Personal Tax Articles
American Taxpayer Relief Act of 2012
By: Chuck Telk, CPA, Partner| email
The American Taxpayer Relief Act of 2012 was signed into law on January 2, 2013. This new law modifies or extends many business tax breaks, and also contains many changes to individual income tax. There are substantial additional changes in this act, but the following are most likely to impact you and/or your business.
For Businesses:
- Bonus Depreciation: The new law extends the 50% first year bonus depreciation for additional years to cover qualifying new assets that are placed in service in calendar year 2013 (December 31, 2014 for certain assets). Bonus depreciation has been a useful tool for many of our cooperative and business clients, and the new law enables us to utilize this benefit for all tax years beginning in 2013– provided the qualifying asset is placed in service by December 31, 2013.
- Section 179: The new law restores the maximum Section 179 deduction to $500,000 for tax years beginning in both 2012 and 2013, and restores the Section 179 deduction phase out threshold to $2,000,000 for those years as well. While many of our clients place too many assets in service in a tax year to qualify for this deduction, for those clients that qualify, this presents another tool to help manage and reduce your federal tax bill.
- Work Opportunity Credit: This credit has been extended to cover qualifying hiring that occurs in 2012 and 2013.
- Research Credit: This credit has also been extended to cover qualifying expenses paid in 2012 and 2013.
- Alternative Fuel Vehicle Refueling Equipment: This credit has been extended to cover qualifying property placed in service in 2012 and 2013. The per-location cap of $30,000 has been retained.
- Railroad Track Maintenance Credit: This credit has also been extended for qualifying expenditures to maintain railroad tracks for years beginning in 2012 and 2013.
- Employer Educational Assistance Plans made permanent: Section 127 of the Internal Revenue Code allows employers to set up plans that provide up to $5,250 in annual federal income tax free educational assistance to each eligible employee. This new act makes this provision permanent.
- Standard Business Mileage Rate: The Standard Business Mileage Rate for 2013 has been increased to 56.5 cents per mile effective January 1, 2013.
- 1099 and W-2 Reporting: Remember that 2012 1099’s and W-2’s are generally due to the recipient by January 31, 2013. Even if you have a fiscal year end, these forms are based on calendar year 2012 amounts. Also, these forms are not due to the government until the end of February (March in some cases). Be sure to wait until the due date to file the forms with the government– that will give the recipient a chance to review the forms and get any errors fixed. It is far easier to fix the mistake prior to the forms being sent to the government.
I know that the temptation is there to get the forms sent in to the government as soon as the recipient copies are mailed. However, you should wait to file the forms with the government until the due date.
For Individuals:
- Tax increases for higher-income individuals: The maximum federal income tax rate has been increased to 39.6% for those that have taxable incomes above $400,000 (single) and $450,000 (married filing joint), $425,000 (Head of household) and $225,000 (married filing separate). These income levels will also cause your tax rate on long term capital gains and qualifying dividends to increase from 15% to 20%. And finally, these income levels may subject a taxpayer to the new 3.8% Medicare surtax on investment income and the new 0.9% Medicare tax on wages and self-employment income. These 2 new taxes were previously imposed to help pay for the Patient Protection and Affordable Care Act (PPACA), commonly called Obamacare.
- Phase-out rules reinstated: This means that higher-income taxpayers will lose a portion of their itemized deductions and personal exemptions at adjusted gross incomes above $250,000 (single), $300,000 (married filing joint), $275,000 (head of household) and $150,000 (married filing separate). The specifics of these rules are too complex to cover here in detail, but if your AGI exceeds these limits, then this is a method of increasing your federal income tax without increasing tax rates.
- Alternative Minimum Tax: The exemption has been increased and made permanent. This change, which used to be fixed on an annual basis, will keep an estimated 30 million filers from paying the Federal Alternative Minimum Tax.
As with the business tax changes, there are many additional items effecting your personal taxes– far too many to discuss here. If you have any questions regarding the American Taxpayer Relief Act of 2012 and how it affects your business or personal taxes, or if you have questions regarding 1099 forms and W-2 reporting, please contact me at our Des Moines, Iowa office.
