IRS Recognizes All Same-Sex Marriage Nationwide

WASHINGTON — All same-sex couples who are legally married will be recognized as such for federal tax purposes, even if the state where they live does not recognize their union, the Treasury Department and the Internal Revenue Service said Thursday.

 Chad Griffin, president of the Human Rights Campaign, spoke outside the Supreme Court after the June ruling.

It is the broadest federal rule change to come out of the landmark Supreme Court decision in June that struck down the 1996 Defense of Marriage Act, and a sign of how quickly the government is moving to treat gay couples in the same way that it does straight couples.

The June decision found that same-sex couples were entitled to federal benefits, but left open the question of how Washington would actually administer them. The Treasury Department answered some of those questions on Thursday. As of the 2013 tax year, same-sex spouses who are legally married will not be able to file federal tax returns as if either were single. Instead, they must file together as “married filing jointly” or individually as “married filing separately.”

Their address or the location of their wedding does not matter, as long as the marriage is legal: a same-sex couple who marry in Albany, N.Y., and move to Alabama are treated the same as a same-sex couple who marry and live in Massachusetts.

“Today’s ruling provides certainty and clear, coherent tax-filing guidance for all legally married same-sex couples nationwide,” Treasury Secretary Jacob J. Lew said. “This ruling also assures legally married same-sex couples that they can move freely throughout the country knowing that their federal filing status will not change.”

Gay and civil rights groups praised the ruling. “Committed and loving gay and lesbian married couples will now be treated equally under our nation’s federal tax laws, regardless of what state they call home,” said Chad Griffin, the president of the Human Rights Campaign. “These families finally have access to crucial tax benefits and protections previously denied to them under the discriminatory Defense of Marriage Act.”  

But the Treasury decision could have ramifications for many gay couples’ tax liabilities, said Roberton Williams of the nonpartisan Tax Policy Center in Washington. Couples with similar incomes often pay the “marriage penalty,” with their tax liability as a couple being much higher than it would be if they were single.  

At the same time, same-sex couples will also be able to file amended returns for certain prior tax years, meaning that many couples might be eligible for refunds. Couples do not have to file amended returns if they do not want to, a senior Treasury official said, meaning that couples who might pay the marriage penalty would not owe back taxes.

But the ruling creates complications for same-sex couples who live in any of the 37 states that do not recognize their marriages. Previously, such couples filed federal and state tax returns as individuals. Now, they will have to file their federal returns as other married couples do, but may be required to file their state returns as individuals.

“There’s going to be a cumbersome workaround,” said Nanette Lee Miller of Marcum L.L.P., a public accounting firm. She sees it as a paperwork bother more than a financial issue.

States might also respond to the federal ruling with changes of their own. “Most state income tax regimes begin with federal taxable income as the starting point,” Marvin Kirsner, a tax lawyer at Greenberg Traurig, said in an e-mail. “These state taxing authorities will have to figure out how to deal with a same-sex married couple who file a joint income tax return for federal tax purposes.” He added,

“We will need to see guidance from each nonrecognition state to see how this will be handled.”

The rule change is likely to provide a small increase for federal revenue, as more same-sex couples pay the marriage penalty, Mr. Williams said, describing it as a “rounding error.” But it would be partly offset by new federal spending on benefits for same-sex spouses.

The ruling applies to all legal marriages made in the United States or foreign countries. But it does not extend to civil unions, registered domestic partnerships or other legal relationships, the Treasury said.

The Treasury ruling is one of many that are starting to emerge from all corners of the federal government as Washington changes regulations to conform with the Supreme Court decision.

Separately, the Health and Human Services Department said Thursday that Medicare would extend certain key benefits to same-sex spouses, “clarifying that all beneficiaries in private Medicare plans have access to equal coverage when it comes to care in a nursing home where their spouse lives.” 

But federal agencies are not moving in lock step. Instead, they are creating a patchwork of regulations affecting gay and lesbian couples — and may be raising questions about discrimination and fairness in the way that federal benefits are distributed.

Medicare and Treasury officials have said they would use a “place of celebration” standard for determining whether gay couples are eligible for benefits. That means same-sex couples would receive benefits as long as they are legally married, regardless of where they live.

But the Social Security Administration is now using a “place of residence” standard in determining spousal benefits, and a gay couple in Alabama might not receive the same benefits as a gay couple in New York until final determinations are made or Congress acts. The Obama administration has pushed federal agencies to ensure the Supreme Court’s ruling is carried out quickly and smoothly.

“It would be nice if they were consistent,” Ms. Miller said. Creating federal regulations is a process and could change, she said.

Tara Siegel Bernard contributed reporting from New York.

Give Withholding and Payments a Check-up to Avoid a Tax Surprise

Some people are surprised to learn they’re due a large federal income tax refund when they file their taxes. Others are surprised that they owe more taxes than they expected. When this happens, it’s a good idea to check your federal tax withholding or payments. Doing so now can help avoid a tax surprise when you file your 2013 tax return next year.

Here are some tips to help you bring the tax you pay during the year closer to what you’ll actually owe.

Wages and Income Tax Withholding

• New Job.   Your employer will ask you to complete a Form W-4, Employee's Withholding Allowance Certificate. Complete it accurately to figure the amount of federal income tax to withhold from your paychecks.
• Life Event.  Change your Form W-4 when certain life events take place. A change in marital status, birth of a child, getting or losing a job, or purchasing a home, for example, can all change the amount of taxes you owe. You can typically submit a new Form W–4 anytime.
• IRS Withholding Calculator.  This handy online tool will help you figure the correct amount of tax to withhold based on your situation. If a change is necessary, the tool will help you complete a new Form W-4.

