Credit Unions Articles
Filing Requirements and Sales/Use Tax
By: Chris Coldiron, CPA, Tax Manager | email
Recent surveys indicate that individuals and businesses purchasing goods over the internet are not properly remitting sales or use tax, many times in violation of state law (the estimated non-compliance rate in California was greater than 98%). With states becoming more desperate for revenue sources to offset record deficits, this area becomes an easy target for state auditors. If you are unsure of your state’s laws regarding the payment of sales or use tax for internet purchases, please contact us so that we may research the matter and advise you accordingly.
State auditors are also on the lookout for businesses that might have a filing requirement in their state that is not being met. If your business engages in transactions outside your home state and you are unsure if this activity generates additional filing requirements, please contact us so that we may help you make that determination.
1099 Reporting Changes, Again
By: Chris Coldiron, CPA, Tax Manager | email
As you may have heard, H.R. 4, the “Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011” repealed all new 1099 reporting requirements that were set to take effect January 1, 2012. The Act was signed into law by President Obama on April 15th. Basically, 1099 reporting requirements will continue to be the same as they’ve always been. This change will significantly decrease the compliance burden small businesses were anticipating. However, this recent change does not do away with the requirement that payers obtain and retain a form W-9, Request for Taxpayer Identification Number and Certification, for all payees. This requirement applies even to governmental agencies and corporations, although these entities are typically exempt from the 1099 reporting requirement. Absent obtaining a W-9 that either documents an exemption to the 1099 reporting requirement or provides the necessary information for that reporting, backup withholding at a rate of 28% is mandatory.
Recent Tax Legislation Changes for 2011 and 2012
By: Chris Coldiron, CPA, Tax Manager | email
In addition to the changes made for Bonus Depreciation and 1099 reporting, several other items of interest were changed by the recent legislation for 2011 and 2012:
- Section 179 expense limits have been changed. For 2011, the maximum expense is $500,000, and the maximum amount of property that may be placed in service before the deduction becomes limited is $2,000,000. For 2012, those figures are reduced to $125,000 and $500,000, respectively.
- A payroll tax “holiday” was added for 2011 only. Employees will see their FICA tax reduced by 2% to 4.2%. Self-employed individuals will enjoy the same reduction, with their FICA rate set at 10.4%.
- The maximum tax bracket for individuals, as well as corporations, will remain at 35% for 2011 and 2012.
- The maximum individual capital gain tax rate of 15% remains in effect for both years, as does the application of this rate to “qualified dividends.” These preferential rates will not be “phased out” for higher income individuals as was reported in the popular press prior to enactment of the law. As the market continues to improve and profitable corporations begin issuing dividends, this change should result in substantial tax savings to many taxpayers.
- Itemized deductions and personal exemptions will not be subject to phase-out for high-income individuals through 2012.
- Individuals will be able to continue using nonrefundable personal credits to offset Alternative Minimum Tax for 2011.
- The standard mileage rate, used in lieu of actual expenses and depreciation, has been set at $.51 per mile for 2011.
- Under the new legislation, executors for decedents dying in 2010 have two options:
1. Apply the 2010 rules that were in effect at the decedent’s time of death.
2. Apply the new 2011 rules retroactively.
Most executors will find the election to retroactively apply 2011 rules beneficial as the gift and estate taxes have again been unified in 2011 and 2012 with a $5 million exclusion equivalent. In English, that means the estates of decedents dying from 2010 – 2012 will be able to enjoy the traditional “step-up” in basis of all estate assets, with the first $5 million exempt from tax. It also means that gifts up to this amount will also be exempt from tax. This $5 million will be inflation-adjusted for 2012.
An Important W-9 Rule Every Business Must Follow
By: Charles L. Telk Jr., CPA, Senior Tax Adviser | email
We would like to remind our clients of the importance of the new W-9 rules set into effect by recent tax legislation. We cannot stress enough that your attention to this new rule is crucial.
RULE: It is the responsibility of every person, business or entity to have a signed, legible copy of form W-9 on hand for every person, business or entity that it issues a check to. This includes all cooperative members as well. This means that any non-employee you issue money to needs to fill out a W-9 for you to keep on record, regardless of the amount of money you issue them or the number of times in a year that you do so. Yes, that means you could have a lot more W-9 forms to deal with. Unfortunately, there are no exceptions.
Form W-9 is the non-employee equivalent of form W-4. The information contained on a W-9 form for each person, business or entity is used to determine if you will need to file a 1099 form for them.
PENALTY: Even if you think you won’t need to issue a 1099 to a certain person, business or entity, you are still required to have their completed and signed W-9 on file. If you don’t, you run the risk of the IRS disallowing your related tax deductions, and assessing you taxes, penalties and interest.
