Monthly Archives: April 2015

Ciuni & Panichi, Inc. May Tax Tips

Now’s the time to begin your 2015 tax planning

2015Whether you filed your 2014 income tax return by the April 15 deadline or filed for an extension, you may think that it’s a good time to take a break from thinking about taxes. But doing so could be costly. Now is actually the time you should begin your 2015 tax planning — if you haven’t already.

A tremendous number of variables affect your overall tax liability for the year, and starting to look at these variables early in the year can give you more opportunities to reduce your 2015 tax bill. For example, the timing of income and deductible expenses can affect both the rate you pay and when you pay. By regularly reviewing your year-to-date income, expenses and potential tax, you may be able to time income and expenses in a way that reduces, or at least defers, your liability.

In other words, tax planning shouldn’t be just a year-end activity. To get started on your 2015  planning, contact Jim Komos at 216.831.7171 or jkomos@cp-advisors.com. We can discuss what strategies you should be implementing now and throughout the year to minimize your tax liability.
© 2015

Got ISOs? You need to understand their tax treatment

Incentive stock options allow you to buy company stock in the future at a fixed price equal to or greater than the stock’s fair market value on the grant date. If the stock appreciates, you can buy shares at a price below what they’re then trading for.

ISOs must comply with many rules but receive tax-favored treatment:

  • You owe no tax when ISOs are granted.
  • You owe no regular income tax when you exercise ISOs.
  • If you sell the stock after holding the shares at least one year from the exercise date and two years from the grant date, you pay tax on the sale at your long-term capital gains rate. You also may owe the 3.8% net investment income tax.
  • If you sell the stock before long-term capital gains treatment applies, a “disqualifying disposition” occurs and any gain is taxed as compensation at ordinary-income rates.

There also might be alternative minimum tax consequences in certain situations. If you’ve received ISOs, contact the tax experts at Ciuni & Panichi, Inc. and Jim Komos at 216.831.7171 or jkomos@cp-advisors.com.  We can help you determine when to exercise them and whether to immediately sell shares received from an exercise or to hold them.

You may also be interested in:

March Tax Tips

April Tax Tips

© 2015

April Tax Tips

Make sure you have proper tax substantiation for your 2014 donations.

paperworkIf you don’t meet IRS tax substantiation requirements, your charitable deductions could be denied. To comply, generally you must obtain a contemporaneous written acknowledgment from the charity stating the amount of the donation, whether you received any goods or services in consideration for the donation, and the value of any such goods or services.

If you haven’t yet received substantiation for all of your 2014 donations, you may still have time to obtain it: “Contemporaneous” means the earlier of 1) the date you file your tax return, or 2) the extended due date of your return. So as long as you haven’t filed your 2014 return, you can contact the charity and request a written acknowledgement — you’ll just need to wait to file your return until you receive it. (But don’t miss your filing deadline; consider filing for an extension if needed.)

Be aware that certain types of donations are subject to additional substantiation requirements. To learn what requirements apply to your donations, please contact Jim Komos, Partner in Ciuni & Panichi, Inc.’s tax department at 216.831.7171 or jkomos@cp-advisors.com, for more information.

Should you forgo a personal exemption so your child can take the American Opportunity tax credit?

college moneyIf you have a child in college, you may not qualify for the American Opportunity credit on your 2014 income tax return because your income is too high (modified adjusted gross income phaseout range of $80,000–$90,000; $160,000–$180,000 for joint filers), but your child might. The maximum credit, per student, is $2,500 per year for the first four years of postsecondary education.

There’s one potential downside: If your dependent child claims the credit, you must forgo your dependency exemption for him or her — and the child can’t take the exemption.

But because of the exemption phaseout, you might lose the benefit of your exemption anyway. The 2014 adjusted gross income thresholds for the exemption phaseout are $254,200 (singles), $279,650 (heads of households), $305,050 (married filing jointly) and $152,525 (married filing separately).

If your exemption is fully phased out, there likely is no downside to your child taking the credit. If your exemption isn’t fully phased out, compare the tax savings your child would receive from the credit with the savings you’d receive from the exemption to determine which break will provide the greater overall savings for your family.

We can help you run the numbers and can provide more information about qualifying for the American Opportunity credit.   Contact Jim Komos, Partner in our tax department at 216.831.7171 or jkomos@cp-advisors.com, for more information.

© 2015

Nonprofits: Five Strategies for Recruiting New Board Members

A board is a nonprofit’s backbone.

boardYour board is your nonprofit’s backbone, responsible for the strategic decisions and fiscal oversight that keep your organization running and your reputation with the public intact. Unfortunately, many nonprofits are always short a few board members and finding new ones is a never-ending quest.

