Resources

resources
Hochschild, Bloom and Company professionals have drawn from decades of experience helping all manner of clients from business start-ups to Fortune 500 companies. In the process of gaining this wealth of knowledge, our team has created several resources that we have made available for general use. Below are valuable articles written by our team. Also feel free to explore our additional resources such as our e-organizer, guidebooks and presentations.

Client Tip for August 2017: MISSOURI SALES AND USE TAX

MISSOURI SALES AND USE TAX

Effective August 28, 2017, Missouri sales and use taxes no longer need to be charged on sales or paid on purchases for usual and customary delivery charges if they are separately stated on the invoice.

Mandatory gratuities which are charged in conjunction with providing food and beverages in a restaurant or banquet facility to a large party are still subject to sales tax.

Businesses who sell items to farmers, nonprofit agencies, manufacturers for equipment and parts used in manufacturing, and political subdivisions need to request a copy of an exemption certificate to substantiate they are exempt from sales tax. The exempt certificate should be retained for documentation upon audit by the Missouri Department of Revenue.

“Your Partner In Success”

STARS

“If we succeed, it will not be because of what we have,
it will be because of what we are; not because of
what we own, but, rather because of what we believe.”
Lyndon B. Johnson – 36th President of the United States from 1963 – 1969

Client Tip for July 2017: HEALTH CARE EXCISE TAX

HEALTH CARE EXCISE TAX

Reminder — the Patient Protection and Affordable Care Act excise tax on all health care providers is due July 31st.. Providers include not only insurance companies but also sponsors of self-insured accident and health insurance plans, and some companies that offer health reimbursement arrangements (HRA) and/or flexible spending accounts (FSA).

Most HRA sponsors are required to pay the tax, except for arrangements that only cover dental and vision benefits. FSAs are only covered by the law if the employer’s contribution exceeds the employee’s contribution and the employer offers health insurance coverage, whether through an insurance company or self-insured plan.

This tax is paid with the second quarter’s Form 720 excise tax return. If you are required to file Form 720 for other reasons, just include the fee on page two of the return for the quarter. If this is the only reason you are filing the return, you will not need to file the form for the 1st, 3rd, or 4th quarters.

IRS regulations offer a number of different ways to count the number of lives covered by your plan such as the actual method, the snapshot method, or the Form 5500 method. There is also a difference in the methods for self-insured plans, HRAs, and FSAs. Unfortunately, there is no de minimis exception for small employers.

For more information on how to calculate the number of lives covered or for any other questions concerning this tax, please call us in Chesterfield at 636-532-9525 or in Washington at 636-239-4785. “Your Partner In Success”

 STARS“I do not mistrust the future.
I do not fear what is ahead.
For our problems are large,
but our hearts are larger.”
George H.W. Bush – 41st President of the
United States from 1989 – 1993

Nonprofit Budgeting Essentials by Angela Dorn, CPA, Partner

1vol 2 2017 pic1

In 1988, Marshall Cohen started Lift For Life Gym (LFLG), then, a youth weightlifting team in the basement of Globes Drugs in downtown St. Louis. The purpose of LFLG was to offer impoverished youth constructive, recreational opportunities as an alternative to idleness, crime, drugs, and violence. The program grew over the next 28 years into a full-service after-school youth activity center offering services that are designed to alleviate the burden of poverty and build a sense of resiliency that will help them archive success personally, academically, and professionally. LFLG is now located at 1415 Cass Avenue, serves over 440 youth each year, and provides over 30 different programs.

LFLG’s signature fitness program is the Olympic Style Youth weightlifting. The individuals on this team practice three to five times a week totaling over 4,120 hours each year. The team compiled 62 medals and trophies in 2015 and two of their elite lifters are ranked 4th and 6th in the country as youth (17 & under) athletes for the sport of weightlifting. The program continues to have much success and is an example of how to “Build Strong Minds and Strong Bodies.” LFLG recognizes the importance of physical health, but acknowledges mental health and development as just as essential. LFLG offers academic services such as one-on-one tutoring, homework assistance, college preparation classes, and a digital learning center.

