Warren Averett O’Sullivan Creel publishes a monthly newsletter that highlights current tax and accounting news, which includes topics ranging from tax legislation updates to tax savings tips. Continue reading for a glimpse into this month's highlighted article topics.
Did you know…
- Since the Supreme Court upheld the constitutionality of the Patient Protection and Affordable Care Act of 2010, there will be an additional 0.9% Medicare Tax on salaries and self-employment income earned by higher income tax payers beginning in 2013.
- There are a variety of provisions in the Patient Protection and Affordable Care Act that are applicable to almost all Americans, so we have highlighted the 10 basic ways the law may affect you.
- Before implementing a work-from-home program, employers should evaluate suitable candidate positions and develop criteria that employees must meet in order to be considered for the program.
- Employer to employee gifts are generally taxable to the recipient as supplemental wages through income tax and employment taxes. The value of the gifts must be reported on the employee’s Form W-2.
- If your company offers stock options or other valuable benefits as employee incentives, make sure your employees have the knowledge and understanding of the risks and rewards that are involved.
- If you are a younger retiree working part-time, you should be aware that for every $2 earned over $14,640 in 2012, you lose $1 in Social Security benefits.
- Utilizing a deferred compensation plan can better prepare you for early retirement because money received from this plan doesn’t count against Social Security retirement benefits.
To learn more about the topics discussed above, check out our current newsletter by clicking
here. If you would like to receive our monthly newsletter, please fill out your
contact information.
Warren Averett O’Sullivan Creel publishes a monthly newsletter that highlights current tax and accounting news, which includes topics ranging from tax legislation updates to tax saving tips. Continue reading for a glimpse into this month’s highlighted article topics.
Did you know…
- If you own a home on the water or you sold property on the water between May and December 2010, you may be eligible for a BP claim.
- By the July 1 deadline, vendors that service retirement plans, including 401(k) plans, must provide a clear explanation to plan sponsors of the fees they charge for their services.
- The IRS is cracking down on businesses and individual taxpayers who don’t report the accounts they hold in foreign financial institutions. Make sure you file your form by the June 30, 2012 deadline.
- According to the IRS’s Incident Tracking Statistics Report, approximately 614,052 taxpayers were affected by identity theft in 2011. This is triple the amount sited in 2010.
- With Baby Boomer retirement years approaching, business owners interested in selling should plan ahead for the Baby Boomer Effect. With an abundance of businesses hitting the market, supply could exceed demand and values could be driven down.
- Performing annual appraisals of all employees at the same time every year can result in better appraisals, a more satisfied workforce and better cash management for your organization.
- The best strategy for obtaining a business loan is to compile a comprehensive proposal. This will shorten the process and bolster the chances of approval.
To learn more about the topics discussed above, check out our current newsletter by clicking
here. If you would like to receive our monthly newsletter via e-mail, please fill out your
contact information.
The Changing Landscape of Tax Cuts in 2012
If you have an existing C Corporation that has retained a lot of prior year net earnings and has available cash on hand, you should be thinking seriously about trying to get as much cash as you can out of the corporation in 2012.
Here is the background:
Through the end of this year, we still have the very favorable income tax rates and laws in place, referred to as the “Bush tax cuts.” Those tax cuts, without action of both Houses of Congress before year-end, are set to expire on December 31, 2012. Currently, any dividends paid out of qualifying domestic corporations in 2012 enjoy the benefit of a 15% income tax bracket regardless of what your overall marginal tax bracket may be. Any dividends taken after 2012, again without action by Congress to extend the existing rates or implement new comparable tax rates for dividends, will be taxed at “marginal tax rates” which may be as high as 39.6%. This represents a difference of as much as 24.6% in taxes on dividends.
To further compound this, consider that the current provisions of the 2010 Healthcare legislation, unless overturned by the Supreme Court, will hit high-income taxpayers with an additional 3.8% Medicare tax on net investment income, defined to include dividends. That would bring the overall effective tax rate on dividends, for the upper income taxpayers, to 43.4%.
Add to this that, with the Bush era tax cuts expiring, other items such as personal exemption and itemized deduction phase outs, currently suspended, are coming back into the law. That will further compound the impact of waiting to take distributions in future years.
Of course the determination of what constitutes a taxable “dividend” requires the calculation of what is referred to a current and accumulated “earnings and profits” at the time of the distribution. The distributions in excess of earnings and profits, however, may escape taxation as a return invested capital, or the tax basis in the stock. Anything distributed in a year, in excess of the stock basis, would be considered a long or short term capital gain, depending upon how long each share has been held. However, here again is a benefit to taking the distributions in 2012.
