BHB Advisors LLC, CPAs and Consultants

 

Based in Minnesota, BHB Advisors, LLC is a full service tax and accounting practice, offering the following services:

  1. Tax – planning and compliance work for individuals, corporations and partnerships
  2. Accounting Services and Financial Statements
  3. Consulting and Management Advisory Services

Our mission is to communicate, collaborate and cooperate with our clients to help get them where they want to be financially.

Our specialty is working with individuals and small to midsize companies in the Minneapolis and St. Paul area.

We hope that our website will offer you a glimpse of our expertise and help answer tax and accounting questions you may have.

2013 Tax Season Resources

Welcome to another tax season!  To make this busy time a little easier, you can download all the necessary documents right here.

We ask all of our clients to fill out and return a signed Engagement Letter, a Yes/No Questionnaire, and an Organizer.

Engagement Letter

Yes/No Questionnaire   This is a "fill in" PDF form, but will need to be either printed to .pdf or paper to record your answers.

Organizer

If we did your return in 2012, you will receive an Organizer with your prior year information.  If you need a new Organizer, please contact Carrie to have one sent to you.

If you are a new client, please download and complete the blank Organizer that pertains to your situation.

  1. Basic- For taxpayers without Schedule C business income or rental property.
  2. Business Income- For taxpayers with self-employment income. Please make sure to fill out this Organizer AND the Basic Organizer.
  3. Rental Income – For taxpayers with rental properties.  Please make sure to fill out this Organizer AND the Basic Organizer.
  4. Complete- This is the complete version for taxpayers with multiple activities such as business, rental, or farm income.

If you have Adobe Acrobat see our instructions for filling out your organizer in Adobe.

BHB Advisors is now on Facebook!

Now there's another way to stay in touch with BHB Advisors.  Like our page to get the latest links to articles written on our website or to share our company with your family and friends!

 

Changes in effect for 2014

With so many proposed changes in our tax code sometimes it can be difficult to remember the finalized ruling or the update of any past laws.  Here are a few of the changes for 2014:

  1. Those without health insurance in 2014 will pay a tax calculated as the higher of $95 or 1% of household AGI. (This does not include taxpayers with hardship exclusions)
  2. The social security wage base increased to $117,000.
  3. Singles with wages exceeding $200,000 and couples earning over $250,000 will be subject to an additional .9% Medicare surtax.
  4. HSA contributions go up to $3,300 for individuals and $6,550 for family coverage.
  5. Standard deduction amounts rise: $12,400 for married filing jointly with an additional $1,200 for each person over 65; single filers get $6,200, head of households get $9,100, both with an additional $1,550 if over 65.
  6. Personal exemptions rise to $3,950.
  7. The 20% capital gains rate will hit taxpayers at a slightly higher income level; at $406,750 for singles, $432,200 for head of households, and $457,600 for joint filers.
  8. The federal estate and gift tax exemption rises to $5,340,000, thought the rate remains at 40%.
  9. The standard mileage rate for business miles is 56 cents a mile, medical travel and moving miles also fell to 23.5 cents a mile, but the charitable miles stay at 14 cents per mile.
  10. The income ceiling for Roth IRA payins are up to $181,000 to $190,000 of AGI for couples and $114,000 to $129,000 for singles.

If you have any questions about how these changes affect your tax situations please contact your tax advisor.

2014 Standard Mileage Rates

Beginning on 1/1/2014, the standard mileage rates for cars, vans, pickups, and panel trucks will be 56 cents per mile for business miles.

 

New safe harbor limits for expensing purchases of fixed assets

In September of this year, the IRS released final regulations on the capitalization of tangible property costs. The final regulations provide an important opportunity—the de minimis safe harbor election—that allows eligible businesses to immediately expense certain property that would otherwise have to be capitalized. To qualify for the safe harbor, businesses must have nontax accounting procedures in place at the beginning of the year, under which they expense amounts paid for property costing less than a specified dollar amount or that have a useful life of 12 months or less.

The amount that can be expensed under the safe-harbor election depends on whether the business has an Applicable Financial Statement (AFS), which includes financial statements filed with the SEC or provided to a federal or state government or agency (other than the SEC or the IRS); and certified audited financial statements used for credit purposes, reporting to owners, or other substantial nontax purposes.

