Many businesses may benefit from purchasing assets by Dec. 31 to take advantage of depreciation-related deductions that are scheduled to either disappear or become less favorable in 2013:
Bonus depreciation. For qualified assets acquired and placed in service through Dec. 31, 2012, this additional first-year depreciation allowance is, generally, 50%. Among the assets that qualify are new tangible property with a recovery period of 20 years or less and off-the-shelf computer software. With a few exceptions, bonus depreciation is scheduled to disappear in 2013.
Section 179 expensing. This election allows a 100% deduction for the cost of acquiring qualified assets, and it’s subject to different rules than bonus depreciation. On the plus side, used assets can qualify for Sec. 179 expensing. On the minus side, a couple of rules may make Sec. 179 expensing less beneficial to certain businesses:
The expensing and asset purchase limits are scheduled to drop to $25,000 and $200,000, respectively, in 2013.
These depreciation opportunities, however, bring with them a challenge: Determining whether the larger 2012 deductions will prove beneficial over the long term. Taking these deductions now means forgoing deductions that could otherwise be taken later, over a period of years under normal depreciation schedules.
In some situations, future deductions could be more valuable. For example, tax rates for individuals are scheduled to go up in 2013, which means flow-through entities, such as partnerships, limited liability companies and S corporations, might save more by deferring the deductions.
Finally, keep an eye on Congress: It’s possible the current versions of these breaks could be extended or even enhanced.
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Tuesday, October 30, 2012
Make the most of depreciation-related breaks while you can
Wednesday, October 24, 2012
Why 2012 may be the right year for a Roth IRA conversion
If you have a traditional IRA, you might benefit from converting all or a portion of it to a Roth IRA. A conversion can allow you to turn tax-deferred future growth into tax-free growth. It also can provide estate planning advantages: Roth IRAs don’t require you to take distributions during your life, so you can let the entire balance grow tax-free over your lifetime for the benefit of your heirs.
The downside of a conversion is that the converted amount is taxable in the year of the conversion. But there are a couple of reasons why 2012 may be the right year to make the conversion and take the tax hit:
1. Saving income taxes. Federal income tax rates are scheduled to increase for 2013 and beyond unless Congress extends current rates or passes other rate changes. So if you convert before year end, you’re assured of paying today’s relatively low rates on the conversion. In addition, you’ll avoid the risk of higher future tax rates on all postconversion growth in your new Roth account, because qualified Roth IRA withdrawals are income-tax-free.
2. Saving Medicare taxes. If you convert in 2012, you don’t have to worry about the extra income from a future conversion causing you to be hit with the new 3.8% Medicare tax on investment income, which is scheduled to take effect in 2013 under the health care act. While the income from a 2013 (or later) conversion wouldn’t be subject to the tax, it would raise your modified adjusted gross income (MAGI), which could cause some or all of your investment income in the year of conversion to be hit with the Medicare tax.
Likewise, you won’t have to worry about future qualified Roth IRA distributions increasing your MAGI to the extent that it would trigger or increase Medicare tax on your investment income, because such distributions aren’t included in MAGI. While traditional IRA distributions won’t be subject to the Medicare tax, they will be included in MAGI and thus could trigger or increase the Medicare tax on investment income.
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Wednesday, October 17, 2012
Social Security disability benefits taxable even though offset by nontaxable worker's compensation
An individual received both Social Security disability benefits and state worker's compensation benefits. For 2009, the Social Security Administration (SSA) reported that taxpayer's total disability benefits were $11,947, which included a $4,715 offset for worker's compensation. Because worker's compensation benefits are generally nontaxable under Code Sec. 104(a)(1), the taxpayer reported only $5,844 in Social Security benefits on her joint 2009 tax return, which was the net amount she received from the Social Security Administration. However, the IRS determined that the full $11,947 should have been reported, of which 85 percent was taxable.
