Categories for

At the beginning of 2020, the Internal Revenue Service (IRS) released an updated version of Form W-4, the tax withholding form. Rather than using the allowances system, the new form calculates withholding based on information about a taxpayer’s current financial situation. A recent article for Business Insider offers guidance on when and how to complete the new form.

When should I fill out the new W-4?

Just because there is a new version of Form W-4 does not mean you need to complete it. As long as there have been no changes to your current tax circumstances, there is probably no need for you to adjust your withholdings. That said, it is generally recommended that taxpayers review their W-4 annually.

There are certain life changes that merit a mid-year update to your W-4. The article offers three common situations where it is recommended that you complete a new form, including if you:

• Get married,
• Have a new child
• Get an additional job

What do I need to know about filling out the new W-4?

Click here to take a look at the new Form W-4. You will see that it includes five steps:

1. “Enter Your Personal Information” – You will need your name, social security number, current address, and filing status (single/married filing separately, married filing jointly, or head of household).
2. “Multiple Jobs or Spouse Works” – This step applies to you if you work at more than one job or you and your spouse both work. It offers three options for determining the correct amount of withholdings:
   1. Visit irs.gov/W4App to use the IRS withholding calculator. This is the method that the IRS recommends for the highest accuracy.
   2. Refer to page 3 of the W-4, which offers a Multiple Jobs Worksheet.
   3. Simply check the box in this step, if there are only two jobs and they have similar pay.
3. “Claim Dependents” – This step applies if you have qualifying children or other dependents. It helps you determine the credits for which you might be eligible.
4. “Other Adjustments” (optional) – This step covers any additional income, the deductions you expect to claim (if you expect to itemize rather than take the standard deduction), and any additional tax you would like withheld (in order to receive a bigger refund the following year). Please note: while it is nice to get a big refund, withholding extra taxes is essentially giving the government an interest-free loan.
5. “Sign Here” – In this step, you sign and date the document to certify that you have completed it honestly and accurately.

For more details, click here to read the article in full at Business Insider.

On December 20, 2019, President Trump signed into law the Appropriations Act of 2020, which included a number of tax law changes, including extending certain tax provisions that expired after 2017 or were about to expire, retirement and IRA plan modifications, and other changes that will impact a large portion of U.S. taxpayers as a whole. This article is one of a series dealing with those changes and how they may affect you.

Congress originally created the Qualified State Tuition Plan, often referred to as the Sec 529 Plan, as a tax-beneficial incentive for parents, grandparents, and others to save money for an individual’s future college tuition and fees. There is no federal tax deduction for making contributions, but taxes on the earnings within a plan are not only tax-deferred while they are held in the account, they are tax-free when withdrawn to pay for qualified education expenses. Thus, the real tax benefit of these plans is the earnings within the plan accumulating tax-deferred and then being tax-free when withdrawn if used for college tuition and related qualified expenses.

Contributions – To maximize the tax benefits of a plan, it should be established for a child as soon after birth as possible when funds are available for contribution. For tax purposes, there is no limit on the amount that can be contributed, but contributions are considered gifts and each individual contributing to a plan would have to file a gift tax return if the gift exceeds the annual inflation-adjusted gift tax exclusion, which is $15,000 for 2020.

There is also a special gift provision that permits a contributor to contribute up to 5 times the annual gift tax exclusion amount to a qualified tuition account in a single year and treat the contribution as having been made ratably over the five-year period beginning with the calendar year in which the contribution is made. Thus, this provision permits the front-loading of contributions and accelerates the accumulation of earnings within the account. When this special provision is used, a gift tax return is required in the year of contribution, and any amount contributed that is allocable to the years within the five-year period remaining after the year of the contributor’s death are includible in the contributor’s gross estate.

However, while the income and gift tax laws don’t cap how much can be contributed to a qualified tuition plan, the 529 plans do limit the maximum amount that can be contributed per beneficiary based on the projected cost of a college education, and the maximum amount will vary between plans, though most have limits in excess of $200,000, with some topping $475,000. Generally, once an account reaches that level, additional contributions cannot be made, but that doesn’t prevent the account from continuing to grow.

