Tax Feed

Form 1040 income tax return

The AICPA provides tax practice tools to help members elevate their practices and maintain the highest ethical standards. The AICPA also advocates sound tax policy and effective tax administration.

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Staying Ahead of the ATRA and NIIT Curve

Financial-planning-consultationDue to the American Taxpayer Relief Act of 2012 and the net investment income tax, many clients have no doubt experienced the impact of the new multi-layered tax environment. According to a panel of leading CPA financial planners, clients ranging from those with high net worth to those with middle income were shocked to be hit with the NIIT and higher tax rates this tax season, and have been receptive to proactive planning to mitigate in future years.

Consequently, 2014 is the year to sit down with your clients and provide proactive guidance, education, planning and expertise. Here are a few helpful tips from our panel of experts to help you do that.

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Time to Clean House with Asset Retirement

TimeRegardless of the size of your business, somebody should be responsible for maintaining your company's fixed asset or depreciation schedule. Since in most cases this is not a full-time job, it may be neglected. Updating accounting records is unavoidable for most of us. However, many of us are incredibly busy. Who has time to pull out a fixed asset list - just to make an addition? If your company is large enough to employ an asset manager, you may be up to speed with fixed assets. If not, who is responsible for managing this schedule and do they have the information they need? New tax regulations that went into effect Jan. 1 allow organizations to go back and write off those assets on the books that are long gone. The regulations even allow for partial dispositions of "units of property" that previously were not permitted.

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Time to Change the De Minimis Amount for Tangible Property?

FeedbackSince the release of the final tangible property regulations, practitioners and taxpayers have shared numerous concerns about their complexity and administrative burden.  One of the most common complaints is the de minimis safe harbor election. 

The de minimis safe harbor provision, if elected, allows a taxpayer to immediately deduct amounts paid to acquire, produce or improve tangible property and gives the taxpayer additional protection from future Internal Revenue Service examination adjustments.  The safe harbor provision has two separate thresholds ($500 for taxpayers without an applicable financial statement and $5,000 for taxpayers with an AFS).  A certified audited financial statement is considered an AFS but reviewed or compiled financial statements are not.    

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5 Things You May Have Missed During Tax Season

Missing-puzzle-pieceWhether you’re new to tax season or an experienced pro, there were probably times in the months leading up to April 15that brought new meaning to the term “multi-tasking.” Helping clients sift through back-up material, preparing and filing returns and keeping abreast of tax news, is an all-consuming process. Yet, tax season is also a time when you can easily overlook opportunities to improve your practice, strengthen client relationships and foster your professional development.

With April 15 comfortably behind you, now is the perfect time to look back and identify opportunities that can help grow your practice or help manage your staff. Here are five AICPA resources you might have kept on the back burner while you were in the throes of tax season.

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3 Tax Planning Tips for Parents-to-Be

BabyMy husband and I, both CPAs, are expecting a baby boy in August. Of course, being the fun-loving accountants that we are, as soon as we found out about the good news, we started thinking about tax planning for our new addition. Names, nursery theme, telling our family about the good news – those items could wait.  But, tax planning, that was a today item.

I’ve been fortunate to work with many clients with children in my public accounting days, so I knew the general tax items that we needed to think about, such as tax credits, flexible spending accounts, household employee/nanny rules, etc.  However, I wanted to refresh myself on these items and share some insights with anyone who has or will have a family. Here are some tips for you parents-to-be:

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Beyond the Tax Return: Transition to Trusted Adviser

Trusted-adviserIs this a scenario you could relate to during busy season? It’s one of those days. Your schedule is jam packed. You’re working in overdrive to get it all done. The next thing you know, the receptionist buzzes you with news that one of your clients is in the lobby to drop off some paperwork. They would like to see you if you have a few minutes.

“ARGGHHH…not today!” you’re thinking. “I just don’t have time.” As tempting as it would be to decline the last minute request, you’re mindful that a client is right there in your office. That means you have the opportunity to amp your trust factor while they’re visiting. Maintaining a hands-off approach can make client retention tough. In my practice, the biggest complaint we hear from prospective clients who are considering a new firm is that their current tax expert never talks to them.

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Understanding the ACA’s Mandates

I am at the AICPA Tax Strategies for the High Income Individual conference in Las Vegas. This popular conference features national experts who dig keep into new tax policies and offer strategies for navigating new laws so that CPAs can advise their high-income clients with confidence.  

Today I am live blogging the "Affordable Care Act: Understanding the Individual and Employer Mandates” session with speaker Eddie Adkins, a partner with Grant Thornton LLP. This session delves into challenges and responsibilities faced by employers and individuals to comply with the provisions of the complex health care reform law, and technical aspects of the responsibility provisions and traps for the unwary. 

Follow along with the live blog below (email subscribers can view the live blog on our website).

