Foreign Tax Reform is Law – What Does It Mean for You?

Thursday, August 26th, 2010

On August 10, 2010 President Obama signed into law H.R. 1586, the Education Jobs and Medicaid Assistance Act, which includes a $9 billion package of international tax reform. These international tax provisions will fund most of the bill’s revenue offsets in effort to save thousands of teaching jobs and help states fund Medicaid shortfalls.

The legislation is designed to reduce the opportunities for U.S. corporations to optimize the use of the foreign tax credit by incorporating a host of international tax reform measures and closing a number of foreign tax credit loopholes.

For example, the provisions will:

• Eliminate the ability to split foreign taxes from the associated foreign income in order to prevent inappropriate separation of creditable foreign taxes.
• Reduce foreign tax credits on stepped-up assets in order to prevent taxpayers from claiming the foreign tax credit on foreign income that is never taxed in the U.S.
• Restrict tax treaty use to resource U.S. income in order to segregate the income so that it is not used for claiming foreign tax credits.
• Limit the amount of foreign taxes deemed paid with respect to Sec. 956 inclusions (relating to investments in U.S. property) in order to limit the foreign tax credits claimed on a deemed dividend.

Other provisions of the legislation include the repeal of the 80/20 rules under which interest and dividends received from a domestic corporation or a resident alien were treated as foreign source when for a 3 year period and at least 80% of the gross income was active foreign business income. 

In addition, the new law eliminates the advance payment option for the earned income credit. However, the elimination is projected to impact a relatively small number of taxpayers.

Most of these provisions are effective for taxable years beginning January 1, 2011, yet some may be retroactive.

Keep in mind this is a summary of some of the provisions of the legislation. If you’d like further information on how these provisions may affect you and/or your business, please contact Yadira Hiraldo at 305.646.6031 or yhiraldo@kaufmanrossin.com.

Yadira Hiraldo, CPA, is an international tax manager at Kaufman, Rossin & Co., one of the top CPA firms in Florida with offices in Miami, Fort Lauderdale and Boca Raton.

Be Aware of Misleading Amnesty Notices

Tuesday, August 24th, 2010

The Florida Department of Revenue (FDOR) is sending out Amnesty notices to taxpayers who, according to FDOR records, have outstanding notices for sales tax, corporate income tax, etc. These notices include a statement of amounts the FDOR claims are due.

You might be tempted to automatically pay these notices in order to take advantage of the Amnesty program, but you should check them first to determine if the alleged liabilities are in fact owed.

For example:

• In many cases, these statements include liabilities which the FDOR has estimated to be due where a sales tax return, corporate income tax return or other state return was not filed.
• And in some cases, these notices are being received by S Corps and partnerships which have no Florida Corporate Income Tax filing requirement.

If you’ve received Amnesty notices be sure to check the statements against your records and/or contact your accountant to make sure the claims are correct. For more information, contact Dan Wagner at 561.620.1718 or dwagner@kaufmanrossin.com.

Dan Wagner is an associate principal in the State & Local Tax Practice department at Kaufman, Rossin & Co., one of the top CPA firms in Florida with offices in Miami, Fort Lauderdale and Boca Raton.

Is your favorite non-profit at risk?

Thursday, August 5th, 2010

In May, the IRS began revoking tax-exempt status from nonprofits that had failed to file required returns (including the on-line postcard Form 990-N) for 2007, 2008, and 2009. According to a free report from Guidestar, 300,000 nonprofits could lose their status.

Is your favorite non-profit at risk?   If your business, like ours, is involved in the community, you’ll want to check.  The IRS has published a list. 

The good news is that there’s a “one-time relief program.”  Organizations can preserve their status by filing returns by October 15, 2010. 

If you’re involved with a nonprofit organization of any type, make sure they’re aware of the IRS actions, and the deadline to file returns if they have not done so!

Janet Fifer is an associate principal in the Estate, Trust and Exempt Organizations department at Kaufman, Rossin & Co., one of the top CPA firms in the Southeast.  She can be reached at jfifer@kaufmanrossin.com.

