2016 Rules for Tax Expensing and Depreciation

Tax Expensing and Depreciation

Capitalization of costs is the usual practice that any business has to follow when they buy an asset which is supposed to render service for more than a year (usually for fixed assets). In simple terms, that means the cost of the asset is written off in the balance sheet over a number of years. There are rules and laws of depreciation & amortization in place on how to do this actually and it depends on the type of asset acquired.

Capitalization rules are universal and apply to every asset that incurred a cost to the company even if the cost is meager. But there are rules by which you can accelerate the write-off process for each and every asset that is purchased.

Section 179 Deduction

As per this rule, instead of applying depreciation allowances spread over five years or more now you can deduct the cost of the asset (machinery/equipment) in the same year you buy them. For this expensing rule (Section 179 deduction) the dollar limit is set to $500,000 for the year 2015 and 2016. Taking inflation factor into consideration the dollar limit can go up for 2017.

Expensing rule (Section 179 deduction) will prove to be beneficial for businesses that are profitable for the accounting year and it applies to both new and pre-owned purchases. This also means that expensing rule shouldn’t be used to create or increase the net operating loss of the business for the accounting year. Apart from office machinery, laptops, cell phones, furniture the expensing rule can be applied to the purchase of –

  • Packaged software bought in the year 2015.
  • Put to service after 2015, Air conditioning and heating units and other office utilities.

Bonus Depreciation

Apart from Expensing rule (Section 179 Deduction), Bonus Depreciation is another tax write-off method available.

It is a method to accelerate the rate of depreciation deduction. It states that 50 percent of the cost of the item can be deducted for the year when the item is put to service. The 50 percent ceiling applies for the year 2015, 2016 and 2017. For the year 2018, the ceiling goes down to 40 percent and further goes down to 30 percent for the year 2019. It is said that this rule will expire by 2019.

Unlike Expensing rule (Section 179 Deduction) which can be applied to both new and pre-owned purchases, Bonus Depreciation applies to only new purchases only.  That said Bonus depreciation for the year 2015 was to be applied for all the machinery, office equipment, and buying of qualified leasehold improvements. Restaurants and Retail property improvement doesn’t qualify for Bonus depreciation method as per the rule. From 2016, Bonus Depreciation can be applied to all qualified improvements made to the commercial premise.

For a fairly expensive item, Bonus Depreciation can be combined with Section 179 along with regular depreciation rules. This means that for highly expensive item purchase you would be able to write-off most of the cost upfront.

You may find more info about various tax write-off methods here: IRS Publication 946, How to Depreciate Property.

De Minimis Safe Harbor

Safe Harbor is another method wherein you instead of using expensing and depreciation methods to write-off, you treat the asset purchasing as material and supplies. In this method, you can deduct the cost of the acquisitions immediately but you cannot add them to the balance sheet.

The safe harbor method for 2015 is limited to $500 per purchase or invoice. For the year 2016, the limit is increased to $2,500 per item purchase.

For to use the Safe harbor method, you need to first attach an election statement with your return. An election has to be clearly made each year stating that you would like to use this method.

Bottom Line

You have various methods available at your disposal to write-off expenses of your business related purchases. Also, the method with which you pay for the expenses does not impact your tax write-offs. That is, purchasing using a credit card or cash the capitalization write-offs starts when you bought it and not on how you bought it.

Checkmark Payroll 16.0 is Now Live with Additional Features

Checkmark Payroll 2016

The latest update of Checkmark payroll software 16.0 is full of new enhancements ensuring employers process payroll effortlessly. We release updates annually based on the feedback provided by thousands of small business owners using Checkmark payroll software.

Here’s a quick rundown of all the recently added features of Checkmark payroll software 2016.

New Employer Payments

Employers can now setup and create ACH payments to their bank or through National Payment Corporation to pay their Employer payments, such as tax payments and payments for deductions (401k, insurance, garnishments, etc.).

New Option for Employer Payments


New Calculation Method

We added another option to the Calculation Method in Accrued Hours. You can now accrue hours on a quarterly basis.

New Calculation Method


New Report Added

The new report will combine the Employee Earnings Register and the Employee Hours Register into one report.

New Report Added

New Report Added


1099 Export Option

The new option will enable the employees to export their company information from Payroll software to CheckMark 1099 Software program in a matter of time. All the employer has to do is to just export the company information in a text file (.txt extension) with a click of a button and upload it to the CheckMark 1099 Software.

