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).

Supreme Court Strikes Down DOMA

Tax Tips for Newlyweds

Late spring and early summer are popular times for weddings. Whatever the season, a change in your marital status can affect your taxes. Here are several tips from the IRS for newlyweds.

• It’s important that the names and Social Security numbers that you put on your tax return match your Social Security Administration records. If you’ve changed your name, report the change to the SSA. To do that, file Form SS-5, Application for a Social Security Card. You can get this form on their website at SSA.gov, by calling 800-772-1213 or by visiting your local SSA office.
• If your address has changed, file Form 8822, Change of Address to notify the IRS. You should also notify the U.S. Postal Service if your address has changed. You can ask to have your mail forwarded online at USPS.com or report the change at your local post office.
• If you work, report your name or address change to your employer. This will help to ensure that you receive your Form W-2, Wage and Tax Statement, after the end of the year.
• If you and your spouse both work, you should check the amount of federal income tax withheld from your pay. Your combined incomes may move you into a higher tax bracket. Use the IRS Withholding Calculator tool at IRS.gov to help you complete a new Form W-4, Employee's Withholding Allowance Certificate. See Publication 505, Tax Withholding and Estimated Tax, for more information.
• If you didn’t qualify to itemize deductions before you were married, that may have changed. You and your spouse may save money by itemizing rather than taking the standard deduction on your tax return. You’ll need to use Form 1040 with Schedule A, Itemized Deductions. You can’t use Form 1040A or 1040EZ when you itemize.
• If you are married as of Dec. 31, that’s your marital status for the entire year for tax purposes. You and your spouse usually may choose to file your federal income tax return either jointly or separately in any given year. You may want to figure the tax both ways to determine which filing status results in the lowest tax. In most cases, it’s beneficial to file jointly.

For more information about these topics, visit IRS.gov. You can also get IRS forms and publications at IRS.gov or by calling 800-TAX-FORM (800-829-3676).