Category: CPA Firm Salt Lake City

Identity Theft and the IRS

Identity Theft and the IRSThe most common ways that a taxpayer becomes aware that their tax account has been a victim of identity theft are:

1. The taxpayer attempts to file a return electronically but the IRS rejects the return indicating that someone else has filed a return using the same identification number of the filer or a dependent.
2. An IRS notice that indicates more than one return has been filed for a single account.
3. An IRS bill for additional tax, an unknown refund offset , or collection action.
4. The IRS asks for confirmation of information on a return that was not filed by the taxpayer.
5. A notice is received that reflects wages earned from an employer the taxpayer has never worked for.
6. Some kind of compliance action has been taken against the taxpayer for a period which the taxpayer never filed a return nor received a refund.

Businesses are not immune either to identity theft, look for unusual notices from the IRS or other state or local agencies concerning:

1. A closed business.
2. Individuals who were never employees.
3. Unexpected unpaid taxes.
4. Original returns accepted as an amended return.
5. A business that has been “administratively terminated” by the secretary of state for no activity or failure to pay registration fees suddenly comes back to life and notices are received from the SOS.

Things that a taxpayer can do if they are the victim of identity theft:

1. Submit Form 14039, Identity Theft Affidavit, to the IRS as quickly as possible.
2. Respond to any IRS notice or letter immediately.
3. Continue to file and pay taxes even if by paper.
4. Visit www.irs.gov/identitytheft to review all focused identity theft information the IRS provides.

The IRS actions will most likely be:

1. Confirm that the identity theft victim has filed Form 14039.
2. Do a coding of the taxpayer account file to indicate there has been a receipt of  identity theft documentation.
3. Reconcile the account to reflect any valid return information.
4. Place an identity theft indicator on the account, if the IRS deems that step to be necessary.
5. Place a hold on the account during the investigation. Information exchange is limited during this phase and the taxpayer will likely be frustrated with an inability to have a conversation with the IRS regarding their account. From the IRS’s perspective, while attempting to determine the real taxpayer, they will choose to err on the side of caution.
6. Taxpayer will be at the mercy of the IRS until they can satisfy themselves as to proper identity. The policy of the Identity Protection Specialized Unit is to stop the flow of information until all parties have been identified.

If a taxpayer suspects identity theft it may be best to contact their tax preparer, if they have one, to determine the best steps to take. It may be better to do some information gathering like getting a transcript of their account to identify if any discrepancies exist before submitting Form 14039.

REMEMBER the IRS does not call the taxpayer first! That is not how they operate. The first contact from the IRS is always a letter or notice. If you receive a call from someone out of the blue telling you they are the IRS it is bogus and a phishing call by someone trying to get your personal information.

IRS First-Time Abatement Penalty Waiver

Abatement Penalty Waiver

Abatement Penalty WaiverMany have forgotten or don’t know about the IRS first-time penalty waiver program (FTA). This program was introduced more than 15 years ago but still remains a little known method of getting assessed penalties abated for a first-time non-compliant taxpayer for a single tax period. Abatement Penalty Waiver.

Individual taxpayers may request an FTA for a failure file or failure to pay penalty. Business taxpayers can request an FTA on the previously described penalties or a payroll tax deposit penalty.

This penalty abatement request should be taken advantage of only if other penalty relief provisions have been examined and not deemed applicable or have been exhausted.

To qualify, the taxpayer must demonstrate timely filing and timely payment compliance and  have a clean three year penalty history. The taxpayer may have an open installment agreement with the IRS as long as the payments are current.

To satisfy the clean penalty history, the taxpayer must not have had any “significant” penalty amounts assessed in the prior three years for the same tax return for which the taxpayer is requesting abatement. If the IRS rejects the request for abatement because there is some minor penalty during the time frame, the taxpayer or his advisor should remind the IRS of the “significant” qualification in the IRM. Even if the taxpayer has a tax penalty in the prior three years but has a clean history other than that, he may be eligible for relief given his track record.

CPA Salt Lake City

Wholesome Food Contribution Rules (IRC Sec. 170(e)(3)

Wholesome Food Contribution Rules

For those of you involved mainly in the grocery or restaurant business there is an a great tax deduction for donating to charitable organizations wholesome food that you no longer will sell due to your own internal standards. The points are as follows:

1. A taxpayer engaged in a trade or business is eligible to claim an enhanced deduction for donations of food inventory.

2. The enhanced deduction equals the lessor of (a) what you paid for the food (basis) PLUS half of the ordinary income that would have been recognized if the property were sold at fair market value (FMV) at the contribution date, or (b) twice the property’s basis.

