Tax Update for SCARR

2014 Tax Prep
January 21, 2015
Jennifer Vacha, CPA
636.754.0230
jvacha@bswllc.com
Anne Ritter, CPA
636.754.0209
aritter@bswllc.com

Brown Smith Wallace LLC
– 2nd largest locally owned public accounting firm
– Staff of over 200
– Range of services
• Traditional audit, accounting and tax services
• Family wealth and estate planning
• Numerous advisory services
• www.BSWLLC.com for more info
© 2014 All Rights Reserved
Brown Smith Wallace LLC 2
Overview

Jen Vacha, CPA
• Manager in the St. Charles office – 14 yrs. experience
– specialize individual, small business, and NFP
• Work one-on-one with clients – minimize tax
obligations and understand current tax position
• Member AICPA, MSCPA, Chair of
MSCPA NFP Committee
Overview

• Pens for writing new sales contracts!
• 2014 Quick Tax Facts
– See “Extenders” for updates!
• 2014-2015 Tax Planning Guide (TPG)
– See “Extenders” for updates!
“Take Aways”

• Tax Changes for 2015
• Schedule C
– Tax Deductions
• Affordable Care Act
– Individual and Employer Mandates
Agenda

6
Tax Changes for 2015
Extenders
Passed retroactively for 2014 – expired 12/31/2014
2014 2015
50% Bonus Depreciation* yes no
Section 179* $500,000 $25,000
*These figures update the information on the 2014-2015 TPG page 11 and
the 2014 Quick Tax Facts back cover.

7
Extenders
Passed retroactively for 2014 – expired 12/31/2014
2014 2015
Deduction for PMI as
qualified mortgage interest yes no
Exclusion of up to $2M of
discharged principal residence
indebtedness yes no

8
• New Tangible Property Capitalization and
Repair Regulations
– Effective 1/1/2014
– Change of accounting method must be filed
– Repairs (see 2014-2015 TPG p9):
• Routine maintenance
• Small business safe harbor
• Materials and supplies ($200)
– Capitalization: written policy
• “Applicable Financial Statement” $5,000
• No “Applicable Financial Statement” $500

9
Schedule C Tax Deductions
• Documentation/Compliance
• Retirement
• Health Savings Accounts
• Mileage/Auto Expenses
• Meals/Entertainment
• Home Office
• Other

10
Schedule C: Documentation/Compliance
• “The devil is in the details”
– Poor documentation may cost you the deduction
– Accurate and useable
– Separate bank account/credit card
• Form 1099: Independent contractors
– Commissions and referrals
– Rent paid
– Professional fees
• Form W2: Employees
– Forms 941, 940/944 – IRS and State

11
Schedule C: Retirement
• Pay yourself first (TPG p12)
– 401(k) or other employer sponsored plan
• $17,500 max 2014
– Traditional IRA or Roth IRA
• $5,500 max 2014 ($1,000 catch-up >50yrs)
• Roth MAGI income limits
– Joint filers: $181,000-$191,000
– Single filers: $114,000-$129,000
– SEP
• Max is based on compensation
• 2014 $52,000 max
– (Effectively 20% of max comp $260,000)

12
Schedule C: Health Savings Accounts
• High Deductible Health Plans – Medical IRA
– Max funding $3,300/$6,550 (2015 $3,350/$6,650)
• Catch up $1,000 if >55yrs.
– Nonqualified withdrawals – taxable
– Qualified withdrawals – nontaxable
• Ultimate “savings” vehicle
• Self-employed health insurance deduction
– Insurance for self, spouse, and dependents
– Limited to net self-employment income (TPG p11)
– IRS Form 1040 p1 deduction (Sch A if limited)
– Potential MO deduction/credit

13
Schedule C: Mileage/Auto Expenses
• Business vs. personal use DOCUMENTATION
– Amount
– Time/date
– Place/description
– Business purpose
– Vehicle used
• Physical/manual log book
• Smartphone Apps
– Mileage Tracker $2.99 Android
– MileTracker $3.99 iPhone/iPad

14
Schedule C: Mileage/Auto Expenses
• Parking fees and tolls
• Mileage
– $.56/mile 2014 ($.575 2015)
– Personal property taxes
• Actual expenses
– Depreciation or lease payments
• Limits/restrictions (luxury auto, SUV, etc. see p9 TPG)
– Insurance
– Maintenance/repairs
– Personal property taxes