FICPA Miami-Dade Chapter Raises $20,000 Despite Tropical Storm Bonnie

Wednesday, August 4th, 2010

The 2^nd Annual FICPA Ocean Reef Retreat was a huge success, despite Tropical Storm Bonnie. The FICPA Miami-Dade Chapter held the event on July 22 – 25, at the Ocean Reef Club Resort in Key Largo, FL – right in Bonnie’s path. Regardless of the weather, we raised more than $20,000 for the FICPA Education Foundation, and managed to still play golf and get a nice tan. The best part is that the money raised provides Florida accounting students with scholarships to local universities. 

The retreat consisted of CPE presentations, planning meetings, plenty of networking happy hours and a golf tournament, not to mention tanning by the pool. Bonnie gave us a little scare – I was up early Friday morning checking the weather reports. We lucked out only having to reschedule the golf tournament, and by 2:00pm the sun was back out.

The retreat was well attended with many of our industry leaders. For example, we held a happy hour in honor of Michael Pender, the current FICPA President. Bill Ezzell, the former chairman of the Board of Directors of the AICPA and past president of its Foundation Board of Trustees, was our Keynote speaker for the Beach Luau dinner. And we honored nine past presidents of the FICPA ED Foundation including the current president, Jeff Green, at the 50 Past Presidents dinner. Beyond raising money to benefit a great cause, this retreat is an excellent networking event for CPAs and a great mini-vacation for their families. Mark your calendars now, and I look forward to seeing lots of new CPAs at the Reef next year as we continue to raise more money for the FICPA Ed Foundation.

Jason A. Chorlins

President, FICPA Miami-Dade Chapter

Jason A. Chorlins, CPA, CFE, CAMS, is a member of the Forensic, Advisory and Valuation Services department at Kaufman, Rossin & Co., one of the top CPA firms in Florida. He can be reached at jchorlins@kaufmanrossin.com.

Back to the Basics

Monday, August 2nd, 2010

On July 14, 2010, I hopped on a plane to Jamaica with one goal in mind – no, not to bask in the sun and get as tan as possible on their beautiful white sandy beaches, but to educate local Jamaican entrepreneurs by teaching them the basic skills they need to operate and grow their small businesses. 

The University of Miami American Airlines/Eagle Jamaica Project is the final result of University of Miami Hyperion Council members devoting their energy, time and knowledge to creating lessons and real-life activities to teach 50 Jamaican small business owners.  In the U.S. we take a lot of things for granted like basic education, financing, paved roads, modern technology, clean water and shelter. How would you run your business if you didn’t have access to all of these things (which we consider necessities)? It would probably be pretty challenging, which is exactly what these business owners are experiencing.  And by business owners, I mean chicken farmers, agro-processors, juice producers, and hair dressers among others.

Although we couldn’t help them through all of their challenges, we are confident we taught them sound business practices.  We presented lessons that taught these Jamaican entrepreneurs basic accounting, marketing, operations, and business plan development skills.  We actually visited some of their businesses to help them distinguish themselves in their local market and obtain small business loans.  We worked in small groups which helped us really get to know these participants on a deeper level and understand their mission and vision.

It was truly amazing to see how these third world businesses survive on a daily basis.  Even though it was my second time visiting Jamaica and implementing this project, I was still stunned and fascinated by what I saw.  As a new addition to Kaufman, Rossin, I’ve grown accustomed to the great work environment that I experience every day.  We’re able to make business decisions by the click of a button, and many of our employees have graduated from some of the nation’s top schools.  And it goes without saying that we have clean water, beautiful facilities, and some other great amenities that come with being a part of the Best Place to Work For in South Florida.

Experiencing Jamaica and meeting these extraordinary people reminded me of how great things are here, and how entirely different it is just one time zone away.  As I now begin my professional career at Kaufman, Rossin, I bring to it my one-of-a-kind experience meeting and teaching these inspiring business owners as I was exposed to a different way of living and operating a business.  As we work in our robust, modern business world sometimes it’s necessary to go back to the basics – and enjoy the simple things in both life and business.