The taxpayer cited Code Sec. 104(a)(1) and claimed that it was unfair to include the worker's compensation amount in her taxable Social Security benefits. The Tax Court found that, not only does Section 86 of the Social Security Act include Social Security benefits in gross income, but that under Section 86(d)(3), if any Social Security benefit is reduced because of a worker's compensation benefit, the "Social Security benefit" includes the amount received under the worker's compensation act. Thus, even though the SSA did not pay the worker's compensation benefits to the taxpayer, they were includable in gross income.
The IRS admitted, however, that although the statute is clear on this point, the result was not obvious. Therefore, the IRS conceded that the taxpayer was not liable for the Code Sec. 6662(a) penalty.
If you have any questions regarding Social Security or worker's compensation benefits, please contact Doeren Mayhew.
IRS issues guidance on PPACA's post-2013 employer's shared responsibility payment
The IRS has issued Notice 2012-58, which provides interim guidance on the Code Sec. 4980H shared responsibility payment for applicable large employers with employees who receive a premium tax credit or applicable payment under the Patient Protection and Affordable Care Act (PPACA). The shared responsibility payment requirement generally applies after 2013. The guidance sets forth some safe harbor methods applicable to seasonal employees and employees who work variable hours that may or may not average 30 hours.
Who is required to make a shared responsibility payment?
Subject to several exceptions, an "applicable large employer" means, with respect to a calendar year, an employer who employed an average of at least 50 full-time employees on business days during the preceding calendar year.
Under the PPACA, an applicable large employer is subject to a shared responsibility payment (an assessable payment) if any full-time employee is certified to receive an applicable premium tax credit or cost-sharing reduction payment and:
- The employer does not offer toits full-time employees and their dependents the opportunity to enroll inminimum essential coverage under an eligible employer-sponsored plan (CodeSec. 4980H(a)); or
- The employer offers its full-timeemployees and their dependents the opportunity to enroll in minimumessential coverage under an eligible employer-sponsored plan that eitheris unaffordable relative to an employee's household income or does notprovide minimum value (that pays at least 60 percent of benefits) ( CodeSec. 4980H(b)).
What is the look-back measurement period?
Employers may use an extended look-back measurement period of up to 12 months to determine whether their new ongoing employees are "non-full-time" employees that will not subject employers to an assessed payment under Code Sec. 4980H. Examples provided in Notice 2012-58 include variable hours employees, such as waiters, or seasonal employees, such as a ski instructor who works for five months. The IRS explained that an employee is a variable hour employee if, based on the facts and circumstances at the date the employee begins providing services to the employer (the start date), it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week.
How long will the IRS rely on this guidance?
At least through the end of 2014, the IRS announced that employers may rely on the guidance outlined in Notice 2012-58 and on the following approaches described in prior Notices:
- Under the safe harbor method forongoing employees, an employer determines each ongoing employee'sfull-time status by looking back at the standard measurement period (adefined time period of not less than three but not more than 12consecutive calendar months, as chosen by the employer).
- If an employee is reasonablyexpected at his or her start date to work full-time, an employer thatsponsors a group health plan that offers coverage to the employee at orbefore the conclusion of the employee's initial three calendar months ofemployment will not be subject to the employer responsibility payment.
- For all employees, an employerwill not be subject to an assessable payment under Code Sec. 4980H(b) foran employee if the coverage offered to that employee was affordable basedon the employee's Form W-2 wages reported in Box 1. Under theaffordability safe harbor, an employee's contribution generally cannot bemore than 9.5 percent of the employee's Form W-2 wages.
If you have any questions concerning how these complex rules for "shared responsibility payments" may relate to your business and what steps might be taken before the rules go into effect, please contact Doeren Mayhew.
IRS refines simplified methods for determining inventory costs, prohibits negative amounts
The IRS has issued proposed regulations that clarify the "simplified methods" for determining inventory costs under the Code Sec. 263A uniform capitalization rules. In a significant change from prior guidance, the proposed regulations would prohibit the use of negative numbers for adjustments to inventory costs, unless particular exceptions apply. Among the exceptions is that the IRS will allow the use of negative amounts by companies using the simplified resale method and by certain small producers.
