2015 Tax Tips

/in /by

The year 2015 brings a number of important changes to personal and small business tax laws and regulations. It’s important that you be aware of them in order to minimize your tax bill and keep more of what you earn on an after-tax basis. Here are some of the most common tax moves you can make that may make a difference in your wallet for 2015.

1. Don’t forget your last-minute 2014 retirement plan contributions. For 401(k) plans, you’ll need to make your last minute contributions before the end of the year. Otherwise you’ll have to wait a year before you get the tax benefit of having contributed (though even if you don’t make the contribution until January you’ll still have the benefit of a year’s worth of tax-deferred growth).

For IRAs, on the other hand, you can still make your tax year 2014 contribution until April 15th, 2015 – your normal filing deadline. If you haven’t contributed the maximum allowable amount for 2014, prioritize that over 2015 contributions. You may well be able to catch up on 2015 contributions later in the year.

2. Try to bunch deductions. Do you have a lot of miscellaneous itemized deductions so far this year? Try to commit to planned deductible expenses before the New Year. If you don’t have a lot of itemized deductions for 2014, or you expect to have a lot of them in 2015, then try to put as many as you can in the same year. This allows you to get the maximum tax benefit out of your miscellaneous itemized deductions, which have to exceed 2 percent of your adjusted gross income (7.5 percent for medical expenses) in order for you to take the deduction. You may be able to pay local and property taxes early, for example, to secure them for this year’s miscellaneous itemized deductions.

3. Did you have capital gains during the year? Try to sell some losing positions and reinvest the proceeds somewhere more productive. This may help you in three ways: You can cancel out your capital gains taxes with capital losses. If you have more losses than gains, and you sell your losing position(s), you can deduct up to $3,000 of those losses against ordinary income. Any additional losses over $3,000 can be carried forward to future years.

Another technique to minimize capital gains taxes is to structure the sale as an installment sale. This spreads the gains out over several years, giving you more time to cancel them out with losses, and also potentially lowering the amount of capital gains exposed to the 3.8 percent Medicare surtax on higher income individuals.

Are you near the threshold for having to pay the 3.8 percent Medicare surtax? Consider moving some IRA contributions from Roth IRAs to traditional IRAs and 401(k)s. This increases your current year deductions and lowers your AGI – potentially keeping you below the income threshold that exposes you to this tax.

4. Be alert for the alternative minimum tax. This tax is increasingly snagging even middle-income families – especially those who have large families, houses, lots of deductions, and who live in high-tax states.

5. Assess whether it may make sense to increase contributions to these plans:

College/Education Savings

Coverdell ESAs
Section 529 Plans
Prepaid tuition programs
Deductible professional education courses (subject to certain restrictions

Retirement savings plans

Traditional deductible IRAs
Non-deductible IRAs
Roth IRAs
Simplified Employee Pension Plans (SEP IRA
401(k) Plans, including Solo 401(k)s for self-employed individuals and couples
SIMPLE IRAs

Health care-related plans and deductions

Health Savings Accounts (must be in conjunction with a qualified high-deductible health plan)
Employer FSAs
Deductions for medical insurance and expenses

6. Take the home office tax deduction. The IRS recently established a ‘safe harbor’ removing some of the more onerous record-keeping requirements for the business use of a home. Click here to learn more about the new simplified method for calculating the home office deduction. For more information, see IRS Publication 587 – Business Use of Your Home.

7. Go over your employee benefits. Ensure you are taking full advantage of any flexible savings accounts your employer offers that may be of use for you. Examples include health care FSAs, dependent care FSAs or commuting/transportation FSAs.

At Cleary, we know how important a comprehensive benefits package can be to your continued success. Give us a call today at 617-723-0700 and we will work with you to create a plan that meets your business objectives, takes into account state and federal laws, and capitalizes on incentives and innovative solutions now being offered.

Long Term Care: Make Sure You and Your Team are Covered

/in /by

Now, more than ever, it’s important to make sure you have a complete financial strategy in place. Does your plan for retirement consider individual long term care insurance?

It should.