Aubrey Swanson is the social media coordinator with Kaufman, Rossin & Co., one of the top accounting firms in the Southeast. She can be reached at aswanson@kaufmanrossin.com.

Florida Tax Amnesty Through September

Friday, July 23rd, 2010

Got overdue state taxes?  Don’t miss out on the Florida Tax Amnesty program.  The deadline is September 30, 2010.

What’s the benefit?
If you have overdue Florida taxes, until September 30 you can pay them, with no penalty and reduced interest.  Plus you get the ability avoid criminal prosecution.

What’s covered?
Taxes covered include

•  Sales and Use Tax,
• Florida Corporate Tax and
• Florida Intangible Tax.

 The Department of Revenue has a full list posted here.

What’s not covered?
If you entered into an agreement with the Department before July 1, 2010, your overdue taxes aren’t covered by this amnesty.  But if you were notified but haven’t made arrangements yet, you should take advantage of amnesty. 

What should I do? 

There’s a good FAQs document on the FDOR site.   If you think you might be eligible, contact your tax professional right away.  The window is closing! 

——- 

Scott F. Berger is a tax principal with Kaufman, Rossin & Co., one of the top CPA firms in the Southeast.  He can be reached at sberger@kaufmanrossin.com.

Financial Reform: What’s in it?

Thursday, July 22nd, 2010

The President signed the Dodd-Frank Act (Financial Reform) this week, and we wanted to share what we know about what’s in it.

Many of the provisions still require what I’d call “implementation planning” — exactly how is this going to work? — but here’s what we know so far.   The law is primarily focused on avoiding future systemic banking system failure, and includes provisions that affect consumers, businesses, banks, investors, and investment advisors. 

Here are some of the highlights:

For consumers:

• A new regulatory body, the Consumer Financial Protection Bureau, will be responsible for writing new rules on financial consumer products.
• New mortgage rules requiring those granting loans to verify applicants’ credit history, income, and employment status (establishing that you can actually pay back what you’re borrowing) may be helpful to those whose appetites are bigger than their paychecks.  And rules that require lenders to hold onto a certain percentage of the loans they write should limit lending to people at a high risk of default.
• New credit card rules may benefit consumers — card minimums now cannot exceed $10, and limits to the “interchange fees” that banks can charge merchants may lead to better prices for consumers. 
• Got a complaint about a financial institution?  This act creates a national consumer complaint hotline to report problems with financial products and services.
• You’ll now be entitled to a free look at your credit score, not just your credit report, if it affects whether you get credit you’ve applied for.
• And if one of those “too big” financial companies needs to be liquidated, taxpayers will bear no cost.  FDIC can borrow only the amount of funds to liquidate a company that it expects to be repaid from the assets of the company being liquidated.

For businesses:

• Finally, the suspense over SOX 404 is over for smaller public companies.  For “non-accelerated filers,” (those with less than $75 million in market cap), the act amends Sarbanes-Oxley to make permanent the exemption from its section 404(b) requirement.  It  also requires the SEC to study (within 9 months) how to reduce the burden of 404(b) compliance for companies with market caps between $75 million and $250 million.
• New rules limiting the interchange fees that credit care issuers can charge merchants may help small businesses.

For investors:

• The bill addresses the conflict of interest created when banks and financial institutions pay a credit rating agency to evaluate their securities. 
• It gives shareholders of publicly traded companies a vote on executive pay, though the vote is nonbinding.
• Executives of public companies who are paid based on their financial performance will have to pay back up to three years worth of compensation if the financial reporting that was used to calculate the pay turns out to be inaccurate and is restated.
• The  U.S. Commodity Futures Trading Commission and the Securities and Exchange Commission will have authority to regulate over-the-counter derivatives.  Banks will be prohibited from trading certain forms of derivatives, and most of the trading must occur on transparent exchanges.

