Illinois Adopts Tax Changes

By: Chris Martin

Overview

On December 16, 2011, Illinois Governor Quinn signed into law Senate Bill 0397 (“P.A. 97-0636”).

This is part of a tax package that enacts various modifications to Illinois’ tax code.

The following are several of the tax law changes included in P.A. 97-0636:

  • Reinstatement of the net operating loss deduction with limitations
  • Extension of credits and incentives formerly scheduled to expire
  • Extension of the research and development credit
  • Expansion and extension of the the small business job creation tax credit
  • Increase in the estate tax exclusion

Reinstatement of the Net Operating Loss Deduction with Limitations

Under prior legislation, Illinois suspended utilization of net operating losses for tax years ending after December 31, 2010 and prior to December 31, 2014. The new law shortens the full suspension period to tax years ending after December 31, 2010 and prior to December 31, 2012. For tax years ending on or after December 31, 2012 and prior to December 31, 2014, the net operating loss deduction may be utilized up to $100,000 per taxable year.

Extension of Credits and Deductions Scheduled to Expire

The Illinois tax code contained several exemptions, credits, and deductions that were set to expire after five years of enactment unless otherwise renewed by legislation. Under P.A. 97-0636, all exemptions, credits, and deductions that were scheduled to expire in 2011, 2012, and 2013, have been extended by five years.

Several tax provisions that were specifically extended by this legislation include the Research and Development Credit (discussed below), the Small Business Job Creation Tax Credit (discussed below), the Biodiesel and Gasohol sales tax reduction, Food and Drug sales tax exemption, the Historical Society property tax abatement, Investment Tax Credit, the New Markets Tax Credit, and the Business Location Efficiency Incentive.

Research and Development Credit Extension

P.A. 97-0636 extends the Illinois Research and Development (R&D) Credit through tax years ending prior to January 1, 2016. Previously, this credit expired for tax years ending on or after January 1, 2011.

The new law also eliminates language disallowing the carry-forward of R&D credits for tax years ending on or after January 1, 2011. Any Illinois R&D credit that formerly would not have been allowed to be carried forward to a taxable year ending on or after January 1, 2011, may now be carried forward five years.

Small Business Job Creation Tax Credit Expansion and Extension

P.A. 97-0636 extends the Illinois Small Business Job Creation Tax Credit through tax years ending prior to January 1, 2016. The new law also expands the incentive period until June 30, 2016. The original incentive period ended on June 30, 2011.

Increase in Estate Tax Exclusion

P.A. 97-0636 increases the Illinois estate tax exclusion to $3.5 million for persons dying on or after January 1, 2012, and prior to January 1, 2013. For persons dying on or after January 1, 2013, the estate tax exclusion is $4 million. Prior to this tax package, the exclusion had been $2 million.

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BCG Blogger, January 30th 2012 | Tags: , , , , , , , ,
Posted in State and Local Tax (SALT), Tax Credits, Tax Minimization, Tax Strategy, Tax Updates, Uncategorized

IRS Reopens Offshore Voluntary Disclosure Program

Kathy Adkins, MTBy: Kathleen A. Adkins, CPA, MT

The Internal Revenue Service recently reopened the Offshore Voluntary Disclosure (OVD) program to help people hiding offshore accounts get current with their taxes.

This is the third offshore program initiated, and it will be open for an indefinite period (until otherwise announced).

The program is similar to the 2011 program in many ways, but with a few differences.

No Deadline to Apply

Unlike last year, there is no set deadline for people to apply.  However, the terms of the program could change at any time.  For example, the IRS may increase penalties in the program or decide to end the program entirely at any point.

Belated Disclosures Accepted Under New Program

The IRS has seen 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program closed in September, hundreds of taxpayers have come forward to make voluntary disclosures. Those who have come in since the 2011 program closed last year will be able to be treated under the provisions of the new OVD program.

Penalty Structure Changes

The overall penalty structure for the new program is the same for 2011, except for taxpayers in the highest penalty category.  For the new program, the penalty framework requires individuals to pay a penalty of 27.5 percent of the highest aggregate balance in foreign bank accounts/entities, or the value of foreign assets during the eight full tax years prior to the disclosure. That is up from 25 percent in the 2011 program. Some taxpayers will be eligible for five or 12.5 percent penalties; these remain the same as the 2011 program.

Participants must file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.

