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Tax Issues and Planning 2011
 

Tax Issues and Planning 2011

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    Tax Issues and Planning 2011 Tax Issues and Planning 2011 Presentation Transcript

    • A Global Reach with a Local Perspective 2011 Rocket City Gov Con Conference September 22, 2011 www.decosimo.comTax Issues and Planning 2011JOHN HENEGAR, CPA
    • Please Note  This information is for educational purposes only and should not be relied on or used for taking a position on any tax return. 2(c) 2011 Joseph Decosimo & Co., PLLC
    • Agenda for Today  Business Planning  S Corporation Trends  Current Business Tax Incentives  Corporate Loans  IRS Initiatives  Alabama Update 3(c) 2011 Joseph Decosimo & Co., PLLC
    • Agenda for Today  Individuals  ROTH IRA’s  Losses in IRA’s & 529 Plans  Federal Estate & Gift Tax changes  Excluded Capital Gain  Foreign Financial Asset Reporting 4(c) 2011 Joseph Decosimo & Co., PLLC
    • Agenda for Today  Known Legislative Changes  Being Discussed 5(c) 2011 Joseph Decosimo & Co., PLLC
    • S Corporations-Trends  IRS loves S Corps  National Research Program (audits)  2010-2012; 2,000 returns per year  Employee vs. independent contractor  Reasonable compensation  Mr. Watson (Watson v. US 107 AFTR 2d 2011-311)  Mr. Renkemeyer (Renkemeyer, Campbell & Weaver, LLP 136 TC No 7) 6(c) 2011 Joseph Decosimo & Co., PLLC
    • Current Business Tax Incentives  Starting in 2010 Health insurance 35% credit 24 or < employees, average wage <$50,000.  100% Bonus depreciation for new property scheduled to drop to 50% in 2012.  $500,000 maximum 179 deduction (first year expensing) for 2011, phase out starts at $2 million of expenditures. 2012 $125k/$500k  Up to $250k expensing of qualified real property in 2011.  Non residential interior costs at least three years after 7 building placed in service.(c) 2011 Joseph Decosimo & Co., PLLC
    • Current Business Tax Incentives  2011  Standard mileage rate 51 cents January-June  Increased to 55.5 cents July-December  Personal exemption $3,700  Standard Deduction  Single $ 5,800  Married $11,600 8(c) 2011 Joseph Decosimo & Co., PLLC
    • Loan or Dividend  Knutsen-Rowell, Inc. TC Memo 2011-65  Earmarks of a loan  Written note or other instrument  Interest charge  Scheduled repayments  Secured by collateral  Repayments actually paid  Can borrower repay, solvency of lender  How the parties treat the transaction 9(c) 2011 Joseph Decosimo & Co., PLLC
    • IRS Initiatives  IRS facing severe staffing crisis, no reduction to workload  Use of Electronic Accounting Software Records; Frequently Asked Questions  IRS Information Document Requests will now routinely request electronic backup files:  CD  DVD  Flash/jump drive 10(c) 2011 Joseph Decosimo & Co., PLLC
    • IRS Initiatives  Passwords and Security  Information beyond just verifying what is on the return  IRS will examine how transactions were originally posted  Multiple year data  Authority  IRC 7602(a); 6001  Regulation 1.6001-1(a) and 1(e) 11  Rev. Rul. 71-20; Rev. Proc. 98-25(c) 2011 Joseph Decosimo & Co., PLLC
    • IRS Initiatives  Note FAQ # 7  Consider your record retention policy 12(c) 2011 Joseph Decosimo & Co., PLLC
    • Alabama Update  Act 2011-551 (HB 230) Full Employment Act of 2011 years beginning on or after January 1, 2011  Incentive for job creation  AL income tax credit for small businesses that have 50 or fewer workers  That create new jobs paying at least $10 per hour  $1,000 credit available in tax year employee completes one year service  Must be a net increase year over year 13(c) 2011 Joseph Decosimo & Co., PLLC
    • Alabama Update  Act 2011-616 (HB 434)  Double weights sales factor for business income apportionment  Sources revenues based on “market” rather than “cost of performance” 14(c) 2011 Joseph Decosimo & Co., PLLC
    • Alabama Update  Act 2011-644 (SB 395)  Deduction allowed for retrofitting homes against catastrophic windstorm events  Hurricane, tornado, etc.  Deduction = the lesser of 50% of cost or $3,000 15(c) 2011 Joseph Decosimo & Co., PLLC
    • ROTH IRA’s  Favorable attributes  No age limit for contribution  Participation in employer plan and ROTH  Earned income-THINK CHILDREN  NO RMD  Tax free income to beneficiaries  Unfavorable  2011 phase out  Single individual $107k-122k 16  Married-joint $169k-$179k(c) 2011 Joseph Decosimo & Co., PLLC
    • ROTH IRA’s  2011 contribution limits  $5,000  $6,000 (age 50 and older) 17(c) 2011 Joseph Decosimo & Co., PLLC
    • Losses in IRA’s & 529 Plans  Proceeds – Basis = Loss  Miscellaneous itemized deduction  Must liquidate all accounts in individual’s name  10% penalty in play for traditional IRA  See IRS Notice 89-25; Publication 590  ROTH accounts have basis  Beware the 10% penalty if ROTH has conversion proceeds Limited ability to rebuild the accounts 18(c) 2011 Joseph Decosimo & Co., PLLC
    • Federal Estate and Gift Tax  Late legislation increased the federal estate and lifetime gift exemption to $5 million  Effective through 2012  2013 exemption scheduled to return to $1 million  Depressed values today  Valuation discounts have unknown future  Perfect storm for family transfers/sales 19(c) 2011 Joseph Decosimo & Co., PLLC
