May, 2016 | RKL LLP
Posted on: May 31st, 2016

Want to Offer ID Theft Protection Services to Customers or Employees? Read This First.

Taxability of ID Theft Protection ServicesData breaches have become an unfortunate and unwelcome part of modern life, with stories about high profile hacks regularly leading the news. As businesses like Home Depot or health insurers like Anthem recently demonstrated, even the best efforts to keep customer or employee data secure can be infiltrated by cyber attack.

The federal Bureau of Justice Statistics reports that 17.6 million people fell victim to identity theft in 2014. Once a breach has occurred, companies will often provide some variety of protection service to customers or employees whose information may have been compromised. Whether it is credit reporting and monitoring, identify theft insurance policies or identity restoration services, their increased provision at no cost to the customer or employee began to raise questions of taxability. The IRS responded last summer to these previously unaddressed issues with the following guidance.

ID theft protection services are generally not taxable.

The IRS explained that the value of identity protection services provided by a business that experienced a breach to a customer or provided by an employer to an employee whose information may have been compromised in a breach does not create taxable income. It does not need to be reported on Form W-2 or 1099-Misc.

There are instances when ID theft protection services are taxable.

The IRS clarified that while the value of the identity protection service provided to compromised employees or customers is not taxable, cash given to employees or customers to purchase this service on their own is considered taxable. This expense must be included in gross income and reported on Form W-2 or 1099-Misc.

Furthermore, the IRS noted that this tax-exempt status applies only to identify theft protection services provided as a result of a data breach or hack. If this service is provided as a standard employee benefit or as part of an employee’s compensation package, it is considered taxable income. As a result, these costs must be included in gross income and reported on Form W-2 or 1099-Misc.

Your RKL advisor can help you determine the taxability of these and other benefits you wish to provide to customers or employees. Contact us today with any questions on this guidance.

Contributed by Dennis R. Kelly, Jr., Senior Accountant in RKL’s Tax Services Group. Dennis provides tax services to a variety of clients and specializes in tax outsourcing and pass-through entity taxation. He works with clients in a variety of industries including construction and manufacturing and distribution.

 

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Posted on: May 24th, 2016

How Your Business Can Prepare for Overtime Expansion

New federal overtime rulesDo you have salaried employees who regularly work more than 40 hours in a week? If so, depending on their annual wage, these workers will soon be eligible for overtime pay for those extra hours, under regulations finalized last week by the U.S. Department of Labor (DOL). According to the final rule, employers must begin applying this new overtime pay threshold on December 1, 2016.

These new overtime rules will have a vast impact on compensation across all industries, with the DOL estimating that 4.2 million currently exempt workers will be affected in the first year alone. What does it mean for your company? Let’s look at things you can do ahead of the effective date to prepare for compliance with the new rules.

Operational and budgetary factors impacted by new overtime rules

With the overtime threshold doubled to $913 a week, employees who earn $47,476 or less are now eligible for overtime pay as of December 1, 2016. This requires business owners and HR professionals to tackle a number of operational and budgetary factors, including:

  • Evaluation of staffing, salaries and duties: Conduct a thorough review of your current staffing situation to discern which employees are now eligible for overtime based on the new salary threshold. Once you have a sense of employee eligibility, you can budget accordingly.
  • Proper tracking of hours worked: In order to manage overtime costs and stay compliant, employers must become more diligent about tracking the hours of a larger amount of employees who fall above the new threshold. A reliable tracking system will help you pay the correct overtime earned, or give you an idea of which employees are close to crossing the overtime threshold under the new rules. Either way, having accurate data on hand to demonstrate hours worked and correct payment of overtime can help you avoid noncompliance penalties or respond to any inquiries from DOL regarding compliance.

Bonuses now count toward salary threshold but duty test unchanged

Though it did not suggest changes to the duty test in the proposed regulations, DOL solicited feedback as to whether the duty test for executive, administrative and professional employees required alteration. When employers expressed concerns about the cost and difficulty involved in such a change, DOL left the existing duty test unchanged in its final regulations.

Another aspect of the overtime rules is that for the first time, quarterly nondiscretionary bonuses and incentive payments are allowed to be counted as up to 10 percent of the new standard salary threshold. DOL also announced that the salary threshold would be automatically updated every three years, beginning January 1, 2020.

This is a significant change in employee compensation for which employers have six months to prepare. Businesses that need assistance applying these changes or understanding the impact on their bottom line may contact me at 717.394.5666 or dhoffer@rklcpa.com.

RKL Human Resources DirectorContributed by Danielle J. Hoffer, SPHR, Director of Human Resources for RKL. Danielle provides strategic leadership by working closely with the CEO, Partners in Charge and Functional Leaders to support the firm’s overall business plan and strategic direction. She is also responsible for Human Resources consulting services for clients.

 

 

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Posted on: May 17th, 2016

Tax To-Do List After Saying “I Do”

tax tips for newlywedsThe popular spring and summer wedding season is upon us, and happy couples have a lot to tackle as they merge two lives into one. Beyond the financial basics like opening a joint bank account or setting a household budget, newlyweds also need to consider their tax situation. A change in marital status can impact tax status, so let’s take a look at some tasks couples will want to assess not long after the wedding day is over.

