Tax Planning Strategies for the Year's End

From Neikirk, Mahoney & Smith...
The year is coming to an end, and the Journal of Accountancy has published some tips on last minute tax planning strategies.
According to the Journal of Accountancy, "Taxpayers who have been sitting on the sidelines due to the lack of certainty on the expanded Section 179 deduction, bonus depreciation, the R&D credit and other items normally renewed in an extender package need to take action soon, according to Michael Silvio, director of tax services at Hall & Co. CPAs."

Their last minute strategies include:

1) A Hierarchy of Planning
"Last-minute tax issues could be things that can be done by the end of the year before it’s too late to do them, or could be things that can still be done up to the time you file the tax return or later, to get a better result for that prior year, according to Matthew Frooman, a member at the Atlanta office of Top 100 Firm Warren Averett."

2) New Due Dates
"For tax years beginning after Dec. 31, 2015, the due dates for partnership tax returns will change from April 15 for calendar-year partnerships to March 15, and the fifteenth day of the third month after the end of the fiscal year for fiscal-year partnerships. The due date for C corporations will be April 15, or the fifteenth day of the fourth month after the close of their year. S corporation return due dates continue to be March 15, or the third month following the close of the taxable year."

3) Extender Watch 
"The tax extenders have historically been passed, so we have to plan for the fact that they will be passed, advised Gary Fox, managing partner of tax services at Top 100 Firm Crowe Horwath."

4) Hoping for Better
"Next filing season can’t be as bad as the previous one, according to Rick Wojciechowski of Top 100 Firm The Bonadio Group: 'Provided the extenders get passed earlier than they did for 2014, it should be better. Plus, the tangible property regs are better understood now. But we do have layering of the ACA, which affects business clients. CPAs need to communicate the rules to their clients.'"

You can check out the full article at the Journal of Accountancy.
You can also contact Neikirk, Mahoney & Smith PLLC at 502-896-2999, or through our website contact form.

FASB Proposes Clarifying the Definition of a Business

From Neikirk, Mahoney & Smith, the FASB is proposing clarifications to the definition of the business. This proposal is not because the FASB believes that the current definition is too narrow, but rather that it is too broad. They are concerned that this broad definition can lead to transactions being reported as acquisitions or disposals of businesses rather than assets.

"Clarifying the Definition of a Business, would require that under FASB’s definition, a business would include at least an input and a substantive process that together contribute to the ability to create outputs and would remove the evaluation of whether a market participant could replace any missing element."

You can check out the full article at the Journal of Accountancy.
You can also contact Neikirk, Mahoney & Smith PLLC at 502-896-2999, or through our website contact form.

Are You Underestimating Your Retirement Expenses?

From Neikirk, Mahoney & Smith, a recent AICPA survey revealed that over 50% of people underestimated their retirement expenses and the amount of money that they would need to be able to retire. According to the survey, the main cause for people having to change their retirement plans included overspending, health care costs, and poor estimates of retirement spending and income. According to the Journal of Accountancy, to increase clients’ confidence about investing, CPA financial planners who hold the PFS credential recommend that advisers take the following three steps.

1. Help clients create disciplined investing plans
2. Educate clients about the factors that cause volatility
3. Remind clients that stock market returns should be evaluated in terms of three-to-five-year cycles, not quarterly returns.

You can read more on this topic from this article at the Journal of Accountancy.

If you have any questions or concerns, contact Neikirk, Mahoney & Smith PLLC at 502-896-2999. You can also contact us through our website contact form.

Yes, Virginia, it IS taking longer to do your taxes this year:-)

Tax season is supposed to be over on April 15. But among certain groups—especially the wealthy—filing for an extension until Oct. 15 is now routine, according to Bloomberg Business and Neikirk, Mahoney & Smith CPAs.

In 2011, 11 million taxpayers filed for an extension; two years later, 13 million did, an increase of almost 20 percent. At the end of September 2014, more than 25 percent of those who had filed for an extension were still working on their filings. We're not just procrastinators. It has gotten harder to file on time. Here’s why:

1. You don't have the forms you need.

The more complicated your investments, the more likely it is that you won't have everything you need to file your taxes by April 15. Often, private equity, venture capital, and hedge funds are structured as partnerships, which means their earnings generate so-called “Schedule K-1” forms, which sometimes take until late summer to arrive.