3. To qualify for the deduction a contribution of food inventory must be apparently wholesome food – i.e. meant for human consumption and meeting certain quality and labeling standards.

4. For a taxpayer other than a C Corporation, the aggregate amount of contributions of apparently wholesome food that may be taken into account for the tax year cannot exceed 15% of the taxpayer’s aggregate net income from trades or businesses from which the contributions were made.

As we approach year end this is something to keep in mind to get that extra tax deduction and you will also be helping out those less fortunate as well.

Quick Notes on Education Expenses

Education Expenses Salt Lake City

Quick Notes on Education Expenses Salt Lake City

As the new school year approaches here are some things to remember regarding certain deductible and non deductible education expenses:

  1. The cost of private or parochial school tuition is not deductible. However for those children under age 13, some of the costs could be attributable to childcare and may qualify the taxpayer for a tax credit.
  2. Charitable contributions for school fundraisers are limited by the fair market value of any goods or services you receive in exchange for your donation.
  3. Earnings in 529 Plans are not taxable and can be withdrawn tax free if the money is used for eligible college expenses.
  4. Tax deferred accounts like Educational Savings Accounts can be used to pay for qualified educational expenses including books and computers for elementary, high school and for college expenses.
  5. Student loan interest is deductible as an above the line deduction, meaning you do not have to itemize in order to claim the deduction. You can deduct up to $2,500 of interest. The deduction is gradually reduced if your modified gross income is with a certain range.
  6. The American Opportunity Tax Credit is a very robust credit wherein you can get up to a $2,500 credit against your taxes per eligible student each year for the first four years of their college education. $1,000 of this credit can be refundable even if you owe no tax. Eligible expenses include tuition, books and supplies. Adjusted gross income limits also apply to this credit.
  7. A lifetime learning credit is also available for qualified education expenses paid for students enrolled in eligible educational institutions. The credit is a non refundable credit of 20% of qualified education expenses up to a maximum of $10,000 ($2,000 credit). This credit can not be taken in conjunction with the American Opportunity Tax Credit. There is no limit on the number of years this credit can be taken. Adjusted gross income limits apply.

Just some things to keep in mind as you eye the rising costs of education for your children.

New Qualified Improvement Property Classification

Property Taxes Salt Lake City UT

Property Taxes Salt Lake City UTOn Dec. 18, 2015, Congress passed a tax extenders package, the Protecting Americans from Tax Hikes (PATH) Act of 2015 and in that Act gave a new definition to non residential real property improvements falling in the category named Qualified Improvement Property. The definition of this property is as follows:

Qualified improvement property is any improvement to an interior portion of a building that is nonresidential real property if the improvement is placed in service after the date the building was first placed in service, excluding:

  1. ) enlargements;
  2. ) elevators/escalators; and
  3. ) internal structural framework. The improvements do not need to be made pursuant to a lease.

Qualified improvement property is depreciated over 39 years unless it also qualifies as qualified leasehold, restaurant or retail property. If falls into one of these classifications the improvements can be depreciated over 15 years. The real kicker in this is that all of these improvements are eligible for bonus depreciation.

Bonus depreciation for property placed in service thru December 31, 2017 is 50% of the cost.

In 2018 it is 40% and 2019 it is 30%. This is quite the expansion of the deduction for these types of costs and could provide significant tax savings in the year the improvements are completed. For a more in-depth explanation of qualified improvement property and a refresher on the definition of leasehold, restaurant or retail improvements, Give Us a Call and we would be happy to discuss it with you.

Areas of Service: Property Taxes Salt Lake City UT, Property Tax UT

Tax Strategies for Selling Business

Tax and Financial News

Tax Strategies For Selling Business Salt Lake City – A Family Affair?

Selling Business Salt Lake CityWhen it comes to selling your business Salt Lake City, finding an optimal tax strategy depends on the purchaser. Transferring a business inside a family requires very different tactics and treatment compared to a sale to an independent third party. There is no one-size-fits-all strategy; the best tax treatment is always determined by the unique circumstances of the situation Selling Business Salt Lake City.

The best tax strategy for an interfamily transfer largely depends on whether the owner has sufficient outside resources or if they are counting on the sale to fund their retirement or next venture.

In cases where the owner has sufficient resources, one option is to directly gift shares or interests in the business to family members. Gifting can trigger gift tax consequence but not income tax consequences, and the recipient assumes your cost basis in the transferred asset. Let’s look at a few scenarios to see how this could work out.

