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Three Tax Considerations during Marketplace Open Enrollment


When you apply for assistance to help pay the premiums for health coverage through the Health Insurance Marketplace, the Marketplace will estimate the amount of the premium tax credit that you may be able to claim.  The Marketplace will use information you provide about your family composition, your projected household income, whether those that you are enrolling are eligible for other non-Marketplace coverage, and certain other information to estimate your credit.


Here are three things you should consider during the Health Insurance Marketplace Open Enrollment period:


1. Advance credit payments lower premiums - You can choose to have all, some, or none of your estimated credit paid in advance directly to your insurance company on your behalf to lower what you pay out-of-pocket for your monthly premiums.  These payments are called advance payments of the premium tax credit or advance credit payments.  If you do not get advance credit payments, you will be responsible for paying the full monthly premium.


2. A tax return may be required - If you received the benefit of advance credit payments, you must file a tax return to reconcile the amount of advance credit payments made on your behalf with the amount of your actual premium tax credit.  You must file an income tax return for this purpose even if you are otherwise not required to file a return.


3. Credit can be claimed at tax time - If you choose not to get advance credit payments, or get less than the full amount in advance, you can claim the full benefit of the premium tax credit that you are allowed when you file your tax return. This will increase your refund or lower the amount of tax that you would otherwise owe.

For more information about open season enrollment, which runs through January 31, 2016, visit See our Questions and Answers on for information about the premium tax credit.



Tax Preparedness Series: Make a Wise Choice when Selecting a Tax Preparer


While there is still time before the next tax filing season, choosing a return preparer now allows more time for taxpayers to consider appropriate options and to find and talk with prospective tax preparers rather than during tax season when they’re most busy. Furthermore, it enables taxpayers to do some wise tax planning for the rest of the year. If a taxpayer prefers to pay someone to prepare their return, the Internal Revenue Service encourages them to choose that person wisely as the taxpayer is legally responsible for all the information included on the return.


This is the third in a series of weekly tax preparedness releases designed to help taxpayers begin planning to file their 2015 return.


Below are some tips taxpayers can keep in mind when selecting a tax professional:

  • Select an ethical preparer. Taxpayers entrust some of their most vital personal data with the person preparing their tax return, including income, investments and Social Security numbers.
  • Ask about service fees. Avoid preparers who base their fee on a percentage of the refund or those who say they can get larger refunds than others. Taxpayers need to ensure that any refund due is sent to them or deposited into their bank account, not into a preparer’s account.
  • Be sure to use a preparer with a preparer tax identification number (PTIN). Paid tax return preparers must have a current PTIN to prepare a tax return. It is also a good idea to ask the preparer if they belong to a professional organization and attend continuing education classes.
  • Research the preparer’s history. Check with the Better Business Bureau to see if the preparer has a questionable history. For the status of an enrolled agent’s license, check with the IRS Office of Enrollment (enrolled agents are licensed by the IRS and are specifically trained in federal tax planning, preparation and representation). For certified public accountants, verify with the state board of accountancy; for attorneys, check with the state bar association.
  • Ask for e-file. Any paid preparer who prepares and files more than 10 returns for clients generally must file the returns electronically.
  • Provide tax records. A good preparer will ask to see records and receipts. Do not use a preparer who is willing to e-file a return using the latest pay stub instead of the Form W-2. This is against IRS e-file rules.
  • Make sure the preparer is available after the filing due date. This may be helpful if questions come up about the tax return. Taxpayers can designate their paid tax return preparer or another third party to speak to the IRS concerning the preparation of their return, payment/refund issues and mathematical errors. The third party authorization checkbox on Form 1040, Form 1040A and Form 1040EZ gives the designated party the authority to receive and inspect returns and return information for one year from the original due date of the return (without regard to extensions).
  • Review the tax return and ask questions before signing. Taxpayers are legally responsible for what’s on their return, regardless of whether someone else prepared it. Make sure it’s accurate before signing it.
  • Never sign a blank tax return. If a taxpayer signs a blank return the preparer could then put anything they want on the return — even their own bank account number for the tax refund.
  • Preparers must sign the return and include their PTIN as required by law. The preparer must also give the taxpayer a copy of the return.


Directory of Federal Tax Return Preparers with Credentials and Select Qualifications


To help taxpayers determine return preparer credentials and qualifications, the IRS launched a public directory earlier this year containing certain tax professionals. The directory is a searchable, sortable database with the name, city, state and zip code of credentialed return preparers as well as those who have completed the requirements for the new IRS Annual Filing Season Program and have a valid 2015 PTIN.


Understanding Tax Return Preparer Credentials and Qualifications


Any tax professional with an IRS PTIN is authorized to prepare federal tax returns. However, tax professionals have differing levels of skills, education and expertise.


An important difference in the types of practitioners is “representation rights.” Below is guidance on each credential and qualification:


Unlimited Representation Rights: Enrolled agents, certified public accountants and attorneys have unlimited representation rights before the IRS. Tax professionals with these credentials may represent their clients on any matters including audits, payment/collection issues, and appeals.


• Enrolled Agents – Licensed by the IRS. Enrolled agents are subject to a suitability check and must pass a three-part Special Enrollment Examination, which is a comprehensive exam that requires them to demonstrate proficiency in federal tax planning, individual and business tax return preparation and representation. They must complete 72 hours of continuing education every three years. Learn more about the Enrolled Agent Program.


• Certified Public Accountants – Licensed by state boards of accountancy, the District of Columbia and U.S. territories. Certified public accountants have passed the Uniform CPA Examination. They have completed a study in accounting at a college or university and also met experience and good character requirements established by their respective boards of accountancy. In addition, CPAs must comply with ethical requirements and complete specified levels of continuing education in order to maintain an active CPA license. CPAs may offer a range of services; some CPAs specialize in tax preparation and planning.


• Attorneys – Licensed by state courts, the District of Columbia or their designees, such as the state bar. Generally, they have earned a degree in law and passed a bar exam. Attorneys generally have on-going continuing education and professional character standards. They may also offer a range of services; some attorneys specialize in tax preparation and planning.

Limited Representation Rights: Preparers without one of these credentials (also known as unenrolled preparers) have limited practice rights. They may only represent clients whose returns they prepared and signed, but only before revenue agents, customer service representatives, and similar IRS employees, including the Taxpayer Advocate Service. They cannot represent clients whose returns they did not prepare and they cannot represent clients regarding appeals or collection issues even if they did prepare and sign the return in question.


• Annual Filing Season Program participants – This new voluntary program recognizes the efforts of return preparers who are generally not attorneys, certified public accountants, or enrolled agents. The IRS issues an Annual Filing Season Program Record of Completion to return preparers who obtain a certain number of continuing education hours in preparation for a specific tax year.

Beginning with the 2015 filing season, unenrolled return preparers could opt to participate in this IRS program, which was designed to encourage education and filing season readiness.


• PTIN holders – Tax return preparers that have an active PTIN but no professional credentials and do not participate in the annual filing season program, are authorized to prepare tax returns. In 2015, they also have limited representation rights. This is the final year that PTIN holders without another credential or qualification will have limited representation rights for returns they prepare and sign. For returns prepared beginning Jan. 1, 2016, only annual filing season program participants will have limited representation rights.


Most tax return preparers are professional, honest and provide excellent service to their clients. However, dishonest and unscrupulous tax return preparers who file false income tax returns do exist. Always check any return for errors to avoid potential financial and legal problems. See information about Abusive Return Preparers on, and learn How to Make a Complaint About a Tax Return Preparer.


For more information about choosing a tax return preparer, see Choosing a Tax Professional and IRS Tax PRO Association Partners on




Don’t Miss These Year-End Tax-Saving Maneuvers



As we get closer to the end of yet another year, it’s time to tie up the loose ends and implement tax-saving strategies.


Of course, everyone has a unique tax situation, but here are some strategies to add to your year-end tax planning arsenal:


• Boost charitable contributions with a donor-advised fund.These funds essentially allow you to obtain an immediate tax deduction for setting aside funds that will be used for future charitable donations. With donor-advised funds, which are available through a number of major mutual fund companies, as well as universities and community foundations, you contribute money or securities to an account established in your name. You then choose among investment options and, on your own timetable, recommend grants to charities of your choice. The minimum for establishing a donor-advised fund is often $10,000 or more, but these funds can make sense if you want to obtain a tax deduction now but take your time in determining or making payments to the recipient charity or charities. Donor-advised funds can also be a way to establish a family philanthropic legacy without incurring the administrative costs and headaches of establishing a private foundation.


• Make sure you have adequate health insurance coverage. If you and your family don’t have adequate medical coverage (referred to as minimum essential coverage), you may be subject to a penalty. Medical insurance provided by your employer or through an individual plan purchased through a state insurance marketplace generally qualifies for adequate coverage. The penalty amount varies based on the number of uninsured members of your household and your household income. If you have three or more uninsured household members, the penalty may be $975 or more for 2015 ($2,085 or more for 2016), depending on your household income.