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IRS E-Services: Where are We Now? And Where are We Going?

QuestionsAs the staff liaison for the AICPA’s Internal Revenue Service Advocacy and Relations volunteer committee, I am in the unique position to listen to our members’ concerns and discuss those issues with the IRS.  When the online e-services of Power of Attorney and Electronic Account Resolution were terminated on Sept. 2, I heard concerns from numerous practitioners.  In fact, we received more calls regarding this issue than all other issues combined last year. 

The AICPA adamantly voiced members’ frustrations and concerns to the IRS.  The backlash the IRS felt from the AICPA and other members of the practitioner community was so severe that IRS officials made it clear they never wanted this situation to repeat itself.  This was a top priority to then-Acting Commissioner Danny Werfel.  The IRS also quietly looked into different possibilities to bring back these online e-services.

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3 Tips to Find Your Professional True North

CompassFinding your professional true north, a path you can be passionate about and one that will provide you with direction in the future, is attainable – when you have the right navigation. Whether it is honing your personal skill set, positioning your practice for growth or transforming your organization’s technology infrastructure, it is important that you be the navigator. There are endless possibilities to explore, pursue, master and achieve, and it is important you arrive exactly where you want to go.

Keep in mind that finding your way often means asking for directions and talking with others who have already arrived at your desired destination. They can tell you what is not on the map and the best roads to follow to enhance the quality of your journey. Here are three quick tips to find your professional true north:

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In the News: It’s Never too Early to Think About Taxes

ReceiptsThe deadline to file your 2013 taxes – or file for an extension – passed earlier this week. What’s the significance of that? It’s time to think about planning for the 2014 filing season.

As many CPAs will tell you – taxes are something to consider year round. And one of the best ways to ensure that you are best positioned to pay no more than you owe is by being meticulously organized throughout the year. Enterpreneur.com recently posted an article suggesting some technology tools that will keep you organized in advance of next tax season – and no, a shoebox to hold all your receipts is not one of them.

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Tax Planning is a Critical Factor in Financial Planning

Financial-planning-consultationCongratulations on making it through another tax season! From those long hours, including rigorous reviews and meetings with clients, you’ve gained unique insight into their lives—insight into their incomes, spending habits, investments and life events. Income tax planning and estate planning elements have become a more critical part of overall personal financial planning with the enactment of the American Taxpayer Relief Act of 2012 and the Net Investment Income Tax. While reviewing those 1040s, you are able to envision potential tax impacts of financial decisions and begin considering tax planning strategies for your clients, which broadens your relationship. This is a great first step in helping them meet their overall financial planning needs, including making estate, retirement, investment and risk management planning decisions to move them toward their long term goals.

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Confessions of a Tax Season Junkie

Dancing-womanAs I shot up in bed last night in a cold sweat, I realized that a nightmare must have interrupted my peaceful night’s sleep. Waking up during tax season in a panic was pretty common during my over 20 years in public accounting, but why now? As a recent convert from tax practice, this spring is the first one since the early ‘90s that I am not preparing tax returns.

After some reflection, I discovered my dream was, in fact, about tax returns: phones ringing, emails and all of the anxiety-causing triggers for CPAs during tax season. Having sold my practice after last tax season, the only tax return I have to worry about is my own, so what was my trigger? 

I realized that the source of my anxiety was a recent project where I had to draw on my prior tax season experiences. I was preparing for the AICPA’s Tax Power Hour webcast on managing tax season burnout. To truly empathize with the participants, I mentally placed myself back at my old office during the height of tax season. I could hear the phones ringing and the postage machine humming, I could smell the hot printers being overused, and I remembered the sight of peers walking into my office to ask a “quick question.”  The experience was so real for me that I actually felt the urge to pick up my computer and hurl it at the wall.

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Depletion Deductions for Landowners Receiving Gas Royalties

Natural-gasIt is filing season and landowners receiving natural gas royalty payments may be shocked by their tax liability if they have not been planning with their CPAs. Landowners who sign a lease with a gas company own a royalty interest. When royalty income is received, the landowner is entitled to depletion. Similar to depreciation, depletion is the cost recovery of a natural resource and, in the case of royalty owners, natural gas. It is provided for by IRC §611 and the rules governing it are IRC § 613 and 613A.

The Internal Revenue Service provides for two methods:

  1. Cost depletion - allows the taxpayer a deduction based on the ratio of units sold to the number of units available at the end of the year plus the units sold during the year. 
  2. Percentage depletion - allows the taxpayer a deduction based on the gross income of the gas producing property.

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Happy St. Patrick’s Day – The Luck of the Beer Tax Continues

LeprechaunIt should surprise no one that the amount of Guinness consumed worldwide on St. Patrick’s Day more than doubles, to approximately 13 million pints. Celebrations are held far and wide from Australia to Russia to the International Space Station, where astronauts like Catherine Coleman play Irish music in space.

