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October

Small Employers Should Check Out the Health Care Tax Credit

New and existing small employers who do not yet benefit from the Small Business Health Care Tax Credit should look into whether the credit can help them provide insurance to their employees.

For tax years beginning in 2014 and after, the maximum credit is 50 percent of premiums paid for small business employers, and 35 percent of premiums paid for tax-exempt small employers, such as charities.

Beginning in 2014, a small employer may qualify for the credit if:

  • It has fewer than 25 employees who work full-time, or a combination of full-time and part-time. For example, two half-time employees equal one full-time employee for purposes of the credit.
  • It pays premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program Marketplace or qualifies for an exception to this requirement.
  • The average annual wages of full-time equivalent employees are less than $51,000. The annual average wages will be adjusted annually for inflation.
  • It pays a uniform percentage for all employees that is equal to at least 50 percent of the premium cost of the insurance coverage.

The credit is available to eligible employers for two consecutive taxable years.

A small business employer who did not owe tax during the year can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments is greater than the total credit claimed, eligible small employers can still claim a business expense deduction for premiums in excess of the credit.

For tax-exempt small employers, the credit is refundable. Even if the tax-exempt small employer has no taxable income, it may be eligible to receive the credit as a refund so long as it does not exceed its income tax withholding and Medicare tax liability.

More information

More information about the Small Business Health Options Program Marketplace – better known as the SHOP Marketplace – including the Federally Facilitated Marketplace, is available at HealthCare.gov .

Find out more about the small business health care tax credit at IRS.gov/aca.

Find out more about the health care law at HealthCare.gov.

 

 

Most Unusual Resume Lies

The pressure to stand out in a sea of applicants may tempt job seekers at accounting firms and other businesses to be less than honest on their resumes. When CareerBuilder asked about the most unusual lie they've ever caught on a resume, employers recalled these doozies. 

A Job for Pinocchio? - Fifty-eight percent of hiring managers said they've caught a lie on a resume, and 33 percent of these employers have seen an increase in resume embellishments post-recession, according to a poll of hiring managers and HR professionals by the staffing company CareerBuilder. Here are some of the most memorable lies on a resume that they have seen. 

LIke Father, Like Son - Applicant included job experience that was actually his father's. Both father and son had the same name (one was Sr., one was Jr.). 

Yes Minister - Applicant claimed to be the assistant to the prime minister of a foreign country that doesn't have a prime minister. 

Alley-Oops - Applicant claimed to have been a high school basketball free throw champion. He admitted it was a lie in the interview. 

Going for the Gold - Applicant claimed to have been an Olympic medalist. 

Bob the Builder - Applicant claimed to have been a construction supervisor. The interviewer learned the bulk of his experience was in the completion of a doghouse some years prior. 

Adventures in Babysitting - Applicant claimed to have worked for 20 years as the babysitter of known celebrities such as Tom Cruise, Madonna, etc. 

Time Warp - Applicant claimed to have 25 years of experience at age 32. 

Short-Term Hire - Applicant listed three jobs over the past several years. Upon contacting the employers, the interviewer learned that the applicant had worked at one for two days, another for one day, and not at all for the third.

Terminate and Stay Resident - Applicant applied to a position with a company who had just terminated him. He listed the company under previous employment and indicated on his resume that he had quit. 

Renaissance Man - Applicant applied twice for the same position and provided a different work history on each application. 

 

 

 

IRS Chief Warns Congress about Possible Delay to Tax Season from Unresolved Tax Extenders

BY MICHAEL COHN

 

Internal Revenue Service commissioner John Koskinen has written a letter to the leaders of Congress’s main tax committees urging them to decide soon on what to do about extending dozens of expired tax provisions, or else next tax season and the processing of tax refunds could be delayed.

 “Making this decision in a timely manner will allow the IRS to implement Congress’s decision without unnecessary disruptions and delays to the upcoming 2015 tax filing season, and it will provide certainty for millions of taxpayers who are affected by the expired provisions,” Koskinen wrote Monday to the leaders of the Senate Finance Committee and the House Ways and Means Committee.

He noted that the IRS’s operational preparations for the 2015 tax season are “in full swing.” The agency has been training its customer service employees, revising tax forms and publications and programming its technology systems to reflect changes in the tax laws. However, the uncertainty over the tax extenders is raising risks, including for tax professionals, Koskinen warned.

 “The IRS is currently facing a great deal of uncertainty related to the expired provisions, which raises serious operational and compliance risks,” he wrote. “Continued uncertainty would impose even more stress not only on the IRS, but also on the entire tax community, including tax professionals, software providers and tax volunteers, who are all critical to the successful operation of our nation’s tax system. This uncertainty, if it persists into December or later, could force the IRS to postpone the opening of the 2015 filing season and delay the processing of tax refunds for millions of taxpayers. Moreover, if Congress enacts any policy changes to the existing extenders or adds new provisions, the IRS would have to reprogram systems and make processing changes, which would result in longer delays. If Congress waits until 2015 and then enacts retroactive tax law changes affecting 2014, the operational and compliance challenges would be even more severe—likely resulting in service disruptions, millions of taxpayers needing to file amended returns, and substantially delayed refunds.”

The House has voted to extend several expired tax provisions, such as the research tax credit and bonus depreciation, but the Senate has not yet acted on those bills, opting for a more comprehensive approach that has currently stalled. Congressional leaders have warned that the tax extenders legislation is unlikely to be passed until after the midterm elections in November, possibly during a “lame-duck” session of Congress.

Koskinen asked lawmakers to act sooner. “To avoid these serious problems, I respectfully urge you and other members of Congress to address this issue expeditiously and decide whether or not to extend the expired tax provisions,” he wrote. “I recognize, of course, that it is up to Congress to and the Administration to make this important policy decision. Nonetheless, I would appreciate if you would share with your colleagues that it would be detrimental to the entire 2015 tax filing season and to millions of taxpayers if Congress fails to provide a clear policy direction before the end of November.”

In 2013, the IRS was forced to delay tax season due to the last-minute extension of the so-called Bush tax cuts at the beginning of the year.

Senate Finance Committee chairman Ron Wyden, D-Ore., posted Koskinen’s letter on his committee’s Web site and noted that his committee had passed legislation to extend many of the expired tax breaks. “It has been over six months since the Finance Committee passed the EXPIRE Act with strong bipartisan support,” he said in a statement. “As the 2015 filing season begins to loom large, it is more urgent than ever that Congress moves in a decisive and bipartisan way to renew expired tax provisions that will give taxpayers the certainty they need to plan their finances.

“According to the IRS, the longer Congress delays action the greater risk that the tax filing season and millions of taxpayer refunds will be delayed, among other serious disruptions,” Wyden added. “As the economy begins to show signs of strength, uncertainty from the federal tax code is the last thing American businesses and families need as they look to grow and invest. Congress needs to act swiftly on these important tax provisions so it can get to work on a comprehensive overhaul of the tax code and lift the fog of uncertainty from taxpayers.”

 

 

 

Identity Theft and Taxes

BY BRUCE KREISMAN

Identity theft is a growing and frustrating problem in today’s world.

Perpetrators run the gamut from sophisticated thieves breaching the security of large retailers to people rummaging through garbage for useful information, to everything in between. We have been warned not to reveal personal information, and to shred documents containing Social Security numbers, account numbers or other sensitive information.

The tax world has also been touched by identity theft. This has most commonly been manifest by unscrupulous individuals using stolen Social Security numbers and filing fraudulent tax returns claiming a refund. Typically the fraudulent tax return is filed early in the tax season before the true tax return gets filed.

The IRS and the states have programs in place if you have been, or suspect you are, the victim of identity theft. The most direct example of detecting a tax-related identity theft is if the IRS receives multiple tax returns using the same Social Security number. In that case the IRS will notify a taxpayer by mail and follow a protocol to ensure that he or she is the true individual associated with the Social Security number.

If any of your tax clients receives a notice from the IRS, they should respond immediately by calling the telephone number on the notice. Once they have been identified by the IRS as an identity theft victim and have provided the required information, the IRS will issue them an identity protection PIN, which will be mailed to them and included in the following year’s tax return to authorize electronic filing.

A taxpayer who knows or believes they may have been the victim of identity theft (whether generally or specifically with respect to tax matters), but has not received an IRS notice, should promptly call the IRS identity theft specialized unit at 800-908-4490.

The taxpayer should also complete Form 14039 and submit it to the IRS. These steps put the IRS on notice of potential problems, and will also prompt it to issue the identity protection PIN.

Note that IP PINs are only issued at one time during the year, typically in October or November.

Therefore if the IRS does not have sufficient time to process Form 14039 before PINs are issued for the year, the taxpayer will need to wait for the following year cycle before receiving a PIN.

The consequence of not having an IP PIN is that the tax return will need to be paper filed rather than filed electronically. If one of your clients has been issued a PIN, but you or they cannot locate it, they can retrieve it on the IRS Web site, www.irs.gov, or call the identity theft unit’s telephone number noted earlier.

