TOPICS COVERED IN THIS ISSUE
- WHERE IS MY REFUND
- IRS STUDY OF S CORPORATIONS
- EMPLOYEE OWNED TOOLS
- AUTO RENTAL INSURANCE
- INVESTMENT MONITORING TIP
- ZERO POINTS
- NEXUS IN ANOTHER STATE
- FINANCIAL PROFESSIONAL
- STOCK OPTIONS
- WHEN IS IT TIME TO PARTNER WITH
A CPA?
- HOW TO MAKE
BETTER USE OF PHONES
WHERE IS MY REFUND?
The Internal Revenue Service website www.irs.gov offers a way for
taxpayers to trace their missing federal income tax refunds.
Many refund checks are returned to the government annually because
of a bad address. The IRS has made enhancements so that the site now
offers a way to correct a mailing address.
IRS Launches Study of S Corporation Reporting Compliance
The Internal Revenue Service has announced the beginning of a
study to assess the reporting compliance of S corporations. As
part of the study, the IRS will randomly select for examination
5,000 S corporation returns from tax years 2003 and 2004. These
audits will begin later in 2005, according to the IRS.
The purpose of the study is to help the IRS gauge the extent to
which S corporations and their shareholders are properly reporting
income, deductions, and credits from S corporation operations.
The information collected from the study will help the IRS develop
criteria for selecting and auditing S corporation returns with
greater compliance risk.
The study, carried out under the National Research Program (NRP),
is designed to reach statistically valid conclusions regarding
compliance behavior despite the relatively small number of returns
sampled. The last study was conducted in 1984 and involved 10,000
randomly selected returns from 1984.
S corporations are the most common corporate entity. They accounted
for 59 percent of all corporate returns filed in 2002. S corporations
reported net income of about $248 billion in 2002, with about a
third of S corporations reporting net losses totaling $63 billion.
Just over 3.1 million corporations filed S corporation returns
in 2002.
This is a “heads up” for you
if you operate as an S corporation. Be sure your CPA has an up-to-date
Power of Attorney to represent you IF you are picked.
We generally request a signed Power of Attorney with each tax
return we process. We request that Power be sent to us for use
if needed. Does your tax practitioner do that for you?
Planning for
the future is a lot like planting a tree.
You've got to do it today if you want
your family to enjoy it tomorrow.
EMPLOYEE-OWNED TOOLS
Guidance Regarding Employee-Owned Tools Released
(TDNR JS-2677; Notice 2005-59; Rev. Rul. 2005-52)
The IRS has issued guidance regarding
the circumstances under which a tool allowance paid by
an employer to an employee can be excluded from the employee's
gross income and exempt from the withholding and payment
of employment taxes. The guidance clarifies that an accountable
plan may not use estimates to substantiate the amount
of such expenses. Instead, a reimbursement arrangement
must meet the requirements for an accountable plan set
forth in Reg. §1.62-2(c)(1),
which provides that a reimbursement or other
expense allowance arrangement will be excluded from the
employee's gross income if the reimbursed expense has
a connection to the employer's business, the employee
complies with substantiation requirements and the employee
must return amounts in excess of substantiated expenses.
Therefore, a reimbursement arrangement under which an automobile
repair business paid employees a tool allowance that was
based on a national survey of average tool expenses and
a questionnaire completed by the employees did not meet
the requirements for an accountable plan. In addition, an
arrangement in which the employee reports hours worked requiring
the use of tools is not the equivalent of substantiating
actual expenses incurred. Furthermore, an arrangement is
not an accountable plan if it includes amounts paid in excess
of substantiated expenses in the employee's wages rather
than requiring that the amounts be returned.
AUTO RENTAL INSURANCE
Please be aware: the use of your own auto insurance when
renting a car MAY NOT work. It did not for one client. Like
most of us, when she was offered the optional collision
insurance, she waived it because her home-state insurance
coverage could be used (or so she thought). Since she rented
a car for 16 days, her home coverage did not attach to the
car rental contract. A little known clause (in very small
print) in her policy only allows rental coverage for as
much as fifteen days. She was one day over, so her home-state
coverage was void. It became a very costly mistake for her.
She asked that I let everyone know about this, as she does
not want others to fall into the same problem. Thanks JA.
Did you know we
do more than just prepare, compile, and
crunch numbers? We are not just bean-counters.
We can also advise you on estate and business
planning and offer financial strategies
to meet your goals. As your CPA, we know
your needs better than many other professionals.
