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.

2014 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, and Questionnaire. We also have an Organizer that you can fill out to help gather your tax information.

Engagement Letter

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 2013, 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.

 

  • Basic – For taxpayers without Schedule C business income or rental property.
  • Business Income – For taxpayers with self-employment income. Please make sure to fill out this Organizer AND the Basic Organizer.
  • Rental Income – For taxpayers with rental properties. Please make sure to fill out this Organizer AND the Basic Organizer.
  • 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.

Reminders!

2014 4th Quarter Estimates – Due on January 15th, 2015.

2014 1099 Forms – Regarding anyone required to distribute 1099 forms for interest paid to an individual, payments to contractors totaling over $600, rents, etc. The due date for sending these forms is February 2nd, 2015.  If you need help or have any questions about the requirements please consult your tax accountant or see our article “1099 Filing Requirements.”

2014 Sales and Use Tax – If you signed up with the Minnesota Department of Revenue as an annual filer for sales and use tax, the due date for this return is February 5th, 2015.  If you signed up for sales and use tax you are required to file even if you did not incur a sales or use tax liability.  In this case, it is perfectly acceptable to file a zero return.  If you have questions please contact your tax accountant or see our article “Do you have a Use Tax liability?

2014 Trust Distributions – Fiduciaries of estates and some trusts have the option to treat certain distributions as made in the previous year.  If a distribution is made in the first 65 days of a year, an election can be made to treat that distribution as if it was made in the prior year.  The last day to make a 2014 distribution from a trust is March 6th, 2015.

2014 IRA Contributions – You have until April 15, 2015 to make your Traditional and Roth IRA contributions.

2014 HSA Contributions – April 15, 2015 is the last day you can make a contribution to your HSA for 2014.  The contribution limits are $3,300 for self-only or $6,550 for family coverage. Add an additional $1,000 if you were 55 or older at the end of 2014.

UPDATES

2015 Standard Mileage Rates

Business: 57.5 cents per mile (56 cents per mile in 2014)

Medical and Moving: 23 cents per mile (23.5 cents per mile in 2014)

Charitable: 14 cents per mile (same in 2014)

 

Expiring deductions

The extender package was passed on December 16th that extends over fifty expiring provisions through 2014.  Since this was a one year extension, Congress will have to vote on the expiring provisions again next year.

 

179 Deduction

The amount of allowable federal 179 expense was decided upon with the extender package that was passed on December 16th.  The allowable deduction is maxed out at $500,000 and decreases dollar for dollar once a business has placed in service more than $2 million dollars of qualifying assets.

 

Minnesota Refund

Because of mid-year law changes, many taxpayers received different refunds than what was originally reported on their tax return.  It is possible for taxpayers to look up and print a copy of Form 1099-G stating what they received as a refund.  The MN DOR states however that information about refunds paid in 2014 won't be available until January 31st 2015.  You can look up your refund here.

Congress Passes “Tax Extenders” for 2014

Congress has passed the “tax extenders” to extend many tax provisions for 2014 that had expired at the beginning of the year.  A few of the more common provisions are listed below.

Small Business highlights:

  • The small business (Section 179) depreciation deduction limit on purchases of assets remains at $500,000 limit instead of dropping to $25,000
  • 50% bonus depreciation on new property has also been extended

Personal Tax highlights:

  • Tax free IRA charitable contributions can be made for those over 70 ½
  • The sales tax deduction will continue to be allowed in lieu of the state tax deduction on Schedule A, itemized deductions.
  • The higher education tuition and fees deduction will remain the same
  • Mortgage insurance premiums will continue to be deductible as an itemized deduction

We expect these provisions to be extended for 2015 as well but that will require additional legislative action.

The Truth About Business Gifts

We are quickly approaching the holiday season and companies are planning their gift lists.  Here is the truth about business gifts…

Business gifts are deductible to only $25 per recipient per year with married couples being considered one recipient.  You may want to give a great customer a lovely Christmas basket that cost you $100, and of that kind gift, $75 may be subject to tax because it is not deductible.

Promotional materials or small items under $4 with a logo do not qualify as a gift and should remain classified as a promotional expense.

Gifts are a great way to thank your clients or customers and encourage their continued support, but take the time to weigh the cost benefit before filling out your Harry and David order forms.

gift

The Skinny on Deducting Meals

hamburger

One of the most common questions I get asked by clients is how much they can deduct for meals.  To answer the question I am going to break this down.

