Personal Budgeting Tools

As a follow up to last week’s blog about the importance of a personal budget, there are many applications out there that can help assist with tracking spending and monitor personal wealth. Two that I have personal experience with are below:

Personal Capital


Both have phone applications that can be downloaded for instant updates on your cash, investments, loans, and spending habits. Most applications use bank-level security technology for those who worry about their information being compromised. Review the websites for assurances on encryption. Some of the benefits of these applications are below:

Track Your Spending

You can review transactions by category, vendor, or purchase date. This allows you to see where your money is going as well as get notifications about spending compared to the previous month. By seeing spending by category it allows you to track budget performance and see areas where cut backs can be made.

Track Your Investment Performance

Whether it is brokerage or retirement accounts you can track how investments are performing over time. This is especially helpful if you have investments with different companies and different financial management firms. This does not replace the importance of investment management, but can identify problem areas with certain investments.

Stay In The Know

At each login the application is automatically refreshed in real time. You can see an instant picture of your net wealth if all data is entered. By logging in daily, weekly, or monthly it keeps you thinking about your finances. The more you know, the better you can plan for your future.

Employee Health Insurance Reimbursement

We have been working to educate our clients on the impact of the Affordable Care Act. Employers are no longer allowed to provide employees with reimbursement plans for the cost of health insurance. Employers who do not comply with this are in violation of the Act and can be subject to a $100 per day per employee excise tax. In February 2015, the IRS issued Notice 2015-17 that provided small business owners additional time to comply with the Act. Here are the important deadlines:

June 30th, 2015

Employers are no longer allowed to reimburse employees for the cost of their health insurance. Even if the reimbursement was run through payroll previously, it can no longer be a separate line item on an employee’s pay stub. Employers can work around this issue by providing a salary increase equivalent to the reimbursement for each employee. If reimbursements have occurred after 6/30 we recommend amending those payroll reports to include that reimbursement as compensation or have the employee reimburse the employer the funds.

December 31st, 2015

Employers are no longer allowed to reimburse greater than 2% shareholders for the cost of their health insurance. For most clients, we are advising to take the money as a distribution to cover the cost of their insurance instead.

The other option is to provide an employer health insurance plan. Due to the rising costs of health insurance this could be an attractive, deductible option to employers instead of raises or bonuses. Employees without employer health insurance coverage are facing rising costs as well and could appreciate the benefit.

We recommend consulting an insurance professional for your individual company needs and Act compliance requirements.

Payroll Process Options

When meeting with new business owners we want to find out how they are handling their payroll. Sometimes even more importantly than a good accounting system we want to make sure that a strong payroll system is in place. The “I will try it on my own” mindset can be very costly and we have seen many be damaged financially by errors in payroll.

Why is payroll a service we recommend outsourcing?

First, there are a lot of payroll filing requirements that if you are not a payroll professional can easily be overlooked. Depending on the amount of payroll, deposits to IRS and State authorities may need to be made weekly, monthly, quarterly, or yearly. With a growing business these deadlines can be difficult to keep up with. Second, payroll can be time consuming. As the business owner you want to focus on running your business, not managing payroll that can take up hours each week. Lastly and most importantly, errors can be extremely costly. Payroll taxes are treated like trust deposits in the IRS and State department’s eyes. If these are not remitted they are deemed “mishandled” and can result in large late filing or late payment penalties. One late filed form alone can cover the cost of a payroll service for the entire year. If a payroll company is preparing the forms they will cover any penalties and interest for incorrectly or late filed forms.

Who do we recommend?

Straightforward Small Business or Single Owner S Corporations

Zen Payroll

Additional Hand Holding or Complex Businesses


Flex Pay


Sage Payroll

If you are currently handling your own payroll and would like to work with a payroll professional, let us know!

Affordable Care Act (ACA) Upheld

The Affordable Care Act (often referred to as Obamacare) was upheld by the Supreme Court in a 6-3 vote last Thursday. Chief Justice John Roberts stated in the majority opinion “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter. This strengthens, if not decides, the likelihood that the Act will continue on even after President’s Obama departure from office in 2017.

Obamacare was met with mixed emotions with many believing it raised costs for middle-class Americans and small businesses. We saw firsthand individual mandate costs surprising many clients who underestimated their income on the health insurance marketplaces. Understatement of income led to an advance premium tax subsidy (or credit) that was required to be paid back in part or in full when income came in higher than expected. Others accepted the penalty and knowingly forewent health insurance this year since the penalty was significantly less than the cost of their increased coverage costs. Going forward this penalty will not be referred to as a mandate, but a tax for those that opt out of health insurance.

