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AFFORDABLE CARE ACT PLAN OF ATTACK
COLLECT PAST DUE ACCOUNTS ROTH IRA CONTRIBUTION WITHDRAWALS
WHAT THE PATH ACT MEANS
OBAMA BUDGET PROPOSAL
REPLACING PEOPLE WITH BOTS
SIGNING UP FOR MEDICARE
SINGLE MEMBER PLANNING
RULES FOR BUSINESS TAX RETURNS
S CORPORATION PLANNING UNPAID EMPLOYMENT TAXES
TARGET MARKETING FOR CPAS
3 Hours of CPE
BUSINESS TAX 2016
Vol. 16, No. 2
THE R&D TAX CREDIT: Expanded
CPA Magazine P.O. Box 92342 Southlake, TX 76092
TOP 9 CPA WEBSITE BUILDERS OF 2016
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Relevant Current Client Tax Tips Tax Strategies IRS Representation Advice Tax Law Updates Technology Updates
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e m o c l e W 6
Sidney Kess CPA, J.D., LL.M
Jerry Love CPA/PFS, CFP, CVA, ABV, CITP, CFF, CFFA
Julie Welch CPA, CFP
12 Martin M. Shenkman CPA, MBA, PFS, J.D.
Rick Richardson CPA, CITP, CGMA
NEXT ISSUE: Product Reviews Reasonable 1040 Tax Software Small Business Accounting Tax Research Manage and Expand Your Practice Practice Management Estates and Trusts Secrets of Free Tax Research Email Marketing Expert Witnesses Cost Segregation Consulting
ongratulations! You made it through tax season. Though a good number may be trying to wrap up extended returns and filing away the endless stacks of client documents, many others are making plans for the next tax season and seeking new sources of useful tax information. This issue will certainly help with a tax professional’s quest for more tax knowledge. This issue Dean Zerbe and former IRS commissioner Steven Miller cover modifications to the R&D tax credit and the immediate effects it has on your clients. Sidney Kess summarizes the Protecting Americans from Tax Hikes (PATH) Act. Jerry Love writes about what the Affordable Care Act means for large employers now and how they can plan for it. Michael Silvio also covers the PATH Act describing the basis of its functionality. Julie Welch writes about using IRAs to help save for retirement. Martin Shenkman covers the tax ramifications of some of President Obama’s proposals and what they could mean for your clients. Kathleen Lach shines a spotlight on the IRS’ intentions to start cracking down on unpaid employment taxes. Technology is a cornerstone in a tax professional’s practice. In order to address this, several articles provide information on functionality and the thoughts from leaders of vendors supplying not-for-profit and business tax software. Also featured is an article on available website builders as your practice’s website often supplies a prospective client their first opinion of your abilities. CPE credit may be obtained utilizing the quiz in the back of this magazine over the content covered in this issue. Please read the instructions to make sure the credit satisfies your governing body’s requirements. Additional CPE quizzes over different content can be found at www. CPAMagazine.com. Until next issue, never stop learning and protecting your clients!
T. Steel Rose
CPA, ACS Editor
Manage, Enhance and Expand Your Practice I 3
2016 Business Directory
MANAGE, ENHANCE AND EXPAND YOUR PRACTICE
BUSINESS TAX 2016
7 11 13
15 # RMDs: Year End Issues
15 22 16 19
TAX CLIENT ADVISOR
Roth IRA Contribution Withdrawals Are Tax-Free Julie Welch, CPA, CFP 12
Signing Up for Medicare
$59 Billion: IRS to Focus on Unpaid Employment Taxes
20 22 23 24
TAX PLANNING ADVISOR
S Corporation Planning Martin M. Shenkman, CPA, MBA, PFS, J.D.
Star Ratings Are Back T. STEEL ROSE
CHECKLIST: Obama Budget Proposal (Greenbook) - Planning Implications MARTIN M. SHENKMAN, CPA, MBA, PFS, J.D.
Required Minimum Distributions: Year End Issues SIDNEY KESS, CPA, J.D., LL.M
Target Marketing for CPAs T. STEEL ROSE
CHECKLIST: Single Member LLC Creative Planning Applications MARTIN M. SHENKMAN, CPA, MBA, PFS, J.D.
11 Steps to Help Businesses Collect Past Due Accounts Signing Up for Medicare
What the PATH Act Means for R&D Credits
KATHLEEN M. LACH
JERRY LOVE, CPA/PFS, CFP, CVA, ABV, CITP, CFF, CFFA
s of 3 Hour
$59 Billion: IRS to Focus Efforts on Unpaid Employment Taxes
Replacing People with Bots Rick Richardson, CPA, CITP, CGMA
MICHAEL SILVIO, CPA
Business Tax Software Helps Professionals Implement PATH Act Comparison Chart JOSHUA FLUEGEL
26 27 29
4 I www.CPAmagazine.com
DEAN ZERBE AND STEVEN MILLER
Affordable Care Act – Plan of Attack Jerry Love, CPA/PFS, CFP, CVA, ABV, CITP, CFF, CFFA
The R&D Tax Credit: Permanent, Expanded and Open to Startups and Small Business
New Tax Rules for Business Tax Returns Sidney Kess, CPA, J.D., LL.M
Volume 16, No. 2
Top 9 CPA Website Builders JOSHUA FLUEGEL
CPA Professional Top Product Nominees
The R&D Tax Credit: Permanent, Expanded and Open
to Startups and Small Business BY DEAN ZERBE AND STEVEN MILLER
n all of the talk surrounding the $600 billion plus tax bill signed into law by the President last month, an underreported change within the deal could have the greatest impact of all for U.S. businesses. We are of course referring to the changes made to the Research and Development (R&D) Tax Credit, which was not only made permanent as part of the Protecting Americans from Tax Hikes (PATH) Act of 2015, but also includes two key adjustments that will greatly expand the number of businesses able to take advantage of the credit. Last year alone, the R&D Tax Credit provided over $10 billion in tax savings to U.S. companies. Taking into account the enhancements made to the Dean Zerbe credit, enhancements that were designed to allow startups and small businesses previously barred from the credit to now claim its tax benefits just as larger corporations currently do, it is estimated that the research credit could provide an additional $2 billion to U.S. businesses. Considering the value on the table for U.S. companies, CPAs and tax practitioners should be getting in front of their clients now to discuss this treSteven Miller mendous opportunity to grow their businesses. To understand the full ramifications of the new and improved R&D Tax Credit, let’s explore three modifications in detail: (1) permanency, (2) the turnoff of the AMT bar and (3) the new startup provision.
1. Permanency To begin, let’s start with those companies that were already claiming the credit, and what certainty can mean for tax practitioners and CPAs when planning for the future. Since its introduction over three decades ago, the R&D Tax Credit has, until now, been a temporary business credit. Although the credit has been renewed and its reach expanded multiple times, the constant (and often Kathy Petronchak and Steven Miller at a ThinkTank presentation. deadline-driven) extensions have prevented companies from being are going to be beforehand. Now, with able to truly strategize the future of their respect to the R&D Tax Credit, those businesses around its availability. worries are a thing of the past. With perSince the beginning, the R&D Tax manency comes certainty, and businesses Credit was designed as a financial incen- will now be able to tailor their future tive for innovative companies that were processes and investments knowing full investing time, money, and U.S.-based well the credit will be around to offset man hours into improving their prod- the costs. ucts and processes. And while the words “R&D” may bring to mind the kind of 2. AMT Turnoff Now, let’s move research taking place in a lab, the credit is to the expansions—starting with the also very much about rewarding applied AMT turnoff. science as well—the steps taken to make a product or process cheaper, cleaner, fast- Old Policy Shortcomings er, greener or more efficient. The credit In the past, the greatest hurdle preventwas intended not only to reward this kind ing small and medium businesses from of technical problem solving, but to en- claiming the R&D Tax Credit was the sure businesses continue to invest in new alternative minimum tax (AMT) bar and improved products and processes for provided in section 38(c) of the tax code. years to come, while keeping well-paying As tax advisors working in this area will tell you, the AMT barrier has long pretechnical jobs on U.S. soil. As most business owners will tell you vented owners of pass-through entities however, it is very difficult for them to from using the research credit to reduce plan and invest in future endeavors (and their taxes below their tentative miniin this case, R&D endeavors) if they are mum tax (TMT). Continued on page 18 unsure what the laws and regulations Manage, Enhance and Expand Your Practice I 5
New Tax Rules for Business Tax Returns For 2016 through 2019, "bonus depreciation applies
The Protecting Americans from Tax Hikes (PATH) Act (P.L. 114-113), which was signed into law on December 18, 2015, contains over 100 tax provisions. The law makes permanent more than 20 provisions that had expired at the end of 2014. It also extends other provisions through 2019, or for two years (2015 and 2016). According to the Joint Committee on Taxation, the extenders are projected to cost the government $628 billion over 10 years. The extenders and other provisions in the PATH Act impact individuals and businesses. Here is a roundup of the key provisions for businesses and how they affect 2015 returns as well as tax planning for 2016.
A number of business deductions have been made permanent or extended, as indicated below:
Write-offs for Equipment Purchases
Two important deduction options apply to purchases of equipment and machinery: • Sec. 179 deduction – The $500,000 deduction limit and the $2 million cap on equipment purchases before the deduction limit is phased out, have been made permanent. They had been set to revert to $25,000, and $200,000, respectively, in 2015. Starting in 2016, the dollar amounts can be adjusted for inflation. Also made permanent is the treatment of off-theshelf software as qualifying for a Sec. 179 deduction as well as the option to make or revoke a Sec. 179 election without IRS consent. • Bonus depreciation – This deduction, which applies to new (not pre-owned) property, has been extended through 2019. However, the 50% write-off for the cost of qualified property applies only for 2015, 2016, and 2017. In 2018, the deduction decreases to 40%; in 2019 it is 30%.
Write-offs for Leasehold, Restaurant, and Retail Improvements
Several Tax breaks relate to write-offs for these improvements: • Sec. 179 deduction – Such improvements qualify for the Sec. 179 deduction. However, for 2015, there is a $250,000 cap. Starting in 2016, the cap is removed. • Bonus depreciation – Qualified leasehold improvements qualify for the allowable percentage of bonus depreciation in 2015 (Code Sec. 168(k)). For 2016 through 2019, bonus 6 I www.CPAmagazine.com
to qualified improvements, which can include restaurant or retail improvements as well as leasehold improvements.
Sidney Kess, CPA, J.D., LL.M depreciation applies to qualified improvements, which can include restaurant or retail improvements as well as leasehold improvements; there is no longer a requirement that the improvement be placed in service more than three years after the building was first placed in service. The 50% percentage applies for 2015, 2016, and 2017. The percentage decreases to 40% in 2018 and 2019. • 15-year recovery period – Any amounts for improvements not deducted using the Sec. 179 deduction or bonus depreciation can be recovered using straight line depreciation over a 15year recovery period (Code Sec. 168). This recovery period has been made permanent.