Lift For Life Gym is located in one of St. Louis’ “urban food deserts.” Without a grocery store located within a minimum 5-mile radius, local youth not only lack money to buy affordable healthy food, but due to unreliable and unsafe transportation options, it becomes nearly impossible for inner city youth to gain access to quality food and establish healthy eating patterns. LFLG is dedicated to providing free, nutritious meals for its members daily, using fresh produce from their very own garden.

All of the programs are designed to build a better tomorrow for LFLG’s members. Life skills classes help develop practical lessons for living a productive, healthy life.  In addition to “Strong Minds and Strong Bodies,” strong friendships are built within their walls. LFLG’s youth not only form friendships by working together, but also develop strong bonds with their mentors and coaches. Other mentoring services include life skills classes, college tours and job shadowing, social outings, and a teen transitioning program.

vol 2 2017 pic2On May 6, 2017, Hochschild, Bloom and Company’s marketing partner, Jim Pursley, and his wife Samie, volunteered at the annual St. Louis Microfest, one of the premiere festivals in the St. Louis area. Microfest is a beer tasting festival that offers festival goers the chance to sample international and craft beers at 3 different session times over 2 days. The festival also includes live music, silent auction, food, live brewer, and chef demonstration. Profits from the festival went toward funding LFLG.

To learn more about LFLG, or to make a donation, please visit http://www.liftforlifegym.org/donate/.

 

 

Nonprofit Budgeting Essentials
By: Angela Dorn, CPA, Partner

Nonprofit organizations are often faced with a balancing act–striving to reach ambitious goals for their mission while dealing with the constraints of limited funding. In an effort to attract donors and achieve positive financial results, transparency is not only important, but it is imperative. One of the best ways to accomplish this task is to prepare an annual budget that is approved by the organization’s Board of Directors. But the process does not stop there:  following the plan is key to success.

Anticipation of available resources can be difficult even in the best of times. Many dynamics beyond the control of the organization weigh into the outcome, such as the status of the economy. A conservative approach is often the best method for budgeting available resources. Several factors play into determining accurate revenue numbers.  Expected donations from donors, grant opportunities, and capital campaign goals all play a role in developing the plan for funding. An additional consideration can be given to whether the organization has accessible fund balance or reserves that it plans to use in the current year.

By this time, fundraisers for the year should already be planned. The receipts the organization expects to raise needs to be compared to the costs of the events. These types of activities should support the nonprofit function rather than serve as distractions.  Projected funds should include donations to be received at the events, as well as the amounts anticipated from ticket sales, raffles, auction items, etc. Then the amount these types of activities are expected to cost the organization should be examined to insure the fundraising events will be beneficial to the organization. Direct costs as well as indirect costs should be estimated at this point.

Once the available resources can be determined, the focus should switch to the expected use of the funds. Start with the bare minimums, such as the fixed costs.  Many times this consists of payroll expenses of key employees, occupancy expenses, utilities, and insurance.

Then step back and take a look at the available funds left to directly support the mission. This is the amount to be expended on the program activities.  Is there a goal to increase the reserves or are there projects that will require the use of reserves this year? What can be done to stretch the dollars for meeting the needs of the organization? The goal is to have the ability to adequately support the mission of the organization.

The next piece of the budget process would be to examine the expenses on a functional basis. The organization should have a written plan to define how it allocates shared expenses across program, management and general, and fundraising. Many donors look for this when making the decision to support the organization and they like to see their funds being used for the benefit of the mission.

After the budget is approved, the monitoring begins. Regular assessment of the organization’s actual results in comparison to the budget is as important as the preparation of the original budget. Throughout the year, if results are not lining up with the expectation, the plan should be reviewed and revised. Proposed amendments, if necessary, should be presented to the Board of Directors for approval. Knowing the financial goal and working to attaining it will go far in making the organization a success.

 

Volume 2 – 2017

In Volume 2 of our 2017 Newsletter, we highlight:

  • Property Acquired by Gift or Through Inheritance
  • Medicare Part B Cost
  • New Retirement Plan Determination Program
  • Would a State Auditor Uncover These Findings in Your City?
  • Vacation Home
  • Profit Motive for Business

Property Acquired by Gift or Through Inheritance

Receiving a gift or a bequest or other inheritance carries with it a unique set of tax rules that must be observed. Knowing what the rules are will help you prepare for any tax consequences that may ensue upon the ultimate sale or other disposition of the property.