Like the dividends, long-term capital gains, in 2012, are generally taxed at a maximum tax rate of 15%. Beginning in 2013, without Congress taking action to extend the current rates, all such capital gains will be taxed at least at a rate of 20%. Again, because capital gains are also defined in the 2010 Healthcare law as “investment income,” they are also subject to the 3.8% Medicare tax in addition to the capital gains tax.
Obviously, planning will be the key here like so many other things in life. If you suspect you may have an interest in a regular C corporation that could be sitting on a lot of old, accumulated earnings and has cash or other liquid resources available, perhaps now is the time to get with us so we can assist in planning to take advantage of this expiring opportunity.
Contact your tax advisor or me at Steve.Jay@warrenaverett.com and I will make sure you are directed to the tax professional who can best serve your needs.
Business Ethics, Company Values, Internal Controls and More...
After hearing countless news reports highlighting unethical behavior in the business world, you may wonder if ethics are still considered a priority in business today. The answer is yes. In order to maintain a quality company, you should focus on embracing business ethics and the tips below can help you achieve ethical success.
- Defining Business Ethics: Merriam-Webster defines ethics as “the principles of conduct governing an individual or group.” In order to achieve an ethical workplace, management must value honesty and integrity, and hire employees whose values match the company’s.
- Setting the Tone at the Top: Top management must act with integrity at all times in order to maintain an ethical workplace. If top managers emphasize the need to act with integrity, but don’t follow through with their actions, employees will notice.
- Examining Candidates’ Values: The people you hire can positively or negatively affect your workplace ethics, so you should hire employees who place a premium on an ethical work environment. Someone who strives to move up in a company at any cost could be viewed as an ambitious go-getter, however, if a worker starts cutting corners or fudging results, he or she could begin to undermine your ethical environment.
- Implementing Formal Policies: Workplace ethics should regularly be discussed among business partners and employees, and a written policy that outlines ethical practices should be set in place to avoid ethical misunderstandings.
- Harnessing Strong Internal Controls: Internal controls are processes designed to provide a reasonable assurance that your financial statements are credible and accurate, that your company complies with applicable laws, and that its operations are efficient. Internal controls help safeguard the company’s assets and ensure that decisions made by management, lenders and investors are based on accurate information.
- Sustaining an Ethical Workplace: A tone at the top that stresses integrity, a written ethics policy, a commitment to hiring employees who take ethics seriously and a system of strong internal controls will help you develop and sustain an ethical workplace environment. Work with a business consultant and a CPA to ensure that your ethics policies and internal controls are operating as intended.
If you would like to learn more about our Firm and how we can help, please
contact one of our offices.
Warren Averett O’Sullivan Creel publishes a monthly newsletter that highlights current tax and accounting news, which includes topics ranging from tax legislation updates to tax savings tips. Continue reading for a glimpse into this month's highlighted article topics.
Did you know…
- There are many “red flags” that might cause a tax return to be audited. For example, the IRS is on the lookout for taxpayers claiming large travel and entertainment deductions or home office deductions.
- Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation.
- The Department of Labor has implemented new regulations that will enable pension plan fiduciaries to determine both the reasonableness of compensation paid to the service providers and any conflicts of interest that may impact a service provider’s performance under a service contract or arrangement.
- The government-sponsored initiative titled Home Affordable Refinance Program (HARP) has been extended through December 31, 2013. This program is designed to bail out homeowners with Fannie Mae or Freddie Max-owned loans who want to refinance their loans but the balance is higher than the market value of the property.
- If the Bush tax cuts are not extended this year, then we will only have a $1 million unifier estate and gift tax exemption (versus $5.12 million under the current rules) and a maximum estate and gift tax rate of 55 percent (versus 35 percent under the current rules). In addition, the valuable portable exemption privilege would become history.
- If your customers don’t pay their bills, you may be able to deduct a bad business debt in the year it becomes worthless – if you’ve tried everything to collect.
- Any charitable contribution amount that is posted in your credit card bill in December is deductible on your current year return – even if you don’t actually pay off the charge until later.
To learn more about the topics discussed above, check out our current newsletter by clicking
here. If you would like to receive our monthly newsletter, please fill out your
contact information.
Uncertainty Grows Over Fate of Bush-Era Tax Cuts
As this year’s tax season comes to a close, we are already looking ahead to the fate of the Bush-era tax cuts set to expire after 2012. Every day, the likelihood of this decision not being made until after the November elections increases. In addition, the uncertainty grows for the many taxpayers who face tax planning for 2013 and beyond. I ran across a great CCH Tax Briefing that discusses several tax topics that will be impacted by the end-of-year sunsets of the 2001 and 2003 tax cuts and benefits.
