It Is Time We Look At The New Tax Law Changes That Will Impact You And Your Business!

Who will be affected? 

If you own a business, pay state and local taxes, have entered into a new mortgage, purchased  property plant & equipment for your business, incurred losses at the business level or through a pass through entity or have carried forward losses from a prior year, incurred business interest expense at either the entity or individual level, are in the midst of planning to minimize estate taxes, incurred meals and entertainment expense, in the process of determining what type of entity (corporation, S corporation or partnership . . ) to utilize for your next business venture, or just filing an individual tax return that includes rental real estate; you are about to encounter new tax law changes that will affect your tax return preparation and tax liability when compared to prior years.                                                                   

Will you qualify for the new QBI deduction?

One key component of the new tax law is determining if your business qualifies for the new Internal Revenue Code Section 199A Qualified Business Income Deduction:

  • The QBI deduction could reduce your overall tax liability by up to 20%!
  • The QBI deduction calculation includes approximately 10 new steps that will be required at the entity and individual tax return levels that must be completed in order take advantage of this valuable new deduction.

The following is a summary of the many new tax law changes that templeton will be reviewing with you over the coming months. 

Individuals

  • Retains seven brackets, but at reduced rates, including a top marginal rate of 37 percent. The current tax rates of 10%, 15%, 25%, 28%, 33%, 35%, 39.6% rates would be replaced with tax rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Provisions sunset at end of 2025.
  • Increases the standard deduction to $12,000 for single filers, $18,000 for heads of household, and $24,000 for joint filers, while eliminating the additional standard deduction and the personal exemption. Provisions sunset at the end of 2025.
  • Retains the charitable contribution deduction
  • Retains the mortgage interest deduction for acquisition, but limited (for new purchases) to $750,000 in mortgage debt, while eliminating the deduction for equity debt. Reverts back to $1 million 1/1/26, regardless of when debt occurred. Available for second homes.
  • Caps the state and local tax deduction at $10,000 (property plus choice of income or sales taxes, as under current law), except for taxes paid or accrued in carrying on a trade or business.
  • Medical expense deduction – applies to expenses that exceed 7.5% of AGI in 2017 and 2018, and expenses that exceed 10% of AGI thereafter. The medical expense deduction threshold is lowered to 7.5 percent for 2018, and reverts to 10 percent thereafter. Eliminates other itemized deductions.
  • Increases the child tax credit to $2,000. Of this, $1,400 would be refundable, with the refundable portion indexed to inflation. All dependents ineligible for the child tax credit are eligible for a new $500 per-person family tax credit. Provisions begin to phase out at $400,000 ($200,000 for single filers). Social Security Numbers required for portions of the above. All provisions sunset at the end of 2025.
  • Retains alternative minimum tax (AMT) – Increases the exemption to $70,300 single/$109,400 MFJ) and raises the phaseout threshold to $500,000 single/$1 million for joint filers. (Other exemptions and phaseout thresholds exist for single filers and married filing separately, and are also adjusted.)
  • Expands the use of 529 accounts to cover tuition for students in K-12 private. Allows distributions of up to $10,000 per student tax-free from 529 accounts to be used for elementary, secondary and higher tuition.
  • Retains retirement savings options such as 401(k)s and IRAs
  • Net capital gains and qualified dividends would continue to be taxed at the current 0%, 15%, 20% rates and also would continue to be subject to the 3.8% net investment tax
  • Repeals the moving expense deduction (except for active duty military personnel) and eliminates the alimony deduction effective 2019 for divorce agreements executed after December 31, 2018 (though those receiving alimony no longer count it as income). Retains other above-the-line deductions, including educator expenses and student loan interest. Graduate student tuition waivers also remain in place.
  • Repeals all itemized deductions subject to the 2% floor (home office, license and regulatory fees, professional dues)
  • Retains adoption credit
  • Retains current law ownership period for the exclusion of gain from the sale of a principal residence
  • Continues to allow graduate students to exclude the value of reduced tuition from taxes
  • Continues to allow deductions for student loan interest and for qualified tuition and related expenses

Individual Mandate Penalty

  • Reduces the individual mandate penalty to $0 in 2019, effectively repealing it

Businesses (in general)

