Experiencing Losses? You Aren’t the Only One.

Elizabeth Beauboeuf, Tax Associate

Due to the current state of the economy, many businesses that had always enjoyed being profitable are now finding themselves operating in the red. If you find yourself in that same spot, there may be some relief.

Individuals who have paid taxes in the last five years and are experiencing significant losses from business operations or flow-through entities may be entitled to significant tax refunds.  Current year losses may result in a net operating loss (NOL), which is available to offset income generated in prior years. 

An NOL may be carried back two years or carried forward 20 years to offset income in those tax years.  For the 2008 and 2009 tax years, the Worker, Homeownership and Business Assistance Act of 2009 allows the taxpayer to elect to carry the NOL back either three, four or five years.

In order to carryback an NOL, you can file Form 1045 before the end of the year following the loss.  The benefit of filing Form 1045 is that you will receive your refund within 90 days after filing or within 90 days of the due date of the return for the year in which the loss was incurred.  This can be very beneficial for individuals who need cash quickly following a year with limited cash flow.

Corporations may also be eligible to receive a quick refund for taxes paid in prior years.  Consult your tax advisor for more information.

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Going Green Pays Green Part 2

Nicole M. Doeschot, CPA, Tax Associate

In an effort to save both money and the environment, companies are running on a much more “green” philosophy in the way they do business.  One of the most common methods is by constructing green buildings. 

While sometimes going green can have initial additional costs, a provision in the Energy Policy Act of 2005 is intended to offset some of the costs by possibly allowing taxpayers to take an immediate expense of the cost of property that would normally be depreciated over as many as 39 years. 

The energy efficient commercial buildings deduction generally is available for energy efficient commercial building property placed in service after 2005 and before 2014. Commercial building property includes property: 

1. That depreciation is allowable;
2. Which is installed on or in a building located in the United States that is within the scope of Standard 90.1-2001;
3. Which is installed as part of the interior lighting systems; heating, cooling, ventilation’ and hot water systems; or the building envelope (everything that separates the interior of a building from its outdoor environment, including walls, windows, foundation, basement slab, ceiling, roof, and insulation); and
4. Which is certified by a qualified individual in a manner to be prescribed by the Secretary as part of a plan designed to reduce the total annual energy and power costs for the building’s lighting and heating, cooling, ventilation, and hot water systems by 50% or more in comparison to a reference building that meets the minimum requirements of Standard 90.1-2001.  
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Aging Clients Need Considerate Advisors

Deidra Thomas, CPA, Tax Supervisor 

Our client base is aging.  People are living longer and continue to need planning and financial services into advanced age.  This is good news for CPAs. However, there are health issues that can affect the way we should best communicate with our aging clients. 

If you have noticed an older client having trouble paying attention, becoming paranoid, or undergoing personality changes, they may be suffering from dementia.  Alzheimer’s disease is the most common type of dementia, accounting for 70% of all cases.  The 2009 Alzheimer’s Disease Facts and Figures estimates that over 5.1 million Americans aged 65 or older have Alzheimer’s.  By 2030, that number is estimated to grow to over 7.7 million. With those numbers, it is easy to see that understanding and helping aging clients will continue to become increasingly important not only for CPAs, but for all types of advisors.    

As difficult as it may be to bring up this topic, advisors need to have a discussion with the client, if they demonstrate the above mentioned symptoms.  Legal documents and engagement letters should contain the names of contact persons in case the client should lack the mental capacity to make sound decisions.  Most importantly, we should accommodate clients by taking the following steps:

• Conduct shorter meetings
• Limit the focus to one or two topics
• Be clear of deadlines and courses of action
• Hold meetings in familiar surroundings like the client’s home
• Use simple sentences and limit questions to one at a time
• Do not argue or correct
• Above all, be patient 

As our clients age, there is a strong likelihood that some, or perhaps even many, will develop a type of dementia.  Service should remain our top priority. By communicating in a way that addresses their needs, we ensure that our clients continue to see us as trusted advisors.