Generally, the recipient of a gift or a bequest pays no gift or estate tax. Those taxes, if they are due, are payable by the donor (the person making the gift) or the estate in the case of a decedent.  Generally, no gift tax is due for gifts to any one person that do not exceed $14,000 for 2017 ($28,000 if the gift is given jointly by a husband and wife).  Gift tax payable over those amounts can also be avoided by the donor using the unified estate and gift tax lifetime exclusion currently at $5.49 million and is adjusted for inflation annually.

The basis of property received by gift or bequest is used by the recipient to determine whether there is gain or loss on a subsequent sale or other disposition of the property. These rules can be complex.

If property has been acquired by gift, the gain basis to the donee (the recipient) for income tax purposes is the same as it would be in the hands of the donor. However, the basis for loss is the lower of the carryover basis or the fair market value of the property at the time of the gift.  In some cases, there is neither gain nor loss on the sale of property received by gift because the selling price is less than the basis for gain and more than the basis for loss.

In the case of a gift on which gift tax is paid, the basis of the property is increased by the amount of gift tax attributable to the net appreciation in value of the gift. The net appreciation for this purpose is the amount by which the fair market value of the gift exceeds the donor’s adjusted basis immediately before the gift.

Property, real estate, and securities received from a decedent under a will or by operation of law generally enjoy a “stepped-up” basis set at the property’s fair market value at date of death (or several months thereafter at the election of the executor). Most recipients of property from an estate find the stepped-up basis advantageous since it lowers the potential amount of capital gain tax due upon the sale of the asset.

Depending upon the age of the donor, the advantage of stepped-up basis, therefore, can figure significantly into planning whether to give gifts during a lifetime or wait to pass property through your estate.

If you have any questions on this topic, or how the rules apply to your specific situation, please do not hesitate to call.

* * * * * * * *

“Progress is impossible without change, and those who
cannot change their minds cannot change anything.”

George Bernard Shaw

 

Medicare Part B Cost

Most individuals who are enrolled in Medicare Part B pay approximately $109 on average per month. You may have to pay more than that in a few situations.  There are five situations in which you will be billed a higher monthly charge, starting at $134 per month.

  1. You first enroll in Part B in 2017
  2. You do not get Social Security benefits
  3. You have both Medicare and Medicaid and Medicaid pays your premium
  4. You pay your Part B premiums directly
  5. Your modified adjusted gross income from 2 years ago (2015 income for 2017 premiums) is above a certain level

The following chart shows the amount you will pay based upon your income level.

If your yearly income in 2015 (for what you pay in 2017) was:

      You Pay
Individual Joint Married Filing Separate Each Month
Tax Return Tax Return Tax Return (In 2017)
$85,100 or less $170,000 or less $85,000 or less $134.00
Above $85,000 up to $107,000 Above $170,000 up to $214,000 Not Applicable $187.50
Above $107,000 up to $160,000 Above $214,000 up to $320,000 Not Applicable $267.90
Above $160,000 up to $214,000 Above $320,000 up to $428,000 Above $85,000 up to $129,000 $348.30
Above $214,000 Above $428,000 Above $129,000 $428.60

If you have Medicare Part D coverage, there may also be an increase in your monthly fee for that coverage. You may want to keep this in mind when your income spikes in a particular year.

 

New Retirement Plan Determination Program

Effective January 1, 2017 new rules have been issued concerning individually-designed tax-qualified retirement plans in relation to required amendments and request for a determination letter.

A required amendment list will now be issued after October 1st of each year.  The required amendments must be adopted by December 31st of the second calendar year after the list is published.  All individually-designed plans must adopt these amendments in order to retain their qualified plan status.

Determination letters will only be issued under certain circumstances:

    • An initial plan qualification
    • Upon plan termination
    • IRS makes special exception

These changes will make it easier to determine what amendments are required to be made and relieve the need to be submitting the individually-designed plans for approval every five years.

