicare taxes on your worker’s wages. In addition to social security taxes, you may be required to pay federal and state unemployment taxes as well as other state taxes. With these taxes go various deposit and filing requirements, including the requirement that you provide your employee with an annual W-2 form that shows total wages and withholding. February 2, 2015, is the deadline for providing W-2 forms to workers to whom the nanny tax applies for 2014. As you might expect, most people need assistance complying with the nanny tax rules. If you need details about the rules or help in dealing with them, contact our office.

IRS announces 2015 mileage rates

The IRS has announced the mileage rates that are to be used for business, medical, moving, and charitable driving in 2015. The rate for business driving increases from last year’s 56 cents a mile to 57.5 cents a mile. The rate for medical and moving mileage decreases from the prior year’s 23.5 cents a mile to 23 cents a mile. The general rate for charitable driving remains at 14 cents a mile.

Congress approves tax extenders through 2014

In its final session of the year, Congress extended a long list of tax breaks that had expired, retroactive to the beginning of2014. But the reprieve is only temporary. The extensions granted in the Tax Increase Prevention Act of 2014 remain in effect through December 31, 2014. For these tax breaks to survive beyond that point, they must be renewed by Congress in 2015, setting up another lengthy debate.

Although certain extended tax breaks are industry-specific, others will appeal to a wide cross-section of individuals and businesses. Here are some of the most popular items.

  • The new law retains an optional deduction for state sales taxes in lieu of deducting state and local income taxes. This is especially beneficial for residents of states with no income tax.
  • The maximum $500,000 Section 179 deduction for qualified business property, which was scheduled to drop to $25,000, is preserved. The deduction is phased out above a $2 million threshold, up from $200,000.
  • A 50% bonus depreciation for qualified business prope1iy is revived. The deduction may be claimed in conjunction with Section 179.
  • Parents may be able to claim a tuition-and-fees deduction for qualified expenses. The amount of the deduction is linked to adjusted gross income.
  • An individual age 70Y, and over could transfer up to$ I 00,000 tax-free from an IRA to a charity.  The transfer counts as a required minimum distribution (RMD).
  • Homeowners can exclude tax on mo1tgage debt cancellation or forgiveness of up to $2 million. This tax break is only available for a principal residence.
  • The new law preserves bigger tax benefits for mass transit passes. Employees may receive up to $250 per month tax-free as opposed to only $130 per month.
  • A taxpayer is generally entitled to credit of I 0% of the cost of energy-saving improvements installed in the home. Other special limits may apply.
  • Educators can deduct up to $250 out of their out-of-pocket expenses. This deduction is claimed “above the line” so it is available to non-itemizers.

The remaining extenders range from enhanced deductions for donating land for conservation purposes to tax credits for research expenses and hiring veterans. Finally, the new law authorizes tax-free accounts for disabled individuals who use the money for qualified expenses like housing and transportation, as well as providing greater investment flexibility for
Section 529 accounts used to pay for college.