Code Sec. 263A in a nutshell
Code Sec. 263A requires certain business taxpayers that produce intangible property to capitalize the costs of producing that property. Code Sec. 263A generally requires taxpayers to allocate these costs that must be capitalized to specific items in inventory, which can become complicated for many taxpayers. However, the Code Sec. 263A regulations authorize taxpayers to use alternative simplified methods to allocate costs.
The proposed regulations provide a simplified production method and a simplified resale method for allocating costs to inventory. The simplified methods are an exception to allocating costs to specific items of property. Instead, they allocate a pool of capitalizable costs ("additional Code Sec. 263A costs") between ending inventory and cost of goods sold (COGS) using the "absorption ratio."
Negative amounts
A negative amount (a reduction in capitalizable costs) could occur under different scenarios, for example, if a business capitalizes a Code Sec. 471 cost (such as depreciation) for book purposes in a higher amount than the cost capitalized for tax purposes. A negative amount results if the business removes the excess depreciation by adjusting additional Code Sec. 263A amounts (the numerator of the absorption ratio), rather than the Code Sec. 471 amounts (the denominator). The IRS indicated that these negative amounts could significantly distort the additional Code Sec. 263A costs allocated to ending inventory.
Proposed rules
The proposed regulations would supersede Notice 2007-29 and would generally prohibit the use of negative amounts in applying the simplified production method. However, the proposed regs provide several exceptions. One exception applies to smaller producers with average annual gross receipts of $10 million or less. The proposed regs also allow the use of negative amounts by retailers and wholesalers under the simplified resale method. The regulations also provide an alternative simplified production method that would reduce overcapitalization and distortion, the IRS predicted. While not yet "finalized" and therefore officially operative, taxpayers are advised to start following IRS's revised views now or face time and expense in defending the reasonableness of a contrary position.
IRS sets net operating loss (NOL) limits on corporate equity reduction transactions (CERTS)
The IRS issued long-awaited proposed regulations on the limitations on net operating losses (NOL) for excess interest deductions. The limitations apply when a corporation engages in a corporate equity reduction transaction (CERT) that generates or increases an NOL because of an excess interest deduction. The provision prevents the excess NOL from being carried back over the normal carryback period and generating a refund.
Congress enacted the limitations in 1989, but the IRS had never issued regulations. Congress wanted to limit the ability of taxpayers purchasing corporations to use debt to obtain refunds from carrying back NOLs attributable to interest on the debt. The application of the limitations has resurfaced because taxpayers were carrying back NOLs from 2008 and 2009 with an interest component. The issue is now being seen on returns audited for those years.
Although the regulations are proposed to apply only when published as final regulations, the IRS requested comments on transition issues, such as the application of the regulations to transactions occurring in years before the IRS issues final regulations.
A CERT is either a major stock acquisition (the acquisition of at least 50 percent of the stock in another corporation) or an excess distribution (the distributions made on stock during the year, compared to the average distributions over the three immediately preceding years). A CERT can arise from either a taxable or a tax-free transaction. For example, the law requires the testing of a Code Sec. 355 spinoff, a Code Sec. 351 reorganization, and a Code Sec. 368 stock acquisition. Practitioners have warned that this is a broad provision that will require an additional layer of analysis for many corporate transactions.
The regulations explain when a CERT has occurred, the computation of the excess NOL, and the treatment of successor corporations. The regulations provide that an integrated plan of stock acquisition with multiple steps will be tested as a potential CERT.
The regulations also discuss the treatment of consolidated groups, which must be treated as a single taxpayer. The regulations address: the group's average interest paid or accrued in the three years preceding the CERT; the effect if a corporation participating in a CERT becomes a member of a consolidated group; the effect if a group member deconsolidates after the group participated in a CERT; and apportionment of the excess loss to members of the group for carryback or carryover to separate return years.