Whether you support the ruling or not, there are health insurance compliance items that are now parts of the individual income tax return. Everyone who received an insurance plan through the health insurance marketplaces should have received a Form 1095-A reporting the details of their coverage. This form is used to file Form 8962 on the individual income tax return which calculates the amount of premium tax credit allowed. If you received health insurance through the marketplace, please review your 2014 return to make sure this form was filled out. We have already had inquiries from individuals who did not use a professional tax service that omitted this form on their tax return and received an IRS notice. We recommend if you choose to use the available health insurance marketplace to estimate income conservatively. Like with income tax withholding and estimated tax payments, severely underpaying for health insurance throughout the year can lead to an unwelcomed surprise during tax filing time.

Accomodation and Occupancy Tax

When purchasing a rental property it is important to decide whether you plan on renting to someone long term or for short term vacation rentals. A lot of times the type and location of the property will make this determination for you. However, there are different state and county tax implications for both. The North Carolina Department of Revenue requires an accommodations tax to be charged, withheld, and remitted to the state for all rental properties unless they meet the following two common exceptions:

(1)    Private residence or similar accommodation that is rented for fewer than 15 days in a calendar year if not listed by a real estate broker or agent

(2)    Private residence or similar accommodation rented to the same person for a period of 90 or more continuous days

The accommodations tax is equal to the applicable sales tax for the county where the rental property is located. For example, a Carolina Beach condo would need to collect and remit 7% sales tax on short term vacation rentals that do not meet the above exceptions. The requirements for how often these taxes need to be remitted and when can be found here:

In addition to the accommodations tax, each county and/or city can charge a separate occupancy tax. In New Hanover County the occupancy tax is 6% for short term rentals. The county specifies a short term rental as “less than 90 days in a hotel, motel, beach house, condo, corporate apartment or other such short term rental”. The form for this tax remittance can be found here:

This means that for the above Carolina Beach condo 13% needs to be tacked onto the rental rate and remitted to the state and county on each rental property that do not meet the above exceptions. This information is not only useful for rental property owners, but when looking at vacation spots factor in the local taxes. You may be hit with a surprising addition to your rental price!

Prepaid Expenses and Taxes

A common question we get from business owners is “what else can I deduct?” Most of our clients are on the cash basis, meaning the net of income received and expenses paid in any given year is the amount that is reported on the tax return. Since cash drives taxable income there is often a rush at year end to spend as much as possible. This is especially true in a great financial year for the business. However, in certain instances just because expenses are paid before year end does not mean that they are deductible.

Items like insurance, dues, and service contracts may be paid in the last month of the year but provide benefit that extends into the following year. If these items do not meet what is called the “12 month rule” they are required to be capitalized as a prepaid expense and deducted over the expense’s “useful life”. The general rules to be deductible are the following:

You can deduct an expense if the “useful life” (time of benefit) does not exceed the earlier of:

(i)                  12 months after the first date the benefit starts

(ii)                The end of the taxable year following the taxable year when the payment was made


(a)    Yearly business dues are paid in June 2015 for the period July 1, 2015 to June 30, 2016. Those would be deductible in full in 2015 since the benefits ends within 12 months of when it was paid.

(b)   IT service contract for two years is paid January 2015 for the term January 1, 2015 to December 31, 2016. Only one year’s worth of service would be deductible in 2015 and the rest would be capitalized and expensed in 2016.

Keep these rules in mind when rushing for purchases closer to year end. While they can be useful tax strategies, if the above rules are not followed then a large cash outlay could occur without tax benefit until future years. As always, consult your tax professional when making large purchases that could affect cash flow to make sure you are maximizing the tax benefit.

Tax Refund Offsets

Federal and state income tax refunds are not always protected from debt collectors. We have seen increased instances, especially from North Carolina, to reduce refunds to pay outside debts. Here are the most common reasons Federal or state refunds may be offset:

(1)    Prior year income tax obligations outstanding

(2)    Child support payments are unpaid

(3)    Student loan debt default

(4)    Medical bills outstanding

(5)    Parking tickets or other local citations outstanding

What can be pulled from refunds at the state level is determined by each state’s law. If an agency puts in a claim against the refund you will be notified by the appropriate agency who intends to seize the refund, the amount to be offset, and steps to appeal if you believe it is inaccurate.

We see this come as a surprise with couples who are filing jointly for the first time. Their refunds can be offset due to unknown debt that their spouse has. The IRS does provide relief for spouses who were not responsible for the debt. By filing Form 8379 you can claim “injured spouse” and request that the portion of refund due be returned.

In all of the above cases outstanding debt can reduce or delay the refund process. If it has been more than 6 weeks and you have not seen a refund we would advise checking with the IRS or Department of Revenue regarding any outstanding debt that may be causing the delay.

