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Summing It Up

Keeping you ahead of the curve with timely news & updates.


Historic Tax Credits Keep Buffalo's Renaissance Going

The Historic Tax Credit program may be the most powerful tax incentive available to fund the rehabilitation of historic properties. Don Warrant, CPA and Tax Director at Freed Maxick, talked with Growing Buffalo about how the rehabilitation of historic properties can generate a 40% cash reimbursement to property owners.

Listen to the whole conversation here, or by clicking the button at the bottom of this blog.

Interested in discussing your eligibility for the Historic Tax Credit? Call Don Warrant, CPA at 716.847.2651 or click here.

 

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Tax Deadline Changes Impact Taxpayers and Tax Practitioners

April 15th due date coming up.

Historically, tax returns for C corporations have been due on March 15th and those for partnerships have been due on April 15th. Starting with the 2016 tax year, those deadlines flip in an effort to allow owners of pass-through entities enough time to receive K1s and be able to accurately file personal returns by the April 15th deadline. Old deadlines put a lot of pressure on tax practitioners, so the hope is these changes will help lighten he load during a busy time.

Bill Iannarelli, CPA and Tax Director at Freed Maxick, recently spoke with Growing Buffalo about these deadline changes, including what FBAR filers and corporations should know about filing requirements. Listen to the whole conversation here.

Non compliance is associated with significant penalties, so filings should not be taken lightly. Call Bill Iannarelli at 716.332.2720 to discuss your FBAR situation, or contact us here.

 

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New Tangible Property Regulations Updates: What Taxpayers Need to Know

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For taxable years beginning on or after January 1, 2014, all taxpayers with tangible property such as materials and supplies, furniture and fixtures, equipment, and buildings, are required to adopt new accounting methods under the final tangible property regulations. These regulations address every phase of an asset’s life cycle—from acquisition or construction, to repair or improvement, to disposition.
To comply, taxpayers filed Forms 3115 with their 2014 tax returns and the IRS National Office or, in the case of a small taxpayer, followed the procedures outlined in Rev. Proc. 2015-20. Rev. Proc. 2015-20 was only applicable for the 2014 tax year. In addition, certain automatic changes in accounting methods were only available for the 2014 tax year. 

In May 2016, the IRS issued Rev. Proc. 2016-29, providing a new comprehensive list of automatic method changes which all taxpayer must now use to file method changes for tangible property. 

In September 2016, the IRS released its Audit Techniques Guide on Capitalization of Tangible Property, which provides instructions to IRS agents on the examination of taxpayer compliance with the tangible property regulations. 

In December 2016, the IRS issued Notice 2017-6 waiving the five-year eligibility rule that would otherwise prevent a taxpayer from using the automatic method change procedures when they filed the same method change within the preceding five-year period. 

The waiver of the five-year eligibility rule creates an opportunity for taxpayers to re-visit the work that was performed for the 2014 tax year to comply with the tangible property regulations. Any missed or corrective method changes should be filed with the 2016 tax return in advance of an IRS audit. 

The IRS will request the following documentation during a tangible property regulation compliance audit: 

  1. All Forms 3115 filed in prior years (n/a in the case of a small taxpayer following Reg. Proc. 2015-20)
  2. Work papers supporting any Section 481(a) adjustments (n/a in the case of a small taxpayer following Rev. Proc. 2015-20)
  3. Documentation supporting changes in accounting methods
  4. Confirmation that accounting methods were in fact changed in 2014 and consistently followed in subsequent tax years
Small businesses that followed the procedures outlined in Rev. Proc. 2015-20 were required to adopt new methods of accounting beginning with the 2014 tax year without a Section 481(a) adjustment or the need to file Forms 3115.

Now is the time to make sure documentation is in place and to file Forms 3115 for any missed or corrective method changes. 

Freed Maxick’s Tax Experts Can Assist with New Tangible Property Regulation Compliance

Our tax team is well versed in the Tangible Property Regulations and implementing procedures, and the method changes that can result in significant tax savings.