Largest ever IRS whistleblower award given to Swiss bank employee
A $104-million IRS whistleblower award has been paid to former Swiss Bank UBS AG employee Brad Birkenfeld. The award is purported to be the largest paid under the IRS whistleblower program. Information provided by Birkenfeld aided the IRS in uncovering tax fraud in offshore accounts, which has resulted in collection of $5 billion so far. The IRS Award Report stated, in part, "While the IRS was aware of tax compliance issues related to secret bank accounts in Switzerland and elsewhere, the information provided by the whistleblower formed the basis for unprecedented actions."
In response, an IRS spokesperson emphasized the importance of the IRS whistleblower program. "The IRS believes that the whistleblower statute provides a valuable tool to combat tax noncompliance, and this award reflects our commitment to the law," the spokesperson explained.
If you have questions about the IRS Whistleblower program, please contact Doeren Mayhew.
Wednesday, October 10, 2012
Make the most of depreciation-related breaks while you can
Many businesses may benefit from purchasing assets by Dec. 31 to take advantage of depreciation-related deductions that are scheduled to either disappear or become less favorable in 2013:
Bonus depreciation. For qualified assets acquired and placed in service through Dec. 31, 2012, this additional first-year depreciation allowance is, generally, 50%. Among the assets that qualify are new tangible property with a recovery period of 20 years or less and off-the-shelf computer software. With a few exceptions, bonus depreciation is scheduled to disappear in 2013.
Section 179 expensing. This election allows a 100% deduction for the cost of acquiring qualified assets, and it’s subject to different rules than bonus depreciation. On the plus side, used assets can qualify for Sec. 179 expensing. On the minus side, a couple of rules may make Sec. 179 expensing less beneficial to certain businesses:
The expensing and asset purchase limits are scheduled to drop to $25,000 and $200,000, respectively, in 2013.
These depreciation opportunities, however, bring with them a challenge: Determining whether the larger 2012 deductions will prove beneficial over the long term. Taking these deductions now means forgoing deductions that could otherwise be taken later, over a period of years under normal depreciation schedules.
In some situations, future deductions could be more valuable. For example, tax rates for individuals are scheduled to go up in 2013, which means flow-through entities, such as partnerships, limited liability companies and S corporations, might save more by deferring the deductions.
Finally, keep an eye on Congress: It’s possible the current versions of these breaks could be extended or even enhanced.
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Wednesday, October 3, 2012
Time is running out for tax-free treatment of home mortgage debt forgiveness
Income tax generally applies to all forms of income, including cancellation-of-debt (COD) income. Think of it this way: If a creditor forgives a debt, you avoid the expense of making the payments, which increases your net income.
Debt forgiveness isn't the only way to generate a tax liability, though. You can have COD income if a creditor reduces the interest rate or gives you more time to pay. Calculating the amount of income can be complex, but essentially, by making it easier for you to repay the debt, the creditor confers a taxable economic benefit. You can also have COD income in connection with a mortgage foreclosure, including a short sale or deed in lieu of foreclosure.
Under the Mortgage Forgiveness Debt Relief Act of 2007, homeowners can exclude from their taxable income up to $2 million in COD income ($1 million for married taxpayers filing separately) in connection with qualified principal residence indebtedness (QPRI). But the exclusion is available only for debts forgiven (via foreclosure or restructuring) through 2012.
QPRI means debt used to buy, construct or substantially improve your principal residence, and it extends to the refinance of such debt. Relief isn't available for a second home, nor is it available for a home equity loan or cash-out refinancing to the extent the proceeds are used for purposes other than home improvement (such as paying off credit cards).
If you exclude COD income under this provision and continue to own your home, you must reduce your tax basis in the home by the amount of the exclusion. This may increase your taxable gains when you sell the home. Nevertheless, the exclusion likely will be beneficial because COD income is taxed at ordinary-income rates, rather than the lower long-term capital gains rates. Plus, it's generally better to defer tax when possible.
So if you're considering a mortgage foreclosure or restructuring in relation to your home, you may want to act before year end to take advantage of the COD income exclusion while it's available.