As a Maloney and a Fitzpatrick, I love the idea of a global Irish celebration - makes the world feel a wee bit friendlier (even if the saint being honored is technically Scottish).

The U.S. accounts for much of the increase in St. Patrick’s Day Guinness consumption. But while the enthusiasm may be spread out across the  country, the excise tax on beer collected by each state varies considerably.

The map created by the Tax Foundation shows an interesting pattern - a low-tax band across the middle of the country, with a few Western states collecting the least, while southern states charge the most, with Tennessee coming in first at $1.17 per gallon. The Mid-Atlantic area defies categorization – my state of Virginia is in the middle but neighboring Maryland ranks much higher.

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Capturing Online Sales and Use Tax: The Battle Continues

EcommerceHave you purchased something online this past year, month or day?  You probably looked at the cost of the item purchased, but did you pay attention to whether you paid taxes on your purchases?  Sorry to tell you this, but just because a sales tax was not charged does not mean you don’t owe a tax on the transaction.

All states that impose sales taxes also require purchasers to remit use tax on any taxable purchases if sales tax is not paid. Many, if not most, consumers are unaware of the use tax and, therefore, do not comply.  It is almost impossible for state taxing authorities to enforce these laws with respect to individual consumers (but businesses often are audited for use tax). 

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Staying Mentally and Physically Motivated during Winter Tax Season

Businessman-yogaHow do we stay motivated to continue to get a full night’s sleep, hydrate and enforce good habits when the pressures of work and the reality of deadlines, client demands and day-to-day fire drills become overwhelming? Long hours of winter busy season don’t allow for extra time to take care of our physical well being. Our daily workouts are replaced with early morning or late night staff meetings. Saturday afternoon pickup basketball games at the YMCA are just a fond memory. The only thing worse than going to work in the dark and coming home in the dark is dealing with the bitter winter weather in between.

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Hidden Traps for Small Employer HRAs in 2014

Surprised-businessLike many small employers with under 50 full-time equivalent employees, I thought my company would be relatively unaffected by the Affordable Care Act. I was surprised to discover that my company Healthcare Reimbursement Arrangement is legal, but is now completely unworkable.

I have offered for several years to full-time employees a standalone HRA for which they get pre-tax reimbursements for out-of-pocket medical expenses and health insurance premiums, up to the annual predetermined dollar limit. HRAs generally fall under Code Section 105(b) and are considered employer self-insured accident or health plans. By design, HRA plans have dollar limits on annual and lifetime benefits provided to participants. However, to be a qualified group health plan in 2014, the plan must provide minimum essential health benefits without annual or lifetime dollar limits. My company’s HRA fails to meet this basic requirement. 

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How Would a U.S. Bitcoin Transaction be Taxed?

Accepting-bitcoinsOverstock.com, the Sacramento Kings and a few countries have all taken positions on what they will do with Bitcoins.  The two major Bitcoin positions are treatment of it as property, as Singapore has recently adopted, or as currency, as Germany has chosen.  

Much has been written on the creation of the Bitcoin, and its rise in popularity – and value – from 5 cents in 2010 to over $1,200 in 2013.  Bitcoins were born from combining electronic commerce and communications with mathematics, cryptography and privacy – as they only exist when your computer is functioning (or your iPad, smartphone, tablet, smart watch or Google glasses!), and they have no intrinsic value, save for what value people are willing to give.

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Relief for Missed Portability Elections

In this podcast, Bob Keebler covers Revenue Procedure 2014-18, which provides a simplified method for certain taxpayers to obtain an extension of time to make a portability election. Rev. Proc. 2014-18 provides an automatic extension for certain estates of decedents dying in 2011, 2012 and 2013 to elect portability. The extension applies to estates that would otherwise not have had a filing requirement, and allows the estates to file a return to elect portability until December 31. It includes the estates of same-sex decedents who were not eligible to elect portability until after the Windsor decision. Access more resources in the Planning After ATRA and NIIT Toolkit, including more podcasts, new charts by Bob Keebler as well as webcast recordings and Forefield Advisor alerts/videos, and the complete four-volume set of The CPA’s Guide to Financial & Estate Planning, recently updated for ATRA and NIIT, and much more.

Relief for Missed Portability Elections

 

 

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Downton Abbey’s Death Duty Explained

Highclere CastleHighclere Castle (Photo credit: Wikipedia)

Spoiler Alert: This blog post contains spoilers if you have not seen the first episode of season four of “Downton Abbey.”

“Downton Abbey,” the British period drama that takes place in the early 1900s, has made death taxes… fun. If you are not familiar with the show, I will set it up for you. The Crawleys are part of the British aristocracy as the Earl and Countess of Grantham. Robert Crawley is the fifth Earl of Grantham and has only one heir, Matthew Crawley. Matthew is Robert’s third cousin, once removed (at this time in history, women still could not inherit property or title). In season three, Matthew marries Mary, Robert’s daughter, to keep the estate, title and money in Robert’s direct line of descent. Almost immediately after the birth of Matthew and Mary’s son, Matthew dies in a car accident.

