September 22, 2015

Section 83(b) Election Tax Benefits for Startups

What is a Section 83(b) election?

An 83(b) election allows an individual, such as a startup founder or employee, to include the fair market value of property related to the performance of services as income.  The election essentially allows an individual to elect to be taxed at the time the property is received, as opposed to waiting until fully vested.

Why file a Section 83(b) election?

At first glance, an 83(b) election seems counter-intuitive as it accelerates income into a year where income would not otherwise be recognized.

However, this election can prove beneficial in a situation where the difference between the fair market value and the purchase price of the property is nominal.  In this scenario, little or no additional income would be recognized as a result of the election.  Having this election in place, especially at little or no cost, mitigates the risk of owing considerable taxes as result of a significant increase in the fair market value of the property received.

Filing an 83(b) election also allows the individual’s capital gains holding period to start.  In other words, the election “locks in” the ordinary income in the year of the election (the difference between the fair market value and the purchase price).  Any subsequent gain would receive favorable capital gain treatment.

Why not file a Section 83(b) election?

Accelerating income and “prepaying” tax is not without risks.  In a scenario where the fair market value of the property would decrease, it is possible that the individual would have recognized income unnecessarily.  Any tax paid as a result of the election would not be refundable.

How is a Section 83(b) election made?

For an 83(b) election to be valid, it must be filed with the IRS within 30 days after the purchase date.  There are no exceptions to this filing rule.

As you have probably gathered, the decision of whether or not to file an 83(b) election can be very complex.  For more information, please contact an Anders tax consultant.

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September 22, 2015

Anders Hires Eight Tax and Audit Associates

Anders welcomes seven tax associates and one audit associate to the firm. All new hires were former interns, and represent four different universities in Missouri and Illinois. Each new associate is a member of the American Institute of Certified Public Accountants (AICPA) and the Missouri Society of Certified Public Accountants (MSCPA).

Scott D. Brightman, Tax Associate, graduated from Rockhurst University in July 2015 with a Bachelors in Business Administration with an Accounting emphasis and a Masters of Business Administration. Scott interned at Anders Summer of 2014.

Savannah L. Connaway, Tax Associate, graduated from Southern Illinois University- Edwardsville in December 2014 with a Bachelors in Accounting and a minor in Business Administration. Savannah interned at Anders in Spring of 2015.

Rebekah J. Eyre, Tax Associate, graduated from Southern Illinois University- Edwardsville in May 2015 with a Bachelors in Accounting and a minor in Applied Communication Studies. Rebekah interned at Anders in Spring of 2015.

Carissa N. Frerker, Tax Associate, graduated from Lindenwood University in May 2015 with a Bachelors in Accounting. Carissa interned at Anders in Spring 2015.

Miranda E. Huelsmann, Tax Associate, graduated from Southern Illinois University- Edwardsville in December 2015 with a Bachelors in Accounting and a Masters in Accounting. Miranda interned at Anders in Spring of 2014 and 2015.

Katie A. Holtgrave, Tax Associate, graduated from Southeast Missouri State University in May 2015 with a Bachelors in Business Administration with an Accounting emphasis. Katie interned at Anders in Spring 2014 and 2015.

Zachary M. McDowell, Tax Associate, graduated from Southeast Missouri State University in May 2015 with a Bachelors in Business Administration with Accounting and Finance emphases. Zachary interned at Anders in Spring of 2014.

Adam J. Werner, Audit Associate, graduated from Southeast Missouri State University in May 2015 with a Bachelors in Business Administration with an Accounting emphasis. Adam interned at Anders in Spring of 2015.

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September 17, 2015

Must Self-Insured Plans Provide Essential Health Benefits?

This Q&A addresses whether a self-insured health care plan must provide “essential health benefits,” as defined and required under the ACA. As this article explains, the answer is generally “no” — though self-insured plans are prohibited from imposing annual or lifetime dollar limits on any essential health benefits they do offer.

Question: We understand that the Affordable Care Act (ACA) requires some health care plans to cover certain “essential health benefits.” Does that include our self-insured plan?

Answer: No, self-insured plans aren’t required to include essential health benefits. However, as discussed below, they’re prohibited from imposing annual or lifetime dollar limits on any essential health benefits they do offer. The Department of Health and Human Services (HHS) has established a process for self-insured plans to identify essential health benefits, based on rules applicable in the individual and small group markets.

Choosing a benchmark

The ACA requires insured health plans in the individual and small group markets to contain an “essential health benefits package.” The basic building block of the essential health benefits package is a benchmark plan designated by each state (or by the HHS, absent state action), based on the largest insurance products sold in the state. The statutory definition of “essential health benefits” includes items and services in ten general categories:

  1. Ambulatory patient services,
  2. Emergency services,
  3. Hospitalization,
  4. Maternity and newborn care,
  5. Mental health and substance use disorder services (including behavioral health treatment),
  6. Prescription drugs,
  7. Rehabilitative and habilitative services and devices,
  8. Laboratory services,
  9. Preventive and wellness services and chronic disease management, and
  10. Pediatric services (including oral and vision care).