1099 Export Option


Expense Allocation to Departments/Jobs

The new feature will empower the employer to distribute the tax expense accounts into multiple departments and even, the different expense accounts within the department accounts.

Expense Allocation to Departments/Jobs


New Option in Deductions

There is a new option in the deductions match to be able to take a % of what is deducted from the employee’s check. Deductions can now be matched on employee contributions.

deductions

So, what are you waiting for?  Get started by updating your Checkmark Payroll Software today! Click here to update your payroll software.

CheckMark, Inc. Recognized Among Top 10 Accounting Solution Providers in 2016 by CFO Tech Outlook

Top 10 Accounting Solution Providers

CheckMark is pleased to announce that we have been recognized as one of the Top 10 Accounting Solution Providers in 2016 by CFO Tech Outlook Magazine, one of the most popular technology & business magazines in the finance sector. The awards recognize the very best accounting solutions in the finance industry that are not only efficient but are also affordable and reliable.

Mr. Ghani, CEO of CheckMark said – “Our goal to provide high-quality accounting solutions for small businesses has really paid off and we are extremely satisfied the way our solutions are helping businesses across the USA to be successful and competitive in their business environment.”

CheckMark’s flagship product – MultiLedger™ Accounting is theCheckMark MultiLedger core software for being selected in the Top 10 accounting solutions, which was awarded after the comprehensive assessment of quantitative and qualitative elements by the panel of experts and members of CFO Tech Outlook’s editorial board. Judging was based on a variety of criteria, including having strong software aimed at the small business needs, company’s experience, industry recognition, software functionality, technical certifications, market presence and positive client reviews.

Sarah Dawson, who is the Managing Editor of CFO Tech Outlook, said, “We are happy to showcase CheckMark this year due to their continuing excellence in delivering top-notch technology-driven solutions.

Available on both platforms – Mac and Windows, MultiLedger is simple and accurate accounting software for small businesses, which is really useful for bookkeeping, invoicing, payables, tracking inventory, job cost, monitoring cash flow, getting up-to-the-minute reports, etc. In addition to the software, CheckMark also provides full-service business accounting and tax services for small and medium-sized business, which are cost-effective and reliable.

Mr. Ghani further added, “This is just the beginning, and we are excited to see how the year 2016 unfolds as we are shortly launching affordable cloud-based business solutions for small businesses.”

With three decades of valuable commitment to Small Businesses and the Finance Industry, CheckMark is undoubtedly elated to be recognized as the top 10 accounting solution providers in the United States.

For more information, please read the press release here.

CheckMark Proudly Celebrates President’s Day 2016

President's Day

In honor of President’s Day, we’re offering 10% OFF on our paper products. Stock your yearly paper product supplies including Checks, Envelopes, Tax Forms and Business Forms today. Order Online and Use Coupon Code: CEWS10, you may also order by downloading order Form and sending it to us.

We have several check options – choose blank or pre-printed checks, top, middle or bottom, and your preferred pattern and color. Get the checks you want at a discounted price! Check out all of our options Online. You may also call and order at 800-444-9922 / 970-225-0522.

5 Must-Know Obamacare Obligations for Every Entrepreneur

Obamacare

Obamacare or ACA compliance is real, it’s complicated and it’s here to stay. Business owners today face a new challenge to be at par with ever changing rules and their interpretations and to also act accordingly to track and report to the IRS.

Below we present a couple of factors that are a good start for analyzing the current status of a business owner in terms of liability towards ACA.

1. What are the Current Obligations?

As per the ACA rules employers having more than 50 full-time employees (including full-time equivalents) and less than 100 are required to offer healthcare coverage to all full-time employees in 2015. For this, it is also necessary for the sake of calculations that the employer count their employees from 2014.

As per the ACA rules employers having more than 50 full-time employees (including full-time equivalents) and less than 100 are required to offer healthcare coverage to all full-time employees in 2015. For this, it is also necessary for the sake of calculations that the employer count their employees from 2014.

A majority of employers are not aware that they need to calculate their full-time employees and FTEs from last accounting year to know if they fall into the category for compliance with the ACA (for healthcare coverage). Not only that, they need to keep a track on current year employee numbers to know their liability for the next accounting year.As per the ACA definition, employees who have worked 30 hours a week on an average are classified as Full-time employee. Obama care (ACA) makes it mandatory for business owners to offer healthcare coverage to their FTEs also.