Modifications – Since originating these plans, Congress has continued to modify the purpose of the plans by allowing plan funds to be used for more than just college tuition and fees. Over the years, they have allowed plan funds to be spent on additional expenses, including books, supplies, equipment, reasonable room and board, and computer technology.

More recently, as part of the Tax Cuts & Jobs Act and beginning in 2018, the following qualified expenses were added:

• Up to $10,000 of 529 plan funds to be used federally tax-free annually, per student, for elementary school and high school tuition expenses to attend public, private, and religious schools.

Now, as part of the Appropriations Act of 2020, and effective for distributions made after 2018, the eligible use of a plan’s funds will include:

• Qualified higher-education expenses associated with registered apprenticeship programs certified by the Secretary of Labor under Sec 1 of the National Apprenticeship Act.
• Payment of education loans up to a maximum of $10,000 (reduced by the number of distributions so treated for all prior taxable years) including those for siblings.

Be Cautious – Remember, the tax benefit of these plans is amassing tax-deferred investment income, which then can be withdrawn tax-free to pay qualified education expenses. Using these funds too early will not achieve the desired goal of accumulating and compounding investment income. Thus, you should carefully consider whether to use the funds for elementary and secondary school education expenses or to wait and tap the account for post-secondary education, with the latter choice maximizing investment income.

There are also tax credits to help fund a child’s college education. For example, one favorable twist of the tax code allows a grandparent (or others) to directly pay the child’s tuition without being subject to the gift limitations or reporting. On top of that, assuming the child is a dependent of their parent, the parent may qualify for the higher education credit even though the grandparent paid the tuition. The parent’s eligibility is affected by their income, since the credits phase out once the adjusted gross income of the individual claiming the credit exceeds an amount based on filing status and the type of credit claimed.

If you need assistance with long-term education planning, give our office a call.

On December 20, 2019, President Trump signed into law the Appropriations Act of 2020, which included a number of tax law changes, including retroactively extending certain tax provisions that expired after 2017 or were about to expire, a number of retirement and IRA plan modifications, and other changes that will impact a large portion of U.S. taxpayers as a whole. This article is one of a series of articles dealing with those changes and how they may affect you.

The Residential Energy (Efficient) Property Credit was initially introduced in 2006. The credit’s name is somewhat misleading, and the credit is best described as an energy-saving credit since it applies to improvements to the taxpayer’s existing primary home to make it more energy-efficient. Over the years since it was first introduced, it has provided a tax credit in amounts varying from 10% to 30% of the cost of energy-saving devices installed as part of a taxpayer’s home, with the maximum credit ranging from $500 to $1,500. Currently, the credit percentage is 10%, with a lifetime credit amount limited to $500.

Since the credit currently has a lifetime credit of $500, that means if you have ever claimed this credit in the past, going all the way back to 2006, you must reduce any credit currently claimed, limited to the $500, by any credit amount you claimed in any prior year. As a result, taxpayers who claimed the maximum credit amount in the past won’t be eligible for any additional credit under this extension.

Generally, this tax credit equals 10% of the cost of the following energy-saving improvements that meet certain Energy Star requirements:

• An advanced main air-circulating fan;
• A natural gas, propane, or oil furnace;
• A natural gas, propane, or oil hot water boiler;
• Energy-efficient heat pumps;
• Energy-efficient water heaters;
• Energy-efficient central air conditioners;
• Insulation;
• Metal roofs with appropriate pigmented coatings;
• Asphalt roofing with appropriate cooling granules;
• Exterior storm windows and skylights;
• Exterior storm doors; and
• Others not listed here.

To qualify for the credit, the home must be the taxpayer’s primary residence and be located in the U.S., the improvement must generally have a life of 5 years or more, and the original use must begin with the taxpayer.

The credit is non-refundable, meaning it can only be used to offset your tax liability to bring it down to zero, and there is no carryover provision, so any portion of the credit not used in the year when the credit is earned is lost.

There are also credit limits for certain items:

• Qualified Windows and Skylights $200
• Qualified Advanced Main Air Circ. $50
• Qualified Hot Water Boilers $150
• Qualified Energy-Efficient Equip. $300

Basis Adjustment – The basis of your home is increased by the amount you spend on an energy-efficient improvement but is then reduced by the amount of the credit. So even if you can’t claim the credit because you’ve exceeded the lifetime credit limit, the cost of the energy-efficient property will increase your home’s basis.