• Harvest capital losses. There are a number of year-end investment strategies that can help lower your tax bill. Perhaps the simplest is reviewing your securities portfolio for any losers that can be sold before year-end to offset gains you have already recognized this year or to get you to the $3,000 ($1,500 married filing separate) net capital loss that’s deductible each year. Don’t worry if your net loss for the year exceeds $3,000, because the excess carries over indefinitely to future tax years. Be mindful, however, of the wash sale rule when you jettison losers—your loss is deferred if you purchase substantially identical stock or securities within the period beginning 30 days before and ending 30 days after the sale date.


• Increase capital losses with a bond swap. Bond swaps can be an effective means of generating capital losses. With a bond swap, you start with a bond or bond fund that has decreased in value (for example, due to an increase in interest rates or a lowering of the issuer’s creditworthiness). You sell the bond or fund shares and immediately reinvest in a similar (but not substantially identical) bond or bond fund. The end result is that you recognize a taxable loss and still hold a bond or shares in a bond fund that pays you similar or more interest than before.


• Secure a loss deduction for nearly worthless securities. If you own any securities that are all but worthless with little hope of recovery, you might consider selling them before the end of the year so you can capitalize on the loss this year. You can deduct a loss on worthless securities only if you can prove the investment is completely worthless. Thus, a deduction is not available as long as you own the security and it has any value at all. Total worthlessness can be very difficult to establish with any certainty. To avoid the issue, it may be easier just to sell the security if it has any marketable value. As long as the sale is not to a family member, this allows you to claim a loss for the difference between your tax basis and the proceeds (subject to the normal rules capital loss and wash sale rules).


Through careful planning, it’s possible your 2015 tax liability can be significantly reduced, but don’t delay. The longer you wait, the less likely it is that you’ll be able to achieve a meaningful reduction.


Robin Tuttle Christian, CPA, is a senior manager of Checkpoint PPC products with the Tax & Accounting business of Thomson Reuters. Ms. Christian has more than 30 years of tax experience, including 11 years as a tax practitioner with a local accounting firm. She is the managing editor of PPC’s Practitioners Tax Action Bulletins and Quickfinder Tax Tips and has coauthored several PPC publications





Republicans Clash over Taxes and Preventing Another Financial Crisis



The Republican Party's leading presidential candidates clashed over how to reform the nation's financial system and handle immigration in their fourth debate on Tuesday, exposing deep rifts in the Republican Party and starkly different strategies for winning the election.


Republicans divided over changes to the U.S. tax code, with U.S. Senator Rand Paul of Kentucky saying he backed mortgage and charity breaks, while retired neurosurgeon Ben Carson disagreed. Carson, who backs a flat tax based on tithing, said Americans would give more to charities if they paid less taxes.


“People had homes before 1913 when we introduced a federal income tax,” Carson said. “We had churches before that and charitable organizations before that. The fact of the matter is, I believe if you put more money in people’s that they will actually be more generous, rather than less generous.”


U.S Senator Ted Cruz of Texas called for a flat tax where "every American pays 10 percent across-the-board," which he said would end loopholes that benefit the "Washington cartel." He added that his plan would abolish the IRS—along with the Departments of Commerce, Energy and Housing and Urban Development.


"There are more words in the IRS code than there are in the Bible, and not one of them is as good," the Texan said, to applause from a crowd.


One of the night's most fascinating exchanges came after U.S. Senator Marco Rubio of Florida described his tax plan, and said he was "proud" of its child tax credit. Paul then pounced, declaring Rubio's idea as counter to conservative principles.


"Is it fiscally conservative to have a trillion dollar expenditure? We're not talking about giving people back their tax money, he's talking about giving people money they didn't pay. It's a welfare transfer payment," Paul said, adding, "Add that to Marco's plan for a trillion dollar in new military spending and you get something that looks to me not very conservative.


"This is their money," Rubio countered. "They do pay it is refundable not just against the taxes they paid to the government, but also... on the payroll tax." The Rubio went for the jugular. "Yes I do want to rebuild the American military. I know that Rand is a committed isolationist, but I'm not."


Continuing his attack, Paul said of Rubio, "You cannot be a conservative if you're going to keep promoting new programs that you're not going to pay for."


Republican candidates turned sharply on the financial interests who have long underwritten the party. Former Florida Governor Jeb Bush, in a more animated performance than he has delivered in past debates, argued for higher capital requirements for banks to protect against another crisis, Ohio Governor John Kasich, a former managing director of the Lehman Brothers, blamed Wall Street for showing "too much greed," and Cruz said big banks "absolutely" never should be bailed out again.


Strikingly, Bush also didn't shy away from the issue of immigration, a topic that has gotten him into trouble with many conservatives. In so doing, he set off another one of the sharpest exchanges of the night by criticizing Donald Trump's plan to deport an estimated 11 million people now living illegally, arguing that it would weaken the party's chances for winning the White House.


"They're doing high-fives in the Clinton campaign right now when they hear this," he said. "We have to win the presidency, and the way you win the presidency is have practical plans."


The ensuing exchange illustrated the fault lines immigration has created in the party. Bush got support from Kasich, who called Trump's plan a "silly argument."


That triggered an immediate counter-punch from the co-front-runner Trump, who shot back that he's built an empire worth billions. "I don't have to hear from him," Trump said of Kasich. But Cruz, who noted that he is the son of immigrants, took the harder line more popular with the party's conservatives.


"If Republicans join Democrats as the party of amnesty, we will lose," he said.


Several of the candidates rejected a minimum wage hike, saying it will increase unemployment and put the United States at a competitive disadvantage.


"I hate to say it, but we have to leave it the way it is," Trump, a billionaire, said of the minimum wage, now $7.25 an hour as set by the federal government. "We can't do this if we are going to compete with the rest of the world."


Carson, who is running neck-and-neck with Trump in the polls, argued that raising the minimum wage leads to joblessness, "especially in the black community."


Though not all of the eight candidates on the stage addressed the minimum wage, Kasich was the only one who spoke up in favor of an increase.


After trying to reassure donors and supporters about his campaign's staying power following a poor debate performance two weeks ago, Bush entered Tuesday evening's Republican presidential face-off with more at stake than any of the other seven candidates joining him on stage at the Milwaukee Theater. The former Florida governor, who has seen his poll numbers collapse, pledged to be stronger this debate, and recovered in his first question after appearing initially nervous, winning applause when he called for a rollback of Obama's regulations and when he attacked both the president and his former secretary of state, the front-runner for the Democratic nomination.


"Hillary Clinton has said that Barack Obama’s policies get an A. Really? One in 10 people right now aren’t working or have given up altogether, as you said. That’s not an A," Bush said. "One in seven people are living in poverty. That’s not an A. One in five children are on food stamps. That is not an A. It may be the best that Hillary Clinton can do, but it’s not the best America can do." He was tart with Trump, telling his mocking nemesis at one point with elaborate sarcasm: "Thank you, Donald, for allowing me to speak at this debate."


In an earlier face-off for the four candidates who did not have the polling numbers to make it to the main event, both New Jersey Governor Chris Christie and former Senator Rick Santorum suggested that politics has motivated the Federal Reserve's policy of low interest rates. Santorum accused the Fed of "overprotecting" Obama.


Former Arkansas Governor Mike Huckabee defended his plan to shift from an income tax to a consumption tax, shrugging off concerns that it would put a damper on the economy. "Do you know an American who will just stop spending?" Huckabee asked. While Louisiana Governor Bobby Jindal attacked Christie as a "big government Republican," Christie focused his fire on Clinton, saying that "she will drown us in debt" and accusing former secretary of state of helping to engineer a "weak and feckless foreign policy" that has empowered China.


If he is elected president, Christie promised, "I'll fly Air Force One" over the islands Beijing is building in disputed waters of the South China Sea.




Marvell Stock Plummets after Accounting Firm PwC Resigns



Marvell Technology Group Inc., a chipmaker that disclosed an internal investigation into its accounting last month, plunged to its lowest price in more than two years after saying PricewaterhouseCoopers LLP resigned as its external accounting firm.


The stock plummeted 17 percent to $7.81 at 9:40 a.m. Tuesday in New York to its lowest intraday price since January 2013, after Marvell disclosed PwC’s decision in a regulatory filing. PwC told the audit committee of its resignation on Oct. 20 and wasn’t asked by the Santa Clara, California-based company to resign, according to the statement released Monday.


PwC advised Marvell that it needs to expand its 2016 audit, according to the statement. The accounting firm also questioned whether senior management set a “tone for effective control.” PwC also called for scrutiny of Marvell’s process and judgment in taking reserves to cover litigation, royalty expenses and financial reporting.


Marvell said on Sept. 11 that it was looking into whether revenue was recognized earlier than it should have been, and, in similar language, senior management’s oversight. The chipmaker’s audit committee was looking into about 7 percent to 8 percent of revenue recognized in the fiscal second quarter that would have been received in the third, the company said at the time.


Surprise Loss

The company posted an unexpected loss of $382.4 million for the second quarter, which included a charge of $394 million as a contingency against pending litigation. Analysts on average had predicted a profit of $11.9 million, according to data compiled by Bloomberg.


The company and senior executives were accused in a shareholder lawsuit in Manhattan federal court of making false or misleading statements before the earnings report and the disclosure of the internal probe.


Marvell’s stock fell 1.2 percent to $9.45 at the close in New York on Monday before the latest filing, leaving it down 35 percent this year.


