Rebella Accountancy | 507 E. First Street, Suite A | Tustin, CA 92780 | Phone: 714-619-0667 | Fax: 714-544-0236

       

 

 

Monica Rebella, CPA/IAR - President

Rebella Accountancy

 

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Feature Articles

 

- Supreme Court upholds ACA Code Sec. 36B premium tax credit regs

- Supreme Court's same-gender marriage decision affects federal, state taxation

- Treasury, IRS get moving on ABLE account rules

- How Do I? Determine when the "at risk" rules apply to my business

- Can I deduct the cost of sending my child to summer camp?

 

 

 

 

 

 

 

Tax Extenders Take First Steps + Preliminary Filing Season Stats + Lawmakers Hear From Small Businesses + FAQ: Can An S Corporation Own? + Computing Withholding


 

Just before Congress recessed for its August break, a package of tax extenders was approved by the Senate Finance Committee (SFC).

 

The House and Senate both struggled to find ways to pay for a multi-year federal highway and transportation spending bill, and disagreed over the extent of cuts to the IRS's fiscal year (FY) 2015 budget. Congress did not, however, take action on proposals to allow small businesses to reimburse employees for health insurance costs.

Tax extenders

Unless renewed, many tax incentives available in 2014 will not be available in 2015. The list of these popular but temporary tax breaks is long, numbering more than 50, and impacting all types of taxpayers. For individuals, the extenders include the state and local sales tax deduction, higher education tuition deduction, teachers' classroom expense deduction, transit benefits parity, and more. For businesses, the expired extenders include the research tax credit, Code Sec. 179 small business expensing, Work Opportunity Tax Credit (WOTC), special expensing rules for television and film productions, Production Tax Credit, and others.
 

 

Recently in USA Today I was quoted in 2 articles on tax topics & if you missed it you can download the articles below.  Monica

9 Commonly Overlooked Tax Breaks by Jeff Reeves - Special to USA Today (click here to download) 9 Tax Tips For The Self Employed by Jeff Reeves - Special to USA Today (click here to download)

 

In July, the SFC voted to extend the expired tax provisions for two years: retroactive to January 1, 2015 and forward through 2016. That way, taxpayers can take advantage of the incentives in 2015 and 2016.

The SFC also enhanced some of the extenders. The SFC voted to increase the Code Sec. 179 expensing maximum amount and phase-out threshold in 2015 and 2016 to $500,000 and $2 million respectively, indexed for inflation beginning after 2014. The proposal would also extend the definition of Code Sec. 179 property to include computer software and $250,000 of the cost of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property for two years.

The SFC did not leave out another popular business incentive: bonus depreciation. The SFC package would extend 50 percent bonus depreciation to qualified property purchased and placed in service before January 1, 2017, (before January 1, 2018, for certain longer-lived and transportation assets).

Although the extenders have moved through the SFC, their passage in the full Senate is uncertain. Many lawmakers want the cost of the extenders (estimated at $95 billion over 10 years) to be offset by revenue raisers. The SFC bill includes three revenue raisers, two related to energy and a proposal to modify mortgage information reporting requirements for lenders. Like past years, the fate of the extenders will likely be decided late in the year. Our office will keep you posted of developments.

Highway funding

At press time, Congress was still seeking a path to pass a multi-year federal highway and transportation spending bill. A temporary highway funding bill is scheduled to expire after July 31, 2015. As with the extenders, much of the debate is on how to pay for highway and transportation projects.

Senate Majority Leader Mitch McConnell, R-Ky., proposed a six-year highway bill partially paid for with extensions of current funding provisions and tax compliance measures. The bill is funded for three years with revenue for the remaining three years to be determined at a future date. McConnell proposed to pay for his bill, among other revenue raisers, by modifications to mortgage information reporting, revoking or denying a U.S. passport to individuals with delinquent tax obligations, and allowing employers to transfer excess defined-benefit-plan assets to retiree medical accounts and group-term life insurance.

Meanwhile, the House approved a short-term highway patch. The House bill includes a provision similar to the Senate's mortgage information reporting proposal. House Democrats have reproposed the GROW AMERICA Act, which would pay for highway and transportation spending by limiting tax-motivated corporate inversions.

IRS budget

In June, the House Appropriations Committee voted to fund the IRS at $10.1 billion for FY 2016, which represents a cut of some $838 million compared to FY 2015. The full House did not take up the bill before the August recess. The Senate Appropriations Committee also approved a cut to the IRS's budget, but not at the same amount. The Senate bill would reduce the IRS's FY 2016 budget by $470 million.

Small businesses

The Affordable Care Act imposes a number of market reforms. One consequence of these reforms has been to limit the use of health reimbursement arrangements (HRAs) for small businesses to reimburse employees for health insurance costs. Reform legislation has been introduced in the House and Senate.