Here are five steps to better board member recruiting:

  1. Step back and assess. Before you begin a search, determine what you have and what you don’t. Most boards benefit from financial, tax, insurance and legal knowledge, development experience, community influence and personal contacts with potential major donors. Your board’s demographic makeup matters, too. The group should represent a diversity of gender, race and age — depending on such factors as your nonprofit’s mission and location.
    Take, for example, a community medical clinic providing prenatal and infant care to low-income families. In addition to financial, legal and fundraising expertise, the clinic’s board should include medical professionals and public health experts.
  2. Spread the word. Ask current board members to recommend friends and colleagues. If they don’t know of anyone offhand, they can at least spread the word through their social and professional networks. Although word of mouth is often best, you also might want to advertise the opening in your nonprofit’s newsletter, on your website and through social media channels.
  3. Look local. Community movers and shakers are critical to your board’s success, so focus your search among local politicians, businesspeople and philanthropists. Because board members must be committed to your mission, do a little research into the outside interests of community leaders. An avid animal lover, for example, is ideal for a no-kill shelter’s board.
  4. Get to know them. After you identify prospective board members, invite them to your facilities for a tour. Provide an overview of your mission, challenges and objectives, and ascertain their interest. It’s important to remember that board members are your organization’s head cheerleaders; they have to be willing to go “all in.”
  5. Formalize the relationship. When you find a qualified and enthusiastic prospect, ask him or her to fill out an application. Be sure to quantify your expectations. How many meetings and events must board members attend? Are they expected to raise a certain amount of funds every year? With a full understanding of their responsibilities, new board members start off on the right foot and are less likely to drop out.

Finding board members is the biggest hurdle, but retaining them is also a challenge. So that your recruiting work doesn’t go to waste, provide new members with a thorough orientation, and then monitor their meeting attendance and participation — at least for the first year.  Want more inforamtion or assistance?  Contact Mike Klein, Partner-in-Charge of our Not-for-Profit Group.  Call him at 216.831.7171 or email at mklein@cp-advisors.com.

You may also be interested in:

Board Responsibility and Fraud
© 2014

Eight Tax Tips for Deducting Charitable Contributions

If you are looking for a tax deduction, giving to charity can be a “win-win” situation.

charityIt’s good for them and good for you. Here are eight things you should know about deducting your contributions to charity:

  1. You must donate to a qualified charity if you want to deduct the contribution. You can’t deduct contributions to individuals, political organizations, or candidates.
  2. To deduct your contributions, you must file Form 1040 and itemize deductions.
  3. If you get a benefit in return for your contribution, your deduction is limited. You can only deduct the amount of your contribution that’s more than the value of what you received in return. Examples of such benefits include merchandise, meals, tickets to an event, or other goods and services.
  4. If you give property instead of cash, the deduction is usually that item’s fair market value. Fair market value is generally the price you would get if you sold the property on the open market.
  5. Used clothing and household items generally must be in good condition to be deductible. Special rules apply to vehicle donations.
  6. You must file Form 8283, “Noncash Charitable Contributions,” if your deduction for all noncash contributions is more than $500 for the year.
  7. You must keep records to prove the amount of the contributions you make during the year. The kind of records you must keep depends on the amount and type of your donation. For example, you must have a written record of any cash you donate, regardless of the amount, to claim a deduction. It can be a canceled check, a letter from the organization, or a bank or payroll statement. It should include the name of the charity, the date, and the amount donated. A cell phone bill meets this requirement for text donations if it shows this same information.
  8. To claim a deduction for donated cash or property of $250 or more, you must have a written statement from the organization. It must show the amount of the donation and a description of any property given. It must also say whether the organization provided any goods or services in exchange for the contribution.

Want more information or assistance?  Contact Jim Komos and the tax experts at Ciuni & Panichi, Inc.  at 216.831.7171 or email to jkomos@cp-advisors.com.

You may also be interested in:

Beware of Alternative Minimum Tax

Worrried About Tax Fraud

© 2014

Affordable Care Act New Reporting Requirements

Jeff SpencerAction Required Now

By:  Jeffrey R. Spencer, CPA, Principal, Ciuni & Panichi, Inc.

The Affordable Care Act (ACA) imposes significant new reporting requirements on large employers beginning with the 2015 calendar year.  The ACA defines “large” as those employers with 50 full-time or full-time equivalent employees.  For this purpose, “full-time” is defined as 30 hours per week.

Large employers must file the new IRS information returns (Forms 1094 and 1095) to report information about their health plans and their workforce for the 2015 calendar year.  These new forms are similar in scope to a Form W-2, since an information return (Form 1095-B or 1095-C) will be prepared for each applicable employee, and these returns will be filed with the IRS using a transmittal form (Form 1094-B or 1094-C).  Electronic filing is required for employers filing at least 250 returns.

