www.johnmorrissey.com
Winter 2016/2017
From the Desk of John F. Morrissey
[email protected]
Happy New Year!
I am wishing you a
great 2017.
We are expecting
2017 to be one of the best business
years that we have seen in a long time.
Many business people have been saying
let’s wait until:
• after the election
• after the holidays
•
•
•
•
next year
the Cubs win the World Series
a better business climate
and the list of excuses for not doing
something goes on and on.
Well, many of those things mentioned
have happened, so let’s get going!
There are many questions being asked
about income taxes. My answer is, “I
don’t have specifics, but there will be
Focus On The Community
Boone County
Council on Aging:
changes, some good and some not as
good.” However, we will survive, we
have in the past. Our office will strive to
keep current as these changes occur and
will strive to be in contact with those
affected. However, please feel free to call
our office at any time with questions.
One final thought, actually a request.
Our office has grown over the years
due in part to referrals from you, our
clients and friends. We appreciate the
trust you place in us and ask that you
consider who you may know that would
benefit from our services. Be confident
in knowing that your friends and family
will receive the same great personalized
service you do!
By Joe Fortman
[email protected]
Aging! What is that? If we’re lucky, all of us will do it. The question is not are we going
to age. The question is, must be, how will we age? The process is a bit different for
each of us. Some of us seek activity, others want to relax. One thing I have learned
through nearly twenty years of association with the “boomers” is that the complexion of
aging is changing. Mature folks are, indeed, remaining more active, many are choosing
to work into their seventies and beyond. Whatever the activity may be, remaining
active is critical to achieving and maintaining good health. Literature has been, is now,
and will continue to be published about the value of remaining active and holding off
loneliness, depression and memory loss.
A place like the Boone County Council on Aging, BCCA, at the Keen Age Center,
provides opportunities for creative appetites with painting, quilting and the like. Those
with a competitive side can engage in card playing and a men’s and women’s pool
league. When the ladies ask if I’d like to play pool I keep my change in my pocket. With
more than thirty thousand visits per year the BCCA is likely to have as much or as little
engagement as any person may prefer.
Senior Prom, Keen Age Queen, Quilt Raffles, Ice Cream Socials, Picnics, just a sampling
of the things that go on inside the Keen Age Center. If you’re thinking about making a
visit to see what it’s all about, call me. I’ll arrange a tour. Join us, you may learn some
things and improve your over all health.
Until then, be well, do good work and keep in touch!
in This issue...
From the Desk of John F. Morrissey ................ 1
Focus on the Community .................................... 1
Time for an Employee Handbook Check-Up.... 2
Charitable IRA Gifts and Their Tax Benefits ... 2
Reasonable Salary for S Corporation Owners... 3
Tax Refund Delays for Some Early Filers ........ 3
2016 Deduction Changes ................................... 4
Page 2 The Morrissey Report
It’s 2017 –
Time for an Employee Handbook Check-Up
By Sam Castree
[email protected]
It’s hard to believe it’s 2017. As we move into
the new year, we’re faced with many HR issues.
Among those issues are employee handbook
revisions. In 2016 we saw a number of
employment law developments. Many of these
developments should find their way into your
handbook.
Illinois Veteran’s Preference in Private
Employment (effective January 1, 2016).
The Act establishes “a permissive preference
in private employment for certain veterans.”
A private employer may adopt a voluntary
veterans’ preference employment policy.
Illinois Child Bereavement Leave (effective
July 29, 2016). The law applies to FMLA
covered employers and grants 10 days of unpaid
bereavement leave to FMLA eligible employees
who have suffered the death of a child.
OSHA Anti-Retaliation Regulations (effective
December 1, 2016). These OSHA rules
impact policies that may deter employees from
exercising their right to report workplace
illnesses or injuries. Such policies may include:
the immediate reporting of workplace injuries;
automatic post-accident drug testing; and safety
incentive programs.
Illinois Employee Sick Leave Act (effective
January 1, 2017). If an employer provides time
off to employees due to personal illness, injury,
or medical appointment, then the employer
must allow the employee to use at least one-half
of that time off “due to an illness, injury, or
medical appointment of the employee’s child,
spouse, sibling, parent, mother-in-law, fatherin-law, grandchild, grandparent, or stepparent.”
The law applies to all employers who provide
such time off benefits.
Illinois Victims’ Economic Security and Safety
Act amendment (effective January 1, 2017).
The amendment extends the protections of this
law to all Illinois employees.
Employers with 15 or more employees have
been covered by this law for many years.
Employers with 1–14 employees now must
provide leave for victims of domestic or sexual
violence.
