Dear Clients and Friends,

As part of the effort by the IRS to improve voluntary tax compliance and the accuracy of income tax returns by business taxpayers, the IRS has issued new regulations requiring banks and other settlement entities to issue a 1099-K to merchants beginning in 2012. The merchants that will receive the new 1099-K include those that accept credit cards, debit cards and similar transactions, as well as transactions settled through third-party payment networks, e.g. Paypal.  This gives both the IRS and the 1099-K recipients an additional tool to verify that they have reported all their sales.

The IRS assures the public that individual cardholders will be unaffected by this requirement and that none of the cardholder’s personal information will be shared with the IRS.

Beginning with the 2011 income tax forms, there is a separate line that specifically asks for gross receipts reported on all 1099-Ks received by the taxpayer.  However, for tax year 2011, the IRS has said nothing needs to be reported on this line.  The IRS will not start matching the 1099-Ks issued to the payee and the amount reported on their income tax return until the 2012 tax return.

If you receive any 1099-Ks for 2011 please keep them with your records.  As we mentioned, there is no reporting requirement on your end for this year.  But by keeping a list of the 1099-Ks you received this year it will help you in 2012 make sure you have them all.

If you would like to see what the new 1099-K looks like, you can find a copy at http://www.irs.gov/pub/irs-pdf/f1099k.pdf

Please contact us if you have any questions regarding this new reporting form.

Sincerely,

DOYLE & KEENAN, PC

2010 Form 1120S Schedule K-1 Instructions

2011 Form 1065 Schedule K-1 Instructions

2011 Form 1041 Schedule K-1 Instructions

Dear Clients and Friends,

By now, most of you have already heard that Congress and the President have passed the payroll tax cut extension.  The following information was from an IRS news release dated December 23, 2011.  It contains a few more pieces of information that you may not have been aware of yet.

At the eleventh hour, Congress approved a two-month extension of the employee-side payroll tax cut in the Temporary Payroll Tax Cut Continuation Act of 2011.  The two-month extension, for January and February 2012, is intended to give lawmakers additional time to negotiate a full-year extension of the payroll tax cut through the end of 2012.

OASDI tax rate. Social Security's Old-Age, Survivors, and Disability Insurance (OASDI) program and Medicare's Hospital Insurance (HI) program are financed primarily by employment taxes.  Prior to 2011, the OASDI tax rate was 6.2 percent for employees and employers, each; and the OASDI tax rate for self-employment income was 12.4 percent.

OASDI limits the amount of earnings subject to taxation for a given year. This limit changes each year with changes in the national average wage index.  For 2011, the OASDI wage base was $106,800. The OASDI wage base is $110,100 for 2012. There is no limitation on HI-taxable earnings.

2011 temporary reduction. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reduced, for wages and salaries paid in 2011 and self-employment income in 2011, the OASDI tax by two percentage points, applied to the portion of the tax paid by the employee and the self-employed individual (4.2 percent and 10.4 percent, respectively). The employee-side payroll tax cut under the 2010 Tax Relief Act was scheduled to expire after December 31, 2011.

Two-month extension. On December 23, 2011, Congress approved and President Obama signed a two-month extension of the employee-side payroll tax cut. The Temporary Payroll Tax Cut Continuation Act of 2011 extends the two percentage point employee-side payroll tax cut through the end of February 2012.

Recapture. Shortly after President Obama signed the Temporary Payroll Tax Cut Continuation Act, the IRS explained that the new law includes a recapture provision, which applies to individuals who receive more than $18,350 during the two-month extension period. The OASDI wage base for 2012 is $110,100, and $18,350 represents two-months of the full-year amount. The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year. The House Ways and Means Committee reported that the recapture provision will only apply if the payroll tax reduction is not extended for the remainder of 2012.

Implementation. The IRS instructed employers to implement the reduced payroll tax rate as soon as possible in 2012 but no later than January 31, 2012. For any Social Security tax over-withheld during January, employers should make an offsetting adjustment in employees’ pay as soon as possible but no later than March 31, 2012, the IRS advised.

If you have any questions about the two-month extension of the payroll tax cut, please contact our office.

We will keep you up to date as any additional guidance regarding these provisions is released.

Sincerely,

DOYLE & KEENAN, P.C.

Dear Client and Friends:

In this age of computers, we are integrated with the ability to do our banking transactions any day or time with the offering of electronic banking.  We can even pay most of our monthly bills on line any day or time.  And schedule our payments in advance.  Several retailers are now offering to send your receipt electronically-avoiding a paper stack of receipts to keep track of.  These services are offered for the convenience of the consumer.  Why wouldn’t the Internal Revenue Service want to offer the same kind of convenience for us as taxpayers?

Well there is a way you can make your estimated tax payments accurately, quickly and securely and on time through the Electronic Federal Tax Payment System (EFTPS).  The EFTPS is a service provided free by the U.S. Department of the Treasury that enables individual taxpayers to make all their federal tax payments electronically 24 hours a day, 7 days a week through the internet. 

What are the benefits of using EFTPS?

• It’s secure…EFTPS uses the highest level of security available via the internet.

• It’s fast…you can make a tax payment in minutes.

• It’s accurate…because there are verification steps along the way, you are able to check and review information before it is sent.

• It’s convenient…EFTPS is available to you by Internet or phone – 24 hours a day, 7 days a week. 

