Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

A set of tax rules known as the uniform capitalization (UNICAP) rules require certain business costs that are normally expensed as they’re incurred to instead be capitalized as part of the cost of inventory held for resale or noninventory items produced by a taxpayer for use in its own trade or business. Both real and tangible personal property are covered by these provisions.

The rules are far from new, having been around since the mid-80s. However, a recent Tax Court decision is a reminder that the rules can be a trap for the unwary. The taxpayer in the case was a homebuilder who capitalized the direct material and labor costs of constructing the homes, as well as post-completion carrying costs until the houses were sold. However, it failed to capitalize a whole host of generally indirect costs that the IRS and the Court found to be related to completing the homes (from front office salaries and overhead, to the cost of supervisors, designers, and decorators). The end result was the taxpayer faced a substantial additional tax bill.

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

If you’re counting on a federal income tax deduction for donating to a charity, you should confirm that the charity has been approved by the IRS as a tax-exempt organization eligible to receive deductible contributions. Here’s what you need to know, starting with the basics.

Charitable Contribution Deduction Basics

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

After Congress passed and the President signed into law the American Taxpayer Relief Act of 2012 (ATRA), dramatic individual income tax increases went into effect in 2013. The ATRA shifted America from a two dimensional tax system to a five dimensional tax system. The advent of a five dimensional tax system makes 2013 year-end tax planning imperative. On top of the regular income taxes and the Alternative Minimum Tax (AMT), ATRA introduced higher tax brackets for high income taxpayers, limitations on personal exemptions and itemized deductions (PEP and Pease), and a new net investment income tax (NIIT). These increases include the following:  

• The highest income tax bracket on ordinary income and short-term capital gains increased from 35% in 2012 to 39.6% in 2013
• The highest income tax bracket on long-term capital gains increased from 15% to 20%  
• A new 3.8% net investment income tax (NIIT) went into effect for high income individuals
• When the NIIT is added to the top income tax brackets, the tax rates could be as high as 43.4% for ordinary income and short-term capital gains and 23.8% for long-term capital gains
• Taxpayers over the applicable threshold amount for PEP may have some or all of their personal exemptions phased out
• Taxpayers over the applicable threshold amount for Pease may have up to 80% of their itemized deductions phased out  

Tax planning is necessary not only to help your family minimize or avoid these new tax increases, but also to ensure that your expected tax liability estimates for 2013 and beyond are correct. This letter will suggest some ways to avoid or minimize the adverse effects of these changes in 2013 and later years. Planning for these tax changes is a major undertaking so you should start the process as soon as possible.

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

As we approach year-end, it’s again time to focus on last-minute moves you can make to save taxes—both on your 2013 return and in future years. To get you started, we’ve included a few money-saving ideas here that you may want to put in action before the end of the year. Contact us if you have questions about which ideas may be appropriate for you or if you want to discuss other tax-saving strategies.

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions. 

One of the requirements for maintaining a corporation’s existence (and the liability protection that it affords) is that the shareholders and Board of Directors must meet at least annually. Although most people view this requirement as a necessary evil, it doesn’t have to be a waste of time. For example, in addition to being a first step in making sure the corporation is respected as a separate legal entity, an annual meeting can be used as an important tool to support your company’s tax positions.

Besides the election of officers and directors, other actions that should be considered at the annual meeting include the directors approving the accrual of any bonuses and retirement plan contributions, and ratifying key actions taken by corporate officers during the year. The directors should also specifically approve any loans to shareholders to lessen the opportunity for the IRS to reclass the loans as taxable dividends. In addition, if the corporation is accumulating a significant amount of earnings, the minutes of the meeting should generally spell out the reasons for the accumulation to help prevent an IRS attempt to assess the accumulated earnings tax.

These are just a few examples of why well-documented annual meetings can be an important part of a corporation’s tax records. We would be happy to be involved in your company’s annual meeting and to assist in making sure tax-effective minutes of the meeting are prepared. When scheduled shortly before the corporation’s year-end, many companies consider the annual meeting as an opportune time for their accountant and attorney to plan together for the wrap up of the year. Thus, please feel free to call us, as the time for your annual meeting draws near.

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions. 

In these still-tough economic times, you may want to help a financially challenged relative or friend by loaning that person some money. That’s a commendable deed. However, please make it a tax-smart loan. This letter explains the up-front planning needed to avoid unexpected, and generally adverse, tax consequences when you loan money to a relative or friend.

Your Loan’s Interest Rate and the AFR

In many cases, loans between family members or friends are below-market loans. By that we mean they charge either no interest or a rate below the applicable federal rate, or AFR. The AFR is very important because it’s the minimum rate you can charge without creating unwanted tax side effects for yourself. For term loans (those with specified repayment dates), the relevant AFR is the rate in effect for loans of that duration for the month the loan is made. Right now AFRs are very low, so making a loan that charges the AFR instead of a lower rate or a 0% rate makes a lot of sense. That’s because you can give the borrower a good deal on the interest rate without causing any tax complications for yourself.

