Category Archives: IRS

IRS

Tax Deal Makes Many Items Permanent – Finally!

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Every year it’s the same… I pay a bunch of money to travel to a seminar on annual tax updates, and the instructor starts each topic with, “now, we don’t know whether Congress will extend this or not…”  It’s gotten so bad that I finally started skipping all the November and December classes and signing up for tax updates in January.  That’s right, for the tax laws of the *prior* year.  This helps a great deal in year-end tax planning.  (Sarcasm.)

Congress’ delayed action gets my goat for many reasons, not just my wasted time in seminars.  The main frustration I have is that so many of these tax provisions are meant to be incentives for businesses or individuals to act a particular way — to take the plunge and buy that big piece of equipment, invest in R&D, or take on that big construction project.  If they don’t know whether or not there is a tax incentive to do it — or that “maybe” Congress will renew a tax break — then how on earth does that serve as an incentive?

Well, thankfully, some of these frustrations are going away.  This year, Congress actually made some of the “extenders” permanent, meaning they won’t have to vote year-after-year to extend them — they’ll be written into the IRS tax code.

The best summary of the changes I’ve read so far is by the incomparable Tony Nitti of Forbes, one of the best tax writers out there:
Tax Deal Makes Permanent R&D Credit, Generous Child And College Breaks – Forbes

And the best list of the items extended, made permanent and/or modified in the extender bill I’ve found is by Vern Hoven of Western CPE.  (A complete list is included in the text of H. R. 2029, the “Protecting Americans from Tax Hikes Act of 2015.”)

IRC Individual Provisions NEW Expiration Date
§24(d) Enhanced American Opportunity tax credit is made permanent. Beginning in 2016, the provision requires the taxpayer claiming the American Opportunity credit to report the EIN of the educational institution to which the individual made tuition payments. Provision made permanent
§25A Enhanced child tax credit is made permanent Provision made permanent
§25C(g)(2) $500 credit for non-business energy property is extended toDec. 31, 2016. December 31, 2016
§32(b) Enhanced earned income tax credit is made permanent. Provision made permanent
§62 $250 teacher supply deduction is made permanent. Beginning in 2016, the provision also indexes the $250 cap to inflation and includes professional development expenses. Provision made permanent
§108 Exclusion for personal residence COD income is extended to Dec. 31, 2016. December 31, 2016
§163 Mortgage insurance premium deduction as mortgage interest is extended to Dec. 31, 2016. December 31, 2016
§164 Election for itemizers to deduct sales tax in lieu of income tax is made permanent. Provision made permanent
§170 Contributions of real property for qualified conservation purposes is made permanent. Provision made permanent
§222 Tuition deduction is extended to Dec. 31, 2016. December 31, 2016
§408 IRA transfers to charity in lieu of RMDs is made permanent. Provision made permanent
IRC Business Provisions NEW Expiration Date
§41 R & D tax credit is made permanent. Beginning in 2016 eligible small businesses ($50 million or less in gross receipts) may claim the credit against AMT liability, and the credit can be utilized by certain small businesses against the employer’s payroll tax liability. Provision made permanent
§45P Wage credit for activated military reservists is made permanent. Beginning in 2016, the provision modifies the credit to apply to employers of any size, rather than employers with 50 or fewer employees, as under current law. Provision made permanent
§51 WOTC for employers hiring qualified veterans and employees from other targeted groups is extended to Dec. 31, 2019. Beginning in 2016, the provision also modifies the credit to apply to employers who hire qualified long-term unemployed individuals (i.e., those who have been unemployed for 27 weeks or more) and increases the credit with respect to such long-term unemployed individuals to 40% of the first $6,000 of wages. December 31, 2019
§132 Increased fringe benefit allowance for transit passes is made permanent Provision made permanent
§168 Bonus depreciation for qualified purchases is extended with revisions to Dec. 31, 2019 (50% in 2015 – 2017, 40% in 2018 and 30% in 2019). The provision modifies the AMT rules beginning in 2016 by increasing the amount of unused AMT credits that may be claimed in lieu of bonus depreciation. The provision also modifies bonus depreciation to include qualified improvement property and to permit certain trees, vines, and plants bearing fruit or nuts to be eligible for bonus depreciation when planted or grafted, rather than when placed in service. December 31, 2019
§168 Election to accelerate AMT credit in lieu of bonus depreciation is extended to Dec. 31, 2019. December 31, 2019
§168 15-year recovery period for qualified leasehold improvements, qualified restaurant property, and qualified retail improvements is made permanent. Provision made permanent
§170 Enhanced charitable deductions for food inventory is made permanent. Beginning in 2016, the provision modifies the deduction by increasing the limitation on deductible contributions of food inventory from 10% to 15% of the taxpayer’s AGI (15% of modified taxable income in the case of a C corporation) per year. The provision also modifies the deduction to provide special rules for valuing food inventory. Provision made permanent
§179 $500,000 expensing limit is made permanent. Beginning in 2016, the provision modifies the expensing limitation by indexing both the $500,000 and $2 million limits for inflation and by treating air conditioning and heating units placed in service in tax years beginning after 2015 as eligible for expensing. Provision made permanent
§179 Treatment of certain real property as §179 property is made permanent. Beginning in 2016, the provision modifies the expensing limitation with respect to qualified real property by eliminating the $250,000 cap. Provision made permanent
§1202 100% gain exclusion for qualified small business stock is made permanent. Provision made permanent
§1367 Basis adjustment to S corporation stock for charitable contributions is made permanent. Provision made permanent
§1374 Reduced built in gains recognition period for S corporations is made permanent at five years. Provision made permanent

