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Small Business Tax Guidance on Small-Employer Health Care Credit in NYC

28.07.2010

category: Uncategorized
tags: accountant new york city, Amend Tax Returns New York, Amended Tax Returns New York, Certified Public Accountant New York City, Delinquent Tax Returns Manhattan, income tax new york, income tax new york city, NYC CPA, small business cpa, Small business CPA Manhattan, small business cpa nyc, small business tax advice manhattan, small business tax advice new york, Tax Preparation Manhattan, tax preparation new york, TAX PREPARATION NYC

Dear Client:
Our Manhattan CPAs want yo make sure that you are aware of the following development in NYC small business taxes: The IRS has released guidance on computing the health insurance tax credit for eligible New York small businesses that make nonelective contributions toward their employee’s health insurance premiums.

The Patient Protection and Affordable Care Act added a provision that allows eligible New York City small businesses a tax credit for nonelective contributions that pay for at least one-half of the cost of health insurance premiums for the coverage of participating employees. The amount of the NYC small business tax credit is equal to 35 percent of the lesser of:
1. The total amount of the nonelective contributions the employer makes on behalf of its employees during the tax year under a contribution arrangement for the payment of premiums for qualified health insurance coverage of its employees, or
2. The total amount of nonelective contributions that would have been made during the tax year if each employee taken into account in item (1) had enrolled in a qualified health plan that had a premium equal to the amount that the Secretary of Health and Human Services determines is the average premium for the small group market in the state in which the employer is offering health insurance coverage (or the area within the state that is specified by the Secretary of Health and Human Services).

An employer determines its status as an eligible New York small business each tax year. An employer is an eligible small employer if the following conditions are met:
•   it has 25 or fewer full-time equivalent (FTE) employees;
•   the average annual wages of these employees are not greater than twice the applicable dollar amount for the tax year ($25,000 in tax years beginning in 2010 through 2013); and
•   the employer has a qualified health care arrangement in effect.
Certain employees are excluded from the determination of FTEs. Excluded employees are sole proprietors, partners in a partnership, shareholders owning more than 2 percent of an S corporation, and any owners of more than 5 percent of other businesses. Family members of these owners and partners are also not taken into account as employees.

The IRS guidance clarifies, among other things, how employers calculate the credit, the types of coverage that are eligible for the credit, and the interaction of the federal tax credit with New York small business tax credits. In addition, the IRS provides the average premium for the small group market in each state for the 2010 tax year for purposes of computing the amount of the credit.

The health insurance tax credit for NYC small businesses is one of many provisions of the Patient Protection and Affordable Care Act that encourages the shared responsibility for health insurance coverage of all Americans. If you have any questions regarding your eligibility or the calculation of the credit, please call our Manhattan small business CPAs at your earliest convenience.
Sincerely yours,

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

NYC Personal Income Tax Guidance on Health Care Coverage for Children Under Age 27

27.07.2010

category: Uncategorized
tags: Certified Public Accountant New York City, CPA NYC, CPA small business Manhattan, CPA small business new york, income tax manhattan, income tax new york, income tax new york city, income tax nyc, llc new york, Manhattan Tax Preparation, nyc tax, old taxes nyc, small business cpa nyc, Tax Preparation Manhattan, TAX PREPARATION NYC, Taxes NYC

Dear Client:

The IRS has released guidance on the Manhattan personal income tax treatment of health care coverage for children under age 27 that may be relied upon pending the issuance of amended regulations by the IRS and Treasury Department.

The Patient Protection and Affordable Care Act (PPAC Act), as amended by the Health Care and Education Reconciliation Act of 2010 (2010 Reconciliation Act), added several provisions that expanded the health care tax benefits that apply to various workplace and retiree health plans and their personal income taxes in NYC. The benefits also apply to self-employed individuals who qualify for the self-employed health insurance deduction on their federal and New York personal income tax return.

Exclusion for employer reimbursements. The PPAC Act expanded the exclusion from an employee’s gross income for employer-provided reimbursements for medical care to cover the employee’s child who has not attained age 27 as of the end of the tax year. This new age 27 standard replaces the lower age limits that applied under prior tax law, as well as the requirement that a child qualify as a dependent for New York City personal income tax purposes.