Self-Employment and Other Income

• Estimated tax.  This is how you pay tax on income that’s not subject to withholding. Examples include income from self-employment, interest, dividends, alimony, rent and gains from the sale of assets. You also may need to pay estimated tax if the amount of income tax withheld from your wages, pension or other income is not enough. If you expect to owe a thousand dollars or more in taxes and meet other conditions, you may need to make estimated tax payments.
• Form 1040-ES.  Use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to find out if you need to pay estimated taxes on a quarterly basis.
• Change in Estimated Tax.  After you make an estimated tax payment, some life events or financial changes may affect your future payments. Changes in your income, adjustments, deductions, credits or exemptions may make it necessary for you to refigure your estimated tax.
• Additional Medicare Tax.  A new Additional Medicare Tax went into effect on Jan. 1, 2013. The 0.9 percent Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation and self-employment income that exceeds a threshold amount based on the individual’s filing status. For additional information on the Additional Medicare Tax, see our questions and answers.
• • Net Investment Income Tax.  A new Net Investment Income Tax went into effect on Jan. 1, 2013. The 3.8 percent Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income above certain threshold amounts. For additional information on the Net Investment Income Tax, see our questions and answers.

For further information or questions, please contact the professionals at Mantyla McReynolds 801.269.1818

Nine Tax Tips for Individuals Selling Their Home

If you’re selling your main home this summer or sometime this year, the IRS has some helpful tips for you. Even if you make a profit from the sale of your home, you may not have to report it as income.

Here are 10 tips from the IRS to keep in mind when selling your home.

1. If you sell your home at a gain, you may be able to exclude part or all of the profit from your income. This rule generally applies if you’ve owned and used the property as your main home for at least two out of the five years before the date of sale.

2. You normally can exclude up to $250,000 of the gain from your income ($500,000 on a joint return). This excluded gain is also not subject to the new Net Investment Income Tax, which is effective in 2013.

3. If you can exclude all of the gain, you probably don’t need to report the sale of your home on your tax return.

4. If you can’t exclude all of the gain, or you choose not to exclude it, you’ll need to report the sale of your home on your tax return. You’ll also have to report the sale if you received a Form 1099-S, Proceeds From Real Estate Transactions.

5. Generally, you can exclude a gain from the sale of only one main home per two-year period.

6. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is usually the one you live in most of the time.

7. Special rules may apply when you sell a home for which you received the first-time homebuyer credit. See Publication 523 for details.

8. You cannot deduct a loss from the sale of your main home.

9. When you sell your home and move, be sure to update your address with the IRS and the U.S. Postal Service. File Form 8822, Change of Address, to notify the IRS.

For further information or if you have questions, please contact the professionals at Mantyla McReynolds 801.269.1818.

Summertime Tax Tip 2013

During the summer, you may not think about doing your taxes, but maybe you should. Some of the expenses you’ve paid over the past few months might qualify for money-saving tax credits or deductions come tax time. If you organize your tax records now, you’ll make tax filing easier and faster when you do them next year. It also helps reduce the chance that you’ll lose a receipt or statement that you need.

Here are some tips from the IRS on tax recordkeeping.

• You should keep copies of your filed tax returns as part of your tax records. They can help you prepare future tax returns. You’ll also need them if you need to file an amended return.
• You must keep records to support items reported on your tax return. You should keep basic records that relate to your federal tax return for at least three years. Basic records are documents that prove your income and expenses. This includes income information such as Forms W-2 and 1099. It also includes information that supports tax credits or deductions you claimed. This might include sales slips, credit card receipts and other proofs of payment, invoices, cancelled checks, bank statements and mileage logs.
• If you own a home or investment property, you should keep records of your purchases and other records related to those items. You should typically keep these records, including home improvements, at least three years after you have sold or disposed of the property.
• If you own a business, you should keep records that show total receipts, proof of purchases of business expenses and assets. These may include cash register tapes, bank deposit slips, receipt books, purchase and sales invoices. Also include credit card receipts, sales slips, canceled checks, account statements and petty cash slips. Electronic records can include databases, saved files, emails, instant messages, faxes and voice messages.
• If you own a business with employees, you should generally keep all employment-related tax records for at least four years after the tax is due, or after the tax is paid, whichever is later.
• The IRS doesn’t require any special method to keep records, but it’s a good idea to keep them organized and in one place. This will make it easier for you to prepare and file a complete and accurate return. You’ll also be better able to respond if there are questions about your tax return after you file.

For further information or if you have questions, please contact the professinals at Mantyla McReynolds 801.269.1818.

Back-to-School Tax Tips for Students and Parents

Going to college can be a stressful time for students and parents. The IRS offers these tips about education tax benefits that can help offset some college costs and maybe relieve some of that stress.

• American Opportunity Tax Credit.  This credit can be up to $2,500 per eligible student. The AOTC is available for the first four years of post secondary education. Forty percent of the credit is refundable. That means that you may be able to receive up to $1,000 of the credit as a refund, even if you don’t owe any taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment. A recent law extended the AOTC through the end of Dec. 2017.

• Lifetime Learning Credit.   With the LLC, you may be able to claim up to $2,000 for qualified education expenses on your federal tax return. There is no limit on the number of years you can claim this credit for an eligible student.

You can claim only one type of education credit per student on your federal tax return each year. If you pay college expenses for more than one student in the same year, you can claim credits on a per-student, per-year basis. For example, you can claim the AOTC for one student and the LLC for the other student.

You can use the IRS’s Interactive Tax Assistant tool to help determine if you’re eligible for these credits. The tool is available at IRS.gov.

• Student loan interest deduction.  Other than home mortgage interest, you generally can’t deduct the interest you pay. However, you may be able to deduct interest you pay on a qualified student loan. The deduction can reduce your taxable income by up to $2,500. You don’t need to itemize deductions to claim it.

These education benefits are subject to income limitations and may be reduced or eliminated depending on your income.

For further information or if you have questions, please contact the professionals at Mantyla McReynolds 801.269.1818.