Two of Marvell’s top three largest shareholders are Sehat Sutardja and his brother Pantas Sutardja, according to data compiled by Bloomberg. Weili Dai, Sehat Sutardja’s wife, is the company’s president.

Sukhi Nagesh, the company’s head of investor relations who was serving as interim chief financial officer, has been reassigned within the company, Marvell said Oct. 9.






Fantasy-Sports Companies Agree to Join Self-Regulatory Board, Hire Accounting Firm



Daily fantasy-sports companies, at the center of legal and regulatory debate about whether their games are gambling, have agreed to the formation of a self-regulatory body led by former acting U.S. Secretary of Labor Seth Harris.


The organization, called the Fantasy Sports Control Agency, will be charged with creating a system to ensure ethics and integrity across the fantasy industry as a whole. The group was formed by the Fantasy Sports Trade Association, whose biggest daily companies—DraftKings Inc. and FanDuel Inc.—boast billion-dollar valuations.


The FSTA, which has represented the industry since 1988, said it would retain a major accounting firm that it didn’t name to monitor and audit the initiative.


 “The reason that the FSTA established an independent authority and asked me to lead this organization is to ensure that it’s not a sham, that it’s not a fake, that it’s not just a publicity stunt,” Harris said in an interview. The new entity will have a staff that’s independent from the companies and the FSTA, he said. “It’s a freestanding ethics and integrity agency.”


The industry drew scrutiny from regulators and lawmakers this month after media reports that a DraftKings employee used inside information to win money as a player on FanDuel. DraftKings has said the employee did nothing wrong. Still, the companies have barred employees from participating in online fantasy-sports contests for money.


Probing Industry

Meanwhile, attorneys general in two states, including New York, are investigating the daily fantasy industry, which Nevada has said is gambling and needs to be licensed. In response, the FSTA pulled its winter conference, scheduled for January, from the state.


The FSTA said in a letter to its members, a copy of which was obtained by Bloomberg News, that the industry was at a “pivotal moment,” and that it’s better for the regulation to come from within. The FSTA has more than 300 members, 75 percent of which aren’t daily fantasy companies.  


“We can establish and enforce these systems ourselves, or we can put our industry in the hands of outside entities who do not understand the industry as we do—outside entities who are not as able nor as committed to establishing rules and regulations that ensure integrity and transparency while allowing the industry to continue to thrive,” the letter read. “Simply put, the leadership of the FSTA believes that we cannot and should not allow the future of our industry to rest in the hands of others.”


Harris and representatives of the FSTA board have held initial meetings with professional sports leagues, media companies and other industry stakeholders about the self-regulation plan. Harris said the new entity wouldn’t be a large bureaucracy, and it isn’t yet clear what its staff or budget will be.


“It’ll be very lean and mean in the beginning,” he said.


Marc Edelman, a law professor at Baruch College in New York, said it’s worth noting that Harris is a lawyer at Dentons, which serves as outside counsel to the FSTA.


“It’s a play out of Major League Baseball in 1921: Create a ‘commissioner’ position to give the appearance of self- regulation as a way to hopefully avoid government oversight,” said Edelman, who consults on legal issues for online fantasy sports companies.


Mark Conrad, a professor of law and ethics at Fordham University in New York, said the industry’s “reactive strategy” probably won’t be enough to placate lawmakers.


“It is too early to say what kinds of internal rules this body will come up with, but if they are not industrywide and not subject to sanction, I don’t think they will quell the criticism,” he said.

The new body will focus on creating a system consisting of four principal parts: standards; company controls, processes and leadership; auditing policies and procedures; and enforcement, which will include public recognition for compliance and undisclosed penalties for failure to comply.


Prevention, Not Punishment

“The goal is prevention, rather than punishment,” said Harris, adding that he’s never played daily-fantasy games, which let participants assemble rosters of real-life players with prizes awarded on how well that combination performs on the field. “If we have large numbers of violations and penalties, then we haven’t set the system up right. The goal is instead to prevent and preempt violations that will put players’ money at risk, put the integrity of the games at risk, and also put the reputation of the industry at risk."


The daily fantasy industry is projected to see $3.7 billion in entry fees in 2015, according to a September study by Eilers Research LLC. That number is expected to reach $17.7 billion in 2020, Eilers said.


Game of Skill

Fantasy sports are legal in the U.S. because they are considered a game of skill. The industry was given its exemption within the Unlawful Internet Gambling Enforcement Act of 2006, which was passed long before the creation of daily fantasy games, which feature entry fees and cash prizes in the millions.


The exemption has allowed FanDuel and DraftKings, founded in 2009 and 2011 respectively, to grow to billion-dollar valuations without the regulation required of Nevada casinos and sports books. Calls for more legal safeguards increased when the two companies launched competing advertising blitzes to coincide with the start of the 2015 National Football League season.


New York Attorney General Eric Schneiderman is among the public officials who have taken aim at the unregulated industry. Schneiderman announced in October that he was looking into the insider-trading allegations. Massachusetts Attorney General Maura Healey said in September that she was examining the daily-fantasy space, and the New York Times recently reported that the FBI is reaching out to players to inquire about Boston-based DraftKings.


Both DraftKings and FanDuel have raised more than $350 million in financing, primarily through venture capital firms, media companies and major sports leagues. Major League Baseball, the National Hockey League and Major League Soccer are DraftKings investors, as are New England Patriots owner Robert Kraft and Dallas Cowboys owner Jerry Jones. FanDuel’s investors include KKR & Co. and Comcast Corp., and the National Basketball Association has an equity stake as part of its partnership.


“We are committed to working with the Fantasy Sports Control Agency, the FSTA and all relevant government authorities to ensure that our industry operates in a manner that is completely transparent and fair for all consumers,” DraftKings said in a statement.


—With assistance from Eben Novy-Williams in New York.






Tax Strategies Scan: Best Way to Make IRA Withdrawals


The right way to make IRA withdrawals: From a tax perspective, there is no difference between taking a lump-sum distribution from an IRA every year or making a monthly or quarterly withdrawal, according to Money. However, retired clients need to make the withdrawal before December 31, in order to avoid a 50 percent tax penalty, in addition to regular income tax, on the distribution. However, clients with a more complex investment portfolio may be better off taking quarterly withdrawals. “You can’t avoid the taxes, but keep what you don’t need tax deferred for as long as you can,” an expert says. -- Money


3 ways to kick-start your client's tax-free retirement savings:Workers and business owners who earn over $131,000 can use at least three legal loopholes to open an otherwise disallowed Roth IRA, according to U.S. News & World Report. For workers, the simplest strategy is to contribute the maximum amount to a traditional IRA and then convert the account to a Roth IRA. The same strategy applies to business owners, although it is best to begin with a SEP IRA rather than a traditional IRA. Another way is to roll over after-tax contributions from a 401(k) to a Roth IRA. -- U.S. News & World Report


1099-C: What you need to know about this IRS form: Clients should be reminded that canceled debt could be taxable, and they should be made aware of Form 1099-C, according toMotley Fool. Creditors will send the form to the IRS, if a debt worth more than $600 is forgiven within a single year. But not all forgiven debt is taxable—such as debt discharged in bankruptcy, some student loans and the debt of borrowers who are deemed insolvent. -- Motley Fool


Does your client really want a QLAC in their IRA? A qualified longevity annuity contract allows a client to divert up to $125,000 from an IRA, although it may kick the client into a higher tax bracket at the annuity’s start date, according to Forbes. This QLAC strategy is a better option if the funds are intended for non-spouse heirs, because it leaves the heirs zero income tax on the assets. However, if the $125,000 is intended for a younger spouse, then diverting the funds to another taxable account, against which the recipient can claim deductions due to investment losses, makes more sense. -- Forbes






SEC Gives Go-Ahead to Crowdfunding



The Securities and Exchange Commission adopted final rules Friday to allow companies to offer and sell securities through crowdfunding.


The long-awaited rules will make it easier for startup companies to attract financing in accordance with the JOBS Act, the Jumpstart Our Business Startups Act, of 2012.


The SEC also voted Friday to propose amendments to existing Securities Act rules to facilitate intrastate and regional securities offerings.  The new rules and proposed amendments are designed to help smaller companies attract capital while giving investors additional protections.


Crowdfunding is an evolving method of raising capital that has been used to raise funds through the Internet for a variety of projects.  Title III of the JOBS Act created a federal exemption under the securities laws so that this type of funding method can be used to offer and sell securities. 


“There is a great deal of enthusiasm in the marketplace for crowdfunding, and I believe these rules and proposed amendments provide smaller companies with innovative ways to raise capital and give investors the protections they need,” said SEC Chair Mary Jo White in a statement. “With these rules, the Commission has completed all of the major rulemaking mandated under the JOBS Act.”


The final rules, Regulation Crowdfunding, permit individuals to invest in securities-based crowdfunding transactions subject to certain investment limits.  The rules also limit the amount of money an issuer can raise using the crowdfunding exemption, impose disclosure requirements on issuers for certain information about their business and securities offering, and create a regulatory framework for the broker-dealers and funding portals that facilitate the crowdfunding transactions.


