Non Profit Filing Deadline approaching!

Many Tax-Exempt Organizations Must File with IRS By May 15 to Preserve Tax-Exempt Status

 A key deadline of May 15 is facing many tax-exempt organizations that are required by law to file annual reports with the Internal Revenue Service. Organizations will see their federal tax exemptions automatically revoked if they have not filed reports for three consecutive years.

The Pension Protection Act of 2006 mandates that most tax-exempt organizations file annual Form 990-series informational returns or notices with the IRS. Under this law, organizations that fail to file reports for three consecutive years automatically lose their federal tax-exempt status.  Churches and church-related organizations are not required to file annual reports.  Form 990-series information returns and notices are due on the 15th day of the fifth month after an organization’s fiscal year ends. Organizations that need additional time to file may obtain an extension.
 

Many organizations use the calendar year as their fiscal year, which makes May 15 the deadline for them. Organizations that fail to file annual reports for three consecutive years will see their tax exemptions automatically revoked as of the due date of the third required filing.

Small tax-exempt organizations with average annual receipts of $50,000 or less may file an electronic notice called a Form 990-N (e-Postcard), which asks organizations for a few basic pieces of information. Tax-exempt organizations with average annual receipts above $50,000 must file a Form 990 or 990-EZ, depending on their receipts and assets. Private foundations file a Form 990-PF.

The IRS began to publish the names of organizations identified as having automatically lost their tax-exempt status for failing to file annual reports for three consecutive years. Organizations that have had their exemptions automatically revoked and wish to have that status reinstated must file an application for exemption and pay the appropriate user fee.

If your Non Profit needs help filing a 990, don't hesitate to call!  Also, if your Tax-Exempt organization has lost its status due to non filings, please contact us immediately.  We have helped organizations who lost their tax exempt status to regain their tax exempt status.

 

Kids off to Summer Camp?

Summer Day Camp Expenses May Qualify for a Tax Credit !
Along with the hot, lazy, hazy days of summer come some extra expenses, including summer day camp for working parents. But, there’s some good news. If you paid someone to care for a child or a dependent so you could work, you may be able to reduce your federal income tax by claiming the credit for child and dependent care expenses on your tax return.
This credit is available to people who, in order to work or to look for work, have to pay for childcare
services for dependents under age 13. The credit is also available if you paid for the care of a spouse
or a dependent, of any age, who is physically or mentally incapable of self-care.
The Child and Dependent Care Credit is available for childcare expenses incurred during the summer
and throughout the rest of the year.

Here are five facts to remember about this credit:
1) The cost of day camp may count as an expense toward the Child and Dependent Care Credit.
2) Expenses for overnight camps do not qualify.
3) Whether your childcare provider is a sitter at your home or a daycare facility outside the home,
you may get some tax benefit if you qualify for the credit. You will need the name of the childcare
provider, the address, the identification number (i.e. Social Security number or employer
identification number) and the total amount paid.
4) The credit can be up to 35 percent of your qualifying expenses, depending on your income.
5)You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying
individual or $6,000 for two or more qualifying individuals to figure the credit.

How to you get copies of your past tax returns....

People often need their previous tax returns...here is the link showing exactly of how to get past returns from the IRS.
http://www.irs.gov/pub/irs-utl/OC_Getcopiesofyourtaxreturnandtaxaccountinformationonline.pdf

Child and Dependent Care Credit

Eleven Things About the Child and Dependent Care Credit

Paid someone to watch the kids so you could work?  You may be able to claim the Child and Dependent Care Credit on your federal income tax return. Below are 10 things to know about claiming a credit for child and dependent care expenses.

1. The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child age 12 or younger when the care was provided. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care may also be qualifying persons.
2. The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work.
3. You – and your spouse if you file jointly – must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment.
4. The payments for care cannot be paid to your spouse, to the parent of your qualifying person, to someone you can claim as your dependent on your return.  You must identify the care provider(s) on your tax return.
5. Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.
6. The qualifying person must have lived with you for more than half of 2010.
7. The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.  It is a sliding scale as your income increases with a floor of 20%.
8. For 2010, you may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.
9. The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income.
10. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer and may have to withhold and pay social security and Medicare tax and pay federal unemployment tax.
11. Child care expenses can be associated with before- and after-school care, day camps and similar programs, as well as pre-school expenses. The Internal Revenue Service has determined that children who are in kindergarten do not qualify for the deduction because it is an educational cost. This is true even if the cost is for a private school that has a full day of kindergarten. Day camps must not be overnight camps to qualify as deductible.  The IRS has indicated that the costs of sending a child to overnight camp are not employment-related.

I have been asked a couple of times this tax season when.....

When are Social Security benefits taxed!  The easy answer, when you......ok let's look....

How is Social Security Income Taxed?

When your retirement is approaching you have look at everything – such as all of your income streams retirement and your living expenses you’ll be expecting.  Something that you also want to check are taxes you’d be expected to pay, specifically taxes on your Social Security income.  Key question: Will My Social Security Income Be Taxed?

Not everyone has to pay taxes on their Social Security benefits. To see if your Social Security will be taxed, you have to look at your combined income and your marital status. According to IRS the income thresholds for Social Security are:

• If you’re single and your total combined income (see below) for the year is between $25,000 and $34,000, then up to 50% of your benefits can be taxed.
• If you’re single and your total combined income for the year is greater than $34,000, then up to 85% of your benefits can be taxed.
• If you’re married filing jointly and your total combined income for the year is between $32,000 and $44,000, then up to 50% of your benefits can be taxed.
• If you’re married filing jointly and your total combined income for the year is greater than $44,000, then up to 85% of your benefits can be taxed.

* Combined Income-Combined income when figuring tax on social security income is Adjusted Gross Income plus nontaxable interest plus 1/2 of social security benefits.