As a way to identify and combat identity theft, starting with the 2014 tax year the IRS will limit to three the number of direct deposit refunds per bank account. More than three will get flagged and may not be processed. Legitimate multiple deposits will most likely come into play with respect to a family unit, where refunds from parents and multiple minor children are directed to a single account. If that’s the situation of some of your clients, they should request that some or all refunds be issued by check rather than direct deposit.

While less common, businesses have also been victimized by identity theft. The most prevalent scenario has been the use of a business’s tax identification number in generating a fraudulent W-2, which in turn is used to obtain fraudulent refunds by individuals. All business owners should be aware of this possibility and should limit exposure of their tax identification number (also known as employer identification number, or EIN).

Be aware that the IRS will not telephone taxpayers or send them an email threatening dire consequences if they fail to pay an amount allegedly owing or fail to provide identification or banking information. IRS contact is always done by mail. Fraudsters have manipulated caller ID to make it appear that an incoming call is from the IRS. Do not be fooled by this!

Also, do not be fooled if someone calls and correctly gives you the last four digits of your Social Security number, either to trick you or your clients into believing they are who they say they are, or to supposedly confirm your identity. Documents such as W-2s, pay stubs, Form 1099 or financial documents are frequently issued with only the last four digits of the Social Security number showing.

Should such a document fall into the wrong hands, a fraudster can use it to create a pretext, gain trust and proceed to elicit confidential information, which an otherwise suspicious person may now give willingly. The same warning equally applies to the last four digits of a credit card.

Bruce Kreisman is a tax supervisor at Kessler Orlean Silver CPAs. He can be reached at bkreisman@koscpa.com or 847-580-4100, extension 139.

 

 

 

 

Does it Pay to Buy an Extended Car Warranty?

by USAA

An extended vehicle warranty could save you thousands of dollars if your car has major problems after the manufacturer's warranty expires, and there are plenty of people who swear by the prolonged protection. But critics argue that extended warranties, which also are called vehicle protection plans or service contracts, don't always pay off.

Who's right? Who's wrong? The truth is, it depends. Not all extended warranties are created equal. Ultimately, the value you get from such a contract will depend on whom you buy it from, when you buy it and how well you understand the terms of coverage. Here are a few tips to help guide your decision.

Don't Be Pressured. Some dealerships encourage customers to buy extended warranties at the time of sale. But you may be better off shopping around to compare third-party (called"after-market") service contracts.

"Car dealers often sell extended warranties at a significant markup," says Gina Jordan, assistant vice president of consumer lending product management for USAA. "Buyers can likely get a much better price by shopping around for warranties outside of the dealership."

Take your time and do your research, but be aware that prices for service contracts tend to go up sharply as the manufacturer's draws to an end.

  • Coverage options for new and used vehicles.
  • Save an average of 25% on coverage costs when compared to similar dealer plans.See note2
  • Roll the cost of coverage into a new USAA Bank auto loan or buy the protection plan separately at any time.
  • You can spread payments over up to 18 months.See note3
  • Pay no deductible when you have a repair.

 

Learn MoreAbout Extended Vehicle Protection

Think ahead. You can't predict the future, but a few factors can help you decide if an extended warranty will be a good purchase. Generally, think about the vehicle you're buying, your financial situation and when you'll trade up to a new car.

Consider how much a major repair bill would rock your household budget. If that's a scary thought, paying upfront for a service contract could be a wise choice. Just know that some repairs may not be covered by the contract.

Think about how long you plan to keep the car. Most manufacturer warranties on new vehicles cover at least three years or 36,000 miles. If you're likely to purchase another new vehicle after a few years, an extended warranty probably wouldn't make sense.

Know who's got your back. While bargain shopping is a good idea, weigh the price of the service contract against the quality of the company that backs it.

"A contract with a major auto manufacturer or respected financial services company is generally a safe bet," Jordan says. "Approach other after-market warranty companies with caution. It's a good idea to check with the Better Business Bureau and online review sites to understand the quality of the product you're purchasing and how customers are treated when a claim arises."

Compare apples to apples. Service contracts come in all shapes and sizes. Lower-end warranties might cover only major mechanical breakdowns; midpriced contracts may cover some normal wear and tear; and the most expensive contracts are "bumper to bumper," usually covering all but a few types of repairs.

Consider how the payment structure fits your budget. Some warranties require you to pay everything upfront or in several installments. Others may let you pay over time.

Compare what your deductible will be and how you'll pay when repairs are made. Some policies require you to pay the mechanic out of pocket and file for partial reimbursement. Other plans may pay for repairs directly but require a copay from you, while others may have no deductible.

Scrutinize the fine print about vehicle maintenance and see who's qualified to perform service. Some service contracts will pay for repairs only if you can prove that you've kept up with routine maintenance, such as oil changes, using a certified auto shop.

 

 

 

 

Man Sentenced to One Year in Prison for Threatening to Kill IRS Agent and Family

BY MICHAEL COHN

A Rhode Island man has been sentenced to 12 months and one day in prison for threatening to assault and murder an Internal Revenue Service agent and his family.

U.S. District Court Chief Judge William E. Smith sentenced Andrew A. Calcione, 49, of Cranston, R.I., on Friday. Smith had convicted Calcione in May, based on evidence presented during a trial earlier that month. Calcione was convicted of one count each of threatening to assault and murder an IRS revenue agent and threatening to assault and murder a member of the immediate family of an IRS revenue agent (see Man Convicted of Threatening to Kill IRS Agent and His Family). At sentencing, Chief Judge William E. Smith also ordered Calcione to serve three years of supervised release upon completion of his prison term.

According to prosecutors, an IRS revenue agent in Rhode Island was assigned to examine Calcione’s personal federal tax returns for years 2008, 2009 and 2010. As a result of the examination, the agent estimated that a $330,000 tax liability would be assessed against Calcione.

In April 2013, the IRS revenue agent requested that Calcione and his ex-wife sign a Consent to Extend Time to Assess Tax form. Calcione signed the form, but his ex-wife did not. On July 12, 2013, the revenue agent left a voicemail message for Andrew Calcione inquiring as to the status of the executed form.

According to the government’s evidence, on July 15, 2013, the IRS revenue agent received two voicemail messages from Calcione. One of the messages contained a threat that if the agent called him again he would show up at the agent’s home and torture the agent, then rape and kill his wife and injure his daughter while the agent watched, before killing the agent. A second message left by Calcione requested that Calcione disregard the first message, which Calcione said was left in error.

 

 

 

Five Sales Lessons from a Toddler

BY NATALIA AUTENRIETH

Close your eyes and imagine a young child—two or three years old perhaps. Opinionated, loud, brave, obnoxious, sensitive, thoughtful, uncouth, stubborn, covered in mud, scratches, and Sharpie marks, this child can be the best sales teacher you will ever have.

Surprised? And yet it is true. Young children are amazing sales people, because selling is what they do all day. Instead of hawking consulting services and tax returns, they might be pitching their latest crazy stunt (will Mom be OK with me attempting to balance on one foot while standing on top of the couch and wearing pants pulled over my eyes?) or negotiating for a tasty treat (can I have ice-cream instead of breakfast?). The idea is the same, and their success rate might give you pause.

In order to be better at selling, you can read a dozen books, attend expensive seminars—or you can simply observe a garden-variety toddler for a couple of hours. Here is what I have learned.

1. If you never ask, the answer will always be no.

A young child does not have a preconceived notion of what is and is not possible, allowed or conventional. Even if he does, he can manage to set it aside long enough to ask for what he wants. It is not in the toddler’s nature to say no for you.

How often have you held back from making a request, pitching an idea or reaching out to enroll someone in your vision simply because you thought they might say, “No, thanks”?  If this sounds familiar, can you see that effectively you have said no to yourself on their behalf? Your success rate in that scenario is zero, every time. Next time, set aside that discouraging little voice in your head and ask for what you want—statistically, your chances for success are better that way.

2. Just because you got a no once does not mean that you will continue to get a no.

“No” does absolutely nothing to discourage a persistent toddler. If you are lucky, he or she might walk away, wait a few minutes, and come up with a different way to ask again. If you are not lucky, you will be treated to an exact repetition of a previously denied request immediately following that request.

Grown-ups can be a little more sophisticated in applying this lesson. The bottom line is that all too often, what we take for an absolute no is steeped in real-life context. Perhaps it really means “not now” or “not in this exact manner.” If you don’t probe, you will never know what they actually meant. Which brings me to the next point.

3. Ask why.

Toddlers ask “Why?” all the time. The question can be directed to their parents, extended family members and strangers who may or may not care to listen. Their goal is not to drive you to reach for that wine bottle well before 5 PM, although sometimes it may feel that way. They just want to get to the bottom of the issue. They want to understand: deeply, personally and fully. They won’t rest until they get there.