Other Write-Off Rules
• Film and television production costs – These costs in 2015 and 2016 can be expensed up to $15 million, a tax break that benefits small producers (Code Sec. 181). For 2016, this deduction rule applies to theater productions as well. • Sports complexes – A seven-year recovery period applies to motorsports entertainment complexes (Code Sec. 168). • Race horses – A three-year recovery period for race horses applies through 2016 (Code Sec. 168). This article is continued on www.CPAmagazine.com.
Related CPE Quiz on Page 29
Executive Editor Sidney Kess is CPA-attorney, speaker and author of hundreds of tax books. The AICPA established the Sidney Kess Award for Excellence in Continuing Education in his honor, best-known for lecturing to over 700,000 practitioners on tax. Kess is counsel at Kostelanetz & Fink and is consulting editor to CCH.
$59 Billion: IRS to Focus Efforts on Unpaid Employment Taxes BY KATHLEEN M. LACH
f you are doing internal bookkeeping for a client and notice he is falling behind on his payroll tax payments, beware. In two separate meetings within a week’s time this author heard IRS managers tell of a $59 billion (yes, billion) shortfall in collection of 941 employment taxes. Along with this astounding number, they told of enhanced efforts for early intervention, and increased crackdown on repeat offenders. In 2014, over 70% of IRS revenue collection was from funds withheld by employers.1 Thus, when employers do not turn over these funds for a myriad of reasons, the Government’s budget takes a serious hit. In its effort to “do more with less” the IRS is implementing new measures to try to prevent pyramiding of these unpaid taxes. The IRS is guided by its own rules as laid out in the Internal Revenue Manual (IRM). IRM 5.7.1 deals with federal tax deposit (FTD) alerts. It states: “Federal Tax Deposit (FTD) Alerts are used to determine an employer’s compliance with employment tax deposit requirements for the quarter of the Alert issuance, and for subsequent quarters until the taxpayer is brought into full compliance. The FTD Alert process identifies, at an early stage (i.e., before the return is due), taxpayers who have fallen behind in their deposits.”2 A project implemented in April, 2015 by the IRS is in place to determine whether contacting the taxpayer even earlier when a deposit is missed increases the chances of future compliance. Currently, the FTD Alert analysis is done in the twelfth cycle week of each quarter, in March, June, September, and December. FTD Alerts are sent directly to the Integrated Collection System (ICS) for direct assignment to the field and are supposed to be assigned to a revenue field collection officer within seven days. The revenue officer is to contact the delinquent taxpayer within 14 days.3
In 2016, the IRS hopes to implement a new system that will identify almost immediately changes in FTDs by taxpayers, and trigger an alert. The premise is to “stop the bleeding” as soon as possible. In its struggle to collect unpaid taxes with depleted IRS staff resources, the goal is to increase compliance in the payroll tax area, and ultimately, increase revenue. In addition, compliance levels the playing field for corporations, particularly smaller ones. Taking an illegal loan from the government, i.e., not paying over -withheld taxes, puts compliant taxpayers at an unfair disadvantage in any competitive market. Another focus during the early intervention process is to be sure the taxpayers are aware of the personal exposure for unpaid withheld taxes. Internal Revenue Code §6672 imposes a penalty on any person the IRS deems “responsible” for non-payment of these taxes. The IRS will cast a wide net in looking for anyone who had control over a corporation’s finances, and chose to pay other obligations, leaving taxes unpaid. These issues arise even when a taxpayer uses a third party payroll provider or accounting firm for services such as return preparation and federal tax deposits. There have been cases when third party payroll services have stolen from taxpayers, filed false tax returns, and made insufficient deposits. Even in such cases, corporate owners and officers have been held liable for non-payment of taxes.4 The 8th Circuit opined: “It is no excuse, precluding liability of responsible persons for failure to pay over employment taxes, that, as a matter of sound business judgment, money was paid to suppliers and for wages in order to keep the corporation operating as a going concern.”5 Corporations, including accounting firms, have also been held liable for nonpayment of withholding taxes. An accounting firm that had the authority to pay its
client’s monthly bills, had a signature stamp of the client’s treasurer and president, and provided financial advice was found to be “responsible” for non-payment of withholding taxes.6 The fact that the accounting firm had to review its disbursements with the client’s Board every month was not a defense to its control over which bills were paid, and which were not. The firm knew that employment taxes were not paid, and the Court found that it “made voluntary, conscious and intentional decisions to prefer other creditors over the Internal Revenue Service.”7 It was liable for the unpaid withholding taxes. It is also noteworthy that the U.S. Department of Justice, Tax Division, is focusing efforts on non-compliant taxpayers in federal court filings. It may pursue civil remedies including judgments and injunctions, as well as criminal prosecution for failure to turn over the collected taxes.8 In summary, in the current climate of stretched IRS resources, it is looking to where collection efforts will be most effective, and the area of unpaid employment taxes is its target. Clients/taxpayers who are cutting corners in this area should be aware of this focus, and make every attempt to stay compliant, or risk being quickly shut down. Likewise, anyone involved in the financial aspects of their client’s business should take precautions to assure they are not a part of any decision to neglect a corporation’s tax obligations. See footnotes online.
This article is continued on www.CPAmagazine.com. Kathleen M. Lach is a Partner in the Tax and Litigation Departments of Arnstein & Lehr LLP. She represents clients before a variety of different tax authorities, including the Internal Revenue Service, the Illinois Department of Revenue, and the Illinois Department of Employment Security. Manage, Enhance and Expand Your Practice I 7
Affordable Care Act – Plan of Attack
By now every employer and CPA assisting employers is well aware of the Affordable Care Act (The Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010 - together known as the Affordable Care Act or ACA). As of January 1, 2016 all employers with more than 50 full time equivalent employees (FTE), are now required to offer affordable health insurance to all full time employees. CPA Magazine has published several articles in the past few years about ACA and if you are looking for an introduction to ACA, you might start with some of the earlier articles. Before ACA, offering health insurance to employees was optional. This topic continues to be strongly debated from both sides and has become a prime topic in the 2016 Presidential debates. However, the purpose of this article is not to enter into the debate but to give some practical implementation steps. ACA mandated applicable large employers (ALE) offer affordable health insurance to their employees. This was phased in by requiring ALEs with 100 or more full time equivalent employees (FTE) to comply by January 1, 2015. Beginning with January 1, 2016 ALEs with 50 or more FTEs are required to comply. There is an earlier article which discusses how to determine your FTE count and access to a spreadsheet to assist you in the calculation of FTEs. Determine if you are an ALE. The determination of your status as an ALE is based on the prior calendar year. For 2016, an employer uses the calculation of their FTEs in 2015 to assess if they have more than 50 FTEs and would thereby be considered an ALE. This is called your “testing period” in many publications and articles. An excellent description of this process was written by Scott Dondershine, Esq. “Understanding the ACA Employer Mandate #2” in June 2013. http://www.dbd-law. com/Client-Alerts/Understanding-The-ACA-Employer-Mandate-June2013.shtml “A large employer is defined as a company (including related entities) that has fifty or more (1) full-time employees (30 or more hours per week or 130 or more hours per month) plus (2) full-time equivalents (FTE). The test is relaxed a bit for seasonal workers. “The number of full-time equivalents is basically determined using the hours of all non-full time employees, e.g., parttime employees. The hours for each part-time employee up to 120 per month are added and then divided by 120 to determine the number of FTEs. “The computation is performed each month of the “testing 8 I www.CPAmagazine.com
The determination of your status as an ALE is based on the prior calendar year.
Jerry Love, CPA/PFS, CFP, CVA, ABV, CITP, CFF, CFFA Editor’s Note: Determining who is classified as a large employer (ALE) can be daunting. With the phase-in changing from 100 employees, according to ACA, to 50 as determined in 2015 more employers must manage how many full time equivalents (FTEs) are a part of the workforce. It is possible for an employer with its entire workforce working under 130 hours a month to still have over 50 FTEs and therefore be considered an ALE for ACA. It is a two-part calculation which has caused confusion. First, according to ACA, determine if any members of an employer’s workforce work over 130 hours a month, or over 30 hours a week as determined each month of the testing year (which is 2015 for this example). These employees are full time for ACA (FTFA). If the employer has 50 employees working over 130 hours a month for all 12 months of 2015, the employer is an ALE and no more calculation is necessary. If the number of workers working over 130 hours per month is less than 50, and an employer has employees working less than 30 hours a week, the employer must calculate FTEs from this group and add the FTEs back to the FTFAs to determine if this brings them over 50 employees for ACA. The calculation for FTEs is to add up all the non FTFA employee’s hours up to 120 hours a month and divide by 120. year” which is the calendar year before the applicable year for determining whether coverage is required. For instance, 2013 is the testing year for determining whether an employer is “large” for 2014 and is subject to the employer mandate. Each month’s total is then averaged to determine the total for the testing year. Note that an employer can be large (subject to the mandate for one year) but then small for the next.” It is important to distinguish between the testing period
“Essentially the employer is required to offer a Bronze plan.”
which is the previous calendar year which is used to determine you are an ALE and the measurement period which is used to identify the full-time employees that you will offer health insurance to them. Continue reading to understand the importance of identifying your measurement period.
Controlled or Affiliated Groups
It is very important that you develop an understanding of when you have a controlled or affiliated group. When you do then your ALE determination is made after combining the FTE from all the applicable entities. For more information of this aspect go to IRC Sec. 414(b), (c), (m), or (o); for controlled groups or affiliated service groups which are to be treated as one employer see [IRC Sec. 4980H(c) (2)(C)(i); Reg. 54.4980H-1(a)(16)].
New Employers A new company that was not in existence on any business day of the prior calendar year will need to determine if they will be an ALE by estimating their work force. The health insurance to be offered is to provide minimum essential coverage/benefits. Essentially the employer is required to offer a Bronze plan. See https://www.healthcare.gov/choosea-plan/plans-categories/ for more specifics about the type of plans in the Health Insurance Marketplace. 16CAlCPAmaghalfad.qxp_Layout 1 4/1/16 9:54 1 The cost of the health insurance toAM thePage employee must be
affordable. Rev. Proc. 2014-37 has given the employer a safe harbor. Unaffordable will be defined as will the amount of the premium paid by the employee exceed 9.5% of the gross wages reported in box 1 of the employees W-2. Note the implication of using box one is this is not their gross wages prior to pre-tax deductions such as flex plans and 401k. The first issue facing the employer is to know what period of time will be used to determine your full time employees. The employer can use a look-back measurement period. Using this method, the employer assesses the employee’s status as a full time employee during this measurement period. Note the employer is only required to offer health insurance to full time employees and this does not include the part time employees who were part of the FTE calculation.