Employers must file these new returns annually with the IRS beginning in 2016 by February 28th (March 31st if filing electronically).  A copy of the Form 1095 (or a substitute statement) must be given to each employee by January 31st.

Applicable large employers must prepare a Form 1095-C for each full-time employee regardless of whether the employee is participating in their group health plan.  The employer also will complete a Form 1095-C for each non-full-time employee in the plan.  Form 1095-C reports the following information:

  • The employee’s name, address, and Social Security number
  • Whether the employee and family members were offered health coverage each month
  • The employee’s share of the monthly premium for the lowest-cost health coverage offered
  • Whether the employee was a full-time employee each month
  • Whether the employee was enrolled in the health plan
  • If the health plan is self-insured, the name and Social Security number (or date of birth if SSN not available) of the employee and each family member covered by the plan by month

The transmittal form, Form 1094-C, reports the following information:

  • The total number of Forms 1095-C filed
  • The number of full-time employees for each month
  • The total number of employees for each month

Due to the complexity of these new reporting requirements, employers should:

  • Develop procedures to determine and document each employee’s monthly employment status
  • Develop procedures to collect monthly data regarding offers of health coverage and health plan enrollment
  • Discuss the reporting requirements with their health plan insurer and/or third-party administrator as well as their payroll provider to assign responsibility for data collection and forms preparation

The new ACA reporting rules are complicated and burdensome, and employers’ payroll systems and processes need to handle these additional requirements.  Now is the time to verify your systems and policies are collecting the necessary 2015 data to ensure compliance with the reports due early next year.

Please contact Jeff Spencer at 216-831-7171 or jspencer@cp-advisors.com for more information on this topic or on other ACA issues.

Jeff Spencer is a Tax Principal at Ciuni & Panichi, Inc., and he is the head of the Employee Benefits Tax Services Group.

Considering a Change to REITs and RICs

real estate trustNew regs tackle property transfers from C corps to REITs and RICs

Last fall, the IRS issued long-awaited final regulations providing guidance on the recognition of built-in gains when the appreciated property of a C corporation becomes the property of a real estate investment trust (REIT) or regulated investment company (RIC). Such a situation can arise when a C corp becomes a REIT or RIC or because it transfers its property to a REIT or RIC in a “conversion transaction.” The regs include two important exceptions to the general rule on gain recognition.

The general rule:  Unlike C corporations, REITs and RICs usually aren’t subject to corporate income tax when they dispose of appreciated property, such as real estate. The general rule limits the ability of C corporations to avoid corporate-level taxes by converting into a REIT or RIC and having the new entity sell appreciated assets or contributing such assets to a REIT or RIC in a tax-free contribution. If a C corporation’s property becomes the property of a REIT or RIC, the REIT or RIC is subject to tax on the net built-in gain in the converted property.

The general rule, however, doesn’t apply if the C corporation transferor makes a “deemed sale election,” which accelerates the gain. Under the election, the C corporation recognizes gain and loss as if it sold the converted property to an unrelated person at fair market value. The REIT or RIC then takes a fair market value basis in the converted property.

The proposed exceptions:  In April 2012, the IRS released proposed regulations with two exceptions to the general rule:

  1. Exchange exception. A REIT or RIC isn’t subject to the built-in gains tax if the conversion transaction qualifies for nonrecognition treatment as a like-kind exchange or involuntary conversion into similar property or money, where the C corporation replaces the transferred property with other property with the same basis as the transferred property.
  2. Tax-exempt exception. If the C corporation falls within one of eight categories of tax-exempt entities (including charitable remainder trusts), the transaction isn’t subject to the general rule if the tax-exempt entity wouldn’t be subject to tax (such as under the unrelated business income tax rules) on gain resulting from a deemed sale election if the election had been made.

The final regs retain these exceptions, with some critical clarifications in response to feedback on the proposed regulations.

The final regs’ clarification of the proposed exceptions:  The IRS acknowledged that the proposed regs may have been unclear about whether the tax-exempt exception applies to a transaction where some of the gain from a deemed sale election would be subject to tax if such an election were made, while some of it wouldn’t be.

The final regs clarify that the general rule doesn’t apply to a conversion transaction in which the C corporation that owned the converted property is a tax-exempt entity to the extent that gain wouldn’t be subject to tax if a deemed sale election were made. In other words, if the tax-exempt entity would have been subject to the unrelated business income or similar tax on only a portion of the gain if the entity had made the election, the built-in gains tax applies only to that portion of the gain — not the entire built-in gain.

The IRS also considered a requested clarification that the exchange exception applies to certain multiparty like-kind exchanges involving intermediaries, including reverse like-kind exchanges (where the replacement property is acquired before the relinquished property is transferred). The IRS declined to change the proposed regulations. But it stated in the preamble to the final regulations that the exception operates to exclude any realized gain that isn’t recognized by reason of either a like-kind exchange or an involuntary conversion regardless of the transaction’s form.