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions. 

The Basics

The first thing to keep in mind is that the economic characteristics of financial aid, rather than how it is titled, determine how it’s treated for federal income tax purposes. In particular, the terms scholarship, fellowship, and grant are often used loosely. Strictly speaking, scholarships, fellowships, and grants are awards of “free money” and come to students as nontaxable financial assistance. However, these terms are also sometimes used to describe arrangements involving obligations to provide services, in which case the payments are compensation for employment. Also, an award that is really a free-money scholarship, fellowship, or grant will sometimes be called an allowance.

Some “tuition reduction” arrangements are actually employee benefits provided to students whose parents are employees of the college. On the other hand, a tuition reduction granted to a student for reasons unrelated to anyone’s employment status is free money and therefore treated the same as a scholarship, fellowship, or grant for tax purposes.

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions. 

 As you have probably heard, businesses can claim substantial deductions for heavy (over 6,000 pounds loaded gross vehicle weight) SUVs, trucks, and vans used primarily (over 50% of the time) in the business. For a heavy SUV, the business can deduct up to $25,000 of the SUV’s cost in the year it is purchased. Also, the rules that limit the amount of annual depreciation allowed on passenger automobiles do not apply to these heavy SUVs. This means that, for new vehicles placed in service in 2013, 50% of the remaining cost of the heavy SUV can be written off as bonus depreciation in 2013, with the balance written off over five years.

All this can add up to a substantial first-year deduction. For example, the maximum first-year depreciation deduction for a new $65,000 heavy SUV placed in service during 2013 and used 100% for business will generally be $49,000. The maximum first-year depreciation deduction for a new $65,000 passenger auto with gross vehicle weight of 6,000 pounds or less placed in service during 2013 and used 100% for business will only be $11,160 ($11,360 for a light truck or van).

Under tax law, the term heavy SUV means an SUV, truck, or van that has a gross vehicle weight rating—the manufacturer’s maximum weight rating when loaded to capacity—above 6,000 and less than 14,001 pounds. However, a vehicle that otherwise meets this definition is not classified as a heavy SUV (and, thus qualifies for even more favorable rules) if any of the following apply:

• It is equipped with a cargo area of at least six feet in interior length. The cargo area cannot be readily accessible directly from the passenger compartment, but it can be either open or enclosed by a cab. Many pickups with full-size cargo beds will qualify for this exception, but “quad cabs” and “extended cabs” with shorter cargo beds may not qualify.
• It can seat more than nine passengers behind the driver’s seat (such as hotel shuttle vans).
• It has an integral enclosure that fully encloses the driver’s compartment and load carrying device, does not have seating behind the driver’s seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield (such as delivery vans).

For these heavy non-SUVs, the full expensing deduction ($500,000 for 2013) may be available. This means that businesses will often be able to write off the full cost of the vehicle in the year it is purchased.

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions. 

If you are a US Citizen or a green card holder and living abroad your worldwide income is subject to US income tax. 

What do you need to file? 

Just as you did when living in the US, you need to fill out Form 1040.  The forms that will be specifically applicable to you will be Form 2555 and Form 1116.  These are the forms by which you declare your foreign earned income and qualify for Foreign Tax Credit.  If you have a foreign bank account you would also need to complete informational forms TDF 90-221 (FBAR) and new in 2011, form 8938. 

South Loop CPA LLC, a CPA firm based in Chicago, is now offering Due Diligence services to private equity firms and individuals wanting to purchase small to medium size businesses. South Loop CPA leverages its owner's Forensic Accounting experience to help buyers analyze the financials of the target business.

In the course of a marital breakup, it is understandable, albeit inexcusable, for one or both members of the couple to act in a deceitful and selfish manner.  The desire to deprive one’s spouse of his or her fair share is likely a by-product of the even greater desire to deeply hurt, humiliate, and otherwise emotionally and financially devastate the soon to be ex. 

The Forensic Accountant plays 3 roles in a divorce proceeding:

Primary financial investigator

The Forensic Accountant helps uncover unreported income and assets.  This can be done through a number of ways which include conducting an asset search, reviewing bank statements, identifying companies that the spouse has ownership in and investigating instances of income diversion to dummy companies. 

Serve as an Expert Witness

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions. 

Buyers that are looking to acquire a business need to ensure that the financial information they received from the seller is accurate.  By insuring accurate information, the buyer reduces the risk of overpaying for the business.   We can help to perform the financial due diligence and use the following approach to identifying red flags:

Interview the seller

We first interview the seller and get an understanding of the business and how it is run.  The objective of the interview is to reconcile what the seller says to what is reflected on the financials.  For example, the seller may claim to have a strong brand with a high profit margin, though the financials show something different.  The interview will help us identify the risk areas and where potential fraud or misrepresentation may have incurred.    

