Latest News on Denver Accounting & Taxes

For the past 10 years, Colorado has offered individuals a way to manage rising healthcare costs: health savings accounts. These accounts enable employer and employee to contribute pre-tax dollars into an account that can be used to pay for healthcare expenses. When the deductible for out-of-pocket expenses is meet, insurance then covers for 100 percent of healthcare costs.

For Year 2016, the Internal Revenue Service announced new limits on contributions to health savings accounts and on the out-of-pocket deductibles to which they’re linked. Adjusting for inflation, the IRS set the following maximum rates for deductibles:

Plan Type	ACA Deductible	HSA Deductible
Individual	$6,850	$6,550
Family	$13,700	$13,100

Federal regulators established the new, embedded, out-of-pocket (OOP) spending limits with the goal of not penalizing individuals for purchasing family coverage. Group plans with cost sharing benefits are affected. Beginning in 2016, no one member of a family must incur the maximum family deductible before insurance kicks in; the deductible for that person will cap out at the individual rate.

It should be noted that HAS and ACA deductibles differ, with ACA deductibles being higher.

For many individuals the OOP deductibles are painful. Organizations are urged to set their deductible limits at the minimum level, but let’s be realistic. For years, employers have been shifting the burden of health care plan coverage onto employees. Healthcare plan coverage is expensive and eats into the all-important profit margin. Employees already struggling with wage stagnation must decide whether to pay for expensive insurance premiums with low deductibles or for less expensive premiums with high deductibles. HSAs typically go hand-in-hand with high deductible insurance plans.

HSAs offer some relief to beleaguered employees in the form of progressive tax benefits. HSA accounts don’t suffer from the “use it or lose it” policies that govern flexible spending accounts. The deposited amounts can accrue year after year and earn tax deductible interest. Here’s where the tax advantages come into play. The funds deposited into the HSA are pre-tax, earn tax deductible interest, and, when withdrawn to pay eligible medical expenses, remain tax-free. Refer to IRS Publication 502 for a comprehensive list of qualified medical expenses, which includes long-term care. 

There is a penalty for using HSA funds for non-qualified medical expenses. Doing that will result in the monies being taxed at your income tax rate plus 20 percent if you are under 65 years old.

The federal government anticipates that you won’t have medical expenses reaching you deductible and set contribution limits accordingly. For an individual, the 2016 contribution limit is $3,350; for family coverage, it’s $6,750. Those amounts may not seem like much, but if you’re on the cusp between tax brackets, then shifting those funds to an HSA could bump you down to a lower tax bracket. It’s worth investigating.

One might consider investing in an HSA while one is still young and healthy, because medical expenses have a way of increasing the older one gets. And when you’re ready to retire, you can roll the funds into a retirement account without penalty when you turn 65 years old.

There are restrictions on HSA eligibility; however, if you already have an HSA account and are not eligible to contribute to it due to those restrictions, then you can still withdraw from it to pay for medical expenses.
So, you’ve determined your eligible for and health savings account. What next? First you find a financial institution (most banks and many credit unions) that offer such accounts to set one up. Explore your options; some funds will offer better interest rates than others rather like the typical 401k retirement account. If you can arrange for your employer to deduct pre-tax income for deposit into the HSA account, that relieves you of one step. If not, you’ll have to declare the contributions on your annual tax filing to deduct the correct amount from your taxable income
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When open season begins in November for health plan decisions, take a close look at your options. A high deductible health plan combined with a health savings account might work to your future tax advantage. Discuss the potential tax advantages of an HSA with the Denver tax professionals at Bloch, Rothman, & Associates, Ltd. Call (303) 321-7160 to schedule an appointment.

Thinking about filing your taxes and hiring a Denver tax pro? We are here to help! Even if you are well organized and prepared, tax time is often stressful , so in order to file your taxes as quickly and efficiently as possible it is important to know what tax laws you can benefit from and what credits you may be eligible to receive. We will go over all sorts of important tax information over the next few months leading up to the filing deadline, but this week we want our military clients to know some important tax regulations that can affect them. With family members who are often abroad some or part of the year, tax filing for military personnel and their families can be even more confusing.
 
Members of the U.S. Armed Forces have a number of different tax laws that can affect their filing. For federal tax filing purposes, the IRS website defines U.S. Armed Forces members as those who “are enlisted in all regular and reserve units controlled by the Secretaries of Defense, the Army, Navy and Air Force. The Coast Guard is also included, but not the U.S. Merchant Marine or the American Red Cross.” Different departments and divisions may qualify for particular allowances or extensions. Here are a few of the most common tax laws that affect military members and their families.
 