The new crowdfunding rules and forms will be effective 180 days after they are published in the Federal Register. The forms enabling funding portals to register with the Commission will be effective Jan. 29, 2016.


The SEC also proposed amendments to existing Securities Act Rule 147 to modernize the rule for intrastate offerings to further facilitate capital formation, including through intrastate crowdfunding provisions.  The proposal also would amend Securities Act Rule 504 to increase the aggregate amount of money that may be offered and sold pursuant to the rule from $1 million to $5 million and apply bad actor disqualifications to Rule 504 offerings to provide additional investor protection.


The SEC is seeking public comment on the proposed rule amendments for a 60-day period following their publication in the Federal Register.


The rules include a number of requirements of particular interest to accountants and auditors. Companies that rely on the recommended rules to conduct a crowdfunding offering need to file certain information with the SEC and provide this information to investors and the intermediary facilitating the offering, including among other things, to disclose:


• The price to the public of the securities or the method for determining the price, the target offering amount, the deadline to reach the target offering amount, and whether the company will accept investments in excess of the target offering amount;

• A discussion of the company’s financial condition;

• Financial statements of the company that, depending on the amount offered and sold during a 12-month period, are accompanied by information from the company’s tax returns, reviewed by an independent public accountant, or audited by an independent auditor.  A company offering more than $500,000 but not more than $1 million of securities relying on these rules for the first time would be permitted to provide reviewed rather than audited financial statements, unless financial statements of the company are available that have been audited by an independent auditor;

• A description of the business and the use of proceeds from the offering;

• Information about officers and directors as well as owners of 20 percent or more of the company; and

• Certain related-party transactions.






Beyond the Peter Principle



You're most likely familiar with the concept of the Peter Principle, which describes how people get promoted to a level just above their level of competence. That it has a name suggests how common it is, and it's likely that many of you have run into a manager who is perpetually out of his depth, or a partner who just doesn't know how to manage her practice area, or even a managing partner or business owner who is simply incapable of running a business.


It's a fascinating and very useful diagnosis for a great many failures (both personal and organizational) across businesses of all types, including accounting firms, and is frequently applied -- perhaps more frequently than is actually called for, as we'll see in a minute. As useful and widely applicable as it is, the Peter Principle requires two important amendments.


The first is in the form of a corollary: Let's call it the Temporary Peter Principle. With the regular Peter Principle, it's assumed that those to whom it's applied are hopeless; they've been promoted to their level of incompetence, after all. But what it they're not actually incompetent? What if they were simply never told how to do the job they've been promoted to?


Think about it: When does the Peter Principle always reveal itself? After a promotion -- and most promotions involve a change in responsibilities. Being good at preparing taxes may get you promoted to manager, but it doesn't mean you know anything about managing other tax preparers. Similarly, running a successful tax department doesn't mean you know anything about running an entire firm. The skill sets are very different, which is also true among your business clients, where the skills involved in, say, cooking a delicious meal or manufacturing an outstanding widget are not the same as those involved in running a restaurant or building a business that sells widgets. (That many of those business owners are self-promoted doesn't change the gap between the skill sets.)


The fact is that most people who rise to a new position are at least momentarily incompetent. The Temporary Peter Principle kicks in, until they're trained in their new responsibilities or (and this is much more common) until they figure it all out on their own. My suspicion is that a great many people who've been tarred with the Peter Principle are actually only cases of the Temporary Peter Principle who never got the outside help they needed.


That brings us to the second amendment to the Peter Principle, which is to properly lay the blame. Who is worse: the person who has been promoted to their level of incompetence, or the person who promoted them to it? Call it the Petered Principle: For every incident of the Peter Principle, there is an equal and corresponding incident of someone being incompetent at hiring and promoting people.


The lesson, then, is two-fold. For employees, it's crucial to understand what each new position entails, and to learn which skills you must develop to perform it successfully. The assumption that you are ready to do a job simply because you have been promoted to it is a critical contributing factor in every case of the Peter Principle.


Second, organizations of all sizes need to understand the disservice they're doing to many of their employees right at the moment when they think they are doing them a great favor. Organizations that pay serious attention to promotion and training naturally have far fewer instances of the Peter Principle. Even a cursory explanation of what's expected in a new position can help, but nothing can take the place of proper training and education.


We may never be able to stamp out incompetence, but we may be able to make it a lot less common.






IRS Beefing Up Detection of Business Identity Theft



The Internal Revenue Service needs to improve its detection of business identity theft, according to a new government report.


The report, from the Treasury Inspector General for Tax Administration, acknowledged the IRS has taken actions and developed procedures to identify and detect business identity theft.


However, TIGTA also found areas where improvements could be made to bolster this effort.


The IRS defines business identity theft as creating, using, or attempting to use businesses’ identifying information without authority to claim tax benefits.


To date, the IRS has taken actions that include defining business identity theft, creating procedures for IRS employees to follow when they are made aware of a potential business identity theft situation, and conducting a Business Identity Theft Project to detect potential business identity theft relating to corporate tax returns.


However, TIGTA also found areas where improvements could be made in identifying potential business identity theft. For example, the IRS maintains a list of suspicious Employer Identification Numbers that have been determined to be associated with a fictitious business. TIGTA’s analysis of business returns filed during processing year 2014 identified that 233 tax returns were filed using a known suspicious EIN. Of these, 97 claimed refunds totaling over $2.5 million.


In addition, TIGTA determined that processing filters could be developed to identify business tax returns containing certain characteristics that could indicate potential identity theft cases. Business returns containing these characteristics could be proactively identified before the issuance of any refunds. TIGTA also found that state information sharing agreements do not address business identity theft. The agreements only address the detection of individual identity theft. Finally, TIGTA also identified that actions are needed to better promote awareness of business identity theft.


“Identity theft continues to be a serious and evolving issue which has a significant impact on tax administration,” said TIGTA Inspector General J. Russell George in a statement. “It not only affects individuals, it can also affect businesses. Therefore, it is incumbent upon the IRS to use all the data and tools to detect and prevent business identity theft from occurring.”


TIGTA recommended that the commissioner of the IRS’s Wage and Investment Division, establish procedures to identify business returns containing certain characteristics that could indicate potential identity theft cases; evaluate the potential for expanding information sharing agreements to include the sharing of suspicious or potentially fraudulent business tax return filings; and continue to develop and offer additional outreach materials that directly inform businesses about business identity theft.


The IRS agreed with TIGTA’s recommendations and has established some processes to detect potentially fraudulent business filings and will evaluate possible expansion of these processes to other business return filings in 2016. The IRS also plans to work with stakeholders to assess expanding the State Suspicious Filer Exchange to include business returns and update business outreach materials.

The IRS recognizes that new identity theft patterns are constantly evolving, and it needs to continually adapt its detection and prevention processes.

“As the tactics employed by the perpetrators of tax-related identity theft continue to evolve, the IRS has likewise expanded its efforts at improving defensive controls and exploring proactive measures to stop new tactics from yielding successful results for the identity thieves,” wrote Debra Holland, commissioner of the IRS‘s Wage and Investment Division, in response to the report.






IRS Releases Plan for Fraud Victims to See What Thieves Stole



The Internal Revenue Service has introduced a formal policy to assist identity-theft victims in getting copies of bogus tax returns filed in their name.


The measure comes after a surge in taxpayer identity theft during the 2015 filing season left many victims frantic to learn how much of their personal data thieves had obtained. Many were then frustrated by the agency’s refusal to provide answers. The logjam was reported by Bloomberg News in April and drew the attention of Republican Senator Kelly Ayotte of New Hampshire, who put pressure on the agency to act.


The IRS, which posted instructions for fraud victims on its website for the first time this month, said it would acknowledge requests for copies of returns within 30 days and respond within 90 days. Due to strict IRS privacy laws, some of the information will be redacted to prevent fraud.


 “We have decided to change our policy regarding disclosure of fraudulent identity-theft returns to victims,” IRS Commissioner John Koskinen wrote in a May 28 letter to Ayotte. At that time, the IRS said it would develop a way for people to access the fraudulent returns.


The IRS said in June that identity thieves had stolen information on about 100,000 U.S. taxpayers from the agency’s website and used the data to file some 13,000 fake 2014 tax returns and get about $39 million in refunds.


The agency had said part of the problem in getting the fake returns to victims was a conflict in existing policies. While the IRS legal department allowed sharing such information in certain cases, employees were following a section of the tax code that said they could face criminal penalties for improper dissemination of personal data.


Many of the identity thefts resulted from thieves getting past security filters on the agency’s website, according to the IRS. That allowed them to gain access to past tax returns, which contained the information they needed to file fake returns. In August, the IRS said it identified an additional 220,000 taxpayers whose information may have been compromised.


The new policy, detailed on the IRS website, lets taxpayers request a copy of a fraudulent return by mailing a letter to the IRS and including information such as their Social Security number and proof of identity like a copy of a driver’s license or passport.






EA Writes Tax Book for Teens



First jobs and graduations join another American rite of passage for many young adults: filing taxes for the first time. EA Tynisa (Ty) Gaines hopes to address this milestone with a new book, Tax-ish: Teens 1.0.