An individual long term care insurance policy may provide you and your employees with:

  • relief from paying large long term care bills
  • options that fit a variety of budgets
  • savings on Federal income taxes

Now is the time to learn more.

Douglas W. Greene CFP® CLU®
101 Federal Street, Suite 800 | Boston, MA 02110
Phone 617-305-0360 | Cell 781-640-5718 | Fax 617-723-7275

Schernecker Property Services, Inc.

/in /by
This winter we are delighted to spotlight one of our clients Schernecker Property Services, Inc. (SPS). They are committed to delivering outstanding customer service and exceptional value.
SPS is a full-service contractor that focuses on large-scale building envelope projects for condominium and multi-residential communities across New England.
For more than 25 years, SPS has built a reputation for doing the job right and standing behind its work -providing peace of mind for their clients.
 Click hear to read about their success stories!

Client Spotlight: Holyhood Cemetery

/in /by

This fall we are pleased to spotlight our client Holyhood Cemetery.  We are extremely proud of the relationship we’ve forged over the many years of working together.  Our own Nancy Burns has worked with Holyhood Cemetery for well over 15 years.  She knows first hand how dedicated their staff is to maintaining and preserving the historical status and authenticity of the grounds.

History

The Holyhood Cemetery Association has an extensive history which spans over 150 years.  It was established in 1857 and incorporated in 1872.  At the time it was laid out in 1857, Holyhood Cemetery reflected the mid-19th century influence of romantic landscape cemetery planning begun at Cambridge’s Mt. Auburn Cemetery in the 1830’s. It was the first such cemetery in Brookline. The name Holyhood was derived from the term used to designate the winding sheet in which the body of our Saviour was surrounded before interment.

Please click here to learn more about The Holyhood Cemetery Association.

Give and Take

/in /by

Donate to charity with a CRT or CLT and enjoy multiple benefits

You take pride in knowing that your charitable gifts will help further the work of your favorite charitable organizations and enjoy a feeling of goodwill. When you make donations through a charitable remainder trust (CRT) or a charitable lead trust (CLT), you can enjoy many other benefits too. In fact, using these trust types can allow you to achieve some combination of the following objectives while you give to charity: minimize capital gains tax, diversify your portfolio, receive an income stream, and make gifts to loved ones at a reduced gift and estate tax cost.

Double giving power

Both a CRT and a CLT — which you can fund with assets such as stock or real estate — have split interests, meaning they have charitable and non-charitable beneficiaries.

With a CRT, the income beneficiaries — you and your spouse, for example — receive payouts under a formula from the trust for a set period or for the rest of your lives. At the end of the trust term, the “remainder” interest (what’s left in the trust) passes to one or more charities. The CRT assets won’t be included in your taxable estate. (But there will be gift tax consequences if you name someone other than you and your spouse as income beneficiary.) Additionally, you’ll enjoy an immediate, though only partial, income tax deduction when you create the trust, calculated based on the present value of the charity’s remainder interest.

With a CLT, the charity receives the “lead” interest — periodic payouts throughout the trust’s term. At the end of the term, the remaining principal reverts to you (what’s known as a grantor trust) or goes to one or more of your noncharitable beneficiaries, such as your children. A grantor CLT works similarly to a CRTin that you receive an immediate income tax deduction when you create the trust (for the present value of the charity’s interest) — but you have to pay tax on the CLT’s income and the CLT assets remain in your estate. With a nongrantor CLT, there are gift tax consequences — but you also get an income tax deduction and don’t have to pay tax on the CLT’s income. The CLT assets won’t be included in your taxable estate.

CRT at work

A CRT can be an ideal way to dispose of an asset that doesn’t produce much income and would create a large capital gain if you sold it, such as a highly appreciated stock that pays no dividend. By funding a CRT with appreciated assets and naming yourself the noncharitable beneficiary, you can not only increase your cash flow (through the CRT payouts) but also defer (and possibly even eliminate some) capital gains taxes while diversifying your portfolio. The CRT can sell the appreciated assets and use the proceeds to purchase diverse, income-producing assets.