1- Extended Tax Deadlines: For those military service members who are serving in a combat zone, the IRS provides an automatic 180-day extension for filing your taxes. The 180 day extension kicks in after you return home from the combat zone, so you will have up to six months after your return to gather necessary paperwork and file on time. Social Security and Medicare taxes are not eligible for this extension, so make sure to coordinate with a tax professional at home to take care of those items on time.
 
2 - Combat Pay Cannot Be Taxed: You will earn compensation for your time while serving in a combat zone, but that compensation does not count as taxable income. Yes, you read that right, you cannot be taxed on income earned while you were serving in a combat zone. Keep in mind that this does not exempt you from filing taxes during this time - if you file jointly with your spouse and if you or your spouse earned any other income outside of combat pay, this will of course be subject to normal tax regulations.
 
3- Active Duty Service Member Deductions: If you are an active duty service member and your job requires you to move, you are eligible to deduct certain expenses that you incur while moving you and your family. Not all expenses are tax deductible, so make sure to check with your local Denver tax accountant to see what you can or cannot deduct - and don't forget to keep your moving receipts!
 
4 - Free Online Tax Filing: There are many ways for members of the military to file their federal and state taxes online for free, and lots of well known companies offer free e-filing services. Make sure to read the fine print, and also have your photo ID or military ID handy.
 
The professional Denver accountants at Bloch Rothman and Associates are always up to date on the most recent tax laws and any changes to previous tax laws and we are here to support our military members and their families in filing your taxes. Don't forget, the tax filing deadline is April 15th, so contact us today to meet with one of our tax professionals. 

As you gear up for tax season, you may have the nagging concern: “What if I get audited?” While there can be an element of randomness in whom the IRS decides to audit, there are a few red-flag situations where an audit may be more likely—thus requiring the help of a Denver accountant. But don’t fret just yet. We’ve compiled a list of ways you can avoid a tax audit, or at least make it a little less likely:

1. Report all income – It’s not just about your W-2. If you have Form 1099 income from freelancing or other contract work, stock dividends, or interest, you must report all of it. Remember that the IRS already knows what’s listed on your 1099s, so if you avoid reporting it, chances are likely they’ll figure it out. The same is true if you’re self-employed and want to hide income by claiming personal expenses as losses (called Schedule C losses). Do this one too many times and the IRS may wonder how your business is surviving…and may come knocking.
2. Stay error-free – Simple math errors can put a spotlight on your tax return and cause the IRS to want to look deeper. And even if those errors were completely accidental in nature, even the most innocent mistake can be problematic. The best thing to do is to double- and triple-check every number, especially if you plan to do your own taxes. For peace of mind, we recommend that you work with a tax professional, if possible.
3. Avoid estimations – If there are too many round numbers on your tax return (such as $100, $500, or $1,000), you could be trying to estimate instead of being precise. While it’s OK to round to the nearest dollar—say, from $95.85 up to $96—it’s not OK to make that leap to $100. If that’s the case, the IRS could get suspicious.
4. Take care with business and home office deductions – Often people are tempted to claim nearly everything as a business deduction, but the true question to ask is: was the expense absolutely necessary to your business or work duties? If not, it’s better to leave it alone. In the same vein, claiming your home office as a deduction isn’t a good idea if you don’t work or run a business from a dedicated space within your home. Answering occasional work-related emails from your laptop in your living room doesn’t qualify.
5. Use common sense in charitable deductions – Once again, too much of anything is not a good thing where the IRS is concerned. And the same is true for charitable deductions. While giving to charity affords you the right to a tax write-off, most people who deduct for charity claim it as a very small percentage of their income. So don’t report false donations, especially if your income is $60,000 per year and you’re claiming $30,000 in charitable contributions. 

For more on this topic, check out Forbes.com’s list of ways to invite an IRS audit. 

Whether you need personal or business tax preparation, or in the event you find yourself facing an IRS audit, contact the Denver tax specialists at Bloch, Rothman & Associates. We can help you navigate the process and will communicate with the IRS on your behalf, so you can clear up any tax controversy and get on with your life. Call us today for a free consultation: 303-321-7160.

If you own property in the Denver area, you may be curious about how property tax is determined. Property tax is a major source of income for states and the federal government, helping to fund our parks and recreation areas, libraries, schools, transportation, and emergency services. Arriving at a fair tax rate is a complex process that can often seem confusing to homeowners. The following provides a basic understanding around how property taxes are calculated and how properties are valued, as well as some general guidelines for paying your property taxes.

