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From the Thanksgiving kick-off of the holiday season through December 31, many businesses find themselves short-staffed as employees take time off to spend with family and friends. But if you limit how many vacation days employees can roll over to the new year, you might find your workplace to be nearly a ghost town as employees scramble to use their time off rather than lose it.

A paid time off (PTO) contribution arrangement may be the solution. It allows employees with unused vacation hours to elect to convert them to retirement plan contributions. If the plan has a 401(k) feature, it can treat these amounts as a pretax benefit, similar to normal employee deferrals. Alternatively, the plan can treat the amounts as employer profit sharing, converting the excess PTO amounts to employer contributions.

A PTO contribution arrangement can be a better option than increasing the number of days employees can roll over. Why? Larger rollover limits can result in employees building up large balances that create a significant liability on your books.

To offer a PTO contribution arrangement, you simply need to amend your plan. However, you must still follow the plan document’s eligibility, vesting, rollover, distribution and loan terms, and additional rules apply.

To learn more about PTO contribution arrangements, including their tax implications, please contact us.

If you’re saving for college, consider a Section 529 plan. Although contributions aren’t deductible for federal purposes, plan assets can grow tax-deferred. (Some states do offer tax incentives for contributing.)

Distributions used to pay qualified expenses (such as tuition, mandatory fees, books, equipment, supplies and, generally, room and board) are income-tax-free for federal purposes and typically for state purposes as well, thus making the tax deferral a permanent savings.

529 plans offer other benefits as well:

• They usually offer high contribution limits, and there are no income limits for contributing.
• There’s generally no beneficiary age limit for contributions or distributions.
• You can control the account, even after the child is of legal age.
• You can make tax-free rollovers to another qualifying family member.

Finally, 529 plans provide estate planning benefits: A special break for 529 plans allows you to front-load five years’ worth of annual gift tax exclusions and make up to a $70,000 contribution (or $140,000 if you split the gift with your spouse).

The biggest downside may be that your investment options — and when you can change them — are limited. Please contact us for more information on 529 plans and other tax-smart strategies for funding education expenses.

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While tax consequences should never drive investment decisions, it’s critical that they be considered — especially by higher-income taxpayers, who may be facing the 39.6% short-term capital gains rate, the 20% long-term capital gains rate and the 3.8% net investment income tax (NIIT).

Holding on to an investment until you’ve owned it more than one year so the gains qualify for long-term treatment may help substantially cut tax on any gain. Here are some other tax-saving strategies:

• Use unrealized losses to absorb gains.
• Avoid wash sales.
• See if a loved one qualifies for the 0% rate (or the 15% rate if your rate is 20%).

Many of the strategies that can help you save or defer income tax on your investments can also help you avoid or defer NIIT liability. And because the threshold for the NIIT is based on modified adjusted gross income (MAGI), strategies that reduce your MAGI — such as making retirement plan contributions — can also help you avoid or reduce NIIT liability.

These are only a few of the year-end strategies that may help you reduce taxes on your investments. For more ideas, contact us.

Now may be a great time to refinance, because mortgage rates are still low but expected to increase. Before deciding to refinance, however, here are a couple of tax consequences to consider:

1. Cash-out refinancing. If you borrow more than you need to cover your outstanding mortgage balance, the tax treatment of the cash-out portion depends on how you use the excess cash. If you use it for home improvements, it’s considered acquisition indebtedness, and the interest is deductible subject to a $1 million debt limit. If you use it for another purpose, such as buying a car or paying college tuition, it’s considered home equity debt, and deductible interest is subject to a $100,000 debt limit.

2. Prepaying interest. “Points” paid when refinancing generally are amortized and deducted ratably over the life of the loan, rather than being immediately deductible. If you’re already amortizing points from a previous refinancing and you refinance with a new lender, you can deduct the unamortized balance in the year you refinance. But if you refinance with the same lender, you must add the unamortized points from the old loan to any points you pay on the new loan and then deduct the total over the life of the new loan.

Is your head spinning? Don’t worry; we can help you understand exactly what the tax consequences of refinancing will be for you. Contact us today!

The additional Medicare tax and net investment income tax (NIIT) apply when certain income exceeds the applicable threshold: $250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for other taxpayers.

The following types of executive compensation could be subject to the 0.9% additional Medicare tax if your earned income exceeds the applicable threshold:

• Fair market value (FMV) of restricted stock once the stock is no longer subject to risk of forfeiture or it’s sold
• FMV of restricted stock when it’s awarded if you make a Section 83(b) election
• Bargain element of nonqualified stock options when exercised
• Nonqualified deferred compensation once the services have been performed and there’s no longer a substantial risk of forfeiture

And the following types of gains from exec comp will be included in net investment income and could be subject to the 3.8% NIIT if your modified adjusted gross income (MAGI) exceeds the applicable threshold:

• Gain on the sale of restricted stock if you’ve made the Sec. 83(b) election
• Gain on the sale of stock from an incentive stock option exercise if you meet the holding requirements

Concerned about how your exec comp will be taxed? Please contact us. We can help you assess the potential tax impact and implement strategies to reduce it.