2. What are Full-Time Employees? (Definition)

As per the ACA definition, employees who have worked 30 hours a week on an average are classified as Full-time employee. Obama care (ACA) makes it mandatory for business owners to offer healthcare coverage to their FTEs also.

Since many definitions exist for the full-time employee classification and all categorize them as someone who has worked for more than 40 hours per week, the new classification of a full-time employee who works 30 hours per week is a new one and strictly from the ACA. This also means that now the employers have to offer health care coverage to more number of employees.

Read Also: IRS Health Care Tax Considerations for Small Employers with Fewer than 50 Employees

3. Health Care Coverage – At Least to a Minimum Percentage of Full-Time Employees

All large employers should identify their full-time employees as they have to offer healthcare coverage to a fixed percentage of the full-time employee base, failing in which they are liable of $2,000 penalty from the IRS for each full-time employee.

ACA states that the large employers are supposed to offer healthcare coverage to at least 70 percent of their full-time employees in 2015. And that was still beneficial for the employers in 2015 as from 2016 ACA mandates that the large employers offer healthcare coverage to at least 95 percent of their full-time employee base or else face a penalty of $2,000 per full-time employee.

Related: Health Insurance Providers Must Report Certain Information to the IRS and Covered Individuals

4. Employers must Offer Affordable Coverage Options

Once the initial screening of healthcare compliance is done, the employer is then required to ensure that the coverage provided is of Minimum Actuarial Value (MAV) and also that the coverage is affordable by their employees. MAV is defined as the value which is at least 60 percent of the total benefits cost mentioned in the medical plan.

Providing with healthcare coverage is not enough, the employer has to make sure that it is affordable too. If this is not the case and the employee gets coverage from state health care exchange where they can earn tax credit the employer is liable to be penalized for $3,000 per case.

5. Healthcare Coverage – Tracking and Reporting

Things beyond providing healthcare coverage are bit more intricate as it involves tracking and reporting that are in compliance with the IRS.

From the reporting perspective Form 1095-C, the employee statement is a lengthy document. And employers have to track, calculate and report all the pertinent data points accurately. For a small business owner, that’s a lot of paperwork.

The uncertainty around the health care coverage complicates the issue, resulting in employer’s compliance checks because of legal penalties around the healthcare reforms.

It is highly suggested that small business owners either go through the ACA document with diligence or automate the process with ACA 1095 software. The filing done using 1095 software is IRS compatible and accurate. The 1095 software comes loaded with all the latest tax and filing rules, so you can be assured of correctness. Or else, the business owner may hire a CPA who specializes in this field.

With all the spiraling ACA intricacies, compliance check involves gathering and calculations of many years. And this makes it extremely difficult for small business owners.

Plan Your Taxes With Certainty

taxes

With the Protecting Americans from Tax Hikes (PATH) Act of 2016 from Congress, small businesses will experience some relief regarding tax rules and their fluctuations. This PATH Act is applicable for taxes of 2015 and 2016.

Taxes for 2015

The new liberal tax rules are applicable for 2015 and they are the same which were applicable back in 2014. That is, if eligible you may write off the cost of equipment, in service which is up to $500,000. For accounting and tax purposes you may depreciate additional $8,000 for the new vehicle bought in 2015 for the reason of bonus depreciation.

Permanent Changes

Many of the tax rules have been dealt with expirations and subsequent extensions in their applicability. Yet many of those have become permanent. Some of them are illustrated below –

  • Under Sec. 179 a limit of $500,000 on the business property expenses can be used for inflation deductions from the year 2015 and filing in 2016.
  • Small businesses can now use the credit against Social Security taxes and not against income taxes.
  • The recovery period for leasehold, retail improvements, and restaurants has been made 15-years.
  • Active duty employees will get wage differential payments.
  • S corporation period for built-in gains is reduced.
  • Free parking and mass transit passes are deemed equal. The benefits are not subject to any income and employment taxes and results in tax benefits for employee and employer both.
  • Food inventory donations are applicable for charitable contribution deductions.
  • Appreciation in the property value of S corporation which it donates is considered in basis adjustment of the corporation’s shareholders.