  • C corporate tax rate 21% (effective January 1, 2018)
  • Fiscal year end filers may have blended rate for 2018
  • Corporate alternative minimum tax (AMT) is repealed for tax years beginning after December 31, 2017
  • Dividends Received Deduction – Reduces the deduction for dividends received from other than certain small businesses or those treated as “qualifying dividends” from 70% to 50%. Reduces dividends received from 20% owned corporations from 80% to 65%
  • Capital investment – Allows full (100 percent) expensing of short-lived capital investment, such as machinery and equipment, for five years, then phases out the provision over the subsequent five, and raises Section 179 small business expensing cap to $1 million with a phaseout starting at $2.5 million. Allows immediate write-off of qualified property placed in service after 9/27/17 and before 2023. The increased expensing would phase-down starting in 2023 by 20 percentage points for each of the five following years. Eliminates original use requirement. Qualified property excludes certain public utility property and floor plan financing property. Taxpayers may elect to apply 50% expensing for the first tax year ending after 9/27/17
  • 179 – Expands “qualified property” to include certain depreciable personal property used to furnish lodging, and improvements to nonresidential real property (such as roofs, heating, and property protection systems)
  • Interest Expenses – Caps net interest deduction at 30 percent of earnings before interest, taxes, depreciation, and amortization (EBITDA) for four years, and 30 percent of earnings before interest and taxes (EBIT) thereafter. Limits deduction to net interest expense that exceeds 30% of adjusted taxable income (ATI). Initially, ATI computed without regard to depreciation, amortization, or depletion. Beginning in 2022, ATI would be decreased by those items. Regulated utilities are generally excepted.
  • NOLS – Eliminates net operating loss carrybacks while providing indefinite net operating loss carryforwards, limited to 80 percent of taxable income. Limits NOLs to 80% of taxable income for losses arising in tax years beginning after 2017. Repeals carryback provisions, except for certain farm and property and casualty losses; allows NOLs to be carried forward indefinitely
  • Repeals like-kind exchanges except for real property
  • Contributions to Capital (Sec. 118) – Retains Section 118; clarifies that such contributions do not include any contribution in aid of construction, any other contribution made by non-shareholders and any contribution made by any governmental entity or civic group. Clarification would generally apply to contributions made after the date of enactment
  • Research and Experiment expenses – domestic research expenses required to be amortized over 5 years; foreign research expenses required to be amortized over a 15 year period;
  • Business Credits – modifies, but does not eliminate, the rehabilitation credit and the orphan drug credit, while limiting the deduction for FDIC premiums. Research and development credit is retained without modification from current law.
  • Modifies rehabilitation credit to provide 20% historic credit ratably over 5 years, repeals credit for pre-1936 property
  • Work Opportunity Tax Credit, New Markets Tax Credit, Low Income Housing Tax Credit – Retains current law for WOTC, NMTC, and LIHTC, however, modifies rehabilitation credits for old and/or historic buildings
  • Orphan drug credit survived, but modified – Reduces credit to 25% and generally would need to exceed 50% of the average expenses over a three-year period. Reduced credit applies to amounts paid or incurred in tax years beginning after 12/31/17
  • “OLD” 9% Domestic Production Deduction (Sec. 199) repealed for tax years after 2017 (see new QBI deduction)
  • Limits meals and entertainment expenses, including meals for the convenience of the employer
  • Repeals deduction for qualified transportation fringes, including commuting except as necessary for employee’s safety
  • Cash method of accounting – Increases eligibility to businesses with up to $25 million in income; taxpayers that meet the new $25 million threshold are also not required to account for inventories under Sec. 471 or apply 263A; Accounting method changes may be treated as initiated by the taxpayer and made with the consent of the Secretary.
  • Energy provisions – Does not repeal any conventional energy tax credits and leaves untouched the deductibility of intangible drilling costs, taxpayers’ eligibility to take percentage depletion and the designation of certain natural resource related activities as generating qualifying income under the publicly traded partnership rules
  • Provides tax credit to certain employers who provide family and medical leave (sunsets 12/31/19)
  • Executive compensation changes
    • Expands the Section 162(m) $1 million deduction limit that applies to compensation paid top executives of publicly held companies for TY beginning after 12/31/17
    • Covered employees would to include the CFO and all executives once identified
    • Eliminates the performance-based compensation exceptions and extends deduction limitation to deferred compensation paid to executives who previously held a covered employee position
  • Expands applicability of the deduction limitation to certain foreign private issuers and private companies that have publicly traded debt
  • Provides a transition rule for compensation paid pursuant to a plan under a written binding contract that is in effect on 11/2/17 and is not materially modified thereafter
  • Eliminates deduction for certain fringe benefit expenses
  • Business entertainment activities and membership dues; transportation or commuting expenses are not excludable from income or deductible by the employer
  • Employee achievement awards may not be deducted or excluded from income if the award is paid in cash, gift cards, meals, lodging, tickets, securities, or other similar items
  • No longer exempts employer-provided eating facilities from 50% deduction limitation; in 2026, deductions are completely disallowed for employer-provided eating facilities and meals provided for the convenience of the employer
  • Adds a new income inclusion deferral election allowing deferral of tax for options and restricted stock units issued to qualified employees of private companies; applies on or after 12/31/17

Pass-Through Entities (rules specifically for pass-through entities)

  • Pass-through Income – 20% deduction for pass-through income limited to the greater of (a) 50 percent of wage income or (b) 25 percent of wage income plus 2.5 percent of the cost of tangible depreciable property for qualifying businesses, including publicly traded partnerships but not including certain service providers. Limitations (both caps and exclusions) do not apply for those with taxable incomes below $315,000 (joint) and $157,500 (single), and phase out over a $100,000 range.
    • Allows individual taxpayers to deduct 20% of domestic “qualified business income” (QBI) from a partnership, S corporation, or sole proprietorship (“qualified businesses”) subject to certain limitations and thresholds. Trusts and estates may take the deduction. Effective for tax years beginning after 12/31/17 and before 1/1/26
    • QBI for a tax year means the net amount of domestic qualified items of income, gain, deduction, and loss with respect to a taxpayer’s qualified businesses. “Qualified businesses” does not include specified services trades or businesses such as accounting, law, health, several other professions, service businesses related to investing, but does include engineering and architecture trades
    • Deduction is limited for individual taxpayers with taxable income above $315,000 (mfj) and $157,500 (sf) to the greater of 50% of the W-2 wages, or the sum of 25% of the W-2 wages plus 2.5% of the unadjusted basis of all qualified property.
  • Other key changes include repeal of partnership technical termination rules; a rule imposing a three-year holding period to treat capital gain as long-term capital gain for certain partnership interests held in connection with the performance of certain services; a rule limiting taxpayers (other than C corporations) ability to deduct business losses for tax years beginning after 12/31/17 and before 1/1/26, with excess business losses carried forward
  • Disallows active pass-through losses in excess of $500,000 for joint filers; $250,000 for all others (sunsets 12/31/25)
  • Tax gain on sale of a partnership interest on look-thru basis
  • Charitable contributions and foreign taxes taken into account in determining limitation on allowance of partner’s share of loss
  • Expands the definition of substantial built-in loss for purposes of partnership loss transfers
  • Modifies treatment of S corporation conversions into C corporations
  • Recharacterization of certain gains on property held for fewer than 3 years in the case of partnership profits interest held in connection with performance of investment services

International Income

  • Moves to a territorial system with anti-abuse rules and a base erosion anti-abuse tax (BEAT) at a standard rate of 5 percent of modified taxable income over an amount equal to regular tax liability for the first year, then 10 percent through 2025 and 12.5 percent thereafter, with higher rates for banks.
  • GILT (global intangible low taxed income (minimum tax on foreign earnings)
  • Foreign derived intangible income (formula) (not just a patent box)
  • Domestic corporations allowed a 100% deduction for the foreign-source portion of dividends received from 10% owned (vote or value) foreign subsidiaries. (Deduction not available for capital gains or directly-earned foreign income)
  • One-time transition tax on post-1986 earnings of 10% owned foreign subsidiaries accumulated in periods of 10% US corporate shareholder ownership. 15.5% rate on cash and cash equivalents, and 8% rate on the remainder
  • Mandatory annual inclusion of “global intangible low-taxed income” (GILTI) determined on an aggregate basis for all controlled foreign corporations owned by the same US shareholder. Partial credits for foreign taxes properly attributable to the GILTI amount
  • Domestic corporations allowed a deduction against foreign-derived intangible income (37.5% deduction initially, reduced to 21.875% for tax years beginning after 12/31/25) and mandatory GILTI inclusion (50% deduction initially, reduced to 37% for tax years beginning after 12/31/25)
  • No deduction for certain related party payments made pursuant to a hybrid transaction or entity
  • If certain thresholds are met, a “base erosion minimum tax” levied on an applicable taxpayer’s taxable income determined without regard to certain deductible amounts paid or accrued to foreign related persons; depreciation or amortization on property purchased from foreign related persons; and certain reinsurance payments to foreign related persons. Generally 10% rate for tax years beginning before 12/31/25, and 12.5% thereafter, but 11% and 13.5% for banks and registered securities dealers
  • Deemed repatriation – Enacts deemed repatriation of currently deferred foreign profits at a rate of 15.5 percent for liquid assets and 8.0 percent for illiquid assets.