 

Would a State Audit Uncover These Findings in Your City?
By: Victoria Dailey, CPA

Recent audits by the State Auditor have given a few cities failing grades due to issues that can be easily avoided. These issues include segregation of duties, use of restricted monies, and allocation of property taxes. It’s important that cities and those governing the cities understand these issues fully and determine how they can overcome them.

Proper segregation of duties helps ensure all transactions are accounted for properly and assets are adequately safeguarded. For example, the same person should not be handling cash if they are entering the transaction in the city’s accounting system. One State audit found the City Clerk and two Deputy City Clerks all were able to receipt in and deposit monies and post transactions to the accounting system, including adjustments to customer account balances. The City Clerk was primarily responsible for making purchases, preparing checks, and reconciling the bank accounts. No reviews of the detailed accounting and bank records were performed by other city personnel or Board members. If proper segregation of duties cannot be achieved, documented independent or supervisory reviews of accounting and bank records should be performed.

Cities receive money that is restricted for certain purposes. For example, motor vehicle sales tax, gasoline tax, and road and bridge tax, in general, are to be used to improve the city’s streets. Cities should have a process to track those funds. If the money is receipted in the General Fund, amounts should be spent out of the General Fund for the restricted purpose, restricted in fund balance if not spent that year, or transferred to another fund to be spent on the restricted purpose. Cities can get in trouble when these funds get mixed up with other General Fund monies. For example, one of the cities the State audited receipted some restricted street monies in the General Fund, rather than the Street Fund, did not track these monies within the General Fund, and did not spend any money during the current year from the General Fund for street purposes. The State audit recommended that these revenues should be posted to the Street Fund to ensure they are spent for appropriate purposes.

Approved property tax rates are used to allocate the property taxes received. One State audit found that a city did not accurately allocate property taxes among various city funds. The city received property taxes for General Revenue, Parks and Recreation, Library, and Public Health Funds. Annually the city sets the tax levies and the County Collector collects and remits the property taxes to the city. City personnel should allocate the property taxes to the various city funds using each fund’s tax levy as compared to total tax levies. The State audit found that this city’s personnel did not update the formula and allocated 2015 property taxes received based on the 2013 tax levies, which had changed, causing errors in the allocation of property taxes among the various funds. It is essential the city properly allocate property tax revenues among funds to ensure restricted revenues are spent for approved purposes.

It is very important that city personnel fully understand these findings and take the necessary steps to ensure that city funds are properly accounted for and spent on the purpose intended.

 

Vacation Home

This time of year many charities are having dinner auctions. It is common to find individuals donating the use of their vacation home or condo.  This right to use your property is not a deductible contribution.  There is no direct cost in allowing someone to use your property.  Had you rented the property, you would have shown this as income on your return.  You may consider the lack of reporting any income during the use by the charity as generous, but it is not a deduction.

If your vacation home is reported as rental property, then your expenses are limited for any personal use over 14 days per year. Any donated usage is counted as part of the 14 personal days of use by the owner.

There are many complex rules related to rental property. Please give us a call if you have any questions directly concerning these issues or any other questions about your rental activities.

  

Profit Motive for Business

The IRS has rules that limit the deductibility of expenses and losses from a hobby or activity not engaged in for-profit. If the IRS determines that an activity is not profit-driven, deductions from the activity are limited to the amount of income the activity generates.  Losses from such activities cannot be used to offset other income, such as salary or investments.

You must be prepared to show that an activity that generates deductions is a business from which you intend to profit. It is not necessary that the activity actually earns a profit, so long as a profit is one of the motives for participating in the activity.

The IRS assumes that an activity is carried on for-profit if it makes a profit during at least three of the last five tax years, including the current year, or at least two of the last seven years for activities that consist primarily of breeding, showing, training, or racing horses. Otherwise, the IRS applies nonexclusive tests and factors to the surrounding facts to judge whether activities are more like a business with a profit motive, or are for personal satisfaction.

If you would like assistance in determining if your business is at risk of being challenged as a hobby, please give us a call.