This article is continued on www.CPAmagazine.com. Jerry Love is the sole owner of Jerry Love CPA, LLC in Abilene, Texas. He graduated from Abilene Christian University. In addition to being a CPA, he has also earned the designations of PFS, CFP, CVA, ABV, CITP, CFF, and CFFA. In 2006-07, Love was the Chairman of the Texas Society of CPAs.
2 016 California Accounting & Business
Show & Conference
June 1-2, 2016 Weds-Thurs LAX Hilton Hotel, LA
5711 West Century Blvd, at the LAX Airport
Lo for Re ALL w Co the giste NEW st FR r CP EE Tod E a Sh ay t o ow nly an $5 d 5/ da y
Frank Abagnale, Catch Me If You Can, to Keynote - Free CPE Session, Weds, June 1, 8:20-10 am.“The Art of the Steal”.
All New CPE Program and Free Show for California CPAs and Accounting and Business Professionals. Frank Abagnale
FREE KEYNOTE WEDS, JUNE 1, 8:20-10 am 2 CPE credits
THURSDAY, JUNE 2 8:20 - 10 am 11 - 12 Noon 2 CPE credits 1 CPE credit
✔Managing Accounting Technology: On-Line Software, Portals, iFinancial Services, iPads, iPhones, Cloud, Mobile, Clients Services on-the-road and your home office. ✔CPE sessions are all new at the low cost of $55 per day with 6 hours of CPE credits, or $100 for two days with 12 hours of CPE credits. The CPE is accredited by National Association of State Boards of Accountancy (NASBA) ✔See and hear the newest accounting, business, finance, tax, payroll, cloud, mobile, online. Network with friends. Efficient two day show and CPE. ✔Location. Location. Location. The LAX Hilton is right off the 405 Freeway and other major arteries from North, South, and East, with three convenient parking facilities adjacent to the hotel. The LAX Hilton has a shuttle bus from the LAX airport for attendees flying in. ✔Who said there’s no FREE lunch? Enjoy free hot dogs at the Show.
CPA, CITP, CGMA, Richardson Media & Technologies
VP Prod Mgmt and Developing Businesses, Thomson Reuters
Manage, Enhance and Expand Your Practice I 9
Roth IRA Contribution Withdrawals Are Tax-Free may be eligible "Afortaxpayer the “saver’s credit”
if he or she makes a contribution of up to $2,000 to their IRA.
Roth IRAs are similar to traditional IRAs in that the earnings in the account grow tax-free. However, they are different from traditional IRAs in that generally any withdrawals made will be completely tax-free. Also, unlike other IRAs, contributions can be made to a Roth IRA after a person is 70 ½ as long as that person earned income, such as earnings from a job. The maximum annual contribution that can be made to all IRAs is $5,500 ($6,500 if the person is 50+). Thus, depending on income, an annual contribution could be split between a Roth IRA, a regular IRA and a nondeductible IRA. The maximum contribution to a Roth IRA phases out based on adjusted gross income (AGI) as follows: 2016
Married filing jointly
Single/head of household
Married filing separately
You and your spouse both work. You file jointly and have a combined AGI of $100,000 for 2016. Each of you participates in your employers’ retirement plans. You are eligible to make contributions to Roth IRAs of up to $5,500 each. If your combined AGI is $189,000, you could make Roth IRA contributions of up to $2,750 each (since $189,000 is halfway through the phase-out range). You could also make nondeductible IRA contributions of up to Contributions made to a Roth IRA cannot be deducted. However, qualified withdrawals from a Roth IRA are both taxfree and penalty-free. To be a qualified withdrawal, a taxpayer must meet certain conditions. First, a five-year holding period must be met. The five-year period begins on the first day of the year for which a contribution is made. For example, if a contribution to a Roth IRA is made on April 15, 2016, for the 2015 tax year, the fiveyear holding period would be met beginning in 2020. Second, the withdrawal must be for one of the following reasons: • The taxpayer is at least age 59 ½. 10 I www.CPAmagazine.com
Tax Client Advisor Julie Welch, CPA, CFP
• The taxpayer dies and the distribution is made to a beneficiary. • The taxpayer is disabled. • The taxpayer is a first-time homebuyer. If a taxpayer withdraws money from his or her Roth IRA and it is not a qualified withdrawal, some or all of the amount may be taxable to the taxpayer. However, the taxpayer may meet an exception to the early distribution penalty.t You are in the 34% (28% Federal and 6% state) tax rate bracket. You earn 10% (6.6% after tax) (10% x (1 - 34%)) on your investments. You make $5,500 contributions at the beginning of the year for 20 years to the following accounts. SEE CHART A - PAGE 11 Thus, if your tax rate stays the same for all 20 years, and if you have a choice between the above accounts (based on your income level and your participation in a retirement plan), your first choice would be to make your contributions to a Roth IRA. However, if your tax rate decreases after you retire, a traditional deductible IRA may be better. Assume your Federal tax rate drops to 15% (21% including the 6% state tax rate) in year 20 when you withdraw the money. SEE CHART B - PAGE 11 In this case, your first choice would be to make your contributions to a traditional deductible IRA. Additionally, a taxpayer may be eligible for the “saver’s credit” if he or she makes a contribution of up to $2,000 to their IRA. Julie Welch (Runtz) is the Director of Tax Services for Meara, King & Co. She graduated from William Jewell College with a BS in Accounting and obtained a Masters in Taxation from the University of MissouriKansas City. She serves as a discussion leader for the AICPA National Tax Education Program. She is co-author of 101 Tax Saving Ideas.
Star Ratings Are Back BY T. STEEL ROSE, CPA
tar ratings are provided for technology products to simplify the selection process for CPAs. Rather than just determine if the features are useful, ratings are more meaningful if they reveal what you can expect from the company and the product. For business products, it is important to understand the criteria. Instead of “not acceptable,” “OK” and “pretty good” the reviewed products must at least be, “OK.” The star ratings in CPA Magazine are based on five criteria. To be listed and earn one star, the product must have comparable features built-in to perform the task. A second star is awarded for ease of use and current integration. A third star is earned
CHART A - 28% Federal Tax Annual contribution
for a live support line. A fourth is awarded for those products which can provide a favorable CPA reference account. The fifth star is withheld for the leaders in the field. If a huge problem exists a CPA firm needs to know they can reach out and contact the appropriate person. Preferably this person may be the president of the company; sometimes it is a product manager who is identifiable. Either way, they must be accessible. In a compliance profession where integrity and transparency are paramount, the technology products are held to the same level. Check out the star ratings of the Top 9 CPA Website Builders on page 26.
YOUR LAST DECISION IS THE BIGGEST. When it is time to transition out of your practice you want to do it right. We are the largest facilitator in North America for selling accounting and tax practices. We provide a free estimate of your firm’s value, market extensively, assist in negotiations and find you the right situation. Contact us today so your last decision will be your absolute best.
Traditional Deductable IRA
Traditional Nondeductable IRA
Tax Savings ($5,500 x 34%)
Account value - Year 20
Tax on distribution: ($346,514 x 34%)
(($346,514 - 110,000) x 34%)
Net cash from tax savings including interest earned
Traditional Deductable IRA
Traditional Nondeductable IRA
Account value - Year 20
CHART B - 15% Federal Tax Annual contribution Tax Savings ($5,500 x 34%)
Tax on distribution: ($346,514 x 21%)
(($346,514 - 110,000) x 21%)
Net cash from tax savings including interest earned
Manage, Enhance and Expand Your Practice I 11
S Corporation Planning
The income tax is the new estate tax. With a federal estate tax exemption at $5,430,000 and increasing by an inflation index in future years, few clients will be subject to an estate tax. That doesn’t mean that income tax and estate planning for clients with S corporations is passé. It is just different. The 2 million plus S corporations all need succession plans. How those shares are passed on to heirs, or whether instead they should be sold, is an important planning opportunity for accountants to assist clients.
15% to 25% of clients between the ages of around 25 to 65 will experience a disability. What plans does the client have in place to deal with this risk on both a personal and corporate level? Is there a written salary continuation payment provision in the shareholders’ agreement? If the client has a personal disability income replacement policy that has a six-month waiting period before payment, perhaps the client can negotiate with the other shareholders some type of salary continuation, e.g., 100% of salary for the first 30 days of disability, and 50% of salary for the next 90 days, to bridge that gap. If no shareholder currently has any health problems all may be willing to agree to some type of provision that might benefit them as well as other shareholders. What about a buyout provision? Life insurance is often inexpensive, simple and commonly addressed in a buyout, but what about paying for disability? Too often few if any plans are made. While disability buy out insurance can and should be considered, the cost is often more than clients are willing to bear. If that is the case, then practitioners should endeavor to work out other arrangements (e.g., 10% down and the balance over 5 years in quarterly installments, based on 75% of the death buyout value to make the cash flow needs less burdensome).
If the client dies, the focus for many decades had been minimizing estate tax while passing on interests to children or other heirs. With so few clients facing a federal estate tax all succession plans should be revisited. For example, it has been common for closely held S corporation shareholders to agree on a buyout value to avoid a battle of the appraisers. This amount is often memorialized in a certificate of stated value. The shareholders agreement or buyout agreement might refer to that document. What value does it reflect and when was it last updated? Practitioners will find many of these valuations were created years ago when the client’s focus was colored by their concern over 12 I www.CPAmagazine.com
will find "manyPractitioners of these valuations were created years ago. "
Tax Planning Advisor Martin M. Shenkman CPA, MBA, PFS, J.D.
estate taxes. Those values, and that perspective, may no longer be practical.
A Better Succession Plan
Most family business succession plans focus on the senior generation gifting interests in the business to the next generation. A series of recent cases present a framework for what might be a better form of planning for many clients. Don’t have the parents gift the business, have the children start and grow a new business. This can avoid liabilities associated with the parents’ business as well as gift tax worries. The key case in this area is Bross Trucking Inc. v. Commr. TC Memo 2014-17. In Bross, the father owned and operated a trucking company but ran into regulatory issues. To avoid that issue, his three sons started their own trucking business using some of equipment used in the father’s business, and some of the same suppliers and customers. The father was not involved in the new business started by the sons. The IRS said the transaction entailed a distribution of goodwill by Bross Trucking to the father. The likely extension of this argument was the father then gave a gift of goodwill to his three sons that should have been subject to the gift tax. The Tax Court held the IRS was not correct because the goodwill involved actually belonged to the father individually, not to the corporation. Important to this conclusion was there was never an employment agreement or non-compete agreement that bound the father’s actions to the corporation.
This article is continued on www.CPAmagazine.com. Martin M. Shenkman is the author of 35 books and 700 tax related articles. He has been quoted in The Wall Street Journal, Fortune, and The New York Times. He received his BS from the Wharton School of Pennsylvania, his MBA from the University of Michigan, and his law degree from Fordham University.
