All charitable remainder trusts described in Internal Revenue Code Section 664 must file Form 5227. All pooled income funds described in IRC Section 642(c)(5) and all other trusts such as charitable lead trusts that meet the definition of a split-interest trust under section 4947(a)(2) must also file Form 5227. A Form 5227 is to report the financial activities of a split-interest trust, provide certain information regarding charitable deductions and distributions of or from a split-interest trust, and to determine if the trust is treated as a private foundation and subject to certain excise taxes. For the first return filed a copy of the trust must be filed with the return. If you have questions about Form 5227, need us to prepare it, or have questions about charitable remainder trusts, pooled income funds, or other types of split interest trust click here to contact Paul.
Legislation enacted in July 2010 extended the closing deadline on the first-time homebuyer credit from June 30 to Sept. 30, 2010. Legislative changes in November 2009 expanded and extended the credit and also added documentation requirements for claiming the credit. Here are the new requirements:
- You must have bought — or entered into a binding contract to buy — a principal residence on or before April 30, 2010.
- If you entered into a binding contract by April 30, 2010, you must close (go to settlement) on the home on or before Sept. 30, 2010 (recent legislation extended the June 30 deadline previously in effect).
If you have any questions regarding the first-time homebuyer credit, contact Paul by clicking here.
Depletion is the using up of natural resources by mining, quarrying, drilling, or felling. The depletion deduction allows an owner or operator to account for the reduction of a product’s reserves. There are two ways of figuring depletion: cost depletion and percentage depletion. For mineral property, you generally must use the method that gives you the larger deduction. For standing timber, you must use cost depletion. Cost depletion is computed on the basis of initial capitalization costs. Over the life of the well, a portion of these costs can be recovered each year based on the percentage of the production for the year as compared to the estimated recoverable oil and gas reserves at the beginning of the year. Percentage depletion is computed on the basis of the income from the property rather than capitalization costs. The tax shelter provided by percentage depletion may result in a larger deduction than cost depletion. Percentage depletion allows a tax deduction equal to 15% of the gross revenue from and oil or gas producing property. If you have questions regarding depletion or related issues click here to contact Paul.
A captive insurance company or a “Captive” is an insurance company formed to insure the risks risks of its parent and/or affiliate organization(s). Captives give their insured business entities control over the operations and tailor coverage to the organization’s specific needs. Captives are very common among large national and multinational business. Utah is becoming a popular destination for captives. Captives in Utah are regulated by the Utah Captive Insurance Division. Utah’s captives have no premium taxes and impose no taxes other than an annual fee. Utah’s regulators very accessible and easy to work with. Captive have many income tax advantages as well. There was a time when captives were largely an off-shore endeavor. However, with states now providing favorable legislation to Captives more and more captives are organizing or forming domestically. If your organization needs assistance forming a captive, changing jurisdictions (domesticating it, etc), or is in need of representation in this area click here to contact Paul.
Foreign companies often form U.S. subsidiaries when they enter or expand their U.S. operations. If your business involves a foreign entity and US related entity your business will have to file IRS Form 5472 for every transaction with its related business entity. Form 5472 is an information return and does not impose a tax, but rather the form is used as a reporting mechanism to ensure compliance with US tax law. In short, it is a audit tool for the IRS. It becomes very important to properly report on Form 5472 so that the IRS does use this audit tool as a weapon against its filer. If you need assistance in preparing or reviewing your company’s 5472 and related party transactions click here to contact Paul.
On March 18, 2010 the Hiring Incentives to Restore Employment (HIRE) Act was enacted. The HIRE act contains two new tax benefits that are available to employers who hire certain previously unemployed workers (the Act calls them “qualified employees”).
The first, referred to as the payroll tax exemption, provides employers with an exemption from the employer’s 6.2 percent share of social security tax on wages paid to qualifying employees, effective for wages paid from March 19, 2010 through December 31, 2010.
The payroll tax compliance issues here are a bit daunting.
The second tax benefit is that for each qualified employee retained for at least 52 consecutive weeks, businesses will also be eligible for a general business tax credit, referred to as the new hire retention credit, of 6.2 percent of wages paid to the qualified employee over the 52 week period, up to a maximum credit of $1,000.
If you have questions about qualifying for the tax credits under the HIRE Act, contact Paul by clicking here.
Expatriation and being termed an “expatriate” have very specific meaning in the Internal Revenue Code. Expatriation tax provisions apply to U.S. citizens who have relinquished their citizenship and long-term residents who have ended their residency (expatriated). You are an long-term resident if you were a lawful permanent resident of the United States in at least 8 of the last 15 tax years ending with the year your status as an long-term resident ends. Expatriation includes the acts of relinquishing U.S. citizenship and terminating long-term residency. Many people think of expatriation as living abroad for a period of time that would allow for the Foreign Earned Income Exclusion. Recent changes in the law state that until you file Form 8854 and notify the Department of State or the Department of Homeland Security of your expatriating act, your expatriation for immigration purposes does not relieve you of your obligation to file U.S. tax returns and report your worldwide income as a citizen or resident of the United States. Because US Citizens are subject to income tax on their worldwide income a person expatriating for non-tax avoidance purposes must act carefully or they may remain liable for US income tax on income earned after expatriation without realizing it. If you would like to discuss expatriation or any other matters relating to the US tax consequences of foreign income contact Paul by clicking here.
To be eligible for the credit, the small business employer must contribute at least 50% of the total premium cost per employee (not including employee salary reduction) of a qualified health plan offered by the employer through an Exchange or a benchmark average premium. Small businesses eligible for the credit must have fewer than 25 employees and average annual wages of less than $50,000 for 2010 through 2013, adjusted for inflation beginning in 2014. Employers with 10 or fewer employees and average annual wages of less than $25,000 are eligible for the full credit.
Lower credit amounts apply for 2010 through 2013. For those years, small employers receive a small business tax credit for up to 35% of their contribution toward employee health insurance premiums. Eligible tax-exempt small employers receive a 25% tax credit for those years.
For 2014 and beyond, small employers that purchase coverage for their employees through an Exchange will receive a tax credit of up to 50% of their contribution to premiums. Tax-exempt small employers will receive a tax credit of up to 35% of their contribution to premiums. The credit period will have a two consecutive year limit.
The Form 706 is a snapshot of a decedent’s financial situation on the date of death or at a special valuation date 6 months after the date of death . The Form 706 return is due nine months after the date of death (or 15 months if extended). The purpose of the Form 706 is to provide a complete detailed listing of the decedent’s assets and liabilities, as well as current and future estate expenses. The Form 706 is not required for all estates, just those estates which value exceeds a threshold set by congress must file. This threshold has changed frequently over the years. For persons dying in 2010 there is no estate tax. However, in 2011 the estate tax threshold is an estate valued over $1,000,000. If you potentially have a taxable estate the time to plan for mitigating those taxes is now. Contact Paul to discuss strategies and alternatives by clicking here.
Recently, I had a client ask me to draft a vendor agreement. I drafted the agreement and sent it on to the vendor to review. When we received back the vendor’s revised agreement they had included a provision that would create a tax problem for my client. The provision essentially created a situation where my clients would bear a disproportionate tax burden from the proposed structure of the arrangement. In concept alone the structure was fine, but because we considered the tax consequences of the structure my client was able to avoid a tax burden that was not necessarily intended by the vendor. However, if we had not caught the tax this could have strained the relationship down the road when a tax bill came due to my client. This is just one example, but the tax burdens or benefits of business transactions is very important to consider. If you would like Paul to assist you with your business transaction contact Paul by clicking here.