1099 Reporting Update
By: Charles L. Telk Jr., CPA, Partner | email
With the recent “relaxation” of the new tougher 1099 reporting requirements, there seems to be a misconception that 1099’s are no longer required. This misconception could prove costly to you and your organization. Make no mistake about it – 1099’s are still required in certain circumstances. Improperly reporting 1099’s to the IRS can cost your organization thousands of dollars in penalties and professional fees.
Several of our clients have recently received penalty notices from the IRS regarding incorrect taxpayer identification numbers. Issues range from names not matching the FEIN, erroneous FEIN’s, missing FEIN’s, etc. The IRS assess a $50 penalty per occurrence and the sum of the penalties in several cases approached $8,000.
This type of IRS action is increasing as the IRS looks for proper reporting and additional revenue.
Therefore, it remains important for your accounting department to have a current, signed and legible W-9 form on hand for all members as well as for any non-employee who receives a check from you. Of course, you should also have a current, signed and legible W-4 form for all employees. An illegible W-9 form can cause an error on form 1099 which can trigger a penalty. We recommend that you update your files on an annual basis to ensure you have the appropriate W-9 form on hand, without exception.
We realize that obtaining these forms can be problematic. I’ve heard every excuse in the book as to why a W-9 form is not required, such as: “We’re a non-profit,” “We’re a corporation,” “We’re a trust,” “We’re a governmental entity,” etc. But the bottom line is this: If you are issuing a check to a non-employee, you should have a current, signed and legible W-9 form on hand without exception. This is not to say that everyone who receives a check from you will also receive a 1099. But by having the W-9 on hand, you will have the information necessary to issue a 1099 should it be required.
This is an important issue that will continue to receive IRS attention. We are available to answer your questions regarding form W-9 and 1099 reporting. Please call me in the Des Moines office at 515-270-1446 should you have any questions or concerns.
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.
Standard Business Mileage Rates – 2011
By: Chris Coldiron, CPA, Tax Manager | email
To help offset the bite of rising gas prices, the IRS announced on June 23rd that the standard business mileage rate will increase for the second half of 2011 (beginning July 1st) to 55.5 cents per mile, up from 51 cents per mile for the first half of 2011. The mileage rate used in computing deductible moving expenses and medical transportation costs also increased by 4.5 cents per mile to 23.5 cents per mile with the same effective date. The rate used to compute mileage for charitable driving did not change and remains at 14 cents per mile for all of 2011.
401K Fee Disclosure Requirements To Change
By: Ryan Taylor, CPA, Audit Manager | email
Starting January 1, 2012, the Department of Labor will require 401(k) plans to clearly spell out all fees and expenses each quarter so that investors can more readily compare the costs of their holdings and investment choices.
Current laws don’t require sufficient information to allow workers to make the best investment decisions. Even if workers were given abundant investment information in the past, they didn’t always receive it in a user-friendly format.
Companies must begin laying out the administrative expenses, including accounting and recordkeeping fees, and the charges that apply to the individual choices a worker makes, such as fees charged for loans. The charges for administrative expenses must be laid out in the quarterly reports workers receive and also be made available online.
The fees and expenses associated with the funds a worker chooses must be explained as a percentage of assets held, and also expressed as a dollar amount for each $1,000 invested. Performance data must be provided for the various mutual funds offered, including 1-year, 5-year, and 10-year returns. Comparisons to appropriate benchmarks must also be provided for those time periods to enable investors to assess how their funds are performing.
The new rules also require that workers have access to an easily understood glossary of terms to help explain the investment options, fees, and other details. These rules can help fill an important knowledge gap because many investors don’t know that more than a half a dozen fees may be charged against their 401(k) account for recordkeeping, administration, investment advisory, brokerage and management services.
The regulations, however, offer protection to plan administrators on the completeness and accuracy of the information provided by a plan’s service provider, upon which the administrator reasonably and in good faith, relies.
The new regulations mean that plan administrators will want to discuss with their service providers (third-party administrators, record-keepers, fund managers) the various disclosure requirements and amend plan, trust, and provider agreements as necessary to allocate responsibility for satisfying those requirements.
