Mar 19, 2013
This issue’s cover story features Eric Santa Maria CPA/ABV in FICPA’s 26 Under 36 – the brightest young CPAs who’ve worked to advance the profession and make a difference in their communities.
Last updated:Mar 19, 2013
Jan 10, 2013
Although Congress averted many of the consequences of a possible tumble over the fiscal cliff with last-minute action, we would like you to be aware of the impact of the bill that was passed — known as the American Taxpayer Relief Act of 2012 — signed into law Jan. 2.
We have compiled an overview of the key provisions of this new law. We encourage you to review them and call us if you have any concerns about how your tax situation will change as we prepare your returns for this filing season.
A Tax Increase on the Highest Incomes in 2013. Although most taxpayers avoided a tax increase, rates did rise for top earners. Taxpayers (including those who receive income through partnerships and S corporations) who earn more than $400,000 ($450,000 for married taxpayers filing jointly) have a marginal tax rate of 39.6%. All other existing rates remain the same.
Higher Capital Gains Rates for Top Earners. The same individuals who are subject to the new 39.6% top rate on income now face a 20% rate on capital gains and dividends, up from 15%. Taxpayers in the 10% and 15% income brackets have a zero capital gains rate and those in the middle will continue to pay 15%.
Higher Personal Exemptions Phase-out Levels. The phase-out levels for personal exemptions and itemized deduction have been raised to $300,000 for married couples and surviving spouses and $250,000 for individuals.
Permanent AMT Patch. The alternative minimum tax originally was intended to prevent high-income individuals from avoiding taxes. In the absence of a patch for last year, more than 60 million middle-income taxpayers might have been subject to the AMT on their 2012 income. After years of last-minute AMT “patches,” the new law permanently indexes the AMT to inflation starting in tax year 2012. For income you earned in 2012, the exemptions are $50,600 for individuals and $78,750 for married taxpayers filing jointly.
Restoration of the Full Rate for Social Security and Medicare Taxes. The law did not extend the 2% cut for the employees’ portion of the Social Security payroll tax, which means it will go back to the full rate of 6.2% on income up to $113,700 in 2013.
Clarity on Estate and Gift Taxes. After years of uncertainty in this area, the new law holds the estate and gift-tax exclusion at $5 million, indexed for inflation ($5.12 million in 2012). The top tax rate jumped to 40% from 35% as of Jan. 1, 2013, but without this change, it would have soared to 55% with a $1 million exclusion amount. The act made permanent the estate tax portability election, which allows a surviving spouse to use a deceased spouse’s unused exemption amount.
Marriage Penalty Relief Retained. Certain taxpayers filing jointly will no longer have to worry about paying more than if they filed as single taxpayers; joint filers also will enjoy a larger standard deduction.
Education Tax Benefits Extended. Many deductions for education expenses were set to expire at the end of last year, but they will remain in place under the new law. For example, the law extends the deduction for qualified education expenses through 2013 and retroactively for the 2012 tax year.
Conversions to Roth Retirement Plans. The new law allows participants in an employer-sponsored 401(k) to transfer any amount to a Roth 401(k) — the funds will be taxed upon conversion.
Tax Relief for Mortgage Loan Modifications. Taxpayers struggling to pay their mortgages, or whose home values have fallen below their purchase price, were given another year of tax relief on any qualifying “indebtedness income” they may receive as a result of a loan modification or short sale on their principal residence.
Also, taxpayers who have net investment income beginning in 2013 will face a 3.8% surtax on categories of certain unearned income, potentially increasing the total tax rate to 43.4%. This tax was already slated to go into effect as a result of health care reform.
We can help you understand the effect that these changes will have on your tax situation. In addition to preparing your return in a way that maximizes your tax advantages, we are also available after tax season to advise on strategies and planning decisions that will help you minimize taxes and meet your financial goals.
Please don’t hesitate to contact us today to schedule an appointment to begin discussing your options.
Last updated:Jan 11, 2013
Nov 30, 2012
Eric Santa Maria was honored today as one of the “best and brightest” young members of the Florida Institute of Certified Public Accounants as part of its 26 Under 36 initiative. The 26 selections for this prestigious honor were based on professional experience and credentials, leadership, and volunteer/civic service to the community.