Identity Theft and Your Tax Return

We hear about and worry about identity theft almost every day it seems.  Did you know that identity thieves may be using your name, address and social security number to file false tax returns to claim refunds?  We have had clients who have fallen victim to this unfortunate situation.  Imagine e-filing a tax return and having that return rejected because the IRS claims that you have already filed a return.  Someone with your information can create a bogus W-2 with false withholdings, file the return, get the refund and disappear before you file your actual return.

The IRS knows this is a huge problem.  Recently, Danny Werfel, Principal Deputy Commission for the IRS in an address in Dallas, Texas, said,

“More than 3,000 IRS employees are currently working on identity theft – more than double the number at the start of the previous filing season. We have also trained 35,000 employees who work with taxpayers to recognize identity theft and help victims. So far this calendar year, the IRS has worked with victims to resolve more than 565,000 cases. This is more than three times the number of identity theft victim cases that we had resolved at the same time last year. We realize, though that case resolution often takes too long, and we continue to strive to reduce the time that it takes to close cases.

We have also expanded our fraud detection efforts. We have increased the number and quality of our identity theft screening filters, and we have suspended or rejected more than 4.6 million suspicious returns so far this calendar year. The number of identity theft investigations by our Criminal Investigation division continues to rise, with more than 1,100 investigations opened so far in FY 2013.”

These are the IRS' top tips to help you avoid becoming the victim of an identity thief.

Ø  The IRS does not initiate contact with taxpayers by email or social media tools to request personal or financial information. The IRS does not send emails stating you are being electronically audited or that you are getting a refund. This includes any type of electronic communication, such as text messages and social media channels.

Ø  If you receive a scam email claiming to be from the IRS, forward it to the IRS at phishing@irs.gov.

Ø  Identity thieves access your personal information by many different means, including:

·         Stealing your wallet or purse

·         Posing as someone who needs information about you through a phone call or email

·         Looking through your trash for personal information

·         Accessing information you provide to an unsecured Internet site.

Ø  If your SSN is stolen, another individual may use it to get a job. That person's employer may report income earned by them to the IRS using your SSN, thus making it appear you did not report all of your income on your tax return.

When this occurs, you should contact the IRS to show the income is not yours. After the IRS authenticates who you are, your tax record will be updated to reflect only your information. The IRS will use this information to minimize future occurrences.

Ø  Your identity may have been stolen if a letter from the IRS indicates more than one tax return was filed for you or the letter states you received wages from an employer you don't know. If you receive such a letter from the IRS, leading you to believe your identity has been stolen, respond immediately to the name, address or phone number on the IRS notice. If you believe the notice is not from the IRS, contact the IRS to determine if the letter is a legitimate IRS notice.

Ø  For more information about identity theft, including information about how to report identity theft, phishing and related fraudulent activity, visit the IRS Identity Theft Protection page, which you can find by searching identity theft on the IRS.gov home page.

Should you become a victim of identity theft which involves filing of false tax returns, please contact us at Mantyla McReynolds as soon as possible.  We know the procedures and the forms that need to be filed to resolve this problem.

MANTYLA MCREYNOLDS RECOGNIZED FOR EXEMPLARY WORKPLACE PRACTICES

Receives prestigious Alfred P. Sloan Award for Excellence in

Workplace Effectiveness and Flexibility

SLC, UT  (August 13^th,  2013) – Mantyla McReynolds has been honored with the 2013 Alfred P. Sloan Award for Excellence in Workplace Effectiveness and Flexibility for its use of flexibility and other aspects of workplace effectiveness as a workplace strategy to increase business and employee success.

This prestigious award, part of the national When Work Works project administered by Families and Work Institute (FWI) and the Society for Human Resource Management (SHRM), recognizes employers of all sizes and types in Utah and across the country.

“We recognize the tremendous value of all of our employees to our organization and to our clients, therefore we have always strived to have a workplace culture, environment and benefit package which would attract top talent in the public accounting field.” Don Mantyla, Partner, CPA,  Business Development Director.

Workplace flexibility — such as flextime, part-time work and compressed workweeks — has been demonstrated to help businesses remain competitive while also benefiting employees. Flexibility in combination with other aspects of an effective workplace—such as learning opportunities and supervisor support for job success—can have a powerful impact on employee engagement and motivation.

“Our research consistently finds that employees in effective and flexible workplaces have greater engagement on the job and greater desire to stay with their organization. In addition, they report lower stress levels and better overall health,” said Ellen Galinsky, FWI president.

The Sloan Awards are unique for their rigorous, two-step selection process, which involves an evaluation of employers’ flexibility programs and practices, and a confidential employee survey on the key ingredients of an effective and flexible workplace. All applicants are measured against national norms from the National Study of Employers.

“As a recipient of the 2013 Sloan Award, Mantyla McReynolds ranks among the top 20% of employers nationally in terms of its programs, policies and culture for creating an effective and flexible workplace,” Galinsky said. “In addition, what makes this honor so special is that their employees have corroborated this, affirming that it is indeed an effective and flexible workplace.”

When Work Works is a national project to educate the business community on the value of workplace flexibility by sharing research and promising practices, and conducting the annual Sloan Awards. It is an ongoing initiative of FWI and SHRM.

For more information about the When Work Works initiative and the Alfred P. Sloan Awards for Excellence in Workplace Effectiveness and Flexibility, visit www.whenworkworks.org

  

ABOUT Mantyla McReynolds

Mantyla McReynolds began in 1989 when Don Mantyla and Kim McReynolds had a vision of creating their own business, their own legacy.  Born leaders, Don and Kim have successfully expanded the firm to over 30 employees by hiring bright thinkers and creating a positive work environment.

Mantyla McReynolds is a local CPA firm, based in one of the greatest places to live: Salt Lake City, Utah.  The firm has the experience and expertise to help businesses throughout Utah, the United States and the world, and it has serviced small business, middle-market and international organizations for over 20 years.  Mantyla McReynolds is a BDO Seidman Alliance firm, offering experienced and accessible service teams, world-class engagement management and a focus on quality and efficiency.

