Kathleen Hargrove, Author at Whalen & Company, CPAs

3 mutual fund tax hazards to watch out for

Kathleen Hargrove on August 5, 2016

Investing in mutual funds is an easy way to diversify a portfolio, which is one reason why they’re
commonly found in retirement plans such as IRAs and 401(k)s. But if you hold such funds in taxable accounts, or are considering such investments, beware of these three tax hazards:

High turnover rates. Mutual funds with high turnover rates can create income that’s taxed at ordinary-income rates. Choosing funds that provide primarily long-term gains can save you more tax dollars because of the lower long-term rates.
Earnings reinvestments. Earnings on mutual funds are typically reinvested, and unless you keep track of these additions and increase your basis accordingly, you may report more gain than required when you sell the fund. (Since 2012, brokerage firms have been required to track — and report to the IRS — your cost basis in mutual funds acquired during the tax year.)
Capital gains distributions. Buying equity mutual fund shares late in the year can be costly tax-wise. Such funds often declare a large capital gains distribution at year end, which is a taxable event. If you own the shares on the distribution’s record date, you’ll be taxed on the full distribution amount even if it includes significant gains realized by the fund before you owned the shares. And you’ll pay tax on those gains in the current year — even if you reinvest the distribution.

If your mutual fund investments aren’t limited to your tax-advantaged retirement accounts, watch out for these hazards. And contact us — we can help you safely navigate them to keep your tax liability to a minimum.

Throw a company picnic for employees this summer and enjoy larger deductions

Kathleen Hargrove on August 3, 2016

Many businesses host a picnic for employees in the summer. It’s a fun activity for your staff and you may be able to take a larger deduction for the cost than you would on other meal and entertainment expenses.

Deduction limits

Generally, businesses are limited to deducting 50% of allowable meal and entertainment expenses. But certain expenses are 100% deductible, including expenses:

For recreational or social activities for employees, such as summer picnics and holiday parties,
For food and beverages furnished at the workplace primarily for employees, and
That are excludable from employees’ income as de minimis fringe benefits.

There is one caveat for a 100% deduction: The entire staff must be invited. Otherwise, expenses are deductible under the regular business entertainment rules.

Recordkeeping requirements

Whether you deduct 50% or 100% of allowable expenses, there are a number of requirements, including certain records you must keep to prove your expenses.

If your company has substantial meal and entertainment expenses, you can reduce your tax bill by separately accounting for and documenting expenses that are 100% deductible. If doing so would create an administrative burden, you may be able to use statistical sampling methods to estimate the portion of meal and entertainment expenses that are fully deductible.

For more information about deducting business meals and entertainment, including how to take advantage of the 100% deduction, please contact us.

CLIENT ALERT: ACA Marketplace Notices for Employers Begin This Year

Kathleen Hargrove on June 16, 2016

In 2016, employers will begin receiving notices about employees enrolled in the Health Insurance Marketplace that was introduced with the Affordable Care Act (ACA).

Notices will be sent to employers via mail from the Federally-Facilitated Marketplace (FFM).

If I Receive a Notice, What Does That Mean?

If you receive a notice from the FFM, you have at least one employee who received advanced premium tax credits for Health Insurance Marketplace coverage for at least one month in 2016. That employee listed your business and address as their employer.

As applicable large employers are typically required under the ACA to provide affordable health insurance to their employees, receipt of this notice may mean your business has a tax liability under the Employer Shared Responsibility Payment mandate.

The notice itself does not determine if your business owes the Employer Shared Responsibility Payment, but is an indication that you might be liable. The IRS will determine which employers are subject to tax liability.

What Should My Business Do If We Receive a Notice?

If you receive a notice from the FFM you should determine if your business has a tax liability for this employee’s marketplace coverage.
- Questions to ask include:
  - Is my business considered an applicable large employer and subject to ACA health insurance mandates?
    - If so, does our health coverage comply with ACA requirements?
  - Is this employee full time?
  - Is the employee also enrolled in our health coverage?

If you determine you would like to appeal the notice, your business has 90 days from the date of notice to request an appeal from the Marketplace.

According to the Center for Consumer Information and Insurance Oversight (CCIIO), a division of Centers for Medicare & Medicaid Services (CMS), and the “employer notice” program will be phased in during 2016 with plans to expand and improve the notice program moving forward.

We hope this information has been helpful to you. If you receive a marketplace notice and have questions about your tax liability, please contact your Whalen & Company representative.

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What’s the right tax-advantaged account to fund your health care expenses?

Kathleen Hargrove on June 15, 2016

health care taxes With health care costs continuing to climb, tax-friendly ways to pay for these expenses are more attractive than ever. Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs) and Health Reimbursement Accounts (HRAs) all provide opportunities for tax-advantaged funding of health care expenses. But what’s the difference between these three accounts? Here’s an overview:

HSA.

If you’re covered by a qualified high-deductible health plan (HDHP), you can contribute pretax income to an employer-sponsored HSA — or make deductible contributions to an HSA you set up yourself — up to $3,350 for self-only coverage and $6,750 for family coverage for 2016. Plus, if you’re age 55 or older, you may contribute an additional $1,000.

You own the account, which can bear interest or be invested, growing tax-deferred similar to an IRA. Withdrawals for qualified medical expenses are tax-free, and you can carry over a balance from year to year.

FSA.

Regardless of whether you have an HDHP, you can redirect pretax income to an employer-sponsored FSA up to an employer-determined limit — not to exceed $2,550 in 2016. The plan pays or reimburses you for qualified medical expenses.

What you don’t use by the plan year’s end, you generally lose — though your plan might allow you to roll over up to $500 to the next year. Or it might give you a 2 1/2-month grace period to incur expenses to use up the previous year’s contribution. If you have an HSA, your FSA is limited to funding certain “permitted” expenses.

HRA.

An HRA is an employer-sponsored account that reimburses you for medical expenses. Unlike an HSA, no HDHP is required. Unlike an FSA, any unused portion typically can be carried forward to the next year. And there’s no government-set limit on HRA contributions. But only your employer can contribute to an HRA; employees aren’t allowed to contribute.

The Whalen & Company Cookies

Kathleen Hargrove on June 6, 2016

It’s not unusual to catch a whiff of baked goodness when you visit the Whalen & Company, CPAs offices! That’s because we bake chocolate chip cookies in-house for our clients and guests.

Why Cookies?

Cookies were meant to be shared.

Cookie Monster once said, “Maybe friend somebody you give up last cookie for” and we couldn’t agree more. At Whalen & Company we like to share chocolate chip cookies as a small (and delicious) token of our appreciation for you!

So the next time you’re in the Whalen & Company offices, please enjoy a cookie and know we are so glad you stopped by!

Author: Kathleen Hargrove

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