Friday, November 30, 2012
US Tax Burden
As we approach the fiscal cliff
the PR machine will be running on both sides about the best solutions to reduce the budget deficit. If you are not familiar then in a nutshell, the Republicans say it is a spending problem and the solution is to overhaul entitlements to bring the budget back in balance. The Democrats believe it is a revenue problem and the solution is to increase taxes.
The solution on an appropriate tax level is beyond the scope of this blog; it is interesting to look at current tax levels and see how they compare to historical levels. Everyone feels like their taxes are increasing. Many people say they are paying an unfair burden of the total. The opposite being Warren Buffet but we should all be so lucky as to have enough money to want to pay more in taxes.
The New York Times
has done a study on tax rates in the United States. In general it found the most people pay less in taxes today than they did in 1980. This is a carefully chosen point as the tax rates were reduced under the Reagan administration. So 1980 was a taxation peak that was only outstripped by the peak in 1990. Overall the rates for everyone are now below their 1980 levels.
The biggest tax reductions came to the highest income earners, those above $250,000. That is not to say they were too high before or too low now but the numbers do show their tax rates as declining more than other income brackets.
Some of the benefit comes from where the taxes were levied. The federal tax code is more progressive than state income tax codes. So the total paid by all income brackets by the state is much closer. So the relative burden to lower incomes is higher for state taxes. This explains some of the reason why higher income earners have seen the biggest decline in overall tax burden. For half a dozen states the income tax rate rose fast enough to outpace the reductions in federal tax rate.
This is all interesting but in the end what really matters is what your business and family have to pay in taxes. That is something that we can help you out with. As you prepare to do your 2012 income taxes
then give us a call.
Labels: income tax rates
Tuesday, November 27, 2012
2013 Mileage Rates Posted
The IRS has issued the standard mileage deduction for 2013. Starting on January 1st of 2013 the rate will be $0.565 per mile for business travel. The rate for moving moving purposes is $0.24. The deduction rate for miles driven in the service of charity is $0.14. This represents an increase of $0.01 per mile over the 2012 rates.
The rates are determined by the IRS from a calculation of fixed and variable costs of owning and operating a vehicle. The rate is released annually by the IRS per Rev. Proc. 2010-51.
Taxpayers may still use the actual costs of operating the vehicle as opposed to the standard mileage deduction. The exception is if the business has used a depreciation method on the vehicle. In this case they must use the actual costs of operating the vehicle.
Along with the IRS many companies use the standard mileage deduction for employee expense report. If you have any questions on the impact to your businesses accounting
then we are here to help.
Labels: 2013, IRS, mileage rate
Tuesday, November 20, 2012
Accounting Executives Found Guilty
The Chief Accounting Officer and Global Controller formerly executives at Stanford International Bank have been found guilty
of nine counts of wire fraud. The charges stem from the ponzi scheme that cost investors $7 billion. The two are now facing prison for the next 20 years. The exact term will be decided by District Judge David Hittner. The sentencing is scheduled for February 14, 2013.
Prosecutors said the accounting staff at the bank had inside knowledge of what R. Allen Stanford was really doing with the bank. The bank was losing money and loaning much of it to Stanford to feed a lavish lifestyle and his other businesses.
Lawyers for Gilbert Lopez and Mark Kuhrt said they were unaware of the fraud at the company. They claim it was all the work of Stanford. The jury did not agree and found the two guilty on 9 of the 10 counts of wire fraud.
A Ponzi scheme is one where investors are paid returns from future investors. They get investors by promising better returns than other investments. The problem is eventually there are not enough new investors to cover the returns for the past investors and the scheme collapses.
The scheme is named after Charles Ponzi who used it in 1920. However, he did not invent it and descriptions of the scheme can be found in literature in the mid nineteenth century. Most ponzi schemes are discovered by authorities before they reach the tipping point and collapse.
The old advice from your mother applies to every investment. If it sounds too good to be true than it probably isn't. If you ever have questions then talk to your accountant
to get a neutral perspective.
Labels: ponzi scheme, Stanford, wire fraud
Wednesday, November 14, 2012
Revenge of the AMT
Steven Miller, the Acting Commissioner of the IRS has sent a letter
to congress warning about the chaos that will be caused if congress doesn't pass an extension to the AMT exemption. AMT is the Alternative Minimum Tax.
The AMT was first passed in 1982. It is a law that sets the minimum tax that can be paid for specified income levels. The AMT limits the amount of deductions that a taxpayer can take. The taxpayer must pay the higher of either that taxes calculated using standard deductions or the AMT. The idea behind the law is to set a threshold for taxes paid by high income individuals. This would eliminate some loopholes that allow high income earners to pay a lower tax rate. Filers below the "exemption" do not have to pay the AMT.
A problem with the AMT law is that it does not include an inflation rate. So thirty years after the law was enacted the levels do not correspond with income levels. Every year the congress must raise the exemption level. The current one expired the last day of 2011. This is another part of the financial cliff
that is looming at the end of the year.
If nothing is done then the exemption will go from its current level of $75,450 for married filers back to $45,000. For individuals the exemption falls from $48,450 to $33,750. This would impact 28 million filers for the 2012 tax period. There would still be 5 million filers who will be impacted by the AMT if an exemption for inflation is passed.
