Posted by Sheridan Smith on Wed, Apr 11, 2012 @ 09:55 AM
Side effects of cost segregation
Tax advisers need to tally the pros and cons.
By Larry Maples, CPA, DBA and Robert D. Hayes, CPA, Ph.D.
Increased current cash flows and net-present-value savings from accelerated tax depreciation resulting from cost-segregation studies have been discussed in the JofA and other professional literature. But the initial cost-segregation decision can determine later tax side effects, both positive and negative. This article explores some of the tax benefits and drawbacks linked to the use of cost segregation that can materialize in subsequent periods.
Before 1981, taxpayers could break real estate into components, which allowed part of the cost to qualify for the investment credit. The identified personal property also qualified for a much shorter life for depreciation. The Economic Recovery Tax Act of 1981, P.L. 97-34, repealed component depreciation, but the accompanying 15-year life for buildings only temporarily removed some of the sting, because the modified accelerated cost recovery system provisions of the Tax Reform Act of 1986, P.L. 99-514, increased the cost-recovery period to 27.5 years for residential and 39 years for nonresidential buildings.
Taxpayers, however, found refuge in the definition of personal property left over from the repealed investment credit. In the watershed case of Hospital Corp. of America (109 T.C. 21 (1997)), the Tax Court relied on the Sec. 38 definition of personal property, which allowed the taxpayer to use a cost technique that resulted in the classification of many parts of its hospitals as personal property. The IRS eventually agreed that cost segregation does not constitute component depreciation. Current IRS revenue procedures and audit manuals outline what is required to produce a cost-segregation report that passes IRS scrutiny. Click here for the full article.
Posted by Sheridan Smith on Thu, Apr 05, 2012 @ 11:09 AM
NEW YORK (CNNMoney) -- The dreaded process of getting an audit could soon take place over a computer screen in the comfort of your living room.
In what could be an indication of things to come, the IRS launched a pilot program at the end of last year that allows taxpayers to use two-way video conferencing for assistance with tax questions and problems.
The Taxpayer Advocate Service, an independent watchdog arm of the IRS, is already calling for the agency to expand to virtual audits. The IRS says it needs to evaluate the success of the pilot program before making a decision.
The pilot program is currently being tested in 12 locations, where taxpayers needing assistance can log into a computer enabled with video-conferencing. They can then talk to an IRS agent who pops up on the screen to discuss whatever issues they're having -- whether it's help preparing a tax form or a question about a refund.
TAS is also piloting a virtual assistance program. And Nina Olson, the head of TAS, wrote in a blog post this week that this technology has the potential to "radically transform" the current audit process -- eventually allowing taxpayers to use their personal computers to video conference with an IRS examiner.
To schedule an audit, the IRS would send a taxpayer a sign-in code so they could then log in to the meeting from a home or office computer. Documents could be transmitted by simply scanning them with a computer's built-in camera.
This could one day replace the need for correspondence audits, which are the letters the IRS currently sends taxpayers in the mail asking questions or requesting more information.
To save costs, the IRS has become increasingly reliant on correspondence audits instead of summoning taxpayers for in-person meetings. But TAS says that these audits receive fewer responses and that many of the taxpayers dealt with these audits don't understand how they work, default on payments and get hit with penalties.
Plus, with correspondence audits a specific representative typically isn't assigned to a case, leaving many taxpayers without a point person to ask questions or to contact with concerns.
Virtual audits could eliminate the confusing paperwork and recreate a face-to-face meeting via computer.
Doing this would also help taxpayers better understand why they are being audited and what additional information is needed, said Olson. It would also help the IRS obtain the accurate information it needs and help the agency view taxpayers as more than just tax returns, she said.
The IRS's virtual assistance pilot program is scheduled to continue through the 2012 filing season and end in May. Office locations include Colorado Springs, Colo., Fresno, Calif. and Utica, N.Y.
Once the program is completed, the IRS will evaluate its performance. So far, it said the pilot has allowed it "to maximize our current resources, by expanding hours of service in remote locations and balancing the workload in high-traffic areas." But it wouldn't say whether it is considering using this same technology for audits.
"The initial focus of virtual delivery is on taxpayer service. We're still in the middle of the pilot and still assessing the results," the IRS said in a statement. "It's premature to speculate about future steps." 