You could use some of that. Ask yourself and others “Why?” and don’t let it go until you really know.

4. Explain it more than one way.

Never mind their limited vocabulary—toddlers are masterful communicators. If one way does not work, they will invent another. If a verbal request for ice-cream before breakfast is not enthusiastically approved, they will act out a pantomime that would make Charlie Chaplin proud, complete with hand gestures and an emotional storm all over their little faces.

While I would not ask you to put on a performance every time, there is something here that you can take away. A little more flexibility. A willingness to try another way. Perhaps even a joke to make the other person smile, or a story to illustrate the point.

5. Don’t make it personal.

At the end of the day, no matter how many crazy ideas with potential for serious bodily harm have been rejected, a toddler knows beyond any doubt that he or she is loved. They don’t take your “no” to mean that they are a complete failure. They don’t go into a tail spin of self-pity and self-doubt, thinking that they are doomed to miss the mark next time. They simply try again, without judgment. Frustration maybe, but not judgment.

And perhaps this is the best sales gift from a toddler— this spirit of never giving up. They pitch, ask and negotiate tirelessly all day, and then wake up the next day ready to do it all over again. Their whole life, full of exploration, learning and personal fulfillment depends on it.

So does yours.

In her professional lives across the United States, Natalia Autenrieth has audited Fortune 500 clients as part of a Big 4 team, built an accounting department as a controller of a large hospital, and served as a CPA consultant to municipalities. As part of the Autenrieth Advantage team, Natalia coaches high-achieving CPAs for sustainable growth, helping them build highly profitable careers, avoid burn-out, and have more fun! Natalia lives in Southern California with her husband Doug, who is an author, an executive coach, and a kung fu teacher, and their son Mason. They share a home with Tasha the German Shepherd, who is highly trained and exceptionally well behaved, and Kaya the Abyssinian cat, who is a frequent candidate for a one-way ticket to Siberia. Read more about Natalia and her practice at www.AutenriethAdvantage.com.

 

 

 

 

IRS Flubs 57% Of Tax Collections, Says Audit Of IRS

Robert W. Wood – Contributor Forbes

If you ever owed back taxes, did the IRS efficiently and aggressively collect from you? If so, you may the exception. So says a new federal report by the Treasury Inspector General for Tax Administration, also called TIGTA. It’s the watchdog that audits the IRS. Here is thePress Release.

Turns out the IRS flubs collections, often calling tax debts uncollectible before that’s appropriate. There’s $6.7 billion at stake, says the report. The study does not estimate exactly how much the IRS might collect if its workers followed all the rules. And the IRS disagrees with some of the report, which has this mouthful title:Delinquent Taxes May Not Be Collected Because Required Research Was Not Always Completed Prior to Closing Some Cases As Currently Not Collectible.

Many steps must be followed before a debt is listed as “uncollectible.” But 57% of the time, these steps aren’t followed, says the report. IRS workers are supposed to trace mailing addresses, motor vehicles, court and other records, but don’t always do it. Even worse, in 7% of the cases, a Notice of Federal Tax Lien hasn’t even been filed as required.

If the IRS cracked down hard on you, you might be one of the 43%, since 57% of the time something slipped, suggests J. Russell George, Treasury Inspector General for Tax Administration. He says the report doesn’t just raise collection efficiency questions, but fairness issues too. Every taxpayer should be treated the same.

The report claims that $1.9 billion could be collected if IRS managers made sure all required steps were taken. The report lists recommendations for the IRS to follow, and many are common sense. If you have rules, follow them. If there are steps to make sure someone really can’t ever pay, take them. The IRS brass has already agreed with some of TIGTA’s recommendations.

However, there is a kerfuffle over some of them. The IRS disagrees with some points, and TIGTA says not all of IRS management’s planned corrective actions fully address what’s needed. The IRS says the report overstates some of the dollars in question.

The IRS declared $6.7 billion in unpaid taxes to be uncollectable because it couldn’t find the taxpayers. The report says $1.9 billion involved returns where the IRS failed to take all the steps to find the money. The study estimated that about $53 million was at stake in cases where required notices had not been filed warning taxpayers the government was filing a lien against them.

In response, IRS officials said the unpaid taxes where lien notices were not issued were “significantly less” than $53 million. They also said they believed that “the government’s interest is adequately protected” by the lien notices the IRS did file. That may be true, but at a time when the IRS has had a bad year, this is one more in a series of negative reports.

You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

 

 

 

 

How To Get Away With Tax Fraud

By Kelly Phillips Erb – Contributor Forbes

Okay, so I’m not really going to tell you how to get away with tax fraud. I don’t have a breathy, dramatic voice, I’m not as cool as Viola Davis and let’s face it, I just can’t pull it off. I have, however, been at this gig for awhile so I have a general idea about what will land you behind bars – or at the least, in front of a judge. Here’s some information to keep in mind for the criminally inclined:

  • Be consistent. Audits and examinations aren’t random. They’re generally based on patterns. When you swerve outside of the lines a bit, you might attract attention. Sometimes, that’s okay: you have a good year, you have a bad year. Taxing authorities understand that your income and expenses aren’t going to be exactlythe same every year. But there’s a difference between a good year – business turned or you got a raise – and a completely unbelievable year. And I would suggest that a $94 million claim for refund might be classified as the latter. Brigitte Jackson apparently didn’t think so. That’s how much she tried to steal (allegedly) from the Georgia Department of Revenue by filing a phony state tax return. Either she had a really, really good year or there’s some basis for her arrest on charges of attempted theft by taking and conspiracy to defraud the state.
  • Be good at math. Unless you are due a lot of refundable tax credits (more on that later), you’ll want to make sure that your math makes sense. I didn’t see Jackson’s tax return. And I’m not licensed in Georgia. But even I can figure from peeking at the Georgia Department of Revenue’s web site that the highest income tax rate for individuals is 6%. To have paid in $94 million of tax, the amount of her refund claim, you’d have to have earned about $1.56 billion in income – in one year (assuming no carry forward or carry back). That kind of money should have landed Jackson on the newly released Forbes’ 400 Richest Americans list. Spoiler alert: she’s not on the list.
  • Keep good records. Deductions and/or refundable tax credits aren’t magical numbers that you simply conjure up. You’ll want to have paperwork to substantiate those numbers. It could be the case that you forgot about all of those estimated payments you made – you know, the ones that would have had to total nearly $24 million each quarter to result in an overpayment of $94 million? You’ll want to keep track of those. I recommend, at the least, that you have duplicate checks and a scanner. And a good accountant. You’re going to want something to back up that claim. You know, other than stuff you simply make up on your own (as the Situation and his brother are alleged to have done).
  • Know your credits. Your biggest chance of getting a tax refund – other than overpaying in the first place – is to take advantage of tax credits. Tax credits are dollar for dollar reductions in your tax due, as compared to deductions which are dollar for dollar reductions in your taxable income. Combined with overpayments, tax credits can result in a tax refund. If the credit is refundable – meaning that you can take advantage of the credit even if you don’t owe tax – you can pad your refund quite nicely (granted, not usually $94 million nicely but still). On the federal level, the earned income tax credit (EITC) and the American Opportunity Credit (AOC) are examples of refundable – or partially refundable – tax credits. Georgia offers a few credits for individual taxpayers, like the credit allowed for tax paid to another state and the Georgia child and dependent care expense credit; the latter offers just 30% of the federal child and dependent tax credit up to $315 for one child and $630 for two more more children. In other words, there aren’t a lot of opportunities to claim tens of millions of dollars in credits. So be selective.
  • Be realistic about your dependents. I have three kids. And I understand that some days, it’s hard to keep them all straight. They’re underfoot and you’re running them to hockey and to soccer and it feels like there are more of them than there actually are – especially when it comes time to do the laundry (I’m still not convinced there aren’t more children living in my son’s room, based on the sheer number of soccer socks alone). But as a rule, most days, I can nail down the numbers and names of my kids. You’ll want to do the same on your tax return. And while Georgia doesn’t appear to have a limit on the number of dependents you can claim at $3,000 each, there’s a point where it’s just not realistic to claim dozens. Not everyone has the counter space to support a family like, say, the Duggars. I’ve seen pictures of Jackson. She might have a kid or two, just not 100.
  • Don’t tell anyone. Especially your cousin. Because you know how family is… They always want what you have. You get a chocolate bunny at the Easter egg hunt, they want a chocolate bunny. You get a new bike at Christmas, they want a new bike. You have a claim for millions of dollars as a tax refund, they want millions of dollars as a tax refund. Oh yes. That actually happened. Jackson’s cousin, Darrius White, also allegedly reported $99 million in income, and tried to claim a large refund. White has also been charged in the scheme and perhaps, not surprisingly, is already on felony probation for another crime.
  • Don’t call the tax authorities. If you’re going to claim a big refund that you might not be entitled to, you might want to play it down a bit. And you know, not call the Department of Revenue and ask about the status all of the time. It makes you look desperate. Also stupid. But mostly desperate. Both Jackson and White reportedly “kept calling” to check on their refunds. Their calls were recorded and used to snare the two – because, well, why not? The best part? Jackson thanked the agent profusely, telling her that she was “so happy” after being informed that she would receive her refund – yes, the one for $94 million – in “7-10 business days.”
  • Check your bank or the mail for your refund. Lean in closer to the computer because this part is key: if you manage to wrangle a multi-million dollar fraudulent tax refund from the Treasury, you should be prepared to receive it just like any other tax refund. The tax authorities won’t be handing it out at the supermarket. It will be direct deposited into your bank account or issued as a check in the mail. You won’t get it as cash. Or gift cards. Or magic beans. Jackson must not have had a handle on this part because she was arrested when she went to the bank counter inside of a Kroger to pick up her check. At the grocery store. Because they called her. Folks: that’s not how that really happens.