Regarding financial institutions:

• The “Volker Rule” prohibits banks from engaging in proprietary trading (trading the bank’s money for profit), which some perceive as creating conflicts of interest. 
• Banks’ relationships with hedge funds and private equity funds will also be limited, and they will be prohibited from trading certain types of derivatives.
• A new council will be watching.  The “Financial Stability Oversight Council,” will monitor the U.S. economy for underlying systemic risks and make recommendations to the Federal Reserve on issues created by firms that are deeply interconnected within the financial system.   The council will also monitor and advise Congress and the SEC regarding domestic and international accounting standards developments.
• Liquidation authority. The Federal Deposit Insurance Corporation will have a mechanism to unwind “failing systemically significant financial companies,” with no financial impact to taxpayers.

Regarding investment advisors:

• Regulation of more registered investment advisors will move from the SEC  to the states.  The threshold requiring registration with the SEC will be raised from $30 million in assets under management to $100 million, with smaller advisors regulated by the states.  Some exceptions apply.
• Private advisers are no longer exempt from registering with the SEC.  Advisers to venture capital funds remain exempt, as do those who only advise private funds and have U.S. assets under management below $150 million.  Family offices are also exempt.

There are more provisions (the bill is 2,300 pages).  We’ll keep an eye on developments as the new rules are  implemented.

—

Alan Chosed, CPA, is a principal at Kaufman, Rossin & Co, one of the top accounting firms in the Southeast.  He can be reached at achosed@kaufmanrossin.com

Legislative Alert: Is your law practice an S-Corp?

Friday, June 25th, 2010

June 25, 2010 Update

The Tax Extenders Bill has been tabled after a third cloture attempt failed yesterday. This is the bill that included the provision to subject all business income from certain S corporations to employment taxes. Senator Snowe (R-Maine) cited the “anti-abuse” provisions for S corporations as one of the reasons for voting against cloture.

The future of the bill is uncertain at this time but don’t breathe too easy — it is likely that the payroll tax issue for S corporations will arise again.

Now is the time to get ready by consulting your tax advisor. Prepare by understanding the tax impact on your practice, which could be substantial, and consider making other tax moves to get ready.

June 23, 2010 Update

The Tax Extenders Bill is still being debated in the Senate. Various amendments are being considered to either ensure the number of votes for passage, or pay for the extended tax benefits. The federal budget deficit is now a hot issue that affects this and other legislation.

However, the provision affecting S corporation shareholders is still in the bill, and when this bill does pass it’s my expectation that it will still be in there, which means many professionals will see a significant tax impact.  Contacting your tax professional to plan ahead – even if it’s just getting an idea of the additional tax you’re likely to pay — is smart strategy.  See below for a discussion of the S-Corp provision.

The Tax Extenders and Unemployment Bill I wrote about last week was passed by the House and now goes to the Senate.  Read on to see how your S-Corp may be affected. 

——-

May 24, 2010

Legislation scheduled to hit the House floor this week would impose Social Security and Medicare taxes on all income derived from professional service businesses.  This is a House amendment to a Senate amendment to HR 4213 (Jobs and Closing Tax Loopholes Act of 2010).  That means if it passes the House all income of professional service businesses formed as S-Corporations or Partnerships or Limited Liability Companies would be subject to payroll taxes beginning sometime in 2010.

Social Security taxes are imposed on compensation and self-employment income up to the Social Security Wage Base (currently $106,800) and the Medicare tax is imposed on all self-employment and compensation income.  Under the current tax law, many professional service firms are set up as S-Corporations owned by the professionals in an effort to minimize income subject to payroll taxes.  The S-Corporation earns the professional fees and pays the shareholder-professional wages that are less than the income earned by the S-Corporation. Any income in excess of the wages is then treated as earnings of the S-corporation allocated to the shareholder-professional and not subject to payroll taxes.