 

Client Tip for June 2017: DIFFERENCE BETWEEN TIPS AND SERVICE CHARGES

DIFFERENCE BETWEEN TIPS AND SERVICE CHARGES

The IRS is reminding employers about the difference in reporting of tips and service charges. Tips are amounts that a customer voluntarily pays to an employee. The payment must be discretionary and can be paid in the form of cash, credit, or debit card. A service charge is a fee that is added to a customer’s bill that the customer is required to pay. Service charges can be for items such as delivery charges, a required charge (e.g., 18%) for tables of six or more, room service, etc. Service charges are typically mandatory. Tips must be reported by the employee to the employer who then must withhold taxes (e.g., FICA and Medicare) for this income from their standard pay. Service charges are reported by the employer as regular wages.

 

HBC SUMMER OFFICE HOURS

As we have for the last several years, our offices will be closing at 4:00 p.m. on Fridays from Memorial Day through Labor Day. We hope this can allow our employees to spend more time with their families after the long hours during our busy season. We wish our clients and friends a safe and enjoyable summer. 

 

 

“Plans are nothing; Planning is everything.”
Dwight D. Eisenhower – 34th President of the
United States from 1953 – 1961

 

 

 

“Your Partner In Success”

Client Tip for May 2017: ASSET OWNERSHIP

ASSET OWNERSHIP

Many people recommend setting up trusts to protect an individual’s assets and assist in the transfer of their assets upon their death, but are they really necessary in all cases? Trusts are a great tax planning tool for individuals wanting complex asset dispositions, individuals who own assets in their name only (i.e., a business), or those for whom this is a second or third marriage in which there are children from a prior marriage.  These are some of the main reasons an individual would want to setup a trust.

Another simple and easy way to transfer ownership upon someone’s death is to have all of their assets in joint name or transfer on death (TOD). Immediately upon their death the assets become the property of the other person.  Neither joint nor TOD ownership eliminates the need for other estate and financial planning such as the creation of a durable power of attorney in the event of the owner’s disability and planning for qualified retirement accounts.

You need to discuss this with your attorney and/or CPA to determine which type of ownership is best for your personal situation.

 

“As powerful as our memories are,
our dreams must be even stronger.
For when our memories outweigh
our dreams, we become old.”

William (Bill) J. Clinton – 42nd President
of the United States from 1993 – 2001

Client Tip for April 2017: INDIVIDUAL INCOME TAX REFUND STATUS

INDIVIDUAL INCOME TAX REFUND STATUS

The following are the websites to check on the status of your individual income tax refund:

Then click on “Where’s My Refund” or “Check My Income Tax Return or Refund” and answer the appropriate questions.

 
“It is amazing what you can accomplish
if you do not care who gets the credit.”
Harry S. Truman – 33rd President of the United States from 1945 – 1953

 

“Your Partner In Success”

Client Tip for March 2017: MEDICARE PART B COST

march medicare part b cost

MEDICARE PART B COST

Most individuals who are enrolled in Medicare Part B pay approximately $109 on average per month. You may have to pay more than that in a few situations.  There are five situations in which you will be billed a higher monthly charge, starting at $134 per month.

  1. You first enroll in Part B in 2017
  2. You do not get Social Security benefits
  3. You have both Medicare and Medicaid and Medicaid pays your premium
  4. You pay your Part B premiums directly
  5. Your modified adjust gross income from 2 years ago (2015 income for 2017 premiums) is above a certain level

The following chart shows the amount you will pay based upon your income level.

If your yearly income in 2015 (for what you pay in 2017) was:
march medicare part b cost
You may want to keep this in mind when your income spikes in a particular year. 

 

“Your Partner In Success”

 
“The most terrifying words in the English language are:
I’m from the government and I’m here to help.”

 

Ronald Reagan – 40th President of the United States from 1981 – 1989

 

Volume 1 – 2017

In Volume 1 of our 2017 Newsletter, we highlight:

  • FIRM NEWS
  • BUSINESS IDENTITY THEFT
  • RESEARCH CREDIT
  • QUALIFIED TUITION PROGRAMS
  • TRANSACTIONS WITH RELATED PARTIES
  • ACCOUNTING METHOD CHANGE FOR TAX PURPOSES
  • LONG-TERM CARE INSURANCE

FIRM NEWS

We are sorry to announce the death of our senior partner John L. Politte.  John joined the Firm in 1961 and became a partner in 1970.  He retired in 1995 but still came into the office on a regular basis.  He passed away on December 14, 2016 after a short illness.  He is survived by his wife, three children, ten grandchildren, and two great-grandchildren.