Are meals ever deductible?

Yes! The caveat with deducting your meals is whether they are directly related to or associated with your business activity.  Additionally, you must be able to prove that the purpose of the meal was business and that there is more than a general idea that you will be engaged in business with them in the future.  Some examples of non deductible meals:

  1. Deciding not to bring your lunch from home and grabbing a sandwich does not constitute a business activity and is not deductible.  If you were traveling to and from clients and needed to stop for lunch because you could not reasonably go home or bring your lunch, you may have grounds for a deduction.
  2. Generally meals with business associates and coworkers are not deductible unless you can establish a clear business purpose.
  3. Having a meal with someone with the hope that they may be a client or customer someday does not make the meal deductible.

Additionally, you will need to keep records of your expense and business purpose should your deduction be challenged.  Using a spreadsheet or writing the information right on the receipt doesn’t take very long and could save you hours in the future.

Most meals are only 50% deductible

Even when your meals are legitimate and deductible most are only deductible up to 50%.  This means that it is important for companies to discuss and decide the appropriateness of using this deduction.  Spending $5,000 on meals throughout the year could result in an additional $2,500 of taxable income and depending on your tax rate, the numbers can add up.

Exceptions to the 50% limit

There are circumstances where meals are fully deductible:

  1. As a fringe benefit.  You can deduct the cost of meals served on the premises for the convenience of the employer.  An applicable scenario would be a lunch meeting where the employer provides lunch so that they can continue working.
  2. As compensation. You can deduct the full cost of meals if they are added as taxable income to the employee’s wages.
  3. As a promotional activity.  Meals provided to the general public as part of a promotional event can be fully deductible.  A promotional event would include the snacks at a retailer’s open house event.
  4. At special occasions. If you provide meals for your employees at a social or recreational event such as a holiday party or summer picnic, the cost of the meals is fully deductible.

The deduction for meals is a nice way for business owners to conduct their activities in a more enjoyable and stress free atmosphere as well as providing a nice benefit to employees.  Because it is an attractive deduction it has the propensity to be misused and abused.  The IRS can easily disallow your deduction if you cannot provide appropriate support for your deduction upon audit.  My advice is to add this deduction to your business toolkit: use it when it is appropriate for good business practice but remember its limitations.

Minnesota Residency: Hot Topic for the DOR

According to experts, the Minnesota Department of Revenue is cracking down on taxpayers with possible Minnesota residency status.  Claiming Minnesota residency or the opposite can make a big difference according to your tax situation.  Minnesota is in the top five states for the largest top tax rate, and is one of the states with the largest estate tax rate.  It is not surprising then that many taxpayers who live in or spend time in multiple states might want to claim another state for their residency.

Here are some things to consider if you are trying to avoid residency status in Minnesota:

Intent – Individuals are domiciled (treat as a permanent home) in Minnesota if it is their intent that Minnesota be their permanent home.  Even if they are temporarily absent from Minnesota they can claim Minnesota as their residency if they intend to return.

183-day Rule – An individual can be considered a Minnesota resident if they spent at least 183 days in Minnesota.

An individual can also be considered a Minnesota resident if they own or rent an abode in Minnesota. Property is considered an abode when it is winterized, such as a typical residential home.  A summer cabin without heat or with only seasonal accommodations will not be considered an abode.

An individual can be considered a Minnesota resident even if they did not spend 183 days in Minnesota, as long as they did not spend 183 days in any one other place.  This would be the case if the taxpayer traveled for a majority of the year.  They did not spend 183 days in Minnesota but they did not intend to make any of the places they were traveling their permanent domicile.

Other Factors – The DOR will consider a variety of factors to determine if a taxpayer is a resident of Minnesota. Some of these include:

  1. The location of the taxpayer’s property
  2. Jurisdiction for drivers license
  3. Jurisdiction for professional licenses
  4. Voting Registration
  5. Employment location
  6. Location of clubs or social organizations
  7. Location of religious involvement
  8. Mailing address
  9. Etc.

If you are considering a change in your domicile but still intend to spend time and produce income in Minnesota, it is recommended that you keep meticulous records.  Make sure you are consistent with your address and any residency questions.  Keep logs of how much time you spent in and out of Minnesota and be very clear about your domicile intentions.