While it’s tempting to think that Jackson’s efforts were so outlandish that they don’t even count as fraud because really – who does this sort of thing? – it doesn’t change the result. It’s still against the law and fraud is fraud. According to Special Investigations Chief Josh Waites:

It doesn’t matter if it’s $94 or $94 million. We’re going to go after you and hold you accountable.

You see, the amount doesn’t change whether it constitutes fraud. All it changes is how many times someone will share your story as a good example of what not to do – and now you know.

(You can watch the news footage about the story from Channel 2 in Cobb County here. It’s pretty awesome.)

Want more taxgirl goodness? Pick your poison: follow me on twitter, hang out onFacebook and Google, play on Pinterest or check out my YouTube channel. For cases and tax related docs, visit Scribd.

 

 

 

Converting a sole proprietorship to a limited liability company

As sole proprietors, business owners enjoy the advantage of simplified income tax reporting via the use of Schedule C (“Profit or Loss From Business”) within their Form 1040 (“U.S. Individual Income Tax Return”). However, sole proprietorship status can expose a business owner’s personal assets to the risks and liabilities of their business operation.

State statutes generally allow a sole proprietor to conduct business as a limited liability company (LLC). The intent is to provide a broader protection from liability. The concept of the LLC statute is that the owner (technically referred to as a “member”) does not have any liability for business debts solely by reason of being a member or owner. Of course, this does not relieve the owners of responsibility for their personal actions or for debts that they have personally guaranteed. But personal assets would be protected from claims arising because of ordinary business transactions. This liability protection could be particularly advantageous when there are employees working in the business. With a sole proprietorship, employees’ actions may expose the business owner’s personal assets. Sole proprietors interested in limiting personal liability should consult an attorney to more fully explore the protections that are relevant to their particular business situation.

The other attractive aspect of LLC status is that IRS regulations allow the business owner to continue reporting for income tax purposes as a proprietor, despite forming an LLC under state law. Gaining the extra legal protection of an LLC will not entail any extra filing with the IRS.

Of course, there will be transaction costs to create the LLC. It will be necessary for an attorney to draft an LLC document to be filed with the state. The attorney can provide an estimate of this cost, as well as any initial or recurring fees that must be submitted to the state office. Also, when conducting business as an LLC, it will be necessary to consistently use the LLC designation on business letterhead, the business’s checking account, business licenses, and the like. The business owner would need to make sure someone goes through the process of adding the LLC designation to the various contracts and documents under which business is conducted.

In summary, a sole proprietor should weigh the advantages of the liability protection from LLC status against the initial legal and administrative costs of accomplishing the conversion. For most proprietors, the added liability protection will merit the costs of converting to LLC status, but this should be explored more fully with legal counsel. If you have any questions or wish to discuss this further, please give us a call.

 

 

Travel while giving to charity

Do you donate your services to charity and travel to do so? While you can’t deduct the value of your services that you give to the charity, you may be able to deduct some of the out-of-pocket travel costs you incur.

For the travel expenses to be deductible, the volunteer work must be performed for a qualified charity. Most groups other than churches and governments must apply to the IRS to be recognized as a qualified charity. You can use the IRS’s Select Check tool (http://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check) to find organizations eligible to receive tax-deductible charitable contributions. 

Of course, not all types of travel expenses qualify for a tax deduction. For example, you can’t deduct your costs if a significant part of the trip involves personal pleasure, recreation, or vacation. Additionally, you can’t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip. However, you can deduct your travel expenses if your work is substantial throughout the trip.

Deductible travel expenses must be: (a) unreimbursed, (b) directly connected with the services, (c) expenses you had only because of the services you donated, and (d) not personal, living, or family expenses. These travel expenses may include air, rail, and bus transportation; car expenses; lodging costs; meal costs; and taxi or other transportation costs between the airport or station and your hotel. You may pay the travel expenses directly or indirectly. (You make a payment to the charitable organization and the organization pays for your travel expenses.)

If a qualified organization selects you to attend a convention as its representative, you can deduct your unreimbursed expenses for travel, including reasonable amounts for meals and lodging, while away from home overnight for the convention. You cannot deduct personal expense for sightseeing, entertainment and other expenses for your spouse or children.

If the requirements are met, traveling while donating services to charity can be a win-win.

 

 

 

 

Simple tax savings techniques for security gains

The market swings over the last several years may have you wondering whether it’s time to capitalize on some market gains. While taxes should not be the main consideration in this decision, they certainly need to be considered, as they can make a significant impact on your investment return.

With that in mind, here are a couple of tax-smart strategies to consider as you analyze your investment opportunities and decide what to do about recent gains.

Should you wait to sell until the stock qualifies for long-term capital gains treatment?

If the stock sale qualifies for long-term capital gains treatment, it will be taxed at a maximum tax rate of 23.8%. Otherwise it will be taxed at your ordinary-income tax rate, which can be as high as 43.4%.

Clearly, you’ll pay less taxes (and keep more of your gains) if the stock sale qualifies for long-term capital gains treatment. The amount of taxes you’ll save depends on your ordinary-income tax bracket.

To qualify for the preferential long-term capital gains rates, you must hold the stock for more than 12 months. The holding period generally begins the day after you purchase the stock and runs through (and includes) the date you sell it. These rules must be followed exactly, because missing the required holding period by even one day prevents you from using the preferential rates.

The question then becomes: Are the tax savings that would be realized by holding the asset for the long-term period worth the investment risk that the asset’s value will fall during the same time period? If you think the value will fall significantly, liquidating quickly, regardless of tax consequences, may be the better option. Otherwise, the potential risk of holding an asset should be weighed against the tax benefit of qualifying for a reduced tax rate.

Comparing the risk of a price decline to the potential tax benefit of holding an investment for a certain time is not an exact science. We’d be glad to help you weigh your options.

Use “specific ID method” to minimize taxes

If you are considering selling less than your entire interest in a security that you purchased at various times for various prices, you have a couple of options for identifying the particular shares sold:

(1) The first-in, first-out (FIFO) method and

(2) The specific ID method.

FIFO is used if you do not (or cannot) specifically identify which shares of stock are sold, so the oldest securities are assumed to be sold first. Alternatively, you can use the specific ID method to select the particular shares you wish to sell. This is typically the preferred method, as it allows you at least some level of control over the amount and character of the gain (or loss) realized on the sale, which can lead to tax-savings opportunities.

The specific ID method requires that you adequately identify the specific stock to be sold. This can be accomplished by delivering the specific shares to be sold to the broker selling the stock. Alternatively, if the securities are held by your broker, IRS regulations say you should notify your broker regarding which shares you want to sell and the broker should then issue you a written confirmation of your instructions.

 

 

 

Swapping bonds to claim losses

Taxpayers holding bonds that have decreased in value may benefit from a technique known as a bond swap. A bond swap enables a taxpayer to currently benefit from the decline in a bond’s value and either increase or keep the same cash flow generated by the bond. To facilitate a bond swap, the taxpayer sells currently owned bonds at a loss and immediately reinvests the proceeds in different bonds. This technique is beneficial if the taxpayer has current capital gains, particularly short-term, that can be offset by the bond’s capital loss, or the taxpayer’s overall net capital loss following the bond disposition is $3,000 or less (which the taxpayer can offset with other ordinary income).

Taxpayers entering into bond swaps must steer clear of the wash sale rule to avoid having the loss from the disposition disallowed. If the replacement bond is purchased within 30 days before or after the sale of the old bond, it cannot be substantially identical to the original bond. Bonds issued by a different entity would not be substantially identical to the old bond. Bonds of the same issuer would not be substantially identical if they have coupon rates or terms different from those of the original bonds, provided such differences are not negligible. Also, the transaction charges (for example, brokerage commissions) associated with buying and selling bonds will reduce the economic benefit of a bond swap.

 

 

 

Information for Employers about Their Responsibilities Under the Affordable Care Act

If you are an employer, the number of employees in your business will affect what you need to know about the Affordable Care Act (ACA). 

