Market Commentary

Posted November 29, 2010

The laws for capital gains taxes are changing, including changes to cost basis reporting requirements. Currently, realized gains on stocks, bonds, and mutual funds held over one year are taxed at a maximum long‐term capital gains rate of 15%. Short‐term gains (on investments held one year or less) are subject to ordinary income tax rates. Next year's rates remain uncertain.

 

There is speculation that rates could increase to 20% for long‐term gains, that all gains could be subject to ordinary income tax rates, and that rates will remain the same. While the uncertainty continues, your CPA can help you evaluate your options: whether to accelerate income, if gains should be taken this year, which deductible expenses to defer, or other tax planning opportunities.

 

When it comes to investments, the taxable gain is the sale price minus your cost basis, or what you paid for the investment. Calculating your cost basis can be complex, and the accounting method used to report it can have a big impact on your tax bill. If it is calculated incorrectly, your gain might be overstated and you could pay more tax than necessary.

 

Currently, when you sell an investment, your financial institution reports the proceeds to the IRS on a 1099‐B or Broker Proceeds filing. You or your CPA compute the cost basis for the investment and report it on Schedule D. New legislation passed by Congress in 2008 requires all financial institutions (brokers, banks, and custodians such as Charles Schwab) to report cost basis information for taxable accounts to the IRS starting with tax year 2011. This change represents a shift in the way financial institutions will approach cost basis as they are now responsible for the reporting.

 

Beginning in the next tax year, custodians will begin to take accountability for reporting both the proceeds and the cost basis to the IRS. The new legislation will roll out in three phases over the next three years, with each year adding more responsibility to the custodian.

 

 

Securities acquired prior to the above effective dates are considered "uncovered securities." Taxpayers will remain responsible for reporting the cost basis of uncovered securities when gains or losses are realized. It is still a good idea to save your purchase and sale documentation, including records of any automatic reinvestments. Periodically make sure your information matches the information that financial institutions will report to the IRS. You should also make sure your financial institution is reporting using the accounting method of your choice.

 

For detailed information on cost basis reporting, see IRS Publication 550, Investment Income and Expenses, available at http://www.irs.gov/publications/index.html.

 

LBA Partner Earns Certified Fraud Examiner Credential

Posted October 13, 2010

Scott Lanigan adds the CFE designation to his numerous credentials

 

The Association of Certified Fraud Examiners (ACFE), the world’s largest anti‐fraud organization and leading provider of anti‐fraud training and education, has awarded Scott W. Lanigan, Audit Partner with LBA Certified Public Accountants, the globally‐preferred Certified Fraud Examiner (CFE) credential. In order to become a CFE, Mr. Lanigan had to meet a stringent set of criteria and pass a rigorous exam administered by the ACFE.

 

Lanigan has successfully met the ACFE’s character, experience, and education requirements for the CFE credential, and has demonstrated knowledge in four areas critical to the fight against fraud: Fraudulent Financial Transactions, Criminology & Ethics, Legal Elements of Fraud and Fraud Investigation. He joins the ranks of business and government professionals worldwide who have also earned the CFE certification. Lanigan is also a licensed Certified Public Accountant (CPA), a Certified Forensic Accountant (Cr.FA), a Certified Forensic Consultant (CFC) and a Diplomate of the American Board of Forensic Accounting (DABFA).

 

CFEs have the ability to:

• Examine data and records to detect and trace fraudulent transactions
• Interview suspects to obtain information and confessions
• Write investigation reports
• Advise clients as to their findings and testify at trial
• Be well‐versed in the law as it relates to fraud and fraud investigations
• Understand the underlying factors that motivate individuals to commit fraud

Certified Fraud Examiners (CFE’s) on six continents have investigated more than 1 million suspected cases of civil and criminal fraud.

 

About the ACFE

 

The ACFE is the world's largest anti‐fraud organization and premier provider of anti‐fraud training and education. Together with more than 50,000 members, the ACFE is reducing business fraud worldwide and inspiring public confidence in the integrity and objectivity within the profession. Identified as “the premier financial sleuthing organization” by The Wall Street Journal, the ACFE has captured national and international media attention. For more information about the ACFE visit www.ACFE.com.