  • Businesses with an AFS must have written accounting procedures in place to make the safe harbor election. If so, they can expense property that costs up to $5,000 (per item) if, in accordance with their written accounting procedures, the property is expensed on their AFS.
  • Businesses without an AFS must have accounting procedures in place at the beginning of the year. If so, they can expense property costing up to $500 (per item) if, in accordance with those procedures, the property is expensed in their books and records. The procedures apparently do not need to be written. However, we strongly recommend that all businesses commit their accounting procedures to writing.

The regulations do not define accounting procedures or describe what the procedures should include. But, the IRS is really talking about a capitalization policy. Many businesses establish a minimum dollar amount that must be spent before a cost is capitalized, otherwise the cost is deducted. The following is a sample capitalization policy that can be used or modified to fit a business’s particular needs:

It is the business’s policy to capitalize assets that cost $500 or more individually. All capitalized assets will be depreciated in accordance with the business’s depreciation policy. Assets that cost less than $500 individually will be expensed in the period purchased.

Note: To take full advantage of the safe-harbor limit, a business with an AFS would need to increase the cost threshold to $5,000.

The capitalization policy must be in place by the beginning of next tax year (by 1/1/14 for calendar-year businesses) to make the safe harbor election.

Sample Capitalization Policy

Employers will be prohibited from reimbursing employees for the cost of their individual health insurance policies on a nontaxable basis starting January 1, 2014

Some employers have contemplated using a Section 105 plan to reimburse for premiums or out-of-pocket medical costs for employees moving to an ACA exchange but the market reform rules on HRA’s and other Section 105 medical reimbursement plans effectively prohibit these arrangements unless coverage is limited to excepted benefits such as dental and vision and the employer offers a group health plan.

On September 13, 2013, the IRS published (Notice 2013-54) and the Department of Labor (DOL) released (Technical Release 2013-03) to give guidance on Health Reimbursement arrangements (HRAs), flexible spending arrangements (FSAs), employer payment plans (EPPs) and employee assistance programs (EAPs).

Link to ADP Tax Research Article on This Topic

Employee Benefit Plan and IRA Limits for 2014

•    The 401(k), 403(b), and certain 457 plan elective deferral limits in 2014 will remain at $17,500; the catch-up contribution limit will stay at $5,500.

•    The annual defined contribution limit from all sources under Code Section 415(c) will rise to $52,000 from $51,000.

•    The maximum amount of employee compensation that can be considered in calculating contributions to defined contribution and defined benefit plans will increase to $260,000 from $255,000.

•    The limit used in the definition of ”key employee” for purposes of certain nondiscrimination tests and determining whether a plan is top-heavy will increase to $170,000 from $165,000.

•    The limit used in the definition of a highly compensated employee for the purpose of 401(k) and other nondiscrimination testing remains unchanged at $115,000.

•    For SIMPLE (Savings Incentive Match Plan for Employees of Small Employers) retirement accounts, the maximum contribution limit will remain $12,000; the catch-up contribution limit will also stay the same, at $2,500.

•    For simplified employee pensions (SEPs), the minimum compensation amount will remain $550, while the maximum compensation limit will increase to $260,000 from $255,000.

•    Individual retirement account (IRA) annual contribution limit will stay at $5,500. The additional catch-up contribution limit for those who are age 50 and over will remain $1,000.

•    The deduction for taxpayers making contributions to a traditional IRA has been phased out for singles and heads of household, who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGIs) from $60,000 to $70,000 – up from $59,000 to $69,000 in 2013. For married couples filing jointly in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the AGI phase-out range will be $96,000 to $116,000, up from $95,000 to $115,000.

•    For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction has been phased out for couples with an AGI from $181,000 to $191,000, up from $178,000 to $188,000.

•    For a Roth IRA the AGI phase-out range for taxpayers making contributions will be $181,000 to $191,000 for married couples filing jointly, up from $178,000 to $188,000 in 2013. For singles and heads of household the income phase-out range will be $114,000 to $129,000, up from $112,000 to $127,000. For a married individual (filing a separate return) who is covered by a retirement plan at work, the phase-out range will remain $0 to $10,000.