Possible home office scenarios for an S corp

Some potential uses of the home office deduction from the perspective of the S corp...
If you are an employee of your own one-man corporation, whether a regular “C” corporation or a “sub-chapter S” corporation, you have three choices for handling the costs of a qualifying home office:
• You can deduct the costs as an unreimbursed “employee business expense” under “Job Expenses and Most Other Miscellaneous Deductions” on Schedule A. Expenses in this category of itemized deduction are only deductible to the extent that the total exceeds 2% of your Adjusted Gross Income.
• The corporation can pay you rent for the home office.
• The corporation can pay you for the costs of a home office under an “accountable” plan for employee business expense reimbursement.

The third option, being reimbursed under an accountable plan, provides the greatest tax savings. It is an excellent way to get money out of your closely-held corporation tax-free. The corporation can deduct the amount of the reimbursement and you do not have to report the payment as income.
This option is “more better” than having the corporation pay you rent for the home office. While your corporation can deduct the rent paid to you, you must report the rent as income on Schedule E. You can only deduct the pro-rated share of real estate taxes, mortgage interest and casualty losses against the rental income on Schedule E, expenses that are otherwise deductible in full on Schedule A. You cannot deduct the proportionate share of any other expenses "with respect to the use of [the] dwelling". While this generally includes insurance on the dwelling, repair and maintenance on the dwelling, depreciation on the dwelling, and certain other indirect expenses, it does not include expenses which are not "with respect to the use of [the] dwelling" (such as the cost of electricity used to power office lights and equipment).

I usually don't post much during tax season, but....

Come on, who isn't excited about an easier way to do the home office tax deduction....

IRS Announces Simplified Option for Claiming Home Office Deduction Starting This Year; Eligible Home-Based Businesses May Deduct up to $1,500; Saves Taxpayers 1.6 Million Hours A Year

WASHINGTON — The Internal Revenue Service today announced a simplified option that many owners of home-based businesses and some home-based workers may use to figure their deductions for the business use of their homes.

In tax year 2010, the most recent year for which figures are available, nearly 3.4 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction).

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.

Only drawback is that this does not start until 2013.....but we like it!

2012 Year End Tax Tips for Small Businesses

I. Invest now.
In 2012 the bonus depreciation allowed a business to take an immediate deduction for 50% of purchased or leased qualified assets, such as machinery and off-the-shelf software. In 2013 the bonus depreciation goes away. So if you bought a new trailer truck for $100,000 in 2012, you could deduct $50,000 of the cost. If you get it into service after December 31, 2012, sorry, no bonus-depreciation deduction.

In addition, for the past several years the increase in the Section 179 limits (which allow a 100% deduction as opposed to the 50% bonus) has allowed for the immediate expensing of qualifying personal property. For 2012 the deduction limit is $139,000. In 2013 the annual deduction limit is scheduled to be reduced to $25,000. Section 179 can be taken for used property, whereas the bonus depreciation has to be new. (Although some states do not follow Section 179 rules, many do.)

 II. Hire that vet now.
In 2011 the Returning Heroes Tax Credit and the Wounded Warriors Tax Credit were signed into law. Employers who hired veterans could receive tax credits for each veteran ranging from $2,400 up to a maximum of $9,600, depending on a variety of criteria. That’s going away.

 III. Give that gift now.
This year the gift-tax exemption was $5.12 million. On January 1, 2013, it goes back to $1 million.

If you own an S corporation (in which the company’s earnings are taxed at the individual, not corporate level) worth $10 million and you want to give 20% to your kid (for example), a gift of $2 million, then do so now. If you wait until after the first of the year, anything over $1 million will be taxed at a gift rate as high as 55%.
IV. 4. Pay those dividends now.
For 2013, qualified dividends will be taxed as ordinary income, which could increase the rate from 15% to as much as 43.4% (including the new 3.8% Medicare tax).

V. 5. Accelerate revenue recognition now.
Currently taxed at 15%, the capital-gains rate is scheduled to increase to 20%, and may also be subject to the additional 3.8% Medicare tax.

Remember: This is the year of uncertainty. As Carlson says, “This could all be irrelevant. Congress could decide to extend all the [Bush] tax cuts for next year.”

Tax increases under a 2nd Obama Administration

President Barack Obama’s re-election means his administration will push to let tax cuts enacted during the George W. Bush era expire for high earners, as scheduled, at year-end. Obama wants to increase the top federal income tax rate to 39.6 percent from 35 percent, boost rates on long-term capital gains to as much as 23.8 percent, and shrink exemptions from estate-and-gift taxes.

Wealthy investors have about a month and a half to examine their investment gains and losses left over from previous years, as well as to consider ways to move income into 2012 and transfer assets to heirs.
Capital Gains
An investor who sells $100 of stock with a cost basis of $20 in 2012 would see proceeds (after capital gains taxes are hiked) of $88. Next year, if Congress doesn’t act, earnings from the sale would drop to $80.96 if rates rise to 23.8 percent. That means the stock price would need to rise by at least 9 percent for an investor to be better off selling in 2013.
Investors shouldn’t accelerate sales of securities just to avoid a higher tax rate, said Saccacio, who is based in Los Angeles. They should consider how long they planned to hold stocks and whether they need to rebalance. Those who decide to sell at current capital gains rates can re-invest in the securities if they remain attractive without violating so-called wash-sale rules under the Internal Revenue Service code that apply to stocks sold at a loss, he said.
Bonuses, Dividends
Closely held businesses that have a choice to pay bonuses or dividends in 2012 or 2013 should do so before year-end. The tax rate on dividends may skyrocket next year from 15 percent now with the expiration of Bush-era tax cuts and levies set to take effect from the health-care law.
Employees who have a choice to receive their bonus this year should do so and consider exercising stock options that are set to expire, she said.
Surtax on unearned income
The 2010 health-care law applies a 3.8 percent surtax on unearned income in 2013 for married couples making more than $250,000 and individuals earning at least $200,000.
Payroll Tax
The law also increases the Medicare payroll tax levied on wages by 0.9 percentage points for high earners.  Also, Obama's tax deduction of 2% on the employee portion of Social Security is due to end on 12/31.  Apparently there is little in the way of support for a further pushing of the payroll deduction.
Estate Tax
Legislation enacted in 2010 raised the lifetime estate-and- gift-tax exclusion for 2011 and 2012. This year individuals can transfer up to $5.12 million free of estate and gift taxes. Those levels are scheduled to expire at the end of 2012 and Obama wants to set the estate tax threshold at $3.5 million while dropping the gift-tax exemption to $1 million as it was in 2009.  That is an estimated estate tax increase of $372,600 (based on a lower taxable thrreshold and a 23% capital gains rate).
 