How your property taxes are calculated
To calculate property tax, two mechanisms are necessary: assessing the property value and using the mill levy.

1. Your property’s value is assessed every year based on the local real estate market conditions which then determine the reasonable market value of your home (see “How your property is valued” below).
2. A mill levy is the tax rate levied—or imposed—on your property value. (The word “mill” refers to one-tenth of one cent. So for $1,000 of assessed property value, one mill is equal to one dollar, according to Investopedia.com). Mill levies are imposed by the city, county, and school district in any tax jurisdiction based on the amount of revenue they each need to run. The mill levies are calculated separately by each entity and then added together to arrive at a total mill levy for that region.

How your property is valued
An assessor values your property in three ways:

1. The value of your property based on similar sales in the area (taking into consideration overpricing, underpricing, location, and the overall state of your property).
2. How much it would cost to replace your property (by determining the amount of depreciation and how much the property would be worth if empty).
3. How much income you’d make from the property if you rented it (including the cost to maintain and manage it, the amount of insurance and taxes, and the return you could reasonably expect to get from renting the property).

The assessed value is determined by multiplying the actual value of your property by an assessment rate, which is a percentage below 100% that varies by tax jurisdiction. The assessed value is then multiplied by the mill levy, and that number is the amount of your property tax.
For advice on how to lower your property tax, check out these property tax tips.
Denver-specific property tax payment guideline
When it’s time to make your property tax payments, keep the following in mind:

• You have the option to pay your property taxes in one full payment or in two installments.
• The first installment is due February 28 (or February 29 during a leap year); the second installment is due June 15; and the full payment is due April 30.
• Payment can be made via credit card or eCheck online. However, you should note that debit cards that require a PIN can’t be accepted online.
• You can also pay in person or via mail (see addresses in the link above).

At Bloch, Rothman & Associates, we can work with you to accurately fill out the declaration of Denver property taxes as well as appeal property value on your behalf. Call us to schedule your free consultation at 303-321-7160.

We recently talked about what to do if you’re starting a new business this year. Another consideration that should be on your list is bookkeeping. Even if you’ve been in business for awhile, everyone could use a little advice when it comes to handling the money. Here are some basic bookkeeping tips:

• Use the right system – The two basic accounting systems are the cash method and the accrual method. According to Score.org, “The cash method means you count cash when you receive it and expenses when you pay them, and the accrual method means you count income and expenses when they happen, not when you actually receive or pay them.” The cash method is simpler and works for many businesses, but the accrual method may be better if you keep inventory on hand or do a lot of transactions using credit. It’s best to check with the IRS in those instances to see what’s required.

• Choose software – It goes without saying in this day and age, but using bookkeeping software makes everything so much simpler, from tracking income and expenses, to preparing tax documents, to backing up records, and more. Even the smallest of businesses can benefit from the right bookkeeping software.

• Maintain daily records – Once you have your accounting system sorted out and your bookkeeping software set up, now it’s on you to maintain daily, accurate records. In just a few minutes, you can record what happens every day so that you can track the overall financial condition of your business.

• Leave a trail – Hand-in-hand with daily record-keeping is leaving an audit trail. Your bookkeeping system should include a way to retrace your financial steps. This means keeping invoices and checks in numeric order and not skipping around, as well as setting up separate bank accounts for business and personal funds. An effective audit trail will allow you to go back over a year and see a clear financial footprint of your business.

• Handle checks carefully – And while we’re talking about being careful, the same tip applies to handling and reviewing checks. At the end of the day, checks are cash, so take care to sign checks with a distinctive (but clear) signature that will discourage forgery, review cancelled checks right away to catch unauthorized checks, and in the case of a partnership, have at least one of the partners co-sign the checks.

• Synchronize bank statements – Another basic thing to do that can really save you headaches is to synchronize your bank statements with other monthly records. You’ll be able to more easily reconcile those statements and track expenses.

• Bonus: Plan for major expenses – The experts at Entrepreneur.com recommend putting a major expense like a computer upgrade on your calendar a year in advance, and ideally three to five years. Why? Because you’ll be able to financially plan for the event and adjust through seasonal ups and downs, which means you’ll be better prepared—and less likely to have to take out a loan—when the expense becomes urgent.

If you’re a business owner looking for bookkeeping services in Denver, contact the experts at Bloch, Rothman & Associates. We’ll help you track what’s owed to you, prepare invoices and statements, project your cash flow, and much more. Give us a call today at 303-321-7160.