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Congress leaves tax law up in the air; sequestration uncertain
| Doeren Mayhew |
Unfinished business Since the start of 2012, the list of tax measures waiting for Congressional action has remained unchanged. Among the individual tax provisions scheduled to expire after 2012 are:
Also scheduled to expire at the end of 2012 is the payroll tax holiday. The employee share of Social Security taxes is 4.2 percent rather than 6.2 percent, up to the Social Security earnings cap of $110,100 for 2012. Self-employed individuals benefit from a similar reduction. Additionally, many so-called tax extenders for individuals expired after 2011. They include the state and local sales tax deduction, the teachers' classroom expense deduction, and more. The most recent alternative minimum tax (AMT) "patch" expired after 2011. The list of expiring or expired tax incentives for businesses is just as long. They include:
Behind the scenes talks The lame-duck Congress, which will meet after the November elections, may tackle some or all of the expiring tax incentives, or it could do nothing and punt them to the next Congress. Behind the scenes, some Democrats and Republicans in Congress are reportedly talking about a short-term extension of the expiring/expired provisions, for six months or one year, which would give lawmakers and the White House more time to reach an overall agreement. However, the dynamic could and likely will change if the GOP takes the White House and wins control of the Senate. In the Senate, Sen. Kent Conrad, D-ND, has told reporters that he and several other senators from both parties have been discussing whether or not to extend the expiring tax cuts. Conrad, who is retiring at the end of 2012, has acknowledged that Democrats and Republicans are far apart on revenue raisers and spending cuts. Reports of informal talks among the members of the House Ways and Means Committee have also circulated but no concrete proposals have so far been revealed. Sequestration The imminent spending cuts (called sequestration) are the result of the Budget Control Act of 2011. The 2011 Act imposes approximately $110 billion in spending cuts, impacting defense and non-defense spending, for 2013. Almost every area of federal spending, including tax enforcement, will be affected. In recent months, some lawmakers have proposed to mitigate the spending cuts by raising revenues elsewhere. One area targeted for tax increases is the oil and gas industry. However, several attempts to repeal tax preferences for the oil and gas industry failed in Congress in 2012. Any extension of the expiring tax breaks will have to take into account the looming across-the-board spending cuts. Tax reform and debt reduction will go hand-in-hand. However, it is unclear if debt reduction will drive tax reform or vice-versa. Our office will keep you posted of developments. Please contact our office if you have any questions about pending federal tax legislation. |
Year-end planning: 3.8 percent Medicare tax looms for 2013
| Doeren Mayhew |
Specified thresholds For an individual, the tax will apply to the lesser of the taxpayer's NII, or the amount of "modified" adjusted gross income (AGI with foreign income added back) above a specified threshold, which is:
Examples. A single taxpayer has modified AGI of $220,000, including NII of $30,000. The tax applies to the lesser of $30,000 or ($220,000 minus $200,000), the specified threshold for single taxpayers. Thus, the tax applies to $20,000. A single taxpayer has modified AGI of $150,000, including $60,000 of NII. Because the taxpayer's income is below the $200,000 threshold, the taxpayer does not owe the tax, despite having substantial NII. For an estate or trust, the tax applies to the lesser of undistributed net income, or the excess of AGI over the dollar amount for the highest tax rate bracket for estates and trusts ($11,950 for 2013). Thus, the tax applies to a much lower amount for trusts and estates. Application of tax The tax applies to interest, dividends, annuities, royalties, and rents, and capital gains, unless derived from a trade or business. The tax also applies to income and gains from a passive trade or business. Other items are excluded from NII and from the tax: distributions from IRAs, pensions, 401(k) plans, tax-sheltered annuities, and eligible 457 plans, for example. Items that are totally excluded from gross income, such as distributions from a Roth IRA and interest on tax-exempt bonds, are excluded both from NII and from modified AGI. The tax does not apply to nonresident aliens, charitable trusts, or corporations. Tax planning techniques Taxpayers are concerned about having to pay the tax. One technique for avoiding the tax is to sell off capital gain property in 2012, before the tax applies. This can be particularly useful if the taxpayer is facing a large capital gain from the sale of a principal residence (after taking the $250,000/$500,000 exclusion