“Filing taxes is mandatory to most U.S. citizens [yet] very few receive instructions on how to file a tax return,” Gaines noted in the announcement of the book, adding that Tax-ish “uses basic terms to link the concept of taxes to the regular courses that students take in school.”


Each chapter has a regular class title such as English, Math, Science, History and so on, and links it to taxes in a clear, concise way (and the book’s introduction stresses, is in no way intended as “a complete tax course”). Examples facilitate learning and readers can use quizzes to gauge progress.


The book is available in electronic format for $2.99 at most online retailers.


An quiz on her site also challenges fledgling taxpayers to determine incorrect filing statuses (“Married With Children”), inappropriate tax forms and other subjects.


Gaines owns a virtual and mobile tax and accounting firm in Northern Virginia and teaches tax courses for Northern Virginia Community College and other non-profit organizations. She was recently named EA of the Year by the Virginia Society of Enrolled Agents.





IRS Whistleblower Awards Reduced Next Year



For the fourth year in a row, the whistleblower awards that the Internal Revenue Service pays to tipsters will be reduced.


For fiscal year 2016, awards paid to whistleblowers on or after Oct. 1, 2015, and on or before Sept. 30, 2016, will be reduced by the fiscal year 2016 sequestration rate of 6.8 percent, according to the IRS.


Under the Budget Control Act of 2011, Congress and the Obama administration imposed mandatory reductions in both defense and non-defense spending known as sequestration if they were unable to agree to a budget. Chafing under the budget restrictions, in 2013 they eased some of the automatic cuts, but not for the IRS.


Despite the cuts, whistleblower awards can be lucrative, allowing tipsters to receive up to 30 percent of the money the IRS collects as the result of the tip. A former UBS executive, Bradley Birkenfeld, collected $104 million in 2012 after providing the IRS with information on how the Swiss bank helps U.S. clients evade taxes. The bank agreed to pay $780 million to the U.S. and provide the names of more than 4,450 of its U.S. clients to the IRS (see UBS Whistleblower Secures $104 Million UBS Award). Despite his help with the case, the Justice Department pursued a case against Birkenfeld and he served two and a half years in prison.






Highway Bill Would Revive Private Collection of Tax Debts



The House passed a highway funding bill Thursday that includes a provision reviving the use of private debt collectors by the Internal Revenue Service.


The provision has provoked controversy from the National Treasury Employees Union, which represents IRS employees, along with some Democrats in Congress.


“The House gave the green light to debt collectors even as the Federal Trade Commission was announcing an expansive program to crack down on abusive debt-collection tactics,” NTEU National president Tony Reardon said in a statement. “That’s just wrong. The debt-collection industry is one of the most complained-about industries.”


Reardon pointed out that previous attempts to outsource tax debt collection to private businesses have failed to bring in the promised revenue. The government instead lost money, and taxpayers complained of strong-arm tactics by collection agencies.


Low-income taxpayers who lacked the money to settle their tax debts were frequently the victims. National Taxpayer Advocate Nina Olson, a longtime opponent of private tax debt collection, has estimated nearly 80 percent of the cases handled by private collection agencies involve low-income taxpayers.


The proposal also comes at a time when scammers claiming to work for the IRS have called to harass taxpayers around the country about supposed tax debts, frequently swindling elderly taxpayers out of thousands of dollars. According to some estimates, 4,550 victims paid a total of over $23 million to scammers posing as IRS employees.


Reardon is worried the private debt collection program will only serve to further confuse taxpayers. The IRS has repeatedly warned that it only contacts taxpayers by mail, not phone, but debt collection agencies typically use the phone.


Earlier this week, a group of House Democrats, including Ways and Means Oversight Subcommittee ranking member John Lewis, D-Ga., Ways and Means Committee ranking member Sander Levin, D-Mich., and Budget Committee ranking member Chris Van Hollen, D-Md., filed an amendment to remove the provision from the highway bill, but the House Rules Committee failed to consider it.


The Senate passed its own version of the highway funding bill earlier this year, and the union is hoping the private debt collection provision will be removed when House and Senate negotiators meet to reconcile the two bills.






Taxes in the Sharing Economy



The sharing economy has created untold numbers of micro-entrepreneurs, who provide services through digital-age apps.


Airbnb, Lyft, Sidecar, Snapgoods and Uber are just a few of the companies enabling the sharing economy. But many who engage in this form of entrepreneurship find it much easier to get their business up and running than to deal with keeping track of profits, expenses and taxes. Yet the revenue they take in is still income, and most will need professional advice this upcoming filing season in order to get it right.


More guests used Airbnb this past summer than the population of Greece, Sweden or Switzerland, according to Derek Davis, founder and chief executive of Shared Economy CPA.


 “Those who enter the sharing economy may be from an average family looking to supplement their income, or jumping into hosting as a full-time gig,” said Davis. “However, they are responsible for their own taxes and tax planning.”


Since becoming a business person is a new experience for most, they will need guidance and direction on even some of the simpler aspects of the activity, according to Davis.


He advises Airbnb hosts to account for their income and expenses on the cash basis method and to watch their withholding. “If they haven’t already done so, they should submit their tax information to Airbnb by completing IRS Form W-9,” he said. “If Airbnb does not have this information on file, they are required by the IRS to withhold 28 percent from the host’s payments and remit it to the IRS. Unless your taxable income is at least $151,200 for a married couple or $90,750 for a single, you have let them have your hard earned money all year interest free.”


“Don’t forget to capture all of your deductions,” Davis cautions sharing economy entrepreneurs. “For Airbnb, this means the obvious rent, utilities, insurance and repairs expenses. This would include any cash spent for the comfort of guests, such as a bed, duvet cover and window treatments that are designated for the exclusive use of your guests.”


Many are surprised that occupancy tax rates, or hotel taxes, apply to Airbnb hosts. “More and more cities are cracking down on these,” Davis noted. Also called lodging tax, room tax, or tourist tax, it is simply a tax on the rental of rooms that a state or locality may require.


“This means that visitors will have to pay the mandatory tax of the total rental amount to the city if they stay less than 30 days in your rental,” said Davis. “In addition, every municipality has its own licensing requirements, which typically need to be executed within 30 days of your hosting venture. Noncompliance could mean penalties, fines and possible retroactive taxes assessed on your Airbnb business.”


“The reason for this is that for thousands of traditional lodging owners and hosts there are potentially difficult times ahead as hosting sites such as Airbnb are suspected of taking away revenues and future business,” he added. “Most cities are now mandating all short-term rentals pay the required taxes that hotels and traditional bed and breakfasts pay.”






Top 10 Year-End Tax-Planning Tips Your Clients Shouldn't Ignore

Grant Thornton LLP offers 10 tax tips for the end of calendar year 2015.


Plan for the Year Ahead

As 2015 draws to a close, a turbulent economic and legislative environment means taxpayers need to keep a close eye on several major planning issues, according to Grant Thornton LLP.


1. Check on Congress

The most important thing you can do this year for your tax planning is to keep an eye on Congress to see whether lawmakers manage to extend popular tax provisions before the end of 2015. Some notable provisions must be extended in order to allow: 

• Taxpayers aged 70½ and over to make tax-free charitable contributions from individual retirement accounts (IRAs); 

• Businesses to deduct up to half of eligible equipment placed in service this year; 

• Teachers to receive an above-the-line deduction for $250 in classroom expenses; 

• Students and parents to receive an above-the-line deduction for tuition expenses; 

• Companies to receive a credit for qualified research expenses; and 

• Taxpayers in states without an income tax – like Washington, Texas and Florida – to deduct state sales taxes.


2. Document Your Business Activities

You may not need to pay a 3.8 percent Medicare tax on your business income if you participate in the business enough so that you are not considered a “passive investor.” Participation is almost any work performed in a business as an owner, manager or employee as long as it is not an investor activity. Even so, you must document your activities, and the IRS will not let you make ballpark estimates after the fact. Make sure you document the hours you’re spending with calendar and appointment books, emails and narrative summaries.


3. Prepare Your Information Reporting

You should start gathering information early this year to make sure you can complete your mandatory reporting on time. Congress has enacted new legislation that more than doubles most penalties for late or incorrect information returns. This includes the Form W-2 employers must provide to all employees and the Form 1099 a business must provide to any contractor it pays at least $600 for services. These returns are due to recipients by Feb. 1 and the IRS soon after.


4. Get Your Charitable House in Order

If you plan on giving to charity before the end of the year, remember that a cash contribution must be documented in order to be deductible. If you claim a charitable deduction of more than $500 in donated property, you must attach Form 8283. If you are claiming a deduction of $250 or more for a car donation, you will need a written acknowledgement from the charity that includes a description of the car. Remember, you cannot deduct donations to individuals, social clubs, political groups or foreign organizations.


5. Remember Your State and Local Tax Obligations

Don’t forget that state and local governments impose their own filing and payment responsibilities with various income, sales and property taxes. Recently, states have become more aggressive in taxing corporations that are not physically present in their states, but have significant sales to customers in those states. While there may be exceptions for limited business activities in particular states, it is wise to check on your activities of your salespeople that often travel to different states to ensure you are filing all state corporate tax returns as needed.


