Personal Tax Articles
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.
FAQs 2010 Tax Changes
By: Charles L. Telk Jr., CPA, Senior Tax Adviser | email
The following items reflect answers to frequently asked questions, and highlights some important tax information.
- Business auto mileage rate – drops to 50 cents a mile for 2010.
- Charitable mileage rate – remains at 14 cents a mile for 2010.
- Medical and Moving mileage rate – decreases to 16.5 cents a mile for 2010.
- 401K Deferral (contribution) limits – remains at $16,500 for 2010
- 401K “catch-up” deferral (contribution) limits – remains at $5,500 for 2010
- IRA and Roth IRA contribution limits – remains at $5,000 for 2010
- IRA and Roth IRA “catch-up” contribution limits – remains at $1,000 for 2010
- Annual Gift Exclusion – Remains at $13,000 for 2010
- Social Security Tax Wage Base – remains at $106,800 for 2010
- Roth IRA conversions. For 2010 the income limit is waived making anyone eligible to convert their traditional IRA to a Roth IRA. If you convert your traditional IRA to a Roth Ira in 2010 you can elect to spread the tax to 2011 and 2012 – one half of the tax to each year.
- Estate Tax. As of right now – the Estate tax is repealed effective January 1, 2010. It is widely expected that Congress will act retroactive to January 1, 2010 to re-instate the Estate Tax.
The following tables represent the individual income tax rates for 2010.
Impact of Stimulus Funds on Single Audit
By: Dennis Gardiner, Partner | email
About half of the $770 billion of the economic stimulus funds will be received by governmental bodies and not-for-profit organizations as grant funds, requiring these entities to have single audits performed on the Federal programs. Along with these funds come unprecedented transparency and accountability requirements. The objective of these additional requirements is to let Americans know where their tax dollars are going and how they are spent.
The new requirements will impact all levels of the grant process including federal agencies, recipients and sub-recipients, and independent auditors. Federal grantor agencies will provide technical assistance to the auditing profession. In addition, high-risk programs will be targeted for priority audits, inspections and investigations. Quality control reviews will ensure that single audits are properly performed, and that improper payments and other noncompliance are fully reported. Follow-up reviews of audit quality, with an emphasis on Recovery Act funds, will be available on www.recovery.gov, which serves as a public source of information on recovery funds.
The normal reporting processes will be followed for all Federal funds when a single audit is required, however Recovery Act funds will be identified separately on each and every report and must be tracked separately from the initial receipt by the recipient. These are not new federal programs, they’re existing programs with new compliance requirements. Recipients are also required to separately identify Recovery Act funds to each subrecipient at the time of the subaward and each time the funds are disbursed.
Grant recipients will be required to report certain information to the Federal awarding agency within 10 days after the end of each quarter: the total amount of Recovery Act funds received, the amount expended, the name and a description of each project for which funds were spent, the completion status, number of jobs created and retained, subcontracts and pass-through grants awarded by the recipients, and finally, the purpose, cost and rationale for infrastructure investments.
Internal controls over compliance are always tested on a single audit, but with additional funding, officials are concerned that a recipient’s internal controls may not be able to cope. Normally, single audit findings are not reported until nine months after year end, so any control deficiencies won’t be corrected before increased funding is released.
The unprecedented transparencies and accountability requirements come with a price tag for recipients and their independent auditors. With the increased audit considerations, we expect the amount of work we do on single audits, and accordingly, the cost of a single audit, to increase significantly. Federal funding may become the largest source of revenue for local governments, possibly more than property tax. For some grant recipients, Recovery Act funds will have to be audited as major programs for the fiscal year ending June 30, 2009. We anticipate even more for fiscal year 2010.
FDIC Changes In Coverage
By: Gardiner Thomsen CPAs | email
Last fall the FDIC, due to the volatility in the markets, approved changes to insured limits and instituted temporary programs to ease depositors’ concerns about their accounts.
Effective October 3, 2008, the basic limit on the FDIC amount was increased from $100,000 to $250,000 per depositor through December 31st, 2009. On May 20, 2009, the FDIC extended the coverage date through December 31, 2013. (However, the extension does not apply to the Transaction Account Guarantee Program. The unlimited coverage under the Transaction Account Guarantee Program is only in effect for depositors at participating institutions through December 31, 2009.) On January 1st, 2014, coverage will revert to $100,000, except for certain retirement accounts.
On October 14th, 2008, FDIC officials announced the Temporary Transaction Account Guarantee Program. This program covers all personal and business checking deposit accounts that are non-interest-bearing and deposited with an institution participating in this program.
