Monthly Archives: August 2015

How to Maximize FDIC Coverage

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FDICThe Federal Deposit Insurance Corporation (FDIC) has provided deposit insurance coverage to depositors of banks since 1933.  All types of deposits at financial institutions in their usual course of business are insured.  This includes all savings deposits, checking deposits, Certificate of Deposits (CDs), Christmas Club accounts, etc.  Securities, mutual funds, and similar investments are NOT covered even if they are purchased through a bank.  Safe deposit contents are also not covered.

A depositor is normally insured up to $250,000 in each insured bank.  Accrued interest is also covered when calculating insurance coverage.  Deposits held in one bank are insured separately from any deposits held in another separately insured bank.  Funds deposited in separate branches of the same bank are not separately insured.

Example:  John deposits $250,000 in Bank A and $250,000 in Bank B.  Each of John’s $250,000 deposits is fully covered.  However if John deposits $500,000 in two branch locations of Bank A, only $250,000 of the total $500,000 Bank A deposit is covered.

FDIC coverage is not determined on a per-account basis, but on an ownership basis.  This means that a bank customer who has multiple deposits may qualify for more than $250,000 in insurance coverage if the customer’s accounts are deposited in different ownership categories and the requirements for each ownership category are met.

Each of the following account ownership categories have their own separate $250,000 coverage.

  • Single ownership accounts
  • Joint ownership accounts
  • Business accounts
  • Revocable trust accounts
  • Retirement accounts

Single Ownership Accounts

A single account is one owned by one person.  All single ownership accounts are added together.

Example: Sally has two accounts in her own name with no joint owners.  One account has a $100,000 balance and the other has a $200,000 balance.  Only $250,000 of Sally’s accounts are insured.

Joint Ownership Accounts

A joint account is owned by two or more people.  Each co-owner’s share of each joint account at each bank are added together with his or her joint account shares at the same bank, and the total is insured up to $250,000.  All co-owner’s shares are considered equal unless the deposit account records state otherwise.

Example:  John and Sally have a joint account with $500,000 in it.  Each has a single account with $200,000 in each account.  The balance in the joint account has its own $250,000 coverage limit per owner, so John and Sally each have $250,000 of coverage in the $500,000 joint account.  Additionally, John and Sally have $250,000 of coverage available in their single ownership accounts so each of their $200,000 single ownership accounts is fully covered. 

Business Accounts

Corporate, partnership, and LLC accounts are considered owned by the entity and not by the individual owners.  Therefore, the entity accounts are insured separately from the personal accounts of the owners.

Revocable Trust Accounts

This includes pay-on-death accounts and formal written revocable trusts created for estate planning purposes (usually referred to as living trusts).  Each owner and beneficiary has his or her own $250,000 coverage limit.

Example:  John and Sally have a joint living trust with their two children as beneficiaries.  The trustees deposit $1,000,000 into a bank.  The two owners and the two beneficiaries each have their own $250,000 coverage limits so the $1,000,000 is fully covered.

 Retirement Accounts

Up to $250,000 in deposit accounts is provided for deposits a customer makes at the same bank in a variety of retirement accounts including IRAs, Roth IRAs, SEP IRAs, and SIMPLE plans.

Example of Maximizing FDIC Coverage

John and Sally have the following accounts at one bank.  They have a son named Timmy.  Each of these accounts is fully insured:

John single ownership account                                   $250,000

Sally single ownership account                                   $250,000

John & Sally joint account                                         $500,000

John IRA                                                                  $250,000

Sally IRA                                                                  $250,000

John POD to Sally                                                     $250,000

Sally POD to John                                                     $250,000

John & Sally living trust (Timmy is beniary)                  $750,000

Total Insured                                                          $2,750,000

Another option for keeping funds at the same bank is to use the Certificate of Deposit Account Registry Service ® (CDARS).  Using CDARS, deposits over $250,000 are placed by a participating bank into smaller denomination CDs at multiple FDIC insured banks.