© 2015 Sharon Kreider and Vern Hoven

 

IRS, Tips

Last-Minute Tax-Planning Strategies | Accounting Today

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Accounting Today just published a nice little article on last-minute tax-planning strategies, and touched on a few other topics as well, such as the flip-flop between partnership and C-Corp tax return due dates.  A short and worthwhile read for accountants.  My favorite excerpt, by Matthew Frooman, a member at the Atlanta office of Top 100 Firm Warren Averett:

“It helps to have a process, a mental or written checklist of how to approach the planning opportunities in that industry,” he said. “So you have a hierarchy of tax planning which starts with a tax-free way to have income. If you can’t figure out a way to have tax-free income, then you go to offsets in terms of deductions from basis or deferral. Then you look at the tax rate itself, the character of the income as to capital gains or ordinary income, and finally you get down to the tax itself. After that, you consider additional offsets in the form of credits.”

“You can approach every engagement with that structure and work through what are the ways of making something tax-free, offsetting income, deferring income, getting a lower tax rate and generating a credit, and then the possibility of buying a credit,” Frooman said. ”Every tax technique should fall into at least one of those categories. For myself, there are too many tools to think through without some sort of structure, so the solution is to prioritize, and decide which tool has the highest impact and is the easiest to apply.”

Read the entire article here: Last-Minute Tax-Planning Strategies | Accounting Today News

Education, IRS, Tips

NCBA Cooperative Professionals Conference, Nov 9-11

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Are you a legal or accounting professional working for or with a cooperative? The 2015 Co-op Professionals Conference, scheduled for November 9 – 11 in Minneapolis, Minnesota, is your chance to share best practices with colleagues and earn up to 12 hours of Continuing Legal Education (CLE) and Continuing Professional Education  (CPE) credit. With in-depth discussions on co-op organization, governance, financing and taxation, attendees will become experts on the unique legal and accounting issues co-ops face.

Last year I attended the National Cooperative Business Association’s first-ever “Cooperative Professionals Conference“.  It was incredible — as much as I’d learned at the National Society of Accountants for Cooperatives conference earlier in the year, I’d felt like it catered to large-scale industries like agriculture and rural electric… where were the worker co-ops, grocery co-ops, housing co-ops?  Where were the types of cooperatives that I worked with and of whom I was a member?

