1. A Global Reach with a Local Perspective
2011
Rocket City
Gov Con
Conference
September 22, 2011
www.decosimo.com
Tax Issues and Planning 2011
JOHN HENEGAR, CPA
2. Please Note
This information is for educational purposes only
and should not be relied on or used for taking a
position on any tax return.
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3. Agenda for Today
Business Planning
S Corporation Trends
Current Business Tax Incentives
Corporate Loans
IRS Initiatives
Alabama Update
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4. Agenda for Today
Individuals
ROTH IRA’s
Losses in IRA’s & 529 Plans
Federal Estate & Gift Tax changes
Excluded Capital Gain
Foreign Financial Asset Reporting
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5. Agenda for Today
Known Legislative Changes
Being Discussed
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6. S Corporations-Trends
IRS loves S Corps
National Research Program (audits)
2010-2012; 2,000 returns per year
Employee vs. independent contractor
Reasonable compensation
Mr. Watson (Watson v. US 107 AFTR 2d 2011-311)
Mr. Renkemeyer (Renkemeyer, Campbell & Weaver,
LLP 136 TC No 7)
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7. Current Business Tax Incentives
Starting in 2010 Health insurance 35% credit 24 or <
employees, average wage <$50,000.
100% Bonus depreciation for new property
scheduled to drop to 50% in 2012.
$500,000 maximum 179 deduction (first year
expensing) for 2011, phase out starts at $2 million of
expenditures. 2012 $125k/$500k
Up to $250k expensing of qualified real property in
2011.
Non residential interior costs at least three years after
7 building placed in service.
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8. Current Business Tax Incentives
2011
Standard mileage rate 51 cents January-June
Increased to 55.5 cents July-December
Personal exemption $3,700
Standard Deduction
Single $ 5,800
Married $11,600
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9. Loan or Dividend
Knutsen-Rowell, Inc. TC Memo 2011-65
Earmarks of a loan
Written note or other instrument
Interest charge
Scheduled repayments
Secured by collateral
Repayments actually paid
Can borrower repay, solvency of lender
How the parties treat the transaction
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10. IRS Initiatives
IRS facing severe staffing crisis, no reduction to
workload
Use of Electronic Accounting Software Records;
Frequently Asked Questions
IRS Information Document Requests will now
routinely request electronic backup files:
CD
DVD
Flash/jump drive
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11. IRS Initiatives
Passwords and Security
Information beyond just verifying what is on the
return
IRS will examine how transactions were originally
posted
Multiple year data
Authority
IRC 7602(a); 6001
Regulation 1.6001-1(a) and 1(e)
11 Rev. Rul. 71-20; Rev. Proc. 98-25
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12. IRS Initiatives
Note FAQ # 7
Consider your record retention policy
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13. Alabama Update
Act 2011-551 (HB 230) Full Employment Act of 2011
years beginning on or after January 1, 2011
Incentive for job creation
AL income tax credit for small businesses that have
50 or fewer workers
That create new jobs paying at least $10 per hour
$1,000 credit available in tax year employee
completes one year service
Must be a net increase year over year
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14. Alabama Update
Act 2011-616 (HB 434)
Double weights sales factor for business income
apportionment
Sources revenues based on “market” rather than
“cost of performance”
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15. Alabama Update
Act 2011-644 (SB 395)
Deduction allowed for retrofitting homes against
catastrophic windstorm events
Hurricane, tornado, etc.