To see how this applies to you, give us a call at 248-538-5331.


Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

Business Owners & Employees Can Be Personally Liable for Unpaid Payroll Taxes

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trust fund recoveryBusinesses with employees incur payroll taxes on their employees’ payroll.  On the federal side, these payroll taxes include the employer’s portion of Social Security and Medicare (FICA taxes) as well as unemployment tax.  A business must also withhold the employees’ portion of FICA taxes plus federal inco
me tax from their employees’ gross pay.

The IRS is deeply concerned about the employee portion of FICA and federal income tax that employers withhold and remit to IRS.  These amounts are paid by employees and held by employers in trust until the employer submits these funds to the IRS.  These amounts are known as trust fund taxes.  The concern is that employers use these funds for their own use rather than pay the funds to the IRS.  Many employers know that it takes the IRS several months to discover that the payments have not been made.  Employers believe they can catch up on the payments before the IRS notices.

When trust fund taxes are not paid to the IRS, the employee still receives credit for federal income tax withheld from her gross pay and she receives credit for her Social Security and Medicare payments.  If the employer does not ultimately remit payment, it is the general public that gets stuck with the taxes.

Trust Fund Recovery Penalty Imposes Personal Liability on Those Responsible for Tax Payments

Employers that are organized as limited liability entities such as corporations and LLCs are not directly liable for trust fund taxes because of their limited liability status.  However, the trust fund recovery penalty allows the IRS to collect taxes from persons who are not directly liable for such taxes, but who possess the power to control the entity’s finances and determine which creditors get paid.

Thus, the penalty can be personally assessed against the owners of the business (who are not primarily liable) in addition to the corporate/LLC employer.  As an added deterrent, the trust fund recovery penalty is not dischargeable in bankruptcy.  An issue with the trust fund recovery penalty is that it can also be applied to employees who are not owners of the business.

For the penalty to apply, the person must be responsible for collecting, truthfully accounting for, and paying over the tax to the government.  Second, that person must willfully fail to do so, or willfully attempt in any manner to evade or defeat the tax or its payment.  Finally, the IRS must determine collectability of the responsible persons.

Who is a Responsible Person?

Some factors that indicate that a person is responsible include whether the individual:

  • is an officer or member of the board of directors
  • owns shares or possesses an entrepreneurial stake in the business
  • is active in the management of day-to-day affairs of the business
  • has the ability to hire and fire employees
  • makes decisions regarding which, when, and in what order debts or taxes will be paid
  • exercises control over daily bank accounts
  • has check signing authority

Based on these factors, it is quite possible for a rank-and-file employee to be considered a responsible person subject to the trust fund recovery penalty.  Employees who are not shareholders will not be considered responsible parties if they act under the control of others and cannot make independent business decisions.

To determine who the responsible persons are, the IRS will conduct interviews of the owners and employees of the business. The IRS will use Form 4180 as a guide in conducting the interviews.  Generally, it is inadvisable for the taxpayer to be directly interviewed by IRS.  In the absence of a summons, the taxpayer cannot be forced to accompany a tax practitioner to an in-person interview concerning the determination or collection of tax as long as the tax practitioner is authorized to practice before the IRS and has a valid authorization to represent the taxpayer.

What is a Willful Failure?

Courts have held that willfulness means that the act of nonpayment was voluntary, consciously, and intentionally done or omitted.  A willful failure results when a responsible person is aware of the unpaid trust fund taxes, but consciously pays the amounts to others.

Can the IRS Collect from Responsible Persons?

A final requirement is for the IRS to consider the likelihood of collection from responsible persons.  The following factors are used to determine collectability:

  • the individual’s current financial condition
  • any involvement in a bankruptcy proceeding
  • the individual’s income history/potential
  • asset growth potential
  • the existence of prior penalties
  • the existence of prior “currently not collectible” cases

The trust fund recovery penalty imposes joint and several liability on responsible persons, meaning the IRS cannot collect the full amount from any one responsible person.  Any responsible person who pays more than his share is entitled to contribution from the other responsible persons.