Posted by Sheridan Smith on Mon, Apr 02, 2012 @ 11:50 AM
Tax Day 2012 is looming — and after we file our returns, many of us will try to figure out what to do with the seemingly innocuous but possibly crucial documents we use to prepare our returns. Filing electronically can make those records easier to manage. But what should we really keep, and for how long?
Most experts recommend holding on to financial records for three years after they're used in a tax return — that's the amount of time the IRS has to audit taxpayers.
Personal finance writer Kimberly Lankford, who recently wrote about keeping tax documents in an article for Kiplinger's, says you should keep one type of record as long as you possibly can: your tax return itself — a Form 1040, and the supporting forms that go with it.
Those documents can be a big help in coming years, she says — for instance, when you sell an investment, or need to apply for a mortgage or disability insurance.
But that doesn't mean you have to buy a new filing cabinet to store all those papers, as she tells NPR's David Greene, in an interview for Monday's Morning Edition.
"These days, you can just digitize — scan it, take a picture of it with your cellphone," Lankford says, "put it on the computer, and then you don't have to worry about it."
The main reason to keep those documents is for your own benefit, Lankford says. They don't all have to be official copies — just something to help you find the information again later. For reference, the IRS has a page of frequently asked questions from people who keep their books digitally. And if a cellphone photo sounds too informal, there are other options out there.
"There are some very official ways that you can keep them on PDFs," Lankford says. "There's some apps that you can get. And if you do TurboTax or TaxCut, you can keep it on a PDF that way. And that's a really good idea — at least for those first three years."
Lankford didn't name any apps — but some of the most popular ones are from Mint, Pageonce and Adaptu. More comprehensive — and expensive — options include PC programs such as those from Quicken (which, like TurboTax, is an Intuit product) and You Need a Budget. Those services also offer mobile versions of their software.
The main thing, Lankford says, is to be sure that the computer you're using is secure — so the personal information you're saving will be, as well.
"This time of year, there's also a lot of ID thieves out there," she says, "who are preying upon people who either are using insecure computers to include all of their tax information — because think about it: It has your Social Security number; it has every single piece of personal information that can help them steal your identity."
In addition to tax returns, Lankford recommends that you hang on to two other types of records:
- Stock purchase receipts — with the date and price paid.
- Home improvement records — to offset taxes you might owe when you sell your home.
If you're storing your financial records electronically, you should back up your data, so you don't lose your information if a computer's hard drive fails, for instance. Cloud storage is one option, but not everyone is comfortable beaming their financial life into a distant server. So, you might want to save copies on a DVD or CD, or even on an external hard drive.
Whatever method you use, you can also use tax time as a "purge date" for some documents that are more than three years old, Lankford says. Among them are canceled checks, receipts and bills.
Other items, such as monthly statements from your bank or stock brokerage, ATM receipts, bank-deposit slips and pay stubs, can be disposed of monthly, unless they contain tax-related details.
"But also, be very careful about the hard copies of things," Lankford says. "Shred them before you throw them away. Because otherwise, you're going to have one big bucket of trash that has all your information in there. So just be really careful about all that stuff."
Lankford admits something that will make a lot of people feel better: She hasn't done her own taxes yet.
If you're a procrastinator, you have a bit of extra time before tax returns are due this year — because April 15 falls on a Sunday, and the Washington, D.C., holiday of Emancipation Day is on Monday, April 16. So, the big deadline is Tuesday, April 17.
Posted by Sheridan Smith on Fri, Mar 16, 2012 @ 12:04 PM
Accountants Identify Small Biz Financial Mistakes
The two most common business mistakes that accountants find their small business clients making is not having ongoing insight into their financials and only talking to their accountant during tax time, according to a new survey.
The survey, by online accounting software developer Xero, polled 500 U.S. accountants about their small business clients.
“That was the resounding finding of the survey, that businesses do not have ongoing insight into their finances,” said Xero president of U.S. operations Jamie Sutherland. “You couple that with the second most common mistake, which is only talking to their accountant at tax time. Really it’s a matter of staying on top of your business throughout the year and maintaining that dialogue. You start doing tax minimization strategies and different ways of saving money for your business. You can make purchasing decisions for your business earlier on, and take advantage of some of the deductions that are available. One of the statistics we found was that 71 percent of accountants said that having a real-time view into their clients’ finances would allow them to provide better advice.”
Forty-seven percent of the accountants surveyed said they believe small businesses should communicate with their accountant once a month in order to keep their business in good financial standing, while 22 percent believe communication should take place once a week. For 19 percent of the respondents, it was on a quarterly basis.