Although your self-insured plan isn’t required to cover essential health benefits, you still need to understand what constitutes essential health benefits under your plan. This is because, if your plan imposes any annual or lifetime dollar limits, you’ll need to ensure that the limits aren’t applied to essential health benefits.

For this purpose, your plan may use as its definition of essential health benefits your choice of any HHS-approved benchmark plan from any state. The HHS has indicated that the benchmark plan you select must be “supplemented as needed to ensure coverage of all ten statutory categories,” though there’s no specific guidance on how to do this.

Minding other mandates

If your plan doesn’t impose any annual or lifetime dollar limits, you’ll not need to define the scope of benefits that are subject (and not subject) to the limits. Thus, your plan may not need to adopt a definition of essential health benefits. But keep in mind that, though your plan isn’t required to offer essential health benefits, there are other mandates that may require your plan to cover certain services, such as preventive care services.

© 2015

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September 17, 2015

Anders Makes 2015 Best Accounting Firms
to Work For List

Anders CPAs + Advisors was recently named as one of the 2015 Accounting Today’s Best Accounting Firms to Work For. This is the third year that Anders has received this honor and is one of only 100 firms selected. To identify this group, Accounting Today has partnered with Best Companies Group to identify companies that have excelled in creating quality workplaces for employees.

This survey and awards program is designed to identify, recognize and honor the best employers in the accounting industry, benefiting the industry’s economy, workforce and businesses. The list is made up of 100 companies.

Companies from across the United States entered the two-part survey process to determine Accounting Today’s Best Accounting Firms to Work For. The first part consisted of evaluating each nominated company’s workplace policies, practices, philosophy, systems and demographics. This part of the process was worth approximately 25% of the total evaluation. The second part consisted of an employee survey to measure the employee experience. This part of the process was worth approximately 75% of the total evaluation. The combined scores determined the top companies and the final ranking. Best Companies Group managed the overall registration and survey process, analyzed the data and determined the final ranking.

“The firms on this list represent the best workplaces in the accounting profession,” said Accounting Today Editor-in-Chief Daniel Hood. “They are outstanding places to build a career.”

For more information on Accounting Today’s Best Accounting Firms to Work For program, visit www.BestAccountingFirmsToWorkFor.com.

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September 15, 2015

Purchasing Missouri Tax Credits Can Help Reduce State Tax Liability

Missouri taxpayers may wonder what options they have to help reduce their state tax liability. One option for many taxpayers is to purchase Missouri tax credits.

Once purchased, a Missouri tax credit is applied dollar-for-dollar as a reduction to the Missouri tax liability on Missouri’s tax return, as opposed to a tax deduction, which reduces taxable income resulting in a decrease in tax liability equal to the percentage of a taxpayer’s marginal tax bracket. A Missouri tax credit may be purchased for less than a dollar. They are generally purchased from a bank specializing in the sale of Missouri tax credits.  If a taxpayer earned Missouri tax credits from the state, such as for completing a Missouri historic rehabilitation project, they may sell any excess credits to the bank.  See the following example:

Assume a taxpayer has Missouri taxable income of $500,000. Their income tax liability is approximately $30,000 (6% of taxable income). The taxpayer purchases the credits for $.94 per credit dollar which equates to $28,200. The taxpayer reduces their Missouri tax liability to zero on the current year tax return using the $30,000 in credits and will recognize a short-term capital gain of $1,800 taxed at the ordinary tax rate. So the benefit is that a taxpayer can spend $28,200 on credits and recognize $713 in tax on the capital gain if they are in the highest tax bracket of 39.6%. This covers the $30,000 MO tax liability at a cost of only $28,913 ($28,200 + $713). This leaves the taxpayer with a $1,087 benefit ($30,000 – $28,913).

In addition to the credits being claimed on the state tax return, the total $30,000 (in the example above) can be claimed as a state tax deduction on the federal income tax return in the year the purchase was made.

Another option for a taxpayer who wishes to obtain Missouri tax credits is to donate to an organization that offers tax credits in return for contributions made. Generally, a Missouri tax credit received from charitable contributions is equal to 50% of the donation made. This is in addition to receiving a federal tax deduction for the contribution. There are a number of programs from which tax credits may be purchased.

Click here for a listing of the charitable programs with Missouri tax credits available and relevant information pertaining to each.

For more information on Missouri tax credit options, contact an Anders tax advisor.

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