The Small Business Healthcare Relief Act would allow many small businesses to use pre-tax dollars to give employees a defined contribution; and permit employees to use these funds as an HRA to purchase health coverage on the individual market, as well as for qualified out-of-pocket medical expenses. The bill has bipartisan support and could come up for a vote after the August recess.

If you have any questions about the tax proposals making their way through Congress, please contact our office.
 


 

Preliminary Filing Season Stats Show Successes And Challenges For IRS
 

Preliminary information from the 2015 filing season shows a mixed bag of success and failures for the IRS. The IRS successfully processed returns and issued refunds, taking into account new requirements under the Affordable Care Act. At the same time, taxpayers experienced significant difficulties in contacting the IRS and tax-related identity theft increased compared to last year.

Returns and refunds

So far this year, the IRS has processed 126 million individual tax returns, compared with 125.6 million last year. The IRS has issued 91.8 million refunds, compared with 94.8 million last year. According to the IRS, the average refund is $2,711, up from $2,686 last year. The IRS also reported that visits to its website jumped 12 percent this year compared to 2014.

Affordable Care Act

Effective January 1, 2014, individuals must carry minimum essential health coverage or make a shared responsibility payment, unless exempt. At the start of the filing season, the IRS launched a campaign to educate taxpayers about the individual shared responsibility requirement. At that time, the IRS estimated that at least two-thirds of filers would report having minimum essential health coverage, such as employer-provided coverage. Many other taxpayers would be exempt; and others would be required to make a shared responsibility payment.

Looking at the preliminary data, the IRS reported that 76 percent of filers checked a box on their returns to report they had minimum essential coverage in 2014. Approximately 12 million taxpayers claimed an exemption from the individual mandate. Some 7.5 million taxpayers made a shared responsibility payment. However, according to the IRS, some 300,000 individuals overpaid their shared responsibility payment.

The IRS also processed some 2.6 million claims for the Code Sec. 36B premium assistance tax credit. The credit helps offset the cost of health insurance through the ACA Marketplace. The average Code Sec. 36B credit amount was $3,000.

Customer service

The IRS cautioned taxpayers that budget cuts would negatively impact customer service during the filing season and the filing season reflected its prediction. In 2014, the IRS answered 71 percent of all calls from taxpayers. This year, the percentage fell to 37 percent and wait times increased. The IRS also expanded its use of so-called courtesy holds (which automatically disconnect a caller after a certain amount of time). The IRS made 8.8 million courtesy disconnects during the 2015 filing season.

Note. National Taxpayer Advocate Nina Olson recently told Congress that the decline in customer service has consequences beyond long wait times. "For a tax system that relies on voluntary self-assessment by its taxpayers, none of this bodes well," Olson said. "In fact, there is a real risk that the inability of taxpayers to obtain assistance from the government, and their consequent frustration, will lead to less voluntary compliance and more enforced compliance."

Identity theft

Tax-related identity theft continues to grow as criminals find new ways to scam unsuspecting taxpayers. In 2014, the IRS reported discovering some 700,000 fraudulent returns. So far this year, the IRS has identified some 1.5 million fraudulent returns. The IRS also received approximately 1.6 million calls to its Identity Protection Specialized Unit (IPSU).

The IRS also has had to deal with fallout from the May 2015 breach of its Get Transcript app. Criminals were able to access more than 100,000 taxpayer accounts, including names, Social Security numbers and dates of birth of dependents.

If you have any questions about the 2015 filing season, please contact our office. All of these statistics are preliminary and could change as the IRS continues to process data. The IRS typically publishes tax return statistics about 15- to 18 months after the close of the tax year in order to provide time for all returns to be filed.
 



Lawmakers Hear From Small Businesses About Tax Complexity, Compliance


Small business tax reform was the topic of two Congressional hearings in July. House and Senate lawmakers heard from small business owners and leaders in the tax and accounting area about concerns over tax complexity, compliance, and penalties. After the hearings, the chair of the Senate Small Business Committee said that he is moving forward with a small business tax compliance reform bill.

Complexity and compliance

The owner of a small manufacturing business told the Senate Small Business Committee that "small businesses operate from the intent to stay in compliance, but confusing regulations coupled with limited resources can lead to businesses inadvertently falling out of compliance." A representative of a business association added that tax regulations cause the greatest difficulties for small employers. "The current tax code has become a confusing and unpredictable challenge for the vast majority of small business owners. Small business owners continue to be excessively burdened by direct, indirect, complicated and ever changing taxes related to operating their business," the representative testified.