Affordable Care Act Tax Effects

The Affordable Care Act's tax effects are evaluated below. It contains some tax provisions that are in effect and more that will be implemented during the next several years. The following is a list of provisions for which the IRS has issued proposed and/or final guidance.

Minimum Value

On April 26, 2012, the IRS issued Notice 2012-31, which provides information on an approach to determining whether an eligible employer-sponsored health plan provides minimum value. Starting in 2014, whether such a plan provides minimum value will be relevant to eligibility for the premium tax credit and application of the employer shared responsibility payment.

Information Reporting on Health Insurance Coverage

On April 26, 2012, the IRS issued Notices 2012-32 and 2012-33, which invited comments to help inform the development of guidance on annual information reporting related to health insurance coverage. The information reporting is to be provided by health insurance issuers, certain employers that sponsor self-insured plans, government agencies and certain other parties that provide health insurance coverage.

Disclosure of Return Information

On April 27, 2012, the IRS issued proposed regulations with rules for disclosure of return information to be used to carry out eligibility determinations for advance payments of the premium tax credit, Medicaid and other health insurance affordability programs. The proposed regulations solicit public comments.

Small Business Health Care Tax Credit

This new credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees and is specifically targeted for those with low- and moderate-income workers. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees.

Health Flexible Spending Arrangements

Effective Jan. 1, 2011, the cost of an over-the-counter medicine or drug cannot be reimbursed from Flexible Spending Arrangements (FSAs) or health reimbursement arrangements unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. This standard applies only to purchases made on or after Jan. 1, 2011. A similar rule went into effect on Jan. 1, 2011, for Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs). Employers and employees should take these changes into account as they make health benefit decisions. For more information, see news release IR-2010-95, Notice 2010-59, Revenue Ruling 2010-23 and our questions and answers. FSA and HRA participants can continue using debit cards to buy prescribed over-the-counter medicines, if requirements are met. For more information, see news release IR-2010-128 and Notice 2011-5.
In addition, starting in 2013, there are new rules about the amount that can be contributed to an FSA. Notice 2012-40 provides information about these rules and flexibility for employers applying the new rules and requests comments about other possible administrative changes to the rules on FSA contributions. The Notice provides instructions on how to submit comments.

Proposed Regulations Issued on Medical Device Excise Tax

On Feb. 3, 2012, the IRS issued proposed regulations on the new 2.3-percent medical device excise tax (IRC §4191) that manufacturers and importers will pay on their sales of taxable medical devices starting in 2013.

Health Insurance Premium Tax Credit

Starting in 2014, individuals and families can take a new premium tax credit to help them afford health insurance coverage purchased through an Affordable Insurance Exchange. Exchanges will operate in every state and the District of Columbia. The premium tax credit is refundable so taxpayers who have little or no income tax liability can still benefit. The credit also can be paid in advance to a taxpayer’s insurance company to help cover the cost of premiums. On May 18, 2012, the IRS issued final regulations which provide guidance for individuals who enroll in qualified health plans through Exchanges and claim the premium tax credit, and for Exchanges that make qualified health plans available to individuals and employers.
The portion of the law that will allow eligible individuals to use tax credits to purchase health coverage through an Exchange is not effective until 2014.
Exchanges will offer individuals a choice of health plans that meet certain benefit and cost standards. The Department of Health and Human Services (HHS) administers the requirements for the Exchanges and the health plans they offer

Health Coverage for Older Children

Health coverage for an employee's children under 27 years of age is now generally tax-free to the employee.  These changes immediately allow employers with cafeteria plans –– plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits –– to permit employees to begin making pre-tax contributions to pay for this expanded benefit. This also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return.

Excise Tax on Indoor Tanning Services

A 10-percent excise tax on indoor UV tanning services went into effect on July 1, 2010. Payments are made along with Form 720, Quarterly Federal Excise Tax Return. The tax doesn't apply to phototherapy services performed by a licensed medical professional on his or her premises. There's also an exception for certain physical fitness facilities that offer tanning as an incidental service to members without a separately identifiable fee. For more information on the tax and how it is administered, see the Indoor Tanning Services Tax Center.

Reporting Employer Provided Health Coverage in Form W-2

The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, Wage and Tax Statement, in Box 12, using Code DD. Many employers are eligible for transition relief for tax-year 2012 and beyond, until the IRS issues final guidance for this reporting requirement.
The amount reported does not affect tax liability, as the value of the employer excludible contribution to health coverage continues to be excludible from an employee's income, and it is not taxable. This reporting is for informational purposes only, to show employees the value of their health care benefits so they can be more informed consumers.
More information about the reporting can be found on Form W-2 Reporting of Employer-Sponsored Health Coverage.