from income). Older taxpayers who do not want to sell their property may want to consider holding on to appreciated property until death, when the property gets a fair market value basis without being subject to income tax. The technique of "gain harvesting" may be even more attractive if tax rates increase on dividends, capital gains, and AGI in 2013, with the potential expiration of the Bush-era tax cuts. However, the status of these tax rates will not be determined until after the election, potentially in a lame-duck Congressional session. It is also possible that Congress will simply extend existing tax rates for another year and "punt" the decision until 2013, as tax reform discussions heat up. Taxpayers may also want to change the source of their income. Investing in tax-exempt bonds will be more attractive, since the interest income does not enter into AGI or NII. Converting a 401(k) account or traditional IRA to a Roth IRA will accomplish the same purpose. Income from a Roth conversion is not net investment income, although the income will increase modified AGI, which may put other income in danger of being subject to the 3.8 percent tax. Increasing deductible or pre-tax contributions to existing retirement plans can also lower income and help the taxpayer stay below the applicable threshold. Trusts and estates should make a point of distributing their income to their beneficiaries. A trust's NII will be taxed at a low threshold (less than $12,000), while the income received by a beneficiary is taxed only if the much higher $200,000/$250,000 thresholds are exceeded. Uncertainty There was some uncertainty about the tax taking effect because of litigation challenging the health care law providing the tax, but a June 2012 Supreme Court decision upheld the law. The application of the tax is also uncertain because the Republican leadership has vowed to pursue repeal of the health care law if the Republicans win the presidency and take control of both houses of Congress in the November 2012 elections. But this is speculative. In the meantime, the Supreme Court decision guarantees that the tax will take effect on January 1, 2013. These can be difficult decisions. While economic considerations for managing assets and income are important, it also makes sense for a taxpayer to look at the tax impact if the certain asset sales or shifts in investment portfolios are otherwise being considered. |
Projected 2013 inflation-adjusted tax amounts show increases benefitting taxpayers
| Doeren Mayhew |
Taxpayers recovering from the current economic downturn will get at least some relief in 2013 by way of the mandatory upward inflation-adjustments called for under the tax code, according to CCH, a Wolters Kluwer business. CCH has released estimated income ranges for each 2013 tax bracket as well as a growing number of other inflation-sensitive tax figures, such as the personal exemption and the standard deduction. Projections this year, however, are clouded by the uncertainty of expiring provisions in the tax code. If Congress allows the so-called Bush-era tax cuts to expire at the end of 2012, many taxpayers could lose more ground than they will otherwise gain. These tax cuts, first enacted within Economic Growth Tax Recovery and Reconciliation Act of 2001 (EGTRRA) with a ten-year life, were last extended by the 2010 Tax Relief Act, but only for two years through 2012. When there is inflation, indexing of brackets lowers tax bills by including more of taxpayers' incomes in lower brackets - in the existing 15-percent rather than the existing 25-percent bracket, for example. The formula used in indexing showed an average amount of inflation this year of about 2.5 percent - the highest in several years. Most 2013 figures therefore have moved higher. Tax Rates The current 10, 15, 25, 33 and 35-percent rates are now officially scheduled to sunset to the pre-EGTRRA rate structure of 15, 28, 31, 36 and 39.6-percent. While no one in Washington is calling for a full sunset of all the current tax rates, congressional gridlock might produce a cliffhanger on what will happen until after the November elections, and perhaps not even before January when the new, 113th Congress convenes. In the meantime, there are three possible alternative scenarios being debated by lawmakers:
Here is a sample of how inflation will raise rate brackets in 2013, assuming a full extension of tax rates:
Standard Deductions The 2013 standard deduction will increase for all taxpayers. The standard deduction amounts for 2013 is projected to be $6,100 for single taxpayers; $8,950 for heads of households; $12,200 for married taxpayers filing jointly and surviving spouses; and $6,100 for married taxpayers filing separately. The standard deduction for dependents rises $50 to $1,000 (or earned income plus $350). The additional standard deduction for those have reached 65 or are blind will rise to $1,200 for married taxpayers; $1,500 for unmarried individuals. Personal Exemptions The amount of personal and dependency exemptions for 2013 will increase to $3,900 from the 2012 level of $3,800. Gift Tax Exclusion The gift tax annual exclusion, which rose from a base of $10,000 to $11,000 in 2002; $12,000 in 2006, and $13,000 in 2009, once again will rise in 2013 to $14,000. Pursuant to the IRC, the exemption can rise only when the inflation adjustment produces an increase of $1,000 or more. |