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Super Bowl’s Hidden Treasure… the Jock Tax

Super-bowl-hotelAs the focus here in New Jersey switches from “Bridgegate” to “tailgate,” we think about the things that we love best about the Super Bowl. A few of mine include eating wings, drinking beer and, of course, watching those witty commercials. However, as the players gear up to battle the elements this week, one other thing separates this Super Bowl from the others: the proverbial taxman. Many states impose an income tax on nonresidents’ earnings and New Jersey is one of them. To professional athletes, it is known as the “jock tax.” 

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Top 10 Tax Resources for the 2014 Tax Season

Top-tenCaffeine, check. Office supplies, check. Patience for lost or late documents, check. What else do you need for tax season besides, of course, sympathetic family and friends?  Knowledge and technical resources help, as does convenience in finding them – so keep these resources from the AICPA bookmarked to help you prepare returns, manage your office, advise and communicate with clients, and even keep a sense of humor.

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Interview with Team Who Wrote Net Investment Income Tax

Bob Keebler interviews David Kirk and Adrienne Mikolshek, part of the team who wrote the Net Investment Income Tax regulations, to help members understand the new IRS Form 8960, Net Investment Income Tax for Individuals, Estates and Trusts and the draft instructions. Access more resources in the Planning After ATRA and NIIT Toolkit, including more podcasts, a customizable letter to send to clients to illustrate why it is important that they meet with you and new charts by Bob Keebler as well as webcast recordings and Forefield Advisor alerts/videos and the complete four-volume set of The CPA’s Guide to Financial & Estate Planning, recently updated for ATRA and NIIT and much more.

Interview with David Kirk and Adrienne Mikolashek

 

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Explore the New IRS Form for Net Investment Income Tax

Bob Keebler goes line by line through Form 8960, Net Investment Income Tax for Individual, Estates and Trusts, to help members understand key elements they need to know for tax season. Access more resources in the Planning After ATRA and NIIT Toolkit, including more podcasts, a customizable letter to send to clients to illustrate why it is important that they meet with you and new charts by Bob Keebler as well as webcast recordings and Forefield Advisor alerts/videos and the complete four-volume set of The CPA’s Guide to Financial & Estate Planning, recently updated for ATRA and NIIT, and much more. (Email subscribers can listen to the podcast on our website.)

IRS Form 8960 Draft Instructions

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Understanding the 3.8% Net Investment Income Tax and Its Effects

In this podcast, Bob Keebler discusses the impact of the regulations on net investment income tax. Access more resources in the Planning After ATRA and NIIT Toolkit, including more podcasts, a customizable letter to send to clients to illustrate why it is important that they meet with you and new charts by Bob Keebler as well as webcast recordings and Forefield Advisor alerts/videos and the complete four-volume set of The CPA’s Guide to Financial & Estate Planning, recently updated for ATRA and NIIT and much more. (Email subscribers can listen to the podcast and see the slides on our website.)

Understanding the Net Investment Income Tax

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Tax Relief for Disaster Victims: We Can Do Better, Sooner

Hurricane-sandyIn 2005, when Hurricane Katrina hit landfall along the Gulf Coast, the Katrina Emergency Tax Relief Act of 2005 (H.R. 3768) was introduced and passed by Congress in less than two weeks.

Unfortunately, this prompt response is not the standard model each time a disaster occurs.    Relief offered through the tax system varies, and as explained in the AICPA’s comment letter submitted to Congress last November, “this process results in taxpayers receiving different treatment for similar losses and not knowing what tax treatment they will receive until Congress enacts some form of relief, which frequently occurs long after the disaster.”

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How CPAs Can Prepare Clients for Healthcare Reform

Health-care-fileCurrently, there is a massive amount of confusion in the business community and among consumers – the very same people that are CPAs in public accounting’s clients – with the implementation of the Affordable Care Act or Obamacare. Change, of course, creates opportunity, and knowledgeable CPAs can expand their role as trusted advisers by gaining an understanding of the implications of the ACA on businesses and individuals.

The changes in insurance primarily affect two client types: small business and individuals who do not get insurance from their employer. This latter group would include self-employed individuals and their families who do not qualify under the definition of “small business” for purposes of the ACA’s insurance market rules. There are provisions for large employers that go into effect in 2015.

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In the News: CPAs Providing Financial Guidance for 2014

New-year-resolution

In a recent post I detailed a number of articles highlighting tax tips provided by AICPA staff and members that individuals can use to save themselves money when they file their 2013 returns.