Adoption Credit

The Affordable Care Act raises the maximum adoption credit to $13,360 per child, up from $13,170 in 2010 and $12,150 in 2009. The adoption tax credit is refundable for tax year 2011, meaning that eligible taxpayers can get it even if they owe no tax for that year. In general, the credit is based on the reasonable and necessary expenses related to a legal adoption, including adoption fees, court costs, attorney’s fees and travel expenses. Income limits and other special rules apply. In addition to attaching Form 8839, Qualified Adoption Expenses (see instructions), eligible taxpayers must include with their 2011 paper tax return one or more adoption-related documents to avoid delaying their refund. Taxpayers may also be asked, after filing their returns, to substantiate any qualified adoption expenses they paid.
For other information, see our news release, tax tip, questions and answers, flyer, Notice 2010-66, Revenue Procedure 2010-31, Revenue Procedure 2010-35 and Revenue Procedure 2011-52.

Medicare Shared Savings Program

The Affordable Care Act establishes a Medicare shared savings program (MSSP) which encourages Accountable Care Organizations (ACOs) to facilitate cooperation among providers to improve the quality of care provided to Medicare beneficiaries and reduce unnecessary costs. More information can be found in Notice 2011-20.

Qualified Therapeutic Discovery Project Program

This program was designed to provide tax credits and grants to small firms that show significant potential to produce new and cost-saving therapies, support U.S. jobs and increase U.S. competitiveness. Applicants were required to have their research projects certified as eligible for the credit or grant. IRS guidance describes the application process.

Group Health Plan Requirements

The Affordable Care Act establishes a number of new requirements for group health plans. Interim guidance on changes to the nondiscrimination requirements for group health plans can be found in Notice 2011-1, which provides that employers will not be subject to penalties until after additional guidance is issued. Additionally, TD 9575 and REG-4003810, issued by DOL, HHS and IRS, provide information on the summary of benefits and coverage and the uniform glossary. Notice 2012-59 provides guidance to group health plans on the waiting periods they may apply before coverage starts.

Tax-Exempt 501(c)(29) Qualified Nonprofit Health Insurance Issuers

The Affordable Care Act requires the Department of Health and Human Services (HHS) to establish the Consumer Operated and Oriented Plan program (CO-OP program). It also provides for tax exemption for recipients of CO-OP program grants and loans that meet additional requirements under section 501(c)(29). IRS Notice 2011-23 outlined the requirements for tax exemption under section 501(c)(29) and solicited written comments regarding these requirements as well as the application process. Revenue Procedure 2012-11, issued in conjunction with temporary regulations and a notice of proposed rulemaking, sets out the procedures for issuing determination letters and rulings on the exempt status of organizations applying for recognition of exemption under 501(c)(29).

An overview of the CO-OP program is available on the Department of Health and Human Services website.

Medicare Part D Coverage Gap “donut hole” Rebate

The Affordable Care Act provides a one-time $250 rebate in 2010 to assist Medicare Part D recipients who have reached their Medicare drug plan’s coverage gap. This payment is not taxable. This payment is not made by the IRS. More information can be found at www.medicare.gov.

Additional Requirements for Tax-Exempt Hospitals

The Affordable Care Act added new requirements for charitable hospitals. (See Notice 2010-39 and Notice 2011-52.) On June 22, 2012, the IRS issued proposed regulations which provide information on the requirements for charitable hospitals relating to financial assistance and emergency medical care policies, charges for emergency or medically necessary care provided to individuals eligible for financial assistance, and billing and collections. Comments on the proposed regulations are requested by Sept. 24, 2012.
Form 990, Schedule H, for tax year 2010 was revised to include a new Part V, Section B, to gather information on hospitals' compliance with the new requirements and on related policies and practices. To give the hospital community time to familiarize itself with the types of information the IRS is requesting, Part V, Section B of Schedule H was made optional for the 2010 tax year (see Announcement 2011-37).
The IRS considered public input and made revisions to Part V, Section B for tax year 2011 (see the Form 990, Schedule H and instructions). Hospitals are required to complete all parts and sections of Schedule H for tax year 2011, with the exception of lines 1-7 of Part V, Section B, which relate to community health needs assessments (see Notice 2012-4). These lines are optional for 2011. The IRS continues to welcome public input on the new requirements for charitable hospitals under the Affordable Care Act.

Annual Fee on Branded Prescription Pharmaceutical Manufacturers and Importers

The Affordable Care Act created an annual fee payable beginning in 2011 by certain manufacturers and importers of brand name pharmaceuticals. On Aug. 15, 2011, the IRS issued temporary regulations and a notice of proposed rulemaking on the branded prescription drug fee. The temporary regulations describe the rules related to the fee, including how it is computed and how it is paid.
On Nov. 4, 2011, the IRS issued Notice 2011-92 which provides additional guidance on the branded prescription drug fee for the 2012 fee year.

Modification of Section 833 Treatment of Certain Health Organizations

The Affordable Care Act amended section 833 of the Code, which provides special rules for the taxation of Blue Cross and Blue Shield organizations and certain other organizations that provide health insurance.

Medical Loss Ratio (MLR)

Beginning in 2011, insurance companies are required to spend a specified percentage of premium dollars on medical care and quality improvement activities, meeting a medical loss ratio (MLR) standard. Insurance companies that are not meeting the MLR standard will be required to provide rebates to their consumers beginning in 2012.

Limitation on Deduction for Compensation Paid by Certain Health Insurance Providers

The Affordable Care Act amended section 162(m) of the Code to limit the compensation deduction available to certain health insurance providers. The amendment goes into effect for taxable years beginning after Dec. 31, 2012, but may affect deferred compensation attributable to services performed in a taxable year beginning after Dec. 31, 2009. Initial guidance on the application of this provision can be found in Notice 2011-2, which also solicited comments on the application of the amended provision.

Employer Shared Responsibility Payment

Starting in 2014, certain employers must offer health coverage to their full-time employees or a shared responsibility payment may apply. Information may be found in news releases IR-2011-92 and IR-2011-50 and Notices 2011-73, 2011-36 and 2012-17. Additionally, Notice 2012-58 expands upon and modifies previous guidance and describes safe harbors that employers may use to determine whether certain workers are full-time employees and to establish that coverage is affordable at least through the end of 2014. Notice 2012-59 provides related guidance for group health plans on the waiting periods they may apply before starting coverage.