Employers with 50 or more full-time and full-time-equivalent employees are generally considered to be “applicable large employers” (ALEs) under the employer shared responsibility provisions of the ACA.  Applicable large employers are subject to the employer shared responsibility provisions.  However, more than 95 percent of employers are not ALEs and are not subject to these provisions because they have fewer than 50 full-time and full-time-equivalent employees.

Whether an employer is an ALE is determined each calendar year based on employment and hours of service data from the prior calendar year. An employer can find information about determining the size of its workforce in the employer shared responsibility provision questions and answers section of the IRS.gov/aca website and in the related final regulations.

In general, beginning January 1, 2015, ALEs with at least 100 full-time and full-time equivalent employees must offer affordable health coverage that provides minimum value to their full-time employees and their dependents or they may be subject to an employer shared responsibility payment.  This payment would apply only if at least one of its full-time employees receives a premium tax credit through enrollment in a state based Marketplace or a federally facilitated or Marketplace.  Also, starting in 2016 ALEs must report to the IRS information about the health care coverage, if any, they offered to their full-time employees for calendar year 2015, and must also furnish related statements to their full-time employees.

For 2014, the IRS will not assess employer shared responsibility payments and the information reporting related to the employer shared responsibility provisions is voluntary.  In addition, the employer shared responsibility provisions will be phased in for smaller ALEs from 2015 to 2016.  Specifically, ALEs that meet certain conditions regarding maintenance of workforce size and coverage in 2014 are not subject to the employer shared responsibility provision for 2015.  For these employers, no employer shared responsibility payment will apply for any calendar month during 2015 (including, for an employer with a non-calendar year plan, the months in 2016 that are part of the 2015 plan year). However these employers are required to meet the information reporting requirements for 2015.  The employer shared responsibility provision questions and answers section of the IRS.gov/aca website and the preamble to the employer shared responsibility final regulations describe the requirements for this relief in more detail.  Both resources also describe additional forms of transition relief that apply for 2015.  

Small employers, specifically those with fewer than 25 full-time equivalent employees, may be eligible for the small business health care tax credit.  

Regardless of the number of employees, if an employer sponsors a self-insured health plan, it must report to the IRS certain information about its health insurance coverage plan for each covered employee. 

More information

Find out more about the small business health care tax credit, applicable large employers, the employer shared responsibility provision, information reporting requirements and the premium tax credit at IRS.gov/aca.

 

 

IRS Spent $33 Million to Store Paper Tax Records

BY MICHAEL COHN

The Internal Revenue Service paid approximately $33 million for paper tax records storage services in fiscal year 2013, and as of March 2014, and the agency had 5.42 million cubic feet of paper tax records stored at various Federal Records Centers across the country, according to a new report. 

The report, from the Treasury Inspector General for Tax Administration, pointed out that inefficient management of costs related to records storage reduces the resources that the IRS has available to deliver its mission.

TIGTA identified two areas in which controls over records storage costs could be improved. Specifically, TIGTA found that, as of June 2013, the IRS had 238,523 cubic feet of records past due for disposal for which it was obligated to pay ongoing monthly storage costs. As a result, unnecessary costs of more than $700,000 were incurred for those records.

During TIGTA’s audit, the IRS took a number of actions to address the volume of records past due for disposal and minimize future costs. The IRS managed to reduce its volume of records past due for disposal from 238,523 cubic feet as of June 2013 to 16,013 cubic feet as of March 2014.

TIGTA also found that the review process and documentation supporting the records storage service invoices were insufficient to allow it to reasonably validate the charges billed for the services. For example, TIGTA’s review of the invoice certification process from May 2013 through March 2014 did not provide any evidence that the IRS performed a review of supporting information available from the National Archives and Records Administration or in any way compared the invoiced charges to the IRS’s own internal records prior to certifying the invoices for payment. 

During this period, the IRS paid the National Archives and Records Administration $30.8 million for storage services. The IRS acknowledged that the approach used to certify these invoices needed improvement and advised TIGTA that it is in the process of addressing this issue by developing additional guidance specifically focused on reviewing and validating invoice charges.

The report comes at a time when the IRS has come under fire for its handling of electronic storage after losing thousands of emails exchanged between the former director of its Exempt Organizations unit, Lois Lerner, and people outside the agency. TIGTA is reportedly conducting a separate investigation of the loss of emails from Lerner and other officials involved in reviewing applications for tax-exempt status from political organizations.

In the new report, TIGTA recommended that the IRS’s chief of agency wide shared services continue to carefully monitor the volume of records past due for disposal and address any delays in timely destruction of those records. In addition, TIGTA suggested that the commissioner of the IRS’s Wage and Investment Division, in coordination with the chief of agency-wide shared services, should ensure that established procedures to verify invoice charges are adhered to prior to certifying payment and review the validity of all charges TIGTA identified as not supported by required documentation.

In response, the IRS agreed with two of the three recommendations. The IRS said it plans to continue to monitor the document disposal process. The IRS also said it plans to take actions to ensure that established procedures, or approved alternative procedures, are followed when certifying invoiced charges. However, the IRS disagreed with the recommendation regarding reviewing the validity of all charges identified as not supported by required documentation.

“We agree that reliance on comparative analyses for the validation of invoices submitted for payment led to a less rigorous review process; however, we do not believe the amount of any potentially erroneous payments would be significant and we do not consider a comprehensive review of all previously submitted invoices would be a productive use of our limited resources,” wrote Debra Holland, commissioner of the IRS’s Wage and Investment Division, in response to the report. “The TIGTA does not provide an analysis to indicate the comparative analyses used by the IRS caused erroneous charges to be paid. As a result, we disagree with the potential Protection of Resources outcome measure of $30.8 million. Such a measure suggests that the IRS would have incurred no costs for storing approximately 5.42 million cubic feet of paper tax records at 18 Federal Records Center locations, or for the attendant service associated with storage, retrieval and delivery of those documents. Reporting the full amount of the expense paid for storage as a potential outcome is not reasonable, nor attainable.”

However, TIGTA contended that it believes that the $30.8 million paid for records storage service charges that were not supported by the required documentation represents a material amount warranting further review by the IRS.

 

 

 

 

Five Financial Lessons for Your Teenage

BY JEFF CUTTER

When I speak to clients about their financial planning goals, nearly every one has a common regret when it comes to their financial planning: they wish they'd started earlier. It's that often hard learned lesson that I try to pass along to my children.

Our kids don't have to set up a 401(k) tomorrow, but there are some important financial planning notes they can start taking now. Here are what I consider to be the top five. 

They need to understand the flow of money, most importantly that it does not grow on trees. It’s important for kids to understand where their money is coming from, and where it is going. How much money do they get in an allowance? How much do they earn from babysitting? Where is the money coming from? And once the money comes in, where is it going? Is it being spent on that $30 pair of jeans? Or being shelled out at the movie theater every weekend? Understanding income and expenses at a young age is the first step in understanding how to manage finances.

Next, they need to learn that it's important to save part of every “paycheck”—to have a savings plan. Typically, when kids gets $20 in their pocket, they immediately find that $20 softball glove and think they can afford it because they've earned some money. Teach your kids the value of saving. With my children, 20% of every dollar that comes in goes straight to their savings account. I tell them to deposit their checks first and withdraw cash later (if they need it).

Third, when kids want to buy something, they should make sure to shop around for the right price. Despite how much we try to deny it, kids are going show. They will buy clothes. They will spend money. Don’t try to fight nature, folks; instead, teach your kids to spend responsibly and efficiently. Tell them not to buy the first iPod that they see on the shelf. Encourage them to think about the anticipated purchase. Suggest they ask themselves if they need it, or if there is something more important to spend their money on? Ask if they have found the best price. Ask if they are buying something for convenience, or if they would make the purchase no matter what options they had? Kids need to learn to research a purchase, to find the best price/option, and then ensure that they can afford it. If they have done the research, you can feel better about letting nature take its course.

Fourth, we need to stress to kids that debt is not fun. Debt seems magical at 13 years old (heck, people of all ages seem to have that skewed concept of debt). Free money, right? No. As I have said many times before, nothing in life is free. Some debt is inevitable, like student loans, car loans and house loans. But debt is not something to be excited about or depend on forever. It is best to manage it as effectively as possible. Kids need to start respecting the power of debt, almost to the point of fear, before they can wield responsibility over their finances.

Lastly, they should set (realistic) goals. It might be to save $10,000 by the end of high school, or to afford their own car at 16, or to support their parents when they age (I know which one I’m rooting for) . . . but goals are important. Money can seem like a pretty arbitrary thing as a teen, especially when it’s just numbers in a bank account, but by setting goals, both long-term and short-term, they can see the progress they are making, they can understand the value of each decision, and they can, ideally, be motivated to make better ones.