He spent 30 years in the Army Reserve having achieved the rank of lieutenant colonel. He enjoyed cars, flying and playing music with the Washington Brass Band.

John served on various civic organizations including the Washington Lions Club where he was a recipient of the Lions’ Melvin Jones award. He also belonged to the Washington 353 Redevelopment Corporation, the Civic Industrial Corporation, a former City councilman, the Mercy Hospital Foundation Board, and many other organizations. He will truly be missed.

 

Business Identity Theft

Identify theft is a crime that impacts the lives of millions of individual taxpayers every year and the numbers are rapidly increasing. Individuals are no longer the only ones being targeted by these criminals.  Now business owners have a new kind of threat to be concerned about that can cause a whirlwind of devastation to a victim’s business.

Business identity theft is the newest threat to small businesses all across America. A criminal will seize a company’s identity and use it to acquire credit in the company’s name or file fraudulent tax returns.  A substantial amount of time may be required to correct identity theft and the damage inflicted can cripple a business, prevent it from acquiring any credit, and even threaten its very operation while a victim is trying to clean up and recover from it.

If you receive any correspondence from the Internal Revenue Service (IRS) or a State Department of Revenue (DOR), including a change of address notice that is not correct or you did not initiate, it is best to respond quickly to alert the IRS or State DOR that the information is not correct. Call us if any questions about identity theft arises.

 

Research Credit

The Protecting Americans from Tax Hikes (PATH) Act of 2015 modifies and makes permanent the credit for increasing research activities (research credit). The PATH Act also adds the research credit to the list of credits that may offset alternative minimum tax, (AMT) as well as regular tax, effective for tax years beginning after December 31, 2015.

The credits, prior to 2016, were not always usable to owners of Partnerships and S Corporations. The credit was allowed to reduce the individual’s regular taxes but was not allowed to reduce AMT tax.  For companies with average revenue of less than $50 million the tax credit may now be used to offset the AMT tax.  Credits carried over from years prior to 2016 will still be limited by the AMT tax.

The research credit was provided to encourage taxpayers to increase their research expenditures and is the sum of the following three components:

  • 20% of the excess of qualified research expenses for the current tax year over a base period amount;
  • 20% for basic research payments to a university (or other qualified organization) in excess of a qualified organization base period amount (available only to C corporations); and
  • 20% of the amounts paid or incurred by a taxpayer in carrying on any trade or business to an energy research consortium for qualified energy research.

Taxpayers may elect an alternative method to calculate the research credit amount using an alternative simplified credit. Under the alternative simplified credit method, a taxpayer can claim an amount equal to 14% of the amount by which the qualified research expenses exceed 50% of the average qualified research expenses for the three preceding tax years.  If the taxpayer has no qualified research expenses for any of the preceding three years, then the credit is equal to 6% of the qualified research expenses for the current tax year.  If the taxpayer makes the election to use the alternative simplified credit method, the election is effective for succeeding tax years unless revoked with the consent of the IRS.

The research credit requires good record keeping but the reduction in your taxes should make it well worth the effort.

 

Qualified Tuition Programs

Qualified tuition programs, also known as Section 529 plans, are maintained by a state or an agency of the state and are used to pay for qualified higher education expenses. Qualified expenses include required tuition and fees, books, supplies, and equipment (computer or peripheral equipment, software, and internet access – if used primarily by the student).  Room and board is deductible if the student is at least half-time.

The deductions for room and board is the greater of:

  • The actual amount charged if the student was residing in housing owned and operated by the institution (on-campus room and board cost) or
  • The allowance, as determined by the eligible educational institution that was included in the cost of attendance for financial aid purposes.

It is your responsibility as the taxpayer to maintain the appropriate receipts for proof that the distributions from the plan were for qualified expenses. Any expenses that are used as qualified expenses for a 529 plan cannot also be used for another education benefit, such as the tuition credit. Please give us a call for more assistance with these expenses.