Patient-Centered Outcomes Research Institute

The Affordable Care Act establishes the Patient-Centered Outcomes Research Institute. Funded by the Patient-Centered Outcomes Research Trust Fund, the institute will assist patients, clinicians, purchasers and policy-makers in making informed health decisions by advancing clinical effectiveness research. The trust fund will be funded in part by fees paid by issuers of health insurance policies and sponsors of self-insured health plans.

New rules on whether to classify a purchase as an Expense (Repair) or when there is a need to Capitalize the purchase?

In economically slow times the governemnt allows faster depreciation (or expensing) to encourage (stimulate) large asset purchases.  However, quickened expensing opportunities are intended as temporary measures designed to stimulate business activity. When the business climate moderates, normal depreciation rules return.  This is when companies will focus on what constitutes a repair or expense deduction and what expenditures create a new asset that must be capitalized and the cost recovered through depreciation deductions.
In the Small Business Jobs Act of 2010 (SBJA), Congress raised the Section 179 deduction amount to $500,000 for tax years beginning in 2010 and 2011. And they also extended 50-percent bonus depreciation to qualified assets placed in service during 2010.  Also, in an effort to relieve businesses in the Job Creation Act of 2010, Congress increased the bonus-depreciation percentage to 100 percent for qualifying property acquired and placed in service after September 8, 2010 and before January 1, 2012.

Recent IRS Audit Guide
Amid all the potential stimulus surrounding the announcement of higher tax write-offs for asset purchases, the IRS issued a new Audit Technique Guide and instructed its auditors to focus on the issue of whether expenditures should be capitalized or deducted.
Under current rules, repair expenses are currently deductible if they are incidental in nature and neither materially add to the value of the property nor appreciably prolong its useful life. Costs for materials and supplies consumed during the year are also currently deductible.
However, expenditures must be capitalized if they are for permanent improvements or betterments that increase the value of the property, restore its value or use, substantially prolong its useful life or adapt the property to a new or different use.

Unit of Property
A key component in determining whether an expenditure should be capitalized or expensed is the unit of property (UOP). The smaller the UOP, the more likely it is that costs incurred in connection with that UOP will have to be capitalized.
A significant amount of the guidance in the temporary regulations centers on what constitutes the “unit of property” that is being placed in service, repaired, or improved. The definition for a unit of property is different for personal and real property as compared to a building.
In general, for real or personal property that is not a building, all the components that are functionally interdependent comprise a single unit of property. Components of property are functionally interdependent if the placing in service of one component by the taxpayer is dependent on the placing in service of the other component by the taxpayer.
A building is defined as its structure and structure components. Structure components include walls, partitions, floors and ceilings, paneling, tiling, windows, and doors. Also, within the structure are building systems.

For example, In Ingram Industries, Inc. v. Commissioner, the Court addressed whether the costs of cleaning, inspecting and repairing towboat engines were capital expenditures. The IRS focused on the engines and argued that the work performed increased the value and prolonged the useful life of the engines. Ingram argued that the appropriate focus was on the towboat. The Court agreed with Ingram, stating that the record did not support a practice (industry or otherwise) to purchase or treat towboat engines separately from the towboats.
The Court reasoned that the towboats and engines, if properly maintained, were both expected to last 40 years, that the towboats were purchased with the engines and that the engines were designed to be maintained without removing them from the boat. The Court also noted that there was no evidence indicating that towboat owners regularly and periodically replaced the towboat engines. The Court held that the expenditures did not increase the value or useful life of the towboat or the engine and could be deducted.

Capitalization Policies
Many companies make capitalization/expense decisions based on the dollar amount of the expenditure. For example, a business may regularly deduct amounts less than $1,000, while higher expenditures are reviewed to determine the proper accounting and tax treatment.  The IRS will examine these under the threshold expenses in much greater detail going forward. 

IRA deductions

For 2011 and 2012, the maximum you can contribute to all of your traditional and Roth IRAs is the smaller of:

• $5,000 ($6,000 if you’re age 50 or older), or your taxable compensation for the year.

The IRA contribution limit does not apply to:

• Rollover contributions
• Qualified reservist repayments

Claiming a tax deduction for your IRA contribution
Your traditional IRA contributions may be tax-deductible. The deduction may be limited if you or your spouse is covered by a retirement plan at work (this usually severly limits IRA contributions) and your income exceeds certain levels.

Roth IRA contribution limit
The same general contribution limit applies to both Roth and traditional IRAs. However, your Roth IRA contribution might be limited based on your filing status and income.

IRA contributions after age 70½
You can’t make regular contributions to a traditional IRA if you’re age 70½ or older. However, you can still contribute to a Roth IRA and make rollover contributions to a Roth or traditional IRA regardless of your age.

Spousal IRAs
If you file a joint return, you and your spouse can each make IRA contributions even if only one of you has taxable compensation.
If neither spouse participated in a retirement plan at work, all of your contributions will be deductible.

Excess contributions are taxed at 6% per year as long as the excess amounts remain in the IRA. The tax can’t be more than 6% of the combined value of all your IRAs as of the end of the tax year.
To avoid the excess contributions tax:

• withdraw the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and
• withdraw any income earned on the excess contribution.