    • 100% Gain Exclusion  Section 1202, Qualified Small Business Stock (QSBS)  QSBS, not personal services, financial services or hospitality services  Not more than $50 million in assets  Five year holding period  Acquired after September 27, 2010 and before January 1, 2012  Gain excluded from income, not an AMT preference 20(c) 2011 Joseph Decosimo & Co., PLLC
    • 100% Gain Exclusion  Must be a C corporation  Noncorporate owner  Annual gain exclusion is the greater of  $10 million (less previously excluded gain), or  10 times the basis of the shares sold 21(c) 2011 Joseph Decosimo & Co., PLLC
    • Not Excluded but Deferred  Failed 5 year holding period  Section 1045 deferral  Sold at a gain  Held more than 6 months  Reinvested in another QSBS within 60 days 22(c) 2011 Joseph Decosimo & Co., PLLC
    • Foreign Financial Assets for HIRE  HIRE Act expanded reporting requirements  Years beginning after March 18, 2010  IRC 6038D requires reporting for any individual who holds > $50,000 (in aggregate) ANY:  foreign financial account in a foreign institution,  foreign stock,  interest in a foreign entity, or  financial instrument with a foreign counterpart not held in an institution 23(c) 2011 Joseph Decosimo & Co., PLLC
    • Foreign Financial Assets  Reported as part of the individual tax return  Does not replace FBAR  New form 8938  Penalty for failure to report $10K up to $50K  Reasonable cause available  2013 Foreign Account Tax Compliance Act (FATCA) 24(c) 2011 Joseph Decosimo & Co., PLLC
    • Foreign Financial Assets  Statute of Limitations  Six year statute for omissions of > $5K income from one or more reportable foreign assets regardless of value  Statute of the entire return is suspended for failure to disclose/file certain information related to foreign operations or transactions 25(c) 2011 Joseph Decosimo & Co., PLLC
    • Foreign Financial Assets  Notice 2011-55  Draft form 8938 26(c) 2011 Joseph Decosimo & Co., PLLC
    • Disclosure  Form 926-transfer of property to foreign corp.  Form 3520-transactions with foreign trusts  Form 5471-information with respect to foreign corps.  Form 5472-foreign owed US company/foreign corp. engaged in US trade or business  Form 8621-shareholder of PFIC or QEF  Form 8858-foreign DRE  Form 8865-foreign partnerships 27(c) 2011 Joseph Decosimo & Co., PLLC
    • Known Changes  Without further legislative action these tax changes will occur:  Sales tax deduction gone after 2011  Bush tax reductions sunset 12-31-2012  Max individual rate 39.6%  Dividends taxed as ordinary income  Capital gains 20%/18% acquired after 2000 and held for 5 years  Most enhanced deductions and credits for individuals 28(c) 2011 Joseph Decosimo & Co., PLLC
    • Known Changes-2013  0.9% Medicare surtax on higher wage earners, $200k single/$250k married-joint  3.8% Medicare surtax on “Net Investment Income  $200k single/$250k joint threshold  Tax applied to the lesser of:  1. Net investment income  2. Modified Adjusted Gross Income>Threshold  Net Investment Income  Interest, dividends, rents, capital gains, royalties, annuities  Also, Income from Passive Activities 29  Applies to trusts also(c) 2011 Joseph Decosimo & Co., PLLC
    • Known Changes-2013  $2,500 cap on FSA Contributions  Medical deduction threshold up to 10% 30(c) 2011 Joseph Decosimo & Co., PLLC
    • Being Discussed  President’s proposed American Jobs Act:  50% reduction in payroll tax on employers’ first $5 million of payroll  NO Payroll tax for firms that add workers or increase payroll (capped at $50 million)  100% Bonus depreciation extended through 2012  Up to $9,600 of tax credits for hiring veterans  $4,000 tax credit for hiring long term unemployed  50% reduction in employee share of payroll tax 31(c) 2011 Joseph Decosimo & Co., PLLC
    • Being Discussed  Joint Select Committee (super committee)  5.4% tax surcharge income > $1 million  Repeal Bush cuts in 2012  Deny passports if an individual owes unpaid federal taxes of $100,000 or more  Repeal MACRS replace with ADS  Company owed aircraft depreciated over 7 years rather than the current 5 years  Professional “S” corporation income subject to SE tax 32(c) 2011 Joseph Decosimo & Co., PLLC
    • Being Discussed  Eliminate Section 199 (DPAD)  No more LIFO  Capping mortgage interest deduction  Eliminate interest deduction for second homes and home equity loans  Capital gains becomes a tax preference item  No more LKE  Repeal cafeteria plans  Gifts of property limited to basis  Restricting charitable contributions  Tax SS as pensions 33(c) 2011 Joseph Decosimo & Co., PLLC
    • Annual Tax Seminar Save the Date! Decosimo’s Tax Seminar Nov. 15th Receive up to 8 hours of CPE Find more information online at: http://decosimo.com/2011taxseminar  Or See a Decosimo Representative
    • Connect with me John E. Henegar, CPA Principal 423.756.7100 johnhenegar@decosimo.com On LinkedIn: http://www.linkedin.com/pub/john- henegar/26/86a/291 Disclaimer: The contents of this presentation are for informational purposes only. The information is not intended to be a substitute for professional accounting counsel. Always seek the advice of your accountant or other financial planner with any questions you may have regarding your financial goals or specific situations.