Wednesday, October 15, 2014


Many taxpayer’s are unaware they may be eligible for the Retirement Saver’s tax credit.  Subject to income limitations, the government is offering non-refundable tax credits to incentivize taxpayers to invest towards their future retirement.

Here is a quick example of how the credit works.  Assume a young married couple will have an adjusted gross income of $59,000 in 2014.  If each spouse were to contribute $2,000 to an IRA account then they would receive a tax deduction of $4,000 and a non-refundable tax credit of 10%, or in this case $400.  Without even taking into account the tax deduction, the couple would instantly earn a 10% return on their investment.

This is a very simple example used to demonstrate the potential benefits of the Retirement Saver’s tax credit.  If you are interested in learning more about this tax credit then tax professionals at Sutton-McCann would love to meet with you and discuss your situation in detail.  The actual amount of the credit you may receive is dependent on your individual facts and circumstances. 

Nick S. Wold, CPA, MA

Wednesday, September 24, 2014

Health Insurance Exchange: Turning bronze into gold!

If you are one of the thousands of Washington residents purchasing their health insurance from the state exchange then you should consider the potential benefits of selecting a bronze level plan and pairing it with a Health Savings Account.  Not all of the bronze level plans offer HSA accounts so be sure to verify the plan details when purchasing your insurance from the exchange. 

This option is especially attractive for people in good health and looking to save for future medical expenses.  The bronze level plans have the cheapest monthly premium, but they also require you to pay the most out-of-pocket.  Again, this is a nice offset for someone in good health.  In this case, you are purchasing insurance to protect yourself from a catastrophic event.  Under the bronze level plan, the maximum annual out-of-pocket expenses range from $5,250 to $6,350 for individuals.  So, be prepared to pay if you incur a catastrophic health event.  Obviously, this may be a poor strategy for someone with a lack of emergency funds.
In addition to offering the lowest monthly premiums, the bronze level plans allow you to establish a health savings account (HSA).   Health savings accounts allow you to deduct contributions from your income taxes (up to annual dollar limits).  Funds within the HSA may be used to purchase and hold investments.  The gains realized on these investments are tax free as long as the money is left within the HSA account.  Finally, the money within the account may be distributed tax free as long as the funds are used for qualified medical expenses. 
In addition to the traditional tax benefits of an HSA, the Affordable Care Act has created a fourth possible tax benefit.  If you purchase your insurance from the exchange then your contributions towards an HSA will lower your adjusted gross income and may help you qualify for federal tax credits to pay for your health insurance premiums. 
The best part is the HSA is your money!  Think of these funds as another form of retirement savings. The money stays with you forever, even if at some point down the road you switch to a silver or gold level insurance plan and are no longer eligible to continue future contributions.  Once you reach the age of 65, you can withdraw your HSA funds for any reason without penalty.  After turning 65, if you use the funds for non-medical expenses, you will have to pay regular income tax on the withdrawals.  Upon your death, the account is transferred to the beneficiary listed on your account.
There is no perfect answer when trying to evaluate your health insurance options but this is a strategy that should be considered very carefully by individuals and families who are young and in overall good health.  There are many options to choose from and many variables at play.  All you can do is make an educated decision.
Nick S. Wold, CPA, MA

Thursday, July 24, 2014


Beware of a small business financing tool that is growing in popularity.  The tool is known as ROBS.  ROBS are being marketed across the country by firms that help individuals administer the complex structure of the transaction.  ROBS is an acronym used by the IRS and stands for “Rollovers for Business Startups”.

In a nutshell, ROBS is a tax strategy that allows individuals with qualified retirement accounts to distribute funds (tax free) and rollover the funds to a start-up business.   The details for the structure of the transaction are very complex and beyond the scope of this blog.  However, anyone that is looking to use ROBS as a tool to fund their business should proceed carefully and make sure they are receiving competent advice.  There are many rules that govern the transactions within ROBS and there are very big penalties at stake if the rules are not followed correctly.   The IRS is aware of the complexity involved in these transactions and is targeting ROBS for more intense examination.
Be sure to seek independent advice before rushing into a quick decision.  Beyond the compliance requirements surrounding ROBS, the risks and rewards of placing all of your retirement assets into a new business need to be thoroughly evaluated.

