The Soft Edge: Where Great Companies Find Lasting Success

December 15, 2015 Warren Sidosky

By Warren A. Sidosky, CMA | December 15, 2015 | warrensidosky@gmail.com

In today’s business climate, achieving high performance starts with a strategic vision and superb execution. These factors remain critical, but Rich Karlgaard, publisher of Forbes magazine and author of its “Innovation Rules” column, argues that there is now a third element that’s required for competitive advantage. It fosters innovation, accelerates strategy and execution, and it cannot be copied or bought. It is found in perhaps a surprising place—your company’s values.

In The Soft Edge: Where Great Companies Find Lasting Success, Karlgaard looks at how companies have thrived in business by creating innovative cultures and balancing what he calls the “Triangle of Long-Term Company Success”, composed of three elements:

The Strategic Base - Market, Customers, Competitors, Substitutes, Disrupters
The Hard Edge - Operations, Speed, Cost, Supply Chain, Logistics, Capital Efficiency
The Soft Edge - Trust, Smarts, Teamwork, Taste, Story

It is this last element that sheds light on a business area often ignored and undervalued. Karlgaard examines a variety of enduring companies and finds that they have one thing in common; all have leveraged their deepest values alongside strategy and execution. “To create healthy companies, we must focus on nurturing our cultures” says Karlgaard. “Healthy cultures overcome hardships. Healthy cultures innovate. Healthy cultures will survive”.

2015 Year-End Tax Tips

December 2, 2015 Warren Sidosky

By Warren A. Sidosky, CMA | December 2, 2015 | warrensidosky@gmail.com

With year-end fast approaching, and while negotiations continue in Congress on extending certain tax provisions, it’s a good time to take some actions now to lower your 2015 income tax bill. Even if a compromise does not come together, it is still likely that the tax extenders will pass for a two-year period with provisions retroactive to January 1, 2015.