If you have any questions or concerns regarding compliance with the new Tangible Property Regulations or any other tax issue, you can schedule a complimentary Tax Situation Review with a member of our Tax Team here.

Tax Situation Review

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Depreciation Incentives Scheduled to Expire at the End of 2013

2013 may be the last opportunity for taxpayers to take advantage of bonus depreciation, an enhanced Code Section 179 expensing deduction, and Code Section 179D deduction for energy efficient improvements to commercial buildings. 

By: Jennifer A Birkemeier, CPA
Senior Manager, CSP360
http://www.csp-360.com

Taxpayers considering making significant capital investments in property in the near future should consider making such investments by December 31, 2013 to enjoy these lucrative tax benefits. These tax benefits may allow the entire cost to be expensed  for the 2013 tax year instead of a deduction claimed over a period of years under the MACRS depreciation rules. Given the tax increases and new taxes effective beginning with the 2013 tax year, the ability to deduct capital investments in property could result in a significant tax savings.

Bonus depreciation, as defined in Code Section 168(k), was first introduced in 2001 and has been extended & enhanced several times over the past 12 years. This tax incentive allows for a percentage of an asset’s basis, currently 50%, to be expensed immediately while the remaining basis is depreciated over the MACRS recovery period. If the law is not extended, bonus depreciation will not be available for property placed in service after December 31, 2013. To qualify for bonus depreciation, the asset must qualify as new property that has not been previously used by another taxpayer.

Code Section 179 currently allows a taxpayer to expense up to $500,000 of qualifying property placed in service during the 2013 tax year. The property must be personal property and the maximum amount of qualifying property that a taxpayer may place in service during 2013 is $2,000,000 before the deduction begins to phase out. Beginning with the 2014 tax year, the Code Section 179 deduction will be lowered to $25,000. The ability to expense up to $500,000 has helped many taxpayers decide to proceed with asset acquisitions in 2013.  

Taxpayers have the opportunity to receive immediate tax deductions for energy efficient improvements that they have made to a building since 2006. Code Section 179D provides a deduction of up to $1.80 per Square Foot for energy efficient lighting, HVAC and building envelope improvements that a taxpayer has placed in service by December 31, 2013. There is also an opportunity to review improvements since2006 and claim deductions that a taxpayer may have missed. There are several requirements to receive the Code Section 179D deduction that include receiving a specific certification from a qualified individual. In addition, for government owned buildings the deduction can be allocated to the architect or engineer who is primarily responsible for the design of the energy efficient improvements.

CSP360 is a subsidiary of Freed Maxick, CPAs in Buffalo NY. Freed Maxick CPAs is a Top 100 accounting Firm, and one of the leading providers of Cost Segregation and consulting services. Our philosophy is to offer clients a 360 approach to a taxpayer’s fixed assets; pairing engineering and LEED specialists with accountants for a truly unique tax advisory team. Since 1995, our in house team has provided specialty studies to CPAs in a private label arrangement. Products include Cost Segregation, Code Section 179D Energy Studies and Code Section 263(a) repair studies. CSP360 is Circular 230 compliant and has proven methodologies that are sustainable in the event of an IRS examination. To learn more about our unique approach click here.

 

 

     

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IRS Issues Routine Maintenance Safe Harbor

By Jennifer A. Birkemeier, CPA
Senior Manager, CSP360

final regs tangible propertyWhile the IRS has reported on repairs regulations before, this is the first time they are issuing them in final form. The IRS reports that the final repair regulations will affect all taxpayers that acquire, produce, or improve tangible property. The final regulations provide a lot of technical information that taxpayers have to comprehend and incorporate into their accounting systems. While this may be tedious and feel overwhelming, the regulations do provide some positive benefits for taxpayers. The Treasury has included some of the comments they received into the final regulations in an attempt to reduce the time required to comply with the new regulations.