Estate Taxes

  • Doubles the estate tax exemption in 2018 (would continue to be adjusted for inflation)

Exempt Organizations

  • 21% excise tax on excess tax-exempt organization executive compensation (certain exceptions provided to non-highly compensated employees and for certain medical services)
  • Unrelated business income separately computed for each trade or business activity
  • Charitable deduction not allowed for amounts paid in exchange for college athletic event seating rights
  • Creates excise tax based on investment income of private colleges and universities with endowment per student of at least $500,000
  • Repeals the substantiation exception for certain contributions
Note: As a general rule; many of the individual tax law changes are temporary while many of the corporate changes in the tax law changes are permanent. Although the House passed the latest tax reform package in late September that would have made the individual tax cuts permanent, the new Democrat-led House puts GOP tax cuts in jeopardy.

 

Tax Development Highlights

The following is a summary of the most important tax developments that have occurred in the past three months that may affect you, your family, your investments, and your livelihood. Please call us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.

Developments concerning the Affordable Care Act (ACA). 

In the lead-up to the roll out of the health insurance exchanges on Oct. 1, 2013, the IRS issued the following guidance on the ACA:

Individuals:

  • The IRS released Questions and Answers (Q&As) on the health insurance premium tax credit on its website. This credit is designed to make health insurance affordable to individuals with modest incomes (i.e., between 100% and 400% of the federal poverty level, or FPL) who are not eligible for other qualifying coverage, such as Medicare, or “affordable” employer-sponsored health insurance plans that provide “minimum value.” To qualify for the credit, individuals must purchase insurance on a health exchange. The Q&As note that individuals can choose to have the credit paid in advance to their insurance company to lower what they pay for their monthly premiums, and then reconcile the amount paid in advance with the actual credit computed when they file their tax return. Alternately, individuals can claim all of the credit when they file their tax return for the year. The Q&As explain exactly who is eligible for the credit and address other important aspects of it.
  • The IRS issued final regulations on the “shared responsibility” payment under the ACA, which is the enforcement mechanism for the ACA’s mandate that most individuals maintain health insurance coverage. Starting in 2014, the individual shared responsibility provision calls for each individual to have basic health insurance coverage (known as minimum essential coverage), qualify for an exemption, or make a shared responsibility payment when filing a federal income tax return. Individuals will not have to make a payment if coverage is unaffordable, if they spend less than three consecutive months without coverage, or if they qualify for an exemption under one of several other reasons, including hardship and religious beliefs. The final regulations address these and other aspects of the shared responsibility payment.

Small Businesses:

  • The IRS issued proposed regulations on the tax credit available to certain small employers that offer health insurance coverage to their employees. This credit is available to an employer with no more than 25 full-time equivalent employees (FTEs) employed during its tax year, and whose employees have annual full-time equivalent wages that average no more than $50,000. However, the full credit is available only to an employer with 10 or fewer FTEs and whose employees have average annual full-time equivalent wages from the employer of not more than $25,000. The proposed regulations would become effective when they are formally adopted as final regulations. However, employers may rely on the proposed regulations for tax years beginning after Dec. 31, 2013, and before Dec. 31, 2014.

Tax treatment of same-sex spouses. 

The IRS and other Federal agencies issued guidance on the treatment of same-sex spouses and couples for tax and other purposes in light of the Supreme Court’s landmark Windsor  decision striking down section 3 of the Defense of Marriage Act (DOMA), which had required same-sex spouses to be treated as unmarried for purposes of federal law. The key developments are as follows:

  • Effective as of Sept. 16, 2013, the IRS adopted a “state of celebration” rule in recognizing same-sex marriages. This means that same-sex couples who were legally married in jurisdictions that recognize their marriages (i.e., “state of celebration”) will be treated as married for federal tax purposes, regardless of whether their state of residence recognizes same-sex marriage. Spouse may retroactively apply this rule to open years.
  • Same-sex spouses who were legally married in a state that recognizes same-sex marriages must file their 2013 federal income tax return using either “married filing jointly” or “married filing separately” status, even if they now reside in a state that does not recognize same-sex marriage. Same-sex spouses who file an original 2012 tax return on or after Sept. 16, 2013 also generally must file using a married filing separately or joint filing status. Same-sex spouses may file original or amended returns choosing to be treated as married for federal tax purposes for one or more prior tax years still open under the statute of limitations on refunds.

The IRS provided optional special administrative procedures for employers to use to correct overpayments of employment taxes for 2013 and prior years for certain benefits provided and remuneration paid to same-sex spouses.

The Department of Labor’s (DOL)’s Employee Benefits Security Administration (EBSA) announced that it is following the IRS in recognizing “spouses” and “marriages” based on the validity of the marriage in the state of celebration, rather than based on the married couple’s state of domicile, for purposes of interpreting the meaning of “spouse” and “marriage” as these terms appear in the provisions of the Employee Retirement Income Security Act of 1974 (ERISA) and in Internal Revenue Code provisions that EBSA interprets.

  • In Frequently Asked Questions (FAQs) posted on the IRS’s website, the IRS made clear that same-sex and opposite-sex individuals who are in registered domestic partnerships, civil unions, or other similar formal relationships that aren’t marriages under state law aren’t considered as married or spouses for federal tax purposes.

New rules for deducting or capitalizing tangible property costs. 