With a commitment to timely service and communication, the professionals at Mantyla McReynolds have the experience and knowledge to help you succeed.

About When Work Works

When Work Works is a national initiative, led by the partnership of Families and Work Institute and the Society for Human Resource Management (SHRM), to help businesses of all sizes and types become more successful by transforming the way they view and adopt effective and flexible workplaces. When Work Works is one of the foremost providers of resources, rigorous research and best practices on workplace effectiveness and flexibility in the nation. The initiative administers the prestigious Alfred P. Sloan Awards for Excellence in Workplace Effectiveness and Flexibility annually, which recognize exemplary employers for using flexibility as part of an effective workplace strategy to increase business and employee success. Visit www.whenworkworks.org and follow us on Twitter @WhenWorkWorks @FWINews and @SHRMPress, and join the workflex conversation on Facebook.com/FWINews.

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Helpful Tax Tips if You’re Moving this Summer

If you make a work-related move this summer, you may be able to deduct the costs of the move. This may apply if you move to start a new job or to work at the same job in a new job location. The IRS offers the following tips on moving expenses you may be able to deduct on your tax return.

In order to deduct moving expenses, you must meet these three requirements:
1. Your move closely relates to the start of work.  Generally, you can consider moving expenses within one year of the date you first report to work at a new job location. Additional rules apply to this requirement.
2. You meet the distance test.  Your new main job location must be at least 50 miles farther from your former home than your previous main job location was. For example, if your old main job location was three miles from your former home, your new main job location must be at least 53 miles from that former home.
3. You meet the time test.  After you move, you must work full time at your new job location for at least 39 weeks during the first year. Self-employed individuals must meet this test and also work full time for a total of at least 78 weeks during the first 24 months upon arriving in the general area of their new job location. If your income tax return is due before you have satisfied this requirement, you can still deduct your allowable moving expenses if you expect to meet the time test.
See Publication 521, Moving Expenses, for more information about these rules. If you can claim this deduction, here are a few more tips from the IRS:

• Travel.  You can deduct transportation and lodging expenses for yourself and household members while moving from your former home to your new home. You cannot deduct the cost of meals during the travel.
• Household goods.  You can deduct the cost of packing, crating and transporting your household goods and personal property. You may be able to include the cost of storing and insuring these items while in transit.
• Utilities.  You can deduct the costs of connecting or disconnecting utilities.
• Nondeductible expenses.  You cannot deduct as moving expenses any part of the purchase price of your new home, the costs of buying or selling a home, or the cost of entering into or breaking a lease. See Publication 521 for a complete list.
• Reimbursed expenses.  If your employer reimburses you for the costs of a move for which you took a deduction, you may have to include the reimbursement as income on your tax return.
• Update your address.  When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive mail from the IRS. File Form 8822, Change of Address, to notify the IRS.
• Tax form to file.  To figure the amount of your deduction for moving expenses, use Form 3903, Moving Expenses. 

For further information or if you have questions, please contact the professionals at Mantyla McReynolds 801.269.1818. 

Reduce Your Taxes with Miscellaneous Deductions

If you itemize deductions on your tax return, you may be able to deduct certain miscellaneous expenses. You may benefit from this because a tax deduction normally reduces your federal income tax.
Here are some things you should know about miscellaneous deductions:
Deductions Subject to the Two Percent Limit.  You can deduct most miscellaneous expenses only if they exceed two percent of your adjusted gross income. These include expenses such as:

• Unreimbursed employee expenses.
• Expenses related to searching for a new job in the same profession.
• Certain work clothes and uniforms.
• Tools needed for your job.
• Union dues. 
• Work-related travel and transportation.

Deductions Not Subject to the Two Percent Limit.  Some deductions are not subject to the two percent of AGI limit. Some expenses on this list include:

• Certain casualty and theft losses. This deduction applies if you held the damaged or stolen property for investment. Property that you hold for investment may include assets such as stocks, bonds and works of art.
• Gambling losses up to the amount of gambling winnings.
• Losses from Ponzi-type investment schemes.

Many expenses are not deductible. For example, you can’t deduct personal living or family expenses. Report your miscellaneous deductions on Schedule A, Itemized Deductions. Be sure to keep records of your deductions as a reminder when you file your taxes in 2014.

Learn more about these rules in Publication 529, Miscellaneous Deductions. The booklet is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Getting the Best Tax Benefit Out of Your Charitable Contribution

If you are looking to maximize the power of your charitable contributions — to make a single asset make more of a difference to the causes you care about — consider donating your long-term appreciated securities (stocks, bonds or mutual funds), property, collectibles or other assets. 

Why is contributing your long-term appreciated assets so beneficial for tax purposes? 

·         If the long-term appreciated assets are donated rather than sold, capital gains taxes from selling them no longer apply. The more appreciation the asset has, the greater the tax savings will be.  This can be a tax savings of up to almost 30% on the gain. With the federal long-term capital gain rate as much as 20%, then add to that the new potential investment tax of 3.8%, and a state tax of 5%, it adds up quickly.

·         If you take itemized deductions on your return, the appreciated assets donated to a public charity are taken at its full fair market value, on up to 30% of the donor's adjusted gross income.  This reduces your taxable income, which in 2013 can be a tax savings of as much as 44.6%.

By taking advantage of the applicable tax incentives, donors can significantly increase the amount of funds available to them for charitable giving.

If you are donating anything other than publicly traded securities, the charitable institution will need time to make sure they are willing and able to accept your charitable contribution.  Accordingly, it is important to not wait until the end of the year to make this type of donation, or you may simply run out of time to get everything done. 

Since the tax benefit and charitable benefit of these types of contributions can vary so widely, if you are interested in donating appreciated assets to your favorite charity, please give us a call, so that we can discuss your individual situation.

Simplified Option for Home Office Deduction

Do you work from home? If so, you may be familiar with the home office deduction, available for taxpayers who use their home for business. Beginning this year, there is a new, simpler option to figure the business use of your home. 