Retroactive Extension – Since this credit was retroactively extended to 2018, if you made qualifying improvements in 2018, you can amend your 2018 return and claim the credit. Since this credit has been extended through 2020, it can also be claimed for energy-efficient improvements made in 2019 and 2020 as long the $500 lifetime credit limit will not be exceeded.

If you have questions about this credit or think you might qualify for the credit in 2018 and want to see if the credit is worth the cost of amending your return, please give our office a call.

According to the World Economic Forum (WEF), the spread of the coronavirus will impact the world’s economy. Whether it’s a Reuter’s poll from economic experts projecting growth in China slowing to 4.5 percent in Q1 of 2020, in contrast to China’s Q4 GDP of 6 percent; or the International Energy Agency (IEA) saying world desire for oil will be lower due to the coronavirus; or global companies reducing or temporarily closing their Chinese factories, change is on its way. Based on this data, what does the global economic outlook entail?

To understand how the coronavirus might impact global economies, it’s important to put this in the context of other global events. Based on a February 2020 Monetary Policy Report from The Federal Reserve, there is a mixed outlook for recent and projected economic activity. While the Fed notes that oil prices have increased over the past six months of 2019, in part due to OPEC members cutting production and brief tensions with Iran in January 2020, The Fed attributes more recent drops in oil prices to the coronavirus and associated lowered global demand.

Due to China’s already slowing economy, the IEA is projecting 435,000 fewer barrels of oil on an annual basis during Q1 of 2020, the worst in a decade. Looking at statistics from the United Nation’s International Civil Aviation Organization (ICAO), airlines are expected to see revenue losses of between $4 billion and $5 billion in the first three months of 2020. With the coronavirus impacting China, thereby reducing outbound travel to Japan and Thailand, losses could be as big as $1.29 billion and $1.15 billion for each respective country.

The Fed explains that in 2019, manufacturing has been challenged both globally and domestically. Citing the industrial production (IP) index, the first six months of 2019 saw declines in both domestic and global activity. For 2019, U.S. production dropped by 1.3 percent for durable and non-durable goods. This is attributed to trade issues with China, soft economic growth worldwide, less than aggressive investment from businesses, declining oil prices that lower continued production by crude producers and production issues with Boeing’s 737 Max airplanes.

However, despite the manufacturing slowdown in China, the United States’ manufacturing base shouldn’t see the same impact from the coronavirus. The Fed says that factoring in purchasing materials for production on the input end, and transporting, wholesaling and retailing products post-production, the drop of 1.3 percent on the industrial production index equates to a 0.5 percent drop in U.S. GDP. For context, compared to the U.S. manufacturing employing 30 percent of workers 70 years ago, it presently employs 9 percent of workers.

One way to see how the coronavirus might play out is to look at how SARS impacted China in 2003. Based on data from the National Bureau of Statistics in China, it took three months, during Q1 of 2003, where China’s economic growth dropped to 9.1 percent, from 11.1 percent. While a much smaller economy, on a global scale, in future quarters China was able to grow at an annualized rate of 10 percent, per Refinitiv. However, economists note that if SARS didn’t impact China, there could have been another 0.5 percent to 1 percent increase in annual growth.

Another comparison with SARS is China’s retail sales. Refinitiv shows that May 2003 retail sales dropped to 4.3 percent. This is compared to between 8 percent and 10 percent for retail sales figures in March 2003 and July 2003, showing how serious the impact SARS made, but also China’s resiliency.

While the Chinese economy impacts the global economy today more than when SARS hit, it also has a more responsive economy and a larger middle class. Only time will tell as to the coronavirus’ impact, but based on past experience, it should only be a matter of time before China’s (and the global) economy bounces back to greater economic output.

One way a business can manage its books and viability in the near and long terms is to see how liquid its assets are. Businesses that have better cash positions are naturally geared toward sustaining continued success. One important reason for a business to measure and maintain healthy levels of liquidity is that it promotes better odds that a company will be able to satisfy its short-term debts. There are many ways businesses can accomplish this; below are four common ways it can be done.