Here they are!  Although NCBA works on behalf of cooperatives everywhere, they definitely serve as the primary resource for small business co-ops.  The conference — which invited accountants and attorneys from across the country to learn and network together — was a resounding success, and they decided to do it again this year.  I was honored to be invited to join the plenary committee and to co-chair two of the workshops, and I couldn’t be more excited about them.  See the schedule here.

This conference is not just for accountants and attorneys that already work with cooperatives.  In fact, one of the sessions I am co-chairing is a “Co-ops 101” pre-conference… designed to provide the basics of cooperatives, as well as legal, accounting and taxation issues specific or common to co-ops.  It should be amazing.  Please join us in Minneapolis this November 9-11, and spread the word!

Education, IRS, Tips

Crowdfunding and Taxes

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I’m seeing so many small businesses and individuals jump on the bandwagons that an internet economy has provided us: crowdfunding, airbnb/vrbo, and ride-sharing are among the most common. And in each of these situations, the ease of doing business belies the complexity of the accounting and taxation principles and rules underlying the true nature of the transactions.

These two articles do an amazing job of explaining the factors to consider when evaluating how (or in less frequent instances, if) crowdfunding income should be taxed. I’ve taken excerpts and copied/pasted a summary here, but I strongly encourage both accountants and small businesses/individuals considering crowdfunding to read the entirety of each article.

The first, “Crowdfunding and income taxes,” deals with income tax ramifications, and the second, “Crowdfunding Contributions and State Sales and Use Taxes,” deals with sales and use tax considerations (note: as of the publication date, the link to this second article is incorrect where referred to in the first article; however, the link here is accurate).

Thousands of businesses and individuals have succeeded in attracting funding through crowdfunding sites, but often with little thought to the ramifications for income taxes. Congress and the IRS have not addressed crowdfunding income specifically, leaving scant guidance for CPA tax advisers whose clients may have this source of income. Still, applying common tax principles and common sense may help tax preparers and advisers in talking through the issues with their clients who have taxable crowdfunding income and deciding how to report and pay taxes on it.

Crowdfunding in the United States falls into three distinct types:
1) for creative enterprises, which can be characterized as reward-based crowdfunding;
2) as a means of personal fundraising, or donation-based crowdfunding; and,
3) equity-based crowdfunding, which raises capital for companies.

While pledges received from donation-based crowdfunding are likely to be considered nontaxable gifts, reward-based crowdfunding is likely to carry income tax ramifications for the project creator. As for which expenses should be deductible against the income, that depends on several factors, including:
– Whether the crowdfunding activity is deemed a trade or business or a hobby;
– Whether the activity is deemed a startup business;
– The method of accounting used by the creator; and,
– The value of rewards given to backers.

[Note: in my practice, I most often see crowdfunding used for startups and expansions, and therefore follow the rules for capitalization of costs — and in certain situations, deferral of income until the year the trade or business becomes active. If you are working in this context, please read that section of the article carefully and do your due diligence in researching the particulars, as it is a ‘facts and circumstances’ situation.]

It is important to recognize that amounts received as a reward-based crowdfunding campaign which promises a reward that has some value is unlikely to be considered a gift, and much more likely that at least some portion of it should be considered a purchase. This should lead to a discussion of how sales and use taxes should be handled on purchases of products. Factors to consider, addressed in the second excellent article, include:
– Nexus
– Taxability
– Tax Base
– Timing

To reiterate what I said at the beginning of this post: I’m seeing so many small businesses and individuals jump on the bandwagons that an internet economy has provided us: crowdfunding, airbnb/vrbo, and ride-sharing are among the most common. And in each of these situations, the ease of doing business belies the complexity of the accounting and taxation principles and rules underlying the true nature of the transactions.