Year End Tax Planning 2013

Year-end tax planning could be especially productive this year because timely action could nail down a host of tax breaks that won’t be around next year unless Congress acts to extend them which, at the present time, looks doubtful. These include, for individuals: the option to deduct state and local sales and use taxes instead of state and local income taxes, the above-the-line deduction for qualified higher education expenses, and tax-free distributions by those age 70 1/2 or older from IRAs for charitable purposes. For businesses, tax breaks that are available through the end of this year but won’t be around next year unless Congress acts include: 50% bonus first year depreciation for most new machinery, equipment and software, an extraordinarily high $500,000 expensing limitation, the research tax credit, and the 15-year write-off for qualified leasehold improvements, qualified restaurant buildings and improvements and qualified retail improvements.

High-income earners have other factors to keep in mind when mapping out year-end plans. For the first time, they have to take into account the 3.8% tax surtax on unearned income and the additional 0.9% Medicare (hospital insurance, or HI) tax that applies to individuals receiving wages with respect to employment in excess of $200,000 ($250,000 for married couples filing jointly and $125,000 for married couples filing separately).

The surtax is 3.8% of the lesser of: (1) net investment income (NII), or (2) the excess of modified adjusted gross income (MAGI) over an unindexed threshold amount ($250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 in any other case). As year-end nears, a taxpayer’s approach to minimizing or eliminating the 3.8% surtax will depend on his estimated MAGI and net investment income (NII) for the year. Some taxpayers should consider ways to minimize (e.g., through deferral) additional NII for the balance of the year, others should try to see if they can reduce MAGI other than unearned income, and others will need to consider ways to minimize both NII and other types of MAGI.

The additional Medicare tax may require year-end actions. Employers must withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income. Self-employed persons must take it into account in figuring estimate tax. There could be situations where an employee may need to have more withheld toward year end to cover the tax. For example, an individual earns $200,000 from one employer during the first half of the year and a like amount from another employer during the balance of the year. He would owe the additional Medicare tax, but there would be no withholding by either employer for the additional Medicare tax since wages from each employer don’t exceed $200,000. Also, in determining whether they may need to make adjustments to avoid a penalty for underpayment of estimated tax, individuals also should be mindful that the additional Medicare tax may be overwithheld. This could occur, for example, where only one of two married spouses works and reaches the threshold for the employer to withhold, but the couple’s income won’t be high enough to actually cause the tax to be owed

We have compiled a checklist of additional actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all actions will apply in your particular situation, but you will likely benefit from many of them. We can narrow down the specific actions that you can take once we meet with you to tailor a particular plan. In the meantime, please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves to make:

Individual Planning Checklist

Business Planning Checklist

Year-End Tax-Planning Moves for Businesses & Business Owners

•Businesses should consider making expenditures that qualify for the business property expensing option. For tax years beginning in 2013, the expensing limit is $500,000 and the investment ceiling limit is $2,000,000. A limited amount of expensing may also be claimed for qualified real property. However, unless Congress changes the rules, for tax years beginning in 2014, the dollar limit will drop to $25,000, the beginning-of-phaseout amount will drop to $200,000, and expensing won’t be available for qualified real property. The generous dollar ceilings that apply this year mean that many small and medium sized businesses that make timely purchases will be able to currently deduct most if not all their outlays for machinery and equipment. What’s more, the expensing deduction is not prorated for the time that the asset is in service during the year. This opens up significant year-end planning opportunities.

•Businesses also should consider making expenditures that qualify for 50% bonus first year depreciation if bought and placed in service this year. This bonus write-off generally won’t be available next year unless Congress acts to extend it. Thus, enterprises planning to purchase new depreciable property this year or the next should try to accelerate their buying plans, if doing so makes sound business sense.

•Nail down a work opportunity tax credit (WOTC) by hiring qualifying workers (such as certain veterans) before the end of 2013. Under current law, the WOTC won’t be available for workers hired after this year.

•Make qualified research expenses before the end of 2013 to claim a research credit, which won’t be available for post-2013 expenditures unless Congress extends the credit.

•If you are self-employed and haven’t done so yet, set up a self-employed retirement plan.

•Depending on your particular situation, you may also want to consider deferring a debt-cancellation event until 2014, and disposing of a passive activity to allow you to deduct suspended losses.

•If you own an interest in a partnership or an S corporation you may need to increase your basis in the entity so you can deduct a loss from it for this year.

These are just some of the year-end steps that can be taken to save taxes. Again, by contacting us, we can tailor a particular plan that will work best for you.