IRS Issues Final Regs on EITC Due Diligence

The IRS on Monday issued final regulations with the due-diligence requirements for tax return preparers who prepare tax returns on which taxpayers claim the earned income tax credit (EITC). The new rules require tax return preparers to submit Form 8867, Paid Preparer’s Earned Income Credit Checklist, to the IRS.

Business Costs for 2012 Expected to Rise, WSJ Says

The Wall Street Journal is predicting that the cost of doing business will rise again in 2012 and businesses might have difficulty passing along those increases to customers. That might be good news for the Federal Reserve, but it isn't good news for business, the Journal says.

"Within their monthly surveys, the Fed banks of New York and Philadelphia added special questions about cost expectations for 2012. Although each bank asked slightly different questions, the results were similar. Businesses expect to pay more for labor and supplies, but energy inflation should ease.

Employee benefits, especially health care coverage, are expected to be the biggest cost headache next year.

"New York respondents expect overall benefits, on average, to rise 6.1% next year. Philadelphia respondents see their health care benefits alone rising 7.3%.

"Wages are anticipated to rise 2.8% in New York state, and 2.1% around the City of Brotherly Love.

Energy costs are seen rising about 2.9% in New York and 1.8% in Philly. That’s a relief–or maybe wishful thinking–from the 2011 experience. Nationally, yearly energy inflation is running more than 10%.

"The question for the inflation outlook is how much of the higher costs will businesses be able to pass along to their customers. The evidence is sparse but suggests, not much. Only the New York Fed asked about expected selling prices. Respondents on average hope to raise their prices by just 1.8%.

"Of course, the lack of pricing power reflects the fact that consumers are still quite bargain-conscious. That in turn is the result of the small pay raises businesses have given out and–as the surveys show–plan to dole out again next year.

"Without more cash in their pockets, consumers will resist higher prices except for staples, such as food and energy. Consequently, the Fed can rest easy; inflation will not be a problem next year. The central bank can continue to focus on promoting economic growth.

"Most businesses will not be so lucky. Companies have been able to offset some of this year’s cost-price squeeze through higher productivity. But that trend looks played out. As a result, expect more downward pressure on profit margins in 2012." from the Wall Street Journal

U.S. Sweeping Financial Reform Act Has Implications Around the Globe

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) passed in July is the single most sweeping financial regulatory reform in the United States since the securities acts of 1933 and 1934. Its scope is wide and broad but its implications are grey and murky. While American companies and industries sort through the 2,300 pages of the Dodd-Frank Act to find out what the new legislation means for them, the international implications have gone largely unexplored.

The Act significantly changes the U.S. federal regulatory framework as it relates to many types of financial services companies, especially banks and other deposit-taking institutions, both foreign and domestic. For example, it permits the Federal Reserve to terminate activities of U.S. branches, agencies or commercial lending subsidiaries of a non-U.S. entity if the Federal Reserve determines that the home country has not adopted appropriate systems to mitigate risk and if it may present a systemic risk to the U.S.

Added Responsibilities for SEC

The law also expands the scope of new responsibilities for the Securities and Exchange Commission (SEC). Congress has asked the SEC, among other things, to constantly monitor and oversee all domestic as well as international proposals and developments inclusive of the insurance industry and accounting profession. The SEC has to report back to Congress annually about all new proposals that affect the financial industry and how they affect the stability therein. These new requirements have increased some concern that coordinating everything on a global level may lead to a high margin of error.

Serious concerns were raised by the AICPA and others regarding government oversight of accounting standard-setting bodies in earlier stages of the legislation. Congress modified the original language to direct the Financial Stability Oversight Council to review and, as appropriate,  “submit comments” to the SEC and any standard-setting body with respect to an existing or proposed accounting principle, standard or procedure. In earlier versions, the Council was given increased power to directly influence standards. The AICPA successfully advocated for preserving an independent board to monitor these standards.  

PCAOB to Inspect Foreign Audit Firms

Additionally, Dodd-Frank amended the Sarbanes-Oxley Act (SOX), granting the authority for the Public Company Accounting Oversight Board (PCAOB) to now inspect foreign audit firms that practice in the U.S. or have U.S. clients. For example, any registered public accounting firm (domestic or foreign) that relies, in whole or in part, on the work of a foreign public accounting firm in issuing an audit report, performing audit work or conducting an interim review must:

• Produce the foreign firm’s audit work papers and all related documents if the SEC or PCAOB requests them; and
• Secure the foreign firm’s agreement to produce those documents as a condition of relying on the work of that firm.

The general international impact of Dodd-Frank is on external auditors and preparers who must comply with SOX, as amended by the Dodd-Frank Act, because they are employed or engaged by international/global public companies that list on U.S. exchanges. Read More

2011 TAX PLANNING STRATEGIES FOR BUSINESSES

Here are some tax planning opportunities for small businesses and their owners. Have a look and let me know if you have any questions.

