January 17, 2019 § Leave a comment
Entity Selection, or choosing how your business will be taxed, has changed since the passing of the Tax Cuts and Jobs Act in 2018. Check out this video by Nick Finkenauer, Tax Director, where he explains the changes and how this could impact entity selection for your organization.
January 14, 2019 § Leave a comment
Have you ever looked at your W-2 when preparing your tax return and wondered why none of the boxes match what your salary is? Or were you even confused on how to read the form? Differences between your salary and what is reported on the W-2 are likely due to deduction items that you have requested to be taken out of your paychecks such as retirement, medical and other pre-tax benefits.
But first, you should know that form W-2 boxes 1, 3, 5 and 16 are your wages that are subject to the tax in the corresponding boxes 2, 4, 6 and 17. As we go through this, it may be beneficial to follow along with the 2018 W-2 form, which can be found at https://www.irs.gov/pub/irs-pdf/fw2.pdf. For instance, Box 1 wages are subject to Federal income taxes and Box 3 wages are subject to Social Security taxes, etc. Boxes 2, 4, 6 and 17 are the taxes that were withheld and paid to payroll agencies on these wages throughout the calendar year by your employer. Therefore, your paycheck you receive is less than your gross salary amount. If you did not have any deductions taken out of your paycheck, boxes 1, 3, 5 and 16 would be your gross salary amount.
As previously mentioned, deductions from your paycheck can cause the wage amounts in boxes 1, 3, 5 and 16 to be reduced. If you contribute to a traditional, or pre-tax, retirement plan, the amount you have contributed will be reported in Box 12. The total amount contributed for the year to your traditional retirement plan reduces your wages subject to Federal income tax and state income tax. Therefore, Boxes 1 and 16 will be reduced by your yearly traditional retirement plan contribution, which saves you from paying tax on the reduction in wage amount. If you contribute to a Roth, or after-tax, retirement plan, the amount you have contributed will also be reported in Box 12. However, none of the wage boxes will be reduced for your contribution and this tells the IRS that you were required to pay tax on the wages. That is why when you retire, you will pay taxes on your distributions from the traditional retirement plan and would not pay any taxes on your Roth retirement plan distributions.
The pre-tax and after-tax treatment is similar for medical plans as well. Depending on how your employer’s medical plan is set up, it could be a Section 125 plan and treated as pre-tax or you could be paying for your medical benefits with after-tax wages. Pre-tax medical benefits are not required to be reported on your W-2, like retirement benefits are. But the amount you have paid towards pre-tax medical benefits in the calendar year will reduce the wages in Boxes 1, 3, 5 and 16 and therefore, is not subject to Federal income taxes, Social Security taxes, Medicare taxes or state income taxes.
If you contribute to a dependent care benefit plan, the amount of your deduction ($5,000 for married filing jointly taxpayers and $2,500 for single taxpayers) is pre-tax as well, if it was used to pay for qualified dependent care expenses. The wages in Boxes 1, 3, 5 and 16 will be reduced by the amount in Box 10 and reduce the wages subject to the corresponding taxes.
These pre-tax deduction items that you have taken out of your paycheck can reduce the amount of payroll taxes you are required to pay. This causes the differences in your W-2 wage amounts and your annual salary amount. Hopefully, this is one less IRS form that you are confused by in the future. Please reach out to your accountant if you have any further questions.
Makayla Fagen, CPA Supervisor
January 10, 2019 § Leave a comment
As we close out 2018 and we look forward to 2019, it becomes a great time to reflect on the successes of the past year and anticipate with excitement leading the way through 2019. Personally, I’m humbled and blessed to be part of the MHCS family. I continually am amazed at what our team accomplishes. We’ve all heard it, the greatest asset of any organization is its people and that is an absolute truth at MHCS.
The success of MHCS is attributed to our culture defined by our values. In 2018, McGowen Hurst Clark Smith won several awards, including #1 Top Workplace in Iowa by The Des Moines Register in the small employer category and Best Accounting Firm to Work For by Accounting Today, a national publication. These recognitions are based solely on employee feedback administered by third parties, which makes these honors extra special. Our people are truly living our values in the areas of respect, teamwork, family, and fun, which has created a great culture in which I love being a part of.