Nick S. Wold, CPA, MA

Friday, June 27, 2014


If so, you may be unaware of a little known tax strategy that could save you thousands of dollars.  The tax strategy is known as Net Unrealized Appreciation and applies to situations where employer stock is held within an employee retirement account of the employer.  Here is a quick example of how it may save you on taxes.

Assume an executive in the 39.6% tax bracket decides to change employers at age 60.  She holds $200,000 worth of company stock with a cost basis of $40,000, resulting in net unrealized appreciation of $160,000, and she wants immediate access to the funds.

She decides to distribute the assets into a taxable account and elects NUA tax treatment.  She pays income tax at the ordinary tax rate on just her $40,000 costs basis, a tax of $15,840.  She then immediately sells her company stock and pays 23.8% capital gains tax on the stock’s $160,000 NUA.  The total capital gains tax is $38,080. The total tax on the distribution is $53,920, leaving her with $146,080.

Compare this to an alternate strategy of converting the company stock to normal IRA account.  Upon distribution, the entire amount would be taxed at the ordinary income tax rate.  Assuming she remains in the top tax rate of 39.6%, she would be facing total taxes of $79,200 on the $200,000 distribution.  In this case, she would have saved $25,280 in total tax.

The IRS rules on NUA are very strict and it is very important to seek consultation to determine if you would qualify.  Also, you don’t want to let taxes dictate investing decisions.  Make sure to first consider if the sale fits within you long-term plan and then see if this tax strategy makes sense for you.
Nick S. Wold, CPA, MA

Tuesday, May 13, 2014

The Starbucks Retirement Plan

No, I’m not referring to any 401(k) plan or stock option plan.  In fact, I’m not even referring to anyone that even works for Starbucks!  What if I told you that you could fund a significant portion of your retirement fund by simply investing $3.30 per day?  We have more college educated young adults than ever before in the history of our country.  However, how many of them were taught the most powerful force in the history of the universe (according to Albert Einstein).   Probably not too many!  What is this force and how does it affect their retirement portfolio?  Drum roll please…compounding interest!!!

If someone who is 25 years old invests just $3.30 per day then they could save up to $1 million by the time they turn 75!  Now, there is no guarantee with any investment but these numbers are based on what history has shown.  If you were to invest $100 per month beginning at 25 and earn an average return of 9% then you would have approximately $1,166,910 at age 75.  By utilizing the power of compounding interest, it is possible to turn $100 a month today into $1 million tomorrow.  How many young people could find extra funds for retirement if they simply cut back on their daily latte? 
Nick S. Wold, CPA, MA

Wednesday, May 7, 2014


Over the years I have had lots of experience with the tenant-in-common form of property ownership.  In case you are unfamiliar with this form of ownership; it is where multiple owners share a percentage ownership in one property.  Each owner has a fractional undivided ownership interest.  No one owner can make decisions for the other owners unless they have an operating agreement between them that allows one person to make decisions for all of the owners, and this kind of operating agreement may cause the arrangement to be classified as a partnership.  The primary reason for tenancy-in-common ownership is to facilitate making a tax deferred exchange of one property for another property.  A more common form of ownership of property by multiple people would be in the form of a partnership or LLC, but property owned by a partnership (or LLC) can only qualify for tax deferred exchange treatment if all the partners want to make the exchange.  Therefore, tenant-in-common ownership is chosen so that each owner can separately decide whether to do a tax deferred exchange.

The main problem with tenant- in-common ownership is the lack of control by any one owner.  I have seen many tenant-in-common arrangements go bad when major management decisions need to be made but there is no good way to get the various owners together on the decisions.  Often these decisions are time sensitive and tenant-in-common arrangements tend to make owner communications slow, and do not give the majority of owners the right to force a minority to make a decision that they do not agree with.  The result is often that no decision is made and the property loses value or cash flow because of the lack of action. 