The guidance clarifies that an employee’s child includes a son, daughter, stepchild, adopted child or eligible foster child. When determining the child’s age at year end, the tax year considered is the employee’s tax year. For purposes of the gross income exclusion, an employer can assume that an employee’s tax year is the calendar year and may rely upon the employee’s representation as to the child’s date of birth. The new Manhattan personal income tax benefit is available beginning March 30, 2010 for children who meet the year-end age requirement and are already covered under the employer’s plan or are added to the employer’s plan at any time during the year.
It should be noted that the PPAC Act requires group health plans and health insurance issuers to extend coverage to an adult child until age 26 rather than age 27, and this requirement is effective only for plan years beginning on or after September 23, 2010.

Cafeteria plan, health FSAs, and HRAs. Under the PPAC, the exclusion of coverage and reimbursements from an employee’s gross income for an employee’s child who is under age 27 at year end applies to the definition of qualified benefits for cafeteria plans, including health flexible spending accounts (health FSAs) and health reimbursement arrangements (HRAs). The IRS intends to amend the cafeteria plan rules to include change-in-status events affecting nondependent children under age 27. As a result, as of March 30, 2010 employers may permit employees to make pre-tax salary reduction contributions for accident or health benefits under a cafeteria plan for children under age 27, even if the cafeteria plan has not yet been amended to cover these individuals and their personal income taxes in NYC.
Self-employed health insurance deduction. Insurance paid by a self-employed individual for any child who is not age 27 at year end qualifies for the self-employed health insurance deduction. However, this deduction is denied if the self-employed individual can participate in any subsidized plan, including that of an employer of a dependent or child under age 27 at year end.

The IRS guidance clarifies that these additional tax benefits are provided by the PPAC for adult children who have not attained age 27 at year end:
•   Exemption from FICA, FUTA, RRTA, or income tax withholding for health insurance coverage and employer reimbursements provided under a plan for employees and their dependents
•   Sickness and accident benefits under a Voluntary Employees’ Beneficiary Association (VEBA)
•   Sickness, accident, hospitalization, and medical expense benefits offered by a retired employee’s pension or annuity plan

These health care benefits provided to children under age 27 are meant to encourage the shared responsibility for health insurance coverage of all Americans. If you have any questions regarding this New York personal income tax issue or any other provision of the health reform legislation, please call our Manhattan personal income tax CPAs at your earliest convenience.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Arranging Child Care – Nanny Tax Breaks in NYC

26.07.2010

category: Uncategorized
tags: Amended Tax Returns New York, CPA LLC NYC, income tax manhattan, income tax new york, income tax new york city, income tax nyc, llc new york, Manhattan Tax Preparation, New York LLC CPA, small business cpa nyc, Tax Preparation Manhattan, tax preparation new york, TAX PREPARATION NYC

Although you cannot deduct per se what you pay for child care (whether in-home or at a child care center) on your NYC income taxes, these expenses can generate at least a partial Manhattan tax credit if incurred to enable gainful employment by a parent or other custodian of a child under 13 or other dependent or spouse incapable of self care. The amount of this NYC “nanny tax” credit generally depends upon the amount of qualifying expenses, the number of qualifying dependents and the income level of the taxpayer. Those in higher income levels can usually qualify for a maximum credit of $600 for one dependent and $1,200 for two or more. The maximum credit for lower-income taxpayers is $3,000 for one dependent and $3,000 for more than one. Another way to receive a tax break on child care is to participate in an employer-sponsored child care program or the allocate funds from a flexible spending plan. This brief letter gives you an overview of what is available.
Child-care credit. You are eligible for a New York City income tax credit if you pay someone to watch your under-age-13 dependent child or children so that you can be gainfully employed. You must be eligible to claim a dependency exemption for such children. (Caution: Do not confuse the child-care credit (also called the child and dependent-care credit) with the child tax credit. Parents eligible for the child-care credit are usually also eligible for the child tax credit, a $1,000 tax credit that is not dependent upon any child-care costs (except providing over half the child’s support)).