The 11-page Briefing, available via this post, focuses on a variety of tax topics which include:
- Income tax rates for individuals
- Capital gains tax rates
- Alternative Minimum Tax (AMT) -Relief expired at the end of 2011
- Child and dependent care tax credits
- Education-related tax incentives
- Estate and gift taxes; and more.
The two year Bush-era tax cut extension is drawing to a close and decisions must be made whether to extend the tax cuts any further, but a longer-term extension comes with a high price tag. According to the Congressional Budget Office, the extension of the “Bush-era” tax cuts would coast approximately $2.84 trillion over the next 10 years.
Click here to read more about the tax topics that will be impacted by the end-of-year sunsets. If you have any questions or wish to discuss a particular topic in more detail, contact me at Lori.Kelley@warrenaverett.com or call 850.837.0398.
Timeliness and preparedness can make a difference
On
e word that can make taxpayers cringe is “audit.” Fortunately, chances are slim that you’ll experience an audit: In 2010, the IRS audited just over 1% of returns. However, certain triggers can boost the likelihood that your return is among those targeted.
Red flags
There are several red flags that can trigger an audit. Your return may be selected because the IRS received information from a third party — say, the W-2 submitted by your employer — that differs from the information reported on your return.
In addition, the IRS scores all returns through its Discriminant Inventory Function System (DIF). A higher DIF score may increase your audit chances. While the formula for determining a DIF score is a well-guarded IRS secret, it’s generally understood that certain things are more likely to increase the likelihood of an audit, such as a traditionally cash-oriented business, tax shelters or a home office deduction.
Bear in mind, though, that no single item listed will cause an audit. Indeed, a relatively low percentage of returns are examined. One of the biggest factors in determining the likelihood of an audit, in fact, is your income. For instance, according to IRS statistics, if your adjusted gross income topped $1 million, your return had an 8.4% chance of being audited in 2010.
Finally, some returns are chosen as part of the IRS’s National Research Program. Through this program, the IRS studies returns to improve and update its audit selection techniques.
The audit process
Should your return be chosen for an audit, it helps to know what to expect and implement a few steps that can smooth the process.
Nearly three-quarters of audits are correspondence audits and are completed via mail. The IRS may ask for documentation on, for instance, your income or your purchase or sale of a piece of real estate. (Be aware that the IRS won’t contact you via e-mail for an initial appointment. Contact related to being selected for an audit will be made via telephone or mail only, according to the IRS.)
In-person audits may take place at an IRS office, your home or place of business, or at the offices of your CPA, attorney or tax preparer. If the proposed time and date are inconvenient, you can ask to reschedule. But the IRS has final say over when, where and how the exam will take place.
If you receive an audit notice, read it carefully. Most will indicate the items to be examined, as well as a deadline for responding. A timely response conveys that you’re organized, and thus less likely to overlook important details. It also indicates that you didn’t need to spend time pulling together a story.
Before responding to the notice, however, confer with your CPA or tax professional. He or she can calm any jitters and help you prepare your response. If the exam will take place in person, he or she can accompany you — or even appear in your place if you provide authorization.
If you’re going to meet in person, ask what documents the auditor is expecting, and what questions will be discussed. Of course, you’ll want to prepare this information and bring copies (not originals) of all that’s requested. You generally don’t want to bring more to an audit than what’s been requested, as it may prompt more questions. If an auditor asks about something that you didn’t prepare for, simply say that you’ll follow up.
Similarly, answer any questions honestly, but don’t volunteer extraneous information that might lead to more inquiries.
Finally, mind your manners by being polite. While you don’t need to become friends with the auditor, a cordial relationship can help the process go more smoothly.
Ease the process
Being organized, timely and professional can reduce the stress of an audit. In addition, bringing in your CPA can mean spending less in the long run, as he or she can help you navigate the process.
Questions to Ask About Retirement Plans, Reviewing Goals and Significant Tax Impacts
So, when was the last time you “paid yourself first”? Reviewed your goals and made changes to get where you want to go?
Did you know that there are new formulas in retirement plans that allow owners or key employees to receive larger contributions than other employees?
Did you know that you can fund IRA’s even though you may already participate in a 401k plan at work?
Did you know that you can convert your home that won’t sell into rental/business property which allows you to deduct more expense and take a loss on the sale?
Did you know that there are events in life that may have a significant tax impact? Whether it’s a marriage or a divorce, a new career or bankruptcy, check out this IRS link that explains the tax impact of significant life events.