Conversations about financial responsibility cannot start too early in life. Learning how to set healthy financial habits now will pay off later, literally. Do your kids a favor and help them start setting the stage for their future.

 

 

 

 

IRS Urged to Use Plainer English

BY MICHAEL COHN

While the Internal Revenue Service has taken a number of actions to implement requirements of the Plain Writing Act, more needs to be done to ensure that letters and notices are understandable to taxpayers, according to a new government report.

The report, from the Treasury Inspector General for Tax Administration, pointed out that Congress enacted the Plain Writing Act of 2010 to enhance citizen access to government information and services by ensuring that government documents issued to the public are written clearly. Taxpayers who cannot understand the actions they are asked to take or the taxes assessed in IRS letters and notices may be unfairly burdened.

“The IRS mails more than 200 million letters and notices each year to individual and business taxpayers to help them understand and meet their tax obligations,” said TIGTA Inspector General J. Russell George in a statement. “Not only does it make good business sense, but the law requires clear government communications that the public can understand and use.”

The IRS has designated a senior official to oversee the agency’s implementation of the Plain Writing Act, trained employees on the Act, and developed a toolkit for use by employees, TIGTA found. However, the IRS encountered challenges in its effort to create a master list of all letters and notices it issues to taxpayers due to the high volume of documents issued and the multitude of different systems used to generate correspondence to taxpayers.

In addition, the process for reviewing letters and notices does not always ensure that these documents are written in plain language, the report noted. TIGTA’s evaluation of statistically valid samples of 18 letters and 38 notices that were revised or redesigned during fiscal year 2013 identified that nine of the letters (or 50 percent) and 25 of the notices (66 percent) are not clearly written and structured or do not provide sufficient information.

For example, Notice 3, IMF 2nd Balance Due Notice, informs taxpayers that the IRS can file a Notice of Federal Tax Lien on the taxpayer’s property. However, the notice does not adequately explain or define a Tax Lien.

TIGTA recommended that the IRS develop a process to identify the universe of letters and notices it sends to taxpayers, ensure that its technical writers have sufficient formal training on the Federal Plain Language Guidelines, ensure that the managers’ quality review process includes confirming the revised letter or notice is reviewed for plain writing, and develop a process to document corrective actions considered and taken to address its contractor’s recommendations.

The IRS agreed with three of TIGTA’s recommendations; however, it said that identifying its universe of letters and notices would require extensive work for a result that would provide limited value. TIGTA said it continues to believe that all letters and notices that the IRS sends to taxpayers are subject to the Plain Writing Act and the IRS must complete its master list of letters and notices.

The IRS defended the clarity of its written communications. “Providing clear communications to taxpayers is a top priority for the IRS, and our work to put information in plain language predates the 2010 law,” said the IRS in a statement emailed to Accounting Today. “To date, the IRS has rewritten nearly 80 percent of the 190 million notices sent annually to taxpayers. Our strong work in this area has been recognized by a leading plain language group. An important factor affecting IRS work in this area is the underlying complexity of the nation's tax law, which adds challenges to this process. The IRS generally agrees with the overall findings of the report, but there are some specific areas where we do not agree with the TIGTA analysis. For example, we disagree with one recommendation because it's not required under the Plain Writing Act and would provide limited value, which doesn't justify the use of limited staff and budget resources.”

 

 

 

 

Global Tax Reporting Looms for 2015

David M. Katz

U.S. multinationals could be forced to pull data from each tax reporting unit and report it all in a single document. 

U.S.-based multinationals might be required to provide foreign tax officials with a single report detailing all their operations on a country-by-country basis for years beginning as early as 2015, according to an expert in international taxation. 

That would be a big departure from the current system, in which companies operating in a foreign jurisdiction report on their activities there to the local tax authorities. Under a recent proposal issued by the 34-nation Organisation for Economic Co-operation and Development (OECD), however, one report containing “all the information about that company’s operations in every place it operates in would go out” to the tax authorities of each location, says Manal Corwin, national leader of International Tax at KPMG. “The intent from the governments’ perspective is to have all the pieces add up to the whole.”

From a CFO’s perspective, the requirement is the most pressing proposal in an action plan launched September 16 by the OECD aimed at curbing global tax avoidance, according to Corwin.

Under the OECD’s transfer-pricing recommendations, companies operating in at least two national tax jurisdictions would have to disclose revenues, profits before income taxes, and income taxes paid and accrued for each jurisdiction on a single report every year.

It would also require companies to report their total employment, capital, retained earnings and tangible assets in each tax jurisdiction. Finally, multinationals would have to “identify each entity within the group that operates in a particular tax jurisdiction and to provide an indication of the business activities each entity engages in,” according to OECD guidance.

To be sure, the recommendation would have to be enacted by a national government for it to have the force of law. Still, “all indications are that this is a fairly high item on the political agenda for a lot of jurisdictions, and the expectation is that we’re going to see a lot of early adopters,” says Corwin, noting that France and the United Kingdom have been particularly vocal about the need for such an effort. “There’s an inevitability around it.”

In fact, she wouldn’t be surprised if at least one country introduced a bill proposing the report before the end of the year. Enactment could come as late one or two years after that, according to Corwin.

But from a company’s perspective, the first year a company’s required to report on is a much more relevant date than when the proposal’s signed into law, she says.In that respect, she says, “there’s a fairly decent chance that there’s going to be a country that requires that 2015 information is reported. Certainly, there’s a very high chance that companies will be reporting with respect to 2016.”

The Starter’s Pistol

That, in effect, will be the starter’s pistol for companies operating in that country. As long as one jurisdiction requires the comprehensive report, a company would have to gather the same information for every jurisdiction it operates in “in order to respond to the one country’s request,” she adds. “That’s all it takes to be immediately relevant to you.”

Speaking to CFO from a KPMG conference in Barcelona last week, Corwin noted that the prospect of having to gather data and report uniformly on all of their foreign subsidiaries raises a number of practical issues for U.S.-based multinationals. For example, if they haven’t done so yet, they would need to find out the method each of its units uses to price transfers of goods or services to related companies in other jurisdictions.

To comply with the new documentation requirements, relatively decentralized companies also will “have to think about transforming internal operations to allow for [the] kind of central reporting that they’d have to do,” she says. “They would have to determine whether the data that’s going to be required on this form is data that’s relatively available in their systems or is going to require a systems change.”

A more overarching concern is confidentiality, especially how the information is going to be used and who is going to use it. In its guidance, the OECD states that tax administrations “should take all reasonable steps to ensure that there is no public disclosure of confidential information” including trade and scientific secrets “and other commercially sensitive information.”

Local tax authorities “should also assure taxpayers that the information presented in transfer pricing documentation will remain confidential,” according to the guidance. When disclosures are made in courtrooms, “every effort should be made to ensure that confidentiality is maintained and that information is disclosed only to the extent needed.”

Still, corporations still have reasons to worry “when you’ve got this much information floating around,” says Corwin. “There is concern as to whether or not information would be leaked or whether [tax authorities] would be able to control that.”

 

 

 

 

 

Consumers Fed Up With Data Breaches

By John P. Mello Jr. 

With news of massive data breaches becoming almost a weekly occurrence, consumers are beginning to lose their patience with the custodians of their personal information.

Survey results from 2,000 consumers released last week by HyTrust, suggest that 51 percent of those polled would bolt from any business involved in a data breach that compromised personal information such as address, Social Security number or credit card details.

Suspicions have been growing among consumers that businesses aren't doing enough to protect the data they eagerly collect from their customers, Eric Chiu, president and founder of HyTrust, told TechNewsWorld.

"We're seeing repeats of the same sorts of attacks over and over," he said. "It means that in the retail world, everyone is playing kick the can. They're not addressing what needs to be addressed now and putting the consumer first."

Give 'em Jail Time

The survey also revealed some harsh attitudes toward businesses involved in a data breach. Almost half of the respondents (45.6 percent) said companies should be considered "criminally negligent" the moment a breach occurs.

Attitudes on that front appear to be colored by age, though. Only 34 percent of 25-34 year olds were in favor of immediate blame, while 51 percent of respondents 65 and older wouldn't hesitate to lower the hammer on a company involved in a breach.

The same is true for consumers who vowed to vote with their feet against a company that suffered a breach. Three out of every five respondents (60.2 percent) in the 35-44 age bracket said they'd take their business elsewhere, compared to 51 percent overall.

A large majority of the consumers participating in the survey (80.3 percent) felt the officers of a company should be held accountable for a breach.

"Since the Target breach, there's been almost weekly breaches," Chiu said. "Consumers are tired of it. They feel that companies are not really paying attention."

Holiday Anxiety

With the holiday season approaching, visions of the Target data breach fiasco -- not sugar plums -- will be dancing in many shoppers' heads.

What's a consumer to do? For one thing, consumers can pay closer attention to what's appearing on their credit card statements. They don't have to wait for those statements to arrive in the mail, either. They can check transactions online -- and many regularly do so.