6. Take a Closer Look at Your State Residency Status

For individuals who split their time in two different states throughout the year, now is an excellent time to consider where you may be taxed as a resident for 2015. To make it more likely that the high-tax jurisdiction will respect the move and not continue to tax you as a resident, you should track the number of days you are spending in each jurisdiction. Generally, if you reside in a state for 183 days or more, that state will assert residency and the ability to tax all of your income. Furthermore, if you move to a new state but you maintain significant contacts with the old state (including driver’s license, residences, bank accounts and the like), you could run the risk of being taxed as a resident in the old state.


7. Accelerate Deductions and Defer Income

Why pay tax now when you could pay later? The time value of money can make deferring tax almost as valuable as escaping it. Generally, you want to accelerate deductions and defer income. There are plenty of income items and expenses you may be able to control. Consider deferring bonuses, consulting income or self-employment income. On the deduction side, you may be able to accelerate state and local income taxes, interest payments and real estate taxes.


8. Manage Your Gains and Losses

Capital gains and losses present excellent opportunities for deferral because you have nearly complete control over when you sell them, but be careful when harvesting losses. You generally cannot use capital losses against other kinds of income, and if you buy the same security within 30 days before or after you sell it, you cannot use the loss under the wash sale rules.


9. Bunch Itemized Deductions

Many expenses can be deducted only if they exceed a certain percentage of your adjusted gross income (AGI). Bunching itemized deductible expenses into one year can help you exceed these AGI floors. Consider scheduling your costly non-urgent medical procedures in a single year to exceed the 10 percent AGI floor for medical expenses (7.5 percent for taxpayers age 65 and older). This may mean moving a procedure into this year or postponing it until next year. To exceed the 2 percent AGI floor for miscellaneous expenses, bunch professional fees like legal advice and tax planning, as well as unreimbursed business expenses such as travel and vehicle costs.


10. Make Up a Tax Shortfall with Increased Withholding

Don’t forget that certain kinds of taxes are due throughout the year. Check your withholding and estimated tax payments now while you have time to fix a problem. If you’re in danger of an underpayment penalty, try to make up the shortfall by increasing withholding on your salary or bonuses. A bigger estimated tax payment can leave you exposed to penalties for previous quarters, while withholding is considered to have been paid ratably throughout the year.






Now more outlandish than ever, check out The Top 10 Craziest Expenses of 2015




In the latest expense management survey from Certify, more than 450 business travelers (non-Certify customers) shared the craziest, most outlandish expenses they either submitted or reviewed in 2015. Now in its third year, results from the current “crazy expenses” survey show there’s no shortage of outlandish expense report claims for U.S. businesses. In fact, this year’s expenses are bolder and more bizarre than we’ve seen in the past. 

They expensed what?! Who does that?

Survey respondents represented a near even split among small, medium and large enterprise companies (<200, 201- 1000, and 1000+ employees, respectively), and from wide ranging industries including high tech, higher education and high finance. With religious organizations showing up for the first time in the survey, even the high and exalted were subject to a few questionable expenses this year. Indeed, it would seem no organization is exempt when it comes to crazy expenses—regardless of company size, location, travel policy, or the type of expense report system used. 

That said, a closer look at the data also identified an interesting connection between travel policy and the type of expense management system an organization uses: manual/spreadsheet based process, homegrown solution, cloud-based automation, or ERP system. Survey results also revealed which business travelers were more likely to lie on their expense reports based on frequency of annual travel. 

In addition, nearly half of all survey respondents take 10 or more business trips per year making them highly experienced and savvy travelers. And, so, while it’s been said that with experience comes wisdom, some of the claims in this year’s craziest expenses survey really raise doubts. 

Top 10 Craziest Expenses 2015 - Small
Cons and Pros of Roth IRAs


Annual contributions to IRAs, including Roth IRAs, are now capped at $5,500 ($6,500 if you’re 50 or older). Roth IRA contributions aren’t tax deductible, they’re available only to workers and their spouses, and they’re off-limits to high income taxpayers.


Nevertheless, there is a way to get large amounts into a Roth IRA, regardless of your income or your work status. You can convert a tax deferred account such as a traditional IRA or a 401(k) to a Roth IRA. Such a conversion, though, probably will trigger income tax much earlier than necessary.


Example 1: Jill Kent, age 60, has $400,000 in her traditional IRA, all of which came from deductible contributions. A complete Roth IRA conversion would add $400,000 to her income for the year. That would put her in the top 39.6% tax bracket and expose her to other tax obligations, such as the 3.8%


Medicare surtax. Counting state income tax, Jill might owe close to $200,000 in tax on this conversion, for 2015. If she didn’t convert her traditional IRA, Jill could avoid taking any taxable distributions for more than 10 years; going forward, she would be required to withdraw relatively modest amounts each year.


Roth rewards


The biggest drawback of a Roth IRA conversion is the upfront tax obligation. In addition, Roth IRAs are subject to recordkeeping requirements and federal rules, which can change.


Despite these drawbacks, Roth IRAs are increasingly popular. The big attraction is the lure of tax-free cash flow. Once your Roth IRA has been in place for five years and you reach age 59½, all distributions are tax-free.


Qualified Roth IRA distributions will be untaxed, no matter how much income you report or how high tax rates might be in the future. Thus, having some money in a Roth IRA offers a hedge against rising income tax rates, which many observers predict.


Staying power


Another advantage of Roth IRAs is that owners have no required minimum distributions (RMDs). With traditional IRAs, 401(k)s, and so on, you generally must take out certain amounts each year after age 70½, or face a 50% penalty on any shortfall.


Example 2With a $400,000 traditional IRA at age 60, Jill Kent could have a much larger account by age 70½. She might have to take taxable withdrawals of at least $15,000, $20,000, or more each year, regardless of whether she needs all the money.


If she converts her entire traditional IRA to a Roth IRA before that age, Jill will have no RMDs. She eventually can withdraw as much or as little as she wants, tax-free, and leave the balance to her beneficiaries. Those beneficiaries—who might be in their own high tax brackets when they inherit the account—can take untaxed distributions, although they will be on an RMD schedule.


By converting her traditional IRA to a Roth IRA in 2015, Jill will be reducing or eliminating her RMD obligation while creating a long-term, tax-free investment account.


Perfect hindsight


Two other features of Roth IRAs make them especially attractive. One, partial conversions are allowed. Jill might convert, say, $40,000 of her Roth IRA in 2015. If she does this every year, Jill could move most or all of her traditional IRA to a tax-free, RMD-free Roth IRA in 10 years.


The second appealing feature of a Roth IRA conversion is the ability to recharacterize (reverse) the conversion back to a traditional IRA by October 15 of the following year. This can be done in full or in part, so you effectively have the ability to specify the amount of tax you’ll have to pay.


Example 3: Jill converts her entire $400,000 IRA to a Roth IRA in 2015. In 2016, when Jill prepares her 2015 tax return, her CPA calculates her tax bill at various conversion amounts. Jill discovers that the total tax rate on an $80,000 (20% of $400,000) Roth IRA conversion would be 35% in this hypothetical scenario. She decides to make the conversion, resulting in a tax bill of $28,000. She recharacterizes the other 80% of her Roth IRA back to a traditional IRA, planning to repeat the process at the end of 2016.


Maner Costerisan offers several newsletters, both electronic and print, containing timely information and expert analysis to help your organization maintain its competitive edge. With subject matter addressing a wide range of industries and topics, we are sure to have information from which you can benefit.





Seven Tips to Protect Your Computer Online

The Internal Revenue Service, the states and the tax industry urge you to be safe online and remind you to take important steps to help protect yourself against identity theft.


Taxes. Security. Together. Working in partnership with you, we can make a difference.


Scammers, hackers and identity thieves are looking to steal your personal information – and your money. But there are simple steps you can take to help protect yourself, like keeping your computer software up-to-date and giving out your personal information only when you have a good reason.


We all have a role to play to protect your tax account. There are just a few easy and practical steps you can take to protect yourself as you conduct your personal business online.


Here are some best practices you can follow to protect your tax and financial information:


1. Understand and Use Security Software.  Security software helps protect your computer against the digital threats which are prevalent online. Generally, your operating system will include security software or you can access free security software from well-known companies or Internet providers. Other options may have an annual licensing fee and offer more features. Essential tools include a firewall, virus/malware protection and file encryption if you keep sensitive financial/tax documents on your computer. Security suites often come with firewall, anti-virus and anti-spam, parental controls and privacy protection. File encryption to protect your saved documents may have to be purchased separately. Do not buy security software offered as an unexpected pop-up ad on your computer or email! It’s likely from a scammer.


2. Allow Security Software to Update Automatically.  Set your security software to update automatically. Malware – malicious software – evolves constantly and your security software suite is updated routinely to keep pace.


3. Look for the “S” for encrypted “https” websites.  When shopping or banking online, always look to see that the site uses encryption to protect your information. Look for https at the beginning of the web address. The “s” is for secure. Unencrypted sites begin with an http address. Additionally, make sure the https carries through on all pages, not just the sign-on page.


4. Use Strong Passwords.  Use passwords of at least 10 to 12 characters, mixing letters, numbers and special characters. Don’t use your name, birthdate or common words. Don’t use the same password for several accounts. Keep your password list in a secure place or use a password manager. Don’t share your password with anyone. Calls, texts or emails pretending to be from legitimate companies or the IRS asking you to update your accounts or seeking personal financial information are generally scams.