You should review your contractor, vendor and member files to make certain that you have a signed, legible form W-9 on file for each of them. If any W-9 forms are missing, you need to obtain them. Have your contractors, vendors and members fill them out now.
As we discussed in prior newsletters, there is no valid excuse for a vendor to not provide a signed W-9 form. Should you have any questions regarding this issue or any others, please call us so we can help.
Red Flags Rule… Finally.
By: Gardiner Thomsen CPAs | email
The red flags rule may actually go into affect on December 31, 2010. The Rule was originally supposed to become effective on January 1, 2008, with full compliance required by November 1, 2008. The FTC or Congress has delayed enforcing the Rule a couple of times in the last two years.
The Red Flags Rule was developed under the Fair and Accurate Credit Transactions Act, in which Congress directed the Federal Trade Commission (FTC) and other agencies to develop regulations requiring creditors and financial institutions to address the risk of identity theft. The resulting Rule requires all such entities that have “covered accounts” to develop and implement written identity theft prevention programs to help identify, detect and respond to patterns, practices, or specific activities – known as “red flags” – that could indicate identity theft.
By focusing on red flags now, you’ll be better able to spot an imposter using someone else’s identity to get products or services from you. As a practical matter, the Rule applies to you if you provide products or services and bill customers later.
You can find guidance at www.ftc.gov/redflagsrule. At this website you can find a “How-to Guide for Businesses” and a Do-It-Yourself Prevention Program for Businesses and Organizations at Low Risk for Identity Theft.
Red Flags Rule Enforcement Extended
By: Gardiner Thomsen CPAs | email
The Federal Trade Commission (FTC) has issued regulations known as the “Red Flags Rule” requiring certain entities such as creditors and financial institutions to develop and implement a written Identity Theft Prevention Program. Municipal utilities and governmental entities that defer payment for goods or services are considered creditors for these purposes.
The program should include policies and procedures to identify, detect and respond to patterns, practices or specific activities that indicate the warning signs or “red flags” of potential identity theft in day-to-day operations. It should also state how to mitigate the risks of identity theft and evaluate the program to address new risks. The program must be approved by the governing body, and should include information about training staff and monitoring the work of the entity’s service providers. All members of the entity’s staff must be familiar with the Red Flags Rule and compliance procedures.
Enforcement of the rule has now been extended to December 31, 2010, while Congress considers legislation that would affect the scope of the included entities.
A handbook on developing an Identity Theft Prevention Program and information about compliance is available at http://ftc.gov/redflagsrule. A fill-in-the-blank form for businesses and organizations at low risk for identity theft is available at http://ftc.gov/redflagsrule and offers step-by-step instructions for creating a written Identity Theft Prevention Program. The form can be filled out online and printed.
If you have any questions about the Red Flags Rule or would like further assistance on developing an Identity Theft Prevention Program, please contact us, we would be happy to help.
Two New Tax Breaks in the HIRE Act
By: Gardiner Thomsen CPAs | email
On March 18, 2010, President Obama signed the new Hiring Incentives to Restore Employment Act (HIRE) into law. This federal legislation creates brand new tax breaks for hiring and retaining unemployed workers Here’s a quick rundown on two of these key tax breaks:
Employers Get a Payroll Tax Holiday for New Hires, and a Potential Tax Credit Bonus. Normally, an employer is required to pay its share of Social Security taxes on wages earned by employees. For 2010, the portion of the tax is 6.2 percent on the first $106,800 of wages. Under the HIRE Act, an employer is effectively excused from paying its share of the 6.2 percent tax on wages received by “qualified employees.” This exemption applies to wages paid after the date of enactment through the end of 2010. The maximum value for each qualified employee is $6,621. The new law defines a “qualified employee” as someone who meets all of these criteria:
Begins work after February 3, 2010 and before January 1, 2011.
Has not been employed for more than 40 hours during the previous 60 days (ending on the start date).
Was not hired to replace another employee unless the former employee separated from employment voluntarily or for cause.
Is not related to the employer and does not own more than 50 percent of the business, directly or indirectly.
Another tax credit bonus: An employer can claim a tax credit if it retains a qualified worker for a minimum of 52 consecutive weeks. The credit is equal to the lesser of: $1,000 or 6.2 percent of the employee’s wages paid during the 52-week period.
The Super Deduction for Purchasing Business Equipment Has Been Extended. Section 179 of the Internal Revenue Code allows an employer to “expense,” or currently deduct, qualified business assets placed in service during the year, up to a specified maximum. So instead of depreciating equipment over several years, you can write off the entire cost in one year if you qualify and make this election. The maximum deduction is phased out on a dollar-for-dollar basis for the cost of assets exceeding a threshold amount.