INVESTMENT MONITORING TIP
To better monitor your investments, set up a file where
you can store information relating to your investment activities,
such as confirmation slips and monthly statements sent by
your broker. Keep notes of any specific instructions given
to your account executive or brokerage firm.
Good records regarding your investments are important for
tax purposes, and also in the event of a dispute about a
specific transaction.
ZERO POINTS
Zero points/zero cost arrangements inflate the financing and the
interest charges. This means instead of paying the costs and points
up front, you will pay them PLUS interest over the life of the mortgage.
You must do a calculation of the difference between having no points/costs
vs. having points/cost and see how many years it takes to equalize.
If you will keep the home at least that long AND NOT REFINANCE TO
LOWER RATES during that period, then no points, no costs make sense.
Most people do not keep a mortgage that long, as they usually refinance
or move before the equalization date.
Again, easy questions sometimes do not necessarily mean easy answers.
Call me if you are positively confused.
“NEXUS” IN ANOTHER
STATE
If your business has nexus,
or “substantial
physical presence” in another state, they
will expect you to pay income and sales/use
taxes on revenue generated there.
Definitions of “substantial” vary,
and some states are more aggressive than
others to find and levy taxes on businesses with
nexus within their boundaries. Some major considerations
are:
1. Do you have a sales office within another state?
2. Do you provide service (other than just delivery
of product or basic sales assistance) to customers
in another state?
This is only a guide to show how some states have
ruled. Call me for more information.
FINANCIAL PROFESSIONAL
There has never been a better time to
find a financial professional. Now more than ever, people
understand the importance of keeping what they’ve earned,
and potentially making it last longer than their parents ever
had to.
We want to partner with you and provide you with innovative
thinking and support that you need. Call for an appointment
to review your current portfolio and based upon your time horizon
and risk tolerance we can help you decide where to place your
investments.
STOCK OPTIONS
Taxpayer Must Recognize Income When Stock Options Transferred
from Employer are Exercised (Rev. Rul. 2005-48)
A taxpayer who receives nonstatutory
stock options from his employer is required to recognize income
under Code Sec. 83 upon the exercise of those options. Under
Code Sec. 83, the recipient of property in connection with
the performance of services must include in income the amount
by which the fair market value of the property exceeds the
amount paid for the property. The fair market value of the
property is determined at the time when the transferee's rights
in the property become substantially vested, meaning transferable
or not subject to a substantial risk of forfeiture. Restrictions
imposed by the transferor will only delay the recognition
of income where the restrictions are non-lapse restrictions
as defined in Reg. §1.83-3.
Where a transferor of stock options restricts
the transferee's sale of any purchased stock to a specific
time window, the restriction is characterized as a lapse restriction.
Therefore, the transferee will recognize income at the time
of exercise.
Furthermore, there is no impediment to the substantial vesting
of property rights where a transferee is in possession of certain
inside information that would subject the transferee to suit
under Rule 10b-5 of the Securities Exchange Act if the options
were exercised. Congress did not include an exception for Rule
10b-5 restrictions in Code Sec. 83(c), but did choose to include
a different restriction of the Securities Exchange Act, indicating
an intention not to incorporate Rule 10b-5
WHEN IS IT TIME TO PARTNER WITH A
CPA?
The Massachusetts Society of CPAs recommends that you partner
with a CPA in 2005, particularly if you:
- will report income over
$100,000;
- need tax-saving advice
and assistance;
- need assistance with tax
documents;
- are considering tax-saving
investments;
- are self-employed or a
business owner; have children in
college or education expenses;
- have significant or unusual
transactions;
- or you want a professional
review of your tax return, even just
to get a second opinion.
The
Massachusetts Society of CPAs represents
over 8,800 certified public accountants
working in public accounting, industry & business,
government and education.
DON'T
FORGET:
"IT'S NOT WHAT YOU MAKE THAT COUNTS; IT'S WHAT YOU KEEP!"
If you are
pleased with our service, please tell your
friends. If you are not pleased with our
service, please tell me; that way we can
please you.
HOW TO MAKE BETTER
USE OF PHONES
Be sure your staff knows that phones should
be answered by the third ring, at the latest.
During busy phone times, have one person
dedicate his or her time exclusively to answering
phones-thereby avoiding having customers
on "hold.” Finally, test your
voice mail system to make sure it is user
friendly.