In the first example, assume that at the time of the owner’s retirement, the value of the company is $10 million. If you gift the company to family members at that time (assuming gift-splitting from a married couple), the $10 million value is assessed against your lifetime gift/estate tax unified credit), the current total unified credit in this situation is slightly less than $11 million. As a result, gifting in this scenario would not result in any tax owed and leave you with just under $1 million of unified credits to apply to other assets.

In a second scenario, assume the owner holds on to the company until death and then transfers it via their estate to family members. Also assume that the company has grown since it was worth $10 million and that at the owner’s death is now worth $40 million. In this scenario, there is now a substantial estate tax issue. So we can see that generally, if the value of a business is expected to increase substantially over time, it pays to transfer to subsequent generations sooner rather than later.

Next, let’s look at options under the opposite situation – where the owner needs to take out proceeds from the sale or transfer of the company to live on.

The first option here is that the owner could retain actual ownership and only transition management to the following generation. This allows the owner to keep an income stream from the business. The problem here is that eventually the family will end up in the same situation as discussed above, where waiting and passing the entity through the owner’s estate will result in substantial estate tax liabilities. So the question remains then, if the owner is dependent on the company for income, what can be done to avoid estate taxes upon transfer?

The second option is that the owner sells the company to the next generation. In this case assume the children do not have the cash to buy the business outright, so the owner issues a note to enable the purchase at the time that the business was worth $10 million. Here, issuing the promissory note would essentially freeze the transfer value at $10 million. The purchasing children would then pay deductible interest on the promissory note to the parents out of income from the acquired company. At the time of the issuer’s death, the children’s own promissory note would pass to back to themselves. The issue here is that upon the sale of the company, the parent would realize a capital gain and incur an income tax liability. Overall, it is likely (but not certain, dependent on the exact situation) that the capital gains tax on an early sale is likely to be far less than the estate tax incurred on a transfer at death after significant appreciation.

As you can see, there are many variables and options at play in transferring a company to the next generation, so it is best to plan ahead with the help of qualified professionals.

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Areas of Services: Selling Business Salt Lake City, Selling Your Business, CPA Firm Sandy UT, CPA Sandy UT, Accountant Sandy UT, Taxes Sandy UT

New Trade Pact Could Impact Your Business

Tax and Financial News

New Trade Pact Could Impact Your Business

CPA Whitecity UT

More than five years of contentious negotiations have come to an end, and the Trans-Pacific Partnership is now complete. The TPP is the largest trade deal in more than two decades. It joins 12 countries, including the United States, in easing tariffs, creating agreed-upon minimal standards for both worker and environmental protections, and establishing intellectual property protections. Proponents believe the agreement will help increase American-made exports, thereby growing the U.S. economy, providing well-paying jobs, and strengthening the middle class.

The TPP is no small development. It involves more than 40 percent of the world’s competing economies, making it a big deal for business owners of all sizes. The TPP is not law yet in the United States because it must still be approved by Congress. During the summer of 2015, Congress granted President Obama fast-track authority to negotiate the deal. This means the President and his administration were given complete authority to craft the agreement, which must be given a straight up or down vote by Congress without the possibility of amendments or filibusters. Many groups are opposed to the TPP, including an unlikely alliance of labor unions, certain Democratic factions and Tea Party Republicans.

U.S. businesses are likely to experience significant changes if the TPP passes Congress and becomes law. The TPP removes tariffs on thousands of different goods manufactured in the United States. As a result, manufacturers who export their products directly to TPP member countries should experience increased economic activity. The U.S. Chamber of Commerce expects the TPP to spur a $125 billion increase in U.S. exports over the next decade. On the other hand, the TPP applies both ways, so U.S. manufacturers can expect increased competition as well. Tariffs will fall on TPP member goods coming into the United States on everything from electronics to textiles. Tariffs in the following areas represent the most significant changes.

  • Manufactured products: Tariffs are eliminated on every manufactured product that the U.S. exports to TPP countries. For example, U.S. manufactured machinery currently has import taxes as high as 59 percent added to it by importing TPP countries.
  • Agriculture products: Import taxes on American agricultural products to TPP countries are reduced. Import taxes currently as high as 40 percent on poultry products, 35 percent on soybeans and 40 percent on fruit will be lowered.
  • Automotive products: Tariffs that are currently as high as 70 percent on U.S. automotive products are eliminated.
  • Information and communication technology: The TPP eliminates import taxes as high as 35 percent on American-made IT exports to TPP countries.

Further, the TPP gives greater authority among Pacific Rim Nations to the United States instead of granting that role to China. China however has its own trade agreement in the making, known as the Regional Comprehensive Economic Partnership. The TPP primarily favors the United States because China is widely perceived to have lower labor and environmental standards. The trade deal could also give the United States more leverage in negotiations regarding China’s currency manipulation. Currently, China enables the value of TPP partners’ currencies to remain artificially low, thereby making it more difficult for U.S. companies to sell their goods in the Asia-Pacific region.