This simplified option does not change the rules for who may claim a home office deduction. It merely simplifies the calculation and recordkeeping requirements. The new option can save you a lot of time and will require less paperwork and recordkeeping. 

Here are six facts the IRS wants you to know about the new, simplified method to claim the home office deduction.

1. You may use the simplified method when you file your 2013 tax return next year. If you use this method to claim the home office deduction, you will not need to calculate your deduction based on actual expenses. You may instead multiply the square footage of your home office by a prescribed rate.
2. The rate is $5 per square foot of the part of your home used for business. The maximum footage allowed is 300 square feet. This means the most you can deduct using the new method is $1,500 per year.
3. You may choose either the simplified method or the actual expense method for any tax year. Once you use a method for a specific tax year, you cannot later change to the other method for that same year.
4. If you use the simplified method and you own your home, you cannot depreciate your home office. You can still deduct other qualified home expenses, such as mortgage interest and real estate taxes. You will not need to allocate these expenses between personal and business use. This allocation is required if you use the actual expense method. You’ll claim these deductions on Schedule A, Itemized Deductions.
5. You can still fully deduct business expenses that are unrelated to the home if you use the simplified method. These may include costs such as advertising, supplies and wages paid to employees.
6. If you use more than one home with a qualified home office in the same year, you can use the simplified method for only one in that year. However, you may use the simplified method for one and actual expenses for any others in that year.


Visit IRS.gov for more about this easier way to deduct your home office.

Renting Your Vacation Home

A vacation home can be a house, apartment, condominium, mobile home or boat. If you own a vacation home that you rent to others, you generally must report the rental income on your federal income tax return. But you may not have to report that income if the rental period is short.

In most cases, you can deduct expenses of renting your property. Your deduction may be limited if you also use the home as a residence.

Here are some tips from the IRS about this type of rental property.

• You usually report rental income and deductible rental expenses on Schedule E, Supplemental Income and Loss.
You may also be subject to paying Net Investment Income Tax on your rental income.
• If you personally use your property and sometimes rent it to others, special rules apply. You must divide your expenses between the rental use and the personal use. The number of days used for each purpose determines how to divide your costs.
Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses.
• If the property is “used as a home,” your rental expense deduction is limited. This means your deduction for rental expenses can’t be more than the rent you received. For more about this rule, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes).
• If the property is “used as a home” and you rent it out fewer than 15 days per year, you do not have to report the rental income.

Get Publication 527 for more details on this topic. It is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

WHAT ARE THE NEEDS OF YOUR COMPANY?

IPOs and Secondary Offerings

The professionals at Mantyla McReynolds and BDO, a full service assurance, audit, and tax firm, understand that many companies plan on one of the following events within the next 1-4 years:

i.    Companies that plan to go public.

ii.   Companies that are public and plan to complete a secondary offering or private placement.                    

iii.  Companies that have or need a bank loan and are required to have audited or reviewed financial statements.

iv.  Companies that plan on a merger, acquisition, or other exit strategy.

While our firm assists companies with each of these plans, this article is specifically focused on the first two points above.  In a recent conversation, a CFO of a multi-billion dollar market cap company mentioned to me his opinion that the ease of obtaining significant amounts of needed capital in the public arena is second to none.  Though this is not true for every company’s financial situations and needs, we have seen the results of this statement again and again.  Not every company’s business model and operations necessitates a need to become a public company with access to the capital markets.  Many private companies have been able to secure sufficient funding through banking institutions, private equity groups, and other capital sources, all while maintaining close control of the company’s equity.  However, for some companies, becoming a public company has allowed for long-term growth projections to be realized in a significantly accelerated timeframe.  The main reason for this accelerated growth is partially attributable to a public company’s access to capital markets at precisely the moment when significant capital requirements needed to be funded. 

Staying Private or Going Public

A CEO of one of our public clients once said that they could have kept the company private and over a 10-year cycle become a company with a business valuation exceeding $500 million.  However, with an understanding of the public markets, they chose to become a public company with access to significantly more capital resources and were able to more efficiently implement their business plan and growth projections in becoming a company with a growing valuation exceeding $1.5 billion.  This level of growth and resulting valuation occurred in less than 4 years.  The CEO also remarked that though they personally incurred dilution in their equity ownership position in becoming a public company, being able to grow the company at an accelerated rate increased the overall valuation of their original private equity holdings by 4 to 5 times more than if they had remained a private company.

Secondary Offerings

Not every company that goes public experiences this level of success, but the fruits of being a public company are available for the picking.  For some companies, being a public entity has simply provided them with more options in effectively implementing their business plan.  When one of our clients became a public company several years ago they brought to market a revolutionary business concept that was still in its infancy and generally unproven.  Without significant amounts of capital infusions the overall operations and business implementation had little hope of making it off the ground.  Within the last three years we were able to assist this company in raising over $550 million through secondary and follow-on public equity offerings, with one individual offering totaling over $200 million, as well as a $300 million public debt offering.  Each of these offerings were performed in less than two weeks from the initial announcement to the close and funding date.  The short time period from announcement to funding allowed our client to maximize the value of the offerings and the resulting overall value to the company. 

From an accounting firm perspective, the time required in a 7 to 10 business day window to perform necessary comfort letter and bring down letter procedures, respond to underwriter and attorney requests, and review the offering filing is an extensive commitment and usually doesn’t fit into a pre-determined schedule.  However, even when one of our client offerings was announced and completed in the middle of busy season, the ability for a company to access the public capital markets during an advantageous window is one of the primary benefits of being a public company.  A public company needs a team of professionals, from the attorneys to the accountants, that understands how critical it is to be available and able to perform these transactions in the required timeframe that is most advantageous to the client.     