For any questions about your specific tax situation, please consult your tax advisor.

Tax Planning 2014

It is time to consider your end of the year tax plans.  The laws for 2014 have not been finalized yet, however most analysts are expecting the expiring provisions to reinstate for 2014 and 2015.

A few of those provisions include:

  1. Tuition and fees deduction: this is an above the line deduction for up to $4,000 of qualifying education expenses.
  2. State sales tax deduction: this is a deduction you can take in lieu of a state income tax deduction on Schedule A.
  3. Charitable IRA transfers: where taxpayers ages 70 ½ or older can make direct transfers to charities of up to $100,000 from their IRA.

The tax rates are not expected to change in 2015, though due to time-value of money, most people will benefit by accelerating write-offs in 2014 and deferring income to 2015. Here are a few ways to accelerate your write-offs:

  1. State & Local Income Taxes:  if you make estimated payments or expect to owe state income tax, we recommend making your estimated payment by December 31st; doing so will allow you to take the deduction for taxes paid in 2014 instead of 2015.
  2. Donations: You can make charitable contributions that are planned for 2015 in 2014.  As long as the payment is made or mailed by December 31st, it qualifies.  One strategy would be to charge a donation on your credit card, that way you can claim the deduction in 2014 while deferring the cash payment to 2015.
  3. Medical Expenses: If you have reached 10% of your AGI in medical expenses (7.5% for those over 65) take advantage of qualified elective procedures in 2014.
  4. Mortgage Interest:  you could make your January 2015 mortgage payment early and deduct 13 months of mortgage interest in 2014. However in 2015, unless you use the same strategy, you will only have 11 months of interest to deduct.

These four strategies really only help you if you can itemize deductions.  If you just barely qualify to itemize in 2014, using these strategies should increase your itemized deductions in 2014, but be aware they may cause you to revert to the standard deduction in 2015.  The 2014 standard deduction will be $12,400 (MFJ), $13,600 (MFJ over 65), $6,200 (Single), $7,750 (Single over 65), and $9,100 (HOH).

AMT

For those of you who would like to accelerate you state and local income tax deductions be aware if you are in the AMT.  There is an add back of state and local income taxes for AMT so accelerating your deduction will not help you at all.  Also exercising incentive stock options will cause the discount to hit AMT unless you sell the shares by December 31st.

Changes for 2015

The limit on retirement contributions will increase in 2015 to $18,000 or $24,000 if 50 or older.   The phaseout of AGI for Roth IRA contributions will be $183,000 to $193,000 for couples and $116,000 to $131,000 for singles.  The phaseout of AGI for regular IRA’s will be $98,000 to $118,000 for couples and $61,000 to $71,000 for singles.

 

Make sure you consult with your tax advisor for any tax planning considerations, and we will do our best to let you know of any changes in the law as they occur.  Happy Planning!

 

 

Leaf

Estate Planning Awareness Week 2014

Estate planning awareness week is October 20-26, this is when we take the time to remind all of you how important it is to continuously update your estate plan.

Here are some basic steps in estate planning to consider:

  1. Make a listing of your assets or update your list for completeness and accuracy.
  2. Determine and understand the effect of each assets transfer upon death.
  3. Make sure to review and update your will and your beneficiary designation forms.
  4. Legal documents – the main, 3 documents you need are as follows:

-Power of attorney – for both your financial and medical affairs

-Healthcare directive

-Will

  1. Consider taking advantage of the $14,000 annual gift tax exclusion this year.
  2. The top federal gift and estate tax is 40% on estates/ (lifetime) gifts over $5,340,000 in 2014 and set to index for inflation here after. Consider how this will affect your estate, and what you can do to minimize your liability.
  3. MN estate tax may be due on estates in 2014 with over $1,200,000 in assets. The MN threshold is set to increase $200,000 per year until hitting a ceiling of $2,000,000 in 2018.  Consider how this will also affect your estate.

Revisiting your estate plan on a regular basis with your attorney and tax advisor can ensure a smoother process for your beneficiaries and can assist in making sure your wishes are honored.  Your advisors can also help you enact strategies so that your estate does not pay any more tax than is necessary.  Take the time to sit down and review your estate; it will be worth it.

“Forewarned, forearmed; to be prepared is half the victory.” – Miguel de Cervantes