Obama Budget Proposal √ CHECKLIST: (Greenbook) - Planning Implications By Martin M. Shenkman, CPA, MBA, PFS, J.D.
s the presidential election is less than six months away it seems highly improbable President Obama’s budget proposals will be enacted. That being said, practitioners are well aware the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P.L. 114-41 included the new basis consistency and reporting rules under IRC Sections 1014(f) and 6035. This should serve as a reminder that even unlikely legislation may have a tax change appended. Further, the turmoil of the current election process should leave practitioners and clients alike wary of what might be in store. So rather than dismissing President Obama’s proposal as irrelevant practitioners should caution clients as to the possible impact of the proposals and proactive steps that might warrant taking “just in case.” Regardless of the outcome of the election, there appears to have been a change in the “conversation” concerning wealthy taxpayers and many of the provisions may reappear in the future in new proposals. Prudence might suggest taxpayers consider some of these proposed changes in forecasts and projections. Here I explore like-kind exchanges, Roth IRAs and marginal tax rates:
√ LIKE-KIND OR TAX DEFERRED CODE SECTION 1031 EXCHANGES have been
a valuable tax deferral technique for wealthy real estate investors and developers for many years. In recent years the technique has taken on a new, different and significant planning role. With the new tax paradigm of estate tax rates closer to income tax rates than ever before, basis step up on death has become a major focus of income and estate tax planning. When planning which assets to retain in the client’s estate to obtain a step up, versus which assets to gift to remove from the client’s estate, the timing of sale is a
critical consideration. If, for example, a client has a parcel of real estate that is anticipated to be held for decades, gifting it to remove appreciation from the client’s estate may make sense. The lack of basis step up may be inconsequential on a present value basis. The tax cost in two or more decades is, on a present value basis, likely not to be particularly significant. If the client is uncertain about how long the holding period might be the balance may shift from the prior situation in favor of retaining the asset in the estate for a basis step up. With real estate the planning has assumed a somewhat different analysis. Even if the client is not certain that the particular property will be held for a long period of time, it may be feasible to gift the property at an opportune time when the valuation might be low (e.g., large vacancies depressing current value) and have future appreciation occur outside the estate (e.g., in a grantor trust). If unexpectedly the client (perhaps in his or her role as being an investment trustee of the grantor trust) opts to dispose of the real estate it may be feasible to do so using a tax deferred like kind exchange. Now, however, the planning analysis for real estate investors and developers should contemplate the potential elimination of Code Section 1031 tax deferral. Although the Greenbook proposals recommend a cap on the maximum gain to be deferred in a 1031 like-kind exchange of real estate, if the proposal is sufficiently low it will be insignificant in this estate planning context. The implication of this proposed change is that large real estate investors and developers may be wiser not to assume the availability of a 1031 escape hatch on assets transferred out of their estates. Again, while there may be little likelihood of any legislation in the near term, this proposal seems to recognize that the intent for 1031 when enacted (not to
create a tax cost when a taxpayer continues his or her investment, only in a different property) has lost some of its meaning and has with no limit likely favored the wealthiest taxpayers.
√ THERE HAVE BEEN MANY DISCUSSIONS ABOUT ELIMINATING STRETCH IRAS IN FAVOR OF A MANDATORY PAYOUT over no more than five years. The
elimination of stretch IRAs will transform estate planning for inherited IRAs. Again, while practitioners and taxpayers alike may not wish to believe such a provision is likely to be enacted the revenue estimates from this change are significant. Further, if the statistical data as to how long most IRAs remain after the death of the plan holder are considered, the typical IRA is withdrawn rather quickly. It is likely only larger IRAs for wealthier clients that are stretched. The average person’s IRA accounts in 2010 had a total balance of $91,864 and the median value was $25,296. “How Much Do People Really Have In IRAs?” June 6, 2012 • Karen DeMasters. The median value is quite low. The majority of IRA balances are such that the benefits of deferral are not that significant. This may serve to make passage of a restriction on stretch IRAs easier.
√ ROTH CONVERSIONS are possible to
achieve by high income taxpayers through an indirect route. The high income taxpayer can contribute to a non-deductible traditional IRA. Thereafter, he or she can convert that non-deductible IRA to a Roth IRA.
This article is continued on www.CPAmagazine.com. Manage, Enhance and Expand Your Practice I 13
Replacing People with Bots
Facebook CEO Mark Zuckerberg detailed how Facebook aims to reach the planet’s 7 billion people — half of whom do not have Internet access. He’s going to have them do that on the Messenger platform using chatbots. Chatbots are chat robots — interactive software powered by artificial intelligence often with an assist from humans — that are designed to simulate human conversation. They are popping up on messaging services where you can use them to perform simple tasks. While they are not yet common in the U.S. and Europe, Chatbots have taken off in Asia, where messaging services such as WeChat help users schedule doctor’s appointments, shop for the latest styles, play games or the lottery and send money to friends. If successful, Facebook could effectively leapfrog the app economy, and create its own thriving digital ecosystem where users can communicate with automated representatives for brands and businesses within Facebook’s platforms.
Microsoft’s CEO, the stylish and analytical Satya Nadella, also preached the power of bots at his developer conference, Build. And not just any bots — bots powered by artificial intelligence that can carry meaningful conversations and handle tasks for you. “It’s about taking the power of human language and applying it more pervasively to all of our computing,” Nadella said in his cerebral introduction to Microsoft’s annual developers conference. “By doing so, we think this can have as profound an impact as the previous platform shifts have had, whether it be GUI [graphical user interface], or the web, or touch, or mobile.” There will be bots, he said. Bots for ordering you a pizza and calling a cab and booking flight tickets and communicating with you on Skype. “People to people. People to your personal digital assistant. People to bots. Even people to your personal assistant calling on your bots on your behalf,” Nadella said in a statement so bizarre even we couldn’t have made it up. “That’s the world you are going to see in years to come.” But it took more than an hour for Nadella to acknowledge the elephant bot in the room. Microsoft’s wild child: Tay. Just days before Microsoft’s biggest event of the year, the company proudly announced Tay, a spunky, experimental AI-powered Twitter bot to chat up millennials. It could have shown off the power of bots to carry on entertaining conversations. Instead, Tay turned into a foul-mouthed bigot, spewing racial slurs after being trolled by Twitter users and had to be taken down. Then, just hours before Nadella took the stage, Microsoft accidentally re-activated Tay only to quickly pull it again after the bot started 14 I www.CPAmagazine.com
will have a bot "Theforairline you to make your
reservations. The Home Depot bot will talk you through how to use a tool.
Technology TBD Advisor Advisor Rick Richardson, CPA, CITP, CGMA bragging about smoking weed. “We want to build technology so that it gets the best of technology, not the worst,” Nadella said on stage later. “Just last week, when we launched our incubation Tay... we quickly realized it was not up to this mark.”
Because their focus is app-based, the other technology companies (including Microsoft) have built a single, AI-based digital assistant that works from the user’s side. These include Siri from Apple, Cortana from Microsoft, Echo from Amazon and Google Now from Google. The Chatbot revolution, however, is driven from the other side of the communication channel. The airline will have a bot for you to make your reservations. The Home Depot bot will talk you through how to use a tool you purchased or help you with a return and refund. Companies such as Lyft, Uber and KLM are already working with Facebook to use bots for their customers.
The Next Big Thing
Chatbots are definitely being hyped up, but at the same time they could radically change the way we use our phones and computers. That’s because Chatbots unlock “conversation as a platform,” as Microsoft’s Nadella puts it. We’ve trained ourselves to click through apps or search in weird phrases to get the information we want.
This article is continued on www.CPAmagazine.com. Rick Richardson, CPA, CITP, CGMA received two AICPA lifetime achievement awards for his contributions to the profession in the field of technology. Providing his annual forecast of future technology trends, Richardson is the keynote speaker at the New Jersey, California and Illinois conferences each year presented by Flagg Management. www.flaggmgmt. com. If you have 20 minutes each week and want to keep current with today’s technology, subscribe to Rick’s newsletter, TechnologyThisWeek.net.
Required Minimum Distributions: Year End Issues
BY SIDNEY KESS, CPA, J.D., LL.M
he end of the year is the deadline for most individuals with qualified retirement plans and IRAs to take their required minimum distributions (RMDs) if they have attained age 70½ or inherited their benefits (Code Sec. 408(a)(9)). RMDs for 2016 are based on the account’s value at the end of 2015. The failure to take RMDs can result in a 50% penalty (Code Sec. 4974). As part of its Tax Preparedness Series, the IRS reminded affected individuals to remember to take their RMDs by December 31 (IR2015-122, 10/29/15). Here are some key issues that can impact RMDs.
Those Who Turned 70½ in 2015
Clients who were born July 1, 1945, to June 30, 1946, attained age 70½ in 2016. This means that they have attained their required beginning date for purposes of RMDs and must take their first one by December 31, 2016. However, they can opt to postpone the first RMD until April 1, 2017. Doing so means taking two RMDs in 2017 (one by April 1 and one by December 31).
limited to the RMD amount; more or even all of the account can be withdrawn even though the owner has reached his or her required beginning date.
Figuring RMDs Usually, for IRAs, the trustee or custodian shows the RMD amount in Box 12b of Form 5498, IRA Contribution Information. Thus, the 2016 RMD amount should have been shown on a 2015 Form 5498, which would have been issued to the IRA owner in January 2016. For qualified retirement plans, the administrator must compute the RMD and provide this information to the participant. In figuring RMDs, all traditional IRA accounts can be aggregated with the annual sum withdrawn from one or more of the accounts. In figuring RMDs from qualified retirement plans, no aggregation is permitted; RMDs must be figured for and taken from each plan. Qualified Direct IRA Transfers
Under a special rule, those age 70½ or older by the end of the year can directly transfer up to $100,000 from their IRAs to a public charity, and such transfer is taxfree (Code Sec. 408(d)(8)). The transfer, called a qualified charitable donation (QCD), can include RMDs. Those who inherited an IRA can use this rule as long as they are at least age 70½ by year-end. Married persons filing jointly can exclude $100,000 each (a total of $200,000 on a joint return). No charitable contribution deduction is allowed for the transfer. This direct transfer rule does not apply to SEPIRAs, SIMPLE-IRAs, or Roth IRAs.
Tax Benefits of Qualified Direct IRA Transfer By keeping the IRA dis-
For those who meet the age requirement but are still working, the first RMD with respect to qualified retirement plan benefits can be postponed until they leave employment (assuming the plan permits this action). However, this rule does not apply to anyone owning more than 5% of the company. The rule does not apply with respect to IRAs, regardless of company ownership.
The RMD rules do not apply for account owners during their lifetime.