“Almost a quarter of accountants said they would recommend that a small business talk to their accountant once a week,” said Sutherland. “For many small businesses, it’s an end of the year thing. Before the age of the Internet, it wasn’t as doable. You didn’t have software that allowed for that communication and collaborative nature, and now we’re seeing applications—not just Xero— taking advantage of the Internet. You have this ability to make notes and comments, and communicate right inside the data you’re both looking at in real time.”
Approximately 45 percent of the survey respondents said that mixing business and personal expenses in their deductions is the most common business mistake, while 26 percent cited excessive deductions to income.
“Mixing personal and business expenses is a common mistake,” said Sutherland. “You want to make sure you delineate between those two things to make clear what’s going on with your business and what’s going on with your personal life. If you claim multiple years of deductions that are more than your income, those types of things are what the IRS looks at. Having said that, you definitely want to deduct whatever is associated with your business. But not paying taxes on time is a red flag.”
Twenty-nine percent of the survey respondents sad the home office is the most commonly overlooked deduction for small business owners, while 24 percent said it was hiring new employees.
“There are certain things you need to abide by when claiming home office expenses,” said Sutherland. “In this case, they’re sometimes overlooked and not taken advantage of. In every small business, it’s really important to look at what deductions you can apply for during tax time. If you are unsure, they are posted on the IRS Web site, or you can talk to an accountant or bookkeeper to help with that.”
A related area that came up for the survey respondents was travel expenses. “Keep a daily log or diary of your expenses on an ongoing basis so you don’t get to the end of the year to try to compile this information,” said Suttherland. “With the advent of some of the software that’s out there now, you can use your mobile device with online applications that collect expenses on the go and then upload that directly into the software. That alleviates a lot of the burden that comes with putting these expenses together at the end of the year.”
By Michael Cohn, Accounting Today
Posted by Sheridan Smith on Fri, Feb 24, 2012 @ 08:18 AM
The Internal Revenue Service released a revised Form 941 on Thursday to allow employers to properly report the newly extended payroll tax cut, which has now been extended through the end of the year.
President Obama signed the Middle Class Tax Relief and Job Creation Act of 2012 into law on Wednesday (see Obama Signs Payroll Tax Cut and Unemployment Benefits Legislation). Under the law, workers will continue to receive larger paychecks for the rest of this year based on a lower Social Security tax withholding rate of 4.2 percent, which is two percentage points less than the 6.2 percent rate in effect prior to 2011. This reduced rate, originally in effect for all of 2011, was extended through the end of February by the Temporary Payroll Tax Cut Continuation Act of 2011, which was enacted Dec. 23.
The law also extends emergency unemployment benefits through the rest of the year, along with the so-called "doc fix" to prevent the Medicare physician reimbursement rate from plummeting.
The IRS noted that no action is required by workers to continue receiving the payroll tax cut, and the lower rate will have no effect on workers’ future Social Security benefits. The reduction in revenues to the Social Security trust fund will be made up by transfers from general revenues.
Self-employed individuals will also benefit from a comparable rate reduction in the Social Security portion of the self-employment tax from 12.4 percent to 10.4 percent. For 2012, the Social Security tax applies to the first $110,100 of wages and net self-employment income received by an individual.
The new law also repeals the 2 percent recapture tax included in the December legislation that effectively capped at $18,350 the amount of wages eligible for the payroll tax cut. As a result, the now-repealed recapture tax does not apply.
The IRS said it would issue additional guidance, as needed, to implement the newly-extended payroll tax cut, and any further updates will be posted on IRS.gov.
Washington, D.C. (February 23, 2012) By Michael Cohn, Accounting Today
Posted by Sheridan Smith on Thu, Feb 23, 2012 @ 09:38 AM
Attached is a summary of the 2012 Payroll Tax Holiday Extension. For those of you preparing your payroll in-house, it is especially important that you make sure your payroll software is updated to reflect this change. Please contact your BKHM tax professional for any questions related to this alert at 407-998-9000. Click
here for the summary.
Posted by Sheridan Smith on Mon, Feb 20, 2012 @ 07:53 AM
A bill that would cut the hourly wages of many waiters and waitresses was unveiled Tuesday by a
Florida Senate committee in Tallahassee.