Participants face a 27.5 percent penalty, but taxpayers in limited situations can qualify for a five percent penalty. Smaller offshore accounts will face a 12.5 percent penalty. People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the new OVD program will qualify for this lower rate. Same as the prior programs, taxpayers who feel that the penalty is disproportionate may opt instead to be examined.

For more information, visit the IRS Website or contact a BCG & Company tax advisor.

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BCG Blogger, January 25th 2012 | Tags: , , , , , , , , ,
Posted in Foreign Accounts, IRS, Tax Updates, Uncategorized

State of Michigan Tax Changes Affecting Businesses

By: J. Dustin Sheppard, CPA, MBA

As of January 1, 2012, Michigan has replaced the Michigan Business Tax (MBT) system with the Corporate Income Tax (CIT) system.

While complete information regarding the effects of this change are not yet available, below are a few items of interest for businesses with Michigan activity.

Who is subject to the CIT?

Only C-corporations are subject to the CIT filing. The rate is 6%. Financial and insurance companies will file the CIT but under a different section.

How is income apportioned?

Michigan will use a sales factor apportionment.

Are pass-through entities and trusts subject to CIT?

No. They will not file CIT but may be subject to withholding tax for the owners/members. Details for these payments are not yet available on Michigan’s website.

What if I am a fiscal year taxpayer?

The taxpayer’s tax year will be split into two periods. The first period will be covered under the MBT from the beginning of the taxpayer’s year to December 31, 2011.

The second period will be covered under the CIT from January 1, 2012 to the taxpayer’s year end.

The due date of both returns will be the last day of the fourth month following the taxpayer’s year end.

What credits are available under the new CIT?

Of the available credits under the MBT, only one of will be available under CIT: the Small Business Alternative Credit. As always, Michigan has exceptions to the rules if a credit was certified or grandfathered in.

What is Michigan nexus for filing?

  • $350,000 or more of Michigan gross receipts, or
  • More than one day of physical presence in Michigan, or
  • Direct or indirect ownership in a pass-through entity that has Michigan nexus

If you have more specific questions, regarding the Michigan Corporate Income Tax, please refer to the FAQ’s on Michigan’s website at http://www.michigan.gov/taxes/0,4676,7-238-59682—F,00.html

BCG&Co. will continue to monitor any updates from Michigan regarding these changes. Please contact your BCG&Co. advisor for any further assistance.

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BCG Blogger, January 19th 2012 | Tags: , , , , , , , , ,
Posted in Legislation, State and Local Tax (SALT), Tax Updates, Uncategorized

Revised Guidance on Health Insurance Reporting Requirements for Employers

By: Dow Wolfe, CPA

The IRS has provided modified guidance on the information-reporting requirement for employer-sponsored health insurance coverage contained in the 2010 Patient Protection and Affordable Care Act (“Healthcare Reform Act”).

Background

The Healthcare Reform Act originally required information reporting by employers with respect to employer-sponsored health insurance coverage for tax years beginning on or after January 1, 2011. The Act generally requires that the cost of applicable health insurance coverage be reported to employees on Form W-2.

Original IRS guidance made the new reporting requirement optional for all employers for the 2011 Form W-2 (which will typically be provided to employees by the end of January 2012). The IRS then issued additional guidance further extending the Healthcare Reform Act’s health insurance coverage information-reporting requirements for small employers through at least 2012 (or until further guidance is issued by the IRS, if later). That guidance came as welcome relief, since small employers won’t be required to report the cost of health insurance coverage on tax forms required to be provided to employees until January 2014 — at the earliest.

Under the Healthcare Reform Act, a “small employer” is one who files fewer than 250 W-2 forms. Accompanying guidance was also provided for larger employers who are subject to the information-reporting requirements for the 2012 Form W-2 (and to those who choose to voluntarily comply with the reporting requirements in either 2011 or 2012).

Current Guidance

The new interim guidance, found in IRS Notice 2012-9, modifies the prior guidance with respect to the following issues:

  • Explains further the application of the interim relief from the reporting requirements for employers filing fewer than 250 Forms W-2 for the preceding calendar year;
  • Clarifies the application of the reporting requirements to related employers not using a common paymaster;
  • Adds a new example that demonstrates that the reporting requirement doesn’t apply to coverage under a health flexible spending arrangement (“FSA”) if contributions occur only through employee salary reduction elections;
  • Clarifies that the standard for determining whether coverage under a dental or vision plan is subject to the reporting requirement is based upon the same standard for determining whether the coverage is subject to the rules set forth in the regulations under the Health Insurance Portability and Accountability Act of 1996 (HIPPA); and
  • Explains that the reporting requirement doesn’t apply to the cost of coverage includable in income under tax code Section 105(h) or to payments or reimbursements of health insurance premiums for a 2% shareholder-employee of an S corporation who is required to include the premium payments in gross income.