1 Available first-year depreciation and expensing of capital assets purchased for business use have reached historical highs.  For the remainder of 2011, most tangible business property purchased new (original use) is eligible for a 100% first-year bonus depreciation deduction.  Absent further action from Congress, bonus depreciation will revert to a 50% first-year deduction in 2012 and there has even been talk of repealing bonus depreciation altogether.  Also, the annual limitation on expensing business property (IRC Section 179) placed in service in 2011 is $500,000 with an overall investment cap of $2,000,000.  These annual limits are slated to revert to $139,000 and $560,000, respectively, in 2012.  The moral of this story is that if your business needs equipment, then you should strongly consider buying before the end of the year.

2  Growing businesses that may be looking to hire a new employee or two before should be mindful of the work opportunity tax credit that is available to employers who hire qualifying workers (generally the unemployed and certain veterans) to fill new positions before the year’s end.

3 The brave self-employed out there, if they have not already done so, should investigate and consider self-employed retirement plan options.  Although making that annual retirement plan contribution can be a cash flow burden, remember that as much as 40% of that tax-deferred payment is tax savings you would have paid anyway.

4  Unfortunately, many businesses are projecting a 2011 bottom-line loss.  Contrary to popular belief, losses present their own unique set of tax planning opportunities.  Owners of business entities that are expecting to receive “pass-through” losses in 2011 should consult their tax advisor about basis limitations and opportunities to ‘generate’ basis before year-end.

[Please note that the ideas and information presented herein may not provide benefit to each and every taxpayer.  The reader should take caution to discuss any tax strategy, not just those listed above, with his or her tax advisor prior to implementation.]

2011 TAX PLANNING STRATEGIES FOR INDIVIDUALS

2011 TAX PLANNING STRATEGIES FOR INDIVIDUALS

The end of the 3^rd quarter has passed, and similar to last year, the volatile political landscape has your tax advisor reaching for a crystal ball rather than a copy of the Internal Revenue Code.  Nonetheless, numerous tax planning opportunities remain viable for individual taxpayers, a few of which are listed below.

1 Health Savings Accounts (HSA) have become increasingly popular with employers and employees alike.  Employers enjoy reduced costs of group health insurance plans, and employees benefit from paying medical expenses for themselves and dependents with pre-tax dollars.  Remember that it is not too late to maximize your 2011 HSA contribution.  Even if you become eligible under your employer’s plan in November or December, you can still maximize your 2011 contribution.

2  Take advantage of the $3,000 annual allowance for deduction of capital losses by selling a few of those loser stocks you’ve been holding onto (an oldie, but a goodie).  Remember that you can restore your investment position by repurchasing the same stock after 31 days.  Talk to your broker or advisor, and don’t let this simple deduction get away from you in 2011.

3  If you converted a traditional IRA to a Roth IRA earlier in the year and the value of the investments held by the Roth have since declined in value, you can avoid overpaying tax on the original conversion by “recharacterizing” the conversion back to a traditional IRA.

4  Homeowners are eligible for a non-refundable credit up to $500 for qualifying energy efficient improvements made to their principal residence before the end of the year.

5  There will be no tax (yes, you read that right) on the gain realized upon the sale of qualified small business stock issued by a corporation that meets certain requirements (see your tax advisor), that is purchased before January 1, 2012 and held more than five years.

6  If you are age 70-1/2 or older, and will be forced to take a required minimum distribution (RMD) from your IRA, but don’t necessarily need the cash, consider coordinating with the custodian of your account to make a charitable donation directly from your IRA.  This approach, rather than taking the distribution and then making the charitable contribution, can provide substantial tax savings to seniors without substantial itemized deductions.

[Please note that the ideas and information presented herein may not provide benefit to each and every taxpayer.  The reader should take caution to discuss any tax strategy, not just those listed above, with his or her tax advisor prior to implementation.]

Time's Running Out!

If you filed an extension for your 2010 income taxes, your deadline is October 17.  That's Monday, so don't forget!
-Michael Meier

Have you ever asked yourself . . .

Where will my property go upon my death?
Who can handle my affairs if I were disabled?
Who will make medical decisions for me if I am unable to do so?
Who will care for my children upon my death or disability? 

These are questions everyone should consider, no matter their age or income. This
seminar will provide an overview of the answers to these questions, as well as explain
ways to ensure what you want to happen does in fact happen if the unfortunate occurs.
If learning the answers to these questions interests you, then . . .

You're invited to . . .
Introduction to Estate Planning and Wealth Management
Thursday, September 22, 2011
6:00 p.m. - 8:00 p.m.

Corbett's
5050 Norton Healthcare Boulevard
Louisville, Kentucky 40241
Complimentary cocktails and hors d' oeuvres will be served.
RSVP TODAY! 502-896-2999 Ext. 108