Archive for News – Page 5

The Future of Interest Rates

In December of 2015, the Federal Reserve hiked interest rates for the first time since 2006. While that hike was modest, many believed it to be the first of many that would take place over the next couple of years. In light of Brexit and weaker than expected jobs reports, that may no longer be the case. Sandy Furuya, Senior Accounting Manager at [Wamhoff Accounting Services] explains.

About Interest Rates and the Fed:

  • After the economic crisis of 2008, the Fed adopted a policy of lowering interest rates as a way to help the economy as interest rates have an impact on the stock market, bond markets, inflation and consumer spending.
  • We’re currently at near-zero interest.
  • In December when the economic outlook appeared more favorable, the Fed made a modest increase in rates. Many anticipated that those increases would continue.
  • In fact, any announcements or anticipation of interest rate changes can impact the overall economy.

Interest Rates – Going up or down?

  • Many analysts predicted at least two more rate hikes in 2016. The markets were operating in anticipation of these hikes.
  • In May, 2016, a weak jobs report, stating that only 38,000 jobs had been added to the economy created uncertainty. On June 23rd, the UK voted to exit the European Union, sending an impact to US and global markets.
  • Economists now believe that the Fed will revert back to a state of “inaction,” neither raising or cutting rates in the foreseeable future.
  • Many are pointing to 2018 as being the first possible point at which rates may rise.
  • Some are anticipating that the Fed will cut rates again, although since we’re near zero, it will be minimal.

What is the impact of cutting the interest rates to the average investor?

  • Lower interest rates can be a good thing in the short term. It’s makes borrowing money to buy things more accessible, which stimulates the economy.
  • Mortgage rates are at an all-time low. This makes investing in real estate – residential or commercial – favorable. It’s a good time to buy a new home, a second home, investment property, commercial property, or even refinance to do home improvement project or pay off higher interest debt.
  • On the flip side, bank accounts, pension funds and investments don’t grow as quickly as they would in normal economic conditions, which impacts savings and retirement funding.
  • Your savings (especially long term savings) must at least keep up with the rate of inflation. The Fed has some control in that changing interest rates can impact inflation, much as it did in the early 80s when inflation was at 14%. They raised interest rates to 20%, which caused a recession but halted the inflation.

The Affordable Care Act and Your 1095

2016 was the first year that the IRS made it mandatory for individuals to provide proof that they had health care coverage or they had to apply through the Marketplace for an exemption certificate.  Forms 1095’s were sent out earlier this year which provided the necessary information when you filed your individual tax return indicating that you had health care coverage.  Below is a breakdown of the three different 1095’s that were sent out.

1095-A (Health Insurance Marketplace Statement): This form came form the Market Place. Indicating that you purchased your coverage through the Market Place.  It provided the details on the coverage, who was covered as well as when.

1095-B: (Health Coverage):  Health Insurance Providers (Insurance Companies) sent this form to individuals that they covered as well as when they were covered.

1095-C (Employer Provided Health Insurance Offer and Coverage): Certain employers sent this form to employees, with information about what coverage the employer offered.  Employers that offer health coverage referred to as “self-insurance coverage” sent this form to invididuals that they covered, with information about who was covered and when.

If you purchased your coverage through the Marketplace you might have found yourself owing back money indicating that you didn’t estimate your income correctly.  This was done by completing form 8862 to reconcile advance payments of the premium tax credit that was received.

It is critical if your insurance is purchased through the Marketplace to estimate your income correctly.   To be eligible for the premium tax credit your income level MUST be at least 100% but no more than 400% of the federal poverty level. Below are the amounts that were for 2015.

  • $11,670 (100%) up to $46,680 (400%) for one individual
  • $15,730 (100%) up to $62,920 (400%) for a family of two
  • $23,850 (100%) up to $95,400 (400%) for a family of four

In addition if you have any changes to your household, income or if you move please make sure to notify the Marketplace as these changes affect your coverage.

For six straight years, [Wamhoff Accounting Services] has been named one of the Best Accounting Firms in the St. Louis Area by St. Louis Small Business Monthly (SBM). Each month, SBM polls CEOs, entrepreneurs and business leaders to identify the best companies across multiple industries. With over 200 companies nominated in the category, Wamhoff was, once again, named in the top three.

“This is our 40th year in business, and our continued presence at the top of ‘best-of’ lists is a testament to our team’s excellence in staying true to our value,” says Robert Wamhoff, president of Wamhoff. “Very simply, at Wamhoff, we help our clients with finances – but we recognize that finances are more than dollars. Finances represent hope for the future and comething beyond current circumstances. Our team is resolute in standing with our clients to vision how finances can be a part of their vision.”

To achieve this deep level of commitment to clients, Wamhoff’s accounting services go beyond helping with taxes, bookkeeping, and financial statements. Wamhoff’s team of accountants also assists with establishing new businesses.

[…]

The Best Accounting Firms in St. Louis were announces in the May, 2015 issue of St. Louis Small Business Monthly. The top three were honored at an awards luncheon on October 20, 2015.

 

 

Business Vs. Hobby

Taxpayers frequently state my business is “just a hobby”. Well the IRS wants to remind you that you need to follow certain guidelines and truly determine whether your activity is a business or a hobby. This will determine where you will report the income and expenses on your tax return!

The best way to approach this is to determine if the activity qualifies as a business, and what the limitations apply if the activity is truly not a business. According to IRS estimates, incorrect deduction of hobby expenses account for a portion of overstated adjustments, deductions exemptions, and credits that add up to $30 BILLION per year in unpaid taxes!

Generally, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business. Ordinary = common and accepted in that trade or expense. Necessary = appropriate for that business. An activity qualifies for a business if it is carried on with a reasonable expectation to earning money.

Some determining factors:

  • Time and effort put into activity
  • Does taxpayer depend on the income
  • If there are losses, are they due to circumstances beyond their control or was it from the start up
  • Change of accounting methods to improve money
  • Taxpayer have the knowledge to carry on this type of business
  • Has the activity made money in the past
  • Can the taxpayer expect to make a profit in the future?

The IRS expects profit 3 of last 5 years; 2 out of 7 years for breeding, showing, training or racing horses.

So if the activity is NOT for profit, losses cannot be taken to offset the income. Deductions for the hobby will be reported on Schedule A.

TIP: Your part time Mary Kay, Avon, Pampered Chef Income could be subject to the hobby loss rules

Always discuss with your tax professional before starting any type of business.