A “non-interest-bearing transaction account” is one on which interest is neither accrued nor paid and on which the insured bank does not require advance notice of a withdrawal. However, for purposes of the Program, the FDIC is including in the definition of a non-interest-bearing transaction account: traditional demand deposit checking accounts that allow for an unlimited number of deposits and withdrawals at any time; low-interest negotiable order of withdrawal accounts (NOW accounts) that can earn no more than 0.5% interest; other interest-bearing checking accounts; Money Market Deposit Accounts (MMDAs); savings accounts; Certificates of Deposit (CDs); accounts commonly known as Interest on Lawyers Trust Accounts (IOLTAs), and functionally equivalent accounts.
Coverage for eligible accounts under this temporary program is unlimited. This program is scheduled to end December 31st, 2009.
It is important for you to consider these new coverage limits and dates and include them as part of your company’s cash management policies.
FDIC Deposit Insurance Coverage Limits (Through December 31, 2013)
| Single Accounts (owned by one person) | $250,000 per owner |
| Joint Accounts (two or more persons) | $250,000 per co-owner |
Certain Retirement Accounts (includes IRAs) |
$250,000 per owner |
| Revocable Trust Accounts | $250,000 per owner per beneficiary up to 5 beneficiaries (more coverage is available with 6 or more beneficiaries subject to specific limitations and requirements) |
| Corporation, Partnership and Unincorporated Association Accounts | $250,000 per corporation, partnership or unincorporated association |
| Irrevocable Trust Accounts | $250,000 for the non-contingent, ascertainable interest of each beneficiary |
| Employee Benefit Plan Accounts | $250,000 for the non-contingent, ascertainable interest of each plan participant |
| Government Accounts | $250,000 per official custodian |
Changes in Accounting Method For Form 3115
By: Gardiner Thomsen CPAs | email
Last year, based on IRS guidance, we changed the way that Section 199 was computed. This year we are researching the Internal Revenue Code, specifically sections 1381, 1382 and 1383, which are related to Section 199, to investigate the possibility of writing down your tax basis member grain inventory (in dollars) to zero. This would have the affect of creating a tax deduction equal to your ending member grain inventory.
While we are still in the research stages, we are aware that one of the “big four” firms is moving forward with this write-down, and is in fact, contacting our clients. We believe this to be somewhat premature as the IRS is still in the process of ruling on contingent matters. However, this strategy is worthy of our continued investigation. It is based upon filing form 3115, which asks the IRS permission to compute inventory under the auspices of section 1383. Once the IRS grants this permission, your cooperative could record a tax deduction equal to your ending member grain inventory. In plain English –an extremely large tax deduction.
As always, we are on top of this cutting edge tax issue and are researching and planning strategy so that if in fact this is a viable option for you cooperative, we will implement this calculation.
Tax Filing Via Certified Mail
By: Gardiner Thomsen CPAs | email
We would like to remind you of a very important policy regarding tax filing. The Internal Revenue Service, as well as State and local taxing authorities, all have the ability to charge significant penalties and interest on returns that are filed late. Because of this, we suggest that any tax form or document being filed via the US Postal Service be sent via Certified Mail with return receipt requested. There should be zero exception to this policy.
Should the Internal Revenue Service or other taxing authority allege a late-filed return, the possession of that certified mail receipt documenting timely filing is very valuable. We suggest that you safeguard this proof and also send us a copy, either via e-mail, fax or regular mail for us to retain in your file.
If the Internal Revenue Service ever does allege that your return was filed late, a short, simple letter, coupled with copies of your proof of timely filing, will resolve the issue. While we hope you never experience an issue like this, if you should, we are here to help.
New COBRA Provisions in the Stimulus Law
For employers, the time is now to comply with a little-known provision in the new stimulus law, signed by President Obama on February 17th. Part of the American Recovery and Reinvestment Act of 2009 is a revamping of COBRA law for certain employees.
The new key provision: Individuals who were terminated on or after September 1, 2008, who qualified for COBRA but declined coverage, now have the right to choose to be covered — with a government-paid subsidy of the insurance premium. The COBRA premium subsidy runs for up to nine months for persons who become eligible because of an involuntary termination between Sept. 1, 2008 and Dec. 31, 2009.
The key date is March 1: Employers who terminated employees between September 1, 2008 and March 1, 2009 must notify qualifying employees who declined COBRA coverage that they (and their spouses, ex-spouses, and qualifying dependents) now have the right to choose to continue coverage.