Starting in 2016, applicable large employers (ALEs) under the Affordable Care Act (ACA) will have to file Forms 1094-C and 1095-C to provide information to the IRS and plan participants regarding their health care benefits for the previous year. Both the forms and their instructions are now available for ALEs to study and begin preparations for required filings. In addition, organizations that expect to file Forms 1094 and 1095 electronically can peruse two final IRS publications setting out specifications for using the new ACA Information Returns system.

Keep in mind that ALEs are employers with 50 or more full-time employees or the equivalent. And even ALEs exempt from the ACA’s shared-responsibility (or “play or pay”) provision for 2015 (that is, ALEs with 50 to 99 full-timers or the equivalent who meet certain eligibility requirements) are still subject to the information reporting requirements in relation to their 2015 health care benefits.

If your company is considered an ALE, please contact us for assistance in navigating the ACA’s complex requirements for avoiding penalties and properly reporting benefits. If you’re not an ALE, we can still help you understand how the ACA affects your small business and determine whether you qualify for a tax credit for providing coverage.

When asked if incorporating your business is the right decision to make, there are many things to consider.  There are several benefits that can be obtained by forming an incorporation or LLC.  Eventually, your business will grow to the point where this change may be necessary.  Here are some of the benefits of incorporation:

Personal Asset Protection - The business owner is able to separate and protect their personal assets in case of a lawsuit or claims against the business entity.  Owners also should have limited liability for outstanding business debts and obligations.

Tax Flexibility - Profits and losses "pass-through" an LLC and get reported on the owners personal income tax returns.  The business owner also has the option to elect to be taxed as a corporation.  A corporation can elect subchapter S tax status and avoid double taxation of corporate profit and dividends.

Enhanced Credibility - Everyone wants to have status.  Being able to add an "Inc." or "LLC" after your business name affords your business with the instant credibility and authority associated with owning an incorporated company.

Brand Protection - By incorporating your business you are are protecting your company's reputation from being diminished or confused with another company bearing a similar name.

Leaving a Legacy - Corporations & LLCs continue to exist throughout ownership or management changes within your business.

Deductible Expenses - Corporations and LLCs may deduct normal business expenses, including salaries before they allocate income to owners.  The money you put towards growing your business can be deducted from your business income in determining your actual taxable income.

Should you have any questions regarding incorporating your business please contact us or register to attend our upcoming Corporate Seminar on September 16, 2015.

Corporate Record Book Best Practices by Brian Coggins, Attorney at Law

Corporate Regulations, Requirements and Tax Laws are Rapidly Changing. Join us for an informative session on compliance support and solutions to help you navigate the complex regulatory issues related to operating your corporation while avoiding violations of federal and state laws.

Corporate Expenses Best Practice by Keith Huggett, CPA

Tax Efficient Strategies for Corporate Business Owners. The presentation will discuss Best Practices in deducting your automobile, home office, entertainment and more. New IRS regulations regarding deducting Materials and Supplies, Repairs and Improvements and the ever confusing Health Law Regulations.

Corporate Benefits by Cesar Lopez, Benefit Specialist

Corporate Benefits — Taking It to the Next Level. Are you looking to enhance your corporate benefits strategy? This session will focus on best practices regarding this very important aspect of your corporate business entity

 Join Outsourced CFO Solutions, Inc. in conjunction with the Tax Office, Inc., and Coggins Law on September 17^th for a can’t miss corporate compliance seminar.  With three sessions available, there’s sure to be a time that will fit into your calendar.  The first session begins at 9:00 am and runs through 12:00pm.  Also available is Session 2, from 1:00pm to 4:00 pm and Session 3, from 6:00pm to 9:00pm. Refreshments will be provided.

Register today to receive the policy and procedures guidance that will help you build and maintain a strong and effective corporate business program. Call our office at (916) 773-7053 or visit our Website at http://www.plan4tax.com to register now. Time and Seating is Limited.

If your business exports American-made goods or performs architectural or engineering services for foreign construction projects, an interest-charge domestic international sales corporation (IC-DISC) can help slash your tax bill.

An IC-DISC is a “paper” corporation you set up to receive commissions on export sales, up to the greater of 50% of net income or 4% of gross receipts from qualified exports. Your business deducts the commission payments, while distributions received from the IC-DISC are treated as qualified dividends, not capital gains.

Essentially, an IC-DISC allows you to convert ordinary income taxed at rates as high as 39.6% into dividends taxed at 15% or 20%. An IC-DISC also allows you to defer taxes on up to $10 million in commissions held by the IC-DISC by paying a modest interest charge to the IRS.

Think an IC-DISC might be right for you? Contact us for more information.

Tips to Help You Stay Compliant

What is your employment status? Do you know? Are you an employee or an independent contractor? What's the difference and why is it important?

Being an independent contractor has some benefits incomparison with being a regular W2 employee. You can generally negotiate a higher pay rate as an independent contractor.  If your business is structured properly, you may also be able to pay less in taxes.

So how do you determine your employee status? The IRS uses the following criteria:

Controlling Behavior - does the business have the right to direct or control how work is done through given instructions, training or other means. Do you control how something is done or does someone else?

Financial Control - does the business have the right to control the financial and business aspects of the worker's job.

Relationship - how the workers and business owner perceive their working relationship.

The IRS then reviews various criteria that help determine your worker status.  Please remember that all the criteria does not have to be met.

If you are an independent contractor and want tolearn more about how you can save money and reduce your tax liability, please contact us for a free consultation.