There are many other specifics in the TPP that can affect businesses; however, just these few tariff-related items are significant in their own right. Keep an eye out in 2016 to see if the TPP becomes law and these changes actually become a reality.

Areas of Services: CPA Whitecity UT, Accountant Whitecity UT, Business Valuation Whitecity UT, Wealth Management Whitecity UT

Estate Planning Sandy UT

Estate Planning Sandy UT

Same-Sex Marriage Can Be Taxing

Estate Planning Sandy UTIn the case Windsor vs. U.S., the Supreme Court struck down the main provision in the Defense of Marriage Act (DOMA) that defined marriage for federal purposes as between a man and women. Generally, the Windsor case was not viewed as a tax case; however, there are profound and far-reaching tax consequences of this ruling. Estate Planning Sandy UT. The Supreme Court’s decision now requires the federal government to treat same-sex couples the same as married heterosexual couples if they are legally married in one of the states that permits same-sex marriage. Many questions still remain unanswered, such as how to resolve conflicts between state laws and to what extent these changes will be applied retroactively. There are a number of clear and present issues that impact tax law right now.

There are three main tax effects that result from this ruling. First, there is the right to file a joint tax return. Filing a joint tax return might result in a lower total tax liability for the couple. Typically, this is advantageous when one spouse is a higher wage earner than the other; however, it can actually create higher taxes if both spouses earn similar amounts and are highly paid. Depending on an analysis of the situation, it could be advisable to file amended tax returns or protective refund claims. Favorable situations could be where the couple would have lower taxes as result of filing jointly or where one spouse had capital gains that would have been cancelled out by the capital losses of the other spouse. The general statute of limitations for refunds is the latter of three years from the date of filing or two years from payment.

While the Windsor case itself applied retroactively in granting an estate tax refund, it is currently uncertain how the IRS will apply the decision to individual tax returns; retroactively to all cases where the statute of limitations has not run, only prospectively or only where protective refund claims have been filed.

Second, employers need to make the necessary administrative tax changes and adapt for the new benefits that married same-sex couples now qualify for. Employees’ withholdings might need to be updated to reflect their new filing status. Health coverage provided to same-sex spouses could now be tax-free. Additionally, pension and other retirement plans might also require tax-related administrative changes.

Third, ESTATE PLANNING Sandy UT is subject to major changes as a result of this ruling. Married couples receive favorable treatment on many estate and gift tax provisions. Same-sex couples should update their plans to take advantage of these changes:

  • The ability for the estate of the first spouse to die to transfer any unused exclusion amount to the surviving spouse.
  • The opportunity to receive a marital deduction for amounts transferred to the surviving spouse.
  • The ability to make split gifts.
  • The opportunity for either spouse to use the marital deduction to transfer unlimited assets to the other spouse during their life gift-tax free.

While these three issues reflect the major changes of the DOMA ruling, many other more minor tax changes result as well such as the deductibility of alimony.

There are two major caveats to the Windsor ruling. First, there are currently no decisive regulations or laws for same-sex couples who were legally joined together under marriage-equivalents such as domestic partnerships or civil unions. In cases where these situations apply, it might be worth filing protective refund claims in hopes that this issue is resolved in favor of marriage-equivalent relationships. Second, it is unclear how the changes in the law will apply where a same-sex couple work and live in states where one recognizes their marriage and the other does not.

If you think these changes could a have significant impact on your tax situation, give us a call to discuss how we can help analyze your personal situation.

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Areas of Service:  Estate Planning Sandy UT, Wealth Management Sandy UT, Wills Sandy UT.

CCH 2012 Tax Briefings – West Jordan UT Accountant Special Report

West Jordan UT Accountant

Special Report

Obama Wins Second Term; Agreement On Taxes/Spending Possible By Year-End
President Obama secured a second term in office November 6, 2012, in the end winning the Electoral College by a wide margin. The President’s re-election now sets in motion what will likely be difficult negotiations between Democrats and Republicans over the fate of the Bush-era tax cuts, nearly $100 billion in automatic spending cuts, and the more than 50 expiring tax extenders, which include the alternative minimum tax (AMT) patch for tens of millions of taxpayers. The President’s re-election has also significantly changed the dynamics for reaching an eventual agreement over long-term tax reform.