An employer’s notice must tell eligible individuals they have a new 60-day period in which to elect COBRA coverage. If they do so, under the new law, the premium subsidy ends after 9 months or when they become eligible for health insurance coverage from another employer or enroll in and are covered by Medicare, whichever is sooner.
Organizations that terminate employees on or after March 1, 2009 must notify them (and their qualifying spouses, ex-spouses, and dependents) of the right to continue coverage if they’ve been in an employer’s benefit plan. Employers must use a federal government issued model notice, which must be sent to eligible individuals within 60 days of the enactment date of the new law, which was February 17th, 2009.
Here’s a rundown of other COBRA changes:
- Starting March 1, COBRA premiums may not exceed 35 percent of the cost. The remaining premium cost must be paid by employers, who then can claim a tax credit against wage withholding and payroll taxes to cover their paid portion of the premiums.
- Individuals are not eligible for COBRA subsidies in a year when their adjusted gross incomes (AGIs) exceed certain limits.
- The employer can permit eligible individuals to switch their coverage option to a less expensive choice when they elect to exercise their COBRA rights. This is a change from the previous COBRA provision that allowed qualifying individuals only to continue the coverage option they had as active employees.
- COBRA Assistance eligible individuals pay a reduced premium equal to 35% of the full COBRA premium. The employer pays the other 65% and then is reimbursed for the subsidy by the federal government by taking a credit on its quarterly payroll tax return (Form 941).
For additional information, there are several resources available. The Department of Labor’s website offers a COBRA premium reduction fact sheet, employer and employee FAQs, and other helpful information on COBRA payments and credits. The IRS has modified Form 941 to handle the COBRA credits, and the new form, instructions, and Q&As can be linked to through an IRS news release that explains the changes.
10 Significant Changes in Tax Incentives Made By New Stimulus Law
By: Gardiner Thomsen CPAs | email
The latest economic stimulus law, enacted on February 17, 2009, contains tax incentives designed to get the stagnant U.S. economy moving again. Here are 10 significant changes that might have an impact on your business.
Change #1: Some Businesses Can Carry Back 2008 Losses Up to Five Years
Under the new law, eligible businesses can elect to carry back 2008 net operating losses (NOLs) for either three, four, or five years to claim refunds of federal income taxes paid for earlier years. Certain deadlines apply, and the election privilege is only allowed for businesses with average annual gross receipts of $15 million or less for the three-year period that precedes the loss year for which the election is made.
Change #2: Extension of $250,000 Section 179 Depreciation Allowance
The new law extends the Section 179 first-year depreciation write-off by one year, increasing the maximum deduction from $133,000 to $250,000 for 2009. The new law also extends the phase-out threshold for new qualifying property by one year, increasing the threshold from $530,000 to $800,000 for 2009. For tax years beginning in 2010, the maximum deduction amount and the threshold will fall back to much lower amounts unless Congress takes further action.
Change #3: Extension of 50 Percent First-Year Bonus Depreciation
The Recovery Act extends the beneficial 50 percent first-year bonus depreciation provision to cover qualifying new assets that are placed in service by December 31, 2009. (A later deadline applies to limited assets described below.) To be eligible for 50 percent first-year bonus depreciation, an asset must be new qualified property and must be placed in service by December 31, 2009 or by December 31, 2010 for certain long-lived assets, transportation equipment, and aircraft.
Change #4: Bigger First-Year Write-offs for Autos and Light Trucks
For a new passenger auto or light truck that falls under the luxury auto depreciation limitation rules, the 50 percent first-year bonus depreciation benefit translates into an $8,000 increase in the maximum write-off obtained in the first year. Assuming 100% business use of the vehicle, for new cars placed in service in 2009, the estimated maximum first-year depreciation deduction is $10,960. For new light trucks the estimated maximum first-year depreciation deduction is $11,060.
Change #5: Favorable AMT Depreciation Side Effect
Fortunately, 50 percent first-year bonus depreciation applies equally for both regular tax and Alternative Minimum Tax (AMT) purposes. Just as good, there are no AMT adjustments necessary for depreciation deductions claimed for the remaining 50 percent of depreciable basis left after subtracting the bonus depreciation write-off. In other words, when 50 percent first-year bonus depreciation is claimed for an asset, the rules are the exactly the same for both regular tax and AMT purposes.