As the calendar flips to 2014 (the year of the polar vortex), AICPA members and staff have been providing guidance on how to ‘recover’ from holiday spending, save more in 2014, and outlining tax changes that may impact consumers.

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Trust But Verify – Another Perspective on Comfort Letters

Back in March, AICPA Senior Vice President Susan Coffey wrote about the dangers of providing client comfort letters. Since then, we’ve been hearing from more and more members that they are seeing a rise in requests from third parties for some sort of assurance on client accounting and tax information, or financial condition. I think Edward Karl said it best in CPAs and Comfort Letters: The New Chocolate (from the July edition/DC Currents column of The Tax Adviser) when he described them as requests for “verification, confirmation, certification, corroboration, authentication or substantiation of their clients’ financial information.” You name it, we’ve been asked to validate it. On the bright side, an increase in these requests confirms the faith, confidence and trust that business owners, decision makers and the public have in CPAs.

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Final Tangible Property Rules – A Win for Small Business?

Black-eyed-peaOne of the New Year’s superstitions says that you should eat black-eyed peas for good luck and financial prosperity. If you (or your client) are a business owner who hates black-eyed peas, don’t worry. You got a bit of luck already. In issuing the final tangible property (aka repair) regulations, I believe the IRS went above and beyond to make the final regulations more taxpayer friendly and tried to reduce the administrative burden from the draft regulations. 

When a business buys equipment for their business, it may qualify for an immediate tax savings by expensing the full purchase price instead of depreciating it over its useful lives (e.g., the section 179 deduction and 100% bonus depreciation). However, these options have restrictions. For example, the section 179 deduction requires taxable income and imposes an overall deduction ceiling and the bonus depreciation has a new property requirement (e.g., refurbished assets are not eligible). With well thought out planning, businesses can maximize the tax savings using both options.  

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Q&A with Barry Melancon, CPA, CGMA, AICPA President & CEO

Q&AWhat opportunities and challenges does the head of the AICPA foresee for the CPA profession in 2014? What were the profession’s significant achievements in 2013? Barry C. Melancon, CPA, CGMA, AICPA president and CEO, answers these questions and offers insights on how the profession will continue to adapt to today’s changing environment, addressing clients’ and employer’s needs. Citing successes with regulation, legislation, recruitment and positioning the profession for the future, Barry strongly believes CPAs will build on a solid foundation.

1. What were the AICPA’s legislative or regulatory priorities this past year and what’s in store for 2014?

We continued to have success in the advocacy area in 2013. In one significant victory for the profession and the public, the Securities and Exchange Commission exempted CPAs from registration as municipal advisers when they are providing certain accounting or attest services. We urged the SEC to exempt CPAs from the definition of municipal advisers after it had indicated that anyone performing accounting services for governments would be defined as a “municipal adviser.” It was critical that our voices be heard on this issue because such a broad definition would have made it more difficult for CPAs to serve governments and potential investors without taking on unnecessary and duplicative costs or compliance burdens.

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In the News: Year-End Tax Moves for Businesses and Individuals

TaxesAs the calendar turns to December, AICPA experts have been speaking to reporters to educate the public about tax moves they can make before the end of the year. A number of these tips involve tax breaks that will either expire, or whose futures are uncertain and the steps that businesses, individuals and homeowners can take now to save themselves money when they file their 2013 return.

Businesses

Jeffrey Porter, chairman of the AICPA’s tax executive committee, spoke to CFO.com about corporate tax provisions which are set to expire after 2013.

According to Porter, one of the most important of the temporary tax provisions set to expire after 2013 is the 50 percent bonus depreciation, which was enacted as part of economic-stimulus legislation.

“Let’s say you’re a CFO, and you know you need to purchase a million-dollar piece of equipment. If you purchase it before the end of the year, you can get a $600,000 write-off in the first year,” says Porter.

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Year-End Planning: Roth IRA Conversions

The purpose of Roth IRA conversions as it relates to the Net Investment Income Tax is to lower modified adjusted gross income below the threshold amount over the long-term. Some benefits of Roth conversions include lower overall taxable income, tax-free compounding, no required minimum distributions at age 70 ½, tax-free withdrawals for beneficiaries and more effective funding of the "bypass trust." Converting to a Roth IRA creates opportunities to reduce the overall size of the estate and to take advantage of greater tax-free yields and favorable tax attributes. Bob Keebler walks you through the mathematics of conversion through examples, tactical considerations and a four-step process for Roth conversion planning. Visit the AICPA PFP Section’s Post American Taxpayer Relief Act and NIIT Toolkit for more in-depth resources on planning in preparation for year-end.

Roth IRA Conversions

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“Taxation with Representation” – Where Are We with Tax Reform?