The Notice includes other provisions relating to COBRA health care coverage, payments of coverage under employee assistance plans, health reimbursement accounts, and reportable amounts provided by a third-party sick pay provider.

The new guidance is generally applicable beginning with 2012 Forms W-2. Employers may rely on Notice 2012-9 if they voluntarily chose to report the cost of coverage on 2011 Forms W-2 even though such reporting isn’t required for 2011.

Let us know if we can be of further assistance relating to the Healthcare Reform Act’s information-reporting requirements – contact your BCG&Co. advisor.

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BCG Blogger, January 11th 2012 | Tags: , ,
Posted in IRS, Tax Strategy, Tax Updates, Uncategorized

New Foreign Financial Asset Reporting Requirements for 2012

Kathy Adkins, MTBy: Kathleen A. Adkins, CPA, MT

Temporary and proposed regulations were issued on December 14 relating to required information reporting for specified foreign financial assets in which taxpayers have interests.

Under the FATCA provisions of the HIRE Act of 2010, individuals who hold an interest in specified FFAs during the taxable year are required to attach the new Form 8939, Statement of Specified Foreign Financial Assets, to their tax returns.  The IRS has released revised versions of Form 8938 and the accompanying instructions to reflect the recently issued temporary and proposed regulations.

It is important for taxpayers to determine whether they are subject to this new requirement.  Failing to file Form 8938 when required could result in a $10,000 penalty, with an additional penalty up to $50,000 for continued failure to file after IRS notification.

In general, specified persons are required to file Form 8938 if their interest in one or more specified FFAs has an aggregate fair market value exceeding either $50,000 on the last day of the taxable year, or $75,000 at any time during the taxable year. Additional rules and thresholds apply to married individuals and taxpayers residing abroad.

The IRS anticipates issuing regulations that will require a domestic entity to file Form 8938 if the entity is formed to hold specified FFAs.  Until the IRS issues such regulations, only individuals are required to file the form.

Additionally, the instructions confirm that filing a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, does not affect a taxpayer’s obligation to file Form 8938 and vice-versa.

For more information, see the IRS website or call your BCG&Co. tax advisor.

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BCG Blogger, January 5th 2012 | Tags: , , , , , ,
Posted in Foreign Accounts, IRS, Legislation, Tax Updates

IRS Reminders for Year-End Charitable Donations

By: Nikki Repie

To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders:

  • Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2011 count for 2011. This is true even if the credit card bill isn’t paid until 2012. Also, checks count for 2011 as long as they are mailed in 2011.
  • Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, searchable and available online, lists most organizations that are qualified to receive deductible contributions. It can be found at IRS.gov under Search for Charities. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78.
  • For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2011 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
  • For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
  • The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500.
    Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
  • If the amount of a taxpayer’s deduction for all non-cash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
  • And, as always it’s important to keep good records and receipts.

For additional information on charitable giving including please visit www.irs.gov:

For further assistance, contact your BCG&Co. tax advisor.


 

 

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BCG Blogger, December 20th 2011 | Tags: , ,
Posted in IRS, Tax Minimization, Tax Strategy, Uncategorized

InvestOhio Tax Credit Timeline Announced

By: J. Dustin Sheppard, CPA, MBA

Tax Supervisor

Growth encouraged for small businesses through InvestOhio tax credit.

On Nov 14th, the registration and application timeline was released for the InvestOhio tax credit.

The InvestOhio credit is designed to raise new equity investments in Ohio’s small businesses to encourage growth.

The non-refundable credit equals 10% of the qualifying investment up to a limit of $1 million for each individual investor, or $2 million for spouses filing jointly.

The credit is claimed after the required two year holding period. Since a qualified investment can be counted as made in 2011, the earliest year the credit could be claimed would be on the taxpayer’s individual 2013 tax return.  The credit is applied to income tax; therefore, the credit does not apply to CAT tax.