IMPACT.
Year-end tax strategies will demand more urgent attention from higher-income taxpayers as the result of President Obama’s re-election. The President has consistently called for higher tax rates on individuals with incomes above $200,000 and families with incomes above $250,000 and continuation of the current lower tax rates for others. He campaigned on reinstatement of the 36 percent and 39.6 percent income tax rates for higher-income individuals. The President also advocated a maximum capital gains rate increase from 15 percent to 20 percent and a dividend rate rise from 15 percent to 36 percent or 39.6 percent for higher-income taxpayers. His re-election also ensures that the 3.8 percent Medicare contribution surtax on net investment income will go into effect on January 1, 2013, and continue into the foreseeable future.
Before the election, President Obama had predicted Democrats and the GOP could reach a “grand bargain” that permanently resolves the fate of the Bush-era tax cuts, lowers the corporate tax rate and takes a serious step toward deficit reduction with revenue raisers within four to six months. In the interim, both sides may have to settle for a temporary extension of some of the expiring provisions, including some income tax rates, and leave the long-term fate of the Bush-era tax cuts and more to the 113th Congress, which will meet in January 2013.

Comment
Less than 24 hours after the results were in, House Speaker John Boehner, R-Ohio, said Democrats and Republicans should focus on “common ground” to address the so-called “fiscal cliff.” Lawmakers are due back in Washington on November 13. They will break for Thanksgiving later in November and will return in early December. Although the scheduled work period is short, there have been reports of lawmakers engaging in behind-the-scenes discussions about taxes and deficit reduction in the weeks before the election. These discussions could help kick-start serious negotiations between the White House and the GOP.

Comment
Whether any eventual compromise hammered out between Congress and the Obama Administration would extend lower income tax and capital gains/dividends rates for one more year, into 2013, or allow the higher top rates in 2013 to start at temporarily higher income levels than initially proposed, remains speculative. In the meantime, higher-income taxpayers must decide whether to wait-and-see … or secure the benefit of current rates now, through accelerating income, postponing deductions/credits, harvesting appreciation/capital gains, having closely-held corporations declare special dividends, closing business sales/acquisitions, and executing family gift-giving strategies—all before year end 2012. While it is not absolutely certain that tax rates will rise in 2013, it is more than certain that rates will never drop lower than they are now in 2012 for most higher-income taxpayers.

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Areas of Service: Salt Lake City Accountant Special Report, West Jordan UT Accountant

CCH 2012 Tax Briefings – LOOMING DEADLINES from Salt Lake City Accountant

Salt Lake City Accountant

LOOMING DEADLINES

Effective January 1, 2013:

• ▪ The Bush-era tax cuts, extended by the Tax Relief, Unemployment Insurance
Reauthorization and Job Creation Act of 2010, expire;

• ▪ Across-the-board spending cuts take effect under the Budget Control Act of
2011;

• ▪ The employee-side payroll tax holiday ends;

• ▪ More tax extenders expire, joining the ranks of extenders that expired
after 2011.

Unlike 2010, when the Bush-era tax rates were extended for two years, any
extension of the Bush-era tax rates will most likely be accompanied by deficit
reduction measures. The extent of those deficit reduction measures is unclear
at this time. Among the likely potential revenue raisers are increased taxes on
higher-income individuals, accomplished through higher marginal rates and the
elimination or curtailment of certain tax preferences. Tax preferences that
might be targeted for repeal would most likely include those impacting business
taxpayers, such as certain oil and gas tax breaks and the last-in-first out
(LIFO) method of accounting.

One scenario calls for Congress approving an AMT patch and other popular
expiring extenders in the lame-duck session. The IRS maintains that it cannot
wait much longer to issue 2012 tax year forms without delaying the start of the
2013 filing season. Meanwhile, if the law isn’t changed, the Congressional
Budget Office estimates that over 20 million additional middle-income taxpayers
will become subject to the AMT without the so-called “AMT patch” for
2012. With 2012-focused tax legislation, however, there is also speculation
that Congress may buy itself some time by enacting a three-month extension of
Bush-era tax cuts (to be pro-rated over 2013). An extension of some sort may be
necessary because without it, wage withholding at the higher tax rates would
become mandatory for all taxpayers at all income levels.

Payroll tax holiday. Take home pay will also be immediately reduced if Congress
does not extend the employee-side payroll tax holiday, or enact some
replacement for it. The employee-share of OASDI is scheduled to return to 6.2
percent instead of 4.2 percent (up to the 2013 Social Security wage base of
$113,700). Proponents of an extension maintain that the economy cannot take the
hit on consumer spending that would result from a sunset of the payroll tax
holiday; opponents argue that it is temporary tax relief that the nation can no
longer afford.