Perform a Year-Over-Year Income Analysis. Pull out last year’s tax return and compare it to this year’s projected income from wages, salaries, interest and dividends, business income and capital gains and losses. Is it significantly higher (or lower) and are you having enough taxes (or too much) withheld? If you fail to estimate your income tax withholding properly, it may cost you in a variety of ways. If you receive an income tax refund, it essentially means that you provided the government with an interest-free loan during the year. By comparison, if you owe taxes when you file your return, you may have to scramble for cash at tax time--and possibly owe interest and penalties as well. When determining the correct withholding amount for your salary or wages, your objective should be to have just enough taxes withheld to prevent you from incurring penalties when your tax return is due. (You may owe some money at the time you file your return, but it shouldn't be much).
Consider deferring income into next year. Income is taxed in the year it is received. Deferring income postpones the tax bill until next year (or later). While it may be difficult for employees to postpone wage and salary income, if you’re lucky enough to get a bonus, your employer may agree to postpone giving you the check until January. Companies can generally deduct the payment for the current year as long as you receive the bonus within two and a half months after the end of the tax year. If you are self-employed or do freelance or consulting work, you have more flexibility. Self-employed taxpayers can defer income by waiting until January to bill clients. Income may also be deferred by taking capital gains in 2016 instead of in 2015. Keep in mind, however, that it only makes sense to defer income if you think you will be in the same or a lower tax bracket next year. While the bracket cutoffs for next year will be just a few dollars higher, thanks to small inflation adjustments, you don't want to be hit with a bigger tax bill next year if additional income could push you into a higher tax bracket. If that's likely, you may want to accelerate income into 2015 so you can pay tax on it in a lower bracket sooner, rather than in a higher bracket later.
Review Deductions. If your qualifying expenses (e.g., home mortgage interest and property taxes, state income or sales taxes, medical expenses, and charitable donations) exceeds $6,300 if you are single, or $12,600 if you're married filing a joint return, itemizing may be more beneficial than taking the standard deduction. If you're on the borderline, your year-end strategy should focus on bunching. If you itemize deductions, accelerating some deductible expenditures into this year to produce higher 2015 write-offs may make sense — if your income will be high and if you expect to be in the same or lower tax bracket next year. The goal is to surpass the standard-deduction amount and claim a larger write-off. However, don't carry out this strategy if you expect to be in a higher tax bracket next year. If you'll be in that situation, you may want to claim the deductions that year.
Claim Miscellaneous Tax Deductions & Get More Tax Savings. Even if you claim the standard deduction instead of itemizing, don't overlook adjustments to income to which you may be entitled. Some often overlooked deductions include moving expenses, student tax breaks, purchase of an electric car, and deductible IRA contributions. If you have any investments that have generated deductible losses, you can use the losses to offset any gains.
Claim Capital Gains & Disaster Loss. By claiming gains with disaster losses, you may be able to avoid paying capital gains taxes. If you have more losses than gains, you claim up to $3,000 to offset your ordinary income. Then, you can save the rest of the losses for future tax years. You can claim a disaster loss on your 2015 Tax Return or on an amended 2014 Tax Return. Select the year in which your adjusted gross income was lower so that your disaster loss deduction will give you a greater write-off and more tax savings.
Save Money with a Flexible Spending Account. A "spending" account is different form a "savings" account. You must use up your Flexible Spending Account (FSA) dollars or they disappear. If you still have money left in your FSA at the end of the year, don't let it go to waste. You can still get new glasses or contact lenses, or go see your dentist. New legislation even allows you to buy over-the-counter medications with FSA dollars as long as you have obtained a prescription from your doctor. Be sure to check with your employer to see if they offer a 2 1/2 month grace period in which to spend your flex dollars after the year ends.
Deduct Points for Refinancing Your Home Mortgage. If you refinanced a home mortgage in 2015 and it is a subsequent refinancing (e.g., you have already refinanced the original mortgage used to purchase the home), then points spent on the prior refinancing become fully deductible. (Each "point" equals 1% of the total loan amount).
Make Charitable Contributions. Donating clothing and household goods by the end of the year will allow you to deduct the fair market value of those donations on your tax return. This may result in a bigger refund or reduced tax bill. For all charitable contributions of cash and donations of goods worth over $250, you must have a bank record or written communication from the charity in order to claim the deduction. In addition, you must make sure that the organization is a qualified charity (you can confirm qualified charities with the IRS). To qualify for a deduction on your 2015 tax return, make sure you send any checks in the mail by December 31, 2015. If you're paying by credit card, put the gift on the card before the end of the year and pay the bill in January. Make sure you obtain a receipt for your records (either cancelled check or your credit card statement). If the donation is over $250, you must get a written statement from the charity. If you plan to make a significant gift to charity this year, consider giving stocks or mutual fund shares that you've owned for more than one year. Doing so boosts the savings on your tax return. Your charitable contribution deduction is the fair-market value of the securities on the date of the gift, not the amount you paid for the asset, and you never have to pay tax on the profit.
Deduct Your Vehicle Mileage for Business Use. You might be able to use the actual expense method or the IRS standard mileage rate (57.5 cents per mile for business miles driven, up from 56 cents in 2014) to deduct your vehicle expenses. Actual car expenses include depreciation, licenses, lease payments, registration, fees, gas, insurance, repairs, oil, garage rent, tires, tolls and parking fees. Select the method that gives you the greater write-off. You need proof of the costs incurred for business driving. If you don't have this proof, rely on the IRS standard mileage rate. In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls.
Claim Small Business Tax Deductions. Did you purchase new equipment for your business in 2015? Some small businesses can write off the full cost of some assets in the year they buy them, rather than deducting their cost over a number of years. Section 179 of the Internal Revenue Code allows a business to deduct, for the current tax year, the full purchase price of financed or leased equipment and off-the-shelf software that qualifies for the deduction, up to $25,000. The equipment must be placed into service in the same tax year that the deduction is being taken.
Give Gifts Without Paying Taxes. You can give up to $14,000 to as many individuals as you like before Dec. 31, 2015 without filing a gift-tax return. If you're married, you and your spouse can give up to $28,000 per recipient. If you're contributing money to a 529 plan, you can put up to $70,000 into the plan tax free and frontload the plan for five more years.
Keep Track of Retirement Plan Contributions. You should try and max out your 401k contributions by the end of the year. The limit is $18,000 ($24,000 if you’re aged 50 and over). Any dollar amount you contribute to your 401k or similar employer-based retirement plan (other than a Roth) is excluded from your income and lowers your tax bill. If you have a traditional individual retirement account (IRA), your contributions, up to $5,500 ($6,500 if you’re aged 50 and over) are tax deductible. However, you'll owe income taxes on any withdrawals. If you have a Roth IRA, you can invest money after taxes are taken out, and your withdrawals are 100% tax free. You have until next April 15th to fund a traditional or Roth IRA for 2015. However, the sooner you save the more time you'll have to gain benefits of tax-deferred growth.

