Accounting News

Friday, June 29, 2012
Tax Changes in the Healthcare Law

Now that the Supreme Court has upheld the Patient Protection and Affordable Care Act, commonly know as the healthcare law, it is time to examine what changes it will have for taxes of small businesses. The fundamental requirement is for all US citizens and legal residents to maintain minimum health coverage. This was upheld under the taxing provisions of the constitution.

Chief Justice Roberts ruled that there is not a legal command to buy insurance but there is a tax for people who choose not to buy insurance. It was interesting that the Chief Justice did not agree with the assertion that the commerce clause could require individuals to purchase insurance.

But enough of the legal talk. I am not a lawyer and we already have enough people pretending to be constitutional experts filling the airwaves. Here are some of the taxes that are included in the law. This space only provides a cursory look at the law and ever business would be well served to talk to their tax accountant to see how it applies to any particular business.

Small Business Tax Credit - Businesses with less than 26 employees and have average wages less than $50,001 are eligible for a 50% credit for non-elective contributions that the company makes for their employees health insurance premiums.

Reporting - If you self insure your employees you must report health insurance coverage to the individual and the IRS. If you use an insurance provider, the requirement is theirs. The employer mus also disclose to each employee the value of the health coverage provided.

Cafeteria Plans - Beginning in 2014 a qualified health plan through an insurance exchange will be considered a qualified benefit.

Employer Coverage - There will be a penalty for employers with 50 employees to offer coverage to full-time employees. The coverage must be affordable to employees and cover 60% cost of benefits. Failure to provide coverage will result in a tax penalty if the employee purchases coverage through a state exchange.

1099 Reporting - If you were concerned about this is was repealed by the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act.

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Accounting News

Wednesday, June 27, 2012
Cost of Audits Climb

As we near the tenth anniversary of the Sarbanes-Oxley Act there is a new survey on the costs for the auditing of public and private companies. The survey was conducted by Financial Executives International about the costs paid to external auditors.

The Sarbanes-Oxley Act was enacted to try and prevent the type of accounting fraud that was committed at Enron. The concern is that is would cost to much to comply with the new regulations and not provide the protection needed. I won't speak to the second argument but this survey answers the first.

Audit fees continued to rise in 2011. Public companies saw audit costs increase another 5% last year. The increase for private companies was 7%. The average cost to a public company was $3.9 million in audit fees. If required to rotate auditors then the costs would only escalate as new accounting firms are brought in. The Public Company Accounting Oversight Board will be hearing public comment on this change later this week.

Risk remains a big focus for the auditing community. 73% of the respondents to the survey said they had a risk management program in place. This represents a 10% over the responses last year.

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Accounting News

Thursday, June 21, 2012
IRS Issues Guidence on FSA Limit

The IRS has released some guidance on the spending limits for employee flexible spending accounts (FSA). Currently there is no limit on how much employees can contribute to their FSA vial payroll deductions. This is done pre-tax.

This limit is moving to $2,500 starting December 31, 2012 as part of the Patient Protection and Affordable Care Act of 2010. It will be indexed to inflation in future years. The clarification issued include:

  • The limit is per employee and a couple filing jointly may each contribute $2,500 for a total of $5,000.
  • If an employer allows the the money to carry over from plan year to plan year then the amount carried over does not count towards the next yeas limit.
  • Any amount paid over by the employee must be taxed as normal wages.
  • They are accepting comments concerning the "use-or-loose" requirements. 
Allowing employees to contribute to an FSA is a great benefit to employees. They can save money on their health care expenses. It also benefits the employer by reducing their payroll taxes. However, it does add another item of complexity for the payroll department.

It is always risky to manage payroll. The IRS sees payroll deductions as their money that the employer is just holding for them. To make it more difficult is changing tax laws can change the deduction rate several times a year if Congress keeps passing temporary laws. If you run your own payroll then make sure you consult with a payroll specialist to make sure you on staying on the right side of the law.

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Accounting News

Tuesday, June 19, 2012
Free Tax Preparation for Millionaires

To help with voluntary compliance with tax laws the IRS set up the Volunteer Income Tax Assistance Grant Program (VITA). The goal of the program is to provide free tax return preparation for low income individuals. During the 2011 filing season the grant program handed out $3.2 million to local groups. These groups used the money to provide the assistance.

The Treasury Inspector General has released a report on the program. The goal was to determine if the grants are being used well and providing better access to the low income filers it is targeting. The report looked at a sample of returns to see who is using the service.

The study looked at 51 local organizations. These provided 1.9 million returns. Of these organizations, 50 provided tax returns to filers above the limit of a $49,000 gross income. All of these had incomes over $100,000. But that is not the interesting number. Three of the organizations provided returns to people earning over $700,000. But the real interesting returns are the ones that two organizations prepared for people earning over $1 million.

Perhaps the return is started and it turns out that they made $53,000 instead of the guidelines of $49,000. But it is hard to understand how someone who earns more the $1 million even got through the door. It is a shame that people who could have really used the help didn't get it because the funds were wasted on the free loaders. It is also unlikely that is a qualified accountant doing the work at one of these programs. A volunteer is not trained to look for deductions that someone in a high end tax break can take advantage of.

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Accounting News

Thursday, June 14, 2012
Agreement on Lease Expenses Reached

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have reached and agreement on the thorny issue of lease expenses. The two organizations had disagreed on an approach during meetings held in London last winter.

The FASB wanted to use and interest-based amortization method while the IASB wanted it to be amortized based on a consumption of value method. The boards have agreed to a method where some leases would use the 2010 exposure draft while others would use a straight line method.

This is a tentative agreement and must be approved by both organizations. These negotiations are part of the goal of a 2013 convergence of accounting standards between the two organizations. But as we have mentioned before that would still not include any Islamic accounting standards.

While many small business owners don't think that these agreements have any impact on them they are only partially correct. By creating a common accounting standard it is easier to operate businesses across borders. As the world shrinks that will impact more and more businesses. Using good accounting standards makes it easier for owners and investors to analyze the operations of a business.

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Accounting News

Tuesday, June 12, 2012
IRS Oversight Board Issues Report

In 2008, the IRS Oversight Board issued the a plan to improve service. It was given the dynamic name of the IRS Strategic Plan 2009-2013. The plan has three goals for the IRS. They are to improve service quality, enforce the existing laws, create a strategic foundation in people and technology. Every year they issue a report on the progress in meeting their goals. If you want the whole report you can get it here. Or here are a few of the highlights.

The late approval of some tax law in 2010 made for a rocky start to the tax season. The result was a delay in processing 9 million tax returns. The problems were corrected by mid February and all the returns were processed.

The report said the level of service on their toll free answer lines was down slightly. They said they were at 70 percent in 2011 which is 4 point below the 2010 score of 74 percent. The plan calls for an 80 percent rate to be acceptable. The good news is they believe they have a high accuracy rate for incoming calls.

On the enforcement front; there was a decline in overall enforcement contacts. The decline is attributed to the ending of the First Time Home Buyers Tax Credit the caused a tremendous amount of confusion and errors with tax payers. There was an increase in examinations of returns from incomes over $1 million. There was also an increase in examinations of corporate returns.

On the technology front the number of electronic filing continues to increase. The IRS can now accept all 1040 forms electronically. The employee satisfaction of the agency also remain solid despite the pay freezes.

The news for accountants and tax preparers was the growth of the Preparer Tax Identification Number (PTIN) for registered preparers. The program has been well received by most professionals.