Name change

If you decide to take your spouse’s name, make sure the change is recorded with the Social Security Administration. To request a new Social Security Card, visit SSA.gov, call 1.800.772.1213, or visit your local SSA office. It is important that the name you use on your tax returns matches the one on file for you with the SSA. While you’re at it, make sure you also tell your employer about the name change and complete any necessary paperwork.

New address

Is a new house part of your post-nuptial plans? If so, this is important news to tell not just the U.S. Postal Service, but also your employer and the IRS. Most employers still mail W-2s, so in order to receive an accurate form in a timely fashion, let your employer know of any address changes as soon as possible. The IRS may pick up the change of address request you submit to the Post Office, but to err on the side of precaution you can also notify them directly. Your tax preparer can assist you with Form 8822 to change your address with IRS.

Withholding status

If you and your spouse both work, combining your incomes could move you into a higher tax bracket. Your tax advisor can examine your income, withholding status and exemptions to maximize your tax savings. That way you can make any needed alterations to the amount of federal income tax your employers withhold from your paychecks.

Deductions

To itemize or not itemize, that is the question. At least it is for newly married couples filing taxes jointly. Take the time to consider all the deductions you might itemize on your tax return – think mortgage interest, property tax payments, charitable contributions. If the total amount adds up to more than $12,600, which is the standard deduction, it may benefit you to itemize.

 

These are some initial steps to ensure a change in marital status is properly reported. For a full assessment of how other, more in-depth financial issues could change after marriage, please contact your RKL tax advisor.

Chris A. Luppold, CPA, MBA, CGMAContributed by Chris A. Luppold, CPA, MBA, CGMA, a manager in RKL’s Tax Services Group. Chris has over 35 years experience in public accounting and provides services a wide range of areas including general business consulting, tax preparation, estate planning and tax planning for his clients.

 

 

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Posted on: May 11th, 2016

The Basics of Nonprofit Fundraising Expense Reporting

RKL nonprofit business and tax consultingThe old adage, “One has to spend money to make money,” rings more true for profit-focused businesses than for community benefit organizations, but nonprofit leaders must still dedicate some financial resources toward drumming up support. The ratio between how much is spent on fundraising costs and how much is spent on program services and administration, however, is of great interest both to donors and government agencies like the IRS and the PA Bureau of Charitable Organizations.

Nonprofits are required to disclose these expenses, most notably on the publicly available federal Form 990, but keeping track of and reporting expenses related to fundraising can often be a challenge. To start, there are three different categories under which fundraising expenses must be reported:

  • Costs related to fundraising events, raffles, and gaming;
  • Amounts paid to professional or third-party fundraisers; and
  • General fundraising expenses.

These expenses are reported separately on the Form 990 and are helpful in understanding the costs associated with soliciting donations. Let’s take a closer look at each category.

Fundraising events

Events are considered fundraising if they are not regularly carried on, not substantially related to the organization’s tax-exempt purpose and are conducted for the primary purpose of raising funds. Examples include:

  • A fundraising dinner
  • An annual 5k race
  • A golf event
  • A charity concert

Expenses related to these events as well as raffles, bingo, and other gaming are reported on Part VIII of the Form 990 as a direct offset of the revenue received at these events.

Reporting these expenses here allows the organization and potential donors to evaluate if the organization’s fundraising effort is effective. If the expense of hosting a dinner outweighs the resulting income and donations, the organization should reevaluate whether the fundraiser is worthwhile.

Amounts paid to professional fundraisers

These expenses are of particular interest to donors and government agencies alike. The IRS requires separate disclosure on the Form 990 in Schedule G for amounts paid to professional fundraisers. In addition, the PA Bureau of Charitable Organizations requires registration for all professional solicitors; approval of contracts to ensure inclusion of statutorily required provisions; and submission of financial reports after the completion of each contract. Professional fundraising councils have the same requirements, minus the requirement to submit financial reports.

General fundraising expenses

The miscellaneous costs associated with ongoing fundraising campaigns can also be part of a nonprofit’s operating budget. It’s important to determine what part, if any, of employee salaries, office expenses, occupancy and other expenses should be allocated to fundraising. These amounts are reported on the Form 990 expense summary in the fundraising column.

Disclosure of fundraising expenses to the IRS and the PA Bureau of Charitable Organizations helps to protect donors and encourage accountability and monitoring on the part of tax-exempt organizations.

Does your nonprofit need help assessing or reporting fundraising expenses? RKL’s Not-for-Profit Industry Group is here to help. Contact your RKL advisor or one of our local offices today to get started.

Molly L. Ramos, CPA, Manager in RKL’s Tax Services GroupContributed by Molly L. Ramos, CPA, Manager in RKL’s Tax Services Group. Molly has more than 12 years experience in tax services, specializing in individual tax, trusts, estates, gifts and not-for-profit organizations.

 

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