The IRS issued new regulations for determining whether amounts paid to acquire, produce, or improve tangible property may be currently deducted as business expenses or must be capitalized. Among other things, they provide detailed definitions of “materials and supplies” and “rotable and temporary spare parts” and prescribe rules and elective de minimis and optional methods for handling their cost. They also have rules for differentiating between deductible repairs and capitalizable improvements, among many other items. The regulations generally are effective for tax years beginning on or after Jan. 1, 2014, but taxpayers can elect to apply them to certain pre-2014 years.

New rules for dispositions of certain depreciable property. 

The IRS issued proposed regulations that change several of the rules for dispositions of Modified Accelerated Cost Recovery System (MACRS) property. While the regulations are not final but merely proposed, taxpayers may rely on them. Included among the changes are rules that no longer treat structural components of a building as separate from the building and rules providing that partial dispositions generally are treated as dispositions.

New simplified relief for late elections pertaining to S corporations. 

The IRS provided simplified methods for taxpayers to request relief for late elections pertaining to S corporations. The relief covers the S corporation election itself, the electing small business trust (ESBT) election, the qualified Subchapter S trust (QSST) election, the qualified Subchapter S subsidiary (QSub) election, and late corporate classification elections which the taxpayer intended to take effect on the same date that the taxpayer intended that an S corporation election for the entity should take effect.

Simplified per-diem increase for post-Sept. 30, 2013 travel.

An employer may pay a per-diem amount to an employee on business-travel status instead of reimbursing actual substantiated expenses for away-from-home lodging, meal and incidental expenses (M&IE). If the rate paid doesn’t exceed IRS-approved maximums, and the employee provides simplified substantiation, the reimbursement isn’t subject to income- or payroll-tax withholding and isn’t reported on the employee’s Form W-2. In general, the IRS-approved per-diem maximum is the GSA per-diem rate paid by the federal government to its workers on travel status. This rate varies from locality to locality. Instead of using actual per-diems, employers may use a simplified “high-low” per-diem, under which there is one uniform per-diem rate for all “high-cost” areas within the continental U.S. (CONUS), and another per-diem rate for all other areas within CONUS. The IRS released the “high-low” simplified per-diem rates for post-Sept. 30, 2013 travel. The high-cost area per-diem increases $9 to $251, and the low-cost area per-diem increases $7 to $170.

Supreme Court to decide FICA tax treatment of severance pay. 

The Supreme Court agreed to review a decision of the Court of Appeals for the Sixth Circuit which held that severance payments aren’t wages for purposes of Federal Insurance Contributions Act (FICA) tax. Thus, the Supreme Court will resolve a circuit split that currently exists between the Sixth and Federal Circuit Courts on the issue.

Please don’t hesitate to contact us at info@templetonco.com or 561-798-9988 to begin discussing options specific to your tax situation.

Rental Activities and the 3.8% Surtax on Passive Activities

The health care reform legislation enacted in 2010 significantly broadens the Medicare tax base for higher-income taxpayers by enacting two new taxes. Beginning in 2013 higher-income taxpayers will be subject to an additional 0.9% tax on earned income and a new 3.8% tax on investment income.  As a result, business income from an activity that is passive is now subject to the 3.8% tax as it is now considered investment income.

I. Planning for those taxpayers that have net passive income from rental activities:

Two areas of the tax law that provide planning opportunities are as follows:

1. Self-rental regulations
2. Status as a real estate professional

1. When looking at the self-rental regulations, if one or more activities are treated as a single activity, then they can be  constitute an appropriate economic unit for the measurement of gain or loss under IRC Sec. 469 [Reg. 1.469-4(c)(1).  This provides that rental and trade or business activities can be combined and considered an appropriate economic-unit, if it meets the following two tests:

(a) one activity is insubstantial in relation to the other, or

(b) each owner of the trade or business activity has the same proportionate ownership interest in the rental activity.

Although no definition of insubstantial is provided in the regulations, under prior Temp. Reg. 1.469-4T, an 80/20 rule applied to determine if an activity was insubstantial. According to this rule, a rental activity could be combined with a trade or business activity if either the rental activity provided less than 20% of the gross income for the combined operation or vice versa.

A facts and circumstances test may also be used to identify activities constituting an appropriate economic unit for the measurement of gain or loss.  Any reasonable method may be used to apply the relevant facts and circumstances. The most important factors are [Reg. 1.469-4(c)(2)]:

a. Similarities and differences in types of business.

b. The extent of common control.

c. The extent of common ownership.

d. Geographical location.

e. Interdependencies between the activities.

2. The second concept which should be considered when planning for 2013 relate to the ability of a taxpayer to qualify as a real estate professional.  Here the taxpayer must meet two criteria:

1. Qualify as a real estate professional.
2. Materially participate in the real estate rental activity.

A taxpayer qualifies for the special relief provision for real estate professionals in any tax year if

(a)  more than 50% of personal services performed by the taxpayer in all trades or businesses during the tax year are performed in real property trades or businesses in which he or she materially participates, and

(b) the taxpayer performs more than 750 hours of service during the tax year in real property trades or businesses in which he or she materially participates. Regulations provide seven tests for determining material participation.

The material participation standard plays a role in two distinct aspects of the real estate professional rules. First, when determining whether a taxpayer qualifies as a real estate professional, only real property trades or businesses in which he or she materially participates are counted.  Second, once it is determined that a taxpayer qualifies as a real estate professional, non-passive treatment is available only for rental real estate activities in which he or she materially participates.

II. Summary and Final Thoughts:

The health care reform legislation has created some excellent planning opportunities for higher-income taxpayers.  Adequate planning with respect to the self-rental regulations and classification as a real estate professional are two instances where the taxpayer can eliminate the new 3.8% tax on passive income by converting those activities into non-passive.

Furthermore, upon the disposition of the activity, the gain would also not be subject to the additional tax.

Please don’t hesitate to contact us at info@templetonco.com or 561-798-9988 to begin discussing options specific to your tax situation.

