Archive for October 30, 2013

Businesses: End of 2013 Tax Tips

TaxConnections Picture - helpful tipsHere are some tips for planning last minute tax savings for business tax payers.

As always there are ways to tweak your 2013 tax bill, but not very much time left to do so. Before making any decisions please see my last post “Wag The Dog: Don’t Let The Tax Tail Wag The Financial Dog!” and keep those items in mind.

There are numerous new rules that kicked in 1 Jan 2013 and more that will be coming into play for 2014. Remember these are as of today and we never know what changes in legislation will be passed at the last minute (or in last years case after the last minute).

One of the biggest changes for businesses has to do with depreciation of business assets put into service in 2013. Businesses have grown accustomed over the last several years to the very lucrative rules allowing up to 100% bonus depreciation of new items placed into service. That has gone away completely for 2013 and future years. Other depreciation related changes include things not going into effect until 1 Jan 2014 such as the dramatic drop in the amount of allowed Sec 179 expenses, the loss of the shorter recovery period for certain improvements, and the changes in capitalization rules. Read More

Written by | Posted in Corporate • Federal • IRS • Tax Education • Tax Tips

Debt and Proving Basis in Flowthrough Entities

TaxConnections Picture - Tax written on computer keyboardS Corporations

Taxpayers with ownership interests in flow-through entities cannot deduct entity losses if they do not have basis in those entities. Consequently, a taxpayer’s basis is often scrutinized by the IRS, particularly when basis is claimed based upon debts incurred by a flow-through entity.

In mid-2012, the IRS issued Prop. Regs. Sec. 1.1366-2 (REG-134042-07) to establish a standard for when shareholders can increase basis in S corporations based upon loans to the S corporation. Under this standard, a shareholder may increase basis by “bona fide indebtedness” of the S corporation that runs directly to the shareholder. Partners, in contrast, are subject to the more complex partnership basis rules of Secs. 752 and 465. As basis laws change and develop over time, the IRS will continue to scrutinize reported losses.

Shareholders Basis

The proposed regulations do not establish factors or criteria to determine when S corporation indebtedness is bona fide. Instead, whether indebtedness is bona fide is determined under general tax principles. The preamble to the proposed regulations cites four cases that establish whether a debt is bona fide: Knetsch, 364 U.S. 361 (1960); Geftman, 154 F.3d 61 (3d Cir. 1998); Estate of Mixon, 464 F.2d 394 (5th Cir. 1972); and Litton Business Systems, Inc., 61 T.C. 367 (1973). Geftman, for instance, established three factors to determine whether a loan is bona fide: (1) contemporaneous intent to repay; (2) Read More

Written by | Posted in Corporate • Federal • Partnership

7 Habitual Mistakes Companies Make – Chapter 2 (7)

TaxConnections Blog PostThe Tax Team

THE TYPICAL TAX team consists of the following personalities:

• BO/CFO
• Tax Manager
• Accounting Tax Advisors and other outside Tax Advisors
• The Legal Team, as leaders of the tax team to ensure legal privilege
• In the case of a small business, the entire tax team is offered through the tax-Radar program, at no additional cost
• The various participants in the tax team need to be carefully defined.
BO/CFO or Business Owner

IT IS VERY important that the BO/CFO or business owner (in the case of small businesses) takes a primary role and interest in the tax risk management affairs of the business. It often happens in businesses that the BO/CFO or business owner merely is the point of contact for a tax compliance officer to report to. This has to change in order to ensure that a culture of transparency toward tax risk management issues starts developing in the business. The BO/CFO or business owner will obviously have a very close liaison with the CEO, the audit committee, and other board members from time to time. It is imperative that he or she has a very direct interest in the tax risk management issues being monitored and managed by the tax manager. Read More

Written by | Posted in Tax Risk Management

Australian Tax Office Proposes “Push” Returns

Time for tax conceptIn a speech to the CPA Congress 
in Canberra on 17 October 2013, Tax Office (“ATO”) Second Commissioner Neil Olesen outlined plans for “push” tax returns for Australian individual taxpayers as from 2014. He said:

“The ATO has substantial amounts of information about taxpayers and for those with simple returns, we estimate that on current policy settings we could initially offer a ‘push’ tax return for as many as 1.4 million people, and in fact are aiming to do so next year (2014).

The key principle here is to use the information we already routinely receive about taxpayers affairs (for example, salary and wage income, bank interest, shares and dividends) to send the tax return to the taxpayer, rather than the current way where all we offer is a pre-fill service while still requiring the taxpayer to prepare and lodge a return each year.