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More States. More Complications. More Penalties.

Katie King, CPA, Tax Associate 

The burden of simply keeping up with the reporting requirements of each individual state can cause a lot of headaches for small businesses. In fact, taxes and regulations are among the biggest challenges facing small businesses today. Operating in multiple states? The challenges multiply exponentially.  

Many small businesses are organized as passthrough entities, and the taxing and regulatory procedures of states on passthrough entities as well as their owners vary greatly.  It is very important for businesses that operate in multiple states to have clear guidance, and when necessary outside help in order to ensure that they are meeting all of the requirements. 

A few of the issues that need to be addressed include: 

• Nexus - at what point you are required to file in a state
• Entity classifications such as S corporations and LLCs and how they are treated
• At what level the state tax is imposed - at the entity level or the owner level
• Mandatory withholding or estimated tax payments
• Annual Reports - some states require these as well as a tax return
• Composite Returns - these allow the entity to file on behalf of the nonresident owners 

And the list goes on and on and on. . . . . 

As you can see there are a lot of things to think about, and the more states a business operates in, the more complicated it gets.  It is very important to ensure all of the state requirements are met because just as the challenges multiply exponentially with the amount of states you operate in, so do the penalties. For advice about your business, be sure to contact your tax advisor.

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Owners of Distressed Properties May Qualify For Debt Reduction or Even Cancellation

Monica L. McKillip, CPA, Tax Senior

Cancellation of debt income (CODI) from distressed property is becoming more prevalent; yet one more effect of today’s lagging economy.  As discouraging as the situation may be, there are several ways to minimize the tax impact of debt forgiveness or debt restructuring. 

The general rule is that CODI must be included in taxable income.  However, there are provisions in the tax law that allow for the exclusion of CODI to individuals and businesses. Taxpayers that may benefit from these provisions include real property owners that have:

• filed for bankruptcy
• demonstrated they are insolvent, or
• qualified real business property indebtedness

If you have distressed property, there are also other consequences that CODI may have on your specific tax situation.  If the CODI is excluded from your taxable income, your tax attributes must be reduced, which may mean a reduction of net operating losses, general business credits, and capital loss carryovers to name a few. 

Contact your tax professional early in a situation of distressed property. They can recommend an action plan and ideal timing of events to either minimize or eliminate your tax implications.  Your tax professional can also help you negotiate with lenders.  Many lenders would rather work with the taxpayer to reach an agreement than to go through the cost of a foreclosure.  There are multiple scenarios in which the lenders and taxpayers walk away relatively unscathed. But, you need to be proactive to achieve a favorable outcome.

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Didn’t Close on Your Home Loan by the Deadline? There’s an Extension

Monica McKillip, CPA, Tax Senior

If you didn’t close on time to qualify for the $8,000 or $6,500 homebuyers’ credits, you can breathe a sigh of relief.  On July 2, the President signed the Homebuyer Assistance Improvement Act of 2010 into law.  This Act provides relief to taxpayers who were unable to close on their new homes by the June 30, 2010 deadline. As of last week, you must now close before October 1, 2010.

In many cases, homebuyers were unable to close by the deadline due to backlogs with lenders and federal programs involved in homebuyer loans. Those who signed a contract no later than the April 30, 2010 deadline now have until the end of September to complete their closings and still get the credits. 

Under the previous law, the first-time homebuyer credit of $8,000 and the $6,500 credit for long-term residents expired for homes purchased after July 1, 2010.  If a written binding contract to purchase a principal residence was entered into before May 1, 2010, the law now allows the credit to be claimed if the purchase is settled by September 30, 2010. 

2010 homebuyers have the option to claim the credit on either their 2009 or 2010 income tax returns.  If your 2009 return has already been filed, it may be amended to include the credit.  For more information, contact your tax professional or visit www.amdcpa.com.

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HIRE Act is Good News for Expanding Businesses

Deidra Thomas, CPA, Tax Supervisor 

What does the 2010 Hiring Incentives to Restore Employment (HIRE) Act mean for you?  The Act provides tax incentives for hiring unemployed individuals and extends certain business deductions. So, for business owners, that is good news. 