• It’s easy to use…it’s a step-by-step process that tells you what information you need to make any federal tax payment.

• It helps reduce penalties…because you can schedule payments in advance.  If you do not schedule your payments in advance, you must submit your tax payment to EFTPS before 8:00 p.m. ET at least one calendar day prior to tax due date to avoid penalties.

• You can view your payment history on line...no more searching for the date and amount of your federal estimate tax payments when gathering your tax information for preparation of your tax return.

At this point, you are probably wondering how to enroll and begin to enjoy the benefits of the EFTPS.

You can enroll via the internet at www.irs.gov or by completing IRS Form 9783.  After the EFTPS processes your enrollment, you will receive two separate mailings.  One will be a Confirmation/Update Form.  The other will be a letter that includes your Enrollment Trace Number, Personal Identification Number (PIN) and instructions on how to obtain an Internet Password.  After you obtain your Internet Password, you may begin making payments via the Internet.

It’s that simple.

If you have any questions or need any assistance with the enrollment process, please contact our office.

Sincerely,

Doyle & Keenan, P.C.

 

Portal User Guide

Dear Clients and Friends,

We recently have had several new additions to the Doyle & Keenan, P.C. family that we wanted to share.

Paul Bayer, a staff member of our audit team, was married to Michelle on August 13, 2011.  They followed the wedding up with a honeymoon in Hawaii.  Michelle is currently a student at the University of Iowa in the Physical Therapy program.

David Williams, a staff member of our audit team, was married to Lauren on October 22, 2011.  They followed their wedding up with a honeymoon in Jamaica.  Lauren moved here from Georgia and is not looking forward to the Iowa winters!

Sarah Lynch, a staff member of our tax team, recently had a baby boy.  Benjamin Michael Lynch was born on November 6, 2011 weighing in at 7lbs 15oz and 20 inches long.  Mom, Dad, sister Kate and baby are doing great!

Tanya Vukov has joined the firm and will be working in the firm’s Accounting and Tax practice.  Tanya received her Associate Degree in Accounting from Penn Foster College and has been working in public accounting for six years.

We wanted to say congratulations to our new additions and wish all of them the best of luck!

We also wanted to mention that Doyle & Keenan, P.C. recently completed our United Way campaign for 2012 by breaking our past record in fundraising.  For the third year in a row, the firm achieved 100% employee participation in the campaign.  Our employees had a great time participating in our special events that included a soup cook-off, silent and live auction and Casual for a Cause.  We would like to take this opportunity to thank our employees for their generosity and thank the following sponsors for donating items for our auctions: Grand Harbor Resort and Waterpark in Dubuque, Putnam Museum & IMAX Theatre, Jumer's Casino & Hotel, Rave Cinemas and Quill.com.

Sincerely,

DOYLE & KEENAN, P.C.

Doyle & Keenan, P.C., Certified Public Accountants and Consultants, has the following announcements:

Chris Crane has joined the firm as a Staff Accountant and will work in the firm’s Accounting practice.  Chris received her Bachelor and Master’s degrees from St. Ambrose University and has passed the CPA exam.  She has been working in private accounting for six years.

David Williams has joined the firm as a Staff Accountant and will work in the firm’s Audit practice.  David graduated from Valdosta State University after serving in the Air Force for six years.  He has practiced in public accounting for two years. 

Mike Hurd has joined the firm as a Manager and will work in the firms Tax practice.  Mike graduated from Iowa State University, is a CPA and has practiced in public accounting for 15 years.  His responsibilities will include tax preparation and planning in the firm’s corporate, individual and not-for-profit tax practice.

Doyle & Keenan, P.C., is a full service public accounting and consulting firm located in Davenport with 30 employees including 17 CPA’s offering a broad range of services including audit, review, compilation and write-up, tax, business valuation, estate planning, retirement planning and litigation support.  Please call 386-2727 if you would like to schedule an appointment.

Dear Clients and Friends:

Every so often we like to highlight different areas that our firm has to offer in order to further help our clients and friends.

Some people think they only need an accountant if they are required to compile monthly, quarterly or annual financial statements.  However, our Accounting Services team can be of assistance all year long even if it does not involve financial statements.  At Doyle & Keenan, P.C., we have four staff members that are Certified QuickBooks ProAdvisors.  This means that they have taken the necessary ongoing training to know the ins and outs of the QuickBooks program.  They are available to answer any questions that may come up while you or your employees are working in the program. 

Our Accounting Services team has a lot of experience going out to the client's workplace when necessary.  Whether it is recording prior year adjusting journal entries, reconciling accounts to create interim financial statements or preparing payroll while an employee is on vacation, our team is available to assist in any way.

Along with being proficient with QuickBooks and accounting in general, our team is knowledgeable with payroll issues including payroll taxes and payroll tax returns as well as sales and use tax issues.

Members of our Accounting Services team include:

Karen Konrardy, CPA, Certified Quickbooks ProAdvisor - Karen has been with Doyle & Keenan, P.C. for 20 years.  Karen graduated from St. Ambrose University in 1990.  Karen has experience working with all types of financial information, especially in the medical field.  Karen also has great computer skills and has been able to learn and use other client software such as Business Works.

Stephen Swanson, CPA, Certified Quickbooks ProAdvisor - Stephen has been with Doyle & Keenan, P.C. for 13 years.  Stephen graduated from the University of Illinois in 1998.  Stephen has experience working with all types of financial information, especially in the medical field.  Stephen has also stepped in and become "controller" for some our clients who were in temporary need of someone in that position.