In Australia there are some reasons why we could not offer this service widely (eg some complex deductions) but over time and with some careful and creative thinking we think we could effectively liberate around 4.5 million taxpayers from any significant response burden at tax time.”

Interestingly, the Australian Financial Review’s Agnes King reported on 22 October 2013 “Corner store tax agents are confident the federal government’s plans ­to supply 1.4 million people with pre-populated electronic tax returns to which they tick “yes” or “no” will not have a material impact on business.” Read More

Written by | Posted in Australia/Oceania • Individual • International

IRS Releases 50 Pages of FATCA Guidance!

TaxConnections Picture - IRS Magnifying GlassThe Internal Revenue Service released today (10/29/13) Notice 2013-69 that provides guidance for foreign financial institutions (FFIs) entering into an FFI agreement with the IRS to be treated as a participating FFI or Reporting Model 2 FFI under the provisions commonly referred to as FATCA.

This notice includes a draft copy of the FFI agreement, which will be finalized before December 31, 2013.

This notice also provides guidance to FFIs and branches of FFIs treated as reporting financial institutions under an applicable Model 2 intergovernmental agreement (IGA) on complying with the terms of an FFI agreement, as modified by the IGA.

Section III of this notice provides a description of the general responsibilities of participating FFIs and reporting Model 2 FFIs and some of the intended updates to the regulations and related forms.

Section IV of this notice describes the procedures for FFIs to register for participating FFI or reporting Model 2 FFI status. Read More

Written by | Posted in FATCA • Federal • IRS

Ireland Post – Finance (No. 2) Bill 2013 – Part I

TaxConnections Blog PostOn 24th October 2013 the Finance (No. 2) Bill 2013 was published which confirmed the measures introduced by the Budget.

As the main priorities in Ireland at the moment are job creation and enterprise growth the following tax packages were introduced:

I. ENTERPRISE RELIEF – This is a new Capital Gains Tax relief which is aimed at entrepreneurs investing in assets used in new productive trading activities. The purpose is to encourage individuals to reinvest the sales proceeds from the sale/disposal of a previous asset into new productive trading or a new company. The main aspects of the relief are as follows:

(a) It applies to an individual

(b) who has paid Capital Gains Tax on the sale/disposal of an asset and

(c) invests in a new business

(d) at a cost of at least €10,000 Read More

Written by | Posted in Europe, Middle East • Tax Policy • VAT

Same-Sex Marriages Recognized By IRS Announcement

TaxConnections Picture - U.S.Treasury To Insure Money Market Mutual FundsThe United States Department of the Treasury and the Internal Revenue Service ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. (Revenue Ruling 2013-17) The ruling specifically states that it applies only to “legally married” same-sex couples, and not to registered domestic partnerships, civil unions, or similar formal relationships recognized under state law. However, it does apply regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage.

Under the ruling, same-sex couples will be treated as married for all federal tax purposes, including income, gift, and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA, and claiming the earned income tax credit or child tax credit.

These taxpayers must file their 2013 federal income tax returns using either the married filing jointly or married filing separately filing status. For years prior to 2013, these taxpayer may, but are not required to, file original or amended returns choosing to be treated as married for federal tax purposes for one or more prior tax years still open under the statute of limitations.

Written by | Posted in Federal • Individual • IRS

Is It Possible? Comprehensive Tax Reform?

TaxConnections Blog PostOctober 24, 2013, the Democrats of the House Ways and Means Committee sent a letter to Chairman Dave Camp calling for a bipartisan effort to move forward on tax reform. They point out the need and the challenge, noting it will likely require $5 trillion of revenue to repeal the AMT and lower the corporate and individual tax rates to 25%.

I think this is a positive move! I also think that Chairman Camp and Senate Finance Chairman Baucus are committed to moving on comprehensive tax reform. I think we will see proposals from one or both committees in the next few months. As to how specific they will be with respect to how the tax base is broadened in order to lower rates in a revenue neutral manner is the big question.