Current Ratio 

The first liquidity ratio is known as the current ratio. It is a way to determine how well a company can pay back its debts.

The current ratio is also known as the “working capital ratio.” It illustrates how well a business can satisfy financial obligations that must be paid back within 12 months. Check out this example to see how it works:

Let’s assume a company has the following assets, it would use the following ratio:

Current Ratio = Current Assets / Current Liabilities

Marketable Securities such as stocks, bonds or purchase agreements maturing in 12 months or less can be considered a current asset. Businesses may also consider cash, accounts receivable, prepaid expenses, office supplies and saleable inventory they have in stock as current assets.

Outstanding bills or accounts payable and short-term debt – within the next 12 months as described above – are considered current liabilities. Other expenses can be interest payable, income and payroll taxes payable, which can also be considered current liabilities.

If the current assets of a business are $250 million, and that is divided by current liabilities of $75 million, the Current Ratio would be 250 / 75, or 3.33

With a current ratio of 3.33, the company is in good financial health because it can pay off its debts easily.

Acid-Test Ratio 

The Acid-Test Ratio determines how capable a company is of paying off its short-term liabilities with assets easily convertible to cash.

Also known as the quick ratio, the formula is as follows:

Acid-Test Ratio = Current Assets – Inventories / Current Liabilities

Current assets consist of cash and similar assets (savings/checking accounts, deposits becoming liquid in three months or less), marketable securities and accounts receivable. From there, the summation is divided by the company’s current liabilities expected to be paid in 12 months.

There is a second method for calculating the acid-test ratio:

The first step is to look at the company’s current assets that can be liquidated within 12 months. Then inventory must be valued – that which is intended to be sold for purchase. From there, the inventory value is subtracted from the current assets. The resulting value is then divided by the business’ current liabilities.

The acid-test ratio is one way to determine a company’s ability to satisfy current liabilities without selling inventory or securing additional loans. With the uncertainty and profitability of selling inventory, one can argue that it gives a better picture of a company’s financial fitness.

For example, if a company comes out with a ratio of 3, this means that a business has $3 for every $1 of liabilities. However, as a company’s quick ratio increases, it might show there’s too much money not being reinvested to increase the company’s efficiency and profitability. A higher quick ratio figure can also indicate that there are too many accounts receivable that are owed but uncollected by the company.

Cash Ratio 

As the name implies, the cash ratio determines how financially able a company is to satisfy short-term liabilities with cash and cash equivalents.

Also referred to as the cash asset ratio, this tells how capable a business is of satisfying short-term debts, usually 12 months or less, with cash and cash equivalents only. This ratio is as follows:

Cash Ratio = Cash and Cash Equivalents / Current Liabilities

Examples of cash and cash equivalents include physical currency, minted coins, and checks. Cash equivalents include money market accounts, Treasury bills and anything that can be converted into cash in almost real-time.

When it comes to current liabilities, accrued liabilities, short-term debts and accounts payable are examples that are due within one year.

From there, the ratio is as follows to determine a company’s cash asset ratio:

Cash and Cash Equivalents (Cash: $25,000 + Cash Equivalents: $100,000) / Liabilities (Accounts Payable: $30,000 + Short-term debt: $25,000)

$125,000 / $55,000 = 2.27

Based on this calculation, the company would be able to pay off 227 percent of present liabilities with its cash and/or cash equivalents. For creditors and investors evaluating a company, it can show the company has ample liquidity. Creditors are naturally more willing to lend to companies with more cash flow, and investors are interested to see how liquidity is being managed.

Operating Cash Flow Ratio 

This ratio measures how efficiently a business can meet present liabilities from the cash flow of its core business operations. It calculates the number of times over that a company can satisfy its liabilities based on the amount of cash it generated over a certain time-frame.

This ratio can also include accruals, giving a fair estimate of a business’s short-term liquidity. The formula to determine this ratio is as follows:

Operating Cash Flow Ratio = Cash Flow from Operations / Current Liabilities

The statement of cash flow is where the operation’s cash flow is found. It can also be calculated by determining a company’s net income, plus non-cash expenses, plus working capital changes.

Current liabilities are defined as financial obligations due within the next 12 months. Common ones are accrued liabilities, accounts payable and/or short-term debt.