An RMD does not have to be taken in a single withdrawal. All that is required is that the total amount withdrawn for the year at least equals the RMD amount. Withdrawals are not
tribution out of gross income, adjusted gross income (AGI) is minimized. This has the favorable effect of increasing eligibility to various other tax breaks based
on AGI or modified AGI. For those who do not itemize, it is a way to benefit their favorite charities on a tax-advantaged basis. For all higher-income individuals, minimizing AGI in 2015 can translate into avoiding or minimizing the additional Parts B and D premiums for Medicare in 2017.
Those who recently inherited IRAs and qualified retirement benefits have decisions to make. There are actions to take that impact the taxation of inherited benefits. If the decedent died after age 70½, his or her RMD for the year must still be taken; it is taxable on the decedent’s final income tax return.
Surviving Spouses They can treat the account as their own, allowing them to postpone distributions until they are age 70½ and name their own beneficiaries. If they do not treat the account as their own, then they must take RMDs under the same rules applicable to nonspouse beneficiaries. Nonspouse Beneficiaries They can-
not roll over inherited accounts to their name as can surviving spouses. The account must be retitled property to reflect the decedent’s name, date of death, and the beneficiary’s name with the beneficiary designation. However, nonspouse beneficiaries can roll over inherited accounts (e.g., change brokerage firms for an IRA) as long as the accounts are registered properly. No RMDs usually are required in the year of the decedent’s death. This article is continued on www.CPA magazine.com.
Related CPE Quiz on Page 29
Manage, Enhance and Expand Your Practice I 15
Target Marketing for CPAs BY T. STEEL ROSE
our accounting firm may be the most competent firm around but it won’t matter if you cannot effectively communicate it to the right people. Word-of-mouth, personalized letters and business cards can only carry you so far. The process starts with the art of surfacing prospects. This can be done by critically thinking about the types of clients your firm serves. Asking yourself what they have in common and what defines them as a community will serve as an ideal foundation for how you market your services. Stuart Henderson Britt, former editor of the “Journal of Marketing,” once said, “Doing business without advertising is like winking at a girl in the dark. You know what you are doing, but no one else does.” Advertising should be targeted toward the community you want to serve. For example, if you serve realtors or homebuilders, advertise in real estate magazines. Establishing a physical presence is also important to conveying your worth to potential clients. Attending businessoriented networking events within the community will provide an opportunity to get face time with the right people and assess their needs. Sponsoring a charity event will create more name recognition and align your brand with philanthropy. Sponsorship opportunities can include a 10K, a golf tournament or a bike race. The events often provide T-shirts or other items featuring the names of the sponsors. Developing a targeted website is another place to display your firm’s value. Website creation, which drives business development for accounting firms, should emphasize the types of accounting services the CPA firm performs. Here are a few examples of CPAs who are no longer winking in the dark. 16 I www.CPAmagazine.com
10 Tips, Tactics and Examples of What You Should Include in Every Advertisement: 1. Your logo or business name – 6. Less is more – Don’t overwhelm Brand your company and/or product image into their psyche.
2. A CTA (call-to-action) with sup-
porting contact information – Say exactly why people should contact your business and what you can do for them. For example “Call us at (415) 000-0000 to solve tax problems.
people with information. Keep it as simple as possible while getting the useful information across to the viewer.
7. Use your space wisely – Don’t use every inch of white space because you can. Leave some “breathing room” so people can digest your message.
3. Additional information about 8. Use contrasting colors for fonts what your business does and and backgrounds to make sure how you intend to help your that your copy is readable. The potential customer. Don’t go best combo is dark type on a light overboard with copy because you want to make sure they can read it quickly and easily.
4. Supporting visual elements like a photo or graphics. This can be your logo, a picture of your business, or a graphic related to your business.
5. Hierarchy of information –
Choose the information from the above list that’s most important and make it your main element of the ad. Every piece of information in your ad should be weighted according to its importance. It’s hard to read an ad in which everything is the same size.
background because it’s easier to read.
9. Fonts, fonts, and fonts – Use
mostly sans-serif fonts, use different font sizes to differentiate the importance of the copy, however, don’t use too many font types or too many font colors (think one or two max). The biggest font offenders that tend to thoroughly annoy people include comic sans, curlz, and papyrus.
10. Double and triple check – Have
at least one other person who isn’t working on your ad read it over to make sure there aren’t spelling errors, incorrect information, or missing information.
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“Starting in 2016, startups will be able to take the credit, capped at $250,000 against certain payroll taxes.” The R&D Tax Credit: Startups/Small Business
Continued from page 5 Let’s take a basic example—if business owner Bob was paying AMT in tax year x, he could not take the R&D Tax Credit for tax year x. If Bob was paying regular tax (and paying no AMT because his regular tax was above his TMT), he could reduce his tax liability, but only to his TMT level. So, in effect, a business owner would often get little to no benefit when filing for the research credit. Many tax advisors have found that it is a good idea not to have any breakable objects within arm’s-reach of a client when explaining that yes, the client has engaged in activities that make them eligible for the R&D Tax Credit, but no, the client cannot use the credit to reduce his or her taxes this year (or only a much reduced portion of the taxes) because of the limitations of section 38(c). And, of course, this impacts Bob’s views on whether and to what extent he invests in future innovation. Given that a strong majority of small and medium businesses are organized as pass-through entities (the owners of which are often subject to AMT), the reality of the AMT bar has been that tens of thousands of businesses are effectively prevented from taking full advantage of the credit. In our experience, under the old law, the vast majority of businesses that we talk to that would have qualified for the R&D Tax Credit could not utilize it due to the AMT bar in section 38(c).
In an effort to address this shortcoming and to provide an incentive to innovate while providing tax relief for small and medium businesses, the law was changed starting in 2016. The recently passed tax extenders bill effectively turns-off the AMT bar for “eligible small businesses” (defined by the PATH Act as businesses with less than $50 million in average gross 18 I www.CPAmagazine.com
receipts for the prior three years) that otherwise qualify for the R&D Tax Credit. When it comes to calculating the credit, the tentative minimum tax is treated as being zero for those qualifying companies defined as “eligible small businesses,” meaning they can use the credit to offset within parameters both regular and alternative minimum tax liability. The policy is very similar (although with some technical differences that we highly recommend you review) to the AMT turn-off implemented as part of the Small Business Jobs Act of 2010. That year, we saw firsthand the game-changing impact this provision had in helping keep the doors open for businesses in the midst of a then challenging economy. With the removal of the AMT barrier, we foresee a similar positive economic impact, and estimate a ten-fold increase in the number of small businesses that can utilize the R&D Tax Credit.
3. Startup Provision Now, on to the startup provision. For years, one of the real oddities of the R&D Tax Credit was that many of our nation’s most innovative companies were unable to claim the credit as they were just opening their doors. Taking into account that the majority of startups are not immediately profitable, and thus pay no federal income taxes, it follows that the majority of our nation’s most cutting-edge companies were essentially barred from a credit designed to reward business ingenuity—clearly, an obvious disconnect from the intent of the credit to its real-world application. And this disconnect occurred at the most sensitive time of a company’s life cycle, its nascent phase when every dollar is most essential. An important amendment—the startup provision—changes all of that. Now, starting in 2016, startups (defined by the legislation as businesses with gross receipts of less than $5 million a year) will be able to take the credit, capped at
$250,000 against certain payroll taxes, beginning in 2017. This is obviously big news for software and technology companies that, due to the innovative nature of their work, are among the best candidates for the R&D Tax Credit. To show the provision in practice, let’s take a real-world example. One software development company whose R&D activities alone would have qualified them for around $100,000 in federal credits was unfortunately barred from their projected federal tax savings, largely a result of the company simply not being around long enough to generate profits for taxable income. However, under the new provision, this same company with an annual payroll of $1.75 million, that also pays $108,500 in payroll taxes, would be able to use the credit to reduce their payroll taxes down to $8,500. The net gain, $100,000 in added tax savings, could be reinvested in any way the business deems fit.
Impact on CPAs and Tax Advisors
As you can see, the benefits of this legislation regarding the research credit are massive. Quite frankly, this is probably the biggest news on taxes for startups and small businesses in years, and tax practitioners with clients in fields as diverse as computer software, pharmaceuticals, chemistry, biology, nanotechnology, robotics, energy, engineering, architecture, construction, manufacturing, food processing, and agriculture (and that’s just to name a few) should take a second look when evaluating their clients’ eligibility for the credit. Now, it is up to CPAs and tax consultants to ensure their clients are taking advantage of every opportunity afforded under the R&D Tax Credit. Dean Zerbe is alliantgroup’s National Managing Director and the former Senior Counsel to the U.S. Senate Finance Committee. Steven Miller is alliantgroup’s National Director of Tax and the former IRS Acting Commissioner.
Single Member LLC √ CHECKLIST: Creative Planning Applications By Martin M. Shenkman, CPA, MBA, PFS, J.D.
imited liability companies (LLCs) are ubiquitous in client planning. The default format for most new business and investment endeavors is to recommend the client use an LLC unless there is some overriding reason to consider another form of entity. The common use of LLCs can mask the incredible array of creative planning applications LLCs can provide to a range of different planning options. The following checklist suggests some of the myriad of possibilities and shows how LLCs are a powerful tool in every practitioner’s planning kit.
√ BUSINESS SUCCESSION PLAN If a client has a business or professional practice, a creative use of an LLC structure can provide a simple and efficient means of creating a robust succession plan. Instead of operating the practice or business as a sole proprietorship have the client form a manager-managed LLC. This can all be done using pretty standard documentation for modest cost. The client can be named the initial manager of the manager-managed LLC. Operating agreements for a manager-managed LLC are common documents that should not require significant cost or effort. Third parties, such as banks, are quite familiar with manager-managed LLCs. While your client is well he or she can manage the LLC as manager with no impact on the operation of the entity. However, if your client should become ill or incapacitated, fairly routine provisions for a successor manager can provide a practical and simple succession plan. The client might name a colleague (e.g., if a license is required for the practice involved), or a family member or friend (if licensure is not required) as the successor manager. With little more than using a managermanaged LLC structure and standard
operating agreement provisions, the succession plan is in place. If the client is incapacitated the successor can use the operating agreement to obtain signature authority over bank and other accounts and manage the business until the client recovers. Because the manager has a fiduciary obligation to the client as member, the client has some assurance that the manager will have an incentive to operate the business during this transition in a reasonable manner. Since LLCs can have a manager who is not a member this application of an LLC should not create any complications. The LLC, even with the successor manager serving, would remain a disregarded entity for income tax purposes.