The letter’s key excerpt:

“Comprehensive tax reform must be the product of a bipartisan process. The Tax Reform Working Groups set the Committee off to a good start, and began the process of Republican and Democratic Members on the Committee digging into the substance of current law. The next step is to discuss tax reform legislation together. Read More

Written by | Posted in Federal • IRS

7 Habitual Mistakes Companies Make – Chapter 2 (6)

TaxConnections Blog PostThe Case of Professional Consultants

IN THE VERY competitive field of tax consulting an emerging professional practice realized that it had to apply different marketing tactics to differentiate itself from the major attorney and accounting firms that it was trying to compete against. The problem that faced Professional Consultants was the fact that many major corporations had long-standing relationships with these established and large attorney and accounting firms, and their ability to lure these corporations away from the big firms was virtually impossible. It had to devise a new strategy in analyzing the market; it realized that the major accounting firms, selling tax consulting services, had a major disadvantage in the services they offered. Anything they did with their clients would or could be summoned and attached by the IRS in any tax audit. This meant that advice opinions, consultation notes, and tax concerns recorded by the auditing firms could become a major source of highly sensitive information to the IRS, as none of it was subject to legal privilege. Had any corporation shared sensitive concerns with its accountant tax advisors, it ran the real risk that the IRS would have access to this advice and information, exposing the heart of the tax-sensitive problems, before they could get resolved.

Professional Consultants (a multidisciplinary practice including a team of attorneys) realized that big law firms did not traditionally get involved in tax compliance or tax risk management issues, generally dealt with by the accounting firms. Their focus was more in the advice and planning phases of big transactions or direct involvement in the disputes between the IRS Read More

Written by | Posted in Tax Risk Management

Tax Payers End of Year Tax Tips

TaxConnections Picture - TIPSHere are some tips for planning last minute tax savings for individual tax payers.

As always there are ways to tweak your 2013 tax bill, but not very much time left to do so. Before making any decisions please see my last Wag the Dog blog and keep those items in mind. The two biggest ways to adjust your taxes for 2013 are to increase your deductions before the end of the year or to decrease your income.

You can increase your deductions by doing things like making additional charitable contributions, paying your health insurance premiums in December instead of January, paying your January mortgage payment in December, paying your 2014 property taxes in 2013 instead of 2014, making a contribution to a traditional IRA before the end of the year or balance that stock portfolio and reap the losses you would take after the first of the year now.

You can decrease your income by increasing the contributions to your 401(k) or other employer sponsored retirement plan before the end of the year, making a contribution to a Health Savings Account, joining or increasing your cafeteria plan contribution, getting your boss to push that bonus or pay raise into 2014, or hold off on balancing that stock portfolio until after the first of the year if you look to make some gains. Read More

Written by | Posted in Federal • Individual • IRS • North America • Tax Education • Tax Tips

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

TaxConnections Blog PostDo you have tax clients who run small businesses or decided to sell their household items on e-bay 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.

Less than a year ago, the AICPA raised the topic in a blog post about a major initiative that requires merchant card companies to report gross receipts on Form 1099-K. At the time, the IRS was carrying out a compliance program that sent notices to small business taxpayers to match their sales information with merchant provided Form 1099-K reports. The program was used to ensure business taxpayers were reporting adequate income from their credit card receipts. A driving force behind this decision was the growing US tax gap, as IRS data indicated that a major source for the gap was related to underreporting of business income on individual tax returns.

As a result, many taxpayers, especially self-employed Schedule C filers, are beginning to receive notices related to Form 1099-Ks. In these notices, the IRS is providing basic instructions such as “Read the notice thoroughly and complete any Read More

Written by | Posted in Federal • IRS • Sales/Use Tax • Tax Provision/Tax Reporting

Foreign Nationals – Common US Tax Planning Technique With a Dynasty Trust

TaxConnections Picture - True FalseIntroduction

Many non-US persons have children, grandchildren and succeeding generations who are US citizen or resident individuals. The foreign person often wishes to create a trust for, or implement some other form of estate plan that will benefit these US individuals, whether during the lifetime of the foreign person or upon his or her death. When US individuals are to be the beneficiaries of such planning, extreme care must be taken so as not to run afoul of the numerous US tax rules that can result in harsh taxation to the US beneficiary who receives distributions from a foreign (non-US or “non-domestic”) trust. The creation of a so-called “Dynasty Trust” may be of benefit in some cases and can assist in the saving of significant US tax dollars.

What is a Dynasty Trust? How Does it Work?

In the past, many US States had laws in place that prevented a trust from continuing its existence through multiple levels of generations. This law was known as the “Rule Against Perpetuities.” This Rule was designed to prevent rich families from tying up family assets in trusts that continued through many generations of heirs. The Rule Against Perpetuities has been changed in many States, and as a result, the so-called “Dynasty Trust” appeared. Read More

Written by | Posted in Estate Planning Tax • Expatriate
« Older Entries   Recent Entries »