The amount of eligible employment related expenses on which you can claim the child-care tax credit is $3,000 each year for the care of one child under age 13; and $6,000 for the care of two or more eligible children. The credit that most of our clients take is 20 percent of that eligible amount (the 20 percent rate applies if your income is more than $43,000). That comes to a maximum credit of $600 for one child and $1,200 for two or more children. Unlike the child tax credit, which is phased out for taxpayers above certain income levels, the child-care credit remains at the $600/$1,200 level no matter how high your income goes.

For taxpayers with incomes of $15,000, or less, the applicable percentage is 35 percent. The percentage is reduced by 1 percent for each $2,000 of income over $15,000 until the percentage reaches the 20 percent level for income or more than $43,000. The 1 percentage point decrease applies even if the taxpayer’s income is just a fraction over the previous level. For example, if a taxpayer has an income of $15,002, the applicable percentage will be reduced to 34 percent.

Qualifying expenses can include the in-home related expenses of a housekeeper, babysitter or cook. Services performed by a dependent care center are allowed only if the center is certified and in compliance with all local laws. A portion of boarding-school expenses may qualify for the credit, but summer camp fees are specifically not allowed. The credit is allowed to enable part-time employment, too, but qualifying expenses must be directly related to the time needed for dependent care.
Employer-provided assistance. You may be fortunate enough to work for an employer that provides for tax-advantaged dependent care assistance:
•   Up to $5,000 of dependent-care assistance that you receive from an employer-paid nondiscriminatory child care program for employees is completely tax free (the figure is $2,500 for married filing separate income tax returns). The excludable assistance must be for the care of children for whom the child-care credit is available.
•   If your employer maintains a so-called cafeteria plan that lets employees choose between receiving fixed amounts of cash or qualified tax-free benefits, the amount you elect to receive for child-care assistance under the plan is tax-free if the benefit provided doesn’t exceed $5,000 ($2,500 for married filing separately).
•   Your employer may maintain a flexible spending account that essentially allows you to choose to reduce your salary by an amount that’s set aside in an account set up to pay for child-care expenses (up to $5,000 or $2,500). In effect, such a plan enables you to pay for part or all of your child-care expenses with pre-tax dollars.
If you are provided with some form of employer-provided assistance other than an outright cash payment of eligible expenses, you may need to consider whether to use the cafeteria plan or flexible spending account or pay for the care expenses with your own cash and claim a New York income tax credit. If you are in this position, a decision must be made well before the beginning of each year. Our CPAs are experienced in NYC nanny taxes and can tell you which choice will save you the most from a financial and a tax perspective in your circumstances. We can also fully explain any other New York income tax issues related to your choice of child care, including your payroll tax responsibilities if you decide to have someone help with a child in your home. Please give our Manhattan nanny tax CPAs a call.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Archer Medical Savings Accounts

25.07.2010

category: Uncategorized
tags: accountant new york city, Certified Public Accountant New York City, CPA NYC, income tax manhattan, income tax new york, income tax nyc, Manhattan CPA, Manhattan Tax Preparation, new york certified public accountant, Tax Preparation Manhattan, tax preparation new york, TAX PREPARATION NYC

This article is in response to many questions that our small business CPAs have received about Archer Medical Savings Accounts (MSAs). These accounts are similar to IRAs. Like IRAs, special rules govern when your money can be withdrawn, for what purpose the funds can be used and the deductibility of contributions. Because Congress has not extended Archer MSAs, they have been eclipsed by health savings accounts (HSAs). Our CPAs know that this is especially important to freelancers, self-employed persons, and small business owners in new york.

If you have an MSA, a decision should be made whether to continue to operate as an MSA. Is the MSA adequate for your needs or should it be rolled over into a new HSA account? Administrative costs for setting up an HSA are generally a good reason not to convert to an HSA. A greater degree of flexibility in certain business settings may be another good reason.

Like an MSA, an HSA is a tax-exempt trust or custodial account to which tax-deductible contributions may be made by individuals with a high deductible health plan. HSAs provide tax benefits similar to, but more favorable than, those provide by MSAs. What’s more, unlike HSAs, only individuals who are self-employed or employed by a small business may participate in an MSA.
Both MSA and HSA participants must be enrolled in a “high deductible health plan.” However, that deductible is higher for MSAs. For 2010, MSA must carry an annual deductible of at least $2,000 (the same as for 2009), and at least $4,050 (up from $4,000 in 2009) for family coverage), with a maximum out-of-pocket cap of $3,000 (down from $4,000 in 2009) for individual coverage ($6,050 for family coverage).