One of the things that I try to help clients do, is to look at the real dollars of tax postponed by a tax deferred exchange, and think hard about whether the deferral of tax dollars really offsets the lack of control in a tenant-in-common arrangement.  Sometimes people put too much importance on the ability to postpone some tax.  Tax deferred exchanges are not always the best choice, for many reasons.  When one of the conditions necessitated by a tax deferred exchange is the ownership of the property in a tenant-in-common form, there needs to be a large savings realized by the tax deferral to justify the exchange.  Do not get into a tenant-in-common ownership without considering all aspects of the decision.

Loren L McCann, CPA, MS (Tax)

Wednesday, April 30, 2014

How Did He Get So Smart?

I was surprised by a compliment a couple of weeks ago that got me thinking about the decision making process.  I was having lunch with a client that I have worked with for over thirty years and I commented that over that period of time he and his wife had made many good decisions, more than was usual.  The client replied that it was because of my advice over the years that they had made those good decisions.  I am not sure that I totally agree with my client on that, but it started me thinking about the decision making process itself.  We have been told that with good advice there is a better likelihood for success.  But the assumption is that the recipient will listen to the advice.

I realized that many of my more successful clients are the ones who tend to listen to advice from others and weigh it in their minds before making decisions.  Not all of the advice we receive, or give, is good advice.  However, just the practice of taking the time to listen to advice promotes the process of careful consideration in our minds, and that may make the difference between carefully thinking out our decisions and jumping to a decision too quickly.  

One of the reasons that our annual company planning retreats add so much value to our business is that during those retreats we carefully consider all sides of an issue before making a decision.  The conclusion of all this thinking is that it is important to identify people whose opinion we seek and solicit those opinions as part of our regular decision making process.  Whether you set up some formal method of obtaining that advice through regular meetings, or whether you have a less formal method of obtaining advice, will be partly a function of your business habits and partly a function of how important you think this advice is, but seeking advice in some manner is the critical thing.

Loren L McCann, CPA, MS (Tax)

Wednesday, February 26, 2014


One of the things that I have enjoyed about helping to manage our business for 29 years is that there has never been any blame cast for bad decisions.  Even though all major decisions are voted on and therefore are approved by a majority of the owners; the truth is that most ideas originate with only one of us and therefore blame could be directed to someone if the idea does not work out.  But blame has never been part of our business culture.  I can vouch from personal experience for the advice that you should never engage in blaming one of your business associates for a decision gone bad.  Once the decisions are made, see yourselves as all equally responsible for the success or failure of that decision.  Learn from your mistakes, but do not blame anyone for them.

Blame has at least two very bad consequences.  The first is bitterness.  Both the person who thought up the idea and the ones who went along with it will be bitter if blame is cast.  The person who thought up the idea will be bitter at being blamed, and the other people will be bitter that their time or money has been wasted.  The second bad consequence is the tendency to stop initiating new ideas if there is a risk that you will be blamed if the idea does not work out.  Either way, the company loses. 

The best plan is to resolve to be equally responsible for all decisions, good or bad, no matter who originally came up with the idea.  That way no one will become bitter and the ideas for new decisions will keep coming.

Loren L McCann, CPA, MS (Tax)

Wednesday, February 19, 2014


I was recently asked a tax question regarding the proper reporting of a certain employee benefit paid to a nonprofit entity’s employee.  I gave the correct answer to the nonprofit’s treasurer and thought that was the end of it.  The answer that I had given was not liked by the employee it affected, and this opened a dialog between the treasurer, the employee, another tax preparer, and a fourth party that was the supplier of the particular employee benefit.  Most of the controversy arose because of a difficulty of defining the question to be answered.  The employee, the other tax preparer, and the benefit provider were each answering different questions because the persons asking the questions did not know enough of our complex tax system to even ask the right question.  I believe this helps to demonstrate that our tax system has become much too complex.