"They should also consider using credit cards that provide more detailed information about credit card transactions," Sean Leonard, founder and CEO of Penango, told TechNewsWorld. "That makes it easier for both the credit card company and consumer to detect fraud."

Using a credit card to make purchases is preferable to using a debit card, according to Leonard.

"Purchasing with a credit card is better than purchasing with a debit card. Getting money lost to debit card fraud back is a lot harder than disputing a charge on credit card statement," he said.

"If all you have is debit cards," said Leonard, "you should use the credit card feature of the debit card."

2FA for Feds

Two-factor authentication is gaining traction among online service providers as a way to prevent their customers' accounts from being hijacked.

2FA is relatively simple. In addition to a username and password, a single-use code is sent -- typically to a user's cellphone -- to verify the customer's identity.

Some government departments and branches of the military have been using 2FA for years. However, it usually involves a dedicated token -- just another gadget that has to be lugged around and can be lost, stolen or forgotten.

The complexity and expense of token-based systems has acted as a brake on the more widespread adoption of 2FA in the federal government.

In an effort to change that, Globalscape last week announced an alliance withSMS Passcode.

With governments at all levels looking for economical and effective security solutions, a 2FA system that uses something employees already have -- their mobile phones -- could be an attractive proposition.

While agencies still would need to pay licensing fees to Globalscape and SMS Passcode, much of the overhead of token-based systems could be eliminated.

"It dramatically increases security with only those licensing fees," Greg Hoffer, senior director of engineering for Globalscape, told TechNewsWorld. "That's a lot cheaper than solutions that are hardware based or Web-application firewall-based."

Another benefit of the SMS solution is that it's location aware, he noted.

"If a log-in attempt originates in China and we know your mobile phone is in the U.S. or Canada, the system will block the log-in attempt," Hoffer explained. "So it increases security through geo-awareness."

Breach Diary

  • Sept. 22. First NBC Bank of New Orleans files lawsuit seeking US$5 million in damages from Home Depot in case connected to breach in which data on some 56 million payment cards was stolen. So far, about a dozen lawsuits have been filed against the company because of the breach.
  • Sept. 22. BBC reports it has discovered more than 100 ads on eBay that contained links to phishing sites that attempt to get bank account information from members.
  • Sept. 23. Sheplers, a western wear retailer, reports point-of-sale system at its Amarillo, Texas, store breached and credit card information at risk for an undetermined number of customers who shopped there from June 11 to Sept. 4.
  • Sept. 23. RiskIQ reports watering hole attack at jquery.com, a location frequented by system administrators and Web developers. The open source jQuery library is used by an estimated 30 percent of the websites on the Internet. Visitors to the site receive a "drive-by" infection that plants malware on their systems.
  • Sept. 23. U.S. Department of Homeland Security and FBI issue a "public service announcement" warning businesses of an increase in computer network exploitation and disruption by disgruntled employees. Such disruptions can cost businesses losses ranging from $5,000 to $3 million, the agencies said.
  • Sept. 24. National Institute of Standards and Technology posts alert about flaw in GNU BASH dubbed "Shellshock," which could affect millions of computers running Linux and OS X.
  • Sept. 24. Jimmy John's, a national chain of sandwich shops, confirms 216 stores were involved in a data breach from June 16-Sept. 5. The breach is still under investigation and the number of affected customers has not been made public.
  • Sept. 24. Ponemon Institute reports 43 percent of companies experienced a data breach in 2014, a 10 percent increase over 2013.

 

 

Swapping bonds to claim losses

Taxpayers holding bonds that have decreased in value may benefit from a technique known as a bond swap. A bond swap enables a taxpayer to currently benefit from the decline in a bond’s value and either increase or keep the same cash flow generated by the bond. To facilitate a bond swap, the taxpayer sells currently owned bonds at a loss and immediately reinvests the proceeds in different bonds. This technique is beneficial if the taxpayer has current capital gains, particularly short-term, that can be offset by the bond’s capital loss, or the taxpayer’s overall net capital loss following the bond disposition is $3,000 or less (which the taxpayer can offset with other ordinary income).

Taxpayers entering into bond swaps must steer clear of the wash sale rule to avoid having the loss from the disposition disallowed. If the replacement bond is purchased within 30 days before or after the sale of the old bond, it cannot be substantially identical to the original bond. Bonds issued by a different entity would not be substantially identical to the old bond. Bonds of the same issuer would not be substantially identical if they have coupon rates or terms different from those of the original bonds, provided such differences are not negligible. Also, the transaction charges (for example, brokerage commissions) associated with buying and selling bonds will reduce the economic benefit of a bond swap.

 

 

 

Simple tax savings techniques for security gains

The market swings over the last several years may have you wondering whether it’s time to capitalize on some market gains. While taxes should not be the main consideration in this decision, they certainly need to be considered, as they can make a significant impact on your investment return.

With that in mind, here are a couple of tax-smart strategies to consider as you analyze your investment opportunities and decide what to do about recent gains.

Should you wait to sell until the stock qualifies for long-term capital gains treatment?

If the stock sale qualifies for long-term capital gains treatment, it will be taxed at a maximum tax rate of 23.8%. Otherwise it will be taxed at your ordinary-income tax rate, which can be as high as 43.4%.

Clearly, you’ll pay less taxes (and keep more of your gains) if the stock sale qualifies for long-term capital gains treatment. The amount of taxes you’ll save depends on your ordinary-income tax bracket.

To qualify for the preferential long-term capital gains rates, you must hold the stock for more than 12 months. The holding period generally begins the day after you purchase the stock and runs through (and includes) the date you sell it. These rules must be followed exactly, because missing the required holding period by even one day prevents you from using the preferential rates.

The question then becomes: Are the tax savings that would be realized by holding the asset for the long-term period worth the investment risk that the asset’s value will fall during the same time period? If you think the value will fall significantly, liquidating quickly, regardless of tax consequences, may be the better option. Otherwise, the potential risk of holding an asset should be weighed against the tax benefit of qualifying for a reduced tax rate.

Comparing the risk of a price decline to the potential tax benefit of holding an investment for a certain time is not an exact science. We’d be glad to help you weigh your options.

Use “specific ID method” to minimize taxes

If you are considering selling less than your entire interest in a security that you purchased at various times for various prices, you have a couple of options for identifying the particular shares sold:

(1) The first-in, first-out (FIFO) method and

(2) The specific ID method.

FIFO is used if you do not (or cannot) specifically identify which shares of stock are sold, so the oldest securities are assumed to be sold first. Alternatively, you can use the specific ID method to select the particular shares you wish to sell. This is typically the preferred method, as it allows you at least some level of control over the amount and character of the gain (or loss) realized on the sale, which can lead to tax-savings opportunities.

The specific ID method requires that you adequately identify the specific stock to be sold. This can be accomplished by delivering the specific shares to be sold to the broker selling the stock. Alternatively, if the securities are held by your broker, IRS regulations say you should notify your broker regarding which shares you want to sell and the broker should then issue you a written confirmation of your instructions.

                                                                                                      

 

 

Travel while giving to charity

Do you donate your services to charity and travel to do so? While you can’t deduct the value of your services that you give to the charity, you may be able to deduct some of the out-of-pocket travel costs you incur.

For the travel expenses to be deductible, the volunteer work must be performed for a qualified charity. Most groups other than churches and governments must apply to the IRS to be recognized as a qualified charity. You can use the IRS’s Select Check tool (http://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check) to find organizations eligible to receive tax-deductible charitable contributions. 

Of course, not all types of travel expenses qualify for a tax deduction. For example, you can’t deduct your costs if a significant part of the trip involves personal pleasure, recreation, or vacation. Additionally, you can’t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip. However, you can deduct your travel expenses if your work is substantial throughout the trip.

Deductible travel expenses must be: (a) unreimbursed, (b) directly connected with the services, (c) expenses you had only because of the services you donated, and (d) not personal, living, or family expenses. These travel expenses may include air, rail, and bus transportation; car expenses; lodging costs; meal costs; and taxi or other transportation costs between the airport or station and your hotel. You may pay the travel expenses directly or indirectly. (You make a payment to the charitable organization and the organization pays for your travel expenses.)

If a qualified organization selects you to attend a convention as its representative, you can deduct your unreimbursed expenses for travel, including reasonable amounts for meals and lodging, while away from home overnight for the convention. You cannot deduct personal expense for sightseeing, entertainment and other expenses for your spouse or children.

If the requirements are met, traveling while donating services to charity can be a win-win.

 

 

 

Converting a sole proprietorship to a limited liability company

As sole proprietors, business owners enjoy the advantage of simplified income tax reporting via the use of Schedule C (“Profit or Loss From Business”) within their Form 1040 (“U.S. Individual Income Tax Return”). However, sole proprietorship status can expose a business owner’s personal assets to the risks and liabilities of their business operation.