5. Secure your wireless network.  A wireless network sends a signal through the air that allows you to connect to the Internet. If your home or business wi-fi is unsecured it also allows any computer within range to access your wireless and steal information from your computer. Criminals also can use your wireless to send spam or commit crimes that would be traced back to your account. Always encrypt your wireless. Generally, you must turn on this feature and create a password.


6. Be cautious when using public wireless networks.  Public wi-fi hotspots are convenient but often not secure. Tax or financial Information you send though websites or mobile apps may be accessed by someone else. If a public Wi-Fi hotspot does not require a password, it probably is not secure. If you are transmitting sensitive information, look for the “s” in https in the website address to ensure that the information will be secure.


7. Avoid phishing attempts.  Never reply to emails, texts or pop-up messages asking for your personal, tax or financial information. One common trick by criminals is to impersonate a business such as your financial institution, tax software provider or the IRS, asking you to update your account and providing a link. Never click on links even if they seem to be from organizations you trust. Go directly to the organization’s website. Legitimate businesses don’t ask you to send sensitive information through unsecured channels.

To learn additional steps you can take to protect your personal and financial data, visit Taxes. Security. Together. Also read Publication 4524, Security Awareness for Taxpayers.


Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on






Cleveland Loses Jock Tax Appeal



The Supreme Court has declined to hear an appeal of cases involving two former NFL players hit by Cleveland’s “jock tax,” which was imposed on visiting athletes according to a “games played” allocation.


Under the allocation method, the taxable portion of a professional athlete’s income was based on the number of games the athlete played in Cleveland in relation to the total number of games played that year. Hunter Hillenmeyer, a former linebacker for the Chicago Bears, and Jeff Saturday, a center for the Indianapolis Colts, contested the tax.


Cleveland imposed its municipal tax on Hillenmeyer for the years 2004-2006, in which he played one game each year against the Browns and was present in Cleveland for two days for each game.  Including preseason games, the Bears played 20 games those years, resulting in an allocation of one-twentieth of Hillenmeyer’s income subject to Cleveland’s 2 percent municipal tax. The city imposed its tax on Saturday despite the fact that he was not in Cleveland for the game, but was on injured reserve undergoing rehab. 


The Supreme Court of Ohio decided for both players. It found in Hillenmeyer’s case that the “games played allocation method was unconstitutional as applied to nonresident professional athletes. In Saturday’s case, the court held that nonresident professional athletes may not be taxed unless they are physically present in the city.


The Mobile Workforce State Income Tax Simplification Act of 2015, introduced as H.R. 2315 in the House in May 2015, would provide a 30-day safe harbor from personal income tax and withholding obligations for traveling employees and their employers. The bill has been reported out of the Judiciary Committee, and there is a companion bill in the Senate. However, the bill would not cover professional athletes such as athletes and entertainers, according to Douglas L. Lindholm, president and chief executive of the Council On State Taxation (COST).


“It does not cover athletes and entertainers and other prominent individuals who are paid on a per event basis and therefore should be well aware of their tax obligations,” he said.






One-third of college grads will live at home due to loan debt, AICPA survey finds



The findings from an August 2015 online Harris poll, conducted on behalf of the AICPA, has found that 37 percent of students claimed they'll have to live with their parents post-graduation or take a job outside their field of study. The poll was conducted among 751 college students who enrolled in fall of 2015.


And while 59 percent of students in the poll said their loans will take less than a decade to pay off, a majority (79 percent) didn’t know the exact amount they will have taken out in total loans upon graduation. About one-third (36 percent) either had either no or little idea of the total amount of their loans upon graduation, with 43 percent having a general idea of their loan amount, and only one-in-five (22 percent) knowing their exact amount upon graduation.


“Every college student taking out loans should know what they are borrowing per semester and their projected balance upon graduation,” said Greg Anton, chair of the AICPA National CPA Financial Literacy Commission, in a statement. “This information is crucial to determine how burdensome the debt will be post-graduation and weigh alternatives if the amount is simply too high. It’s impossible to do this without knowing the loan amount.” 


“While a college education is increasingly essential in today’s economy, student loans take years to pay off and can cause individuals to put their life’s ambitions on hold,” Anton continued. “It’s encouraging that students seem to understand that the decisions they make about how to fund their education have the potential to stick with them throughout their post-graduation life.”


75 percent of polled students said that their student loan debt would require some sacrifices in their lives post-graduation. 40 percent said that they would have difficulty purchasing a home and 37 percent reported they would be living with their parents after graduation, with the same percentage predicting they would need to take a job outside their field of study.  29 percent felt their student loan debt would make it difficult for them to save for retirement.


Notably, 31 percent of students stated they would be forced to delay having children due to loan debt, and 26 percent said they would postpone marriage.


84 percent of students claimed, however, that they are extremely or very interested in learning how to make better financial decisions.


To help, the AICPA National Financial Literacy Commission will hold a free webcast on Wednesday, November 18, 2015at 1 PM ET, with members Michael Eisenberg, CPA, and Kelley Long will provide attendees with best practices and free tools they can use to improve their financial lives. The free webcast, entitled “Saving and Spending 101: What College Students Need to Know About Loans and Budgeting,” is designed for college students, parents, and those with student loans to learn tips and techniques to take charge of their finances. The webcast is available to register for free online here.  


The National CPA Financial Literacy Commission offers the following tips to help students manage the costs of their college education:

  • Do not take out more in total student loan debt than you can reasonably expect to earn in your first year in the field of your major.
  • Exhaust every available source of “free” money before getting any type of student loan. Research has shown not all students eligible for Pell Grants apply for them.
  • Meet with a financial advisor at school to discuss available scholarships.
  • Be aware of the difference in pay-off options between Federal and private student loans.


More financial tips can be found at the AICPA’s 360 Degrees of Financial Literacy site here.






Changes Coming to W-2, 1099 and 1095 Forms



he Internal Revenue Service is making yearly adjustments to W-2 and 1099 forms, while adding brand new 1095 forms related to the Affordable Care Act to the list of required forms for filers this year.


Greatland Corporation, a provider of W-2 and 1099 products for businesses, has compiled a list of what businesses need to be aware of when filing this year.


2015 Affordable Care Act Forms Required for 2015 Reporting

Under the ACA, or Obamacare, all providers of health care, including employers that provide self-insured coverage, must file returns with the IRS that include information about the coverage and each covered individual. 


Employers should report this information on Forms 1095-B or 1095-C, depending on the size of the employer. Providing 1095 forms became mandatory starting in the 2015 tax year and filers must send the forms not only to their eligible recipients but also to the IRS in order to remain in compliance with ACA reporting requirements.  Filers with 250 or more forms must file them electronically. Incorrect filings will not be penalized for calendar year 2015 filing (reported in 2016) if employers/insurers file on time and make a good faith effort to comply. Below is a summary of each new form related to the Affordable Care Act:


• Form 1095-B—Health Coverage

Insurers and self-insured employers that provide health plans are required to report data on all covered individuals.

• Form 1094-B—Transmittal of Health Coverage Information Returns

Form 1094-B is the transmittal for Form 1095-B.

• Form 1095-C—Employer-Provided Health Insurance Offer and Coverage

Employers with 50 or more full-time employees (including full-time equivalent employees) are required to report (whether or not they offered coverage to their employees) by providing each full-time employee with Form 1095-C. This form requires information such as whether the employee was offered coverage, for which months, and the employee's share of the lowest-cost monthly premium for self-only minimum value coverage. A large employer with a self-insured plan will only be required to submit Form 1095-C, as the information on Form 1095-B can be included on Form 1095-C.

• Form 1094-C—Transmittal of Employer-Provided Health Insurance offer and Coverage Information Returns


2015 W-2 Form Changes Medicaid Waiver Payments

Certain Medicaid waiver payments are excludable from income for federal income tax purposes. See Notice 2014-7 for additional information.


Third-party Sick Pay Recap Reporting

For wages paid in 2015, Form 8922, Third-Party Sick Pay Recap, will be used to report total third-party sick pay wages paid to employees when liability for the employer and the employee portions of Federal Insurance Contributions Act (FICA) taxes on the wages is split  between the employer for whom services are normally rendered and the third-party payer. Form 8922 replaces the Third-Party Sick Pay Recap Form W-2 and W-3. Form 8922 is filed with the IRS rather than the SSA.


Virtual Currency

The fair market value of virtual currency (such as Bitcoin) paid as wages is subject to federal income tax withholding, FICA tax and Federal Unemployment Tax Act (FUTA) tax and must be reported on Form W-2.


1099 and Related Form Changes

1096 - Compilation sheet that shows the totals of the information returns that you are physically mailing to the IRS. The check box for Form 1099-H was removed from line 6, while a check box for Form 1098-Q was added to line 6. The spacing for all check boxes on line 6 was expanded. The amounts reported in Box 13 of Form 1099-INT should now be included in box 5 of Form 1096 when filing Form 1099-INT to the IRS.