Tax Tips for Deducting Gifts to Charity

November 24, 2015 Warren Sidosky

By Warren A. Sidosky, CMA | November 24, 2015 | warrensidosky@gmail.com

The holiday season often prompts people to give money or property to charity. If you plan to give and want to claim a tax deduction, there are a few tips you should know before you give. For instance, you must itemize your deductions. Here are six more tips that you should keep in mind:

Give to qualified charities. You can only deduct gifts you give to a qualified charity. The IRS has a tool (“Select Check”) to see if the group you give to is qualified. You can deduct gifts to churches, synagogues, temples, mosques and government agencies. This is true even if Select Check does not list them in its database.
Keep a record of all cash gifts. Gifts of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. You must have a bank record or a written statement from the charity to deduct any gift of money on your tax return. This is true regardless of the amount of the gift. The statement must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, or bank, credit union and credit card statements. If you give by payroll deductions, you should retain a pay stub, a Form W-2 wage statement or other document from your employer. It must show the total amount withheld for charity, along with the pledge card showing the name of the charity.
Household goods must be in good condition. Household items include furniture, furnishings, electronics, appliances and linens. These items must be in at least good-used condition to claim on your taxes. A deduction claimed of over $500 does not have to meet this standard if you include a qualified appraisal of the item with your tax return.
Additional records required. You must get an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. Additional rules apply to the statement for gifts of that amount. This statement is in addition to the records required for deducting cash gifts. However, one statement with all of the required information may meet both requirements.
Year-end gifts. Deduct contributions in the year you make them. If you charge your gift to a credit card before the end of the year it will count for 2015. This is true even if you don’t pay the credit card bill until 2016. Also, a check will count for 2015 as long as you mail it in 2015.
Special rules. Special rules apply if you give a car, boat or airplane to charity. If you claim a deduction of more than $500 for a noncash contribution, you will need to file Form 8283, Noncash Charitable Contributions, to report these gifts with your tax return.

2015 Tax Law Changes and Extensions that May Affect You

September 4, 2015 Warren Sidosky

By Warren A. Sidosky, CMA | September 4, 2015 | warrensidosky@gmail.com

Despite having no major new tax legislation making headlines in 2015, you may assume that the tax laws are staying much the same. Of course, you know that’s never the case. Tax laws are always changing. Some change to keep up with inflation, some tax laws are phased in over time, and every year there can be uncertainty about which tax breaks will be extended. Here are some of the changes for 2015 most likely to affect you.

The health insurance penalty is going up significantly.

If you didn’t have health insurance in 2014, and didn’t qualify for an exception to the penalty, the consequences weren’t so bad. You may have paid $95 per person or 1% of your household income, whichever was greater. In 2015, you will pay $325 per person, or 2% of your household income, whichever is greater. That’s a steep increase.

Even if you qualify for one of the many exclusions, you may not know that some exceptions require you to apply for a certificate from the state or federal marketplace. You should do this in plenty of time so you have the required exemption certificate number when you prepare your return.

The IRS is cracking down on IRA rollovers.

It was an easy way to “borrow” retirement money for up to 60 days. Taxpayers could withdraw money from one IRA and wait up to 60 days before you moved it into another IRA. As of 2015, taxpayers can only do that once from an IRA in a 12-month period. If you want to move IRA funds using "trustee-to-trustee" transfers, you can still do that as often as you want.

Health Flexible Spending Accounts (FSAs) are subject to new rules.

The good news for taxpayers who don’t use all their FSA amounts by the end of the year was that as of 2013, you could roll over $500 from an FSA into the next plan year. Starting in 2015, the bad news is that as a result, you will be ineligible to participate in a Health Savings Account (HSA) for the year into which you rolled over an amount from a general purpose FSA.

Foster care payments for relatives may be excluded from income.

If taxpayers are paid to give non-skilled medical support services and care for a person living in their home who has physical, mental or emotional issues, and they receive payments from the state or certified Medicaid provider, those payments can likely be excluded from their taxable income. Previously, a relative could not be considered a foster child, and the income could not be excluded.

Good news about Pell grants, living expenses and education credits.

Pell Grants can now be allocated as living expenses. Doing so may increase the amount of education expense, such as tuition, that taxpayers can use to claim one of the education credits.

The first myRAs are up and running.

These new introductory retirement accounts are now being offered through employers. The myRA, or “my Retirement Account,” charges no fees and offers modest, guaranteed growth. That’s a plus for risk-averse taxpayers and those who are new to investing. You can start a myRA with just $25 and add as little as $5 at a time. When your accounts are worth $15,000, you must roll them over into private-sector Roth IRAs.