 

Transactions With Related Parties

The tax rules governing loss deductions from relative-to-relative transactions are strict. You cannot deduct losses from the sale of property to a relative.  If the buyer and the seller are considered related, the seller’s loss deduction is denied.  It is irrelevant that the sale was at arm’s-length, bona fide, and made in good faith.  The prohibition is absolute and it has been upheld by the U.S. Supreme Court.  If the property is later sold to an unrelated party, the gain from the second sale is reduced by the nondeductible loss from the original sale.

The IRS defines relative as spouse, parent, grandparent, child, grandchild, brother, or sister. The loss deduction also is not allowed if you sell property to a corporation, partnership and some trusts, in which you may have an interest.  Sales to other relatives, such as your son-in-law, daughter-in-law, aunt, uncle, cousins, and so on, are generally outside of this prohibition.

The rule applies to direct and indirect sales. You cannot circumvent the rule by using a “straw” buyer; that is, a third person who buys the property from you for a short time and then conveys it to the intended buyer, your relative.

Special rules apply in limited circumstances. Divorce situations in which still-related taxpayers may be at odds with each other allow for certain narrow exceptions to the rules.  Leaseback transactions, installment sales to related persons and corporate transactions, too, may pose other problems.  A sale/leaseback between related persons (a sale followed by a lease of the same property back to the seller), may be deemed a sham if the transaction lacks economic substance and is done for tax avoidance.  If the IRS makes this determination, you lose any tax benefits, such as rent deductions.

 

Accounting Method Change For Tax Purposes

Businesses can enhance their cash flow by optimizing their tax accounting methods. This is especially important in times of tight money and inadequate revenues.  More and more businesses are putting their taxes under a microscope and taking a hard look at whether they can improve their cash flow by changing the accounting methods that they have elected either on past returns or during the current year.  A taxpayer who is not on the optimal accounting method is effectively prepaying taxes, an undesirable and unnecessary result.

Every business must adopt a method of accounting to determine when it recognizes items of income and deduction. An accounting method determines when an item is taken into account for taxes, not whether the item is taken into account for book purposes.  The choice of an appropriate method is important because it determines the timing of overall income or loss.

The two most common overall accounting methods are the cash method, in which income and deductions are taken into account when payments are received or made, and the accrual method, in which income and deductions are taken into account when amounts are earned and expenses are incurred. Other accounting methods can apply to specific “material” items, such as the valuation of inventory or the treatment of an installment sale.

A change in accounting method can benefit many companies. Before changing an accounting method, the IRS requires that a taxpayer obtain the IRS’s consent.  For some changes, the taxpayer must apply to the IRS for advance consent.  For these changes, the taxpayer cannot switch methods until the IRS agrees.  For other methods, the IRS has streamlined the process and will approve changes automatically.  For these changes, the taxpayer can switch to another method simply by filing the proper information with the IRS, without having to wait for the IRS to grant its consent.  This list of methods highlights the variety of proper accounting methods and is a guideline to the types of permissible changes.  “Automatic consent” also significantly lowers the compliance costs needs to switch to a more advantageous method, enabling many more businesses to realize net savings by running through the new list and identifying yet unclaimed opportunities. There are some limitations for certain businesses and other issues related to these tax accounting changes.

 

Long-term Care Insurance

As the cost of nursing home care continues to go up, the need for long-term care insurance increases. It can be difficult to determine the coverage needed and the type of benefits that would be covered by a policy.  Time must be taken to properly research the terms and provisions of the policies you are considering including the following:

  1. Determine your coverage needs, what are the cost of facilities in your area?
  2. Some policies provide for annual inflation protection. Coverage at current cost may not be sufficient just a few years from now.
  3. Delaying the time after you enter the home and the time your coverage starts can make a large difference in your premiums. How much can you afford to pay before your coverage begins?
  4. Evaluate the types of coverage a policy will cover; in-home care, adult day-care, assisted living facility, etc.

This is only a few of the items you need to research before buying a policy. Long-term care insurance is similar to property and casualty insurance. Hopefully you will never need it, but if you do you are glad you have it.