Filing Status and Tax Benefits

The vast majority of our clients that are married file a “married filing jointly” tax return. Deductions and exemptions are combined, the tax brackets can be more favorable, and of course it is more cost effective to file one return instead of two. The determination for filing jointly is whether or not you were married on the last day of the year. The qualifications for being “married” are determined at the state law level. On the reverse side, in North Carolina if you were legally separated at the end of 2014 you could filing a joint return or single return (head of household filing status may apply as well if you meet the requirements).  Overall we would say that filing jointly is the most beneficial, for the most people. However, there are an increasing amount of instances where it would make sense to filing separately:

Student Loans

Income driven loan payment amounts have resulted in many couples filing separately. If a return is filed jointly then both spouses income are considered when determining the ability to pay and loan amount. If filed separately, the loan servicer only considers the individual with the student debt’s income to determine monthly payment. This can make a significant enough difference to offset the tax savings of filing jointly.

Medical and Miscellaneous Deductions

Miscellaneous itemized deductions can only be taken to the extent they exceed 2% of adjusted gross income. Medical deductions are only deductible to the extent they exceed 10% of adjusted gross income (unless 65 or older then the percentage is 7.5%). When couples combine their income a lot of times it makes these deductions impossible to take. If one individual had significant medical or miscellaneous deductions (unreimbursed employee expenses being the most common) it may be more advantageous to file separately with a lower income to take advantage of those.

Unpaid Debts

If one spouse has significant unpaid debts to a governmental organization filing a separately return can protect the other spouse from their tax refunds being seized to satisfy payment. While relief can be requested if this happens filing jointly, it is important to know what debts are out there and how it may affect you. Filing a joint return also makes you liable for everything reported on that return including fraud or misreported information. If there is any question regarding a spouse’s ethics when it comes to taxes, filing separately protects you from their liability.

While these are the exception to the “married filing jointly” rule. They are important options to keep in mind. We can easily process a tax return as “married filing separately” to see if it will benefit our clients.

Turbo Tax and State Returns

If you are using TurboTax to file your state tax returns, you may not be the only one. Late last week TurboTax stopped electronically filing of all state returns. This came after states reported that there were individuals trying to obtain refunds through their system fraudulently using TurboTax software. The issues were raised when multiple individuals were filing returns under the same Social Security numbers. The source of the problem has so far been reported as not a TurboTax internal security breach. A spokeswoman at Intuit is crediting the issue to weak user passwords that have been hacked when the username or email was known.

Utah, Alabama, Minnesota, and Georgia were the states that issued press releases about the tax fraud. As of last Friday, Minnesota had stopped accepting returns by individuals using TurboTax all together. North Carolina has not released any issues with the system yet and we hope it stays that way. TurboTax may have been targeted for this fraud since state returns can be electronically filed without the Federal return being processed. The use of the Social Security number twice on the Federal side typically catches the fraud and sends up a red flag for states. The prevalence of the fraud can be perpetuated by the ability to file state tax returns across multiple states under one Social Security number. Cases of this theft have shown that the returns often times mimicked 2013 filed tax returns to avoid suspicion.

This incident is yet one more reason to keep your information secure and to file timely.  Like we mentioned in a previous blog post we utilize our custom Sharefile site here: to protect tax return data for our clients. If you are using TurboTax we recommend a reset of your passwords during this tax season to help avoid this happening to you. If you think you may have been a victim of tax fraud there are avenues for recourse as well.

Identify Theft and Tax Returns

Identity theft is still a serious concern for many individuals. We hear about it in the news regarding credit cards when it is Target or another large organization that has a security breach. Social Security numbers can be just as dangerous when that information is stolen from taxpayers. This time of year our clients are trying to get us their information quickly to expedite the completion of their tax returns. While many are careful with their personal information we find that clients will send tax documents with their Social Security numbers on them to us via email. As much as we strive to be a paperless office we recognize the dangers in electronically transferring personal information over an unsecured connection. In our office we utilize Sharefile which allows us and our clients to share information with each other via a secure portal. Each client has an individual login with their email and chosen password. Our custom Sharefile site can be found here:

                Tax-related identity theft and fraud is a big concern in our industry. Having helped clients with this issue, we know that it can be a frustrating and time-consuming ordeal to go through. With a stolen name and Social Security number it is all too easy for someone to file your taxes and claim a large refund. Typically the fraud is only discovered when clients go to file their tax return and someone has already filed under their Social Security number. Any refunds due can take a year or more to receive since someone has already claimed it and there is a formal process for proving your identity. With the IRS being understaffed we anticipate those identity theft cases taking even longer now.

The IRS is also trying to avoid future identity theft by instituting a program for Identity Protection Personal Identification Numbers (IP PIN). Currently, only certain individuals are eligible for an IP PIN (see link below). Once registered for an IP PIN that number is required to file the tax return. This helps prevent fraudulent filings since this six-digit IP PIN is not related to the taxpayer’s social security number. Keep in mind that once an IP PIN is applied for it must be used on all tax filings going forward. Each year a new number is received from the IRS. The steps to apply are below for eligible individuals:

We encourage our clients to avoid using email to send personal information when possible. The extra time to log on to our Sharefile site or drop by the office can save you countless hours and stress if your identity were to be stolen.