NLRB Issues. The NLRB remains active in
protecting employee rights, even in the nonunion workforce. To that end, the NLRB
continues to scrutinize employer policies and
handbooks. In its most recent Memorandum, the NLRB’s Office of the General Counsel tackled
various issues, including:
• Confidentiality policies
• Employee conduct toward the employer, its supervisors, and fellow employees
• Employee use of employer logos and trademarks
• Employer rules restricting photographs and recordings
Prior Years’ Issues. Haven’t updated your handbook for a few years? There certainly have been
many other developments. Here are just a few to consider:
• Adopt a Pregnancy Discrimination Policy as required by Illinois Human Rights Act amendments
• Adopt a Genetic Information Nondisclosure Act policy
• Consider Cellular Phone Usage Policy with Illinois restrictions on texting, and hands free
requirement
• Review your FMLA policy due to 2013 Department of Labor regulations
• Illinois Firearm Concealed Carry Act issues
• Review your drug testing policy under Illinois’ medical marijuana law
Other Policy Changes. Of course, don’t forget to update your handbooks with any changes,
additions or deletions to your internal policies.
Communication. Compliance is important, but don’t forget your communication goals. Employee
communication is important to the success of an organization, and the employee handbook is one of
the most important communication tools. A well drafted handbook concisely communicates essential
policies and procedures. Make sure your compliance goals and your communication goals work
together.
STAFF MANAGEMENT, Inc. offers information on human resource and related topics. Materials
presented are for informational purposes only. We address topics in a general manner that may not apply
to individual circumstances. Consult your human resource or legal advisors for advice pertaining to your
specific situation.
Charitable IRA Gifts
and Their Tax Benefits
By Claire Gierat
[email protected]
If you have an Individual Retirement Account (IRA), you should be aware of the mandatory
withdrawal once you reach 70 years of age. You must begin to withdraw from your IRA, making
what is referred to as Required Minimum Distribution (RMD). Most taxpayers made deductible
contributions to the IRA, thereby making the withdrawals fully taxable. Not only is it fully taxable,
it will in most cases increase the amount of Social Security that becomes taxable! There is a way to
make this RMD and not report it as taxable income.
By giving a charitable contribution directly from your traditional IRA, you can avoid the taxation of
the distribution, and your gift will count toward your Required Minimum Distribution.
Many seniors find that itemizing deductions on their tax return is a thing of the past, and because
they no longer file “long form,” charitable contributions are no longer deductible. It was beneficial
to deduct the contributions because it reduced the income that was taxable. You can see the obvious
benefit. If you aren’t reporting the income as taxable, you may not need the deduction. The best
part is that you will have made a contribution to your charity and at the same time, will have met your
RMD.
You are allowed to make these direct charitable transfers up to $100,000 each year, per person.
Married couples with separate IRAs can make transfers up to $200,000 ($100,000 each). Remember
these contributions must be handled directly between the holder of the IRA and the charity. Contact
your tax professional for more information.
Winter 2016/2017 Page 3
Reasonable Salary for S Corporation Owners
By Patrick Wiesner
[email protected]
An advantage of an S corporation over a C corporation is that a shareholder’s share
of the corporation’s net income is not considered self-employment earnings and
therefore is not subject to self-employment tax. Oftentimes shareholders attempt to
minimize self-employment tax by keeping wages low and to characterize most of the
pass-through income as distributions.
The instructions to the Form 1120S, U.S. Income Tax Return for an S Corporation,
state “Distributions and other payments by an S corporation to a corporate officer
must be treated as wages to the extent the amounts are reasonable compensation for
services rendered to the corporation.” The amount of the compensation will never
exceed the amount received by the shareholder either directly or indirectly.
However, if cash or property or the right to receive cash and property did go to
the shareholder, a salary amount must be determined and the level of salary must
be reasonable and appropriate. There are no specific guidelines for reasonable
compensation in the Code or the Regulations. The various courts that have ruled on
this issue have based their determinations on the facts and circumstances of
each case.
The U.S. Government Accountability Office reported in 2009 on employment tax
noncompliance among S corporation shareholders. The IRS has been pursuing this
perceived abuse of inadequate compensation in favor of dividend distributions to
shareholder-employees and has won a number of cases. (See, for example, Watson,
No. 11-1589 (8th Cir. 2/21/12), described in Tax Matters, page 62.)
The IRS has the authority to reclassify dividends, distributions, or payments to
the shareholder-employee, including loan repayments, as compensation if it deems
compensation inadequate or unreasonable. The courts have held that the question
of reasonable compensation is one of fact, determined on a case-by-case basis. The
IRS has posted on its website (tinyurl.com/7kp3yrf) three major sources of gross
receipts it will consider when determining reasonable compensation: the services
Tax Refund Delays
for Some Early Filers
By Tiffany Podkowa
[email protected]
The IRS will start accepting tax returns on Monday, January 23, 2017, but in an
effort to combat identity theft a new law has been issued this year that will delay
income tax refunds for some early filers. The IRS will have to hold refunds for a
few weeks for some early filers who claim the Earned Income Tax Credit and the
Additional Child Tax Credit. They will be holding these refunds to give them extra
time to help detect and prevent fraud. The IRS will be required to hold the entire
refund, not just the portion associated with those credits until at least February 15,
2017. After factoring in weekends and the President’s Day holiday it is possible that
those taxpayers affected may not see refunds until the week of February 27th.