A qualified small business must meet all of the following requirements:

1.      Raise new sources of equity from existing or new ownership

2.      Equity investor must hold investment for two years

3.      Currently employ at least one Ohio W-2 employee and document payroll tax is being withheld. If the business is not located 100% within Ohio, additional employee tests must be met.

4.      Have less than $50 million in assets or less than $10 million in annual sales

If a qualified business is interested in this credit, the timeframe for applying for InvestOhio is quite short.

Important dates for the Invest Ohio credit:

November 14, 2011 –

Registration period begins. To register, a business must use the Ohio Business Gateway.  The applicant will receive a registration ID number.

December 5, 2011 -

Application Period begins. The application is also through the Ohio Business Gateway. The applications will be taken in order until the approved investment amounts meet the total investment threshold of $1 billion.

Early 2012 –

Acceptance of InvestOhio applications.

The Ohio Department of Development will be overseeing the program.  Many issues have not been clearly addressed.   These include issues associated with affiliated groups, qualified subsidiaries, and most documentation requirements of the equity contribution and the re-investment of the equity itself.

For further details of the InvestOhio program, including FAQ’s, please refer to http://www.development.ohio.gov/InvestOhio/InvestOhio.htm

For assistance, specific questions and the latest updates, please contact your BCG&Co. tax professional.

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BCG Blogger, November 29th 2011 | Tags: , , , , , , , ,
Posted in Small Business, State and Local Tax (SALT), Tax Credits, Tax Minimization, Tax Strategy, Tax Updates, Uncategorized

Michigan Individual Income Tax Updates

By: Chris Martin

Changes Ahead:  Income Tax Rates – Exemptions – Deductions

On May 25, 2011, Michigan Governor Rick Snyder signed into law Public Act 38 of 2011 (“P.A. 38”) and several other bills that will have a significant impact on Michigan’s Individual Income Tax code. These individual tax changes include a modification in the tax rate effective January 1, 2013, limitations to several income exemptions, elimination of various credits and subtractions, and a change in the apportionment formula applied to business income.

In this post, I will summarize some of these individual income tax changes related to individual income tax rates, exemptions, and deductions.

Individual Income Tax Rate Change

Prior to the adoption of P.A. 38, the law provided for an annual tax rate reduction ultimately scheduled to reduce the tax rate to 3.9% on and after October 1, 2015. Under P.A. 38, the individual income tax rate

will remain at 4.35% through 2012. Effective January 1, 2013, the individual income tax rate will be reduced to 4.25% and will remain at that rate indefinitely.

Personal Exemption Phase-Out

The current law provides for a $3,700 personal exemption from Adjusted Gross Income for each exemption claimed on a taxpayer’s federal income tax return. Under P.A. 38, this exemption will be phased-out effective January 1, 2012, for single taxpayers with income between $75,000 and $100,000 for joint filers with income between $150,000 and $200,000. Exceeding these income limits will completely eliminate the exemption amount.

Special Exemptions Eliminated

Currently, Michigan law provides a special exemption of $2,300 both for seniors and for individuals who receive unemployment compensation (equal to or greater than 50% of their Adjusted Gross Income). With P.A. 38, these exemptions are eliminated effective January 1, 2012.

Investment Income Exemption Changes

Under existing code, capital gains, interest, and dividend income for seniors are exempt from tax up to $10,058 for single filers and $20,115 for joint filers. Effective January 1, 2012, P.A. 38 limits the application of this exemption to seniors born before 1946.

Child Deduction Eliminated

Effective January 1, 2012, P.A. 38 eliminates the child deduction, which currently provides a $600 subtraction from Adjusted Gross Income for each dependent child that is 18 or younger.

Elimination of Miscellaneous Subtractions

P.A. 38 eliminates subtractions from income that previously were available for political contributions, certain distributions from IRAs that are used to pay for higher education expenses, and distributions to certain charitable organizations from qualifying retirement plans. This change goes into effect on January 1, 2012.

There are numerous other changes to Michigan Individual Income Tax that will be enacted under P.A. 38, and taxpayers should plan accordingly. For more information, contact a BCG & Co tax advisor.

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BCG Blogger, November 21st 2011 | Tags: , , , , , ,
Posted in State and Local Tax (SALT), Tax Updates, Uncategorized

New-Hire Retention Credit

Kathy Adkins, MTBy: Kathleen A. Adkins, CPA, MT

Has your business looked at whether it qualifies for the New Hire Retention Credit?  If not, you could be leaving money on the table.