Chris Crane - Chris recently joined Doyle & Keenan, P.C. in July.  Chris has 5 plus years in the accounting field in various industries and we are excited about what she will add to our team.  Chris graduated from St. Ambrose University in 2004 and received her MBA from St. Ambrose University in 2008.  Chris has passed the CPA exam and is now working on the final details in order to become fully licensed.

Cheryl Tipsword, CPA, Certified Quickbooks ProAdvisor - Cheryl has been with Doyle & Keenan, P.C. for 13 years.  Cheryl graduated from St. Ambrose University in 1990.  Cheryl has been involved in the accounting and payroll for many different industries including funeral homes, medical groups and convenient stores.

Mandy Solis, Certified Quickbooks ProAdvisor - Mandy has been with Doyle & Keenan, P.C. for 3 years.  Mandy graduated from Western Illinois University in 2007.  Mandy has been involved in the accounting and payroll for many different industries including medical groups, landscapers and country clubs.

Please contact us if you would like to set up a time to discuss how our Accounting Services team can help make your business run smoother.

Sincerely,

DOYLE & KEENAN, P.C.

Dear Clients and Friends:

It is summertime and a lot of us are sending our kids to day camp, sports camp or other similar summer programs.  Because of that, we thought it would be good time to remind you of the potential tax benefits of these expenses.

The IRS allows a Child and Dependent Care Credit.  This nonrefundable credit is available for a certain percentage of your dependent care expenses that enable you to work.  The maximum qualifying expenses for one qualifying individual is $3,000 and $6,000 for two or more qualifying individuals.  The credit ranges from 20% to 35% of the expenses based on your adjusted gross income. 

A qualifying individual is a dependent under the age of 13 or any dependent or the taxpayer's spouse who is physically or mentally incapable of caring for him or herself and who lives with the taxpayer.

So what expenses actually qualify? 

1)      Dependent care center expenses

2)      Household services - Costs of maid, housekeeper, babysitter or cook qualify if they are at least partly for the well-being and protection of the child.  Expenses also include costs incurred to provide meals and lodging for the in-home provider.

3)      Household employee - Wages and all related payroll taxes are eligible expenses.

4)      School costs - Expenses for a child in nursery school, preschool or similar program below kindergarten level qualify because the educational benefits are incidental to the child care costs.  If the costs of schooling are separable from the cost of the child care, only the cost of the child care is an eligible expense.  Before or after school care of a child in kindergarten or a higher grade is also an eligible expense.

5)      Camp - The cost of sending a child to an overnight camp is NOT an eligible expense.  However, the cost of a day camp is a qualified expense even if it specializes in a particular activity like soccer.  But the cost of summer school and tutoring programs do not qualify.

There are a few additional tests that must be met in order for you to take the credit.  Both the taxpayer and spouse (if married) must have earned income, expenses must be paid so the taxpayer and spouse can work or look for work, expenses are not eligible if paid to the taxpayer's spouse, dependent or child under 19 and the care provider must be identified on Form 2441 including their EIN or social security number.

Many employers do offer a dependent care benefit plan.  This allows an employee to elect to have up to $5,000 excluded from gross income.  The excluded income must be used for the above qualifying expenses.  If it is not, it is included as income on the taxpayer's income tax return.  If the employee elects to have some income excluded under this type of plan, any qualifying expenses used to calculate the dependent care credit must be reduced by the excluded income.

Hopefully this letter will serve as a small reminder of potential tax savings that you may be incurring during these summer months.  We all should have a place to put tax information during the year.  Be sure to stick those soccer camp receipts in that spot so you have them ready come next tax time!

Please contact us if you have any additional questions regarding the dependent care credit.

Sincerely,

DOYLE & KEENAN, P.C.

 

Dear Clients and Friends:

Although business is business and pleasure is pleasure, the world rarely adheres to absolutes. Thus, this time of year you may want to mix some vacation days with your business travel. With a little planning, you can get Uncle Sam to subsidize your downtime. Here are the strategies for doing just that.

If you go on a business trip within the U.S. and add on some vacation days, you know you can deduct some of your expenses. The only question is how much. First, let’s cover just the pure transportation expenses. By this, we mean the costs of getting to and from the scene of your business activity, which includes travel to and from your departure airport, the airfare itself, baggage fees and tips, cabs to and from the destination airport, and so forth. Costs for rail travel or to drive your personal car also fits into this category. The bottom line is your domestic transportation costs are 100% deductible, as long as the primary reason for the trip is business rather than pleasure. On the other hand, if vacation is the primary reason for your travel, none of your transportation expenses are deductible.

The IRS doesn’t specify how to determine if the primary reason for domestic travel is business. Obviously, the number of days spent on business versus pleasure is the key factor. We can look to the rules covering foreign travel for guidance on this issue. They say your travel days count as business days, as do weekends and holidays if they fall between days devoted to business, and it would be impractical to return home. “Standby days,” when your physical presence is required, also count as business days, even if you’re not called upon to work on those days. Any other day principally devoted to business activities during normal business hours is also counted as a business day, and so are days when you intended to work, but couldn’t due to reasons beyond your control (local transportation difficulties, power failure, etc.).