How do I? Deduct employee compensation given as year-end bonuses
| Doeren Mayhew |
The "All Events" test Code Sec. 461(a) provides that the amount of any deduction for employee bonuses must be taken for the proper tax year as determined under the method of accounting the taxpayer uses to compute taxable income. (The two most common methods are the cash method and the accrual method, the latter of which allows taxpayers to include income items when earned and claim deductions when expenses are incurred.) Under the accrual method of accounting, the three-prong "All events" test is used to determine the tax year in which a liability-in this case the year-end employee bonuses--is incurred. The prongs are:
Approval and retention provisions Some year-end bonus plans are structured with certain conditions attached to payment. For example, some bonus plans provide that payment cannot occur until formally approved. In such cases, the fact of the liability may not be established, and the employer may need to wait a year before being able to deduct the bonus amount. Other plans specify that bonus payments cannot be made if an employee has left employment at year-end. In this case as well, questions arise as to whether liability for the bonuses has been fixed at the end of the year in which the employee's services were performed. Deferred compensation Generally, Code Sec. 404 states that, an employer may not deduct deferred compensation paid to an employee until the employee includes it in income. However, a bonus received within a 2 1/2-month period after the end of the tax year in which the employee has rendered its services is not considered deferred compensation. The employer should be able to claim a tax deduction for the bonus in the tax year during which the services were rendered provided that the liability meets the all events test. If the employee receives the deferred amount more than 2 1/2 months after the close of the employer's taxable year, the payment is presumed to have been made under a deferred compensation plan. If you think you might be interested in structuring a year-end bonus plan specific to your business, please feel free to contact this office for an appointment. |
FAQ: What happens to IRS's deadline to audit a return with an extended filing date?
| Doeren Mayhew |
If a taxpayer receives an extension of time to file the return (for example, an automatic six-month extension until October 15), however, the return is considered filed on the actual date of filing rather than the extension date. On the other hand, filing an amended tax return, such as a Form 1040X, however, would generally have no effect on the three-year period if it does not increase tax liability. For example, if the taxpayer filed his tax return on April 17, 2012, subsequently discovered a missing item of income, and filed an amended return on May 15, 2012 that did not increase his tax liability, the three-year state of limitations period will still run from April 17, 2012 to April 17, 2015. For more information on the statute of limitations on tax assessments and any exceptions, please contact our office. |
October 2012 tax compliance calendar
| Doeren Mayhew |
October 3 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates September 26-28. October 5 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates September 29-October 2. October 10 Employees who work for tips. Employees who received $20 or more in tips during September must report them to their employer using Form 4070. October 11 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates October 3-5. October 12 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates October 6-9. October 15 Individuals. Individuals with automatic 6-month extensions to file their 2011 income tax returns must file Form 1040, 1040A, or 1040EZ, and pay any tax, interest, and penalties due. Partnerships.Electing large partnerships that obtained a 6-month extension for filing the 2011 calendar year return (Form 1065-B) must now file the return. October 17 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates October 10-12. October 19 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates October 13-16. October 24 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates October 17-19. October 26 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates October 20-23. October 31 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates October 24-26. November 2 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates October 27-30. |
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