This credit was included in the 2010 HIRE Act, signed into law on March 18, 2010, and allows up to a $1,000 credit for each qualifying retained worker.

The credit applies to qualified employers that hired and retained qualified workers during a consecutive 52-week period starting after February 3, 2010, and ending before January 1, 2011. The credit is the lesser of $1,000 or 6.2 percent of the employee’s wages paid for the consecutive 52-week period. The credit can only be claimed if the employee’s wages for the second 26-week period are not less than 80 percent of the employee’s wages for the first 26-week period.

To be a qualifying retained worker, the employee:

  • Must begin employment after February 3, 2010, and before January 1, 2011
  • Must complete Form W-11 or a similar statement under penalties of perjury declaring that the employee was not employed more than 40 hours during the 60-day period ending on the hire date
  • Cannot be employed to replace another employee, unless the previous employee was terminated for cause (including downsizing) or voluntarily terminated
  • Cannot be related to the employer

For calendar-year taxpayers, the credit will be claimed on the 2011 tax return.

For fiscal-year taxpayers, the credit can be claimed in the tax year in which the 52-week requirement is met.  The earliest date to file a return claiming the credit would be fiscal years ending after February 3, 2011.

Partnerships and S corporations calculate the credit and ultimately pass it to the owners through Schedule K-1.

For more information, contact a BCG&Co. tax advisor or visit the IRS Website.

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BCG Blogger, November 10th 2011 | Tags: ,
Posted in Tax Credits, Tax Minimization, Tax Strategy, Tax Updates, Uncategorized

Subpart F Income – Understanding What It Is and How It Applies…

By:  Emily Zaubi, CPA, MT

As companies expand outside the United States at a rapidly increasing rate, additional tax laws become applicable.  Which brings us to Subpart F Income – as it’s called.  Even accountants can sometimes cringe at the complexities involved in the laws of ‘Subpart F income.’   But, I love overcoming challenges, so I recently listened to a webinar on Subpart F income – and I thought I’d share some basic knowledge of what Subpart F income is, and more importantly, how it might apply to you.

Are you subject to Subpart F?

The U.S. does not tax earnings of a foreign corporation until a repatriation event occurs. Generally, this is when dividends from a foreign company are paid to a U.S. shareholder. However, if the corporation is a controlled foreign corporation (CFC) it has the potential to be subject to Subpart F income.

A CFC is defined as a foreign corporation in which U.S. shareholders own more than 50% of the vote or value of the corporation’s stock either directly, indirectly, or constructively. A U.S. shareholder is defined as a U.S. person (individual, corporation, partnership, etc.) that owns more than 10% of the stock of the corporation.

There are various types of income that are subject to the Subpart F rules:

  • Foreign Personal Holding Company Income: This includes interest, rents, royalties, dividends, and gains on sales.

  • Foreign Base Company Services Income: This includes income derived by a CFC from services performed for, or on behalf of, a related person outside of the CFC’s country of organization. The purpose of this type is to prevent tax deferral by isolating services income in a low tax jurisdiction. Services this applies to are technical, managerial, engineering, architectural, scientific, skilled, industrial, commercial, or like services.
  • Foreign Base Company Sales Income: This includes income from purchases or sales to a related person where the property was not manufactured in the CFC’s country and was not purchased or sold for use in the CFC’s country. Similar to above, the IRS is trying to prevent tax deferral by utilizing lower tax jurisdictions.

Various exceptions apply to the above income. A few are:

  • De minimis: If a CFC earns only a de minimis amount of Subpart F income during a year, then no part of the income will be taxed.
  • Full Inclusion: If more than 70% of a CFC’s gross income constitutes Subpart F income during a year, then all of the income will be taxed (even if not otherwise subject to Subpart F).

Subpart F income is reported on Schedule I of Form 5471 and the penalty for not filing is $10,000. Once Subpart F income is taxed, it becomes previously taxed income (PTI) and will not be taxed again when it is distributed.

This is just the tip of the iceberg when it comes to the complex laws of Subpart F income. If you think this might apply to your company, and would like more information, contact a BCG&Co. tax advisor.


 

 

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BCG Blogger, October 31st 2011 | Tags: , , ,
Posted in Foreign Accounts, IRS, Tax Minimization, Tax Strategy, Tax Updates, Uncategorized
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