State statutes generally allow a sole proprietor to conduct business as a limited liability company (LLC). The intent is to provide a broader protection from liability. The concept of the LLC statute is that the owner (technically referred to as a “member”) does not have any liability for business debts solely by reason of being a member or owner. Of course, this does not relieve the owners of responsibility for their personal actions or for debts that they have personally guaranteed. But personal assets would be protected from claims arising because of ordinary business transactions. This liability protection could be particularly advantageous when there are employees working in the business. With a sole proprietorship, employees’ actions may expose the business owner’s personal assets. Sole proprietors interested in limiting personal liability should consult an attorney to more fully explore the protections that are relevant to their particular business situation.

The other attractive aspect of LLC status is that IRS regulations allow the business owner to continue reporting for income tax purposes as a proprietor, despite forming an LLC under state law. Gaining the extra legal protection of an LLC will not entail any extra filing with the IRS.

Of course, there will be transaction costs to create the LLC. It will be necessary for an attorney to draft an LLC document to be filed with the state. The attorney can provide an estimate of this cost, as well as any initial or recurring fees that must be submitted to the state office. Also, when conducting business as an LLC, it will be necessary to consistently use the LLC designation on business letterhead, the business’s checking account, business licenses, and the like. The business owner would need to make sure someone goes through the process of adding the LLC designation to the various contracts and documents under which business is conducted.

In summary, a sole proprietor should weigh the advantages of the liability protection from LLC status against the initial legal and administrative costs of accomplishing the conversion. For most proprietors, the added liability protection will merit the costs of converting to LLC status, but this should be explored more fully with legal counsel. If you have any questions or wish to discuss this further, please give us a call.

 

 

 

10 Year-End Tax Tips

As 2014 draws to a close, there may be more planning opportunities than ever before, but also more traps for the unwary, according to Grant Thornton LLP.

Beware of Expiring Tax Breaks

More than 50 popular tax provisions expired at the end of 2013. Without legislative action, businesses won’t get a credit for research activities or be able to immediately deduct one-half of the cost of new business equipment. Individuals would lose benefits like the ability to deduct tuition and state and local sales taxes. Grant Thornton's Year-end Tax Guide for 2014 discusses these and other issues that taxpayers and taxpaying entities should be thinking about now. 

1. Accelerate Deductions and Defer Income

Deferring tax is a cornerstone of tax planning. Generally, this means accelerating deductions into the current year and deferring income into next year. 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. 

2. Bunch Itemized Deductions

Many expenses can be deducted only if they exceed a certain percentage of your adjusted gross income. 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 up a procedure into this year or postponing it until next year, when you’ll have more medical expenses. 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.

3. Make Up a Tax Shortfall with Increased Withholding

Don’t forget that 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 through increased withholding on your salary or bonuses. A bigger estimated tax payment can still leave you exposed to penalties for previous quarters, while withholding is considered to have been paid ratably throughout the year. 

4. Leverage Retirement Account Tax Savings

It’s not too late to increase contributions to a retirement account. Traditional retirement accounts like a 401(k) or individual retirement account still offer some of the best tax savings. Contributions reduce taxable income at the time that you make them, and you don’t pay taxes until you take the money out at retirement. The 2014 contribution limits are $17,500 for a 401(k) and $5,500 for an IRA (not including catch-up contributions for those 50 years of age and older). 

5. Reconsider a Roth IRA Rollover

It has become very popular in recent years to convert a traditional IRA into a Roth IRA. This type of rollover allows you to pay tax on the conversion in exchange for no taxes in the future (if withdrawals are made properly). If you converted your account this year, reexamine the rollover. If the value went down, you have until your extended filing deadline to reverse the conversion. That way, you may be able to perform a conversion later and pay less tax.

6. Leverage State and Local Sales Tax Deduction

If you itemize deductions, you can elect to deduct state and local sales tax instead of state income taxes. (While this is one of the tax extender provisions that has currently expired, Congress is likely to extend this popular tax break after the midterm elections.) This is valuable if you live in a state without an income tax, but can also provide a bigger deduction in other states if you made big purchases subject to sales tax (like a car, boat, home or all three). The Internal Revenue Service has a table allowing you to claim a standard sales tax deduction so you don’t have to save all your receipts during the year. This table is based on your income, family size and the local sales tax rate, and you can add the tax from large purchases on top of the standard amount. If you’ve already paid enough sales tax that you’ll make this election for 2014, consider making any planned large purchases before the end of the year. If you wait to make the purchase in 2015 and won’t be electing to deduct sales tax that year, you won’t get any tax benefit.

7. Don’t Squander Your Gift Tax Exclusion

You can give up to $14,000 to as many people as you wish in 2014, free of gift or estate tax. You get a new annual gift tax exclusion every year, so don’t let it go to waste. If you combine gifts with a spouse, you can give up to $28,000 per beneficiary, per year. For example, a couple with three grown children who are married could give each couple $56,000 each and remove a total of $168,000 gift tax free in a single year. Even more could be given tax free if grandchildren are included

8. Understand the New Home Office Deduction Safe Harbor

You can deduct some of the cost of your home if you use your home as your principal place of business, use it to meet clients and customers in the normal course of business, or your office is a separate structure not attached to your home. The amount of this deduction has long been a source of controversy, but the IRS has a new safe harbor this year that allows you to deduct up to $5 per square foot of home office space up to $1,500 per year. 

9. Maximize “Above-the-Line” Deductions

Above-the-line deductions are valuable because you deduct them before you calculate your AGI. They are allowed in full and make it less likely that your other tax benefits will be limited. Common above-the-line deductions include traditional IRA and health savings account (HSA) contributions, moving expenses, self-employed health insurance costs and alimony payments.

10. Perform an Overall Financial Checkup

The end of the year is always a good time to assess your current financial situation and plan for the future. You should think about cash flow, health care, retirement, investment and estate planning. Check wills, powers of attorney and health care proxies for changes that may have occurred during the year. Use the open enrollment period to reconsider employer-sponsored programs that could reduce next year’s taxable income. HSAs and flexible spending accounts for dependent care or medical expenses allow you to use pre-tax dollars. Remember, it’s never too early or too late to start planning for the future! 

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5 Simple Steps to Prevent Expense Fraud

CHRIS FARRELL – Entrepreneur magazine

Consider the following expense fraud scenarios: airfare for a cancelled flight, a $50 travel meal of Ketel One and sodas, and pay-per-view movies lumped into the nightly hotel room rate.

While it’s easy to believe a few dollars here and there won’t hurt, expense fraud adds up over time and is difficult to detect. A recentsurvey conducted by the Association of Certified Fraud Examiners revealed that employees comprising the “Executive/Upper Management” level in a company account for nearly 27 percent of expense reimbursement fraud cases. The resulting disciplinary measures and dismissals of key employees can be a tremendous distraction -- just ask Hewlett Packard and Walmart.

Without clear and firm guidelines for expense reports, employees are more likely to cross the line. However, following these five simple steps can mitigate the risk:

1. Start by defining your expense report policies.

Smaller companies will typically have a simpler set of policies than larger organizations. That said, the following recommendations apply to companies of all sizes:

  • require expenses be submitted within 30 to 60 days of incurring the expense
  • require receipts for all purchases over $25
  • require itemization of multi-category purchases such as hotel stays (pay-per-view movies go under “Entertainment,” room service belongs to “meals”, etc.)

2. Inform employees of policy violations before expense reports are submitted.

Expense report policies have traditionally resided in the employee handbook. The reality is that most employees don’t refer to the handbook when preparing their reports.

Consider adding an expense report system that automatically highlights policy violations and automatically identifies duplicate transactions. This immediate feedback loop not only improves policy compliance, but also reduces the burden on supervisors and accounting to identify and reject out-of-policy expenses.

3. Design a thorough expense review and approval process.

An effective approval chain starts with including the appropriate manager(s). The primary role of the approving managers is to ensure expenses are accurate and represent bona-fide business expenses. In many cases, multiple managers may be involved.

For example, project-specific approvers and/or additional approvers based on the amount of the report may be required. When selecting expense-reporting tools, consider the routing needs of today and the future.

4. Utilize data analytics to stay on top of expense reporting trends.

Graphs and charts are handy when it comes to monitoring expense trends by employee, category and merchant. Companies should leverage their expense-report platform to identify and investigate unusual items.

5. It’s all about the “tone at the top.”

Although accurate expense reporting is a company-wide responsibility, the creation of a high-quality control environment is the responsibility of management. Management needs to set the tone, participate in the review process and hold themselves to the same exacting standard.

The Association of Certified Fraud Examiners survey also found that occupational fraud is estimated to cost organizations as much as 5 percent of revenue per year. Tightening up the expense-report process is an easy, but effective, way to prevent fraud at all levels.

Clear, thorough expense guidelines, as well as a commitment to ethical leadership, will keep a company’s revenue and reputation on track.

 

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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