To see how this applies to you, give us a call at 248-538-5331.


Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.


New Mortgage Interest Tax Statements May Lower Interest Deductions

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valuation-149889_640A lender must send a Form 1098 to a mortgage borrower if the borrower pays $600 or more in interest during the year.  The Form 1098 currently includes the following information:

  • name and address of the borrower
  • amount of interest and points paid by the borrower
  • other information the IRS may prescribe such as tax ID of the borrower and tax ID, address, and name of the lender

Beginning with the 2016 Form 1098 (for interest and points paid during 2016), a new law requires the Form 1098 to include the following additional information:

  • the amount of the outstanding mortgage principal as of the beginning of the year
  • the mortgage origination date
  • the address of the property which secures the mortgage

Why is the Additional Information So Important?

Having the outstanding mortgage principal balance will allow the IRS to more easily identify taxpayers who deduct mortgage interest above the mortgage interest caps.

The Caps on Mortgage Interest Deductions

There are two types of deductible mortgage interest.  Acquisition mortgage interest, which is interest used to purchase or substantially improve a home.  An example of a substantial improvement is adding an extension.  You can deduct acquisition interest on a mortgage of up to $1 million.  The second type of mortgage interest is home equity interest.  Home equity interest is for mortgages that are secured by your home, but the interest is still deductible regardless of how the money is spent.  You can deduct home equity interest on mortgages up to $100,000; however, if the sum of home acquisition debt and home equity debt exceed the market value of your home, a portion of the home equity interest will not be deductible.

The additional information on the Form 1098 will highlight to the IRS the amount of the mortgage so the IRS can more easily determine if taxpayers exceed the $1 million limit on home acquisition mortgages and the $100,000 limit on home equity loans.

If you have questions on how this relief applies to you, give us a call at 248-538-5331.


Business Tax Return Deadlines Are Changing

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tax deadlineMost people are familiar with the April 15 deadline for personal income tax returns.  Other types of taxpayers, such as corporations and LLCs, have their own deadlines for their income tax returns.  Under current law, corporations have a March 15 deadline and partnerships have an April 15 deadline.

The IRS very recently made some adjustments to the tax return deadlines of C corporations and partnerships (including LLCs taxed as partnerships).  The IRS has also adjusted extended tax return deadlines.

Adjusted Deadlines for Business Tax Returns

Effective for tax years beginning after December 31, 2015 (for 2016 tax returns):

  • Both partnerships and S corporations will have a March 15 deadline. The S corporation deadline has not changed.
  • C corporations will now have an April 15 deadline.

The partnership deadline has moved up one month to March 15 because the April 15 partnership deadline caused many individual filers to file extensions for their personal returns because they did not receive a Form K-1 for the partnership before April 15.

The IRS deferred the C corporation deadline for one month to April 15 so tax preparers can focus on completing partnership returns since partnership returns are needed to complete personal tax returns by April 15.

Effective for tax years beginning after December 31, 2015 (for 2016 tax returns), partnerships that haven’t filed by March 15 can file a six month extension to September 15.  Currently, partnerships can file a five month extension from April 15 to September 15.

Effective for tax years beginning after December 31, 2015 (for 2016 tax returns), C corporations that haven’t filed by April 15 can file a five month extension to September 15.  Currently, C corporations can file a six month extension from March 15 to September 15.

New Filing Dates for FBAR

The Report of Foreign Bank and Financial Accounts (FBAR) is used to report a financial interest or signatory authority over foreign bank accounts.  Under current law, the FBAR must be received by the Department of Treasury by June 30.  This deadline cannot be extended.

Under the new law, for tax years beginning after December 31, 2015, the FBAR deadline will be moved up a little over two months to April 15.  However, the deadline can now be extended up to six months to October 15.  For any taxpayer required to file an FBAR for the first time, any penalty for failure to timely request for, or file, an extension may be waived by the IRS.

To see how this applies to you, give us a call at 248-538-5331.


Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.


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