More Than One Way To Go Public

As noted, for some companies there are significant benefits in becoming a public company that were not available to them when they were a private company.  The decision in becoming a public company should not be taken lightly, and there are many potential benefits and detriments that should be considered beyond simply the ease of access to funding through the capital markets.  Additionally, whether a company performs a traditional or non-traditional “going public” transaction should be given significant thought and analysis, particularly as it relates to a company’s immediate funding requirements.  For example, a company not desiring the cost and time of a traditional IPO transaction, might consider a reverse merger or other non-traditional transaction to first become a public entity with access to the capital markets, albeit at a limited level.  However, in performing a non-traditional transaction the new public company might still need to wait a year or more before being able access significant capital at the amounts and levels required by the company.

As with many market realities, though there are benefits to first becoming a public company through a non-traditional process, there are also the drawbacks that a company must consider and apply to their own business needs and growth projections.  A traditional IPO process in many regards is the highest standard, if not the only standard, from the perspective of some investors, while completing a reverse merger with a public entity has had its fair share of both positive success stories and negative press.  In November 2011, the SEC also released a series of new rules as it relates to reverse merger transactions and the eventual qualification of those entities in being listed on a major U.S. stock exchange.  Specifically, a reverse merger public company must complete a one-year “seasoning period” on an over-the-counter or similar exchange and maintain a requisite minimum share price before applying for listing on a major U.S. stock exchange.  The ability to access the amount of public capital identified above is generally not a reality or possibility when the Company is listed on non-major exchange.  Though there are listing rules that must be met by all public companies, whether the company became public through a traditional IPO or a reverse merger transaction, these additional rules for reverse merger companies should be carefully considered by management and consultants early in the going public process.

It should also be noted that IPOs are generally more drawn out and are directly impacted by short term market events.  Once an IPO is announced, companies are frequently impacted by both positive and negative market events, and constantly need to assess whether to delay the IPO process or move forward.  As one example, the first half of 2011 saw IPO activity at a level that was comparable in many regards to pre-recession highs.  Then in the second half of 2011 the U.S. long-term credit rating was downgraded and the impact on potential IPOs was immediate.  IPO activity during the second half of 2011 decreased significantly compared to 2010 and years prior to the recession, and many private companies opted to delay the process indefinitely despite the significant costs and time already incurred.

This one significant event was entirely outside of the control of those companies seeking to perform an IPO, yet it directly impacted how successful an individual IPO transaction might be and many companies opted to defer.  An IPO that has been in process for months, with the related costs and time incurred, is suddenly and unexpectedly delayed due to unfavorable market conditions.  Depending on how far down the IPO road a company has already traveled, there is the potential that a material portion of the costs incurred on the process will not be recouped or even reduce the future costs incurred once the IPO process is restarted. For well established and successful private companies these delays and costs are easier to bear as simply being part of the overall IPO process.  Whereas for startup companies and those poised to experience accelerated growth, the costs required to restart the IPO process at some indefinite point in the future are simply not a cash flow reality.

These same market events also impact follow-on or secondary offerings of existing public entities, however, the cost incurred and time lost in a derailed secondary offering pales in comparison to the extensive cost and time lost in a failed or delayed traditional IPO transaction.  As demonstrated above, the timing on a secondary offering from the initial “over the wall” announcement to the closing of the transaction is potentially significantly shorter than the traditional IPO process.  For some companies, it might make more business sense to first become a public company through a reverse merger or Form 10 process, develop through the seasoning period, and then perform necessary capital raises when the market conditions are in the company’s favor.  Once becoming an established public entity, management has increased flexibility in taking advantage of sensitive market windows in completing secondary and follow capital raises. 

In summary, the most advantageous market windows are sometimes very short.  In light of this, a company should ensure that they have a solid team of professionals and advisors early on that have extensive experience assisting companies in reaching their capital requirements, including: attorneys, accountants, and bankers.   Mantyla McReynolds and BDO have assisted numerous companies in going public, whether through initial SEC registration statements or reverse mergers with subsequent equity and debt offerings.  Throughout each of these transactions, we have never lost sight of the business reality that when client expectations and timelines are met, greater success has generally been the result.    

Through our strong relationship with BDO, the 5^th largest international accounting firm in the world, we are further able to leverage national and international resources with the agility and speed of an experienced local team.  Through BDO, we have available for our clients excellent informational resources at the “IPO Readiness Center” at www.bdo.com/ipo.  Additionally, BDO has prepared a “Guide for Going Public” that is a thorough guide for private company executives that are considering an initial offering (www.bdo.com/download/1577). 

Tips for Taxpayers Who Travel for Charity Work

Do you plan to travel while doing charity work this summer? Some travel expenses may help lower your taxes if you itemize deductions when you file next year. Here are five tax tips the IRS wants you to know about travel while serving a charity.

1. You must volunteer to work for a qualified organization. Ask the charity about its tax-exempt status. You can also visit IRS.gov and use the Select Check tool to see if the group is qualified.
2. You may be able to deduct unreimbursed travel expenses you pay while serving as a volunteer. You can’t deduct the value of your time or services.
3. The deduction qualifies only if there is no significant element of personal pleasure, recreation or vacation in the travel. However, the deduction will qualify even if you enjoy the trip.
4. You can deduct your travel expenses if your work is real and substantial throughout the trip. You can’t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip.
5. Deductible travel expenses may include:

• Air, rail and bus transportation
• Car expenses
• Lodging costs
• The cost of meals
• Taxi fares or other transportation costs between the airport or station and your hotel

To learn more see Publication 526, Charitable Contributions. The booklet is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Job Search Expenses May Lower Your Taxes

Summer is often a time when people make major life decisions. Common events include buying a home, getting married or changing jobs. If you’re looking for a new job in your same line of work, you may be able to claim a tax deduction for some of your job hunting expenses.

Here are seven things the IRS wants you to know about deducting these costs:

1. Your expenses must be for a job search in your current occupation. You may not deduct expenses related to a search for a job in a new occupation. If your employer or another party reimburses you for an expense, you may not deduct it.