All taxpayers should still plan to file tax returns as they normally do even though
the IRS cannot issue refunds for some early filers until February 15th. Even though
the refunds cannot be issued for these filers until this date, the IRS states that most
refunds will still be issued within the normal time frame of less than 21 days after
being accepted for processing by the agency. Make sure to plan accordingly if you
are claiming these tax credits and are used to receiving an early refund in January or
the beginning of February.
provided by the shareholder, the services
of no-shareholder employees, and the
capital and equipment of the corporation.
IRS fact sheet FS-2008-25, Wage
Compensation for S Corporation Officers,
lists the following factors in determining
reasonable compensation: training and
experience, duties and responsibilities,
time and effort devoted to the business,
dividend history, payments to noshareholder employees, timing and
manner of paying bonuses to key people,
what comparable businesses pay for similar
services, compensation agreements,
and the use of a formula to determine
compensation. Sources of information
on comparable compensation for services
include the U.S. Department of Labor’s
Bureau of Labor Statistics, employment
agencies, and a market analysis. The key
in defending a claimed compensation
amount is to document all research to
support the amount.
Shareholders who are officers of a
corporation who do not perform any
services or perform only minor services
in that capacity and who do not receive
or are not entitled to receive direct or
indirect compensation are not considered
employees of the corporation. Thus,
since most shareholder-officers of closely
held corporations do provide more than
minor services to the corporation, they
most likely are considered employees. If a
shareholder is an officer who is considered
an employee, Section 530 of the Revenue
Act of 1978, P.L. 95-600, does not apply
as a safe harbor for re-characterizing
the shareholder’s compensation because
under Sec. 3121(d)(1), corporate officers
are statutory employees (see Joseph M.
Grey, P.C., 119 T.C. 121).
The S corporation entity form provides
planning opportunities to avoid payroll
taxes or self-employment taxes on
distributions that are instead a return
on capital and assets. The key in
defending against a possible audit and
re-characterization of dividends is to
document all research and analysis of
the determination of the shareholderemployee salary.
“A dream is just a dream. A goal is a dream with a plan and a deadline.”
– Harvey Mackay –
The Morrissey Report
is published by
John Morrissey Accountants, Inc.
5919 Spring Creek Road
Rockford, Illinois 61114
815.282.4600
and
John Morrissey Accountants, Inc.
774 Beloit Road
Belvidere, IL 61008
815.547.6234
www.johnmorrissey.com
©2016 All rights reserved.
To share ideas or suggestions,
please contact John Morrissey.
This publication is designed to provide accurate
information in the areas covered. It should not be
construed as providing legal advice, accounting, or
professional services. It is designed to provide our
clients and friends with up-to-date information on
topics of interest. Send address changes and all
correspondence to the above address.
Page 4 The Morrissey Report
2016 Deduction Changes
By Shannon McElroy
[email protected]
2016 has come to a close. As we begin a new
year, we look forward to the changes that this
year could bring. It is also important that we
begin to prepare for our year end filing season
and recognize the changes made to our returns
as well. Each year, tax laws are reviewed and
changes made, some of which increase our
deductions in consideration for inflation.
Because the recent inflation rates remain low,
changes for the 2016 filing season have been
kept to a minimum. Some of these changes that
produce the most interest are listed below. It is
helpful to keep these in mind while gathering
your 2016 documents and preparing for any
potential deductions to decrease your tax
liability.
• The standard deduction for federal returns
remains the same for individuals at $6,300
and $12,600 for married couples filing
jointly. However, for those that file as head of
household, the exemption is up $50 from 2015 at $9,300.
• Individual exemption amounts are up $50 from 2015 at $4,050 per individual claimed.
• Mileage rates for 2016 are listed below
• Business miles driven are deducted at $.54 per mile
• Miles driven for medical purposes are deducted at $.19 per mile
• Miles driven to provide charity work can be deducted at $.14 per mile
• Deductions for Health Savings Account (HSA) contributions remain the same for individuals
at $3,350. However, the limit has increased to $6,750 for family plans. An additional $1,000
catch-up limit is allowed if 55 or older. In order to take this deduction, plans must be established
and contributions must be made by the tax filing due date of April 15th.
• The IRA contribution limits remain the same as 2015. For a reminder, you are limited to $5,500
for both Traditional and Roth contributions and are entitled to an additional $1,000 contribution
if over the age of 50. Contributions must be made by the tax return due date.
As stated above, this list includes the deduction changes most relevant to the majority of returns. If
you have any questions on additional deductions, or preparation for the 2016 tax year end, please feel
free to call our office at any time.