√ LLCS FORMED IN TRUST JURISDICTION
A physician client or another client seeking stronger asset protection than his home state may afford may create a trust in a state known for better asset protection laws. Alternatively, a client may create a trust in a state, in Delaware for example, that has favorable tax and other laws to reduce state income taxation or achieve other goals. If the client begins a new business or buys a new investment that will be owned in part by that Delaware trust instead of forming the new LLC in the client’s home state, it might be better to be formed in Delaware (or whatever state the trust is in) to increase the connections to that state and perhaps to thereby strengthen the validity of the trust under that state’s laws.
√ IRREVOCABLE TRUST REAL ESTATE OWNERSHIP The use of trusts is grow-
ing with the aging population and with the growing transfers of wealth, irrevocable trust use will accelerate. Trends in modern trust drafting include using long term, even perpetual, trusts. Often this is
accomplished by having the trust based (situs) in a state with laws quite favorable to trust administration. Physicians and other clients concerned about malpractice and liability concerns increasingly rely on trusts formed in states like Alaska, Nevada and South Dakota to provide better protection. A trust formed in say Alaska, by a client living in, for example, New York, cannot own real estate outside of Alaska. To do so would undermine the application of Alaska law and taint the benefits Alaska law might provide. This is because real estate owned in another state would subject that real estate, and hence the trust, to the laws of that second state, New York in the above example. The solution for many irrevocable trusts is simple. The trust can form a single member disregarded LLC, infuse money for a down payment (or even all of the money), and that disregarded LLC can then purchase the home. This transmutes foreign (e.g., New York) real estate into an intangible asset that can be held by the Alaska (or other trust friendly state) trust.
√ AGING CLIENT AND REVOCABLE TRUST OWNERSHIP OF A HOME With clients
aging the use of revocable trusts to manage assets in later years and protect clients will burgeon. Many clients should name a trust company or bank as successor trustee or successor co-trustee in order to obtain the independence and professionalism an institutional trustee will offer. For many clients there are simply no family members that have the time, ability and integrity to serve in such capacity.
This article is continued on www.CPAmagazine.com. Manage, Enhance and Expand Your Practice I 19
11 Steps to Help Businesses Collect Past Due Accounts
here are many facets of the commercial collection process that fascinate me. Possibly because I believe the creditbased economy in this great country is based on honorable people who honor their obligations and pay for services they receive. Like most small businesses, I pay for all the services rendered to my company and I expect customers to pay for our services provided to them. I have been in courtrooms in various states across the country for cases which have all been settled before the case is actually tried. I interviewed a commercial collector last year who said, “I love commercial debt. You have a contract, services rendered, an invoice, and a going business refusing to pay.” It is essential a business recognize a vital reality; if a customer does not pay soon after 30 days, you are now dealing with a customer “in name only.” If handled properly the customer may become a real customer again; one who pays for their service as opposed to one who does not. In my experience with business to business, the proof of the pudding is the person in charge of paying for services. Most people are honorable in meeting their obligations, have good intentions, but become overextended for some reason. Just like in consumer collections, there are also businesses with the ability to pay but try to evade payment. As soon as the account is past due the client needs to be sent letters of advancing severity. At a predetermined time, hopefully less than 30 days, it is necessary to notify the old customer his/ her account will be referred to a collection agency or law firm. Abide by this commitment and forward the account on the date you stated.
When the time comes to turn the account over for recovery, the agency or law firm will need the details. They will need the signed contract, all the invoices, the amount due along with any interest or late fees and early payment discounts lost. They will also need a dated summary of these events. Preparing this exacting package will take serious time; thus explaining why businesses want to believe the old customer who claims they will pay and send more business. This only misleads the business hoping to save the old customer. If the old customer ignores the detailed letter, the account will require added expense. Agencies and attorneys may work on contingency but both require court costs advanced before a case may proceed. In my experience it is rare for a court to award attorney fees. Therefore the account is already worth less, although not altogether worthless. Many businesses are taken advantage of because they believe they are throwing good money after bad. I have great belief in the U.S. court system and the rule of law. There are new evasion tactics every day, but courts still agree customers should pay for services. Therefore this step-by-step guide will help businesses deal with commercial debt.
Pre-determine when to send the last letter, preferably before 60 days old, 30 days past due.
Create the same letter your attorney will send with
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“Expect a settlement before trial begins, even in the judge’s chambers. The rattling of sabers is over. The weight of your case makes an actual trial absurd.”
the contract, invoices, and a detailed cover letter detailing all dates and interest charges. Demand the full amount or a phone call to work out a payment plan. Provide a final date by which the old customer may call. Explain in the letter you will no longer be at liberty to speak with them after the account moves to your attorney. Send this package to the president of the company by certified mail and regular mail. It seems they rarely collect certified mail except those from the IRS.
Step Seven At this stage, the account responds. Expect frivolous counterclaims, casting the blame on an employee, vacuous attempts at changing venue, as well as ridiculous settlement offers.
Step Three Abide by what you say. Turn the account over to your local attorney and do not talk with the account after you do. Your attorney will normally advise you to allow them to represent you exclusively at this point.
Have your local attorney provide an absolute dropdead date for payment or contact in 10 days. If your local lawyer only charges a nominal fee for the letter, allow her to send a similar letter on her letterhead. Empower your attorney to settle for a pre-determined amount, like forgiving interest and late fees. Only accept a payment plan guaranteed with a credit card.
If this fails, use a Law Directory to locate and retain an attorney in the county of the corporate headquarters of the old customer.
Step Six Expect to pay for court costs to file suit and pay a contingency fee on any amount collected.
Step Eight Empower this attorney to accept the full payment, with slight concession for interest and attorney fees if the full amount is paid by the end of the week. Prepare to go to court on the day of trial in the county where the old customer is located. Find someone or something fascinating to visit when you arrive.
Step Ten Expect a settlement before trial begins, even in the judge’s chambers. The rattling of sabers is over. The weight of your case makes an actual trial absurd. Step Eleven Send a thank you letter to the rest of your true customers who pay for the same services. When old customers provide payment, they are redeemed, so to speak. Although in some cases it is wise to obtain a credit card to guarantee payment for future services. Test the credit card for validity. In my experience whether the customer solves the payment with your business, through a collection agency, or after the lawsuit is filed, an all-is-forgiven approach is the best approach going forward. The customer, “in name only,” or ex-customer has become a true customer again with all rights and privileges.
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Signing Up for Medicare BY JERRY LOVE, CPA/PFS, CFP, CVA, ABV, CITP, CFF, CFFA
ost people do not know they can incur penalties by not signing up for Medicare when they become eligible. It is very important for you to pay attention to the deadlines related to signing up for Medicare and adhere to them. You are eligible for Medicare when you turn 65. It is advisable to sign up three months before your 65th birthday. However, people younger than age 65 with certain disabilities or permanent kidney failure can also qualify for Medicare. It is important to note that even though the “full retirement age” for Social Security retirement benefits is now 66, you become eligible for Medicare at age 65. Medicare gives you essential basic health insurance but does not cover everything. For example, Medicare does not provide long-term care coverage. This article will briefly discuss supplemental insurance (generally called Medigap insurance that can be purchased from private carriers). There are three basic enrollment periods: 1. When You Turn 65 During this initial enrollment period you have a sevenmonth enrollment window, which includes the three months prior to the month you turn 65, the month you turn 65 and the three months after you turn 65. 2. Annual Enrollment Period Every year the open enrollment period is October 15 to December 7. Anyone eligible for Medicare can enroll, switch or drop their coverage during this time. The coverage begins January 1.
3. Special Enrollment – Year Round
Some people will qualify for enrollment at any time during the year because they have a triggering event such as loss of insurance coverage, gaining or losing Medicaid eligibility, moving into or out of a plan service area, termination of the current plan or qualifying for a Special Needs Plan. To Apply for Medicare benefits you can go online to the Social Security website, www.socialsecurity.gov, or go to one of the Social Security offices. 22 I www.CPAmagazine.com
Medicare has four basic parts:
1. Part A This part provides basic
hospitalization coverage for inpatient care in a hospital or skilled nursing facility (following a hospital stay), some home health care and hospice care. If you have 40 or more quarters of Medicare-covered employment, you do not have an additional premium for your Part A coverage. In 2015, your deductible for Part A coverage is $1,260 per benefit period. This deductible amount is adjusted annually. 2. Part B Medical care that is not inpatient is usually covered by Part B. This includes basic insurance for services from physicians and other health care providers, outpatient care, home health care, durable medical equipment and some preventive services. In 2015 the Part B monthly premium is $104.90 (higher premiums may apply based on income) with an annual deductible of $147.00. The individual will pay 20% of the Medicare-approved amount for services after the deductible is met. Beneficiaries with higher incomes (individuals with taxable incomes of more than $85,000 and couples with taxable incomes of more than $170,000) will pay more than $104.90 per month because they must pay an income-related surcharge. These income thresholds are expected to remain the same through 2019. AARP gives this caution to seniors at http://www.aarp.org/work/social-security/info-05-2012/signing-up-for-socialsecurity-medicare.html “Medicare has a seven-month period in which you can sign up for Part B, which covers doctor bills and other outpatient medical costs. This period begins three months before the month of your 65th birthday, includes the month you turn 65 and ends three months after your birthday month. It’s a good idea to apply at the start of that period. If you miss the deadline, your monthly premium will probably be 10 percent higher — for the rest of your life — for each
12-month period you were eligible but did not enroll. However, there’s an important exception to this rule. If when you turn 65 you’re still working and have health insurance from your employer or through your spouse’s employer, Medicare may permit you to postpone, without penalty, the date when you have to enroll. Generally speaking, that exception period ends when you stop working and no longer have job-based health care coverage.” 3. Part C This is an option that is not available in every region. If it is available and you have Medicare Parts A and B, you can choose to receive all of their health care services through one of these provider organizations under Part C. These are also called Medicare Advantage plans and they are Medicare-approved plans offered by private health insurance carriers for individuals who are enrolled in Original Medicare, Part A and Part B. If you sign up for a Medicare Advantage plan, you are still in the Medicare program and must continue paying your Part B premium. Generally these Medicare Advantage plans offer additional benefits, such as vision, dental, and hearing, and many include prescription drug coverage. These plans may have networks, which provide you access to certain doctors and hospitals in their network. If you enroll in a Medicare Advantage plan, you cannot have a Medigap policy because the Medicare Advantage plans generally cover many of the same benefits that a Medigap policy would cover, such as extra days in the hospital after you have used the number of days that Medicare covers. 4. Part D This provides basic prescription drug coverage. This article is continued on www.CPAmagazine.com.