I want to help you reach your goals. I’ve found that when my clients and I can meet to discuss their particular situation, we find answers and the best communications occurs. So, feel free to contact me at Ilona.Borish@warrenaverett.com or 850.435.7400 if you have any questions or wish to discuss a particular topic is more detail. Hope to hear from you soon!
How Estate Planning Can Protect You and Your Family
Many people believe “estate planning” is only for the wealthy. Nothing could be further from the truth. Neglecting to prepare a will or other estate planning documents can cause serious problems for loved ones. This article lists six estate planning documents and how they can help ensure that the author’s wishes are carried out in regard to such matters as asset distribution and end-of-life issues.
A 2011 survey by EZLaw indicates that only 44% of Americans have prepared a will or other estate planning documents. What the other 56% may not realize is that neglecting to prepare these documents can cause serious problems for their loved ones.
To avoid an undesirable outcome, prepare these documents:
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Will. This legal document arranges for the distribution of your property after you die and allows you to designate a guardian for minor children or other dependents. The will should name the personal representative who’ll be responsible for overseeing your estate as it goes through probate. (Probate is the court-supervised process of paying any debts and taxes and distributing your property after you die.) To be valid, a will must meet the legal requirements in your state.
If you die without a will (that is, “intestate”), the state will appoint an administrator to determine, based on the laws in your state, how to distribute your property. The administrator also will decide who will assume guardianship of any minor children or other dependents, if applicable. Bottom line? Your assets may be distributed — and your dependents provided for — in ways that differ from what you would have wanted.
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Living trust. Probate can be time-consuming, expensive and public. So you may prefer to avoid it. A living trust can help. It’s a legal entity to which you, as the grantor, transfer title to your property. During your life, you can act as the trustee, maintaining control over the property in the trust. On your death, a person (such as a family member or trusted advisor) or institution (such as a bank or trust company) you’ve named as the successor trustee distributes the trust assets to the beneficiaries you’ve named. Assets held in a living trust avoid probate.
Having a living trust doesn’t eliminate the need for a will, however. For example, you can’t name a guardian for minor children or other dependents in a trust. And a “pour over” will is a good idea. It directs that assets you own outside the living trust be transferred to the trust on your death. Another benefit of a living trust is that the successor trustee can also take over management of the trust assets should you become incapacitated.
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Letter of instruction. This can complement, but not replace, your will and living trust. It should provide vital information that your loved ones will need soon after your death. For example, you can include your desires for your memorial service, as well as the contact information for your employer, accountant, and any other important advisors. The letter isn’t a legal document.
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Durable power of attorney for property. This allows you to appoint someone to act on your behalf on financial matters should you become incapacitated.
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Durable power of attorney for health care. Also called a “health care proxy,” this covers medical decisions and takes effect if you become incapacitated. The person to whom you’ve transferred this power — your health care agent — can make medical decisions on your behalf.
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Living will or medical directive. This document outlines the conditions under which you’d want life support equipment removed or other specified life-prolonging medical treatments not to be given. It generally goes into effect only if you’re incapacitated and you’ve been certified by two physicians to be permanently unconscious or terminally ill.
Also remember to review the beneficiary designation forms on any insurance policies, as well as your 401(k) plans and IRAs, to be certain that the money will go where you want it to go.
Estate planning issues are complicated. To help ensure your estate planning documents will achieve your goals, consult your tax and financial advisors as well as a lawyer. The former can help you assess the tax and financial implications of your decisions. And, while you’re not required to use a lawyer to draw up your estate planning documents, a legal professional can make sure all documents are properly drafted.
Would you like additional information about estate planning? Contact me at Jody.Henderson@warrenaverett.com or 850.244.5121 if you have any questions or wish to discuss a particular topic in more detail.
Warren Averett O’Sullivan Creel is proud to announce the 3rd Annual 45 Eglin Professional Centre 5K Run in Fort Walton Beach, Fla. The family-friendly 5K run, sponsored by Warren Averett O’Sullivan Creel, Waldorff Insurance & Bonding, and Merrill Lynch Wealth Management, is open to local area businesses, individuals and their families. All proceeds will benefit Horizons of Okaloosa County.
Date: Friday, April 27th @ 4 p.m.
Check-In: 3:00 p.m. at registration desk
Location: 45 Eglin Professional Centre, located at 45 Eglin Pkwy, N.E.
Registration fee: $25 adults / $15 kids
To register, visit the Warren Averett O'Sullivan Creel website for an entry form, call (850) 244-5121, or e-mail Stacie.Derosa@warrenaverett.com.