When you have a great group of people who are talented and driven, they want something more than just work. They want purpose. They want to know they are making a difference in this world. One of the ways we do this is giving back to our communities in which we live, work and play. Team members gave of their time, talents, and treasures throughout the year to multiple Iowa organizations, but emphasized our Month of Service in September in partnership with the Iowa Society of CPA’s. Our team served meals at Bethel Mission’s Hope Café and the Winterset Senior Center. We participated in Read to Succeed, a day of action through United Way, by reading to 3rd graders at DM Public Schools and were readers/testers for Winterset Elementary. In addition, we collected donations for various items for school children in Marshalltown, Ronald McDonald House Charities of Central Iowa, Children & Families of Iowa and Hope Ministries’ Bethel Mission.
In fitting MHCS style, we decided to have a little competition with our fellow team members to benefit DMARC Food Pantry. The first annual Iowa vs. Iowa State Spare Change Challenge was born. Money jars for both schools were put in our offices and the school jar with the most funds was featured at our annual Iowa/Iowa State luncheon as the decorations for the room. Iowa State’s jar raised the most funds as our seminar room was filled with cardinal and gold and Iowa was victorious on the football field, but DMARC was the real winner! In total, team members contributed over 150 volunteer hours in the month of September.
In continuing that competitive spirit, MHCS participated in the 3rd annual Des Moines Corporate Games. The corporate games is a company based competition with 25 sports and competitions for 2 months in the summer that enables and supports teamwork, company pride and corporate wellness. As defending champions, we were determined to seize the cup in 2018 and we didn’t disappoint. It was an entire MHCS team effort with gold medals awarded to the team and individuals in several events. It was a great way to build relationships outside of the office while staying active and bringing home the gold was icing on the cake.
At MHCS, we also took time to celebrate our people throughout 2018 with their accomplishments and blessings. We congratulated several team members who became certified public accountants and certified fraud examiner. We had several team members exceed expectations and promote within the firm to new positions. We welcomed a new audit partner, Wendy Moran, to our partner group during 2018. We also welcomed several new team members to the MHCS family, including new employees, their spouses and children. With these additions, we expanded to the 1st floor in our building in West Des Moines. Family has always been a key value for our firm, which is why we welcome not just the employee to the firm, but their entire family is now a part of our family.
The year also brought new opportunities and new relationships with clients and people in our community. New tax legislation was passed in early 2018, representing the most significant tax reform this nation has seen since 1986. With issues in understanding how the legislation was going to impact our clients, our team members were up to the challenge and seized the opportunity. We significantly increased our speaking engagements to inform our clients and business communities of the sweeping changes. We provided thought leadership on difficult topics to display the talented expertise we have working at MHCS. We increased our social media presence and launched our company YouTube channel. We continued to be innovative in 2018, implementing new technologies to help improve the client experience and become more efficient in our processes so that we can continue to focus on our clients’ needs. With this increase in shared knowledge with our communities, we have deepened our relationships with our clients and have been able to forge new relationships for years to come.
As we look to 2019 and beyond, we are excited for all the opportunities to continue to make MHCS the firm of choice for our team, clients and communities. We are excited to be launching our new brand, which includes our new website, offering online payment for clients, and opening an online corporate store. We will provide a dynamic, collaborative and inclusive firm that provides clear opportunities for personal growth for our team. We will be implementing new initiatives, that include a Year of Impact and Year of Wellness to compliment the Year of Service efforts.
Most importantly, we are looking forward to the upcoming tax and audit season to see so many clients and friends of MHCS. We will continue to stay ahead of the new tax laws and educate our clients on the impact to their businesses and personal situations. We will strengthen our partnerships with our clients and our network to allow us to serve as hands-on advisors and connectors, helping our clients solve challenges and capitalize on opportunities. As a firm, we will be innovative, change-ready and forward-looking. Throughout 2019, MHCS will lead the way for our clients, team and communities throughout Iowa.
Dave Farnsworth, CPA Managing Partner
December 26, 2018 § Leave a comment
I have a friend who posts to social media the quotes from her daily calendar. They are often inspirational and practical to everyday life. Earlier this week, she posted this quote:
“Stop talking about how busy you are. Focus on what you enjoy about what you do and the spaces in between the doing instead of feeling weighed down by it all. Decide that you live in an awesome, relaxed life full of interesting projects that you love doing and communicate that to the world and yourself. And then go out and merrily do it.”
For some reason, this quote really hit home for me. How many of us focus on how interesting each project we have is and how blessed we are to have it instead of adding it to what always seems like a never ending to do list?