In 2013, Various Tax Benefits Increase Due to Inflation Adjustments

For tax year 2013, the Internal Revenue Service announced today annual inflation adjustments for the following tax items:

• The annual exclusion for gifts rises to $14,000 for 2013, up from $13,000 for 2012.
• The amount used to reduce the net unearned income reported on a child’s tax return subject to the “kiddie tax,” is $1,000, up from $950 for 2012.
• The foreign earned income exclusion rises to $97,600, up from $95,100 in 2012

State Sales Tax Deduction (7 states)

Most of the States in the U.S. use a state income tax as a means of taxing their citizens.  This income tax is deductible from federal taxes on schedule A of the form 1040.  Seven states use a sales tax instead of an income tax as a way of taxing citizens of their respective states.  Passed under the previous congress, these Seven states were finally allowed to deduct their state taxes also (just like the 43 states deduct their income tax).....That is now on the chopping block!!!!
Congress to save the day?
A bipartisan group of House lawmakers are urging the House Way and Means Committee to approve legislation that would extend the federal tax deduction for state and local taxes as part of any tax extenders package considered during the upcoming lame-duck session of Congress.  Without the deduction, taxpayers living in states without income taxes face higher federal taxes burdens, Rep. Kevin Brady, R-Tex., and Rep. Jim McDermott, D-Wash., said in the letter. “The sales tax deduction saves taxpayers in our states millions of dollars per year and is a vital component of our states’ economies, spurring growth and creating jobs,” the letter reads.

President Obama's Health Care plan and some different ways to comply!

The IRS expanded and revised optional safe harbors on which applicable large employers may rely in complying with requirements starting in 2014 to provide health insurance coverage to their full-time employees.

The safe harbors provide methods of determining the full-time status of seasonal employees and those with unpredictable work schedules for purposes of the “shared responsibility” requirements.
Generally, for months beginning after Dec. 31, 2013, the law requires employers with at least 50 full-time employees on average during the preceding calendar year to sponsor and offer full-time employees and their dependents health coverage meeting certain requirements or else pay an assessment. [I wonder if this going to put a premium on single workers over marriied workers because a single policy is less than a family policy] The law defines full time as working on average at least 30 hours per week, but Congress left it to the IRS, along with the U.S. Department of Labor, to prescribe how that average is computed and applied.
A lookback “measurement period” safe harbor for averaging hours of ongoing employees and a “stability period” to which the average applies. For new hires an initial measurement period of between three and six months for workers with variable or uncertain hours.

The IRS expanded the measurement period for new variable-hour and seasonal employees to the same as for ongoing employees, between three and 12 months. The stability period must be at least as long as the initial measurement period and no less than six months.  The measurement and administrative periods combined must not extend beyond the last day of the first calendar month that begins on or after the first anniversary of the employee’s start date.

 

IRS Streamlining taxpayers with various locals...

The IRS has issued new procedures to help nonresident U.S. taxpayers, including dual Canadian citizens, comply with U.S. tax laws.

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The new rules, which were announced last Friday, eliminate civil penalties and make life easier for taxpayers who follow the IRS’s streamlined disclosure process. The program also provides retroactive elections for certain retirement plans and adds relief for Canadian citizens in the U.S.

The streamlined procedure is designed for taxpayers who present what the IRS considers to be a low compliance risk. 

Submissions that present higher compliance risk are not eligible for the streamlined processing procedures and will be subject to a more thorough review and possibly a full examination, which in some cases may include more than three years, in a manner similar to opting out of the Offshore Voluntary Disclosure Program.  That statement leaves a lot of wiggle room for the IRS!

The streamlined version of the 2012 program imposes no penalties and only requires the submission of three years of tax returns.

The streamlined procedure generally requires a submission of a questionnaire, along with the filing of federal income tax returns 2009-11 and submission of FBARs for the last six years.

Canadian citizens also benefit from the IRS’s new policy.

The new procedures are for nonresidents, including, but not limited to, dual citizens who have not filed U.S. income tax and information returns. They are available for nonresident U.S. taxpayers who have resided outside of the U.S. since Jan. 1, 2009 and who have not filed a U.S. tax return during the same period.

Wedding Day and Taxes!!!!

As my brother Kris and Amanda have just gotten married, I thought that I could add a couple of tax pointers (because that is what we do!)
Seven Tax Tips for Newlyweds
1. Notify the Social Security Administration. Report any name change to the Social Security Administration so your name and Social Security number will match when you file your next tax return. File a Form SS-5, Application for a Social Security Card, at your local SSA office. The form is available on SSA’s website at www.ssa.gov, by calling (800) 772-1213 or at local offices.
2. Notify the IRS if you move. If you have a new address you should notify the IRS by sending Form 8822, Change of Address. You may download Form 8822 from www.IRS.gov or order it by calling (800) 829–3676 .
3. Notify the U.S. Postal Service. You should also notify the U.S. Postal Service when you move, so it can forward any IRS correspondence or refunds.
4. Notify your employer. Report any name and address changes to your employer(s) to make sure you receive your Form W-2, Wage and Tax Statement, after the end of the year.
5. Check your withholding. If both you and your spouse work, your combined income may place you in a higher tax bracket.
6. Select the right tax form. Choosing the right individual income tax form can help save money. Newly married taxpayers may find that they now have enough deductions to itemize on their tax returns. Itemized deductions must be claimed on a Form 1040, not a 1040A or 1040EZ.
7. Choose the best filing status. A person’s marital status on December 31 determines whether the person is considered married for that year.
And have fun on that honeymoon!

Florida's Sales Tax Holiday!!!

Florida: On Aug. 3-5, the following are exempt: clothing with a sales price of $75 or less per item and school supplies with a sales price of $15 or less per item. The holiday exemption is inapplicable to sales of such items made within a theme park, entertainment complex, public lodging establishment or airport.

Operating a horse ranch!

An attorney and his wife operated a horse operation as a business and deducted the losses as a business loss FOR 25 years. The IRS reviewed the couple, found lax record keeping at the horse farm and disallowed the losses. Moral, strive to make money eventually AND have fun with your endeavors. They had the fun part!

Kids are dependents, well most of the time...

Married individuals were not entitled to dependency exemptions where their children were not U.S. citizens during the relevant tax years, and were not entitled to the child care credit, the child tax credit, or the additional child tax credit for the same reason. Accuracy-related penalties and additions to tax for late filing were applicable.

Obamacare Tax Penalty, collectible?