Related CPE Quiz on Page 29
What the PATH Act Means for R&D Credits
ince being enacted as part of the Economic Recovery Tax Act of 1981, the federal research and development (R&D) tax credit has never been made permanent. It was always a tax extender that lapsed and was reinstated by Congress and, typically, at the last possible minute. Consequently, business owners could not rely on it from one year to the next and, therefore, never used it as a planning tool to reduce their taxes. With the passage of the Protecting Americans from Tax Hikes (PATH) Act of 2015 in December, the federal R&D tax credit is now reinstated back to Jan. 1 2015 and is a permaMichael Silvio nent tax break for companies performing qualifying research as of Jan. 1, 2016. It is estimated that this provision of the PATH Act will cost the government about $113 billion in annual revenue over the next 10 years. This substantial amount of money can be used by small businesses in a variety of ways, including offsets against the Alternative Minimum Tax (AMT). More on this later.
How The Research Credit Works
Basically, the federal research credit is determined as a portion of every qualifying dollar spent on R&D activities in the areas of qualifying wages, supplies and outside contractor/consulting fees. In some cases the credit is 20%, and in others it is 14% or 6%. The credit percentage varies based on what method of calculation is used and is also a function of past R&D activities. The more you incur in qualified costs, the more your research credit will potentially be. There is no limit to the credit amount a company can generate. These federal research credits can then reduce federal income taxes. Prior to the enacting of this law (with the exception of small businesses in the 2010 tax year), R&D credits could only
BY MICHAEL SILVIO, CPA
be used to reduce regular federal taxes. A company could generate thousands of dollars in federal research credits, but not be able to use the credit if it was paying federal AMT. This became a bane for many taxpayers who tried to take advantage of this credit. As part of the PATH Act, small businesses (defined as non-public companies with less than $50 million in average annual gross receipts for the previous three years) can permanently use research credits generated after Jan. 1, 2016 against both regular tax and AMT. This makes the research credit much more valuable. In some instances, companies with less than $5 million in gross receipts can elect to use the research credits generated after Jan. 1, 2016 to offset payroll taxes. This should be a windfall for startup companies that have no income tax liability. To illustrate these rules, a middle market manufacturing company that I work with will benefit greatly from this new legislation. This company is not considered a small business for purposes of using the R&D credit to offset payroll taxes; however, they will benefit from the use of the R&D credits to offset AMT. This company is an S-corporation with two 50 percent owners. The R&D credits generated will flow through to them on the K-1 from the S-corporation. Unfortunately, for many years the two owners have not been able to use the federal R&D credits because they were in AMT. However, beginning in 2016 they will be able to generate federal R&D credits and use them on their individual returns to reduce their AMT. This should save the two owners a substantial amount of tax for 2016 and in the future due to the permanency of the federal research credit. Congress intended to cast a wide net to reward companies for R&D and stimulate economic growth. Research credits can be found in the aerospace, technology, medical device, manufacturing, food, software development,
biochemical and agriculture industries, to name a few. This is where a competent CPA is extremely valuable. He or she should be able to assess their clients’ activities and determine eligibility for the credit. The credit is available for companies that design, develop or enhance new products and/or processes. This includes the manufacturing process and the development of computer software. Technical uncertainty must be present at the beginning of the project in either capability, method or design of the product, software or process. Furthermore, the company must engage in a process of experimentation (similar to hypothesis testing) to eliminate that uncertainty and either prove that the design succeeds or fails. This is what companies are doing every day to remain competitive in their market. Companies may not have identified these as qualified R&D activities, but they are. At its core, the research credit was enacted to reward companies for taking risks and solving technical problems in developing new or enhanced products, software or processes.
OK, So What Do I Do Next? CPAs will
have to work closely with their clients to assess the applicability of this credit and determine the amount of the credits that are available. Clients will also need to invest the time and energy of company personnel to identify and assemble the supporting documentation. This is a very complicated credit that requires a deep expertise to navigate the many tax changes that have taken place over the years in this area. Once the credit availability is identified, CPAs can help their clients implement policies and procedures to capture qualifying activities and reap the benefits of a lower overall tax bill. The benefits of a reduced tax bill will typically far outweigh the soft cost and consulting fees that will be incurred during this process. Now is the time to get this done at the start of 2016. Don’t delay; a lower tax bill is waiting. Michael Silvio, CPA, is the Director of Tax Services at Hall & Company. He can be reached at firstname.lastname@example.org.
Manage, Enhance and Expand Your Practice I 23
Business Tax Software Helps Professionals Implement PATH Act BY JOSHUA FLUEGEL
usiness tax has seen a great deal of movement in the months leading to the 2016 tax season. One of the driving factors has been the Protecting Americans from Tax Hikes (PATH) Act. Since it was signed into law in December of 2015, the changes have involved several important deductions for business tax being made permanent. Clients come to their tax professionals not only expecting them to be knowledgeable of moneysaving tax laws and tactics but able to file their complicated business tax returns efficiently and securely. “Choosing a tax preparation solution that intelligently captures and manages client data empowers preparers to exceed those client expectations, remain John Tucker competitive in the marketplace, and drive higher profitability through increased workflow efficiency,” said John Tucker, product manager at Wolters Kluwer.” The regularly changing tax code in addition to clients looking to their tax professionals for knowledge on the PATH Act has created a significantly larger workload. Each one of these adjustments can have systemic consequences on a tax professional’s practice. “More and more we see firms struggling with complex consolidated returns and partnership returns,” said Angela Askew, product line manager at WoltAngela Askew ers Kluwer Tax and Accounting. “Shareholder allocation and distribution, Schedule M-1, dealing with net passive income, and K-1’s can and do 24 I www.CPAmagazine.com
bog a firm down without efficient tools and workflows. The compliance complexities with business returns continue to grow.” The increased workload has made time as valuable of an asset as a calculator. “We know that time – or the lack thereof – is the biggest challenge tax CeCe Morken professionals face during tax season,” said CeCe Morken, executive vice president and general manager at Intuit ProConnect Group. Tax professionals’ business tax software must ease the burden of these changes by addressing key issues in business tax. Compatibility can be key. Making sure all tax tools utilized though the tax season interlock perfectly like cogs in a clock can save valuable time. “Professional tax preparers who prepare a high-volume of returns require a business solution that is 100% integrated with their 1040 software,” said Charles W. Petz, CPA, chief fi- Charles W. Petz, CPA nancial officer and member of the board of directors at Petz Enterprises.” Once all of the business and personal tax software is “talking” to one another in the same language, productivity is then increased by the speed at which a Jamie Stiles tax professional can file returns. This is, of course, assuming the software can keep up. “In the tax business, speed is a must,” said Jamie Stiles, president of Drake
Software. “Ease of data entry, fast calculation, and efficient problem resolution are all key factors in helping tax professionals stay on pace during their busiest time of year.” A tax professional will be spending several months madly inputting numbers and other data into a computer. The process can be made significantly more pleasant if it can be done in a method that suits the tax professional’s taste. These options may also improve efficiency. “In addition to multiple imports, flexible data entry options are a great benefit throughout tax season,” said JoAnn Kintzel, president of TaxAct. “Preparers can choose to enter client JoAnn Kintzel information directly onto tax forms or utilize the Q&A interview when completing business returns. The ability to toggle between the two entry methods helps to expedite return preparation and maximize efficiency.” Good business tax software not only helps a tax professional through the nitty-gritty aspects of tax season but also on a big picture level. The software can help a tax professional structure workflow, improve client retention and develop the practice. “The alignment of business tax software to current consumer behavior, combining cloud technology and mobile experience, is a key feature that allows Jon Baron tax professionals to be productive, efficient and competitive in delivering tax preparation and compliance services,” said Jon Baron managing director, professional segment at Thomson Reuters. “However, the underlying value of tax technology goes beyond getting the work done: it enables tax and accounting firms and professionals to focus on proactive thinking, stay up-todate on increasingly complex compliance and reporting requirements, deliver trusted advice and counsel and therefore help their clients run a better and more profitable business.”
Top 9 CPA Website Builders BY JOSHUA FLUEGEL
he 21st century has replaced the brick and mortar locations of most CPA firms and replaced them with websites. While many CPAs still have an office where they meet with clients and conduct business, a great deal of the emphasis of curb appeal and customer service has been allocated to a website. The options available from website builder vendors is ever growing making the selection of one more difficult. The following are descriptions of some of the unique functions each vendor offers CPA firms.
The AccountantsWorld website build-
er allows the user to create surveys to get client feedback with survey links on the user’s website which can help enhance client relationships. The Website Relief product is also continually adding newsletter content that can be useful to clients and can help establish the user as a trusted source for accounting news. Build Your Firm’s website builder provides retargeting advertising in addition to pay per click advertising. Retargeting is designed to pull prospects back to the user’s website. There is also a niche website service for accountants (by industry and/or type of service) so accountants can acquire higher quality leads. ClientWhy’s websites are fully mobileresponsive and Google mobile compliant – this means they will look appealing on all screen sizes, including mobile devices. It also means users’ websites will be rewarded by Google for this mobilefriendly design. Also, one login allows the user to manage and update their website, manage client communications and share and receive secure documents.
are custom designed from scratch. CPAsites encourages firms to find a website (or several) they like,
26 I www.CPAmagazine.com
whether it’s another CPA firm or a law firm or an architectural firm and provide it to them as an example. A website will be designed based on the example.
builder features custom design services with more than 250 site styles and over 100 responsive designs. The designs are built to adhere to Search Engine Optimization (SEO) best practices. The websites allow for unlimited pages and users have access to over 150 tools and calculators.
datacenter is SOC 2 Type II and a copy of the SOC report can be requested by current paying ICFiles users after signing NDA. Service2Client does not resell any software and they claim to have never had a data breach.
Tenenz’s Account & Financial Site Builder (AFSB) allows users to edit con-
tent, add links to other tools or resources or embed applications inside the site at any time. The financial calculators and monthly client newsletters make a website a regular resource for clients. Members get a discount on physical products like W-2s and 1099s, tax return folders and marketing materials.
Thomson Reuters’ Web Builder CS
sets up and manages the website. Users also receive personalized service from their own website account manager, as well as a dedicated tech team to launch and update the site as needed, plus unlimited technical support.
Wolters Kluwer Tax & Accounting’s CCH Site Builder includes the ability to
create a “Careers” page on the user’s site. This tool allows firms to post jobs and accept resumes through the website. Users can also create job categories to help classify and organize open positions.
AccountantsWorld www.accountantsworld.com 888-999-1366 x2 Build Your Firm ★★★★★ www.buildyourfirm.com 888-999-9800 x2 ClientWhys www.clientwhys.com 800-442-2477 x4 CPAsites www.cpasites.com 866-452-9101
CPASiteSolutions ★★★★ www.cpasitesolutions.com 800-896-4500 x2 Service2Client ★★★★★ www.service2client.com 877-251-3273 Account & Financial Site Builder by Tenenz www.afsb.net 800-888-5803
Thomson Reuters ★★★ www.cs.thomsonreuters.com/ web-builder/ 800-968-0600 x1 Wolters Kluwer Tax & Accounting www.cchwebsites.com 877-393-2874 x1
See page 11 for explanation of ratings.