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions.

This is the first question that most startups ask.  There are both tax and legal factors that you should consider before setting up a legal structure.   It is important that you set up the correct legal structure for your needs and set it up properly.  Here are some of the more common entities that startups use:

Sole Proprietorship

A sole proprietorship, also known as the sole trader or simply a proprietorship, is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business.

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions. 

 For most individuals, the ordinary federal income tax rates for 2013 will be the same as last year: 10%, 15%, 25%, 28%, 33%, and 35%. However, the fiscal cliff legislation passed early this year increased the maximum rate for higher-income individuals to 39.6% (up from 35%). This change only affects taxpayers with taxable income above $400,000 for singles, $450,000 for married joint-filing couples, $425,000 for heads of households, and $225,000 for married individuals who file separate returns. Higher-income individuals can also get hit by the new 0.9% Medicare tax and the 3.8% Net Investment Income Tax (NIIT), which can result in a higher-than-advertised federal tax rate for 2013.

Despite these tax increases, the current federal income tax environment remains relatively favorable by historical standards. This letter presents some tax planning ideas to consider this summer while you have time to think. Some of the ideas may apply to you, some to family members, and others to your business.

Leverage Standard Deduction by Bunching Deductible Expenditures

Are your 2013 itemized deductions likely to be just under, or just over, the standard deduction amount? If so, consider the strategy of bunching together expenditures for itemized deduction items every other year, while claiming the standard deduction in the intervening years. The 2013 standard deduction is $12,200 for married joint filers, $6,100 for single filers, and $8,950 for heads of households.

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions. 

Comprehensive financial planning involves the examination of virtually all aspects of a person’s financial life: earning and spending, risk management and insurance, tax planning, investments, and estate planning.  In many ways, the most important service that a financial planner can offer is to provide questions rather than answers.  The most serious financial crisis are usually the result of unexpected events rather than risks that the person recognized.  Planning for these events is critical!

 So let’s start thinking about your holistic financial future. The following questions represent a starting point that can be used to summarize your financial situation. The questions will not only help you identify the important issues, but will also motivate you to take actions to work with a CPA/PFS to develop a plan. It will also help you to avoid one of the biggest traps in financial planning: the focus on short-term investment performance and help you to focus on your “big picture” financial situation.

 Estate Planning

1.Wills and Living Trust - Do you understand the importance of having a will? Do you have a will? Has it been updated since the last major life event (birth, death, marriage, divorce, move from another state, etc.)? Are you and your spouse U.S. citizens? Have you created a living trust (or carefully considered and determined it wasn’t necessary)? Have you transferred the appropriate assets into the trust? Has anyone taken your present plan and flow charted the way your documents actually work? Do your beneficiaries know the location of these documents or the appropriate person to contact?

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions. 

As CPAs, we know that over a persons lifetime, they will come to several key points in life where the choice they make has significant financial implications.  Almost everyone considers the four events listed above as a key point to consider working with a financial advisor, most often a CPA.  These are the obvious choices but they are even more complicated than most clients realize.  For example, consider these nuances to these four milestones:

After all of this, the one big recurring financial transaction that is often overlooked as a key planning tool is the actual tax return.  So many see it as an annual rite or obligation, but CPA tax practitioners know that the 1040 is just the beginning of the story.  By evaluating what is on (or not on) the tax return, asking probing questions and watch for trends and changes over the years, CPA tax practitioners are uniquely situated to provide holistic financial advice that considers all the major milestone while simultaneously consider the tax implications (and planning opportunities) all along the way.

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions. 

If you received a penalty for failing to pay or file your tax return on time, the IRS may assess a penalty.  You may be able to abate the penalty if you had reasonable cause for not paying or filing on time.  Some reasons that the IRS may accept as a reasonable clause are:

• Return was mailed to the IRS within the prescribed time for timely filing, but through no fault of the taxpayer, was not delivered in accordance with normal mail handling. 
• Return was filed with the wrong office
• Delay was caused by the death or serious illness of the taxpayer
• The return was not filed because of erroneous information given by an IRS employee, or the taxpayer requested forms and instructions from the IRS but they were not timely received.

If you have a tax penalty, you should consider speaking to a professional to see if you can have the penalty abated.  Please contact us if you would like to learn more.

Please note the information below is intended to provide generalized information that is appropriate in certain situations.  It is not intended or written to be used, and it cannot be used by the receipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer.  The contents of the information provided below should not be acted upon without specific professional guidance.  Please call us if you have any questions. 

The IRS can sometimes saddle you with a tax debt that is actually the responsibility of your spouse or ex-spouse. If the actions of your spouse caused the tax problem and you were unaware of or had no part in those actions, you can use the IRS Form 8857 to request tax resolution called “innocent spouse relief” and have the tax debt and penalties removed.