For domestic trips, you should be able to claim business was the primary reason for a sojourn whenever the business days exceed the personal days. Be sure to accumulate proof about this and keep the proof with your tax records. For example, if your trip is made to attend client meetings, log everything on your daily planner and copy the pages for your tax file. If you attend a convention or training seminar, keep the program and take some notes to show you attended the sessions.

Once at the destination, your out-of-pocket expenses for business days are fully deductible. Out-of-pocket expenses include lodging, hotel tips, meals (subject to the 50% disallowance rule), seminar and convention fees, and cab fare. Expenses for personal days are nondeductible (except in the “Saturday Night Stayover” situation explained later in this letter).

Example: You are a sole proprietor. You arrange a business meeting with an important client in San Francisco on Wednesday morning. You fly out Sunday evening and spend all day Monday sight-seeing. Tuesday you spend most of the day preparing for the meeting, attend the meeting the next morning, take the client to lunch, and return home Wednesday night. So, Sunday, Tuesday, and Wednesday count as business days. The business meeting obviously necessitated the trip, and you clearly didn’t spend an unreasonable amount of time on personal activities. Therefore, you can deduct your airline tickets, plus your lodging for Sunday and Tuesday nights, 50% of your meals for Sunday, Tuesday, and Wednesday, your other out-of-pocket expenses for those days, and 50% of the cost of lunching with your client.

A great way to maximize deductions for the personal portions of a trip is with a Saturday night stayover that reduces the overall cost of the trip. If you can show staying the extra day or two costs less (or no more) than coming back home immediately after the business meeting is over, the IRS allows you to deduct your additional meal and lodging expenses (subject to the 50% disallowance rule for meals) for the extra day(s). Naturally, you still must have a dominant business purpose for making the trip in the first place. Be sure to document that your airfare savings equaled or exceeded the out-of-pocket costs of staying the extra day(s). Keep the proof with your tax records.

Example: You have a business meeting in New York on Monday morning. You and your spouse fly into town Saturday morning and spend the weekend sightseeing. Your round trip airfare is only $400 versus $1,200 if you came in Sunday night and left Monday. In this situation, Saturday is a personal day since you would normally fly in Sunday. No problem. As long as your meal and lodging expenses for Saturday are no more than $800, you can write-off your whole trip (subject to the 50% disallowance rule for meals). Of course, you generally can’t deduct the additional costs for your spouse (his or her airfare and meals and any extra charges for having two people instead of one in the hotel room), and you can’t deduct purely personal expenses like show tickets and baseball games. Still, this is a great deal taxwise.

When you travel outside the U.S. primarily for business reasons, the general rule is that you must allocate all your travel expenses, including transportation, between business and personal. However, there are two big exceptions, and you often can plan ahead to take advantage of them. You can deduct 100% of your transportation expenses if the trip is primarily for business and you meet either of the following rules:

• ·         The One-week Rule. You’ll meet this rule if your business trip is a week or less, not counting the day you leave, but counting the day you return. In this case, you can deduct 100% of your transportation costs and 100% of your other out-of-pocket expenses for business days (subject to the 50% disallowance rule for meals). You cannot deduct out-of-pocket costs incurred on vacation days. The good news:Weekends and holidays falling between business days count as business days. Ditto for an intervening weekday between two business meeting days. “Standby days” when your physical presence is required for business also count, even if you spend most of your time on personal pursuits during those days. Finally, business days include the day of your return trip plus days you intended to work, but couldn’t due to reasons beyond your control.
• ·         The 25% Rule. You can also deduct 100% of your transportation expenses for trips lasting over a week, as long as you spend less than 25% of your days on vacation. For this purpose, count the day of departure and day of return as business days, as long as you are traveling to or from the business destination. Also, count all the other types of business days mentioned under the one-week rule above. Once again, however, you cannot deduct meals, lodging, and other expenses allocable to personal days.

Even if you don’t qualify for either of the above two exceptions, you (or, more likely, your employer) can still deduct 100% of your transportation costs if you’re traveling on behalf of your employer under a reimbursement or travel allowance arrangement and you’re not a managing executive of the company or related to your employer. Finally, in sort of a catchall provision, 100% of your transportation costs to foreign destinations are deductible if you can prove a personal vacation was not a consideration in choosing to make the trip.

If 100% of your transportation expenses aren’t deductible under any of the above rules, the business percentage of your transportation costs are still deductible—assuming the trip is primarily for business. To calculate the business percentage, divide the days spent principally on business activities by the total number of days outside the country, counting departure and return days. The travel days count as business days, just as the other types of days are considered business days for purposes of the one-week rule and 25% rule. You can also deduct the out-of-pocket expenses allocable to your business days (subject to the 50% disallowance rule for meals).

Example: On Thursday, you fly to Paris for customer meetings on Friday and Monday. You vacation the following Tuesday through Friday and return home Saturday. The two travel days, the two meeting days, and the weekend days in between count as business days. However, the four vacation days amount to 40% of your time, so you fail the 25% test. Therefore, you must allocate your airfare between business and personal. You can deduct 60% of your airfare, plus your out-of-pocket expenses for the six business days.

If the reason for a trip outside North America is to attend a business convention directly related to your trade or business, you may qualify for deductions. However, you must follow all of the foreign travel rules just discussed plus show it was just as reasonable for the meeting to be held on foreign soil as in North America and that the time spent in business meetings or activities was substantial when compared to that spent sight-seeing and other personal activities. Otherwise, you can only deduct the registration fees and other costs directly related to business while on your trip. Regardless of the location, you cannot deduct travel costs to attend investment or financial planning conventions and seminars.