Congress just changed the due dates on some tax returns and increased the audit period.

The April 15th Individual IRS tax return due date still holds, including the 6 month automatic extension. But many other filing deadlines were just changed by Congress in an unlikely vehicle, a short-term highway-funding bill. Starting after December 31, 2015:

Partnership tax returns are due March 15, NOT April 15 as in the past. If your partnership isn’t on a calendar year, the return is due on the 15th day of the third month following the close of your tax year.
C corporation tax returns are due April 15, NOT March 15. For non-calendar years, it is due on the 15th day of the fourth month following the close of the tax year.
S corporation tax returns remain unchanged—they are still due March 15, or the third month following the close of the taxable year;
There are other rules too. C corporations with tax years ending on June 30 will continue to have a due date of September 15 until 2025. For years beginning after 2025, the due date for these returns will be October 15.

That non-tax law also increased the IRS audit period from three to six years.

The basic rule is that the IRS usually has three years after you file to audit you. But this is often extended, sometimes voluntarily. One of the biggest exceptions to the three year rule is if you omit more than 25% of your income. In that case, the IRS gets double that time, six years. And that rule was just expanded by Congress, overruling the U.S. Supreme Court.

Omitting more than 25% of your income is called a ‘substantial understatement’ of income. For years, omitting income generally meant that—not overstating deductions or overstating your tax basis in assets. The Supreme Court held in 2012 that overstating your tax basis was not the same as omitting income, so three years was plenty for the IRS! But Congress just overruled the Supreme Court. Now, the tax code says: “An understatement of gross income by reason of an overstatement of unrecovered cost or other basis is an omission from gross income.” The change applies to tax returns filed after July 31, 2015. It also applies to previously filed returns that are still open.

Inflation is always with us.

These annual inflation adjustments for 2015 may affect a high percentage of taxpayers.

Standard deduction. The standard deduction inches up to $6,300 for singles and married persons filing separate returns and to $12,600 for joint filers. The standard deduction for heads of household is $9,250 in 2015.
Higher income levels for limitation on itemized deductions. Taxpayers may see itemized deductions limited if incomes are $258,250 or more ($309,900 for married couples filing jointly).
Personal exemptions. Now a flat $4,000. High-income taxpayers, however, may see the exemption phased out. The phase-out begins with adjusted gross incomes of $258,250 ($309,900 for married couples filing jointly). Personal exemptions are phased out completely at $380,750 ($432,400 for married couples filing jointly.)
39.6 percent tax bracket. This rate affects singles whose income exceeds $413,200 ($464,850 for married taxpayers filing a joint return).
Standard mileage allowance. The business standard mileage allowance for 2015 is 57.5 cents per mile. The rate for medical or moving expenses is down half a cent, to 23 cents per mile. For miles driven in service of charitable organizations, it’s still 14 cents.
Alternative Minimum Tax exemption. The AMT exemption is $53,600, or $83,400 for joint filers.
Earned Income Credit. The maximum EIC amount is $6,242 for taxpayers filing jointly with three or more qualifying children. The maximum amounts for other filing statuses and numbers of children are also adjusted.
Estate tax exclusion. Federal estate tax planning is becoming less of a concern for many taxpayers, as the estate tax exclusion continues to rise. An estate can be worth $5,430,000 before it is subject to federal estate tax.
Foreign earned income exclusion. Taxpayers may now qualify for an exclusion of up to $100,800.
Employer-sponsored healthcare flexible spending arrangements. The annual dollar limit on employee contributions to an FSA rises to $2,550.
Not every amount in the IRS code changed this year. The amount you can give as a gift to any one person without filing a gift tax return is still $14,000. In addition, the amount you can contribute to an IRA remains at no more than $5,500 in a traditional or Roth IRA. If you’re age 50 or older, you can contribute $6,500.

Many expired tax breaks may be extended.