Temporary Tax Law Extensions

Since some of the temporary extensions in tax laws stay for more than a year, it gives a better perception on the tax planning for the coming year. Some of the tax rule extensions which were primarily temporary –

  • Work opportunity tax credit (WOTC) has been extended through 2019. A new category of targeted workers (qualified long-term unemployment recipients) has been introduced and by definition stands for long-term unemployed individuals who has remained unemployed for 27 weeks or more.
  • Bonus depreciation by 50% extended through 2019. All Businesses are eligible to depreciate 50 percent for the equipment cost which was used for service in 2015, 2016 and 2017. Bonus depreciation will be phased out by 40% in 2018 and by 305 in 2019.

For 2016 Extensions include:

  • Applicable deductions for energy-efficient commercial buildings.
  • First $15 million expensing of qualifying film and television programs cost.
  • Empowerment zone (EZ) incentives are extended till 2016.
  • Credit limit for energy-efficient home manufacturers.
  • Race horses categorization as three-year property.
  • Recovery period for depreciation of motorsports entertainment complexes is 7-years.
  • Tax-credits for various energy-related business operations.

PATH (Protecting Americans from Tax Hikes) Act: New Rules

Old tax rules extended and taken in as part of PATH. Here is a scenario:

  • Applies to the safeguarding against penalties for errors on information and payee statements. Error in information return for $100 or less, the issuer does not have to do anything. These rules are applicable to returns and statements that are supposed to be filed after December 31, 2016.
  • The dates for filing the taxes relating to employee wages and nonemployee compensation. That said, the due date for returns and statements is on or before January 31 for the last accounting year. This means copies of W-2s and 1099s should reach the social security administration and IRS by the date mentioned above.

It All Boils Down To…

Congress wants to enact comprehensive tax reform in 2016, but the permanency of favorable tax rules has given an ambiguous hue to the tax rules in total. With the implementation of the comprehensive tax reforms, some of the permanent provisions will be modified.

PATH tax act would ensure greater tax savings for the businesses. It is advisable to meet a tax advisor and explore the rules in details to know what all is beneficial for your business.

That would also include considering individual tax rules and regulations that play a major part in personal tax filing.

As a small business owner, you can be rest assured that the recording and filing of your accounting, tax filings along with necessary W-2s and 1099s will be taken care of timely with CheckMark’s MultiLedger – our integrated accounting software geared for small and medium-sized businesses in the USA.

Health Insurance Providers Must Report Certain Information to the IRS and Covered Individuals

Health Insurance Providers

With the new directives from the IRS, providers of minimum essential coverage are required to report certain information not only to the individual about their health coverage but also to the IRS, starting 2016.

To stay in-line with the individual shared responsibility criteria Taxpayers use the information stated in Form 1095-B, Health Coverage Information Return Form 1095-C, Employer-sponsored health offer and coverage whenever they file their tax returns. IRS would use this information to ascertain the number of months the individual has health coverage.

Self-insured group health plans details are to be reported by the Employers individually to the IRS. This would include all employers of any workforce size who are sponsoring a self-insured group health plan. Employers falling in the category of ALE (Applicable Large Employer) are supposed to file Form 1094-C and Form 1095-C for transmittal of employer-sponsored health insurance coverage information returns and for reporting information of the employees who got enrolled in the employer-sponsored health coverage plan. Employers not falling in the category of ALE are not supposed to file Form 1094-C and Form 1095-C but are supposed to file Form 1094-B and Form 1095-B for the same purposes to the IRS. The deadlines for 2015 filing are February 29, 2016, for manual filing with the IRS and March 31 for Electronic filing.

Apart from this, any other entity that provides the essential coverage will file Form 1094-B and form 1095-B. For all such categories, the deadline for filing the forms with the IRS are February 29, 2016, and March 31, 2016, for manual and electronic filing respectively. To make things further clear the filed form must include name and identification number of the taxpayer. It should also clearly describe the details of the months for which the individual was covered.

Health coverage providers should also send out the Form 1095-B to the responsible individual. IRS defines a responsible individual as the one who enrolls one or more individuals into the coverage program.

To know more information, please read the deadlines for 1095 filing for the year 2016.

New E-Mail Phishing Scheme Targeting Large Organizations Exposed

phishing scheme

Since a lot of phishing schemes are exposed every now and then by IRS and other concerned government departments, hackers, and cyber criminals are finding new and innovative ways of committing fraud. The latest phishing scheme, which is specially targeted towards large organization, works something like this:

One of the employees responsible for finances in the organization receives an email from higher management directing them to immediately wire funds to a certain client for their services. The employee will release the funds normally without any doubt. Eide Bailey, one of the most reputed tax accountant and CPA firms, admits several cases has been reported where the email recipients have routinely processed the funds to the hacker’s account without any uncertainty or hesitation.