Any good tax system should be, at the very least, one that those being taxed can understand.  Recently we had to tell our clients that we could no longer give any kind of an estimate of their taxes owed without inputting their information into our computer.  There are now so many provisions that are phased in at different income levels, and that are subject to special and peculiar limitations, that it is nearly impossible to make an intuitive guess as to potential tax liability.  When a person is unable to visualize even an approximation of their tax consequences of a contemplated action, it is very hard to make everyday economic decisions.  The result of this kind of complicated tax system is a mix of anger and indecision that is bad for our economy.

It is time that we all expressed our concern to our elected representatives.  We are tempted to think that we are powerless to evoke a positive change in our system, but my experience is that our elected representatives do listen to what we say, and that it takes a relatively few contacts to influence their thought.  From a few hundred to a few thousand contacts will often be enough to get an elected official to act.  When even experienced tax professionals are having difficulty with the complexity of our tax system it is past time to get the system changed.

Loren L McCann, CPA, MS (Tax)

Wednesday, February 5, 2014


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February’s newsletter includes a Social Security Update and a short article on Retirement Plan Review. Click on the below link to sign up for the newsletter. While you are there be sure to check out some of our older newsletters.

Sharon Holcomb, EA

Wednesday, January 22, 2014


Every year at our office we have a cleanup day.  We schedule this on a Saturday so it won’t interrupt the workday.  This is a time to go through and purge all the unnecessary items that tend to cause clutter.  We are continually amazed by the things that we can donate or throw away.  This is a great way to start the year clutter free and organized.

Christine Bartlett, Office Manager

Thursday, January 16, 2014


Gordon Bower and I were having lunch with an attorney friend of ours last week and the discussion turned to their annual planning retreat.  They, like us, have a formal annual planning retreat where all the owners of the firm and their spouses go away for a few days and plan out how the firm is going to operate for the next year.  Our firm has been doing this for the past 25 years or so and it has been a huge help to our successfully running the business.  At the meeting we keep formal minutes, discuss all aspects of operating the business and plan out all our major actions for the coming year.  We make decisions about salaries, equipment purchases, marketing techniques, office space, operating expenses and anything else that comes up.

By taking our spouses we are able to get their perspective on major issues, which is very helpful, and we do some team building in the process.  We have found that it is absolutely imperative that the retreat is held away from both home and office.  This point is hard to convince other business owners of, but it really is a necessity.  The most common excuse we hear is that the business owner can’t afford to take the time away from the business.  However, over the years we have been able to direct a few of our clients to have this type of planning retreat and they have universally agreed that it is the best thing they do all year and that they can’t afford not to take this time away from the business.  Much of the anxiety of running a business can be greatly reduced by taking this special time to discuss and make decisions about the operations of the business for the coming year.

To get you started you could use your financial statement or tax return as a guide and go through the document line by line, discussing each category of income and expense.  Much emphasis should be placed on the sales category since it entails the major areas of marketing, collections, and customer satisfaction.  If you need help getting started, we could help you set the agenda, but by all means, consider making the business planning retreat an annual event.  You will be glad you did.

Loren L McCann, CPA, MS (Tax)

Tuesday, January 7, 2014


There is a lot of talk in the media and among friends about how much we pay in income taxes in this country, but we have found that most people really do not know the answer to that question.  So that you will have a better idea of how much you are really paying you can find your tax liability on your tax return and divide it by your gross income to determine the percentage you pay in income taxes.  For example, on the 2012 tax return, you could divide line 55 by line 22 from the Form 1040. 

If you want to include Social Security tax in the calculation, which is a good idea, the calculation is a little more complicated.  To include the Social Security tax you would have to add the Social Security withheld from your wages, found in boxes 4 and 6 of your W-2 forms, to line 61 of your Form 1040, and then divide that sum by line 22.

Most people discover that they are paying a smaller percentage than they have been led to believe.  Regardless of what you find as your answer, at least you will be dealing with facts instead of impressions or media hype.
Loren L McCann, CPA, MS (Tax)