CPA PROFESSION TOP PRODUCT NOMINEES 1040 TAX SOFTWARE CCH Small Firm Services
Wolters Kluwer, CCH Small Firm Services
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SAP SME ERP
Tax and Accounting Center
CCH Small Firm Services
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CCH, Wolters Kluwer business
ProLine Tax Reasearch
Thomson Tax & Accounting
SMALL BUSINESS ACCOUNTING
Manage, Enhance and Expand Your Practice I 27
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Accounting Practice Sales, Inc. Practice Sales www.accountingpracticesales.com email@example.com 888-847-1040 We are the largest marketer of CPA firms in North America, helping both buyers and sellers find the right opportunity to suit their needs.
PROFESSIONAL LIABILITY INSURANCE Mitchell & Mitchell Insurance Agency, Inc. www.mitchellandmitchell.com firstname.lastname@example.org 800-582-4272 We represent the AICPA Professional, Cyber and Employment Practices Liability Programs. Experts in business, personal and medical lines of insurance, tailored to the accounting industry.
TAX PREPARATION Drake Software Drake Software www.drakesoftware.com email@example.com 800-890-9500 Drake Software offers value and incredible support in a complete tax preparation software for professionals. Tenenz Tax and Accounting Supplies www.tenenz.com | firstname.lastname@example.org 800-888-5803 For over 40 years Tenenz Inc. has provided high quality, low cost products and services to accountants and tax preparers across the US. Our quality is unsurpassed and we won’t be undersold. We offer a lowest price guarantee and 100% satisfaction.
TPS Software, Inc. TPS Time & Billing www.tpssoftware.com email@example.com 888-877-2231 TPS- trusted by more than 16,000 accountants in small and mid-sized firms to look after time tracking, billing and provide management tools.
TRUST PROBATE ACCOUNTING Delta Data, Inc. Trust Accountant www.deltadatatrust.com firstname.lastname@example.org 888-760-8039 Trust Accountant ™ , considered the premier trust and probate accounting program in its price range, is a real-time portfolio accounting software program designed to enable CPAs and attorneys etc. to easily and cost effectively manage fiduciary and individual accounts.
WEBSITE BUILDER AFSB Accounting & Financial Site Builder Website builder for Accounting Firms www.afsb.net | 800-888-5803 | email@example.com AFSB.net is an industry leading website builder for accounting firms. Established in 2000, our commitment to the accounting, tax and financial industry means you are partnering with a service that understands your needs and those of your clients. TM
WRITE UP PC Software Accounting, Inc. Client Write Up www.pcsai.com | firstname.lastname@example.org 800-237-9224 Our client write up program was rated 2nd behind QuickBooks in CPA Practice Advisors Readers Choice Survey 7 years in a row. Sophisticated reports, yet very fast and easy to use. Great Interfaces including QB. We are owned, programmed and supported in the United States and very reasonably priced.
If you need CPE, study this issue, answer the questions and fax your answers to 817-756-7252 today. Instructional Method: Self-study Field of Study: Taxes (3 hours) Program Prerequisites: A basic understanding of tax preparation Recommended CPE Credit: 3 hours CPE Quiz Expiration: TBD Quiz Title: PATH Act, ACA and IRS Tactics
You may earn CPE by studying the articles in CPA Magazine. To be eligible for continuing professional education credit, you should spend approximately three to six hours reading, reviewing and studying the material in the current issue. Then answer the self-study test questions. Certify that you have completed the study requirement for this exam by submitting the test online, or mailing or faxing a signed copy of the test to 817-756-7252. A certificate documenting the CPE credits will be issued for each examination score of 70% or higher.
Certified Public Accountants: Your State Board of Accountancy has final authority on the acceptance of any course for CPE credit for CPAs. Contact your state board if you have any questions concerning their CPE requirements. The student is responsible for selecting courses which meet the board requirements. The CPA Magazine CPE sponsor ID is shown where applicable: AK, AL*, AZ, CA, CO, CT, DE, GA, HI, IA, ID, KY, MA, MD, ME, MI, MO, MT*, ND, NE, NH, NM, NV, OH, RI, SD, UT, VA, VT, WA, WI, WY *Report 50% of the CPE credit shown on CPE certificate
Answer the following 15 questions and complete the answer sheet on page 31. 1. What was signed into law in 2015 that makes more than 20 provisions that expired at the end of 2014 permanent and extends others for two years? A. Pension Protection Act B. Affordable Care Act C. R & D Tax Credit D. Protecting Americans from Tax Hikes Act 2. Which of the following is not a business deduction that has been made permanent by the Protecting Americans from Tax Hikes Act? A. The treatment of off-the-shelf software as qualifying for a Sec. 179 deduction. B. A deduction that applies to new (not pre-owned) property. C. A deduction for a home office in which the client physically meets his/ her clients. D. Any amounts for restaurant improvements not deducted using the Sec. 179 deduction can be recovered using straight-line depreciation over a 15-year recovery period.
3. ALEs with 100 or more FTEs were mandated by the Affordable Care Act to offer affordable health insurance by January 1, 2015. Beginning with January 1, 2016 the number of FTEs mandating and ALE provide insurance changed to: A. 50 B. 75 C. 125 D. The only thing that changed was ALEs could be penalized greater amounts. 4. In regard to the Affordable Care Act, a “testing period” is: A. The period of time in a company’s history used to calculate if it is an ALE. B. The amount of time an employer has to insure all qualifying FTEs. C. A period of time in which an employer is not responsible for insuring a new employee. D. The amount of time an employee has qualified as an FTE. Continued on page 30 Manage, Enhance and Expand Your Practice I 29
for 3 $25 CPE Hours
If you need CPE, study this issue, mark the answers on page 31 and fax to 817-756-7252 today.
Continued from page 29
Contributions can be made to a 73-year-old’s Roth IRA as long as: A. the person’s spouse is older than 70 ½ as well. B. the person has legally declared a disability. C. the person has come to the end of their testing period. D. the person earned income from a job.
6. What is the maximum annual contribution a 55-year-old can make to an IRA? A. $5,500 B. $6,500 C. $7,500 D. $7,800 7. If a taxpayer(s) has an adjusted gross income between $184,000 and $194,000: A. The taxpayer and spouse are filing separately and may not make a contribution to a Roth IRA. B. A taxpayer is single and head of the household and may make a full contribution to a Roth IRA. C. The taxpayer and spouse are filing jointly and may make a partial contribution to a Roth IRA. D. The taxpayer and spouse are filing separately and may make a full contribution to a Roth IRA. 8. A taxpayer must meet which of the conditions to make a qualified withdrawal from a Roth IRA? A. The three-year holding period has been met. B. The taxpayer dies and the distribution is made to a beneficiary. C. The taxpayer’s spouse is disabled. D. All of the above. 9. Which of the following about required minimum distributions is true? A. A taxpayer may take his or her first required minimum distribution at 70 years old. B. A required minimum distribution cannot be postponed.
YOU READ IT... NOW GET CREDIT
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C. A required minimum distribution can be taken in two withdrawals. D. Failure for a qualified taxpayer to take his or her required minimum distribution will result in a penalty starting April 2017.
10. A qualified charitable donation can be made from which of the following? A. IRA B. SEP-IRA C. SIMPLE-IRA D. Roth IRA 11. At what age can a taxpayer possibly incur penalties for not signing up for Medicare? A. 59 1/2 B. 63 C. 66 D. A taxpayer cannot incur penalties for not signing up for Medicare. 12. Which of the following is a basic enrollment period for Medicare? A. When a taxpayer turns 66. During this initial enrollment period there is a seven-month enrollment window. B. The yearly open enrollment period from October 15 to December 7. C. Special enrollment – optioning out of Medicaid. D. Three months prior to a taxpayers 66th birthday. 13. As the R&D credit is determined as a portion of every qualifying dollar spent on R & D activities, what is the limit a company can generate? A. $75,000 B. $3.5 million C. $5 million D. There is no limit to the credit amount a company can generate. 14. How are small businesses defined in reference to the Protecting Americans from Tax Hikes Act? A. Non-public companies with fewer than 10 full time employees working no more than 35 hours a week. B. Non-public companies with less than $50 million in average annual gross receipts for the previous three years. C. Companies who have not been in existence long enough to file taxes. D. Public companies that have not yet completed registration with the Better Business Bureau. 15. Which of the following is not a requirement for the R&D credit to apply? A. The company must be privately owned. B. The company must engage in a process of experimentation. C. Technical uncertainty must be present at the beginning of the project. D. The company cannot be paying the alternative minimum tax the same year.
for 3 $25 CPE Hours
ACCESS THIS QUIZ OR PRIOR CPE QUIZZES ONLINE AT CPAMAGAZINE.COM
Course title: PATH Act, ACA and IRS Tactics
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1. A ❍ B ❍ C ❍ D ❍
2. A ❍ B ❍ C ❍ D ❍
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9. A ❍ B ❍ C ❍ D ❍ 10. A ❍ B ❍ C ❍ D ❍
3 Hours of CPE
11. A ❍ B ❍ C ❍ D ❍ 12. A ❍ B ❍ C ❍ D ❍ 13. A ❍ B ❍ C ❍ D ❍ 14. A ❍ B ❍ C ❍ D ❍ 15. A ❍ B ❍ C ❍ D ❍ Certified Public Accountants: Your State Board of Accountancy has final authority on the acceptance of any course for CPE credit for CPAs. Contact your state board if you have any questions concerning their CPE requirements. The student is responsible for selecting courses which meet the board requirements. You can review your state CPA CPE requirements online using links to state boards and state CPA societies.
ACCESS MORE COURSES ONLINE Obamacare and Tax Technical Update IRS Penalty Relief and Deduction Update Favorable Tax Treatment for Special Groups Obama Care Reporting and Tax Planning Tactics
BUSINESS TAX Volume 16, No. 2
Editor T. Steel Rose, CPA, ACG email@example.com Managing Editor Joshua Fluegel firstname.lastname@example.org Publisher Angie Rose email@example.com Production Andrea Bergeron Paul firstname.lastname@example.org The opinions given by contributing authors are their own and are not necessarily the opinion of our staff and management. All trademarks used are the property of their respective owner. CPA Magazine (ISSN# 2378-7481) is published four times a year by CPA Magazine, P.O. Box 92342, Southlake, TX 76092, 817-416-6650 and 888-610-1144 Standard Mail postage paid at Sussex, WI 53089 ©2016 All Rights Reserved Manage, Enhance and Expand Your Practice I 31
The Business Tax 2016 issue of CPA Magazine features information on the R & D tax credit as well as columns from industry leaders such as Si...
Published on May 27, 2016
The Business Tax 2016 issue of CPA Magazine features information on the R & D tax credit as well as columns from industry leaders such as Si...