However, you will be thinking how the perpetrators are able to create an email ID of the organization and that to of a higher management and supervisors. The truth is hackers are clever and smart enough to successfully exploit the power of Typoglycemia, which was recently neologized by the Cambridge University.  The study says that the mind will be able to read the words as long as the first and last letters remain the same. The cybercriminals have used this trick to their fullest potential in order to commit the employees in transferring the funds without an iota of doubt.

Accordingly, they create an email ID, which resembles to be a legitimate one, but upon the closer review, the email address will have one different single character and the font will be changed to make it appear to look similar. In addition, the email will have the same signature, organization logos and contact information to ensure that the employees are committed to releasing the funds to their accounts.

Below is an appropriate example from Eide Baily:

Real@eidebailly.com vs. Fake@eidebailIy.com

The first web address is undoubtedly correct but the second web address is the fake one wherein the last L character has been deliberately changed to I. Even the font has been changed to hide the character change and believe me or not, it appears real and legitimate email address. This is how they are able to commit the fraud and get away with a large amount of money.

How to Recognize Phishing Email Messages

  • Email address will be slightly different. Check carefully for any character change or an extra letter
  • Signature will be different from the standard signature of the organization
  • There will be misspelling and typos in the body of the email
  • There will be a request to release the fund “immediately” or “urgent”
  • There will be request to provide sensitive information such as usernames, account numbers, and passwords

Tips for Protecting your Organization

  • Immediately educate your employees especially accounting and technology department about this phishing scam
  • Revise the procedures and policies about releasing the payments for any management officials whether it is CEO, CFO, CMO or CTO
  • Any email with urgent payment release request should be verified with higher officials
  • Create a double verification process for releasing payments for new vendors
  • Verify the department by calling them over the phone. Don’t use the phone number furnished in the email, instead, search your organization’s directory
  • Create a filter to flag the emails, which arrive from outside of the network
  • Any payment releasing request should be verified from higher management via email. Don’t reply to the same email, instead, send a new email
  • Change the default email system fonts so that there should be clear difference between every character
  • Notify the IT or concerned department if you receive any suspicious emails

CheckMark encourages you to proceed cautiously when you receive any suspicious emails from external networks. The above-mentioned simple steps will not only reduce the risk of falling victim to a number of different phishing scams but also helps the organization from losing money. In case, if you have been a victim of a phishing scam, notify your bank and contact your local police immediately.

Lately, IRS warned of a new email phishing scheme falsely claiming to be from the taxpayer advocate service, which is a legitimate organization working under IRS to help taxpayers resolve their federal tax issues. The email contained false case number and the recipients were persuaded to click the links in the email and solicit their personal information. Here a list of dozen scams highlighted by IRS way back in 2014.

As a reputed solution provider in the world of finance technology (FinTech), CheckMark always ensures our applications and software are invulnerable and safe from any kind of data hack or cyber-attacks. We feel it’s our moral responsibility to make organizations aware of current phishing schemes that could target them any day if they are unprepared.

IRS Announced 2016 Standard Mileage Rates for Business, Medical and Moving

standard mileage rates

It’s here – standard mileage rates for deductible costs of using automobiles for business, medical, moving and charitable purposes. IRS announced the standard mileage rates for the year 2016.

To be brought to practice from Jan. 1, 2016, the standard mileage rates will be:

  • 54 cents per mile for business purpose drives, it is 57.5 cents in 2015
  • 19 cents per mile for medical or moving purpose drives, it is 23 cents 2015
  • 14 cents per mile for any charitable organizations drive

As clearly seen the mileage rate has decreased by 3.5 cents for business and 4 cents for moving and medical purpose drives in comparison to 2015.

IRS furthers makes clear that the standard mileage rate for business purpose drives is based on the fixed and variable costs in operating an automobile. This is in contrast to the medical and moving purpose where the mileage rate is purely based on the variable cost.

Even though these rates and their usage is well defined, Taxpayers can use the actual costs in using their automobile rather than the standard mileage rates.

If the Taxpayer has used Modified Accelerated Cost Recovery System (MACRS) or even by claiming Section 179 deduction as a depreciation method, he may not use business standard mileage. Also, as per IRS guidelines, business standard mileage rate should not be used if more than 4 vehicles are used at one time.

Other details of the standard mileage are available in IRS  website.