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If you own foreign investments, you may have an additional federal tax filing requirement this year. Read more

Friday, February 3rd, 2012

If you own foreign investments, you may have an additional federal tax filing requirement this year.

Form 8938, “Statement of Specified Foreign Financial Assets,” is due April 17, 2012, and is filed as part of your individual tax return. You’ll use Form 8938 to disclose interests in certain foreign financial accounts when your ownership exceeds the reporting requirements.

What are the reporting requirements? They vary depending on where you live and your filing status. For example, say you’re married and live in the United States, and you’ll file a joint tax return for 2011. You’ll include Form 8938 with your tax return when the total value of your reportable assets on the last day of 2011 is more than $100,000, or if the value exceeds $150,000 at any time during the year.

Tip: In some cases, you may also need to file Form 8938 for tax year 2010.

Reportable assets include investment accounts you own that are held in foreign financial institutions, interests in foreign entities, and stocks or securities issued by foreign individuals or companies.

You’ve probably noticed the reporting requirements are similar to the “Report of Foreign Bank and Financial Accounts” (FBAR), a separate return you may already be filing. Be aware the new Form 8938 does not replace the FBAR, which you’ll still need to complete by June 30.

Penalties for failure to file Form 8938 start at $10,000. We urge you to contact us so we can help you evaluate your filing requirements for foreign investments.

David Bradsher, CPA is a Washington DC / Northern Virginia area CPA who works with small business owners and non profit leaders on a monthly basis to provide them with guidance and advice on how to grow their organizations, minimize their tax liabilities and increase their bottom line.

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Bring your corporate minutes up to date

Tuesday, January 10th, 2012

Writing up the minutes of board of directors’ meetings is not exactly a high priority for most business owners. Yet well-documented corporate minutes can provide valuable supporting evidence if your tax positions are ever questioned.

Minutes are especially important where any kind of related-party transactions occur, such as payments, loans, or distributions between the company and its owners. For example, the IRS may challenge the amount of compensation paid to a business owner as unreasonable. Corporate minutes that document the factors considered by the board in approving the compensation can be a strong defense against such a challenge.

Another area that receives close scrutiny from the IRS is the amount of earnings that are retained in the business rather than distributed as taxable dividends. A penalty applies to retained earnings over a certain limit unless they can be justified by business needs. Corporate minutes can be a strong piece of supporting evidence if they clearly spell out the reasons that the company needs to retain funds — for example, to purchase assets or for working capital.

If your company has a tax-qualified retirement plan or a stock option plan, the minutes should show decisions by the board adopting or modifying the plan. They should also document annual decisions on the percentage of contribution to profit-sharing plans and any decisions on fringe benefits, such as medical reimbursement accounts.

Corporate minutes need not be lengthy, but they should provide a clear record of corporate actions and the business factors that were considered when those actions were taken. You should think of your minutes as a key element of your tax planning strategy.

If your corporate minutes need updating, contact your attorney and take care of this important bit of business housekeeping.

David Bradsher, CPA is a Washington DC / Northern Virginia area CPA who works with small business owners and non profit leaders on a monthly basis to provide them with guidance and advice on how to grow their organizations, minimize their tax liabilities and increase their bottom line.

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Rundown of 2012 Tax Law changes

Thursday, January 5th, 2012 
* PAYROLL TAX CUT for employees extended through February
 29, 2012. (Social security tax rate on wages up to
 $110,100 will be 4.2% rather than 6.2%.)
* ADOPTION TAX CREDIT decreases to $12,650 for adoption
 of an eligible child.

* SECTION 179 maximum deduction decreases to $139,000,
 with a phase-out threshold of $560,000.

* STANDARD MILEAGE RATE for business driving remains at
 55.5¢ a mile. Rate for medical and moving mileage
 decreases to 23¢ a mile. Rate for charitable driving
 remains at 14¢ a mile.

* ESTATE TAX top rate remains at 35%, and the exemption
 amount increases to $5,120,000. The ANNUAL GIFT TAX
 EXCLUSION remains at $13,000.

* 401(k) maximum salary deferral increases to $17,000
 ($22,500 for 50 and older).

* SIMPLE maximum salary deferral remains at $11,500
 ($14,000 for 50 and older).

* IRA contribution limit remains at $5,000 ($6,000 for
 50 and older).

* KIDDIE TAX threshold remains at $1,900 and applies up
 to age 19 (up to age 24 for full-time students).

* NANNY TAX threshold increases to $1,800.

* TRANSPORTATION FRINGE BENEFIT limit decreases to $125
 for vehicle/transit passes and increases to $240 for
 qualified parking.

* SOCIAL SECURITY taxable wage limit increases to
 $110,100. Retirees under full retirement age can earn
 up to $14,640 without losing benefits.

* HSA CONTRIBUTION limit increases to $3,100 for
 individuals and to $6,250 for families. An additional
 $1,000 may be contributed by those 55 or older.

David Bradsher, CPA is a Washington DC / Northern Virginia area CPA who works with small business owners and non profit leaders on a monthly basis to provide them with guidance and advice on how to grow their organizations, minimize their tax liabilities and increase their bottom line.

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Five Year-End Tax Tips

Tuesday, December 20th, 2011

* Early this month check the amount of 2011 tax you have prepaid through withholding and quarterly estimates. If you’ve underpaid, consider increasing your withholding before year-end. Withholding is considered to have been paid evenly throughout the year. This could prevent your being charged underpayment penalties for 2011.

* Avoid the marriage penalty. If a wedding or divorce is in your plans, be aware that your marital status as of December 31 determines your tax status for the whole year. Changing the dates of a year-end event may save taxes. Even though recent tax laws provided some relief from the marriage penalty, they did not eliminate it.

* Plan for losses. Check your basis in any S corporation in which you are a shareholder and where you expect a loss this year. Be sure you have sufficient basis to enable you to take the loss on your tax return.

* Use this year’s annual gift tax exclusion. If you make annual gifts to family members or others, make sure you complete your gifts for 2011 by December 31.

* Squeeze in planned equipment purchases before December 31. Taxpayers must usually deduct the cost of business property over several years. A special election allows taxpayers to expense up to $500,000 of new and used property purchased and put into service in 2011. Also check into the 100% bonus depreciation allowance for new equipment purchases.

Property such as machinery, equipment, and furnishings qualify. Be careful with special rules that apply to automobiles and personal computers.

David Bradsher, CPA is a Washington DC / Northern Virginia area CPA who works with small business owners and non profit leaders on a monthly basis to provide them with guidance and advice on how to grow their organizations, minimize their tax liabilities and increase their bottom line.

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