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IRS — Making Quarterly Tax Payments Easier

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My clients and colleagues are always amazed by my attitude about the IRS — fact is, I really think they do an incredible job, given the nature of their work and the constant budget constraints dealt them by Congress.

I’m sharing a couple examples today that relate to upcoming quarterly estimated tax payments.

The IRS manages to stay fairly up-to-date with technology, compared to most federal and state government agencies, at least.  It used to be such a pain to sign up for EFTPS and make payments, but now they offer “Direct Pay,” where you can both make and look up payments.

They also offer a mobile app, known as the “IRS2Go Mobile App,” which you can use to look up refund status, as well as to access the Direct Pay feature I just mentioned.

Considering the challenges the IRS is always up against, I think they do a great job, on the whole; and I, for one, am pretty jazzed about these new technological features.  Way to go, IRS!

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Business Taxes for the Self-Employed – Aug 26

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The IRS is offering a webinar on business taxes for self-employed folks — that means those of you who file Schedule C as part of your personal tax return.  You may be an independent contractor, a sole proprietor, or a single-member LLC — Schedule C applies to all of those situations.

The webinar is offered on August 26, 2015, at these times:
2 p.m. Eastern Time
1 p.m. Central Time
12 p.m. Mountain Time
11 a.m. Pacific Time

The IRS presenters will cover the following topics:

-Reporting profit or loss from a business or profession
-Self-employment tax and estimated tax payments
-Schedule C and C-EZ
-Deducting business expenses
-Husband and wife businesses
-Recordkeeping

For more information and to sign up, click here: Internal Revenue Service Webinar Registration Page

Please spread the word to your self-employed friends and colleagues!

Education, IRS, Tips

IRS Webinar on Affordable Care Act Provisions for Employers

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Small business employers — I can’t encourage you strongly enough to attend one of the upcoming IRS webinars on provisions in the Affordable Care Act (ACA) that apply to YOU.  It’s not enough to presume your accountant or HR consultant will reach out and hold your hand through this process… you need to take charge and get educated about what expectations your employees and the IRS will have of you, and how to meet those requirements.  It only takes an-hour-and-a-half, and you’ll be a better employer and business owner for it.  Aug 20, 1–2:30 pm and Sep 16, 1:30–3 pm.

Source: Webinar Series offered on Affordable Care Act Provisions for Employers and Coverage Providers

IRS

Supreme Court Upholds ACA Subsidies

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By now, we all know that the Supreme Court upheld the Affordable Care Act, also known as Obamacare.  But are you one of the many that doesn’t really understand how it was being challenged in the first place?

The basic idea is that there are certain people who are opposed to the ACA — whether for political, social, economic or other reasons — and they are taking every opportunity they can find to repeal or curtail it.  The best approach in this kind of legal challenge situation is to find language in the law that is ambiguous or incorrect.  In this case, the challenge was with the language “an Exchange established by the State.”

Tax credits “shall be allowed” for any applicable taxpayer, but only if the taxpayer has enrolled in an insurance plan through “an Exchange established by the State.” An IRS regulation interprets this as making the credits available on an exchange “regardless of whether the Exchange is established and operated by a State…or by [Health and Human Services].”

The best explanation I’ve seen for what happened in the end was by Bloomberg BNA state tax law editor Annabelle Gibson, quoted in Roger Russell’s article from Accounting Today:

“King V. Burwell upholds the validity of tax credits for individuals living in states that use the federal exchange, HealthCare.gov,” said Bloomberg BNA state tax law editor Annabelle Gibson. “That means individuals who purchase insurance through HealthCare.gov that are eligible for credits will continue to receive them to help pay for their health insurance.”

“The court focused on determining Congress’ intent when enacting the ACA when determining whether the words ‘Exchange established by the State’ include federal and state run exchanges,” she said.