The trust won’t incur capital gains tax because the charity is the remainder beneficiary. You’ll pay capital gains tax only on payouts you receive from the trust that are attributable to the capital gain.

CLT at work

A CLT can be useful if you’re charitably inclined and hold assets that you expect to appreciate substantially in the future, such as stock in an early stage company. The trust can allow you to ultimately transfer the assets to, for example, your children, at a substantially reduced gift tax cost.

Only the present value of the non-charitable interest at the time you fund the trust is subject to gift tax. So if the CLT assets’ growth rate is greater than the rate from the IRS tables used to determine the gift tax value, the excess growth will pass to the non-charitable beneficiary free of gift tax. (See “Benefiting charity now, a loved one later” for an example.)

Win-win

A CRT or a CLT can help you meet your charitable goals as well as other financial goals, such as reducing estate taxes and eliminating capital gains tax. Which one you should choose depends on your particular circumstances.

Sidebar: Benefiting charity now, a loved one later

Tom wants to give $50,000 per year to his favorite charity for the next 15 years. He transfers assets valued at $1 million into a CLT. The trust provides that 5%, or $50,000, will be payable to charity each year for the next 15 years, and at the end of the term the remaining trust assets will pass to Tom’s daughter, Lily. If the trust earns 8% per year, Lily will receive $1.8 million. If the present value of Lily’s interest for gift tax purposes, based on government tables, is only $500,000, that means $1.3 million passes to her tax-free in this example.

The accompanying pages have been developed by an independent third party. Commonwealth Financial Network is not responsible for their content and does not guarantee their accuracy or completeness, and they should not be relied upon as such. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with
your representative. Commonwealth does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. Securities offered through Commonwealth Financial Network, Member FINRA/SIPC.

Securities and advisory services offered through Commonwealth Financial Network®, member FINRA/SIPC, a registered investment advisor. Fixed Insurance products and services offered by Wealth Planning Resources are separate and unrelated to Commonwealth. Wealth Planning Resources, LLC. 460 Totten Pond Road, Suite 600 Waltham, MA 02451. (781) 547-5620.
###

John B. Steiger is a financial consultant located at 460 Totten Pond Road Suite 600 Waltham, MA 02451. He offers securities as a Registered Representative of Commonwealth Financial Network®, Member FINRA/SIPC.. He can be reached at 781.547.5621 or at john@financialconnector.com.

Do You Need Flood Insurance?

/in /by

September is National Flood Preparedness Month

If flood insurance isn’t required as a condition of your mortgage, you’re not obligated to carry it; however it may be a good investment. Consider five factors as you decide whether or not you need this type of insurance coverage.

  1. Do you live in an area with a high flood risk? If so, you definitely want flood insurance coverage. That’s because your home, located near a river, stream, lake or flash-flood zone, faces a high threat of flooding. Protect your home and its contents when you buy a flood insurance policy.
  2. Do you live in a low flood risk zone? Consider that the local sewer system or nearby storm drain could overflow and cause extensive damage. Because a flood insurance policy typically costs less for customers who live in low-risk areas, purchasing a policy makes sense even if you don’t live near a major body of water or in a flood zone.
  3. Do you rent your home? Most landlord insurance policies cover the buildings only. They do not insure your home’s contents. Consider flood insurance that replaces any possessions that are damaged by flooding.
  4. Do you have a mortgage? Check with your lender about flood insurance requirements. If you live in a flood zone, you will most likely need to carry this coverage and prove that you’ve purchased a policy before you can sign the loan documents.
  5. Do you own any possessions? In just a few inches of water, your appliances, furniture and other belongings can be damaged beyond repair. So, if you own any possessions, consider flood insurance that provides financial reimbursement and allows you to replace items that are damaged by excessive water.

Before discounting flood insurance, talk to your Cleary Insurance Representative. He or she will answer your questions and help you decide if coverage is a wise investment for you. In many cases, the coverage is invaluable.

Concerned about your personal insurance coverage? At Cleary, our experienced Personal Lines department will work with you to evaluate your insurance needs, identify exposures, and create a customized insurance portfolio. Give us a call today at 617-723-0700

Named Insured vs. Additional Insured

/in /by

Presented by Mike Regan

In insurance parlance, a Named Insured is the person, or organization in whose name an insurance policy is written. Typically, it is the person or organization that has paid for the policy.