This legislation would change that.  In situations where an S-corporation is in a professional service business that is principally based on the reputation and skill of 3 or fewer individuals or an S corporation that is a partner in a professional service business, all of the earnings of the S-Corporation allocated to the shareholder-professional would be subject to employment taxes. The bill would also clarify that individuals that are engaged in professional service businesses are unable to avoid employment taxes by routing their earnings through a limited liability corporation or a limited partnership.

If this measure passes — and it could pass this week — it could impact the tax planning of many professionals.  If your practice is an S-Corporation, contact your accountant to understand the implications.

Dennis Fitzpatrick, J.D., is a tax principal with Kaufman, Rossin & Co., one of the top CPA firms in the Southeast. He can be reached at dfitzpatrick@kaufmanrossin.com

Community Association Relief – It’s about time!

Friday, June 11th, 2010

On June 1, 2010, there was a big sigh of relief across the state of Florida.  We all heard it.  On that day, the Florida residential community associations’ voice was heard.  In a stunning reversal from the year before, Florida Governor Crist elected not to veto Senate Bill 1196 and House Bill 561, also referred to as the Distressed Community Association Relief Act.  Long overdue, the Act will finally provide some much needed relief to distressed condominium and homeowner associations, and their law-abiding members, when it goes into effect on July 1, 2010. (more…)

Shape up your cash flow

Tuesday, June 8th, 2010

This is the first in a series of “business fitness” posts to help you get your business in shape!

Taking care of the long term health of your business is like taking care of your body.  But for many, it’s like that exercise regimen you keep planning to start.  As an entrepreneur, you’re too busy to step back and look at the health of your company. 

Cash flow is a great place to begin.  If you can make payroll and keep on top of your bills, sometimes that seems like enough.  But that’s kind of like saying getting out of bed in the morning is your fitness program.  Wouldn’t it be nice to know you’d have enough cash next month, too?  Here are your first steps to good health.

Step 1: Project

Projecting your cash flow is a simple exercise like preparing a budget.   Start with your annual operating budget.  Identify each month’s anticipated income, and each month’s anticipated expenses.  That’s it!  Quickbooks and other accounting programs have simple cash management tools to help you create these projections based on last year’s actuals, and then adjust.
 

Step 2: Monitor

If you weighed yourself once a year, could you assume your weight stayed stable?  It’s just as unlikely that your cash flow projections will remain valid if you never check on them.   Update monthly or even weekly for extra peace of mind. 

Step 3: Improve

Here are some exercises to consider…

1. Lower your property taxes     

   If you own real estate, it’s probably worth less this year.  Make the most of it.   Property taxes are based upon valuation done by the county effective January 1.   Proposed property tax bills are issued by the county later in the year — in Miami-Dade and Broward Counties they are mailed in August.  Focus on the assessment.  You can’t control the millage rate of the county’s budget, but you can file a protest and contest the valuation.   You may need a real estate appraiser or a lawyer who specializes in property tax protests to help you file.  Typically these professionals receive a percentage of what they save you, so there’s no out of pocket cost and there’s a potential to achieve some reduction. 

2. Re-evaluate insurance.     

   As business conditions change, so do insurance needs.   You may be over-insured, particularly if you own real estate or other assets that have decreased in value.   Make sure your agent is shopping your insurance on an annual basis.  If cash flow is very tight, you might consider increasing deductibles.   Perhaps most important to cash flow, review the timing of payments.  If you don’t have to pay it all in advance, maybe this is the year to spread out your payments.

3. Review all contracts.      

   In this competitive market, reviewing any contracts is one way to control expenditures – everyone is looking for new business and willing to price well to get it.  Consider renegotiating contracts, or getting competitive bids.  Make sure you’re getting quality people, not just low pricing.

Don’t procrastinate any longer about getting your business into shape! 

Steven M. Demar CPA, is a principal at Kaufman, Rossin & Co., one of the top CPA firms in Florida.  He specializes in providing tax, accounting and consulting services for entrepreneurs.  He can be reached a sdemar@kaufmanrossin.com.