The 26 Under 36 honorees will be profiled in the March/April 2013 issue of the Florida CPA Today magazine. Eric has been an active member of the FICPA since 2003.
Last updated:Mar 01, 2013
Aug 10, 2012
Not exactly. Effective next year, a new 3.8% Medicare tax on unearned income will apply to a select group of taxpayers the IRS considers high income earners. The new tax will apply to single taxpayers with a modified adjusted gross income in excess of $200,000 and married taxpayers with a modified adjusted gross income in excess of $250,000.
The tax of 3.8% will apply to the lesser of the taxpayer’s net investment income, or the amount by which their modified adjusted gross income exceeds the threshold amount. Under Internal Revenue Service’s Code §1411 ( c ) ( 1 ) ( iii ), net gain attributable to the sale of real estate (other than real estate held in an active trade or business) is subject to this tax. That means the taxable gain on the sale of your personal home in excess of your excluded gain amount under Internal Revenue Code §121.
If you are concerned about the new tax and would like to discuss how it applies to your individual tax situation please contact us today for an appointment.
Last updated:Aug 10, 2012
May 29, 2012
As you may know, the Estate and Gift Tax Exemptions increased to $5.12 Million in 2012. This increase in the gift tax exemption provides a unique opportunity for small business owners in 2012 to avoid significant estate taxes and shift large amounts of wealth to family members without any gift tax implications.
For business owners who have previously gifted their entire exemption in prior years, it allows you to make an additional transfer up to the new exemption amount tax free.
Unfortunately though, the increased exemption is only temporary. Unless Congress acts further, the new tax provisions will expire on December 31, 2012 and revert to their 2001 levels.
Contact us today to discuss this opportunity and other available gifting and estate tax planning ideas to preserve your family wealth.
Last updated:May 29, 2012
Feb 14, 2012
WASHINGTON — The IRS today issued guidance under Revenue Procedure 2012-17 that now will allow partnerships to provide Schedule K-1, Partner’s Share of Current Year Income, Deductions, Credits, and Other Items electronically to recipients.
Certain entities, such as partnerships, are required annually to file K-1s with the IRS and provide a copy to their partners. The new rules can make it easier for partnerships to provide this necessary information to their partners, and will reduce the expense associated with printing and mailing K-1s to partners who elect to receive them electronically.
The guidance provides rules describing when partnerships may provide K-1s electronically to partners. The partnership must receive the partner’s consent before providing K-1s electronically, instead of on paper. These new rules are similar to the rules governing the electronic furnishing of the 1099 and W-2s.
The revenue procedure addresses how the consent can be provided electronically — including secure e-mail and through the partnership’s internet page. The revenue procedure also addresses how partners are to be informed about changes in software, defines how the partnership is to provide instructions about accessing and printing electronic statements and the partnership’s responsibility if the K-1 is electronically undeliverable.
Generally, K-1s must be provided to recipients by the due date of Form 1065, U.S. Return of Partnership Income. For partnerships operating on a calendar year, the due date is April 17, 2012. The IRS estimates that partnerships filed almost 26 million K-1s during 2011.
Last updated:Feb 14, 2012
Dec 16, 2011
Potentially, 2013 could be a momentous year for tax, and planning for it should begin in 2012.
First, in addition to the normal 2.9 percent Medicare tax, a new Medicare tax of 0.9 percent will apply to certain wages. Businesses will be required to withhold additional amounts from the paychecks of their employees, and the new tax may cause some business owners to rethink their own compensation planning.
Second, a new Medicare tax of 3.8 percent will apply to certain investment income, including pass-through income from a passive trade or business such as a partnership or S corporation. You may want to rethink your business structure to accommodate this new tax.
However, these two Medicare taxes will only apply to amounts in excess of $200,000, although this limit is increased to $250,000 for joint returns and is decreased to $125,000 in the case of married taxpayers filing separate returns.
Third, the Bush-era tax cuts may expire. The expiration of these tax cuts would, among other things potentially increase the tax rates on regular income, capital gains and dividends.