Additional Insureds are other organizations that have been automatically added by the terms & conditions of the policy or by specific endorsement of the policy. An example of an automatic Additional Insured would be a Named Insureds real estate manager. These automatic Additional Insureds can be found in the “Who Is An Insured” section of the policy. Anyone other than these would need to be specifically added as an Additional Insured.

Additional Insureds have coverage as a result of the actions of and business relationship with the Named Insured. Additional Insureds that are not automatically added have to be listed on a separate Additional Insured endorsement to the policy. The endorsement may include a premium charge.

The most typical situation we see for an Additional Insured status is when a Subcontractor needs to add a General Contractor to his policy or when a General Contractor has to add a job Owner to his policy. In addition, not all Additional Insured endorsements are the same. Carriers frequently have their own proprietary forms. Some restrict coverage by time or for premises/operations only and do not include completed operations. As such, it is important that you and your broker review these forms for accuracy and compliance.

At Cleary, we will evaluate your business exposures and work with you to develop a comprehensive plan to safeguard your business. Give us a call today at 617-723-0700.

ACA Breaking News

/in /by

The U.S. Court of Appeals for the DC Circuit has dealt a serious blow to the Obama Administration today with a decision that calls into question the structural integrity of the “pay-or-play” mandates under the Affordable Care Act (“ACA”).

Background:

The plain language of the Affordable Care Act states individuals purchasing coverage from a state exchange are eligible for the federal subsidy. The ACA, on its face, does not provide for a subsidy on the federal exchanges. The Internal Revenue Service (IRS) addressed this in May 2012 through a regulation, providing that an individual could obtain a subsidy if he or she “is enrolled in one or more qualified health plans through an Exchange.” In the same regulation, the IRS defined an exchange to include both state and federal exchanges. In other words, the IRS sought, by regulation rather than by amending the law, to clarify that the ACA provides the subsidy on both state and federal exchanges.

What Does This Mean To Employers:

This is significant to employers because one of the triggers for assessment of a penalty against an employer under the ACA is that a full-time employee has obtained subsidized coverage on an exchange. Any employer based in a state with federally-run exchanges could be free from the employer mandate ($2,000 and $3,000 penalties effective in 2015). This applies to a majority of the states across the country and could have an even greater impact on the enforceability of the ACA.

What Does This Mean for Your Planning Under the ACA:

This is far from the final word on this issue and just 2 hours later, a Richmond, VA appeals court reached the opposite decision and upheld the IRS rule stating the law covers both state and federally run exchange subsidies. The decision could be reviewed by the full DC Circuit Appellate Court, which has a majority (seven) of its active judges appointed by Democratic presidents and four appointed by Republicans. It may eventually be decided by the US Supreme Court, but that may be a long way off. There is also a chance that this could result in overdue bi-partisan discussions in Congress to address this and other ACA issues. At this point, however, it is clear that at least one high-level federal court has suggested that the entire pay–or-play approach may be in jeopardy in a majority of states.

Unfortunately for employers, it is likely that your renewal planning and implementing the benefits program in time for the start of your 2015 plan year might have to continue without clear direction if the employer mandate will be enforced if you are in a state with a federally run Exchange. The Obama administration stated it will appeal the decision and said people would continue to receive the subsidies during the appeal, which is the only way an employer would receive a penalty.

Background on the Court Decision:

In Halbig v. Burwell, the Appeals Court for the District of Columbia Circuit, sitting in Washington, DC, sided with the plaintiffs and against the Obama Administration today when it held that the ACA, by its terms, does not allow for subsidies for individual coverage in exchanges established by the federal government. This means that, at least according to this court, individuals purchasing insurance coverage on the federally-run exchanges will not be eligible for federal subsidies when they purchase insurance.