“The court wrote that allowing credits for insurance purchased on any exchange will avoid the ‘calamitous result that Congress plainly meant to avoid’ when enacting the ACA, as the ACA was meant to increase access to health care throughout the United States,” Gibson remarked.

Applicable large employers who are subject to the employer mandate will continue to be liable for penalties for failing to offer minimum essential insurance coverage to their employees and their dependents, if employees purchase health insurance through any exchange and receive a tax credit, according to Gibson.

“If the tax credits had been struck down, employers in states using the federal exchange would not have been liable for a penalty even if an employee had purchased insurance through a federal exchange, because under the strict wording of the ACA, the penalty only applies if an employee received a tax credit to pay for their insurance,” she said. “Because the subsidies have been upheld, the employer mandate remains in place for all applicable large employers.”

Individuals in all states remain subject the individual mandate under the ACA, she indicated. “If subsidies had been struck down, then the cost of health care would have gone up for many people and it was possible that the cost of purchasing health care could have been greater than eight percent of those individual’s income, exempting them from the ACA’s coverage requirement,” she said. “That type of situation could have pushed insurance marketplaces into a ‘death spiral.’”

“However, because the subsidies remain intact, people can continue to use them to help pay for their health insurance, likely bringing the cost of their insurance under the 8 percent level,” said Gibson. “That means that the individual mandate would still apply if someone didn’t purchase health insurance.”

Great explanation — which had me presuming that there would be no accounting implications from the decision, since the status quo was being preserved.  The decision found that the IRS regulations could continue being interpreted as intended.

However, another, related article from the same publication and author illustrated that in fact, there are some important implications that stem from this decision.  In Serious Implications from the Supreme Court’s ACA Decision, Russell quotes Michael Greenwald, partner and corporate & business tax practice leader at Friedman LLP:

“If there were companies that were on the verge of not offering insurance, and sending their employees to the exchanges and paying the penalty, now they don’t have to worry about the exchanges not being there,” he said. “The bigger question was whether the law would be in place at all. The message is that the law will be in place for a while.”

Source: Supreme Court Upholds ACA Subsidies | Accounting Today News

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Tax Penalty Starts Today on Small Business Health Insurance HRAs

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MAJOR UPDATE AS OF DECEMBER 2016!  —  Please read new post here.

Small business groups are sounding a warning about an obscure Internal Revenue Service rule that takes effect Wednesday imposing heavy fines on small businesses for helping defray the cost of their workers insurance.

Health reimbursement accounts, or HRAs, are more simply known as the practice of reimbursing employees for the cost of insurance.  One problem: it’s illegal.  The reason behind it makes sense — an employee might have a personal tax situation whereby they can get Marketplace health insurance subsidized by the government, and it’s cheaper for the employer to simply reimburse the employee for that insurance than for the employer to provide an insurance plan.  However, that’s unfair to the rest of us, whose tax dollars go to paying for that subsidy.

Although that reasoning makes sense, in reality, most small business employers who provide this perk to employees do it because they avoid all the administrative costs and headaches involved with establishing and maintaining an insurance plan for their staff.

A huge issue is that a lot of these small business owners aren’t aware that the practice of reimbursing employees for health insurance now comes with extremely stiff penalties.

…employers who do not offer a group health plan, but give their workers additional pay to compensate for the purchase of health insurance or direct medical expenses, can be fined $100 per day, per employee. Over the course of a year that can add up to $36,500 per employee, up to $500,000 in total. In contrast, the penalty on businesses for failing to comply with the employer mandate is only $2,000 per year.

Please spread the word to your small business accounting clients or friends/colleagues who own businesses and have employees.  It is an extremely costly mistake to make, and according to this Accounting Today article, “14 percent of small businesses that do not offer group insurance reimburse their workers instead, unaware of the potential pitfalls of the regulation.”

Source: New Tax Penalty Starts Today on Small Business Health Insurance | Accounting Today News