What you need to know about the tax provisions in the 2012 American Taxpayer Relief Act

The 2012 American Taxpayer Relief Act, signed into law on Jan. 2, 2013 by President Obama, is a sweeping tax package that addresses the permanent extension of the Bush-era tax cuts for most taxpayers, revises the tax rates on ordinary and capital gain income for high-income individuals, modifies the estate tax, offers permanent relief from the Alternative Minimum Tax [AMT] for individual taxpayers, limits the deductions and exemptions of high-income individuals, and provides a host of retroactively resuscitated and extended tax breaks for individual and businesses. Here’s a rundown of the package:

  • Tax rates. For tax years beginning after 2012, the 10%, 15%, 25%, 28%, 33% and 35% tax brackets from the Bush tax cuts will remain in place and are made permanent. This means that, for most Americans, the tax rates will stay the same. However, there will be a new 39.6% rate, which will begin at the following thresholds: $400,000 (single), $425,000 (head of household), $450,000 (joint filers and qualifying widow(er)s), and $225,000 (married filing separately). These dollar amounts will be inflation-adjusted for tax years after 2013.
  • Estate tax. The new law prevents steep increases in estate, gift and generation-skipping transfer (GST) tax that were slated to occur for dying individuals and gifts made after 2012 by permanently keeping the exemption level at $5,000,000 (as indexed for inflation). The new law, however, permanently increases the top estate, gift, and GST rate from 35% to 40% It also continues the portability feature that allows the estate of the first spouse to die to transfer his or her unused exclusion to the surviving spouse. All changes are effective fore individuals dying and gifts made after 2012.
  • Capital gains and qualified dividends rates. The top rate for capital gains and dividends beginning in 2013 will be 23.8% if income falls in the 39.6% tax bracket. For lower income levels, the tax will be 0%, 15%, or 18.8%.
  • Personal exemption phase-out. Beginning in 2013, personal exemptions will be phased out (i.e., reduced) for adjusted gross income over $250,000 (single), $275,000 (head of household) and $300,000 (joint filers). Taxpayers claim exemptions for themselves, their spouses and their dependents. Last year, each exemption was worth $3,800.
  • Itemized deduction limitation. Beginning in 2013, itemized deductions will be limited for adjusted gross income over $250,000 (single), $275,000 (head of household) and $300,000 (joint filers).
  • AMT relief. The new law provides permanent AMT relief. Prior to the Act, the individual AMT exemption amounts for 2012 were to have been $33,750 for unmarried taxpayers, $45,000 for joint filers, and $22,500 for married persons filing separately. Retroactively effective for tax years beginning after 2011, the new law permanently increases these exemption amounts to $50,600 for unmarried taxpayers, $78,750 for joint filers and $39,375 for married persons filing separately. In addition, for tax years beginning after 2012, it indexes these exemption amounts for inflation.
  • Tax credits for low to middle wage earners. The new law extends for five years the following items that were originally enacted as part of the 2009 stimulus package and were slated to expire at the end of 2012: (1) the American Opportunity tax credit, which provides up to $2,500 in refundable tax credits for undergraduate college education; (2) eased rules for qualifying for the refundable child credit; and (3) various earned income tax credit (EITC) changes.
  • Cost recovery. The new law extends increased expensing limitations and treatment of certain real property as Code Section 179 property. It also extends and modifies the bonus depreciation provisions with respect to property placed in service after Dec. 31, 2012, in tax years ending after that date.
  • Tax break extenders. Many of the “traditional” tax extenders are extended for two years, retroactively to 2012 and through the end of 2013. Among many others, the extended provisions include the election to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction for state and local income taxes, the $250 above-the-line deduction for certain expenses of elementary and secondary school teachers, and the research credit.
  • Pension provision. For transfers after Dec. 31, 2012, in tax years ending after that date, plan provision in an applicable retirement plan (which includes a qualified Roth contribution program) can allow participants to elect to transfer amounts to designated Roth accounts with the transfer being treated as a taxable qualified rollover contribution.
  • Payroll tax cut is no more. The 2% payroll tax cut was allowed to expire at the end of 2012.

Tax breaks for businesses from the 2012 American Taxpayer Relief Act

In addition to the lofty package of tax relief for individuals, the recently enacted 2012 American Taxpayer Relief Act extends a host of important tax breaks for businesses. We’ve put together a list to give you an overview of its impact. For more detailed information and to determine how it will affect your business, give us a call at 561-798-9988.

The following depreciation provisions are retroactively extended by the Act:

  • Fifteen-year straight line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements.
  • Seven-year recovery period for motor sports entertainment complexes.
  • Accelerated depreciation for business property on an Indian reservation.
  • Increased expensing limitations and treatment of certain real property as Section 179 property;
  • Special expensing rules for certain film and television productions; and
  • The election to expense mine safety equipment.

The new law also extends and modifies the bonus depreciation provisions with respect to property placed in service after Dec. 31, 2012, in tax years ending after that date.

The following business credits and special rules are also extended:

  • The research credit is modified and retroactively extended for two years through 2013.
  • The temporary minimum low-income tax credit rate for nonfederally subsidized new buildings is extended to apply to housing credit dollar amount allocations made before Jan. 1, 2014.
  • The housing allowance exclusion for determining area median gross income for qualified residential rental project exempt facility bonds is extended two years.
  • The Indian employment tax credit is retroactively extended for two years through 2013.
  • The new markets tax credit is retroactively extended for two years through 2013.
  • The railroad track maintenance credit is retroactively extended for two years through 2013.
  • The mine rescue team training credit is retroactively extended for two years through 2013.
  • The employer wage credit for employees who are active duty members of the uniformed services is retroactively extended for two years through 2013.
  • The work opportunity tax credit is retroactively extended for two years through 2013.
  • Qualified zone academy bonds are retroactively extended for two years through 2013.
  • The enhanced charitable deduction for contributions of food inventory is retroactively extended for two years through 2013.
  • Allowance of the domestic production activities deduction for activities in Puerto Rico applies for the first eight tax years of the taxpayer beginning after Dec. 31, 2005, and before Jan. 1, 2014.
  • Exclusion from a tax-exempt organization’s unrelated business taxable income (UBTI) of interest, rent, royalties, and annuities paid to it from a controlled entity is extended through Dec. 31, 2013.
  • Treatment of certain dividends of regulated investment companies (RICs) as “interest-related dividends” is extended through Dec. 31, 2013.
  • Inclusion of RICs in the definition of a “qualified investment entity” is extended through Dec. 31, 2013.
  • The exception under subpart F for active financing income (i.e., certain income from the active conduct of a banking, financing, insurance or similar business) for tax years of a foreign corporation beginning after Dec. 31, 1998, and before Jan. 1, 2014, for tax years of foreign corporations beginning after Dec. 31, 2005, and before Jan. 1, 2014.
  • Look-through treatment for payments between related controlled foreign corporations (CFCs) under the foreign personal holding company rules is extended through Jan. 1, 2014.
  • Exclusion of 100% of gain on certain small business stock acquired before Jan. 1, 2014.
  • Basis adjustment to stock of S corporations making charitable contributions of property in tax years beginning before Dec. 31, 2013.
  • The reduction in S corporation recognition period for built-in gains tax is extended through 2013, with a 10-year period instead of a 5-year period.
  • Various empowerment zone tax incentive, including the designation of an empowerment zone and of additional empowerment zones (extended through Dec. 31, 2013) and the period for which the percentage exclusion for qualified small business stock (of a corporation which is a qualified business entity) is 60% (extended through Dec. 31, 2018).
  • Tax-exempt financing for New York Liberty Zone is extended for bonds issued before Jan. 1 2014.
  • Temporary increase in limit on cover over rum excise taxes to Puerto Rico and the Virgin Islands is extended for spirits brought into the U.S. before Jan. 1, 2014.
  • American Samoa economic development credit, as modified, is extended through Jan. 1, 2014.