"People who complain about taxes can be divided into two classes: men and women."
-Author Unknown

I gave a test in my last tax reform blog. “What will be the greatest driver of tax reform?” and offered the following possible answers:

  • Bipartisan compromise?
  • Congressional leadership changes?
  • Current events?
  • Revenues?
  • Good tax policy?

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Charitable Remainder Trust Strategies

A Charitable Remainder Trust is a split interest trust consisting of an income interest, which is paid to the donor or other beneficiary during the term of the trust, and a remainder interest, which is paid to the designated charity. The purpose of this strategy is to harbor net investment income in a tax-exempt environment while leveling income over a longer period of time to keep MAGI below the threshold amount. CRTs are especially useful when there is a large capital gain that pushes income above the threshold amount. In this podcast, Bob Keebler explores using CRTs in year-end planning strategies for your clients. Visit the AICPA PFP Section’s Post American Taxpayer Relief Act and Net Investment Income Tax Toolkit for more in-depth resources on planning in preparation for year-end.

Charitable Remainder Trusts

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Increase in IRS Audits – A Positive Trend?

As the newest member of the AICPA Tax team, I was awestruck during my experience at the National Tax Conference. I had a front row seat for Acting Internal Revenue Service Commissioner Danny Werfel’s address; alternated between laughing my head off and cheering at National Taxpayer Advocate Nina Olsen’s candid presentation; and instinctively ducked under the table so as not to be called out by the Director of the Office of Professional Responsibility.

But the presentation that hit me the most? Faris Fink, Commissioner of the IRS Small Business/Self Employed Division, who spoke about the division’s initiative to provide advanced partnership examination training to their revenue agents (aka “auditors”). The goal is to increase audits of partnership tax returns with an emphasis on administrative matters in addition to the usual compliance issues.

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Preserving Cash Accounting

Cash-accountingHumorist Art Buchwald once described tax reform as taking the taxes off things that have been taxed in the past and putting taxes on things that haven’t been taxed before. Buchwald’s amusing analysis notwithstanding, tax reform is an arduous task. There are a lot of moving parts being studied on Capitol Hill at the moment. And one part in particular is of great concern to the nation’s CPAs.

As Congress considers the most significant attempt at tax reform in almost 30 years, the House Ways and Means Committee has produced a small business tax reform discussion draft that focuses on simplifying the tax codes for small businesses, including individuals and passthrough entities. While supportive of the Committee’s efforts to simplify the tax code and responsiveness to taxpayer concerns that the code is too complex, the AICPA strongly opposes a proposed limitation on the use of the cash basis method (for the non-CPAs among us, the cash method recognizes revenue and expenses when cash is received or disbursed rather than when earned or incurred. It is simpler in application, has lower compliance costs, and does not require taxpayers to pay tax before receiving the income being taxed). 

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Fall Review of State Legislative and Regulatory Issues: Part 2 of 2

Across the county, state legislatures considered numerous issues that impact the CPA profession.  In part two of this two-part post, we review issues dealing with: CPAs providing services for marijuana-related businesses, state board of accountancy reorganizations, sales tax on professional services and peer review.

Marijuana Businesses and CPAs

Colorado-capitolAn issue with implications for the CPA profession centers on the legalization of marijuana for both recreational and medicinal use.  While the sale and use of marijuana is illegal at the federal level, state governments and voters are increasingly showing a willingness, in certain jurisdictions, to decriminalize the drug. In November 2012, voters in Colorado and Washington approved ballot measures legalizing the recreational use of marijuana.  A total of 19 states and the District of Columbia have laws permitting the use of marijuana for medical purposes. The AICPA, with input from the Colorado and Washington state CPA societies, has developed an issue brief that gives an overview of U.S. recreational and medicinal marijuana laws, the current legislative/regulatory environment and information for CPAs considering providing services to businesses that operate in these industries (including a list of questions for CPAs to ask themselves before considering this line of work).

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Year-End Financial Planning: Bracket Management [PODCAST]

Because of the multi-dimensional tax environment that now exists post-American Taxpayer Relief Act, CPA financial planners must look at the tax impact on clients’ financial plans through a 5 to 10 year horizon. Ordinary income tax rates from the Bush Administration were made permanent. The capital gains rate increased from 15% to 20% for taxpayers with income greater than the threshold amounts. Phase-out of personal exemptions and limitations on itemized deductions (Pease) become critical in managing tax brackets by shifting income and deductions into certain years. This podcast from Bob Keebler provides a overview of theory, strategies and case studies in bracket management. Visit the AICPA PFP Section’s Post ATRA & NIIT Toolkit for more in-depth resources on planning in preparation for year-end. (Email subscribers can listen to the podcast on our website.)