HSAs, on the other hand, must only have an annual deductible of at least $1,200 for self-only coverage ($2,400 for family coverage), with an out of pocket cap of $5,9500 ($11,900 for family coverage). In both cases, the amounts are adjusted for inflation each year.

Qualified distributions from both MSAs and HSAs are tax free, even though contributions to either account are deductible when deposited. You may withdraw money to pay for your medical expenses and the medical expenses of your spouse and dependents. Generally, most medical expenses can be paid by these withdrawals. Withdrawals for most non-medical purposes, however, are subject to federal tax and a penalty.

The future of MSAs and HSAs is uncertain. A final health care reform bill, which is making its way through Congress, will likely impose new limits on these arrangements, such as increasing the penalty for early nonqualified withdrawals from an HSA. Our office of CPAs for the self- employed in New York will keep you informed on the developments, and how they may affect your NYC small business.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Appraisal Requirements for Noncash Charitable Contributions

24.07.2010

category: Uncategorized
tags: Certified Public Accountant New York City, income tax manhattan, income tax new york city, llc cpa manhattan, Manhattan CPA, manhattan llc cpa, Manhattan Tax Preparation, Tax Preparation Manhattan, tax preparation new york, TAX PREPARATION NYC, Taxes NYC

Our team of Manhattan CPAs have important news for high net worth individuals in New York. If you are someone who regularly makes charitable contributions, you may be aware that charitable contributions of property in excess of $5,000 require that you attach an appraisal to your New York City income tax return. In response to gross valuation misstatements, the IRS has tightened the definition of a qualified appraisal and qualified appraiser. Unfortunately, this affects many high net worth individuals in NYC.

The IRS has determined that a qualified appraisal is one that is conducted by a qualified appraiser in accordance with generally accepted appraisal standards. A qualified appraiser is a high net worth individual who:
1.   Has earned an appraisal designation from a recognized professional appraisal organization or has otherwise met the minimum education and experience required by the IRS,
2.   Regularly performs appraisals for which the individual receives compensation,
3.   Demonstrates education and experience in valuing the type of property subject to the appraisal, and
4.   Has not been prohibited from practicing before the IRS at any time during the three years prior to the appraisal.
In addition, the appraisal must be made not more than 60 days before the date the appraised property is contributed to a charitable organization, and not later than the time it must be received by the donor.

However, to ensure that you get the full advantage of the value of the appreciated property, it is important to recognize the IRS requirements regarding the appraisal and plan accordingly. Our team of Manhattan income tax CPAs can assist you in planning for your charitable contributions. Our CPAs have many high net worth individuals in NYC as clients, are are familiar with their New york income tax needs. Please call our office at your earliest convenience to arrange an appointment.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Accounting Method Changes Involving Nonaccrual Experience Method

22.07.2010

category: Uncategorized
tags: Certified Public Accountant New York City, CPA NYC, income tax manhattan, income tax new york, income tax new york city, income tax nyc, llc cpa new york city, llc cpa nyc, llc new york, Manhattan CPA, Manhattan LLC, NYC LLC, small business cpa new york city, Tax Preparation Manhattan, tax preparation new york city, TAX PREPARATION NYC

The IRS has provided procedures for taxpayers to make changes to, from, or within a nonaccrual-experience (NAE) accounting method, and to adopt certain NAE methods. This applies in particular to S-corporations, LLCs and other small businesses operating in New York who use CPAs. The NAE methods are limited to taxpayers that use an accrual method and that:
• provide services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts and consulting, or
• meet the $5 million annual gross receipts test.
A New York City small business, C-corporation, LLC or high net worth taxpayer who uses an accrual method for accounts receivable for services performed may request a change to the nonaccrual-experience method of accounting. Under this method, a taxpayer does not need to accrue any portion of the accounts receivable that on the basis of experience will not be collected.

The NAE method is unavailable if interest is charged on the amounts due or if there is any penalty for late payment. Generally, offering a discount for early payment is not regarded as charging interest or imposing penalties for late payments, if certain conditions are met. Income cannot be reported using the NAE method for activities related to lending money, selling goods, or acquiring receivables from other persons who earned the amounts through the provision of services.

