May 24

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.

Apr 28

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.

Apr 20
President Obama’s health care bill adds a new tax credit for small businesses of up to 50%  (or up to 35% for tax-exempt small employers) of the total insurance premium cost for providing health insurance coverage to their employees.

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.

Effective in general for amounts paid or incurred in taxable years beginning after December 31, 2009. Effective for credits determined under Code §45R in taxable years beginning after December 31, 2009, and to carrybacks of such credits.
If you have questions about how the new health care legislation will affect your business contact Paul by clicking here.
Apr 12

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.

Feb 10

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.

Jan 13

A deceptively simple prospect in tax reporting is a US citizen working abroad. There are many pervasive misundertandings in this area of US tax law. Generally speaking, gross income, for US tax purposes, does not include the foreign earned income and a “housing cost amount” of a qualified individual who makes the appropriate exclusion election. A “qualified individual” has a “tax home” in a foreign country and meets one of two tests. Under the first test, the person must be a U.S. citizen who establishes that he has been a bona fide resident of a foreign country or countries for an continuous period within an entire taxable year. Under the second test a person must be a U.S. citizen or resident who, during any period of 12 consecutive months, is present in a foreign country or countries during at least 330 full days in that period. The election is made by completing Form 2555next hit, “Foreign Earned Income.” There are a great many nuances and circumstances to be considered in this area as well. If you need assistance in this area or help in preparing your tax return that deals with Foreign Earned Income, please contact Paul for assistance by clicking here.

Dec 8

Form 1042-S is, conceptually, much like Form 1099 for US citizens and persons residing in the US. The difference being that the payments reported on Form 1042-S are amounts paid to foreign persons (including persons presumed to be foreign) that are subject to withholding, even if no amount is deducted and withheld from the payment because of a treaty or Code exception to taxation or if any amount withheld was repaid to the payee. Examples of payments to foreign persons include, but are not limited to: Corporate distributions; Interest; Rents; Royalties; Compensation for independent personal services performed in the United States; Compensation for dependent personal services performed in the United States (but only if the beneficial owner is claiming treaty benefits); Annuities; Pension distributions and other deferred income; Most gambling winnings; Cancellation of indebtedness; Effectively connected income (effectively connected income to the US);  Notional principal contract income; and REMIC excess inclusions. To state the obvious, each situation is different and should be carefully analyzed. If you or your business needs assistance preparing Form 1042-S and 1042, or just discussing withholding requirements, contact Paul by clicking here.

Dec 3

A common practice in closely held businesses is to insure the life or lives of key employees or owners. When Congress enacted the Pension Protection Act in 2006, some requirements were imposed on these types of life insurance arrangements. First written notice must be given to any employee on whom a company purchases life insurance. If the proper notice is not given, then the insurance proceeds likely will be considered taxable.  Employers are also required to file IRS Form 8925 annually with regard to these insurance policies.  It seems that failing to report the policy on Form 8925 will likely result in the proceeds being taxable even if the Company did not deduct the premiums on its tax return.  There are specific issues to consider with employer-owned life insurance policies. If you or your business need advice in this area, click here to contact Paul to discuss the issue.

Nov 18

The term “Inherited IRAnext hit” in the internal revenue code describes any IRA after the death of its owner. The beneficiary of the IRA is said to have inherited his or her ownership of the IRA. Inherited IRAs have special tax rules regarding Inherited IRAs. There different rules for surviving spouses from beneficiaries who are not the spouse of the decedent (children, grandchildren, etc.).  If you have inherited an IRA an would like to know what your options are in terms of tax planning, click here to contact Paul to discuss your options.

 

Nov 4

Maintaining capital accounts for state law purposes and for tax purposes is a very complicated task. State law and federal tax law can conflict creating disputes about ownership and allocation of profits, losses, and especially in the liquidation of assets. On the tax side of capital account maintenance,  IRC Section 704(a) provides that the partnership agreement should generally control the allocation of each partner’s distributive share of partnership tax items. The Internal Revenue Code recognizes that allocating all partnership items on the same basis to each partner may alter the economic reality of business transactions in the partnership. Partnership taxation has a valuable non-tax feature that permits conducting business with flexibility in allocating and reallocating certain sources of income or expense in disproportionate, contingent, straight-forward, or even undetermined ratios. Thus, if a particular partner in a partnership bears or benefits from a disproportionate economic share of a particular transaction, the Internal Revenue Code recognizes that the partnership should be able to adjust the tax consequences in a corresponding manner. There is also, however, a requirement to maintain substantial economic effect in the allocations that are made. As you can see partnership agreements or operating agreement play an essential role in maintianing capital accounts. The state law aspects of capital accounts is where significant issues can arise in determining and maintaining capital accounts. Disproportionate distributions can, under the laws of many states, dilute a business owner’s ownership in the partnership or LLC. This will generally come as a surprise to most business owners. The point here is that capital account maintenance is an important piece of business entity structuring and operations. If you would like more information about whether your business entity needs to assistance in this area click here to contact Paul.

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