Cost Segregation

Cost Segregation:

If you are in the process of buying or selling a company, you may want to review the recent tax case Peco Foods v. Commissioner, TC Memo 2012-18. This case dealt with  a proposed reallocation of  asset  values by the purchaser from a  broad classification and large dollar value allocation of asset types (e.g. 26 categories of class types) contained in the sales agreement, which was then followed by subsequent cost studies by the purchaser after closing. The subsequent cost segregation study allocated the 26 class groups into over 300 sub-asset groups; thus creating  smaller, more specific groupings with shortened tax lives for depreciation purposes. The Tax Court ruled that the cost segregation study would be disregarded and the previously negotiated groupings contained in the sales agreement would be binding. This resulted in less annual depreciation deductions by the purchaser on the front end. What lesson is to be learned from this case? LOOK AT THE COST SEGREGATION STUDY PRIOR TO CLOSING, which should be followed by  the negotiated acceptance by the buyer and seller to treat the study  as acceptable by both sides and made part of the sales agreement . I would suggest, for example, that the 300 sub-asset groups be attached to Form 8594, which is an IRS form that  reports the acquisition and sale by the respective parties in the year of sale.  If you have questions, please contact Richard Bell, CPA 501.753.9700 or e-mail richard.bell@bellandcompany.net a link to a copy of the case is below.

Peco  Foods V Commissioner Case

New Proposed Regs

The IRS has issued new proposed regs on capitalization vs. expensing of materials and supplies. I usually think about pens or pencils, paper, etc, as supplies and never considered a computer meeting the definition of materials and supplies, but computers are used as an example to explain one section of the proposed regs.  The de minimis rule exception for capitalization can now apply to computer equipment.  IIf you file a timely election on your tax return for 2012 and thereafter, and if you have a written policy in place for expensing such computer items under a certain dollar amount, for example- $500 per unit, then you may deduct the total purchase of computers for the year that meet your policy guideline of $500 or less per unit times the number of units purchased.  This is subject to the upper limit of .1% times the gross sales of the business, or 2% of the total amount of depreciation and amortization claimed.    For additional information, give Kelly Phillips, Pancho Espejo, or myself a call.

501.753.9700 Richard Bell, CPA

Worker Classification Issues on Washington Agenda

Worker Classification Issues on Washington Agenda

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1099s

The deadline for providing 1099’s to recipients is on January 31, we wanted to make you aware of some new questions that you have to answer on your tax returns.  The IRS wants to make sure that you are following the rules on providing 1099’s to those who meet the reporting threshold.  If you pay a non incorporated service provider at least $600 during the calendar year in the course of your business or farm activity, you are required to report those payments to them on a Form 1099.  Attorneys are a special category of vendors, in that you are required to send them a 1099 for all payments.

The IRS is asking if you have made payments to a service provider that would require a Form 1099 to be filed.  If you answer this question yes, they ask if you have filed the Form 1099 or are going to do so.  If you have questions on 1099’s please give Jeff Lovelady a call 501.753.9700 or e-mail jeff.lovelady@bellandcompany.net.

Tax Gap

I read a recent PPC article which reported on the tax gap between tax paid and not paid on 2006 income.  What this is saying is that when there are requirements and guidelines as to the issuance of W-2s and 1099s, the misreporting of income is impacted positively.  Fewer taxpayers are misreporting income.  The point of this study will lead to increased reporting requirements in future years, for payment of goods and services.  You can expect these requirement increases to be piggy backed on bills that are proposed and probably passed by Congress. The recent repeal of the enhanced 1099 reporting  bill  passed as part of the Health Affordability Act, would have greatly increased the reporting requirements of company payments for goods and services in 2012.   Consider the repeal temporary, with this type of data  reported on the income gap between payments and reported income, expect Congress to move in this direction again in the future irrespective of which party controls congress or the executive branch. Bell & Company continues to emphasize to our client base the importance of compliance reporting, especially in the area of 1099’s. If questions, give us a call to discuss.

Long-term Care Services Deductions

A recent tax court case, Estate of Lillian Baral vs Com. USTC 137 TC No. 1, provides a detail guideline for deducting long term care services provided to a chronically ill  patient by caregivers who were not licensed health care providers.  For a copy of the ruling  or to discuss if it may apply to a loved one, contact Kelly Phillips at Bell and Company.  Kelly's contact information - Phone 501.753.9700 or e-mail kelly.phillps@bellandcompany.net.

Tax Tips - Itemized Deductions

This is the time of year we like to start sending out some tax tips.  Following are some itemized deductions some you may know however you may learn some new ones today.   

Charitable
      ·        Contributions to a qualified charitable organization are deductible.
      ·        The amount of deduction is limited to a percentage of the taxpayer’s adjusted gross income,
             usually 50%, with a special rate of 30% on certain capital gain property.
      ·        You can check qualified charitable organizations on www.guidestar.org.

Medical

      ·        Qualified medical expenses can be deducted in the year paid.
      ·        Only the expenses above 7.5% of adjusted gross income are deductible.  The percent goes
             up  to 10% in 2013.
      ·        If you are unsure whether an expense is deductible, give us a call 501.753.9700 or visit the
             IRS website. 

Taxes

       ·        Taxes not directly related to a trade or business may be deducted, including:
                  o   State, local, or foreign real property taxes.
                  o   State, local, or foreign personal property taxes.
                  o   State and local income taxes or state and local general sales tax.
        ·        Amounts are deductible in the year paid, not in the year assessed.

Interest

·        Interest paid on a taxpayer’s primary residence for a mortgage or home equity loan are

      deductible, up to $1.1 million of indebtedness.

·        Mortgage and home equity loan interest is also deductible on one other home, such as a vacation home, as long as it is not rented out.

·        Personal interest, such as interest on credit cards, is not deductible.

·        Investment interest expense is deductible to the extent of net investment income.

 

Miscellaneous itemized deductions

·        Some miscellaneous itemized deductions are only deductible for the amount that exceeds 2% of adjusted gross income, these include:

                 o   Unreimbursed employee expenses that are:
                              §  Incurred and paid during the tax year,

§  Incurred as an employee for carrying out your trade or business, and

§  Ordinary and necessary.

o   Tax preparation fees.

o   Hobby expenses to the extent of hobby income.

o   Safe deposit box fees.

·        The following miscellaneous itemized deductions are not subject to the 2% floor:

o   Casualty and theft losses from income-producing property.

o   Gambling losses up to the amount of gambling winnings.

o   Amortizable premium on taxable bonds.

o   Impairment related work expenses for people with disabilities.

If you have any questions about the deductions listed above please e-mail kelly.phillips@bellandcompany.net.