Christine Freeland, a certified public accountant in Chandler, Ariz., says brokers are putting more of her clients in energy or real estate partnerships instead of (or in addition to) mutual funds, which means more K-1s. Some clients don't even know how many K-1s they'll be getting, she says, and they think their return is ready until they receive an additional K-1 in the mail. Sometimes the partnerships—which have to finish their own returns before they can issue K-1 forms—get extensions, although they must file by Sept. 15.

Simpler investments that generate 1099 forms can slow down the process, too. Brokerage statements have to be out by Feb. 15, but many note that the information may not be final. One of Freeland's clients once handed her a corrected brokerage statement that hadn't arrived until April 15.

2. You're waiting on other people.

The more middlemen standing between you and your tax forms, the greater the chances of delay. According to Bill Zatorski of accounting firm PwC, a common sticking point for wealthy taxpayers is data from funds of funds, hedge funds that invest in hedge funds. A fund of funds can’t send you a K-1 until it receives K-1s, or other needed forms, from all the various funds it holds.

Adding to the delay, says Kevin Meehan of Wealth Enhancement Group, is that investors rarely hold funds or other investments directly. Everything gets funneled through brokerages. You wait for your brokerage, which is waiting for your fund-of-funds, which is awaiting forms for all the funds it holds. An extension until Oct. 15 is only a partial solution for taxpayers with late tax forms: They still must pay an estimate of what they owe by April 15, even if the full return comes later.

3. The tax code is more complicated.

If all else fails, blame Congress. Taxpayers already must follow different rules for wages, capital gains, and two types of dividends—those that get taxed at a lower tax rate and those that don’t meet the “qualified” criteria. In 2013, yet another tax category was added, a 3.8 percent net investment income tax on married couples earning more than $250,000 per year.

Under a 2010 law, taxpayers also now must report all their overseas holdings—a process that sometimes requires the close reading of K-1 footnotes, Zatorski says. Finally, there’s the alternative minimum tax, or AMT, a parallel tax system designed to limit the deductions that wealthier Americans can take. Plenty of those affected aren’t particularly wealthy. About 4.2 million people were ensnared by the AMT in 2014, the Tax Policy Center estimates, up 8 percent from the year before. The AMT alone can almost double how long it takes to fill out a tax return, the National Taxpayer Advocate says.

Watchdog: $133 billion in TARP funding still hasn’t been repaid

By Peter Schroeder - 01/26/12 10:16 AM ET

American taxpayers still have $132.9 billion in funds tied up in federal bailout programs, and they will not recoup all of that investment, according to a new watchdog report.

The Special Inspector General for the Troubled Asset Relief Program (SIGTARP) told lawmakers in its quarterly report that the Treasury has already lost $12 billion on the broad bailout program, with more losses potentially to come.

“Taxpayers will never get back some of these funds,” SIGTARP stated in its report.

In addition, while the government has been winding down its involvement in the program, the watchdog noted that some aspects of the program will linger “for years.”

The new report provides a stark reminder of the challenges facing TARP, even as the Treasury Department has been eager to tout the successes of the often-reviled initiative.

The report noted that some programs under TARP, mainly targeted at housing, were never intended to be paid back — the Treasury has the ability to dole out $51 billion more in that effort through 2017.

The watchdog also noted that, even as the Treasury is trying to exit some investments in firms such as American International Group (AIG) and General Motors, the slow economic recovery and volatile financial markets have posed challenges. The Treasury estimated it needs to sell its 1.5 billion shares of AIG stock at $28.73 per share to break even, and its 500 million shares in GM at $53.98 per share. -Read Full Article

Companies perform better with small, regular M&As, study finds

Companies that regularly acquire or merge with other companies on a relatively small scale tend to outperform those that undertake large acquisitions or focus on organic growth, a study by McKinsey & Co. concluded. Looking at shareholder returns at 1,000 companies over 10 years, McKinsey found that companies with regular M&A programs representing 19% or more of their market capitalization performed better than those with large deals or no M&A activity. The Wall Street Journal/CFO Journal (tiered subscription model) (1/23)