New safe harbor for routine maintenance for buildings
The 2011 temporary regulations provided that the costs of performing certain routine maintenance activities for property other than a building or the structural components of a building are not required to be capitalized as an improvement. Due to the comments received by Treasury, the final regulations contain a safe harbor for routine maintenance for buildings.

  • The final regulations use 10 years as the period of time in which a taxpayer must reasonably expect to perform the relevant activities more than once.

  • Routine maintenance can be performed any time during the life of the property, provided that the activities qualify as routine under the regulations.

  • For purposes of determining whether a taxpayer is performing routine maintenance, the final regulations remove the taxpayer’s treatment of the activity on its applicable financial statement from the factors to be considered.

  • The final regulations clarify the applicability of the routine maintenance safe harbor by adding three items to the list of exceptions from the routine maintenance safe harbor:

    • Amounts paid for a betterment to a unit of property

    • Amounts paid to adapt a unit of property to a new or different use

    • Amounts paid for repairs, maintenance, or improvement of network assets

The good news for taxpayers
The final regulations do not provide a bright line test when determining whether improvements need to be capitalized or expensed. Meaning- the IRS regulations give examples but no hard numbers. While some taxpayers like the subjective nature of the rules; many taxpayers do not want to burn up resources training their staff, or have to battle the IRS regarding expenditures that have to be capitalized upon an examination. The inclusion of a “safe harbor” for repairs and maintenance on buildings should alleviate some of these difficulties when applying the improvement standards for restorations to building structures and systems.

Many taxpayers are turning to experts in the field in an attempt to maximize their tax deductions and reduce the total burden of complying with the regulations. This is where a Cost Segregation Analysis is beneficial. Cost Segregation analyses include a thorough review of the property to accurately depreciate the assets and accelerate tax deductions. They also include an intensive review of all blueprints and site visits to verify the assets and determine the quality of those assets. The professionals performing these analyses have an intimate knowledge of the building and building systems and will provide valuable insight when examining repair and maintenance costs to determine if they must be capitalized or expensed.

CSP360 is a subsidiary of Freed Maxick, CPAs in Buffalo NY.  Freed Maxick CPAs is a Top 100 accounting Firm, and one of the nation’s leading providers of Cost Segregation and consulting services. Our philosophy is to offer clients a 360 approach of a taxpayer’s assets; pairing engineering and LEED specialists with accountants for a truly unique tax advisory team. Since 1995, our in house team has provided specialty studies to CPAs in a private label arrangement. Products include Cost Segregation, 179D Energy Studies and 263a Repair and Maintenance Review. CSP360 is Circular 230 compliant and has proven methodologies that are sustainable on IRS examinations.

To learn more about our unique approach click here

 

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OVDP's and IRS Data Mining

By: Howard Epstein, CPA, Director, International Tax

Opening a new front in the U.S. crackdown on offshore tax evasion, federal investigators have won court approval for a summons on a Caribbean bank, to turn over account data for wealthy American clients. This is just the latest of several overseas banks served with similar demands from the IRS, in an effort to identify federal tax evaders who have assets and income hidden offshore. This comes in response to the IRS leniency program (or Voluntary Disclosure Program), in which Americans can disclose previously secret foreign accounts to the IRS to avoid tax liens and pay back taxes.

The fact that the IRS is using John Doe Summons and other data mining means to flesh out non filers of FBARs provides further proof that they are steadfast in their resolve to find people committing tax fraud. The unfortunate part is that honest people that simply don't know the law are being compromised at the same time. It is important that those innocent people come forward under the current programs available before the IRS taps them on the shoulder and such relief is not available. 

FBAR Filing Assistance

At Freed Maxick, we are poised to assist you in assessing your FBAR filing requirements, integrate the necessary information, and prepare your current and past due FBARs. We also have considerable experience helping taxpayers that have not been historically compliant navigate the IRS guidelines, minimizing any potential penalties through the various IRS Voluntary Disclosure Programs that are available.

For a confidential discussion of your FBAR situation, call us at 716.847.2651, or complete and submit this form for more information.