For additional information, contact either Steve Leone, CPA, sleone@templetonco.com or Emma Pfister, CPA,epfister@templetonco.com.

2013 Tax Planning

People get ready.

More individuals will be snared by the alternative minimum tax (AMT), and various deductions. Other tax breaks will be unavailable. As a result of expiring Bush-era tax cuts, individuals will face higher tax rates next year on their income, including capital gains and dividends, and estate tax rates will also be higher. AMT became problematic this year because exemptions have dropped and fewer personal credits can be used to offset them.

Additionally, a number of tax provisions expired at the end of 2011 or will expire at the end of 2012. For example, rules that expired at the end of 2011 include:

  • Research credit for businesses.
  • Election to take an itemized deduction for state and local general sales taxes instead of the itemized deduction permitted for state and local income taxes.
  • Above-the-line deduction for qualified tuition expenses.
  • Rules that expire at the end of 2012 include:
  • Generous bonus depreciation allowances and expensing allowances for business.
  • Expanded tax credits for higher education costs.


Remember, these adverse tax consequences are by no means a certainty as Congress and President Obama could extend the Bush-era tax cuts for some or all taxpayers and retroactively “patch” the AMT for 2012. This would increase exemptions and availability of credits, revive some favorable expired tax rules and extend those that are slated to expire at the end of this year. 

But – this is not the time for inaction. The prospect of higher taxes next year makes it even more important to engage in year-end planning now.

We’ve put together a list of considerations for individuals and businesses that will guide you through these challenges. While not all actions will apply to your particular situation, many of these moves may benefit you. For further explanation or clarification, please call us at 561-798-9988.

Year-End Tax Planning Moves for Individuals

• Increase your FSA. Set aside more for next year in your employer’s health flexible spending account (FSA). Next year, the maximum contribution to a health FSA is $2,500. Remember – you will no longer be able to set aside amounts to get tax-free reimbursements for over-the-counter drugs, such as aspirin and antacids. 
• Make HSA contributions. If you became eligible to make health savings account (HSA) contributions late this year (even in December), you can make a full year’s worth of deductible HSA contributions even if you were not eligible to make HSA contributions for the entire year. 
• Realize losses on stock while preserving your investments. There are several ways this can be done. For example, you can sell the original holding then buy back the same securities at least 31 days later. It would be advisable for us to meet to discuss year-end trades you should consider making. 
• Sell assets before year-end. If you are thinking of selling assets that are likely to yield large gains, such as inherited, valuable stock, or a vacation home in a desirable resort area, make the sale before year-end while still paying attention to the market. 
• Sell and repurchase stock. You may own appreciated-in-value stock and want to lock in a 15% tax rate on the gain, but you think the stock still has plenty of room to grow. In this situation, consider selling the stock and then repurchasing it. You’ll pay a maximum tax of 15% on long-term gain from the stock you sell. You also will wind up with a higher basis (cost, for tax purposes) in the repurchased stock. 
• Make contributions to Roth IRAs. Roth IRA payouts are tax-free and immune from the threat of higher tax rates, as long as they are made after a five-year period, and on or attaining age 59-½, after death or disability, or for a first-time home purchase. 
• Convert traditional IRAs to Roth IRAs. This will help you avoid a possible hike in tax rates next year. Also, although a 2013 conversion won’t be hit by the 3.8% tax on unearned income, it could trigger that tax on your non-IRA gains, interest, and dividends. Conversions, however, should be approached with caution because they will increase your adjusted gross income [AGI] for 2012. 
• Take required minimum distributions from retirement plans. This is applicable if you have reached age 70-½. Failure to take a required withdrawal can result in a penalty equal to 50% of the amount of the RMD not withdrawn. If you turn age 70-½ this year, you can delay the first required distribution to 2013, but if you do, you will have to take a double distribution in 2013—the amount required for 2012 plus the amount required for 2013. Think twice before doing this. 
• Deduct your medical expenses. This year, unreimbursed medical expenses are deductible to the extent they exceed 7.5% of your AGI, but in 2013, for individuals under age 65, these expenses will be deductible only to the extent they exceed 10% of AGI. 
• Shelter gifts. Make gifts sheltered by the annual gift tax exclusion before the end of the year to save gift and estate taxes. You can give $13,000 in 2012 to each of an unlimited number of individuals but you can’t carry over unused exclusions from one year to the next. 