The #1 highlight of the hiring incentitives is payroll tax forgiveness for employers.  For every qualified worker hired between February 3, 2010 and January 1, 2011, the employer is exempted from paying the 6.2% Social Security tax for that particular employee.  A qualified employee is an individual that was unemployed for at least 60 days prior to their start date.  Family members of the employer do not qualify and current employees cannot be replaced unless they leave the job voluntarily or are terminated for cause. 

In addition to payroll tax forgiveness, an income tax credit is available for retaining qualified workers.  The workers have to meet the same criteria for payroll tax forgiveness to qualify employers for the credit.  Employers can take the lesser of $1,000 or 6.2% of the wages paid to the employee during the required 52 week period of employment. 
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Companies & Individuals Beware. Now the States are Coming!

Chad Gall, CPA, Tax Supervisor

Nexus in general means a connection. The term nexus is used in tax law to describe a situation in which a business has a “nexus” or presence in a state and is thus subject to state income taxes and to sales taxes for sales within that state. Nexus describes the amount of business activity that must be present before a state can tax an individual or business’ income. If a taxpayer has nexus in a particular state, the taxpayer must pay and collect/remit taxes in that state. 

Nexus is determined differently for income taxes and for sales tax purposes. Generally, nexus is created for income tax purposes if an individual or business derives income from sources within the state, owns or leases property in the state, employs personnel in the state in activities that exceed “mere solicitation,” or has capital or property in the state. The requirements vary from state to state. 

Nexus is determined differently for sales tax purposes. Here are a few examples in which a business may have sales tax nexus in a state: 

• If the business has a physical location in the state
• If there are resident employees working in the state
• If the business has property (including intangible property) in the state.
• If there are employees who regularly solicit business in the state. 
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Going Green Pays Green

Nicole Young, CPA

The time has never been better to cash in on all of the “going green” tax credits the government is offering. Many of these credits were introduced in the American Recovery and Reinvestment Act of 2009 and are around through 2010.

As the cost of heat and electricity continues to rise, we see the importance of weatherization projects among green programs. It is found that homeowners save money each month on electric and gas bills when they create a more energy-efficient property; not to mention the upfront credit they receive when purchasing the energy-efficient product. The following types of energy-efficient products may be eligible for a 30% credit of up to a maximum of $1500:

• Central air conditioning
• Gas, propane, or oil hot water boiler
• Natural gas or propane furnace
• Home insulation
• Reflective roofing
• Energy efficient windows, doors, and skylights
• Storm windows and doors
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Tips for Avoiding Negative Tax Consequences from Your Inherited 401(k)

Katie M. King, CPA, Tax Associate 

Historically when the beneficiary of a Qualified Retirement Plan, such as a 401(k), was not a spouse, the account balance had to be distributed in either a lump sum or within a five-year period.  Under these rules, the benefit of the tax deferral was lost.

With the passing of the Pension Protection Act of 2006, nonspouse beneficiaries of Qualified Retirement Plans now have the chance to avoid these negative tax consequences and receive the balance through distributions over their lifetime.

Here are some tips that must be followed in order to take advantage of these new rules:

• Arrange for a trustee-to-trustee transfer from the 401(k) into a new IRA identified as an IRA with respect to the deceased individual (John Smith as beneficiary of Jane Doe’s IRA). This must be a trustee-to-trustee transfer, you cannot receive the money in cash and then roll it into an IRA.
• Complete the transfer in the year of death if possible, no later than the following year. This way, no matter how the plan was set up, the beneficiary will be able to receive the benefits over their lifetime using the life expectancy rules.
• If the transfer is completed in the year following the death, be sure to take the required minimum distribution in the year of death.
• Do not make new contributions to the IRA or roll it over into an IRA solely in the name of the beneficiary.

Be sure to consult with your tax advisor to make sure you have maximized the benefits available to you.

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