2. You can deduct employment and job placement agency fees you pay while looking for a job.

3. You can deduct the cost of preparing and mailing copies of your résumé to prospective employers

4. If you travel to look for a new job, you may be able to deduct your travel expenses. However, you can only deduct them if the trip is primarily to look for a new job.

5. You can’t deduct job search expenses if there was a substantial break between the end of your last job and the time you began looking for a new one.

6. You can’t deduct job search expenses if you’re looking for a job for the first time.

7. You usually will claim job search expenses as a miscellaneous itemized deduction. You can deduct only the amount of your total miscellaneous deductions that exceed two percent of your adjusted gross income.



For more information, see Publication 529, Miscellaneous Deductions. This booklet is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

3.8% Medicare Tax on Investment Income

As part of the Health Care and Reconciliation Act of 2010, Congress has implemented a new 3.8% Medicare tax (effective January 1, 2013) on investment income, which can generally be defined as any income that is derived from investing capital.  It includes capital gains, rents, royalties, dividends, annuities, and interest income.  It does notinclude W-2 income or income derived from an active S-Corporation or partnership.  The sale of a qualified personal residence is only subject to this tax if the net gain is greater than $250K for taxpayers filing individually and $500K for married filing jointly.

This tax is only applicable to taxpayers with adjustable gross income (AGI) over $200K who file individually or $250K for married couples filing jointly.  For those who qualify to pay the tax, the amount of tax owed will be equal to 3.8% multiplied by the lesser of net investment income or the amount by which their AGI exceeds the $200K/$250K threshold.  For example, a married couple with a combined salary of $295K and investment income of $10K would be subject to an additional Medicare tax of $380.

While this definition is meant to give a basic understanding of the new tax, please contact us with any specific questions. 801.269.1818 

Written By: Dave Mantyla 

Obama Administration Delays Employer Mandate for Affordable Care Act

The Obama administration has decided to postpone the employer responsibility payment and insurance reporting requirements under the Affordable Care Act for one year to give businesses more time to comply with the health care reform law.
The requirements will instead begin in January 2015 for employers with 50 or more full-time employees (or the equivalent in full- and part-time employees) to offer quality affordable health insurance to employees or face a $2,000 fine per employee if the employee receives a premium tax credit for purchasing individual coverage on one of the upcoming health insurance exchanges.
“The Administration is announcing that it will provide an additional year before the ACA mandatory employer and insurer reporting requirements begin,” said Mark Mazur, assistant secretary for tax policy at the Treasury Department, in a statement Tuesday. “This is designed to meet two goals. First, it will allow us to consider ways to simplify the new reporting requirements consistent with the law. Second, it will provide time to adapt health coverage and reporting systems while employers are moving toward making health coverage affordable and accessible for their employees. Within the next week, we will publish formal guidance describing this transition. Just like the Administration’s effort to turn the initial 21-page application for health insurance into a three-page application, we are working hard to adapt and to be flexible about reporting requirements as we implement the law.”

Mazur noted that the ACA includes information reporting requirements (under section 6055) by insurers, selfinsuring employers, and other parties that provide health coverage. It also requires information reporting (under section 6056) by certain employers with respect to the health coverage offered to their full-time employees. He said the Treasury expects to publish proposed rules implementing these provisions this summer, after conducting a dialogue with stakeholders—including those
responsible employers that already provide their full-time work force with coverage far exceeding the minimum employer shared responsibility requirements—in an effort to minimize the reporting, consistent with effective implementation of the law.

Once the rules have been issued, Mazur said the administration would work with employers, insurers and other reporting entities to strongly encourage them to voluntarily implement this information reporting in 2014, in preparation for the full application of the provisions in 2015. Real-world testing of reporting systems in 2014 will contribute to a smoother transition to full implementation in 2015.
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“We recognize that this transition relief will make it impractical to determine which employers owe shared responsibility payments (under section 4980H) for 2014,” Mazur acknowledged. “Accordingly, we are extending this transition relief to the employer shared responsibility payments. These payments will not apply for 2014. Any employer shared responsibility payments will not apply until 2015.”
During the 2014 transition period, the administration is strongly encouraging employers to maintain or expand health coverage, Mazur noted. He added that the delay does not affect employees’ access to the premium tax credits available under the ACA (nor any other provision of the ACA).
THe employer shared responsibility payments are intended to apply to large companies whose employees need to receive tax credits from the government to afford insurance because their employers do not provide it to them. 

Valerie Jarrett, a senior advisor to President Obama who oversees the Offices of Public Engagement and Intergovernmental Affairs, explained the delay on the White House’s Web site.
“As we implement this law, we have and will continue to make changes as needed,” she wrote. “In our ongoing discussions with businesses we have heard that you need the time to get this right. We are listening. So in response to your concerns, we are making two changes. First, we are cutting red tape and simplifying the reporting process.

We have heard the concern that the reporting called for under the law about each worker’s access to and enrollment in health insurance requires new data collection systems and coordination. So we plan to re-vamp and simplify the reporting process. Some of this detailed reporting may be unnecessary for businesses that more than meet the minimum standards in the law. We will convene employers, insurers, and experts to propose a smarter system and, in the interim, suspend reporting for 2014.

“Second, we are giving businesses more time to comply,” she added. “As we make these changes, we believe we need to give employers more time to comply with the new rules. Since employer responsibility payments can only be assessed based on this new reporting, payments won’t be collected for 2014. This allows employers the time to test the new reporting systems and make any necessary adaptations to their health benefits while staying the course toward making health coverage more affordable and accessible for their workers. Just like our effort to turn the 21-page application for health insurance into a three-page application, we are working hard to adapt and to be flexible in employer and insurer reporting as we implement the law.”