Fortunately, the stricter rules for foreign conventions are inapplicable in many cases because the definition of “North America” for this purpose is very liberal. It includes Canada, Mexico, Puerto Rico, the U.S. Virgin Islands, American Samoa, the Northern Mariana Islands, Guam, the Marshall Islands, Micronesia, Palau, Netherlands Antilles, Bahamas, Aruba, Antigua, Barbuda, Barbados, Bermuda, Costa Rica, Dominica, Dominican Republic, Grenada, Guyana, Honduras, Jamaica, Saint Lucia, Trinidad and Tobago, Midway Islands, Palmyra Atoll, Baker Island, Howland Island, Jarvis Island, Johnston Island, Kingman Reef, and Wake Island.

Deductions related to conventions directly related to your trade or business that are held aboard cruise ships are limited to $2,000 per individual per calendar year. In addition, the ship must be a U.S. registered vessel, and all of its ports-of-call must be in the U.S. or its possessions. Finally, the following information must be attached to your return in the year the deduction is claimed:

1.   A signed statement showing the total days of the trip (excluding travel to and from the ship), the number of hours each day spent attending scheduled business activities, and the program of the convention’s scheduled business activities.

2.   A statement signed by an officer of the sponsoring organization that includes a schedule of each day’s business activities and the number of hours you attended those activities.

There you have it. We hope this letter helps you plan some lovely trips that also deliver some nice tax breaks. However, we realize the rules explained here are rather complicated. Please give us a call if you have questions or want more information.

Sincerely,

DOYLE & KEENAN, P.C.

Dear Clients and Friends:

Several months ago, we sent out a letter reminding you of your obligation to pay use tax when necessary.  As you may have noticed, states are beginning to take this issue very seriously and are even starting to ask the question and collect the tax on their state individual income tax return.  We have even begun to see the Iowa Department of Revenue performing audits on various businesses in search of unpaid sales/use tax.

Because the Iowa Department of Revenue is stepping up its efforts, we thought we would remind you again of exactly what use tax is and when it should be paid.  Please note that these rules are the same in any state, not just Iowa.

Use tax applies to, but is not limited to, purchases made tax free through mail-order catalogs, television shopping programs, the Internet, toll-free 800 numbers, magazine subscriptions, and untaxed purchases made while in another state and shipped or otherwise brought into Iowa.  Individuals and businesses who make these types of purchases are required to pay consumer’s use tax to the Iowa Department of Revenue.

Businesses and individuals making taxable purchases on a regular basis should register with the Iowa Department of Revenue to file consumer’s use tax returns.  Businesses should review all purchases of goods or services to determine if the vendor collected the proper tax.  Businesses that fail to do so may find themselves with a use tax liability, plus penalty and interest, for not reporting the use tax in a timely manner.

Consider the following examples describing situations that would result in consumer use tax being owed:

A business purchased furniture and office supplies from a vendor in another state who is not registered to collect Iowa sales/use tax.  The Iowa business does not resell these items; it uses them.  If sales/use tax was not paid on these items when they were purchased, the business owes consumer’s use tax to Iowa.

An Iowa doctor who makes an untaxed out-of-state purchase of an exam table owes Iowa consumer’s use tax.

An Iowa individual purchases clothing or stereo equipment or jewelry through a mail order catalog and does not pay Iowa sales tax to the mail order company; that person owes consumer’s use tax to Iowa.

Even if possession of the goods are taken in another state and sales tax has already been paid to the other state, you may still have an Iowa use tax liability.  No additional tax is due if the tax paid is the same or more than Iowa’s state rate.   If the tax is less, the buyer owes Iowa the difference.  It is the purchaser’s responsibility to show where delivery took place and that the sales tax has been paid.

It is critical to determine whether your business should register and begin remitting use tax on its purchases.  An Iowa sales tax auditor normally can assess use tax for the past three years if it is determined that use tax was owed, however in a case where the business wasn’t registered to remit use tax, the auditor can assess use tax for the past 10 years.  An Iowa representative estimates seventy percent of the revenue generated from audits is the result of use tax assessments.

Use Tax can be a complex issue.  If you have any questions or would like some additional information please contact our office.

Sincerely,

DOYLE & KEENAN, P.C.

The IRS has released much-anticipated temporary and proposed regulations on the capitalization of costs incurred for tangible property. They impact how virtually any business writes off costs that repair, maintain, improve or replace any tangible property used in the business, from office furniture to roof repairs to photocopy maintenance and everything in between. They apply immediately, to tax years beginning on or after January 1, 2012.

The IRS has released much-anticipated temporary and proposed regulations on the capitalization of costs incurred for tangible property. They impact how virtually any business writes off costs that repair, maintain, improve or replace any tangible property used in the business, from office furniture to roof repairs to photocopy maintenance and everything in between. They apply immediately, to tax years beginning on or after January 1, 2012.

These so-called “repair regulations” are broad and comprehensive. They apply not only to repairs, but to the capitalization of amounts paid to acquire, produce or improve tangible property. They are intended to clarify and expand existing regulations, set out some bright-line tests, and provide some safe harbors for deducting payments.