The bill (SPB 7210) would slash Florida's minimum wage for tipped workers — now $4.65 an hour — to the federal tipped minimum of $2.13 for companies that agree to guarantee that with wages and tips their employees will make at least $9.98 an hour.
The Florida Restaurant and Lodging Association is urging legislators to pass the bill. The trade group says Florida's tipped minimum is crippling eateries financially, causing companies to cut back workforces and open fewer restaurants in Florida.
Combined with rising costs of food, insurance and implementing the new federal health-care law, "it's going to be a matter of time before the back of this industry breaks," said Carol Dover, chief executive officer of the trade group. "Minimum wage is killing them."
But critics say the bill, which was introduced in the Senate's commerce and tourism committee but not voted upon, will take money from workers who cannot afford it.
"Anything that reduces people's wages is not what we need right now," said Emily Eisenhauer, an associate with the Research Institute on Social & Economic Policy at Florida International University.
In Florida, the average hourly wage for a waiter or waitress is just under $10 per hour, according to the federal Bureau of Labor Statistics.
Dover argues that many make much more than that, and Florida's current system is "just a very unfair model, when you're looking at an employee who makes way over the minimum wage."
Dover pointed out that companies opting to pay the $2.13 rate would have to guarantee all their tipped employees are making at least 130 percent of the state's minimum wage. If any employees fall short of that figure – now $9.98 – the companies have to make up the difference.
The National Employment Law Project, an advocacy group for lower-wage workers, says the bill appears unconstitutional. A state constitutional amendment establishing minimum wages and raising them each year to keep pace with the cost of living was approved by Florida voters in 2004.
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here to continue reading the full article. Contact us for more information on this topic - BKHM CPAs
Posted by Sheridan Smith on Tue, Feb 07, 2012 @ 11:55 AM
The rules governing America's most popular retirement vehicle are about to change, and that could mean huge savings for millions of workers building nest eggs for the future.
Spurred by the U.S. Labor Department's effort to force plan administrators and investment companies to disclose the cost of 401(k) retirement plans, companies are looking to reduce fees and offer new investing choices.
Under current rules, it is difficult—if not impossible—for many 401(k) participants to determine how much they are paying in fees. The fees, which vary by type and size, aren't typically disclosed in annual statements to investors. Because of the extended time frame involved in retirement accounts, a small percentage change in an annual fee can make a big difference in the investment performance.
Analysts and companies in the industry say the increased disclosure will allow companies to negotiate better deals and employees to request more cost-efficient plans. Already, the prospect "is putting downward pressure on fees," said Lori Lucas, leader of consulting firm Callan Associates Inc.'s defined-contribution practice.
The Labor Department had hoped to roll out the rules by Jan. 31. A department spokesman said it would likely happen within a few weeks.
Fidelity Investments, ING U.S., Manulife Financial Corp.'s John Hancock unit and BlackRock Inc. in the past few years have rolled out low-cost index mutual funds alongside their higher-fee actively managed funds.
Employers, for their part, are shopping around their retirement-plan business more aggressively. Fidelity Vice President Beth McHugh said the firm is seeing companies "doing more due diligence to make sure they're comparing what they have with what's available out there in the marketplace."
Kevin Crain, head of Bank of America Merrill Lynch's institutional retirement business, said his firm had a record number of requests for proposals in 2011.
401(k) plans have grown in prominence since an Internal Revenue Service regulation in the early 1980s allowed workers to contribute their own money to the accounts on a tax-deferred basis. By 1990, 401(k) plans had about $900 billion in assets; by 2011, the figure had swelled to $4.3 trillion. Click here to read the full article from the Wall Street Journal
Write to Kelly Greene at kelly.greene@wsj.com and Anne Tergesen at anne.tergesen@wsj.com
Posted by Sheridan Smith on Tue, Jan 24, 2012 @ 01:29 PM
Below is a link to a summary of the tax changes impacting 2012 by CCH. Please review the document and contact BKHM if you have any questions regarding these tax changes. We provide a full range of tax compliance and consulting services. Please click here for the CCH Tax Briefing.
Posted by Sheridan Smith on Wed, Jan 04, 2012 @ 10:38 AM
Various tax law changes, including 2010's Tax Relief Act and health care legislation, will affect 2011 tax returns. Get ready for tax season with this update for tax practitioners, including a quick guide to 2011 rates and amounts. Journal of Accountancy (1/2012)
Click here for the full article!