The procedures apply to taxpayers that wish to:
•   change to a safe harbor NAE method; or
•   change to a period system; or
•   change from a NAE method to a specific charge-off method; or
•   change from a sub-method of its current NAE method regarding applicable periods or tracing of recoveries to another permissible sub-method; or
•   change a sub-method unrelated to the applicable period or to the tracing of recoveries for a taxpayer currently using a NAE method; or
•   change to or adopt a NAE method other than a safe harbor method provided by the IRS.

Our NYC CPAs specialize in helping LLC, S-corporations, C-corporations or other Manhattan based small businesses. If you are interested in reviewing your current collection procedures and method of accounting, please call one of our Manhattan LLC CPAs at your earliest opportunity to arrange an appointment.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Accounting for Liabilities for Services or Insurance

21.07.2010

category: Uncategorized
tags: CPA LLC Manhattan, CPA NYC, income tax manhattan, income tax new york, income tax new york city, income tax nyc, llc cpa manhattan, llc cpa nyc, Manhattan CPA, Tax Preparation Manhattan, tax preparation new york, TAX PREPARATION NYC, Taxes NYC

There have been new guidelines released by the IRS that may affect C-corporations, S-corporations, LLCs and other small businesses in New York. Keep reading to learn more about these new guidelines and how a LLC CPA in Manhattan can help.
The IRS has issued guidance for accrual basis taxpayers as to when they incur a liability for services or for insurance. If a taxpayer wants to change its treatment of liabilities to comply with this guidance, they must obtain the consent of the IRS.
Under the accrual method of accounting, which you use, a liability is incurred, and is generally taken into account for federal income tax purposes in the tax year in which:
1.   all the events have occurred that establish the fact of the liability,
2.   the amount of the liability can be determined with reasonable accuracy, and
3.   economic performance has occurred with respect to the liability (the “all events test”).
There are exceptions, such as when the amount of the accrual is immaterial, or accrual of the liability in the tax year of payment results in better matching of the liability against the income to which it relates than would result from accrual of the liability in the tax year in which economic performance occurs. This is something that a skilled CPA experienced in handling Manhattan C-corporations will be able to assist you in sorting out.

The IRS specifically addresses two situations in which an accrual basis taxpayer incurred liability for services or for insurance in the year payment was due and paid, not in the year the taxpayer executed the contract for the services or the insurance. The IRS further provides guidance on how a taxpayer can change their method of accounting for services and insurance contracts. This is also something that a CPA versed in LLCs in Manhattan can help you with.

If you have any questions regarding this guidance or compliance with the accrual method of accounting, please call one of our New York City small business CPAs at your convenience.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Just A Reminder: Accelerated Tax Deduction For Haiti Earthquake Relief

20.07.2010

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tags: Certified Public Accountant New York City, CPA high net worth individuals Manhattan, income tax manhattan, income tax new york, income tax new york city, income tax nyc, Just A Reminder: Accelerated Tax Deduction For Haiti Earthquake Relief, LLC CPA ew york city, llc cpa nyc, Manhattan Tax Preparation, new york certified public accountant, small business cpa, Small business CPA Manhattan, small business tax advice new york, Tax Preparation Manhattan, tax preparation new york, TAX PREPARATION NYC, Taxes NYC

The haunting images of destruction and moving stories of rescue have encouraged Americans to give generously to help their neighbors in Haiti recover from the January 12, 2010 earthquake. To encourage donations to charitable organizations working in Haiti, Congress recently passed, and President Barack Obama signed into law, a special measure making your monetary contributions tax deductible in 2009 even though they are made in 2010. The new law gives you flexibility in deciding when to claim a deduction for your early contributions on your income taxes in NYC. Below is a further look into how this accelerated deduction works, and how an income tax CPA in Manhattan can assist you.

Accelerated deduction. Typically, if you file an itemized individual federal return and you want to deduct your charitable contributions, you can only deduct the contributions you made in that tax year. The earthquake hit Haiti on January 12, 2010. Under the normal rules, charitable contributions made to help Haiti would be deductible when taxpayers file their 2010 New York income tax returns in 2011. The new law makes a special and temporary exception for Haiti relief.