The regulations are an ambitious effort to address capitalization of specific expenses associated with tangible property. The regulations affect manufacturers, wholesalers, distributors, and retailers—everyone who uses tangible property, whether the property is owned or leased. The rules provide a more defined framework for determining capital expenditures.

Most taxpayers will have to make changes to their method of accounting to comply with the temporary regulations and will need to file Form 3115. Taxpayers who filed for a change of accounting method following the issuance of the 2008 proposed regulations will probably have to change their accounting method again.

The IRS has promised to issue two revenue procedures that will provide transition rules for taxpayers changing their method of accounting, including the granting of automatic consent to make the change. The regulations require taxpayers to make a Code Sec. 481(a) adjustment; this means that taxpayers will have to apply the regulations to costs incurred both prior to and after the effective date of the regulations.

The new regulations provide rules for materials and supplies that can be deducted, rather than capitalized. The rules provide several methods of accounting for rotable and temporary spare parts, and allow taxpayers to apply a de minimis rule so that they can deduct materials and supplies when they are purchased, not when they are consumed.

Costs to acquire, produce or improve tangible property must be capitalized. The regulations address moving and reinstallation costs, work performed prior to placing property into service, and transaction costs. Generally, costs of simply removing property can be deducted, but costs of moving and then reinstalling property may have to be capitalized.

To determine whether a cost incurred for property is an improvement, it is necessary to determine the unit of property. Generally, the larger the unit of property, the easier it is to deduct expenses, rather than have to capitalize them. The regulations provide detailed rules for determining the unit of property for buildings and for non-building tangible property. For buildings, the IRS identified eight component systems as separate units of property, requiring more costs to be capitalized. However, the new rules also provide for deducting the costs of property taken out of service, by treating the retirement as a disposition.

The new regulations require virtually every business to review how repairs, maintenance, improvements and replacements are handled for tax purposes, with both mandatory and optional adjustments made to past treatment as appropriate.

Please feel free to call this office for a more targeted explanation of how these new regulations impact your business operations.

The fate of the employee-side payroll tax cut along with a host of tax extenders and other expired provisions could be decided in coming weeks. A conference committee of House and Senate members is negotiating a full-year extension of the payroll tax cut and could add some or all of the tax extenders to a final package. Lawmakers also could extend the payroll tax cut without acting on any tax incentives.

The fate of the employee-side payroll tax cut along with a host of tax extenders and other expired provisions could be decided in coming weeks. A conference committee of House and Senate members is negotiating a full-year extension of the payroll tax cut and could add some or all of the tax extenders to a final package. Lawmakers also could extend the payroll tax cut without acting on any tax incentives.

Payroll tax cut

The Temporary Payroll Tax Cut Continuation Act of 2011 extended the employee-side OASDI tax cut through the end of February 2012. The employee-share of OASDI taxes is 4.2 percent for the two-month period, rather than 6.2 percent. The employer-share of OASDI taxes remains at 6.2 percent for the two month period. Self-employed individuals also benefit from a two percentage point reduction in OASDI taxes.

Unless extended, the employee-share of OASDI taxes is scheduled to revert to 6.2 percent after February 29, 2012. The White House and the leaders of the two parties in Congress agree that the payroll tax cut should be extended a full-year. They disagree, however, how to pay for the extension; even if it should be paid for at all.

Congress could extend the two-month payroll tax cut through the end of 2012 without paying for it. The 2011 payroll tax cut was unfunded. Congress appropriated to the Social Security trust funds amounts equal to the reduction in payroll tax revenues. The 2011 payroll tax cut was estimated by the Congressional Budget Office cost approximately $111 billion. Extending it through the end of 2012 is estimated to cost just as much if not more.

House Republicans reportedly have proposed a number of revenue raisers to offset the cost of extending the payroll tax cut through the end of 2012. One GOP proposal would extend the current pay freeze for employees of the federal government. Another GOP proposal would require higher-income individuals to pay increased Medicare premiums.

One possible revenue raiser, increasingly under discussion by Democrats, is a change in the taxation of so-called carried interest. Current law generally taxes carried interest as capital gains and not as ordinary income. Past efforts to change the tax treatment of carried interest have failed to pass Congress.

Extenders

The so-called tax extenders, popular but temporary tax provisions, expired at the end of 2011. Many taxpayers are surprised to learn that their particular tax break, whether it be the state or local sales tax deduction, the teachers’ classroom expense deduction, or the research tax credit, are temporary. The extenders have been routinely revived many times in the past. This year, however, could be different. Faced with record federal budget deficits, lawmakers may decide to extend only some of the expired provisions.

President Obama’s FY 2013 proposals

President Obama is expected to release his fiscal year (FY) 2013 federal budget proposals in early February, which will reignite debate over the Bush-era tax cuts. President Obama is expected to urge Congress to allow the Bush-era tax cuts to expire after 2012 for higher-income taxpayers, which President Obama defines as individuals earning more than $200,000 or families earning more than $250,000. In recent weeks, there has been speculation that President Obama may revisit those definitions in his FY 2013 budget, possibly raising the amounts.

Few Capitol Hill observers expect Congress to take any action on the Bush-era tax cuts before the November elections. Instead, Congress may take up some of President Obama’s other proposals. As in past budgets, President Obama will likely propose to extend some energy tax breaks for individuals and businesses, extend tax incentives for education and provide some targeted-tax breaks to businesses. President Obama has also promised to introduce proposals to encourage U.S. companies to “insource” jobs at home.