She pointed out that for small businesses with less than 50 workers, the health care law’s employer shared responsibility policies do not apply. Instead, they will gain access to the Small Business Health Options Program that gives them the purchasing power of large businesses in the health insurance marketplace. Small businesses may also be eligible for a tax credit that covers up to half the cost of insurance if they offer quality coverage to employees, she added. Companies with more than 50 workers that already offer workers quality affordable health care coverage will be able to keep quality coverage affordable. Companies with more than 50 employees that do not offer quality affordable
coverage to workers will have more flexibility and transition time with the delay. Meanwhile, the administration still plans to open health insurance marketplaces on Oct. 1.

The delay until 2015 will also enable the administration to avoid further backlash from businesses forced to comply with the controversial health care reform law before the midterm elections in 2014.
Republicans on the House Ways and Means Committee spokeswoman criticized the decision. “The Obama Administration’s decision to give corporate America a free pass on the employer mandate while continuing to force average, everyday Americans to abide by the law is deeply disturbing,” said spokesperson Sarah Swinehart. “Instead, the Administration should spend its time focusing on what impacts individuals and families struggling to afford government-mandated insurance.

The Administration's decision is an admission that this law is a failure and that we still need to lower the cost of health care for all Americans—which this job-killing law fails to do.”

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Jackson Hewitt Tax Service pointed out some of the potential effects of Tuesday’s announcement delaying the
implementation of the Affordable Care Act's employer mandate that imposes a penalty on employers with 50 or more full-time equivalent employees if the employees enroll in the tax credit programs because the employer did not offer them an opportunity to enroll in affordable minimum essential coverage. The company pointed out that the tax penalties may be substantial. An employer subject to the penalty could face a liability equal to $2,000 times the number of employees (minus 30 employees). The Treasury Department noted that it would publish rules about employer reporting requirements later this summer.

Jackson Hewitt noted the following potential effects of the Treasury's announcement:

• Fewer employers may cut employee hours in 2014. This one-year respite may make employers (e.g., restaurant and retail establishments) less likely to reduce employee hours below 30 hours per week (so as to classify such employees as part-time for section 4980H penalty calculations).

• Many families with children will have an unexpected benefit. For employers who offer employee but not
dependent coverage, this one-year delay may also cause employers to postpone any offer of coverage to dependents. This may have a positive effect on such families for two reasons. First, children without an offer of employer-sponsored coverage may be eligible for the Children's Health Insurance Program (CHIP) if they meet the state-specific income and other eligibility requirements. Second, children without an offer of employer coverage may be eligible for the new premium assistance tax credits in 2014 even if their incomes are above the state-specific CHIP limit. Indeed, employers may be more likely to cooperate with enrollment efforts to get uninsured employees and their uninsured dependents covered under various ACA programs because they know with certainty that they
will not face a penalty in 2014.

• States may face less pressure from business interests to expand Medicaid. Jackson Hewitt had released a report earlier this year estimating that American employers would incur $876 million to $1.3 billion in penalties in 22 states that were refusing to expand their Medicaid programs as contemplated under the ACA. Today's decision effectively removes that penalty liability for 2014. However, employers will continue to face such penalties in 2015 and thereafter in states that do not expand their Medicaid programs.

• The Treasury action addresses anxiety among employers about the lack of final regulations from the IRS. While many employers with large part-time and seasonal employees embraced the flexibility afforded to them by the IRS's proposed approach, they voiced increasingly loud concerns that the IRS had yet to finalize this approach in a final rule. The IRS has not publicly pledged to finalize these proposed rules before the major provisions of the ACA take effect in 2014, Jackson Hewitt pointed out. In an unexpected development late Tuesday, though, the Treasury Department effectively moots this issue for 2014.

"Today's announcement from the Treasury Department alleviates several key concerns held by a large number of American employers that have a significant part-time and seasonal workforce," said Brian Haile, senior vice president for health care policy at Jackson Hewitt Tax Service Inc., in a statement. "The federal approach acknowledges the challenges with implementing a policy that will affect so many employers—and strikes the right balance between speedy implementation and thoughtful policy-making."

Haile further noted, "Notwithstanding the Administration's announcement today, we continue to expect the launch of the health insurance marketplaces on Oct. 1, 2013."

Tax Tips if You’re Starting a Business

If you plan to start a new business, or you’ve just opened your doors, it is important for you to know your federal tax responsibilities. Here are five basic tips from the IRS that can help you get started. 

1. Type of Business.  Early on, you will need to decide the type of business you are going to establish. The most common types are sole proprietorship, partnership, corporation, S corporation and Limited Liability Company. Each type reports its business activity on a different federal tax form.

2. Types of Taxes.  The type of business you run usually determines the type of taxes you pay. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.

3. Employer Identification Number.  A business often needs to get a federal EIN for tax purposes. Check IRS.gov to find out whether you need this number. If you do, you can apply for an EIN online.

4. Recordkeeping.  Keeping good records will help you when it’s time to file your business tax forms at the end of the year. They help track deductible expenses and support all the items you report on your tax return. Good records will also help you monitor your business’ progress and prepare your financial statements. You may choose any recordkeeping system that clearly shows your income and expenses.

5. Accounting Method.  Each taxpayer must also use a consistent accounting method, which is a set of rules that determine when to report income and expenses. The most common are the cash method and accrual method. Under the cash method, you normally report income in the year you receive it and deduct expenses in the year you pay them. Under the accrual method, you generally report income in the year you earn it and deduct expenses in the year you incur them. This is true even if you receive the income or pay the expenses in a future year.

6. “Contact your CPA.  At Mantyla McReynolds, we have many years of experience and have helped hundreds of business owners start their own business.  We will advise you on everything from making sure you are compliant with all government regulations, to establishing banking relationships and sound accounting systems, to providing solid proactive business and tax planning ideas.”

For more information, check out the “Business Taxes” page on IRS.gov. From there, review the special section on Starting a Business. Publication 583, Starting a Business and Keeping Records, may also help new business owners with the tax aspects of running a business. The booklet is also available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).