Under an earlier stimulus law, the maximum Section 179 deduction allowed for 2009 was $250,000, while the phase-out threshold was set at $800,000. Without an extension, the Section 179 deduction for 2010 had reverted to $134,000 and the phase-out threshold was $530,000. Now the new law preserves the higher limits for qualified assets placed in service in tax years beginning in 2010. (Notes: The HIRE Act does not extend the “bonus depreciation” tax break that was also available for business equipment purchases in 2009.)
Record Retention Guidelines
By: Gardiner Thomsen CPAs | email
Periodically we receive inquiries regarding how long you should keep old records. In general, record retention periods are the same for electronic records and their hard copy counterparts.
Different types of records need to be retained for different time periods depending on laws, IRS and other government or third party requirements.
These guidelines are merely suggestions for determining retention periods and have been prepared from several sources, with particular attention given to IRS regulations regarding tax return limitations. The general rule under those regulations requires you to keep your records for as long as the information is necessary to support the computation of any tax. In most cases, that time period is three years from the due date of the tax return for which the records relate.
In developing your record retention schedule, keep in mind these guidelines as well as other factors that may suggest longer retention periods, such as support for contract covenants, data needed for meeting regulated industry requirements, and information connected to pending or threatened litigation.
Again, this listing is not intended to be all inclusive for every type of record created and maintained in the operation of your business and is only to be used as a general guideline. Please contact us for additional information and assistance in developing your own specific record retention policy.
2009 Overview of Credit Unions
By: Gardiner Thomsen CPAs | email
It’s been a difficult year for many credit unions. Due to the struggling economy in 2009, delinquency has increased 0.25%, charge-offs and bankruptcies continue to rise in numbers and because of status of the economy, many credit unions have had to increase their allowance for loan loss reserve in order to absorb some of these increased losses.
Also, credit unions were required to contribute to the Corporate Stabilization Fund. Contributions to the plan are expected to continue over the next 6-7 years but will be discretionary and only required if authorized by the NCUA Board of Directors.
Through June 2009, credit unions saw a large amount of share growth along side minimal loan growth creating increased liquidity. Due to this share growth, investments in short term commercial bank and corporate CDs has risen 5%. Even though the investments have grown, income from these investments declined 20% annually due to the decreasing rates offered.
Despite the hardships faced by credit unions in 2009, Iowa credit unions still managed to show a respectable 0.90% return on assets as of June 2009, up from 0.80% a year ago. Iowa credit unions are continuing to grow and maintaining a very healthy 10% capital ratio.
Red Flags Rule
By: Dennis Gardiner, Partner | email
The Federal Trade Commission (FTC) has issued regulations known as the “Red Flags Rule” requiring certain entities to develop and implement a written Identity Theft Prevention Program. The purpose of the program is to assist the entity in identifying the red flags that indicate identity theft.
The Fair and Accurate Credit Transactions Act of 2003 requires creditors and financial institutions with covered accounts to implement programs to identify, detect, and respond to patterns, practices or specific activities that could indicate identity theft. The definition of a creditor applies to any entity that regularly extends or renews credit, or arranges for others to do so, and includes all entities that regularly permit deferred payments for goods and services. Municipal utilities and governmental entities that defer payment for goods or services are considered creditors for these purposes.
The Rule defines a covered account as a consumer account that allows multiple payments or any other account with a reasonably foreseeable risk of identity theft. An entity that regularly bills customers after services are provided is considered a creditor under the Red Flags Rule, and is required to develop a written Identity Theft Prevention Program.
The Identity Theft Prevention Program should include policies and procedures to identify the warning signs or “red flags” of identity theft in day-to-day operations, which are suspicious patterns or practices or specific activities that indicate the possibility of identity theft. The program should be designed to detect the red flags identified, state the appropriate actions to mitigate the risks of identity theft and address how the entity will periodically evaluate the program to address new identified risks. The Program must be approved by the governing body, and should include information about training staff and monitoring the work of the government’s service providers. Most important is that all members of the entity’s staff are familiar with the Red Flags Rule and the compliance procedures.
Enforcement of the rule has been extended to November 1, 2009 to give additional time for developing and implementing written identity theft prevention programs. There are no criminal penalties for failure to comply, however violators may be subject to financial penalties. In addition, compliance assures the entity’s customers that they are doing their part to fight identity theft.
A handbook on developing an Identity Theft Prevention Program and information about compliance is available at http://ftc.gov/redflagsrule as well as a fill-in-the-blank form for businesses and organizations at low risk for identity theft. The form can be filled out online and printed. Please contact us if you have any questions; we will be more than happy to help you.