On some issues, such as energy and education, lawmakers may find common ground but negotiations are likely to go down to the wire. Our office will keep you posted of developments.

If you have any questions about the payroll tax cut, tax extenders or the various tax proposals under discussion, please contact our office.

The IRS reopened its offshore voluntary disclosure program in early 2012 in response to what the government described as strong interest among taxpayers. The reopened program, the third of its type in recent years, encourages taxpayers with unreported foreign accounts to make full disclosures in exchange for a reduced penalty framework. Like its predecessors, the terms and conditions of the reopened program are very complex. The IRS has promised to provide more details. In the meantime, the prior offshore disclosure programs are guides to how the IRS intends to implement the third, reopened program.

The IRS reopened its offshore voluntary disclosure program in early 2012 in response to what the government described as strong interest among taxpayers. The reopened program, the third of its type in recent years, encourages taxpayers with unreported foreign accounts to make full disclosures in exchange for a reduced penalty framework. Like its predecessors, the terms and conditions of the reopened program are very complex. The IRS has promised to provide more details. In the meantime, the prior offshore disclosure programs are guides to how the IRS intends to implement the third, reopened program.

Previous disclosure programs

The IRS launched two previous offshore disclosure initiatives: one in 2009 and another in 2011. Both programs offered reduced penalties in exchange for full disclosure. In early 2012, the IRS reported it received 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. The government has collected over $4.4 billion from the 2009 and 2011 programs. The IRS predicted it will collect more revenue as it continues to work cases.

Reopened program

The reopened program operates very similarly to the 2009 and 2011 programs but with some key differences. The previous programs were temporary. The 2011 program ended in mid-September 2011. The reopened program has no set end date. The IRS cautioned, however, that it could close the program at some future date. The decision to end the program is solely at the discretion of the IRS.

The reopened program requires taxpayers to file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as pay accuracy-related and/or delinquency penalties. Additionally, taxpayers must pay a penalty of 27.5 percent of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure. In comparison, the highest penalty in the 2011 program was 25 percent. IRS officials have said that the penalty was increased because the agency does not want to reward taxpayers who did not participate in the 2009 or 2011 disclosure programs because they anticipated that a future penalty would be lower.

In limited circumstances, taxpayers may qualify for a 12.5 percent penalty or a five percent penalty. Generally, taxpayers whose offshore accounts or assets did not surpass $75,000 in any calendar year may qualify for the 12.5 percent penalty.

The requirements for the five percent penalty are very narrow. The IRS has explained that taxpayers must meet four conditions: (1) The taxpayer did not open or cause the account to be opened; (2) the taxpayer exercised minimal, infrequent contact with the account, for example, to request the account balance, or update account holder information such as a change in address, contact person, or email address; (3) except for a withdrawal closing the account and transferring the funds to an account in the United States, the taxpayer did not withdraw more than $1,000 from the account in any year for which the taxpayer was non-compliant; and (4) the taxpayer can show that all applicable U.S. taxes have been paid on funds deposited to the account (only account earnings have escaped U.S. taxation).

The penalty amounts in the reopened program are not set in stone, the IRS cautioned. It may eventually increase penalties in the program for all or some taxpayers or defined classes of taxpayers.

Quiet disclosures

One goal of the three programs is to caution taxpayers against so-called “quiet disclosures.” A quiet disclosure occurs when a taxpayer files an amended return and pays any tax delinquency without making a formal voluntary disclosure. The IRS warned taxpayers making quiet disclosures that they risked being sanctioned to the fullest extent allowed by law.

Critics

The offshore disclosure programs were not without their critics. The National Taxpayer Advocate recently told Congress that the IRS should streamline what is a very complicated process. The National Taxpayer Advocate also reported that IRS examiners were assuming that all violations were willful unless a taxpayer presented evidence to the contrary. It is possible that the IRS may revisit some of the terms and conditions of the reopened program in light of the National Taxpayer Advocate’s report.

If you have any questions about the reopened offshore voluntary disclosure program, please contact our office.

Taxpayers with children should be aware of the numerous tax breaks for which they may qualify. Among them are: the dependency exemption, child tax credit, child care credit, and adoption credit. As they get older, education tax credits for higher education may be available; as is a new tax code requirement for employer-sponsored health care to cover young adults up to age 26. Employers of parents with young children may also qualify for the child care assistance credit.

Taxpayers with children should be aware of the numerous tax breaks for which they may qualify. Among them are: the dependency exemption, child tax credit, child care credit, and adoption credit. As they get older, education tax credits for higher education may be available; as is a new tax code requirement for employer-sponsored health care to cover young adults up to age 26. Employers of parents with young children may also qualify for the child care assistance credit.

Dependency Exemption

In addition to the personal exemption an individual taxpayer may take for him or herself to reduce taxable income (Line 42 on Form 1040), that taxpayer may also take an exemption for each qualifying dependent who has lived with the taxpayer for more than half of the tax year. A dependent may be a natural child, step-child, step-sibling, half-sibling, adopted child, eligible foster child, or grandchild, and generally must be under age 19, a full-time student under age 24, or have special needs. The amount of the exemption is the same as the taxpayer’s personal exemption, $3,700 for the 2011 tax year and $3,800 for the 2012 tax year.