Under the new law, you can treat a contribution made to help Haiti after January 11, 2010 and before March 1, 2010 as if made on December 31, 2009. You can decide whether to deduct your 2010 Haiti contribution on your 2009 Manhattan income tax return or on your 2010 return. However, you cannot deduct the same Haiti contribution on both your 2009 and 2010 income tax returns in New York. You can, however, allocate multiple donations to more than one year. Of course, to take a charitable deduction of any kind, you must opt to itemize your deductions rather than take the standard deduction on your NYC income tax return.

Monetary donations. Your contribution must be monetary to qualify under the new law. You can donate cash or make a donation by check or credit card. Property that is convertible into cash, such as marketable securities, however, is not eligible for this special treatment. Similarly, medical supplies, food and other items of property do not qualify for the accelerated deduction.

Currently, most charities are requesting monetary donations to help the earthquake victims. They use the funds to purchase relief items, such as food, medical supplies and emergency housing. If you want to make a non-cash contribution, make sure the charity will accept it. You will also want to contact our office of trained New York income tax CPAs and we can explain the appropriate tax treatment. Non-cash contributions are subject to special rules. For example, donations of food must be used only for the care of the ill, needy or infants.

Limits on deductions. The tax law imposes a 50 percent limit on the total of all charitable contributions you make during the year. Your deduction cannot be more than 50 percent of your adjusted gross income (AGI) for the year. You can carry over any contributions you are not able to deduct for one year because of the limit. The new law does not raise or remove the 50 percent limit for 2009 or 2010. There are other special limits, for example limits on gifts of capital gain property and qualified conservation contributions. Please contact one of our Manhattan income tax CPAs and we can discuss these limits in more detail.

Another provision in the tax law limits certain itemized deductions, including contributions to charity, for higher income individuals. For 2009, the limitation is reduced by two-thirds. For 2010, the limitation is reduced to zero but this treatment is only available for 2010. Depending on your income and tax strategy, you may find it more valuable to deduct your contributions to Haiti earthquake relief when you file your 2010 new york income tax return in 2011 rather than taking the deduction on your 2009 return filed in 2010.

Qualified charities. Contributions to domestic, tax-exempt, charitable organizations that provide assistance to individuals in foreign lands qualify as tax-deductible contributions for federal income tax purposes, provided that the U.S. organization has full control and discretion over the uses of such funds. Contributions to foreign organizations generally are not deductible. Additionally, contributions to benefit specific individuals or families are also not deductible on your income taxes in Manhattan.

For purposes of the accelerated deduction, contributions must be made specifically for relief of victims in areas affected by the January 12 earthquake. You should ensure that your contribution goes to a qualified charity. If you have a specific charity in mind, one of our Manhattan CPAs can tell you if it is a qualified charity for federal income tax purposes.

Documentation. The IRS has very strict rules about substantiating charitable contributions. To deduct any charitable donation of money, regardless of amount, you must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. For any contribution of $250 or more (including contributions of cash or property), you must obtain and keep in your records a contemporaneous written acknowledgment from the qualified charitable organization indicating the amount of the cash and a description of any property contributed and whether the organization is provided any goods or services in exchange for the gift.

The new law allows one additional method of substantiation. If you make a donation by texting a contribution to a charity, your telephone bill can provide the required documentation. Your telephone bill must show the name of the charitable organization, the date of the contribution and the amount of the contribution.
IRS disaster designation. Shortly after the earthquake, the IRS designated it as a “qualified disaster for federal tax purposes.” This means that recipients of qualified disaster relief payments may exclude those payments from income on their Manhattan tax returns. Additionally, the IRS is allowing employer-sponsored private foundations to assist victims in Haiti without affecting their tax-exempt status.

Scams. Tragedies not only bring out the best in people, they also sadly encourage fraud. The Haiti earthquake is no exception. First, be an educated donor. Before you make a donation, make sure the charity is legitimate. Many reputable and well known U.S. charities are working day and night to help Haiti.

