Category: Tax

New Tax Rules

Congress took the nation to the very edge of the fiscal cliff before passing a few critically important measures. To refresh your memory, the fiscal cliff was created in 2011 by Congress as a way to kick down the road (to New Year’s Eve in 2012) a can full of certain politically contentious issues. It was set up so that a lot of bad things would happen if Congress did nothing, such as automatic tax increases and automatic spending cuts. Unfortunately, the political climate did not improve in those 18 months, and compromise became increasingly difficult. Changes to Tax Rules…

The Known and Unknown for 2013

Business owners and individuals across the country are watching (perhaps anxiously) to see if Congressional lawmakers are able to get down to business and prevent going head first over the "fiscal cliff", the potential effect of the expiration of many tax provisions and required spending cuts to begin in 2013. Here are some of the more important changes that will go into effect this coming January if Congress does nothing. New Taxes and Changes in Rates Many individuals, estates, and trusts will pay an additional 3.8% tax on net investment income. Net investment income includes dividends, interest (except from municipal…

Capitalization of Tangible Property Expenditures

If you haven't reviewed your company's policy for the capitalization of tangible property expenditures in the last couple of years, you probably need to do so now. The IRS issued new Treasury Regulations for how to treat amounts paid to acquire, produce or improve tangible property. Although the regulations are temporary, we do not expect material changes from the current proposal. New Regulations for Property Expenditures These new rules are effective for tax years beginning on or after January 1, 2012, except for certain amounts related to materials and supplies and the de minimis rule which is effective for amounts…

Supporting Management Fees Charged by Affiliates

The IRS recently won a decision that should be reviewed by all companies that charge management fees to affiliates (Fuhrman v. Commissioner of Internal Revenue Service, U. S. Tax. Ct., Sep. 29, 2011, TC Memo 2011-236). Legal Case for Supporting Management Fees The taxpayer owned a trucking business through a group of affiliated entities. It charged management fees to those affiliates. There was no written contract among the entities and there was no documentation of how the management fee was calculated. The IRS questioned whether the management fee was properly deducted as an ordinary and necessary business expense. The Court…

Year End Bonus Accrual Deduction

Making Sure Your Year-end Bonus Accrual is Deductible This Year 'Tis the season for bonuses. Companies frequently accrue year-end bonuses and then pay them shortly after year-end. The IRS has provided additional guidance and, not all unpaid bonuses may be deductible in 2010. Generally, for an accrual basis taxpayer to be able to deduct accrued but unpaid bonuses, three tests must be met: 1) all events must have occurred that established the fact of the liability, 2) the amount of the liability can be determined with reasonable accuracy, and 3) economic performance has occurred. Employee compensation is normally deductible in…