Commissioner Miller has instructed his agency to plan on another exemption this year since that has happened every year. Some years it has come 11 months late so he expects the same. this year. Interestingly the other two times it was fixed so late was 2007 and 2010. He did warn that if changes were not made it would throw the IRS into chaos. It would also impact tax prepares
scrambling to help people file their 2012 taxes.
Labels: alternative means tax, AMT, fiscal cliff, IRS
Monday, November 12, 2012
CPA Caucus Grows After Election
In 2011 Brad Sherman and Mike Conaway created the Bipartisan Congressional CPA Caucus. The two representatives created the caucus to discuss and propose policy for issues affecting CPAs. These include tax laws, accounting standards, and auditing standards.
Prior to last week there were 8 accountants in the House of Representatives and two more in the Senate. Two new accountants were elected last Tuesday. Tom Rice of South Carolina and Patrick Murphy of Florida are two of the freshman representatives. The other 8 were reelected and the two senators were not up for re-election.
This may speak to the public perception of accountants. They are seen as trustworthy and pragmatic leaders. Most accountants are detail oriented and understand the financial aspects that congress must wrestle. Lets hope that these 12 accountants can help
navigate the issues of the fiscal cliff
over the next month and a half.
Here are the accountants in congress:
- John Campbell of California
- Mike Conaway of Texas
- Bill Flores of Texas
- >Lynn Jenkins of Kansas
- Patrick Murphy of Florida
- Steven Palazzo of Mississippi
- Collin Peterson of Minnisota
- James Renacci of Ohio
- Tom Rice of South Carolina
Labels: accountants, congress, CPAs
Tuesday, November 6, 2012
G20 Urges Convergence
Regulators from the G20 are urging the International Accounting Standards Board
(IASB) and the Financial Accounting Standards Board (FASB) to make progress on convergence. They see the work by the organizations as not progressing well. the regulators are trying to revive the negotiations between the two organizations.
The goal of the negotiations between the IASB and FASB is to have a set of standardized accounting rules around the globe. The idea received the support of the leaders of the G20 back in 2009 during the global financial crisis. Many regulators and investors said that the differing accounting rules made is difficult to collect the information they needed to do their jobs. The G20 leaders agreed to a end of 2009 deadline for convergence.
IASB and FASB negotiators met and were unable to meet the 2009 deadline. The continued to work with a more realistic deadline of summer 2011. But this date was still beyond the negotiators abilities so they said summer 2012 was achievable. Now that we have passed the third deadline the negotiations are going poorly and it appears that they are further apart now than they were in the summer. It has reached a point that Stephen Haddrill, chief executive of Britain's accounting
regulator, has given up the goal or convergence.
On of the bigger issues is how banks should show their derivatives holds. The IASB would like them to show up on the balance sheet. The FASB believes that they should be shown via the banks footnotes. While this may seem trivial for all but accountants
and regulators; it makes a significant difference for many banks. An example would be Deutsche Bank who would have a balance sheet that is 30% smaller under the FASB rules.
Another holdup for convergence is the SEC. They are still debating whether they will adopt the IASB rules. Mary Schapiro has made every indication that she will not be serving the next administration and will let the decision fall to her predecessor. This will likely mean months of study about the issue for whomever takes the office. In my opinion it is a sign of poor leadership at the SEC.
IASB Chairman Hans Hoogervorst has not given up hope. He believes he will be able to get the Americans on board. Much may be decided on who wins today's election and whom they appoint as chairman of the SEC.
Labels: accounting standards, FASB, IASB, SEC
Thursday, November 1, 2012
Accounting for Insurance Claims
Hurricane Sandy is gone and in its wake is a path of destruction that will cost billions to repair. If you would like to help the victims of the hurricane you can donate the to Red Cross
. Our thoughts go out to everyone who was impacted by the storm and the resulting flooding.
Some estimates put the insurance claims in the $5-$10 billion range
. On top of that is damage to the economy that could run up to $20 billion based on early economic forecasts. That could impact the national economy by 0.6% over the quarter. The good news is there is likely to be a bump up as all the rebuilding takes place over the next months.
To put this storm in perspective it is around the costs for hurricane Irene that hit the US last year. It will be much smaller losses than were experienced in the earthquake in Japan last year. That disaster resulted in $40 billion in insurance claims alone.
Much of the insurance claims by businesses will be for be for business interruption (BI) and contingent business interruption (CBI). These may be included as part of the businesses general liability insurance. They generally start after 72 hours of the business location being shut down by either is a disaster or a civil authority. CBI may also apply to the shutdown of a significant business supplier but most businesses do not carry this type of insurance. This 72 hour hold makes it difficult to estimate this early in the clean up.
So if you are a business affected by sandy, or if you have a client in this situation, then you need to keep accurate records of your losses. This information will be required to file a claim with your insurance company. As with everything keep all receipts related to the storm. Planning records, hotel reservations, inventory records, and labor related costs will also be needed. Your claim will be based on the lost revenues from not being able to access your location. Taking pictures of any damage is also useful when submitting a claim.
If you don't have a business plan and need to file a claim it is a good time to schedule a meeting with your management team and accountant. This will allow you to re-create the plan for 2012 and also get the plans in motion for 2013.
Labels: business interruption, disaster, insurance