Year-End Tax Planning Moves for Business Owners

• Consider stock redemption. If your business is incorporated, consider taking money out of the business through a stock redemption. The buy-back of the stock may yield long-term capital gain or a dividend, depending on a variety of factors. But either way, you’ll be taxed at a maximum rate of only 15% if you act this year. Wait until next year and your long-term gains or dividends may be taxed at a higher rate if reform plans are instituted or the Bush-era tax cuts expire. Contact us for help on executing an effective pre-2013 corporate distribution. • Hire a veteran. If you are thinking of adding to payroll, consider hiring a qualifying veteran before year-end to qualify for a work opportunity tax credit (WOTC). Under current law, the WOTC for qualifying veterans won’t be available for post-2012 hires. The WOTC for hiring veterans ranges from $2,400 to $9,600, depending on a variety of factors (such as the veteran’s period of unemployment and whether he or she has a service-connected disability). 
• Put new business equipment and machinery in service. This will allow you to qualify for the 50% bonus first-year depreciation allowance. Unless Congress acts, this bonus depreciation allowance generally won’t be available for property placed in service after 2012. (Certain specialized assets may, however, be placed in service in 2013.) 
• Make expenses qualifying for the business property expensing option. The maximum amount you can expense for a tax year beginning in 2012 is $139,000 of the cost of qualifying property placed in service for that tax year. The $139,000 amount is reduced by which the cost of qualifying property placed in service during 2012 exceeds $560,000 (the investment ceiling). For tax years beginning in 2013, unless Congress makes a change, the expensing limit will be $25,000 and the investment ceiling will be $200,000. 
• Buy a SUV. If you are in the market for a business car, and your taste runs to large, consider buying heavy SUVs (those built on a truck chassis and rated at more than 6,000 pounds gross (loaded) vehicle weight). Due to a combination of favorable depreciation and expensing rules, you may be able to write off most of the cost this year. Next year, the write off rules may not be as generous. 

These considerations are just the beginning to creating a plan that will work for you. Whether you are planning for your family or business, contact us to discuss these options further.

Health care

Health care continues to be one of the more contemptuous issues our country faces. And no wonder, in 2011 alone, the U.S. spent $8,400 per person compared to the next highest-spending country, Norway at $5,352.

Since 2002, family premiums for employer-sponsored health care have increased by a whopping 97 percent placing the cost burdens on employers and workers.

The drivers of these cost increases include an aging Baby Boomer generation that is creating more patients and more treatments, a need for long term care for chronic illnesses, more sophisticated treatments and technology, and increasing inefficiencies, malpractice and administrative costs.

On March 23, 2010 President Obama signed the Patient Protection and Affordable Care Act (otherwise known as ObamaCare) into law. This law, while intending to offer more affordable health care to individuals and families, requires much employer compliance and action.

Overall the Act requires most U.S. citizens and legal residents to have health insurance by creating state-based American Health Benefit Exchanges through which individuals can purchase coverage, with premium and cost-sharing credits. These credits are available to individuals and families with income between 133-400 percent of the federal poverty level.

Separate Exchanges will also be created that will allow small businesses to purchase coverage. Employers will be required to pay for penalties for employees who receive tax credits for health insurance through an Exchange, with exceptions for small employers. New regulations on the health plans in these Exchanges will also be imposed in the individual and small group markets. Medicaid will also be expanded to 133 percent of the federal poverty level.

As this law moves into action and even if it is repealed, one thing is certain – change. It’s clear that quality, price and service are often sacrificed in the current health care model. So the change will have to come from employers, providers, physicians, payers and insurers. This is how:

• Employer driven change – 60 percent of the under 65 population have insurance through their employers and all are negatively impacted by escalating costs and inadequate quality. As a result, educating those employees is a must as well as focusing more on wellness and prevention.

• Provider/Physician change – Health care providers will go from a fee-based model to a newer value-based model and focus on being more accountable in their care. There will be consolidation and newer business models that require increased use of data analytics and clinical intelligence.

• Payer/Insurer change – By moving the focus away from claims processing to more collaboration in an effort to improve care and manage costs. There will also be a shift from administrator to supplier of data analytics/clinical intelligence.

So the question becomes for employers – are you going to pay or play ObamaCare?

Play means employers offer minimum essential coverage to all of your full-time employees.

Pay is an excise tax if you do not offer minimum essential coverage (or any coverage) and at least one of your full-time employees is certified as having enrolled in coverage through a state health exchange for which he or she received a premium tax credit or cost sharing reduction. This tax is applicable to employers with 50 or more full-time employees on average per business day. The monthly penalty (non deductible) is $166.67 (1/12 of $2,000) times the total number of full-time employees for the month minus 30.

What to do?

Look at your workforce Employers need to evaluate their workforce and look at their employees (both full-time and part-time) and see if any could be reclassified as employees for purposes of the mandate.

Business structure Employers also need to understand if their current business structure or model could cause the company to be subject to the employer mandate – and see if there are circumstances under which they could restructure to avoid the mandate.

Learn about Health Insurance Exchanges Examine the relationship between the employer mandate and the individual mandate and how the health insurance Exchanges that will be put in place in 2014 will provide opportunities for some employers and many individuals to acquire such coverage.

Florida recently returned $1 million planning grant to the federal government and has set up a non-ACA compliant health care initiative. However, if the state doesn’t set up an ACA compliant exchange, the federal government will.

Employers need to act now and consider an overall benefit redesign with an emphasis on better employee health. They should also set up and access information systems and reporting for compliance and start discussions with payers and providers that consider risk sharing.

Though overturning ObamaCare would mean relief from this compliance burden and potential penalties, it doesn’t necessarily change the need for an employer’s strategic evaluation of their workforce, business structure, overall plan design and employee communications.

This work upfront can save you a lot of heartache and expense down the road.

 For more information, please e-mail info@templetonco.com.

Court Rules Gifts of Limited Partnerships Qualify for Annual Exclusion

At the beginning of June 2012, the Tax Court ruled that gifts of family limited partnership interests qualified for the gift tax annual exclusion, which is currently $13,000 per donee per year.

The Estate of George Wimmer involved a family limited partnership that was funded with marketable securities. Wimmer made gifts of limited partnership interests but the IRS disallowed annual exclusions for the gifts.

As many of you know, when you give a gift to a beneficiary, you are allowed a $13,000 exemption before you have to include that gift as being subject to gift tax. Many people are setting up limited liability companies, family limited partnerships and other vehicles to get discounts of those interests and then gift those interests to a family member. Understandably, when those people make that gift they want to take that $13,000 as a deduction from the value – many times even creating their gift to equal the $13,000.

Seems reasonable, right? The IRS, however, challenges this saying that the gift does not meet the definition of a present interest because there is no immediate benefit that is being given to the beneficiary to the gift. Many times to get the maximum discount on the values the partnership or LLC agreement will severely restrict the aspects of the interest that can be used by the beneficiary – they can’t sell it, they can’t transfer it, or cash may be restricted in terms of distributions.