Odd but true, Obamacare's tax will not be collectible by the IRS in all situations:  Strangely, the IRS can’t collect this tax without the taxpayer’s help.  If the taxpayer doesn’t fork it over voluntarily, or have a refund against which to apply it, the IRS can’t use its usual collection tools — levies, seizures and so on —  to collect it.  That means a lot of people will make sure to fiddle their W-4s  so they never have an overpayment on their 1040s.

Tips are part of wages earned

I am often asked if tips paid directly to servers by patrons of restaurants and bars are wages or some other form of payment?  The IRS is quite literal that tips paid to patrons are part of their compensation and the employer is responsible for payroll taxes similar to wages paid.  See the IRS excerpt below:

Section 3121(a) of the Code defines “wages” for FICA tax purposes as all remuneration for employment, with certain exceptions.  Section 3121(a)(12)(A) excludes from the definition of wages tips paid in any medium other than cash; section 3121(a)(12)(B) excludes cash tips received by an employee in any calendar month in the course of the employee's employment by an employer unless the amount of the cash tips is $20 or more. 

Employer FICA Obligations.  Under section 3121(q) of the Code, tips received by an employee in the course of the employee's employment are considered remuneration for that employment and are deemed to have been paid by the employer for purposes of the employer share of FICA taxes imposed by sections 3111(a) and (b), that is, social security tax and Medicare tax, respectively.  The remuneration is deemed to be paid when a written statement including the tips is furnished to the employer by the employee pursuant to section 6053(a), discussed below.

Debeers Diamond Settlement FINALLY close

If you have been following my blog for a long, long time, you would remember that we let those of you who purchased diamonds, at a particular time, know that you might be due a refund from Debeers.  Well 4 years later this is almost done....
1) Initial trial outcome:
The Fairness Hearing was held on April 14, 2008, and the District Court approved the Settlement on May 27, 2008.
2) Appeals begin:
Appeals were subsequently filed contesting final approval of the Settlement. A hearing on these appeals was held on January 28, 2010, at the Third Circuit Court of Appeals in Philadelphia. On July 13, 2010, the appeals court sent the settlement back to a lower court for further consideration. On August 27, 2010, the Court issued an order granting plaintiffs' request for a rehearing by the entire Court, thereby making the first appellate court decision no longer in effect. The Court heard the appeal again on February 23, 2011. On December 20, 2011, it held that the settlement complied with the law and should be approved.
3) Decision rendered:
On May 21, 2012, the U.S. Supreme Court denied the final petition for review. The claims administrator is conducting final claim audits, and distribution of settlement funds should take place within the next few months.

Possible relief for employees working in multiple states!

Employees who live in one state but who travel to and work for an employer in other states are currently subject to the the income tax laws of the other states while occupying space in the other state.  Recent legislation has passed the house that would give these "traveling" employees some relief. 
The U.S. House of Representatives has passed the Mobile Workforce State Income Tax Simplification Act of 2012, which, if enacted, would prohibit an employee’s wages from being subject to personal income tax or withholding and reporting requirements in any state other than the employee’s state of residence and a state in which the employee is present and performing employment duties for more than 30 days during a calendar year. The Act would not apply to professional athletes, professional entertainers, or certain public figures. It would be effective January 1 of the second year after the date of enactment.

These are some of the potential pitfalls that can occur when investors and movie producers get together and make decisions....

Movie Director Sentenced for Abusing Film Tax Credits

A film director and his producer who inflated their movie expenses while shooting two movies on Cape Cod in order to claim larger Massachusetts film tax credits has been sentenced to between two and three years in prison and 10 years’ probation.

Daniel Adams pleaded guilty in April to charges of larceny and making a false claim. Adams received over $4.7 million in tax credits for the 2009 movie “The Lightkeepers,” starring Richard Dreyfuss, and the 2008 picture “The Golden Boys,” with the late David Carradine.  They both included scenes on Cape Cod.
Among the inflated expenses claimed was one for $2.5 million to Dreyfuss, when in fact the “Jaws” star only received $400,000.

Advantages of the S corp!

Besides its single level of taxation, an advantage of an S corporation over a C corporation is that a shareholder’s share of the corporation’s net income is not considered self-employment earnings and therefore is not subject to self-employment tax (13.3% in 2011 and 2012). This treatment is in contrast to that of a general partner, LLC member, or sole proprietor, for whom net earnings from self-employment include any trade or business income and a partner’s distributive share of income from a trade or business carried on by the partnership (Sec. 1402(a)).
However, if the S corporation shareholder provides services to the S corporation, he or she must receive an adequate or reasonable amount of compensation for these services. The S corporation may deduct the compensation expense and must pay the employer share of employment taxes: 6.2% Social Security tax and 1.45% Medicare tax. The shareholder-employee is responsible for 4.2% Social Security tax (in 2011 and 2012) and 1.45% Medicare tax. The S corporation is also responsible for Federal Unemployment Tax Act (FUTA) taxes. Minimizing these taxes provides an incentive to keep the S corporation shareholder’s wages low and to characterize most of the passthrough income as distributions.

Financial Statement Presentation for Non Profits

There seems to be some confusion as to if non-profit entities are required to present a Cash Flow Statement with the "historic" Balance Sheet and Income Statement.  FASB Statement 117 clears it all up and YES VIRGINIA, the Cash Flow statement is required along with the Balance Sheet and Income Statement for financial statemet presentation by a Non Profit. 
Fasb 117 rquirements are studied below:

Summary of Statement No. 117
Financial Statements of Not-for-Profit Organizations (Issued 6/93)
Summary
This Statement establishes standards for general-purpose external financial statements provided by a not-for-profit organization. Its objective is to enhance the relevance, understandability, and comparability of financial statements issued by those organizations. It requires that those financial statements provide certain basic information that focuses on the entity as a whole and meets the common needs of external users of those statements.  (Questions about the use of depreciation often arise when there is no tax consequence to a nonprofit)
This Statement requires that all not-for-profit organizations provide a statement of financial position, a statement of activities, and a statement of cash flows. It requires reporting amounts for the organization's total assets, liabilities, and net assets in a statement of financial position; reporting the change in an organization's net assets in a statement of activities; and reporting the change in its cash and cash equivalents in a statement of cash flows.
This Statement also requires classification of an organization's net assets and its revenues, expenses, gains, and losses based on the existence or absence of donor-imposed restrictions. It requires that the amounts for each of three classes of net assets-permanently restricted, temporarily restricted, and unrestricted-be displayed in a statement of financial position and that the amounts of change in each of those classes of net assets be displayed in a statement of activities.