Be wary about giving out your personal information, such as your Social Security number. Con artists can use your personal and financial information for identity theft. Be especially cautious of emails asking for donations. Some phony charities use names that sound or look like those of respected, legitimate organizations. If you are not sure that a charity is legitimate, call our office or call the Better Business Bureau.
If you have any questions about the accelerated tax deduction or charitable contributions in general, please contact our office. Our New York income tax CPAs will be able to assist you.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses

Abusive Corporate Tax Shelters in New York

19.07.2010

category: Uncategorized
tags: accountant new york city, CPA NYC, cpa s corp new york city, income tax manhattan, income tax new york, income tax new york city, income tax nyc, llc cpa manhattan, llc cpa nyc, manhattan llc cpa, Manhattan Tax Preparation, s-corp cpa new yprk, Tax Preparation Manhattan, TAX PREPARATION NYC

This letter is intended to answer questions that many New York LLCs, S-corporations, and other small businesses have been raising about the reach of the continuing IRS campaign to identify and shut down abusive corporate tax shelters. When combined with the simultaneous push by the federal government to enforce stricter corporate accounting and financial practices through Sarbanes-Oxley, the IRS’s tax-shelter enforcement activities undeniably have created some “sleepless nights” for many corporate executives. Whether such worry is unfounded or not, however, depends upon a number of factors, some still developing in the courts, in the IRS, and in the Treasury Department’s tax policy offices. Keep reading to determine if this may affect your LLC, S-corporation, or small business in New York City, and to see how a CPA can help if it does.

One of the key characteristics of a corporate tax shelter is that the transaction has no economic substance. Generally, if a transaction has a business purpose other than solely to minimize taxes, it is not a tax shelter. Once a transaction is deemed to be business related, restructuring that transaction to save the most taxes will not then transform those efforts as a tax-shelter activity.
To help identify tax shelters more easily, the IRS has been instructing its agents to look for following additional characteristics:
•   Exclusive of the tax benefits involved, corporate tax shelters typically earn no economic profit;
•   Inconsistent financial accounting and tax treatment, since tax shelters will often reduce taxable income while leaving book income unaffected;
•   The participation of a “tax-indifferent” party, for example, some type of entity involved in the transaction that can absorb the taxable income or deflect the tax liability, most often a foreign or charitable tax-exempt entity;
•   Use of special entities, structures, and innovative financing instruments that are unnecessary to the transaction except to be more able to claim on a technicality a direct tax result or one facilitated by the use of a tax-indifferent party; and
•   Unnecessary steps or novel investments, for example, steps unnecessary to achieve a corporation’s purported business purpose.

The past several years have marked a number of victories for the IRS in both the domestic and international tax shelter arenas. The IRS has won some huge tax shelter cases in the courts and these victories have encouraged it to go after even more shelters. The IRS has also cracked down on accounting and law firms that facilitate tax shelters. The “anything goes” attitude of past years ago is a long faded memory. And while the IRS has been enforcing the law, Congress is looking to close as many loopholes as possible to prevent NYC tax evasion.

The IRS has launched several tax shelter settlement initiatives in which it offers to settle with taxpayers who had participated in abusive tax shelters. These covered the notorious Son of BOSS tax shelter, abusive executive compensation schemes, and many other abusive transactions.

The IRS has also beefed-up its Large and Mid-Size Division (LMSB). LMSB services the largest business entities in the country. LMSB is implementing an Industry Issue Focus approach to compliance to ensure consistency in resolution across industry lines and increased coverage of non-compliant taxpayers by maximizing limited resources. These issues are prioritized or tiered based on how prevalent they are across industry lines and the level of compliance risk they present. Tier I issues are of high strategic importance to LMSB and have significant impact on one or more industries. Abusive tax shelters have been designated as a Tier I compliance issue. If you are a high net worth individual in Manhattan, you may want to obtain a CPA just to cover your back.

Some small businesses are concerned that the IRS’s focus on tax shelters will mean increasing scrutiny of other aspects of their business operations as well. Others want to undertake internal protective audits to set up a strategy against IRS involvement before the IRS sends out audit letters. Many high net worth individuals in NYC in particular are seeking the help of experienced CPAs to help. If you would like a further analysis of how the IRS assault on tax shelters may affect you, directly or indirectly, please do not hesitate to call one of our seasoned CPAs experienced in working with S-corps, LLCs, high net worth individuals and small businesses in New York and abroad.

Jonathan Medows, CPA

MEDOWS CPA, PLLC

A Unique, Boutique New York CPA Firm Serving the Needs of Individuals & Small Businesses