 

 

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Fiscal Year Budget Proposals Report 2014

describe the imagePresident Obama released a $3.77 billion fiscal year (FY) 2014 federal budget on April 10, 2013, with a mix of individual and business tax proposals intended to raise revenue, reduce spending and encourage negotiations between the White House and the GOP on comprehensive tax reform.

President Obama called for a 28 percent cap on itemized deductions, a $3 million limit on tax-preferred retirement savings, a permanent research tax credit, a permanent American Opportunity Tax Credit (AOTC), a change in the taxation of carried interest, and more. President Obama also provided for the first time specifics on the so-called Buffet Rule. Following release of the President's FY 2014 budget recommendations, the Treasury Department issued its customary “Green Book,” describing the proposals.

Check out the latest CCH report featuring insight on tax reform and deficit reduction.



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Understand What Will Affect Your FBAR Filings

By: Howard B. Epstein, CPA

world_connected-1.jpgThe Bank Records and Foreign Transactions Act- commonly referred to as the Bank Secrecy Act, became law in 1970 out of a growing complexity of the national and international economy, and technological revolution. Activities increased not just at home but abroad. This allowed the IRS to require citizens or residents of the U.S., or a person in, or doing business in the U.S. to file reports on any financial accounts with aggregate totals valuing $10,000 or more.  But did you know……

As a result of new legislation on foreign tax reporting and disclosure of financial assets, some taxpayers may be required to file the new foreign financial assets disclosure statement (Form 8938) with the income tax return, and the Report of Foreign Bank and Financial Accounts (FBAR) seperately. Filings and returns are due April 15th or June 15th, if living in the U.S. For those living outside the U.S., extensions for October 15th filings can go through December 15th. These reporting requirements will potentially add to both taxpayer roadblocks and the complexity of tax law changes.

On March 18, 2010, the President signed the HIRE Act, containing the Foreign Account Tax Compliance Act, into law. Addressing taxpayer concerns, the law requires individual taxpayers with foreign financial assets with an aggregate balance exceeding stipulated dollar amounts during a taxable year to file a disclosure statement with his or her income tax return for that taxable year. The stipulated dollar amounts can be found in IRS Form 8938. Beginning with 2011 individual tax return filings; the new law requires compliance with filing the disclosure statement (Form 8938) describing the maximum value of the assets during the taxable year. The disclosure statement should also provide the following information in the case of a:

  • Financial account – the name and address of the foreign financial institution in which such accounts are maintained and the number of such account.

  • Stock or security – the name and address of the foreign issuer and such information as is necessary to identify the class or issue of which such stock or security is part of.

  • Contract, interest, or other instrument – such information as is necessary to identify such contract, interest, or other instrument and the name(s) and addresses of all foreign issuers and counterparties with respect to such contact, interest, or other instrument.

What should you do next?

It is important to note that while there are similarities between the FBAR and FATCA filings, there are also a number of differences when filing each of the Forms. Freed Maxick International tax practice professionals are here to assist you with your FBAR filings. We can assess FBAR filing requirements and prepare current and past due FBARs. We can navigate the IRS guidelines and minimize potential penalties through the various IRS Voluntary Disclosure Programs available. Contact us to connect with our experts.

 

 

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"Snowbird" Tax Info: Canadians Filing U.S. Tax Residency

By: Howard Epstein, CPA

Are you a Canadian “snowbird” spending winters in the United States? You may not realize it, but you could be considered a U.S. tax resident. If this is the case, the basis on which tax residency is determined is through the IRS “Substantial Presence Test.”

For this purpose, you will be considered a U.S. tax resident if you meet the following requirements:

  • Physically present in the United States at least 31 days in the current year, and

  • 183 days during the 3 year period that includes the current year and the 2 years immediately before that.

If you fall into this category, don’t panic! There is potential relief available to Canadian citizens that are caught by this Substantial Presence Test:

  • You are present in the U.S. for fewer than 183 days in the current year.

  • You maintain a “tax home” in a foreign country during the year.