The bulk of these changes will affect individuals, but they will also have a major impact on businesses. In particular, the highest tax rate on individuals will increase to 39.6% percent, which is 4.6 percentage points higher than the highest tax rate on corporations. Therefore, although there has been a move in recent years toward pass-through entities, such as LLCs, the C corporation may again come back into favor as individual rates are increased.
As part of the expiration of the Bush-era tax cuts at the end of 2012, capital gain tax rates generally will increase from 15% to 20%, or 0% to 10% for taxpayers in lower-income tax brackets. This increase affects all taxpayers, including small businesses, other than C corporations, for which special rules apply. As a side note, a separate increase occurred at the end of 2011 that affects the sale of qualified stock in a small business that is a C corporation. Special rules, such as a five-year holding period, must be met for a stock to meet the requirements of qualified small business stock, but if it does, some of the gain on the sale of the stock can be excluded from income. In 2011, all of the gain could be excluded, but in 2012 and beyond, half of the gain can be excluded.
Planning for Net Operating Losses
When a business’s deductions exceed its income, a net operating loss, or NOL, arises, which may be carried either back or forward to offset gain in past or future years. Generally, NOLs are carried back to offset gain in the two prior tax years, and any unabsorbed NOLs are then carried forward up to 20 years. Any NOLs left after the 20-year period disappear. This may sound simple, but significant planning is required to maximize an NOL. Factors that must be taken into account include the business’s tax liability in past years, anticipated gains in future years, the expected tax rates in future years, whether the entire NOL will be used before it expires in 20 years, and whether the business is, or will be, subject to the Alternative Minimum Tax (AMT).
Additionally, you may need to decide whether it would be better to generate an NOL or to take the Section 179 expense deduction. The Section 179 deduction cannot create an NOL and cannot be carried back to prior years, so, if there is gain in a prior year that you’d like to erase, it may be advantageous to depreciate the relevant cost and create an NOL carryback.
Also, the presence of an NOL may affect the decision of whether to claim bonus depreciation. If an NOL carryforward is about to expire, you may be better off giving up the bonus depreciation to instead claim a combination of regular depreciation and the NOL carryforward.
An NOL offers significant tax advantages, but also requires significant planning. In past years a longer carryback period was permitted and, as the business moves forward, it must be sure to reconcile any unused losses that must be carried forward.
Planning for Retirement
It’s never too early to think about retirement. Business owners have several options when it comes to choosing a retirement plan, including:
A 401(k) plan, which allows employee salary deferrals and/or employee contributions, may be a good option for businesses seeking flexibility and room to grow.
A Savings Incentive Match Plan, or SIMPLE, is specifically designed for small employers. The SIMPLE comes in two versions, allowing contributions to either a 401(k) or an IRA. Both the employer and employee may make contributions to the IRA or a 401(k). Unlike with the normal 401(k) plan, the SIMPLE 401(k) requires employers to contribute a certain amount to their employees’ retirement accounts.
A Simplified Employee Pension Plan, or SEP, is a simple, inexpensive plan that allows you to contribute up to 25 percent of the employee’s compensation to an IRA each year.
If you are self-employed, the simplest and most flexible options are the same: a solo-401(k), a SIMPLE IRA or a SEP IRA.
Planning for Business Succession
Most business owners believe that business succession planning is only important as one of the principal owners or partners are nearing retirement. That is unwise.
Succession planning is critical not just for retirement but from the outset because the unexpected can occur at any time and any age. Consider the impact on your business if a principal owner or partner suddenly died or was forced to retire due to an illness. Failing to plan for this is a critical mistake.
For business owners nearing retirement, having a plan in place is essential to ensure the business continues to function. Luckily, several strategies can help ease the transition between business owners. To finance a transition, a plan may rely on life insurance, a buy-sell agreement, a grantor trust or a family-limited partnership, among other options. The best succession plan for you depends on your particular needs and wishes, and may depend on the structure of the company, such as whether it is a sole proprietorship or partnership, and whether the business will be handed over to a family member or to a third party.
©2011 American Institute of Certified Public Accountants
Last updated:Dec 19, 2011
Aug 02, 2011
Your business may be eligible for the small business healthcare tax credit. Last April, the Internal Revenue Service sent millions of postcards to small business owners alerting them of the new healthcare tax credit.