W-2 Reporting of Health Coverage
By: Gardiner Thomsen CPAs | email
The Internal Revenue Service (IRS) issued interim guidance concerning the Affordable Care Act (ACA) requirement to report the cost of employer-provided health care coverage on Form W-2. Under the new interim guidance, voluntary reporting has been extended for small employers to 2012.
Under the ACA, effective for tax years beginning after December 31, 2010, employers were required to report on Form W-2 the total cost of group health coverage, including the portion paid by the employer and the portion paid by the employee. Last year, the IRS issued guidance making the reporting requirement voluntary for all employers on 2011 Form W-2. Just recently, the IRS provided further relief to small employers- those with less than 250 W-2 forms. Under the new guidance, small employers will not be required to report the cost of employer-provided health care coverage on 2012 Form W-2 as well.
The IRS reminds employers that the new reporting requirement is intended to be informational only, and to provide employees with a better appreciation of the amount that their employers spend on their overall health care costs.
The full notice to employers of interim guidance can be found at:
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.
1099 Issues From the Past Resurface
By: Gardiner Thomsen CPAs | email
Recently, the IRS began sending out notices related to tax year 2008 1099 forms. These notices detail problems with 1099 forms that our clients have filed, including incorrect or missing FEIN’s, incorrect names on the 1099’s, and other issues. Generally, a penalty for each occurrence is imposed, which could potentially total thousands of dollars for the client.
Now is a good time to review your internal accounting procedures in regard to non-employees. Before issuing a check to anyone who is not an employee, you should obtain a signed W-9 form. The information contained in a W-9 form is what you use to determine if a 1099 is required, and then to prepare form 1099 if it is required.
There are several common excuses that individuals and/or businesses use in order to avoid providing a W-9 form, for example:
- “I’m a corporation, you don’t need to issue me a 1099.” In actuality, it is the W-9 form that communicates this information. You need them to provide you a signed W-9.
- “I’m with the city/county/state/federal government, you won’t need to issue me a 1099.” Every government agency, from federal to a small city, has a FEIN. You need
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them to provide you a signed W-9.
All of these excuses are invalid. The ideal policy regarding W-9 forms should forbid the issuance of a check to anyone, member or patron, who has not provided you with a signed W-9 form. Penalties are also imposed for incorrect or illegible 1099 forms, so you must have a zero exception policy. It takes resources to try to obtain the correct information after the fact, so get a signed W-9 form prior to anyone expecting payment. If you have any questions, please contact us.
Blue Ribbon Panel Looks Into Separate GAAP For Private Companies
By: Gardiner Thomsen CPAs | email
Until recently, U.S. generally accepted accounting principles (GAAP) have long been considered universally acceptable for both publicly and privately held companies. However, there have been growing concerns about the specific needs of privately held companies which must report to a narrower range of financial statement users, such as lenders, venture capitalists, and insurers. Current GAAP and standard-setting processes have been viewed as too complex to be useful for private companies and do not benefit the users enough to justify the costs of compliance. Because of this, the American Institute of Certified Public Accountants (AICPA) and the Financial Accounting Foundation (FAF) have created a Blue Ribbon Panel to explore how the GAAP and standard setting process are meeting private company needs.
In addition to the costs of funding the standard-setting process and educating financial statement preparers, other issu
es raised by the panel are: whether a separate set of standards would be useful for private companies; if simplified standards would be useful for all companies, both public and private; or if giving private companies the option of complying with either a new set of simplified standards or reporting as a public company under the current set, would be useful. The panel, made up of various groups including lenders, investors, owners, preparers, auditors, and regulators, is most concerned with putting the decision making process in the hands of the users. The panel will meet throughout the year to discuss these issues in depth and make recommendations on how to better serve the financial reporting needs of both publicly and privately held companies, as wells as the preparers and users of those financial statements.
Gardiner Thomsen will be following this issue and will keep you up to date on any progress or changes that will affect your company. In the meantime, if you have any questions, please don’t hesitate to contact us.