I’ve learned that we all seem to have our own definition of busy. I have four children and a full-time job. People don’t usually deny that I’m busy and I’m probably going to say that I am too. But for me, I love everything I do. I love my job and the challenge that comes with each project. Yes, it adds to my busyness but I don’t know what I would do without it. Obviously, my kids and their activities keep me very busy but I enjoy seeing them learn new things and pursuing their passions.
No matter what your definition of busy is, what is key is the attitude you take towards it. We can choose whether we let the activities of our day fill us up or drain our energy at the end of the day. Ultimately, it determines how happy you are.
Here at MHCS, we are getting ready to head into what many in public accounting refer to as ‘busy season’. The description isn’t inaccurate. Everyone will be busy with tax returns and audits to meet deadlines and keep clients happy. It doesn’t come without challenge, much like many things in life. A few years ago, I was introduced into the concept of calling this time of year opportunity season. It’s a time of year where we get to meet with more of our clients and we are given an opportunity to use our skills to serve them. We are blessed for our clients to trust us with challenges that arise and the learning opportunities that can grow us all from those challenges. At MHCS, we have a lot of fun during busy season. We have an opportunity to bond with our coworkers and form a trust that is key to working together as a team. We love what we do and gain a happiness from the “opportunity busy” that comes with that time of year.
We all feel busy. It’s become so common for someone to respond to “How’s it going?” with “Busy”. The tone used in that response is what I’m urging you to think about. Do you let others know how appreciative you feel of the opportunity to be busy? Do you let the activities of your day leave you feeling fulfilled and energized? I hope the answer is yes and you take the glass half full approach to the opportunities in your life.
Jenny Smith, CPA, CFE, Director
December 20, 2018 § Leave a comment
There are changes in filing requirements for employers issuing 1099s and W2s to employees and independent contractors this year. Check out this video by Jonathan Porter, CAS Manager, as he discusses the differences between 1099s and W2s and what changes have been made since last years filings.
December 20, 2018 § Leave a comment
- If the entity has reserved employee parking spaces, the organization will have unrelated business income (UBI). The IRS is allowing a grace period to take down signage before March 31, 2019 to avoided the automatic application of the tax, retroactive to January 1, 2018.
- Remaining parking spaces of the organization will need to be categorized and be subject to a four-part calculation to determine what percentage is available for the general public to know if associated expenses will be UBI.
December 18, 2018 § Leave a comment
About a year and a half ago I wrote a blog about the significant reporting changes coming for not-for-profit organizations. At the time, it seemed almost silly to write about because the effective date was still quite a way out. But I blinked and now we are there! The statement and disclosure changes required by Accounting Standards Update 2016-14 Presentation of Financial Statements of Not-for-Profit Entities (ASU 2016-14) is effective for calendar years ending 12/31/18.
Hopefully you are fully prepared for the changes and aren’t sweating that the implementation is just around the corner. Or maybe you early implemented and all the work is done! For those of you that haven’t started the implementation process or haven’t heard about ASU 2016-14, here are some highlights to get you through the change. These highlights don’t cover all the changes required by ASU 2016-14, but will briefly touch on just a few of the more significant changes.
- Net asset classifications will change from 3 classifications (unrestricted, temporarily restricted and permanently restricted) to 2 classifications (net assets without donor restrictions and net assets with donor restrictions)
- There are likely no accounting changes necessary to comply with this change but rather just a combination of temporarily restricted and permanently restricted into 1-line item on your Statement of Financial Position
- Liquidity and Availability disclosures are now required
- These disclosures will explain how the organization manages its financial assets to meet cash needs and provide the amount of liquid financial assets available for general operating expenses for the next 12 months.
- Organizations will want to consider what their current operating, reserve and investment policies say regarding the availability of their funds as this information will now be included in the financial statement disclosures. If you don’t have a formal policy, now is the time to adopt one!
- Statement of Functional Expense is now required
- Must show expenses by both their function (program, management & general, fundraising) and their nature (salaries and benefits, office expense, depreciation, etc.)
- Can be shown with the Statement of Activities, as a separate Statement of Functional Expense or in the disclosures to the financial statements
- Must disclose the methods used to allocate expenses among program, management & general and fundraising. Examples of methods include: time and effort or square footage.
While these are just a few of the changes, I believe they are the changes that may have the most impact and time involved in implementing ASU 2016-14. We are happy to help with this implementation and can provide sample disclosures and statements at your request. Wishing you a Happy Holiday and ASU 2016-14 Implementation Season!
Kristin Clayton, CPA, Senior Manager