To be eligible for the healthcare tax credit, your business must cover at least 50 percent of the cost of healthcare for employees in addition to other criteria. If eligible, the tax credit can be worth up to 35% of a small business’ health premium costs in 2010 and will increase to 50% for 2014.
The tax credit is estimated to save small businesses in the U.S. $40 billion by the year 2019. If you would like additional information regarding the calculation of the tax credit and how this affects your business please contact us.
May 27, 2011
Vist our new Client Resources page for downloadable forms and tax organizers.
Tax organizers assist you in gathering all the information we need to prepare your tax forms. The tax organizers are issued by the American Institute of Certified Public Accountants.
Last updated:Jun 13, 2011
Jan 05, 2011
Enacted on December 17, 2010, by President Barack Obama ,newly passed and signed 2010 Tax Act, formally named the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, includes several provisions that will affect taxpayers. The tax law changes included an extension of the George Bush tax cuts, Alternative Minimum Tax (AMT) patch, and the reinstatement of a modified estate tax.
Here is the information you need to know now about this legislation, formally named the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.
The New Law
- postpones the sunset of the 2001 and 2003 tax cuts;
- reduces the estate tax;
- extends unemployment benefits;
- includes an alternative minimum tax (AMT) patch;
- continues through 2012 the lower capital gains tax rate introduced by the Jobs and Growth Tax Relief Reconciliation Act of 2003; and
- extends for two years the repeal of the itemized deduction phase-out and the personal exemption phase-out.
Provisions That May Affect You
The Act temporarily reinstates the estate tax, with an estate tax rate of 35% and an estate tax exemption of $5 million (adjusted for inflation after 2011).
For 2011, the Act reduces the rate for the Social Security portion of payroll taxes to 10.4% by reducing the employee rate from 6.2% to 4.2%. The employer’s portion remains 6.2%.
The Act extends several expired or expiring provisions affecting families, including the following:
- The increased standard deduction for married taxpayers filing jointly, which is scheduled to expire after 2010, continues for two years.
- The $1,000 child tax credit amount continues for two years instead of reverting to $500.
- The increased starting and ending points for the earned income credit continues for two years.
- The $3,000 amount for the child and dependent care credit, which was scheduled to revert to $2,400 after 2010, continues for two years.
- The American Opportunity Tax Credit continues for two years.
The Act also makes adjustments to the gift exclusion and generation-skipping transfer (GST) tax that will affect family giving:
- The federal gift tax exemption is increased to $5 million for 2011 and 2012, up from $1 million in 2010.
- The GST tax exemptions are set at $5 million for 2011 and 2012. The exemption limit is scheduled to drop to $1 million beginning in 2013.
The Act extends the 100% bonus depreciation for business property acquired after September 8, 2010, before January 1, 2012, and placed in service before January 1, 2012 (or before January 1, 2013, in the case of certain property). It also sets the expensing limitation under IRC §179 at $125,000 and the phase-out threshold amount at $500,000 for 2012. The Act then reduces these amounts to $25,000 and $200,000 for tax years beginning after 2012.
The temporary 100% exclusion of gain from the sale of certain small business stock under IRC §1202, enacted by the Small Business Jobs Act of 2010, is extended through 2011.
The Act includes an AMT patch for 2010 and 2011.
- For 2010, the AMT exemption amounts will be $47,450 for unmarried individuals and $72,450 for married individuals filing jointly.
- For 2011, the amounts will be $48,450 and $74,450, respectively.
Needless to say, the 2010 Tax Act is still very new. It is only just being analyzed by professional advisers. The law is potentially subject to modifications by technical correction acts. In addition, provisions of the law may be interpreted by the Treasury Department issuing regulations and by the IRS issuing forms and instructions.
The IRS has already notified Taxpayers affected by the new tax changes to wait until mid-to late February to file their tax returns. For 2011, Taxpayers have also been given until Monday, April 18 to file their 2010 tax returns and pay any tax due because of Emancipation Day, a holiday observed in the District of Columbia.
Last updated:Jan 05, 2011
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The purpose of our news and blog section is to provide general accounting, tax, and business articles we feel are of interest to our current and prospective clients. If you would like to know how these issues apply to you or your business please contact us.