15
Schedule C: Meals/Entertainment
• Ordinary and necessary
– Common and helpful and appropriate
– Document who, when, where, why
• Directly-related test
– Main purpose active conduct of business
– Did engage in business
– >General expectation of business benefit
• Associated test
– Associated with active conduct of your business
– Directly before/after substantial business discussion

16
Schedule C: Meals/Entertainment
• Substantial business discussion
– Facts based
– Must show actively engaged in discussion,
meeting, negotiation, etc. to get income
– Must be substantial in relation to the expense
• 50% Limitation
• Country club payments
– Dues: Non-deductible
– Separately identify meals/drinks/golf fees
• Other limitations (skyboxes/luxury suites, etc.)

17
Schedule C: Home Office
• Office used exclusively, regularly for business
– i.e. not the kitchen table
• Full home office deduction
– Partial mortgage interest, R/E taxes, insurance,
utilities, depreciation, etc.
• Some normal itemized deductions
• Safe harbor deduction
– $5 per square foot, limited to 300 sq. ft.

18
Schedule C: Other
• Gifts – limited $25 per person/year
• Advertising – print/online/business cards
• Office supplies
– Computer equipment (depreciable)
– Supplies – paper, staples, etc.
– Postage
– Trade magazine subscriptions
• Business insurance
• Professional fees – legal/accounting

19
Schedule C: Other
• Continuing education
• Professional organization dues
• Dedicated home telephone/long distance
• Employer reported expenses
– Items withheld from your commission checks
Best practice – don’t spend money on items
just for a tax deduction – IRS may not consider
it to be a necessary expense. Good business
management > tax driven choices.

20
Affordable Care Act
• ACA or Obamacare – Individual Mandates
– Effective 1/1/2014
– Report on 2014 tax return
– Form 8962
• “Shared responsibility payment”
• No “minimum essential coverage”; greater of:
– 1% household income or
– $95/adult $47.50/child
» Max $285 for 2014
• Payment amount increases annually

21
Affordable Care Act
• ACA or Obamacare – Employer Mandates
– Not offering “minimum essential coverage”
• To at least 70% FTE (95% in 2016)
– At least 1 FTE obtains premium tax credit
• Penalties are non-deductible
– Effective 1/1/2015 > 100 FTE
– Effective 1/1/2016 50-100 FTE
– Exempt < 50 FTE
• “FTEs” – Full time equivalents

22
Materially Participating Real Estate Professional
• Requirements
– Materially participate >750 hours/year in real
property trades/businesses
– >50% personal services performed in all trades/
businesses were in real property trades/
businesses in which you materially participate
• Advantages
– Rental activities are not passive; thus losses not
subject to PAL limitations
– Income not subject to new 3.8% NIIT (Net
Investment Income Tax)

23
Resources
• www.IRS.gov
– IRS Publication 463
• Travel, Entertainment, Gift and Car Expenses
– IRS Publication 535
• Business Expenses
– IRS Reg. Section 1.469-5T
• Material participation test and passive activity rules
• Brown Smith Wallace
– 2014-2015 Tax Planning Guide - PDF
– 2015 Quick Tax Guide
• Leave a business card to receive

24
Follow Up Items
• Questions?
• Next Steps
– Look over your prior year returns
– Start pulling 2014 records
– Prepare for 2015

To ensure compliance with requirements imposed by the IRS, we are required to inform
you that any U.S. federal tax advice contained in this communication (including
attachments and handouts) is not intended or written to be used, and cannot be used,
for the purpose of:
1) Avoiding penalties under the Internal Revenue Code or
2) promoting, marketing, or recommending to another party any transaction or matter
addressed herein.
25
Circular 230 Disclosure

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26
Thank You!
6 CityPlace Drive, Suite 900│ St. Louis, Missouri 63141 │ 314.983.1200
1520 S. Fifth St., Suite 309 │ St. Charles, Missouri 63303 │ 636.255.3000
2220 S. State Route 157, Ste. 300 │ Glen Carbon, Illinois 62034 │ 618.654.3100
1.888.279.2792 │ bswllc.com

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