1098-C – This form is for contributions of motor vehicles, boats, and airplanes. A donee organization must file a separate Form 1098-C with the IRS for each contribution of a qualified vehicle that has a claimed value of more than $500. All filers of this form may truncate a donor’s identification number (social security number, individual taxpayer identification number, adoption taxpayer identification number, or employer identification number), on written acknowledgements. Truncation is not allowed, however, on any documents the filer files with the IRS.


1099-B – This form is issued by a broker or barter exchange that summarizes the proceeds of transactions. For a sale of debt instrument that is a wash sale and has accrued market discount, enter code “W” in box 1f and the amount of the wash sale loss disallowed in box 1g.


1099-DIV – This form is issued to those who have received dividends from stocks. A new check box was added to this form to identify a foreign financial institution filing this form to satisfy its chapter 4 reporting requirement.


1099-INT – This form is used to report interest income from banks and other financial institutions. Box 13 was added to report bond premium on tax-exempt bonds. All later boxes were renumbered.  A new check box was added to this form to identify a foreign financial institution filing this form to satisfy its chapter 4 reporting requirement.


1099-K – This form is given to those merchants accepting payment card transactions.  Completion of box 1b (Card Not Present transactions) is now mandatory for 2015.


1099-MISC – This form reports the total paid during the year to a single person or entity for services provided. Certain Medicaid waiver payments may be excludable from the income as difficulty of care payments.  A new check box was added to this form to identify a foreign financial institution filing this form to satisfy its chapter 4 reporting requirement.


Important Dates to Remember

•    Feb. 1, 2016 – due date to mail recipient copies for W-2, 1099, & 1095 

•    Feb. 29, 2016 – due date to send paper format of 1099 & 1095 Federal (IRS) filing

•    Feb. 29, 2016 – due date to send paper format of W-2 Federal (SSA) filing        

•    March 31, 2016 – due date to send e-file format of W-2, 1099 and 1095 Federal (SSA/IRS) filing

•    Form 1095 does not need to be filed at the state level






Vetting the candidates’ tax positions so far

The Earliest-Laid Plans



Candidates for public office say a great many things, and take a number of strong positions. Naturally, not all of the winner’s campaign positions will find their way into law after the election, but a look at a candidate’s various positions can be valuable in discerning which direction future legislative proposals might take.


A number of 2016 presidential candidates have proposed complete tax programs. These include Marco Rubio’s tax plan (co-authored with Sen. Mike Lee), Jeb Bush’s Reform and Growth Act, Ben Carson’s flat tax based on the biblical tithe, Ted Cruz’s Simple Flat Tax, and Donald Trump’s Tax Reform That Will Make America Great Again. Other candidates, including Hillary Clinton and Bernie Sanders, while not formulating sweeping reform plans, have addressed various tax issues during the campaign thus far.


“I don’t put much faith in getting any comprehensive proposals passed when they can’t even get the extenders passed in a timely manner,” said Roger Harris, president of Padgett Business Services. “First, they have to get elected, and second, they have to get their plan enacted. Those are two big leaps.”


 “Having said that, it’s fair to say that most plans fall into two basic types,” he said. “Either they offer some sort of flat tax or a plan that would reduce the number of brackets and still keep some sort of progressive structure with some different rates. Both types of plan would reduce certain types of deductions. If they don’t do that, they get what every candidate says about every other candidate’s plan — that it blows a hole in the deficit.”




Although Hillary Clinton has not announced a comprehensive plan similar to the reform proposals of some of her would-be Republican opponents, she has spelled out a change in the way capital gains would be taxed for those earning $400,000 or more per year.


Currently, long-term capital gains (on investments held for more than one year) are taxed at a top rate of 20 percent, just over half of the top rate on income of 39.6 percent. The top rate on short-term capital gains, investments held for one year or less, is the same as the individual top rate of 39.6 percent. In addition, the Net Investment Income Tax takes another 3.8 percent of the investment income above certain thresholds for wealthier taxpayers.


Under Clinton’s plan, the top rate on capital gains would stay at 39.6 percent for a second year, and would then be lowered on a sliding scale over the next four years. In order to be taxed at the current favorable rate, an investor would have to hold the investment for six years. The plan is designed to counter what Clinton calls “quarterly capitalism.” Clinton has also said she would raise taxes on carried interest paid to investment managers in hedge funds and private equity firms. It is currently taxed at the capital gains rate.


Democratic contender Bernie Sanders would increase the NII to 10 percent, and has stated that he would raise taxes on dividends and capital gains. On the estate tax, Sanders would increase the top rate to 65 percent, and lower the estate tax exclusion to $3.5 million.


In July of this year, Sanders indicated that he would raise taxes on the wealthy: “Yes, we have to raise individual tax rates substantially higher than they are today because almost all of the new income is going to the top 1 percent. And yes, those folks and large corporations will have to pay under a Sanders administration more in taxes so that we can use that revenue to rebuild our crumbling infrastructure, create the jobs we need, and make sure that every kid who has the ability is able to get a college education in America.”




Ben Carson has proposed phasing in a flat tax of 10 percent to 15 percent. He would eliminate the estate tax, and the Internal Revenue Service. “The IRS would be unneeded with a proportional flat tax system,” he said in May.


Donald Trump has criticized the flat tax as unfair to the poor. His comprehensive plan would consolidate the current seven tax brackets into four of 0, 10, 20 and 25 percent. He would lower the top rate from 39.6 percent to 25 percent, and would increase the standard deduction to $25,000 for singles and $50,000 for married filing jointly. The Alternative Minimum Tax and the NII would be eliminated, and carried interest would be taxed as ordinary income. Under the Trump plan, the top rate for long-term capital gains and qualified dividends would be 20 percent.


The corporate income tax rate would be reduced from 35 percent to 15 percent. The lower rate would make corporate inversions unnecessary, according to Trump. His plan would end tax deferral on overseas corporate income, and would include a one-time deemed repatriation tax of 10 percent on foreign profits (which would be charged whether or not the income was repatriated). It would tax pass-through entities at 15 percent, the same rate as corporations would pay, and would also eliminate the corporate AMT. And the Trump plan would eliminate the estate tax.


Marco Rubio introduced his plan as a Senate bill. It establishes three brackets of 15, 25 and 35 percent, with the top rate applicable to taxable income over $75,000 for single filers and $150,000 for joint filers. His plan eliminates all exemptions and deductions other than the charitable contribution deduction and a home mortgage interest deduction. The tax on capital gains and dividends would be reduced to zero, and the top corporate rate would be lowered to 25 percent. Rubio would also eliminate the estate tax.


Jeb Bush’s tax plan reduces the number of brackets from the current seven to three: 10 percent, 25 percent and 28 percent. Bush’s plan would eliminate the break on carried interest. His plan raises the standard deduction to $11,300 for single filers and $22,600 for joint filers. It eliminates the state and local tax deduction and limits all other itemized deductions, other than the charitable deduction, to 2 percent of adjusted gross income.


The Bush plan would also eliminate the AMT, the NII, the estate tax, the limitation on itemized deductions, and the personal exemption phase-outs.




Tom Wheelwright, CPA, founder and chief executive of accounting firm ProVision, says to look for similarities, rather than differences, in the candidates’ tax plans. “What do they have in common, because that is what is most likely to happen,” he suggested.


“Clearly, it looks like the carried interest rule is going to die, at least with respect to Wall Street,” he predicted. “The Democrats don’t like it, and half the Republicans also want to get rid of it.


“It was originally meant for real estate. If you did something for a company and instead of getting paid you got an interest in the company but only if certain things happened, you received nothing so there’s no taxable income. You’re getting paid not in future profit but in gain on the future sale of the company,” he explained. “In a typical real estate deal, the developer would go in and pay profits to the investors. Once they got their money back, the developer would start taking a bigger share of carried interest. When the property is sold, there’s capital gain to the developers.”


However, Wheelwright indicated, hedge fund managers have taken the concept and utilized it to their advantage, which is why it is now a target of reformers. “There will likely be a grandfather rule on carried interest,” he said. “We don’t know if that’s going to affect carried interest that already exists, or if it will only kick in after the effective date. If you have the chance to generate carried interest, it’s better to do it now.”


Another issue the candidates share positions on is in the corporate and international area, according to Wheelwright. “Several of the candidates have a ‘deemed repatriation,’ which would tax overseas income whether it’s brought back into the U.S. or not, but at a lower rate. That should tell people that it is likely to happen.”


“At the end of the day, any plan that’s ever going to be enacted has to meet three criteria,” said Harris. “It has to be simple, fair and not be a budget-buster.”


“The easiest of the criteria is that it be simpler than the one we have today,” he said. “That’s easy because it would be hard to come up with a system that would not be simpler than what we already have. After that, it has to be fair. That’s based on differing opinions of what is meant by fairness, and that will be more difficult to overcome.”


“Here’s the challenge in tax reform,” Harris said. “I’m willing to take away your deductions but I’m not willing to give up my deductions. Taxes touch everybody and they’re personal for everybody, and we’re all for taxes going down and being simpler. But whenever there’s change, someone’s going to win and someone’s going to lose.”



Disclaimer: This article is for general information purposes only, and is not intended to provide professional tax, legal, or financial advice. To determine how this or other information in this newsletter might apply to your specific situation, contact us for more details and counsel.


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