Taxpayers (and tax preparers) may get a surprise this year – permanent or temporary extensions of popular tax breaks long before tax season begins. By a 23-3 bipartisan vote, the Senate Finance Committee sent a package of tax breaks for individuals, businesses, and energy production to the Senate floor in August. Extensions for the following breaks are included in the package or were approved earlier in the year:

Higher education tuition deduction. You may still be able to deduct between $2,000 and $4,000 of qualified tuition expense.
Energy credits. This includes credits for home improvements that improve energy efficiency, such as heating and cooling systems, insulation and windows.
Educator expense deduction. Teachers can claim up to $250 of unreimbursed classroom expenses.
Commuting tax breaks. The extension gives taxpayers who commute by train or bus the same $250 monthly tax break for employer-provided subsidies as those who receive employer assistance for parking costs. The current mass transit deduction is $130 per month.
Deduction for state income tax. This deduction makes a huge difference to residents of states without a state income tax. This extension has already been approved.
IRA charitable donations. IRA owners at least age 70 ½ can still make tax-free donations of up to $100,000 from IRAs to certain qualified charities.
Mortgage forgiveness exclusion. If homeowners who are underwater on your mortgages have part of your loan forgiven by a bank, up to $1 million of the forgiven debt (or $2 million for couples) would be excluded from treatment as income.
Research and development tax credit. This has been extended for two years.
Deduction for small business equipment purchases of up to $2 million. This is extended and now includes computer software.
Work Opportunity Tax Credit. Taxpayers who own businesses can claim a credit equal to a certain percentage of wages paid to new hires of one of nine targeted groups, including members of families receiving benefits under the Temporary Assistance to Needy Families (TANF) program, qualified veterans and ex-felons, designated community residents, vocational rehabilitation referrals, qualified summer youth employees, qualified food and nutrition recipients, qualified SSI recipients, and long-term family assistance recipients.
Energy efficiency tax breaks. This includes a 10 percent credit for energy efficiency improvements to existing homes, and deductions for construction of energy efficient homes and commercial buildings.

About the Author

Warren is a trustworthy business partner, Finance and Operations Expert, Certified Management Accountant and Six Sigma Yellow Belt with over thirty years of experience in the retail/wholesale, fashion, consumer products and distribution industries. He is presently Financial Services Consultant at Warren A. Sidosky, CMA, providing advanced accounting and tax services, financial system implementation, business planning, modeling and forecasting to start-up and established businesses over a wide range of industries. He delivers innovative solutions to complex problems.

Five Things to Do Today to Get a Head Start on Next Year’s Tax Return

August 31, 2015 Warren A. Sidosky

By Warren A. Sidosky, CMA | August 28, 2015 | warrensidosky@gmail.com

After tax season, it’s tempting to close your eyes to anything that has to do with taxes until next year. Don’t wait. Being proactive now will ensure that next tax season doesn’t catch you by surprise.

· Have a designated place where you and your family keep tax records and important documents organized and safe. Searching for misplaced files and records can be stressful and can make next tax season difficult. Be sure to keep these records, such as last year’s tax return, safe and accessible.

· Look back at your income tax return. What caught you off-guard or was unexpected? What items helped you reduce your tax bill? Some of these items may no longer be available to you. For example, education credits if your child graduated. We can discuss other ways to balance this future loss.

· Keep track of things such as charitable contributions, job related expenses (those not reimbursed by your employer), and eligible medical expenses. You may be able to lower your taxes if you take the itemized deduction route rather than taking the standard deduction. Itemizing may mean a larger deduction, but you must maintain accurate records.

· You can’t always predict the future, but you can plan for it. Will your income tax situation change? For example, starting a family, a new job, buying a home, or entering retirement will impact your tax liability. Some life changes require you to take action, such as adjusting the amount withheld from your pay or retirement distributions. Let me help you stay aware of how these changes can affect your taxes.

· For business owners, keep track of everything for your business, even the expenses that seem "too frivolous" to count. Many business owners misunderstand the importance and value of tracking all their expenses. When you think of top tax deductions, what first comes to mind? Automobile expenses and/or mileage? Payroll? Company supplies? All pretty obvious - but what is less obvious is expenses related to things like hotel stays, fine dining, and convention or conference attendance. If directly related or directly associated to your trade or business, that's enough to establish that it was for business purposes. You can deduct all of your travel expenses, including the costs of getting to and from your business destination and any business-related expenses at your business destination. However, there are certain rules that apply when business owners extend their stay or combine personal activities with business ones, so keep, and make notes on, all your receipts so that you can easily allocate the expenses to the proper activity. If you have a question about whether or not an expense is deductible, call or e-mail me. I can help you to stay current on the tax code while you focus on doing what you do best - running your business.

· Nothing is worse than being unaware of tax issues that can directly affect you. The tax code is complex and ever-changing. By keeping me up to date on changes in your life that may affect your income tax situation, together we can prepare for, or prevent, any surprises for next year.

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