Child Tax Credit

Parents of children who are under age 17 at the end of the tax year may qualify for a refundable $1,000 tax credit. The credit is a dollar-for-dollar reduction of tax liability, and may be listed on Line 51 of Form 1040. For every $1,000 of adjusted gross income above the threshold limit ($110,000 for married joint filers; $75,000 for single filers), the amount of the credit decreases by $50.

Child and Dependent Care Credit

If a taxpayer must pay for childcare for a child under age 13 in order to pursue or maintain gainful employment, he or she may claim up to $3,000 of his or her eligible expenses for dependent care. If one parent stays home full-time, however, no child care costs are eligible for the credit.

Adoption Credit

Taxpayers who have incurred qualified adoption expenses in 2011 may claim either a $13,360 credit against tax owed or a $13,360 income exclusion if the taxpayer has received payments or reimbursements from his or her employer for adoption expenses. For 2012, the amount of the credit will decrease to $12,650, and in 2013 to $5,000.

Higher Education Credits

There are two education-related credits available for 2012: the American Opportunity credit and the lifetime learning credit. The American Opportunity credit amount is the sum of 100 percent of the first $2,000 of qualified tuition and related expenses plus 25 percent of the next $2,000 of qualified tuition and related expenses, for a total maximum credit of $2,500 per eligible student per year. The credit is available for the first four years of a student's post-secondary education. The credit amount phases out ratably for taxpayers with modified AGI between $80,000 and $90,000 ($160,000 and $180,000 for joint filers). The lifetime learning credit is equal to 20 percent of the amount of qualified tuition expenses paid on the first $10,000 of tuition per family. The phaseout for 2012 ranges from $52,000 to $62,000 ($104,000 to $124,000 for joint filers). Parents also find tax relief in saving for college though Coverdell accounts, section 529 plans and specified U.S.. savings bonds.

Extended Health Care Coverage

Effective since September 23, 2010, the new health care law requires plans to provide coverage for children until they attain age 26. Further, effective on or after March 30, 2010, children under the age of 27 are considered dependents of a taxpayer for purposes of the general exclusion from income for reimbursements for medical care expenses of an employee, spouse, and dependents under an employer-provided accident or health plan. Therefore, a plan must provide coverage to a child who is still a dependent up to age 26; but can do so up to age 27 without income tax consequences. A child includes a son, daughter, stepson, or stepdaughter of the taxpayer; a foster child placed with the taxpayer by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction; and a legally adopted child of the taxpayer or a child who has been lawfully placed with the taxpayer for legal adoption.

Child Care Assistance Credit (for businesses)

Employers may take up to $150,000 of the eligible costs of providing employees with child care assistance as tax credit. These costs may include a portion of the costs of acquiring, constructing, improving, and operating a child care facility.

If you have any questions about these provisions and how they may benefit you, please contact our office.

The Treasury Department is authorized to offset a taxpayer’s tax refund to satisfy certain debts. A spouse who believes that his or her portion of the refund should not be used to offset the debt that the other spouse owes may request a refund from the IRS.

The Treasury Department is authorized to offset a taxpayer’s tax refund to satisfy certain debts. A spouse who believes that his or her portion of the refund should not be used to offset the debt that the other spouse owes may request a refund from the IRS.

Offset

If an individual owes money to the federal government because of a delinquent debt, the Treasury Department’s Financial Management Service (FMS) can offset that individual's tax refund (and certain other federal payments) to satisfy the debt. The debtor will be notified in advance of the offset.

A taxpayer’s refund may be reduced by FMS and offset to pay:

• Past-due child support
• Federal agency non-tax debts
• State income tax obligations, or
• Certain unemployment compensation debts owed a state.

FMS advises taxpayers by written notice of an offset. FMS has explained that the notice will reflect the original refund amount, the taxpayer’s offset amount, the agency receiving the payment, and the address and telephone number of the agency. FMS will notify the IRS of the amount taken from your refund.

Form 8379

If a taxpayer filed a joint return and is not responsible for the debt of his or her spouse, the taxpayer may request his or her portion of the refund by filing Form 8379, Injured Spouse Allocation, with the IRS. Form 8379 may be filed with the original return or by itself after the taxpayer is aware of the offset.

The IRS has instructed taxpayers filing Form 8379 by itself to attach a copy of all Forms W-2 and W-2G for both spouses, and any Forms 1099 showing federal income tax withholding to Form 8379. Failure to attach these items may result in a delay in processing by the IRS.

The IRS has reported on its website that it generally processes Forms 8379 that are filed after a joint return has been filed in approximately eight weeks. The timeframe for processing a Form 8379 that is attached to a joint return is approximately 11 weeks (14 weeks if the joint return is filed on paper).

As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important tax reporting and filing data for individuals, businesses and other taxpayers for the month of February 2012.

As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important tax reporting and filing data for individuals, businesses and other taxpayers for the month of February 2012.

February 1

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates January 25–27.

February 3

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates January 28–31.

February 8

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 1–3.

February 10

Employees who work for tips. Employees who received $20 or more in tips during November must report them to their employer using Form 4070.

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 4–7.

February 15

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 8–10.

Monthly depositors. Monthly depositors must deposit employment taxes for payments in January.

February 17

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 11–14.

February 23

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 15–17.

February 24

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 18–21.

February 29

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 22–24.

March 2

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 25–28.

March 7

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 29–March 2.