In Halbig, the plaintiffs challenged the IRS’s ability as a regulator to, in the plaintiffs’ perspective, rewrite the statute. The district court agreed with the Obama Administration, finding that the context of the ACA supported the IRS’s clarification. The appellate court disagreed, however. In a 2-1 decision, the appeals court found that there was no basis to support the contextual reading and effectively found that the IRS had exceeded its regulatory authority.

Next Steps and Webinar:

Stay tuned as more information is clarified. We are hosting several webinars over next 2 weeks due to an overwhelming request for support. Register at the link below and state your date/time preference:

The webinar will last 1 hour and we will take any questions/requests prior to and throughout the presentations. If there are additional topics you’d like to see, please let us know and we’ll accommodate your request as much as possible. The presentation will cover the following information:

  • Who is subject to the employer mandate in 2015?
  • How do you measure your variable hour employees to determine if they are required to be offered coverage to avoid penalties in 2015?
  • How do you avoid any litigation pitfalls inherent with ACA implementation?
  • What are the next steps to ensure compliance?
  • How might the latest court ruling affect me?

If you prefer to receive our written guidebook in lieu of the webinar, please contact us for a copy. If you have any questions on your current program, please contact us at your earliest convenience.

Service Contract Act (SCA) Prevailing Wage Increase

/in /by

Effective July 22, 2014 the new Health and Welfare Fringe Benefit Rates increased to $4.02 per hour.  Please click here to read the All Agency Memorandum.

The new rate of $4.02 per hour (up from last year’s $3.81 per hour) is required in all government contract bids or other service contracts awarded on or after July 22, 2014. A special rate of $1.66 per hour is set for Hawaii (up from last year’s $1.55 per hour).

Solicitations/Contracts Affected

  • All invitations for bids opened or other service contracts awarded on or after July 22, 2014, must include the new fringe benefit via an updated Wage Determination (WD).
  • For contracts beginning on or after July 22, 2014, contracting agencies are directed to make pen-and-ink changes to the current WD received for the contract for which the updated fringe benefit rate was not included.
  • For all other contracts (not those awarded or starting after July 22, 2014), revised WDs reflecting the new fringe benefit rate will be available at the Wage Determination OnLine website (www.wdol.gov). The new rate will go into effect on the anniversary date (annually, or every two years for non-appropriated funds contracts) or option renewal/modification date of these contracts — whichever date for a particular contract triggers incorporation of a new WD by the contracting agency.
  • The obligation to pay employees prevailing wages and benefits in compliance with the SCA requirements falls to contractors and subcontractors, who are jointly and severally liable for any violations. However, it is the contracting agency’s legal obligation to provide correct and updated WDs to the prime contractor, and the prime’s responsibility to flow-down updated WDs to their subcontractors.
  • Government contractors should check routinely to determine if new WDs have been provided to them by contracting agencies (or, in the case of subcontractors, by their prime contractor) by incorporation into their contracts. If the agency has not provided an updated WD as required, contractors should request that the agency do so and be sure to document their compliance efforts.

At Cleary, we know how important a comprehensive benefits package can be to your continued success. Give us a call today at 617-723-0700 and we will work with you to create a plan that meets your fringe-benefit obligations and provides your employees with valuable benefits.

The Employee vs. The Independent Contractor

/in /by

Business owners may not understand when to classify an individual as an employee versus an independent contractor. Proper classification of a worker as an independent contractor may save a company money and benefits, such as group health insurance. However misclassification can result in significant liability.

Employers are often tempted to classify workers as Independent Contractors because they don’t have to pay the employer share of taxes or provide benefits to those workers. The Affordable Care Act’s (ACA) upcoming employer mandate makes this type of arrangement even more tempting. Under the employer mandate, which will go into effect in 2015, employers with 50 or more full-time or full-time equivalent employees will have to provide healthcare insurance to at least 95% of their full-time workforce or face fines. Even if they provide coverage, they could be fined if that coverage does not meet the ACA’s standards.

Who is counted as an “employee”

Under the common-law standard, an individual is an employee if a legal employer and employee relationship exists. Generally, that relationship exists when the company “has the right to control and direct the individual” regarding “the details and means by which” the individual’s work is performed for the company. There are several factors that are considered under the common-law standard, including the right to discharge, the furnishing of workspace or tools, the source of the individual’s employment wages, etc. The determination depends on the particular facts and circumstances of the relationship.