 

Year-End Financial Planning: Bracket Management

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Year-End Financial and Tax Planning Strategies [PODCAST]

In the third webcast in the AICPA Insights Live webcast series, Beth Gamel, CPA/PFS, Robert S. Keebler, CPA, Ted Sarenski, CPA/PFS and Scott Sprinkle, CPA/PFS, CGMA came together to discuss year-end financial and tax planning strategies, specifically to address the American Taxpayer Relief Act and the Net Investment Income Tax. Below you can find an audio recording from the webcast, as well as the accompanying presentation. (Email subscribers can listen to the podcast and see the presentation on our website.) Be sure to explore the other webcasts in the AICPA Insights Live webcast series.

 

Year End Financial Tax Planning Strategies ATRA Net Investment Income Tax

 

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Nuts and Bolts of IRS Audits

I am at the AICPA National Tax Conference today and tomorrow in National Harbor, Md. The conference features regulators, including Acting IRS Commissioner Danny Werfel, and tax practitioners. When it comes to tax laws and legislation, we live and work in a world of constant flux: updates to the American Taxpayer Relief Act, tax jurisdictions, taxes in multi-states, flow-through entities and the new 3.8% Medicare surtax regime, to name a few. It’s a recurring cycle of predicting what’s coming up, knowing how to plan and explaining critical details to your clients.

Today I am live blogging the "Nuts and Bolts of IRS Audits" session with speaker Charles Rettig, Esq. of Hochman Salkin Rettig Toscher & Perez, PC. This session provides practical advice for real-life client issues that focus on current IRS tax enforcement priorities and procedures, practitioner representation strategies and techniques and recent developments in tax controversy and procedure. (Email subscribers can read the live blog on our website.)

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The 3.8% Net Investment Income Tax [PODCAST]

The 3.8% Net Investment Income Tax became effective Jan. 1, 2013, and applies to all taxpayers whose income exceeds a certain threshold amount, thereby raising the marginal income tax rate for affected taxpayers. NIIT includes interest, dividends, annuity distributions, rents, royalties, passive activity income and net capital gain from the disposition of property; it excludes salary, wages, IRA distribution from qualified plans, self-employment income, gain on sale of an active interest in a partnership or S corporation and items which are otherwise excluded or exempt from income under tax law. The threshold amount is the key factor in determining NIIT; thresholds are not inflation protected.

Strategies for reducing net investment income include municipal bonds, tax deferred annuities, life insurance, rental real estate, oil and gas investments, choice of accounting year for estate/trust and timing of estate/trust distributions. Strategies for reducing modified adjusted gross income include Roth IRA conversion, CRTs, non-grantor CLTs, and installment sales. Join Robert Keebler, CPA of Keebler & Associates LLP in this podcast as he walks you through year-end planning for the 3.8% NIIT. Visit the AICPA PFP Section’s Post American Taxpayer Relief Act and NIIT Toolkit for more in-depth resources on planning in preparation for year-end. (Email subscribers can listen to the podcast on our website.)

 

Year End Planning Net Investment Income Tax

 

 

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To Match or Not to Match? 1099-K Notices Bewilder Taxpayers

Confused-womanDo you have tax clients who run small businesses or decided to sell their household items on eBay this past year? Or perhaps you are a CPA who accepts credit card payments from your clients? If so, you may have already received a notice from the IRS or should be aware of the latest updates on the IRS push for information matching with Form 1099-Ks (Payment Card and Third Party Network Transactions). Some AICPA members have received 1099-K mismatch notices assessing thousands of dollars in penalties.  

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Integrating Retirement Planning with Your CPA Practice

Social-securityWhat do the 77 million baby boomers have in common over the next 15 years? They are all going to face retirement in one form or another. Never before in U.S. history has such a large generation transitioned to retirement with so many years still ahead of them. Are they ready? Can they afford it?  What does it look like? Who will answer these and other questions they have? Who else but the CPA has the financial, economic and analytical education, and ability coupled with the highest ethical standards of placing objectivity and integrity at the forefront of all advice. CPAs have a huge opportunity to expand their practices into the area of retirement planning as the natural progression from guiding their clients through the accumulation years.

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In the News: AICPA to Congress: Consolidate Small Business Retirement Plans

The AICPA is gearing up for our Fall Meeting of Council, which begins Oct. 20 in Los Angeles. Be sure to follow @AICPA_JofA and @AICPANews on Twitter and subscribe to the AICPA’s Press Center RSS feed to keep up with all the news and information coming out of the meeting.

In the meantime, I’ve highlighted a few recent accounting articles in the news that you may missed over the last week.

US-capitolAccounting Today covered the recent written testimony that the AICPA submitted for the record of the House Small Business Committee’s hearing on retirement savings for small employers. In the testimony Jeffrey A. Porter, AICPA Tax Executive Committee chairman, suggested several ways to simplify the complexity of the retirement planning universe.

“When a small business grows and begins to explore options for establishing a retirement plan, the alternatives, and the various rules, can become overwhelming,” he wrote in his testimony.