Tax Day Freebies!

The following places offer incentives for enjoying the last day of tax season:
-Free Chicken Breast Sandwich at White Castle (Need to Print this coupon from White Castle to get a free chicken breast sandwich when you buy another sandwich. The coupon is valid until April 28.)
-Free dessert or appetizer at Chili's-Get a free appetizer or dessert with an adult entree purchase when you show this coupon April 16-18.
-Free steak at Panda Express-Get a free serving of the Shanghai Angus Steak when you “like” Panda Express on Facebook and download the coupon.
-Free fries at Arby'sPrint out a special coupon on Arby's Facebook site to receive free fries on Tax Day.
-Free ice cream at MaggieMoo’s-MaggieMoo’s and Marble Slab Creamery are offering a free scoop of a new frozen yogurt to customers from 4 p.m. to 7 p.m. at participating locations.Free cinnamon bun "Bites" at CinnabonCinnabon is offering two free “Bites” on tax day at participating locations from 6 p.m. to 8pm.
-Free coffee at Seattle's Best CoffeeSeattle's Best Coffee is offering free coffee to the first 100,000 people to claim their "Coffee Refund" on Facebook or you can simply visit the store on tax day for a free coffee on the house.
-Free taquito at Chevys Fresh MexClaim this Facebook coupon for a free taquito at the restaurant.
-Buy-one-get-one meal at Boston MarketOn Tax Day, guests at Boston Market will get a free individual meal with the purchase of an individual meal and fountain drink with this coupon.
-Half price drinks at SONIC-SONIC restaurants are having "Happy Hour All Day on Tax Day." During SONIC's Happy Hour, which usually runs from 2 p.m. to 4 p.m. daily, fountain drinks and slushes are at half price. This special will be in effect all day on Tuesday.
-15 percent discount at P.F. Chang'sP.F. Chang's China Bistro is offering a 15 percent discount on April 17 when you pre-order your meal online.

April 15th is really April 17th!

April 15 comes on April 17 this year! April 15 comes on a Sunday this year, so the tax deadline is April 16, right? Wrong! Because the District of Columbia observes Emanicipation Day as a holiday on April 16 this year, the tax return filing deadline is moved back to April 17. Enjoy your extra day!

2012-The tax breaks that are possibly going away, unless congress acts!

You’ll face a higher tax bill next spring if Congress and the President can't agree to revive a series of tax breaks that expired Dec. 31, 2011. Among the breaks that Congress didn’t extend in all the payroll tax holiday are the following:

Here are some of the more popular tax breaks possibly going away-

1-Alternative minimum tax patch
The AMT is a tax system created to prevent excessive use of tax breaks by the very wealthy, ensuring they pay at least some tax. Taxpayers whose income exceeds the AMT exemption – in 2011, $48,450 for individuals and $74,450 for married couples filing jointly – must calculate both regular tax and AMT liability and pay the larger of the two amounts. But exemption levels have, at least tentatively, dropped to $33,750 for individuals and $45,000 for married couples filing jointly in 2012, which will expose 31 million taxpayers to the higher AMT this year, according to Tax Policy Center estimates.

2) Higher mass transportation benefit
A 2009 federal stimulus provision raised the maximum an employee could receive for transit, tax-free, from $120 to $230. That matched the tax-free limit for parking. With the expiration of this break, the maximum for 2012 dropped to $125. Employees who’ve asked to have an amount higher than that withheld from their paycheck to cover their total commuting costs will see their net pay come down, as the difference is now taxed.

3) Deduction for direct IRA payouts to charity
Retirees who are 70½ or older could direct up to $100,000 of their IRA distributions directly to charity and exclude the donated amounts from taxable income. Not anymore in 2012, unless Congress reinstates this deduction.

4) Write-offs for state sales taxes
This one hurts if you are in one of the states that uses sales tax instead of a state income tax (that means us Floridians, you Texans, and 5 other states!)
This particularly significant expired break allowed you to deduct either state income tax or state sales tax from your federal taxable income.

5)Teacher’s supplies deduction
My teacher clients are going to yell at me if this is not extended! Come on Congress & the President!
Teachers were able to take an additional deduction of up to $250 for classroom supplies they paid for out of their own pockets.

6) Tuition and fees deduction
Students beware! Taxpayers (up to certain income limits) who can't claim the more advantageous American Opportunity or Lifetime Learning credits can still reduce taxable income by up to $4,000 for tuition and other qualifying educational expenses, if it is extended.

7)Mortgage insurance premium deduction
Although I question the value of this entire program (it has done nothing to prevent the falling house prices of the past few years and subsequent effects on those homeowners). Homeowners who don’t exceed certain income limits had been able to deduct premiums they pay on mortgage insurance policies issued after 2006 on their primary residence.



8) Personal tax credits applied against the alternative minimum tax

Credits such as the tuition and dependent-care credits were allowed to offset your AMT liability.

9) Research and Development credit

Like the AMT patch and direct IRA payouts, this credit, which allowed high-tech companies and others to subsidize research in areas that might go unexplored, has broad support. But it still falls to Congress to reauthorize it periodically.

We think Congress and the President will manage to revive most of these breaks -- eventually.