Everyone at BKHM would like to congratulate Greg Geibel a tax senior for making the Florida CPA Today's 26 Under 36!
While preparing for their annual audit, one of my clients had a payment to a software vendor for a project that was going to be a capitalized asset once completed and wanted to double check on how the payment should be recorded. Should the payment be presented in the financial statements as a current deposit or as a non-current software project in progress? Whether for intangibles like software or for fixed assets like a facility expansion, the key distinction between whether payments represent a deposit or a project in progress lies in who owns what’s being built/created at the time the payment is made. If the vendor owns the asset being created, then your payments are current deposits. If you own the asset, then the payments should be reported as a non-current project in progress.
The following is a summary on the key components of the American Tax Relief Act of 2012. The Senate and the House have agreed and the President has signed on to a series of measures to retain certain provisions and allow others to expire. Among the main portions of the bill are as follows:
- Taxes: An increase in the top marginal tax rate to 39.6% for individuals making more than $400,000 a year and families making more than $450,000.
- Payroll Tax: The 2% holiday for the employee portion of Social Security taxes will be allowed to expire.
- Alternative Minimum Tax: A permanent patch is put in place to prevent many taxpayers from being subject to this additional tax.
- Dividends and Capital Gains: For individuals making at least $400,000 and $450,000 for families, the top tax rate on dividends and capital gains will increase to 20%.
- PEP and Pease Limitations Reinstated: The limitation on the full utilization of personal exemptions and itemized deductions ("Pease limitation") will be reinstated starting at a threshold of $300,000. The Pease limitation will reduce itemized deductions by the lesser of 3% of income in excess of the threshold or 80%. Both PEP and Pease operate to effectively increase the top tax rates. (No other limitation on itemized deductions, including the charitable contribution deduction, such as limiting the value of deductions to 28%, was included in the bill.)
- Estate Tax: The top estate tax will increase to 40% (from 35%). The current law $5.12 million per person exclusion amount is retained.
- IRA Charitable Rollover: The current law IRA Charitable Rollover is retroactively extended for 2012 through the end of 2013. In addition, distributions taken in January, 2013 will be able to qualify as 2012 rollovers as will distributions taken in December, 2012 by individuals if such amounts are rolled over in cash to charities by the end of January, 2013.
- Stimulus Tax Credits: Tax credits largely used by lower- and middle-class workers that were expanded as part of the 2009 economic stimulus, including the Child Tax Credit, Earned Income Tax Credit and college tuition tax credit, are extended for five years.
- Extension of Bonus Depreciation: The new law includes an extension of the 50% bonus depreciation for certain fixed assets place in service during 2013. This provision was set to expire as of December 31, 2012.
To read the full CCH briefing click here.
National Estate Planning Awareness Week is October 15-21, 2012. It is estimated that over 120,000,000 of Americans do not have up-to-date estate plans to protect themselves and their families in the event of sickness, accidents, or untimely death.
Under the current law, the estate tax exemption is scheduled to drop from $5,120,000 in 2012 to $1,000,000 in 2013 and the estate tax rate is scheduled to go from 35% to 55% in 2013. Though it is uncertain that these changes will go into effect, it could mean that over 50% of your life’s savings could be sent to the government!
Careful planning not only minimizes estate taxes, but can prevent confusion and chaos among family members after death, avoids assets being tied up in lengthy probate at a time of need, prevents heirs from mismanaging money and may provide for special needs family members after you are gone. You may even want to leave your money to charity, something that needs to be carefully planned with an estate plan.
During this National Estate Planning Awareness Week, you should make it a point to contact your CPA and/or Attorney to discuss your personal situation. It is too important of an issue to ignore.
Contact your BKHM professional today - we can assist you with your estate planning!
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.