Small Business Tax Compliance Act

The Small Business Tax Compliance Relief Bill, introduced by Sen. David Vitter, R-La., in July, addresses a number of issues raised by speakers at the hearings. Among other provisions, the bill would reform some penalty provisions for small businesses and require the IRS to expand its outreach to small businesses. "Unlike many previous small business tax bills, this legislation does not seek to alter tax rates or pursue wholesale reform. Instead, it provides relief from those provisions most often cited as overly restrictive for a small business," Vitter said.

"The Small Business Tax Compliance Act of 2015 can ease compliance costs and improve the overall tax system for small businesses across the country," Jeffrey Porter, CPA, chair of the AICPA Tax Reform Task Force, testified before the Senate Small Business Committee. "Targeted, proportionate penalties that are administered in a reasonable manner encourage voluntary compliance with the tax laws, Porter said. Businesses that act in good faith should not be subject to the same rules as businesses trying to scam the system," he added.

Repair regulations

Testifying before the House Small Business Committee, Troy Lewis, CPA, chair of the Tax Executive Committee of the American Institute of Certified Public Accountants (AICPA), recommended changes to the tangible property regulations ("repair regulations") that address how businesses should report the acquisition and improvement of tangible property to reduce complexity. "The $500 de minimis safe harbor threshold for taxpayers without an applicable financial statement should be increased to $2,500 and should provide for annual inflation adjustments. In addition, the definition of applicable financial statement should be expanded to include a reviewed set of financial statements so more businesses could benefit from the higher $5,000 threshold," Lewis told lawmakers.

If you have any questions about pending small business tax legislation, please contact our office.
 


 

FAQ: Can An S Corporation Own An Interest In Another Business Entity?


An S corporation may own an interest in another business entity. An S corporation can be a member of an affiliated group by owning 80 percent or more of the stock of a C corporation. The group then can elect to file on a consolidated basis, if other affiliated group rules are met. But the S corporation itself cannot join the consolidated group.

Although in general only individuals can be shareholders in an S corporation, an S corporation can own an S corporation if the subsidiary corporation would otherwise qualify as an S corporation if the parent's shareholders held the subsidiary's shares directly, and the taxpayer elects qualified S corporation status for the subsidiary. Generally, for federal tax purposes a corporation that is a qualified S corporation subsidiary is not treated as a separate corporation, and all assets, liabilities, and items of income, deduction, and credit of a qualified S corporation subsidiary are treated as assets, liabilities, and items of income, deduction, and credit of the S corporation.

An S corporation can also be a partner in a partnership or a member of an LLC.

For further information on how an S corporation may hold or acquire interests in another business, please contact our offices.

 


 

How Do I Compute Withholding Using The Part-Year Employment Method?


Employers generally withhold from wages by way of the wage-bracket or percentage method (Code Sec. 3402(b) and Code Sec. 3402(c)). However, an employee may request that the amount of tax withheld by the employer from the employee's wages be computed on the basis of the part-year employment method (Reg. 31.3402(h)(4)-1(c)(1)). Under this method, an individual who is employed no more than 245 days in the aggregate during a calendar year may request that the employer withhold on the basis of the part-year employment method to prevent overwithholding. Under this method, the amount of tax to be withheld is determined as if the wages paid to a part-year employee were spread evenly over the calendar year, whether or not the employee actually was employed during all of that period.

An employee's request that withholding be based on the part-year employment method must be in writing and in the form that the employer requires. The request must be sworn and must contain the following information:

- the last day of employment, if any, by any employer prior to the current term of continuous employment during the calendar year in which that term commenced;
- a statement that the employee reasonably anticipates being employed for an aggregate of not more than 245 days in all terms of continuous employment during the current calendar year; and
- a statement that the employee uses a calendar-year accounting period.

There is no specified due date for an employee's election to withhold using the part-year method. A request by the employee furnished to the employer in proper form may be acted upon by the employer for wages paid after the furnishing of the request. It is effective only for the calendar year in which it is furnished to the employer. The request is not effective for wages paid on or after the beginning of the payroll period during which the current calendar year will end.

 

 


 

   

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As always you can call me at 714-619-0667 if you have any questions about investing, retirement or any other tax & accounting related issues. 

 

Regards, Monica Rebella, CPA/IAR

President, Rebella Accountancy

 
Disclaimer:  The opinions contained herein are not intended to be investment advice or a solicitation to buy or sell any securities. With any investment you should carefully consider the investment objectives, potential risks, management fees, and charges and expenses before investing.  Past performance is not a guarantee of future results. The investment return and principle value of any investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.

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Monica Rebella, CPA/IAR | President - Rebella Accountancy | Certified Public Accountants
507 E. First Street, Suite A | Tustin, CA 92780 | Phone: 714-619-0667 | Fax: 714-544-0236
Email: mrebella@rebellacpa.com | www.RebellaCPA.com | www.MyDentalCPA.com