Change #6: Corporate Option to Claim Certain Credits Instead of Bonus Depreciation
Under prior rules, corporations could elect to forego claiming 50% first-year bonus depreciation deductions, for qualified assets that were purchased after March 31, 2008 and placed in service by December 31, 2008 (or December 31, 2009 for certain assets), in lieu of using other credits, allowing the company to offset both regular tax and AMT liabilities.
The new law extends these deadlines to December 31, 2009 and December 31, 2010, respectively, and it also provides electing corporations with three options for choosing the best mix of available credits and bonus depreciation.
Change #7: Income Triggered by Reacquiring Taxpayer’s Own Debt at a Discount Can Be Deferred
Under the new law, a business that reacquires its own debt at a discount in calendar years 2009 and 2010 can defer the resulting taxable debt discharge income (DDI) and spread the DDI over five years after the deferral period is over. This may allow financially stressed businesses to restructure their debts in a tax-favored manner.
Change #8: Tax Break for Some S Corporation Built-In Gains
When a C corporation switches to S corporation status, the built-in gains tax (BIG tax) applies to assets that have built-in gains as of the C-to-S corporation conversion date. The new law grants a temporary BIG tax exemption for gains recognized from an S corporation’s tax years beginning in 2009 and 2010, but only if seven years have passed since the conversion date.
Change #9: Subsidized COBRA Coverage for Terminated Workers.
COBRA (Consolidated Omnibus Budget Reconciliation Act) Assistance eligible individuals who were involuntarily terminated as of September 1st, 2008 are now provided a new 60-day period to elect coverage if they had previously declined it. All COBRA eligible individuals as of March 1st will only be required to pay 35 percent of the health plan premiums while the federal government will subsidize the remaining 65 percent. The government subsidy will generally come in the form of a federal payroll tax credit for the employer on its quarterly employment tax return. This change is explained in more detail in a separate article in this newsletter.
Change #10: Liberalized Gain Exclusion for New Issues of Small Business Stock
Under Section 1202 of the tax code, non-C corporation sellers of qualified small business corporation stock can potentially exclude up 50 percent of their gains from federal income taxation (subject to several limitations).
To encourage more investment in qualified small business corporations, the Recovery Act increases the gain exclusion percentage from 50 to 75 percent. This beneficial change only applies to qualifying sales of eligible shares that are issued between February 18, 2009 and December 31, 2010.
This is just an overview of only 10 important changes made by the new Stimulus Law. For further detail on these and additional changes potentially affecting the tax liability of your company, please call us. We’re here to help.
Vague Benefit Policies Are Risky
By: Dennis Gardiner, Partner | email
Without a clearly written policy, using additional paid time off as a benefit when deciding employee compensation, could put you at risk for a lawsuit.
It’s critical to have a written policy at your company detailing how vacation and paid time off is accrued.
Let’s say you offer paid vacation, paid sick leave, paid time off or paid holidays, and you have no formal policy in place. Legally, you have an implied policy, based on your history of awarding paid benefits in the past — and any verbal or written agreements with individual employees. So if you make a deal with a new employee to get two weeks more annual vacation time than other staff members, that additional time could become part of your “policy” in a lawsuit. A court could decide how much you owe employees.
Note: Your time-off benefit policy should be written in clear language that is easily understood by the typical employee. In some cases, even companies with written polices have been forced to grant employees more benefits than they intended. That’s because their policies had vague or confusing formulas for determining how employees earned and accrued paid time off.
Helping Employees Build Wealth
By: Gardiner Thomsen CPAs | email
The Department of Labor is helping companies remind their employees about the importance of saving for retirement. A series of four posters is available for companies to display.
You can print them from the web site address below and display them in your workplace, or e-mail the messages to each of your employees. The posters come in text and graphic format and are available in English and Spanish.
Here are the messages encouraging employees to enroll in their company’s retirement plan.
Poster #1:
Do you want an extra $100,000? By contributing $125 a month to your workplace retirement plan, you can accumulate $100,000 in 30 years with just a 5 percent annual return. Workplace savings plans are the easiest way to a comfortable retirement.
Poster #2:
How can you earn 100% return on savings? A dollar for dollar match on your workplace retirement contributions equals an immediate 100 percent return on your savings.
Poster #3:
Are you passing up free money? Many workplace retirement plans match employee contributions. If you are not a participant, you could be losing out on 25 cents, 50 cents, even a dollar for every dollar you save.
Poster #4:
Over 50? Want to save more for retirement? You may be able to make catch-up contributions to your retirement plan to build wealth faster.
These posters can be found at the Department of Labor web site by going to http://www.dol.gov/ebsa/savingmatters.html#section5