Ultimately, the determination of whether an individual is an employee or independent contractor is based on a holistic analysis of the relationship between the business professional and the company. It should be noted that just because a company classifies and pays a business professional as an independent contractor, it does not always mean that the business professional is truly an independent contractor under the law. Courts typically focus on the substance of the relationship over its form.

The rules tell us little more than that an employer’s ACA obligations extend to every person who is its “common law employee.” For health care reform, “employee” is defined using the common-law standard found in 26 CFR § 31-3401(C)-1(b). The IRS uses a 20-factor “right to control” test to determine whether a common law employment relationship exists. No one factor determines the result, but if an employer can tell a worker what to do, when to do it and how to do it, then, generally speaking, the worker is that employer’s common law employee.

What is an independent contractor?

An independent contractor, also known as a 1099 contractor, refers to a worker who contracts their services out to a business or businesses. An independent contractor is considered to be self-employed, not an employee of the business or businesses with which they work. “1099” refers to the IRS form that an independent contractor must receive to state their income from any given business in a given tax year.

Why Does It Matter?

Misclassification of an individual as an independent contractor may have a number of costly legal consequences.

If your independent contractor is discovered to meet the legal definition of an employee, you may be required to:

  • Reimburse them for wages you should’ve paid them under the Fair Labor Standards Act, including overtime and minimum wage
  • Pay back taxes and penalties for federal and state income taxes, Social Security, Medicare and unemployment.
  • Pay any misclassified injured employees workers’ compensation benefits
  • Provide employee benefits, including health insurance, retirement, etc.
  • Pay ACA penalties if the misclassification results in increasing the number of employees to 50 or more.

Penalty and Claim Examples

The California Legislature enacted Senate Bill 459, which imposes hefty fines for each “willful misclassification” of a worker. The penalties are not less than $5,000, nor more than $15,000 for each violation of the statute. Employers may also face penalties ranging from $10,000 to $25,000 for each violation if the employer engaged in a “pattern or practice” of such misclassification.

In May 2014, Lowe’s agreed to pay $6.5 million to settle a class action lawsuit that accused the company of misclassifying over 4,000 installers, and hundreds of businesses, as independent contractors.

Defining Employee for Health Care Reform

If an IRS audit reveals that an employer misclassified workers and reclassifying those workers as W-2 employees puts the employer over the 50-employee threshold, they could be subject to the fine for failing to offer healthcare coverage. That fine is $2,000 per full-time employee if even one employee obtains insurance through The Marketplace with government subsidies. If they do offer coverage, but that coverage doesn’t meet the ACA’s standards for minimum coverage and affordability, the employer could pay $3,000 for each employee who goes to The Marketplace for coverage and obtains a government subsidy.

The info graphic, embedded below, created by payroll software company ZenPayroll, provides a flowchart to walk you through determining whether you need to be classifying a worker as an employee or a contractor.

Assumptions to Avoid in Classifying Workers

A hiring firm should not assume it is safe to classify a worker as an independent contractor simply because:

  • The worker wanted, or asked, to be treated as an independent contractor
  • The worker signed a contract
  • The worker does assignments sporadically, inconsistently, or is on call.
  • The worker is paid commission only
  • The worker does assignments for more than one company.

IRS Form SS-8 can be used to request a determination of the status of a particular individual. The IRS will use the information provided on the form, as well as any other information that can be obtained from the parties involved to determine whether an individual is covered under the payroll tax laws. The IRS determination does not necessarily indicate worker classification under other employment-related laws.

Conclusion

It is important for businesses to understand difference between and employee vs. independent contractor, especially in today’s ACA climate. Correctly classifying workers before they perform services can save a business confusion, difficulties, and possible fines down the road.

At Cleary, we know how important a comprehensive benefits package can be to your continued success. Give us a call today at 617-723-0700 and we will work with you to create a plan that meets your business objectives, takes into account state and federal laws, and capitalizes on incentives and innovative solutions now being offered.