Once the operating cash flow ratio is calculated, a company’s financial health can be determined. If the ratio is 1.5 or 2, for example, it means the company can cover 1.5 times or double its present liabilities. However, if the ratio is less than 1, then the amount of cash generated from operations is insufficient to satisfy short-term liabilities.

As part of a comprehensive accounting practice, businesses that run these ratio calculations will be able to identify where there’s too little or too much liquidity and reduce current and future financial peril.

Ross Buehler Falk & Company, LLP is pleased to announce the celebration of 35 years of service.

“Thirty five years is an exceptional accomplishment for our firm,” said Jeffrey Bleacher, CPA, CGMA, managing partner of Ross Buehler Falk. “Our long-term success is a direct result of the value we place on client relationships, as well as our dedicated team, who strive to provide the highest quality service each and every day.”

Ross Buehler Falk & Company, LLP is comprised of a diverse group of seasoned accounting professionals and has strong roots in the local community. Since opening their doors in 1985, the firm has provided a variety of assurance, consulting, and tax services to help clients improve their overall financial success.

“At Ross Buehler Falk, we recognize that without our clients’ support, we would not have cause to celebrate our many years of service,” said Bleacher. “With this in mind, we would like to extend our most sincere gratitude to our clients for their confidence in our firm.”

Ross Buehler Falk & Company, LLP is pleased to announce that Jeff Bleacher, CPA, CGMA has successfully completed the Level 5 Certified Advisor program from Mentor Plus.

Bleacher has been with Ross Buehler Falk & Company since 1985 and has served as the firm’s Managing Partner since 2009. He specializes in performing accounting, audit and management counseling.

The Certification Advisor program from Mentor Plus offers accountants a comprehensive turnkey methodology for delivering proactive consulting services. Created by Edi Osborne, the certification includes tools to help accountants both understand and clearly articulate client goals and then work with owners and teams to create plans for achieving them. The Level 5 program focuses specifically on accountability and continuous improvement. 

“The Mentor Plus Certified Advisor program was a fantastic experience,” said Bleacher. “I am proud to add this new certification to my resume. I am looking forward to combining my experience and the programs methodology to enhance the success of our clients.”

In 1983, Bleacher graduated from Elizabethtown College with a Bachelor of Science in Accounting. He is currently affiliated with the American Institute of Certified Public Accountants (AICPA), and the Pennsylvania Institute of Certified Public Accountants (PICPA), He serves on the boards of a variety of local organizations, including the EDC Finance Corporation, Lancaster Health Center, and the East Hempfield Water Authority. He is also a member of the Lancaster Rotary Club. Bleacher and his wife, Cindy, have three children.

Since 1985, Ross Buehler Falk & Company, LLP has offered expert accounting, audit, tax, and consulting services in Southeastern Pennsylvania. The firm maintains a strong focus on providing innovative and cost-effective solutions that meet the individual needs of each client. Though they have a particular specialty in serving agribusiness, construction, healthcare, and manufacturing clients, the firm is qualified to serve in many industries. Ross Buehler Falk & Company, LLP believes that integrity and honesty, accountability and responsibility, respect and teamwork are the keys to providing the best in client service. For more information, visit www.rbfco.com.

###

Ross Buehler Falk & Company, LLP is pleased to recognize the 30^th anniversary of Cynthia Barr, CPA with the firm.

Barr joined Ross Buehler Falk in 1989 right after earning her undergraduate degree. Serving as a supervisor, she is responsible for performing both accounting and tax work, including audits, reviews, compilations, and both corporate and personal return preparation.  

“I’m so pleased to celebrate this important milestone with Cindy,” said Jeffrey Bleacher, CPA, CGMA, managing partner of Ross Buehler Falk. “Her devotion to RBF has spanned her entire career—that’s not something you see a lot of these days. She is a pillar of the firm and I’m so thankful for her many years of loyalty and service.”

A graduate of Elizabethtown College, Barr holds a Bachelor of Science in Accounting. She is a member of the American Institute of Certified Public Accountants (AICPA), the Pennsylvania Institute of Certified Public Accountants (PICPA), and the Finance Committee of her church. She currently lives in her hometown, Elizabethtown.