  • You have a “closer connection” to the foreign country where your “tax home” is than to the U.S.

Are there exceptions to the rule?

There are exceptions to the substantial presence test. The following are a few examples:

  • Days you are in the United States for less than 24 hours- when you are in transit between two places outside the United States.

  • Days you are in the United States as a crew member of a foreign vessel.

  • Days you can classify “exempt individual.”

The term “exempt individual” does not refer to someone exempt from U.S. taxes, but to anyone that claims exemption from counting days of presence in the United States. For example- a teacher or trainee temporarily in the United States under a “J” or “Q” visa, who substantially complies with the requirements of the visa. For a full list of exemptions and exceptions, please refer to the IRS substantial presence test.

What should you do next?

If you exclude days of presence in the United States because you fall under a special category, you must file Form 8840 (Closer Connection Statement) or Form 8843 (Statement of exempt individuals and individuals with a medical condition).

Freed Maxick International tax practice professionals can help you determine if you qualify as a U.S. tax resident, and assist you with Substantial Presence Test filings. We can navigate the IRS guidelines and minimize potential penalties. Contact us to connect with our experts. 

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Tax Update for Country Clubs| Golf Course Owners

It’s always a benefit to business and real estate owners to uncover ways to save money. Did you know that the tax depreciation records of golf course owners likely contain a tax deduction that can be claimed for the 2012 tax year?

The tax deduction is claimed by adopting specific sections of the temporary repair regulations that were issued in December 2011. The IRS is allowing taxpayers to adopt specific sections of these regulations for their 2012 tax year and to defer other sections that may result in income until the 2014 tax year.  Specific sections of these regulations allow taxpayers to claim a deduction for assets that are now reclassified as repairs, routine maintenance, or were disposed of before 2012.

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It’s a lot of information to wade through, but CSP 360 and their affiliate Freed Maxick CPAs can help country clubs and golf course owners navigate through the complex regulations.

Get the Tangible Property Q&A now to learn more!

Check out a few examples of how we can help:

1) Tax Deductions: Golf course owners that capitalized improvements to buildings and the course since 1987, likely removed or abandoned assets as a result. The remaining tax basis in these assets and perhaps, the costs of removal, can be claimed as a tax deduction for 2012 tax year. 

For another example, let’s assume during 2008 that $1 Million of structural improvements were made to a club house facility and $1 Million of land improvements were made to the golf course bringing the total investment to $8 Million. A cost segregation specialist identifies $1 Million of tax basis remaining in the real and personal property disposed of in conjunction with the improvements.

Result? The golf club owner is entitled to claim a $1 Million tax deduction for the 2012 tax year. 


2) Regulation Changes
: All golf course owners should prepare for other changes under these regulations which may affect current accounting policies and procedures. For example, a golf course owner that has historically expensed assets for tax purposes based on their book capitalization policy may need to act before 2014 to be able to continue to deduct assets under this policy beginning in 2014. In addition, all golf course owners will be required to review their treatment of materials and supplies and repairs in order to comply with the new repair regulations. 


3) Uncovering Cash Flow:
For example, let’s assume a club house was constructed and placed in service during 2004 with an original cost of $2 Million and the golf course was constructed with an original cost of $4 Million for a total capitalized cost of $6 Million. A cost segregation study reclassified $2.4 Million of the capitalized cost as land improvements and tangible personal property. 

Result? This reclassification results in a $1.5 Million tax deduction for 2012 providing additional cash flow from the federal and state income tax savings. 

CSP 360 is affiliated with Freed Maxick CPAs and is one of the nation's leading providers of cost segregation and consulting services to real estate owners. CSP 360 is the national leader in providing cost segregation services to the golf and hospitality industries. Our experienced team of Construction Engineers and CPAs work in the cost segregation service niche with no outsourcing.

Allow us to show you how our Cost Segregation and CapX services could result in a substantial income tax savings for the 2012 tax year. Contact Us today to learn more about how we can assist.

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