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It’s Extension Time! Checklist for Reporting Foreign Assets

Tax-checklistAs we come to an end of the filing season, keep in mind important foreign information reporting requirements that may affect your client’s income tax return.  On this year’s Form 1040, did you check “yes” that the client has a foreign bank account on Schedule B and list the location of the account? 

How about completing Form 8938 Statement of Specified Foreign Financial Assets?   The purpose of Form 8938 is to report an interest in specified foreign financial assets, which include, but are not limited to:  foreign bank accounts, brokerage accounts, interest in foreign entities and any “foreign financial instrument or contract that has an issuer or counterparty that is not a U.S. person.” Once your client meets certain reporting requirement thresholds, Form 8938 is required.

Here are some last-minute reminders to help you through the Oct. 15 tax deadline: 

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Federal Government Shutdown - It’s Deja vu All Over Again

Government-closedThere’s an old adage that “there’s nothing new under the sun” and so it is inside the Beltway.  As you are well aware, the federal government suspended most of its operations on Oct. 1 after Congress failed to pass a bill to extend funding to mid-November, the first such shutdown in 17 years. Strong political discourse is alive and well in America and it is part of the price we pay for democracy.  It was that way in 1996 when a shutdown lasted three weeks. Hopefully a compromise can be reached quicker this time around.

On the tax front, with more than 85,000 Internal Revenue Service workers now furloughed until Congress reauthorizes spending, many non-essential IRS functions have shut down, including all taxpayer services, as well as examinations. The closure of taxpayer and practitioner hotlines is particularly challenging for those individuals who must file a Form 1040 by Oct. 15 and need to contact the IRS. Nevertheless, no filing deadlines are postponed and returns must be filed. We have urged the IRS to consider the substantial burden imposed on taxpayers (and practitioners) by the inability to communicate with and obtain information from the IRS.

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The Tax Realities of “Breaking Bad”

Breaking-bad-taxThe final episode of “Breaking Bad” is here. But I don’t want to discuss what happens in the finale or even this season. Instead, I want to focus on the tax implications of what Walter White and his alter ego Heisenberg have done. (SPOILER ALERT: There are no spoilers contained herein from any episodes airing in 2013, but there may be some if you haven’t caught up to the last season).

Tennessee's "crack tax" (struck down as unconstitutional not long after its creation) notwithstanding, the Internal Revenue Service has a history of charging those involved in illegal activities with tax evasion. Al Capone and Soviet Spy Aldrich Ames both were charged with tax evasion after they did not report the money made from their illegal activities. After all, the IRS instructs taxpayers to report any illegal activity income on line 21 of the Form 1040, where other income is reported. So in reality, someone committing crimes and earning revenue for this activity could avoid tax evasion charges by reporting it on line 21. But then of course you've just admitted to conducting illegal activities. While technically confidential between you and the IRS, the common belief is that the IRS will find a way to alert the authorities, either through disclosure in an audit or interdepartmental alliance. So, most people don't report their illegal activities, don't incur tax and go on tax-free until they get caught.

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The Real Obstacle to Tax Reform? Let’s Look in the Mirror

Self-reflectionIn one of the better teen movies of the '80s, "Better Off Dead," a paperboy ruthlessly stalks the main character in an intense pursuit of what he is owed, repeating, “I want my two dollars.”  

Johnny the paperboy is not alone, as the senators who proposed a blank slate approach to tax reform found out.  And of course, taxpayers want a lot more than two dollars.   I admit, I am one of those “what’s in it for me?” taxpayers but I am slowly coming around to a different philosophy. 

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IRS Guidance Following DOMA Decision

In the wake of the Supreme Court’s Windsor decision invalidating a portion of the Defense of Marriage Act, the Treasury Department and the Internal Revenue Service announced on Aug. 29 that “same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes.” The IRS also issued a revenue ruling (Rev. Rul. 2013-17) and FAQs providing guidance on the topic.

In short, regardless of what state the same-sex couple currently lives in, if they were legally married in a jurisdiction that recognizes same-sex marriages as legal and valid, then same-sex spouses are married for all federal tax purposes. This podcast from Bob Keebler covers Revenue Ruling 2013-17, background on the DOMA decision, income, estate and gift tax planning implications, as well as portability, IRAs and retirement plans.

IRS Guidance Following DOMA Decision

Robert S. Keebler, CPA, MST, DEP, Partner, Keebler & Associates, LLP. Bob is a 2007 recipient of the prestigious Distinguished Estate Planners award from the National Association of Estate Planning counsels. From 2003 to 2006, Bob was named by CPA Magazine as one of the top 100 most influential practitioners in the United States. He is the past Editor-in-Chief of CCH's magazine, Journal of Retirement Planning and a member of CCH's Financial and Estate Planning Advisory Board. His practice includes family wealth transfer and preservation planning, charitable giving, retirement distribution planning, and estate administration.  

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