 

 

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Small Business Jobs Act Benefits
More Than Just Small Businesses

Posted October 1, 2010

The Small Business Jobs Act of 2010 (The Act) has just been passed by Congress, and it benefits more than just small businesses. It also provides tax-saving opportunities for larger businesses and individuals — including small-business investors, the self-employed and employees saving for retirement.

 

Changes affecting businesses

 

Section 179 expensing. The Act helps small-business owners invest in their own businesses by increasing the Internal Revenue Code Sec. 179 expensing election limit. For tax years beginning in 2010 and 2011, the limit will now be $500,000, with a dollar-for-dollar phaseout starting when purchases for the year exceed $2 million. The Act also temporarily expands the definition of eligible property to include qualified leasehold-improvement, restaurant and retail-improvement property. The maximum amount of such property that can be expensed is $250,000.

 

Bonus depreciation. Another depreciation-related provision extends the special allowance for certain property, generally if acquired in calendar year 2010. Businesses can recover the costs of qualifying depreciable property more quickly by immediately deducting 50% of the cost. Bonus depreciation isn’t subject to any asset purchase limits, so businesses ineligible for Sec. 179 expensing can take advantage of it.

 

Property that qualifies for bonus depreciation includes tangible property with a recovery period of 20 years or less, computer software purchased by the business, water utility property, and qualified leasehold improvement property.

 

Other key changes. Here are some additional changes businesses should be aware of:

• New five-year carryback of the general business credit,
• Increase in the start-up expenditures deduction,
• Shortening of the S corporation built-in gains period, and
• Removal of cell phones from the definition of "listed property that’s subject to tighter substantiation requirements and special depreciation rules."

 

Changes affecting individuals

 

Exclusion on small business stock gains. To make investing in certain small businesses more attractive, The Act temporarily increases the qualified small business (QSB) stock gain exclusion. The exclusion will be 100% for stock acquired after The Act’s enactment date (that is, the date the president signs it into law) and before Jan. 1, 2011, that’s held for at least five years. Additionally, the act eliminates the alternative minimum tax (AMT) preference item on such gain, making it tax free for AMT purposes as well.

 

Self-employment tax. If you’re self-employed, The Act permits you to deduct for 2010 self-employment tax purposes any costs incurred in 2010 for health insurance for you and your spouse, dependents and children age 26 or under.

 

Information reporting required for rental property expense payments. For payments made after Dec. 31, 2010, the new law requires persons receiving rental income from real property to file information returns with the IRS and service providers reporting payments of $600 or more during the tax year for rental property expenses. Exceptions are provided for individuals renting their principal residences on a temporary basis (including active members of the military), taxpayers whose rental income doesn't exceed an IRS-determined minimal amount, and those for whom the reporting requirement would create a hardship (under IRS regulations).

 

Roth 457(b) plans. If you’re a government employee who participates in a 457(b) plan, be aware that The Act may allow your employer to start providing you the option to designate some or all of your contributions as Roth contributions. The contributions won’t reduce your taxable income, but you won’t have to pay any tax on qualified distributions.

 

401(k), 403(b) or 457(b) rollovers to Roth accounts. Under The Act, your 401(k), 403(b) or 457(b) plan may allow (but isn’t required to allow) you to roll any portion of your pretax account balance into a Roth account. The amount of the rollover would be includible in your taxable gross income — except to the extent it’s the return of any after-tax contributions. If the rollover is made in 2010, you can elect to pay the tax over a two-year period in 2011 and 2012.

 

How you can benefit

 

Whether or not you’re a small-business owner, you may be able to reap significant tax savings by taking advantage of the opportunities The Act offers. We’d be pleased to help you determine exactly how you can benefit. For further clarification, or if you need assistance, please do not hesitate to call your LBA professional at 904.396.4015.