More guidance:  While the final regs are intended to prevent the avoidance of corporate-level taxes, the exceptions do provide some protections. Your financial advisor can help you determine the best tactics for minimizing your liability for built-in gains tax.

Sidebar: The rejected exception:  In its recently issued final regulations (see main article), the IRS weighed inclusion of a new exception to the general rule. This exception addresses the situation where a real estate investment trust (REIT) or regulated investment company (RIC) purchases appreciated property from a C corporation for cash or other consideration equal to the property’s fair market value.

A commenter on the proposed regulations asserted that, if the entity doesn’t have a continuing relationship with the corporation, the entity has no way of knowing the extent to which the C corp might not recognize any gain. The commenter contended and the IRS agreed that, because the entity’s basis in property purchased in an arm’s-length transaction generally is its cost, the entity generally shouldn’t have any built-in gain in the converted property.

The IRS found a new exception unnecessary. It explained that, if the REIT or RIC subsequently sold the property at a gain during the recognition period, the entity should be able to otherwise establish that the gain recognized isn’t built-in gain.

John Troyer and the real estate experts at Ciuni & Panichi, Inc. can help guide you through this complicated change.  Contact John at 216.831.7171 or jtroyer@cp-advisors.com.

 

© 2014

Fraud: Red Flags Rule Tackles Identity Theft

Are you covered?

stop fraudSeveral years ago, the Federal Trade Commission (FTC) issued its “Red Flags Rule,” which requires financial institutions and other organizations to implement a written identity theft prevention program. The rule is designed to detect the warning signs of identity theft in their day-to-day operations.

Last year, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC and the Commodity Futures Trading Commission (CFTC) jointly adopted their own Red Flags Rule for entities under their jurisdiction.

The FTC’s rule applies to financial institutions and “creditors.” A creditor is defined as an organization that does one or more of the following:

  • Obtains or uses consumer reports in connection with credit transactions,
  • provides information to credit reporting companies in connection with credit transactions, or
  • advances funds to or on behalf of people (other than incidental expenses in connection with services the organization provides).

Creditors that establish certain covered consumer accounts must implement an identity theft prevention program.

The new rules don’t expand the scope of the rules that were already in place. According to the SEC, however, the adopting release includes examples and small language changes “which may lead some entities that had not previously complied . . . to determine that they fall within the scope of the rules.”

Examples of SEC-regulated entities that might be considered “financial institutions” include but are not limited to: 1) broker-dealers that offer custodial accounts, 2) registered investment companies that offer wire transfers or check-writing privileges, and 3) investment advisors that hold transaction accounts and are permitted to direct payments or transfers out of those accounts. In addition, some SEC-regulated entities may meet the definition of “creditor,” such as investment advisors that advance funds to investors to permit them to invest in a fund.
All companies, and not just public companies, should review their activities to determine whether they’re covered by the Red Flags Rules.

For more information or if you have concerns about your organization, contact Reggie Novak at 216-831-7171 or rnovak@cp-advisors.com.

Reggie is a Senior Manager in the Audit and Accounting Services Group. As a Certified Fraud Examiner, Mr. Novak can assist you with prevention services including recommending internal controls and other measures to be implemented to prevent theft or misappropriation. If fraud is suspected, he can investigate and present his findings and recommendations.

You may also be interested in:

The Costly Consequences of Fraud

Internal Controls

© 2014

Still filing a paper tax return?

Be sure you understand the “timely mailed = timely filed” rule

april 15The IRS considers a paper tax return that’s due April 15 to be timely filed if it’s postmarked by midnight on April 15. But dropping your tax return in a mailbox on the 15th may not be sufficient.
For example, let’s say you mail your tax return with a payment on April 15, but the envelope gets lost. You don’t figure this out until a couple of months later when you notice that the check still hasn’t cleared. You then refile and send a new check. Despite your efforts to timely file and pay, you’re hit with failure-to-file and failure-to-pay penalties totaling $1,500.

To avoid this risk, use certified or registered mail or one of the private delivery services designated by the IRS to comply with the timely filing rule, such as:

• FedEx Priority Overnight
• FedEx Standard Overnight
• FedEx 2Day
• UPS Next Day Air Saver
• UPS 2nd Day Air
• UPS 2nd Day Air A.M.

Beware:  If you use an unauthorized delivery service, your tax return isn’t “filed” until the IRS receives it. For example, DHL is no longer an authorized delivery service.

If you’re concerned about meeting the April 15 deadline, another option is to file for an extension.  The tax experts at Ciuni & Panichi can help you determine if that makes sense for you.  Contact Jim Komos at 216.831.7171 or jkomos@cp-advisors.com for more information.

You may also be interested in:

March Tax Tips

Are you taking a tax deduction for mileage?

© 2015