Deduction = the lesser of 50% of cost or $3,000
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16. ROTH IRA’s
Favorable attributes
No age limit for contribution
Participation in employer plan and ROTH
Earned income-THINK CHILDREN
NO RMD
Tax free income to beneficiaries
Unfavorable
2011 phase out
Single individual $107k-122k
16 Married-joint $169k-$179k
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18. Losses in IRA’s & 529 Plans
Proceeds – Basis = Loss
Miscellaneous itemized deduction
Must liquidate all accounts in individual’s name
10% penalty in play for traditional IRA
See IRS Notice 89-25; Publication 590
ROTH accounts have basis
Beware the 10% penalty if ROTH has conversion
proceeds
Limited ability to rebuild the accounts
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19. Federal Estate and Gift Tax
Late legislation increased the federal estate and
lifetime gift exemption to $5 million
Effective through 2012
2013 exemption scheduled to return to $1 million
Depressed values today
Valuation discounts have unknown future
Perfect storm for family transfers/sales
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20. 100% Gain Exclusion
Section 1202, Qualified Small Business Stock
(QSBS)
QSBS, not personal services, financial services or
hospitality services
Not more than $50 million in assets
Five year holding period
Acquired after September 27, 2010 and before
January 1, 2012
Gain excluded from income, not an AMT preference
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21. 100% Gain Exclusion
Must be a C corporation
Noncorporate owner
Annual gain exclusion is the greater of
$10 million (less previously excluded gain), or
10 times the basis of the shares sold
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22. Not Excluded but Deferred
Failed 5 year holding period
Section 1045 deferral
Sold at a gain
Held more than 6 months
Reinvested in another QSBS within 60 days
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23. Foreign Financial Assets for HIRE
HIRE Act expanded reporting requirements
Years beginning after March 18, 2010
IRC 6038D requires reporting for any individual who
holds > $50,000 (in aggregate) ANY:
foreign financial account in a foreign institution,
foreign stock,
interest in a foreign entity, or
financial instrument with a foreign counterpart not
held in an institution
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24. Foreign Financial Assets
Reported as part of the individual tax return
Does not replace FBAR
New form 8938
Penalty for failure to report $10K up to $50K
Reasonable cause available
2013 Foreign Account Tax Compliance Act (FATCA)
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25. Foreign Financial Assets
Statute of Limitations
Six year statute for omissions of > $5K income from
one or more reportable foreign assets regardless of
value
Statute of the entire return is suspended for failure
to disclose/file certain information related to foreign
operations or transactions
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26. Foreign Financial Assets
Notice 2011-55
Draft form 8938
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27. Disclosure
Form 926-transfer of property to foreign corp.
Form 3520-transactions with foreign trusts
Form 5471-information with respect to foreign corps.
Form 5472-foreign owed US company/foreign corp.
engaged in US trade or business
Form 8621-shareholder of PFIC or QEF
Form 8858-foreign DRE
Form 8865-foreign partnerships
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28. Known Changes
Without further legislative action these tax changes
will occur:
Sales tax deduction gone after 2011
Bush tax reductions sunset 12-31-2012
Max individual rate 39.6%
Dividends taxed as ordinary income
Capital gains 20%/18% acquired after 2000 and held
for 5 years
Most enhanced deductions and credits for individuals
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29. Known Changes-2013
0.9% Medicare surtax on higher wage earners, $200k
single/$250k married-joint
3.8% Medicare surtax on “Net Investment Income
$200k single/$250k joint threshold
Tax applied to the lesser of:
1. Net investment income
2. Modified Adjusted Gross Income>Threshold
Net Investment Income
Interest, dividends, rents, capital gains, royalties, annuities
Also, Income from Passive Activities
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30. Known Changes-2013
$2,500 cap on FSA Contributions
Medical deduction threshold up to 10%
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31. Being Discussed
President’s proposed American Jobs Act:
50% reduction in payroll tax on employers’ first $5
million of payroll
NO Payroll tax for firms that add workers or increase
payroll (capped at $50 million)
100% Bonus depreciation extended through 2012
Up to $9,600 of tax credits for hiring veterans
$4,000 tax credit for hiring long term unemployed
50% reduction in employee share of payroll tax
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32. Being Discussed
Joint Select Committee (super committee)
5.4% tax surcharge income > $1 million
Repeal Bush cuts in 2012
Deny passports if an individual owes unpaid federal
taxes of $100,000 or more
Repeal MACRS replace with ADS
Company owed aircraft depreciated over 7 years
rather than the current 5 years
Professional “S” corporation income subject to SE
tax
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33. Being Discussed
Eliminate Section 199 (DPAD)
No more LIFO
Capping mortgage interest deduction
Eliminate interest deduction for second homes and
home equity loans
Capital gains becomes a tax preference item
No more LKE
Repeal cafeteria plans
Gifts of property limited to basis
Restricting charitable contributions
Tax SS as pensions
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34. Annual Tax Seminar
Save the Date!
Decosimo’s Tax Seminar
Nov. 15th
Receive up to 8 hours of CPE
Find more information online at:
http://decosimo.com/2011taxseminar
Or See a Decosimo Representative
35. Connect with me
John E. Henegar, CPA
Principal
423.756.7100
johnhenegar@decosimo.com
On LinkedIn:
http://www.linkedin.com/pub/john-
henegar/26/86a/291
Disclaimer:
The contents of this presentation are for informational purposes only. The information is not intended to be a substitute for
professional accounting counsel. Always seek the advice of your accountant or other financial planner with any questions you
may have regarding your financial goals or specific situations.