The IRS successfully argues that as a result, the donor isn’t really giving the beneficiary anything – at least not in a current expectation of value. And because of this, the IRS has made it difficult for a taxpayer to use the $13,000 exemption.

As tax planners, this has been difficult, as many of our clients want that $13,000 exemption. So we’ve worked to find the answer as to what will qualify as a present interest when taxpayers are gifting these limited partnership and LLC interests.

The Wimmer case made it clear that you still have to confer a present value, but where the IRS will argue in this case that they did not qualify, the Court looked at the history and said, wait a second – there are securities in this company and they have been able to distribute interest and dividends every year – which makes this gift a present interest. You either confer a transferable value or you confer an income interest and in this case the beneficiaries were able to demonstrate they were able to have an income interest.

The result turned out favorably for taxpayers as now we can structure a gift that will reasonably expect them to get a $13,000 annual exclusion to every gift they make to their beneficiaries – whoever they are. It gives some certainty to taxpayers who want to make these gifts yet it’s important for people to realize they will still have to give something that is defined by a present interest.

Additionally, this $13,000 exemption is separate from the $5 million gift tax exemption that is expiring this year. And while the $13,000 may pale in comparison, it can be very useful and valuable especially if you are someone who has a lot of beneficiaries.

Top 10 Lessons Learned: A CPA Firm

Templeton & Company, a 50-person CPA firm headquartered in South Florida, implemented Microsoft Dynamics CRM in 2002.  Although the company has a subsidiary firm, Templeton Solutions, which a Microsoft Dynamics Partner, the accounting practice still dealt with its own struggles and challenges in rolling out the solution firm-wide.  Here are their lessons learned:

  1. Tightly integrated process/people/technology.  With your business processes and workflow outlined and mapped out, it will enable your firm to easily address and visualize how it should be automated in the system.  Many companies who do not have this mapped out run into the pitfalls of trying to have the technology guide how they run their business. It should be the other way around, otherwise, it’s just a waste of resources.
  2. Define your goals. What is your picture of success?  Do you want to have a one-firm approach to clients and prospects?   Having measurable goals in-place from the outset will help you better gauge whether or not your implementation is “worth it.”
  3. Establish the team. The team should be comprised of members of the marketing team, IT group the leadership team as well as other users – maybe even from other offices so you can garner a true cross-section of your firm.
  4. Manage Expectations: Tell the story as to why this is a tool that will benefit all users and plan to show them how.  Communicate effectively and routinely
  5. Promote from within.  Think about the communications train and each stop along the way.  Talk about the process that the firm will go through, that the firm is going through, and what the end result will look like.  Don’t assume everyone knows what’s going on.
  6. Identify “WIIFM” What’s in it for me across the entire firm.  If you are expecting people to shift gears as far as how they work and operate and get them out of their comfort zone, be sure to back it up by explaining what the firm will accomplish with their participation.
  7. Quick wins are important.  Roll CRM out in phases, and don’t make the common mistake of biting off more than you can chew at any given time.
  8. Meet face-to-face consistently. Gather the pre-determined team and set  up weekly or bi-monthly meetings.  Be open to feedback during the meetings
  9. Measures of accountability.  Define what will motivate your team to use it whether it be compensation, peer pressure, or the new firm standard. Stick to it!
  10. People need single source for all their needs and questions.  Have a sort of ombudsman who has the soft skills where staff will feel comfortable addressing concerns to him or her, but also have the technical knowledge and authority to make sure that the message is heard from the technical and pre-established internal CRM team.

Issues facing businesses

By: Steven Templeton, CPA, CVA, Managing Partner

International Financial Reporting Standards (IFRS)

After the Enron debacle, the American Institute of Certified Public Accountants (AICPA) assumed a leadership role in the rush toward an international set of accounting standards (IFRS).  The long and proud independent standard setting process in the United States of America is being phased out in favor of an international standard setting process with an international governing body, the International Accounting Standards Board (IASB).  So what’s the big deal?

Confusing Standards?

So will we have a single, simple, principles-based global set of accounting standards?  Not so fast, my friend!  Initially, public companies will be required to convert to IFRS while private US companies could choose to adopt IFRS for small- and mid-sized entities or could, along with not-for-profit organizations, continue to report under generally accepted accounting principles in the United States.  Bankers, investors, analysts and other users of financial statements will need to be cognizant of the differences and understand them in order to properly analyze financial statements and make useful industry comparisons.

The AICPA released results of a survey showing that more than 80% of AICPA Council members strongly support GAAP differences for U.S. private companies and not-for-profit entities from the international GAAP that will be required for U.S. public companies.  It’s safe to say that the support for a universal adoption of IFRS for public and private companies alike is weak.

Interestingly, Charles Niemeier is also more broadly challenging the conversion to IFRS. He was a member of the Public Company Accounting Oversight Board and was previously the U.S. Securities and Exchange Commission chief accountant in the Division of Enforcement and co-chair of the SEC Financial Fraud Task Force. Overall, he is not in favor of switching from U.S. GAAP to IFRS, and suggests that we continue to fix what’s broken as opposed to converting to a whole new set of less mature standards.

Convergence or Conversion?

Early on, the IFRS conversation centered around “convergence,” giving one the impression of an evolutionary process whereby US standard setters would work with the global International Accounting Standards Board (IASB) to achieve a common set of high-quality, accepted accounting principles.  As it stands today, there are broad areas of disagreement between IFRS and US GAAP and a myriad of issues addressed by US GAAP with a non-existing IFRS counterpart.  In short, US public companies are being required to convert from US GAAP, the gold standard of accounting principles, to the inferior, less developed international standards.  Rather than allow IFRS to converge with US GAAP over time, the international G-20 leaders have called for the new global set of accounting standards to be completed by June 2011, ready or not!

Here’s what Mr. Niemeier had to say about the process of converging United States generally accepted accounting principles with IFRS:

“I agree with the original goal of the International Accounting Standards Board and Financial Accounting Standards Board to enhance comparability of financial reporting by converging their standards based on quality.  Unfortunately, in the last few months the focus has changed from achieving comparability of financial reporting to establishing a set timetable to switch the U.S. to IFRS. This change de-emphasizes the quality of the standards in favor of speed, and appears to be more based in politics than in what is in the best interests of investors.  For a number of reasons, I believe that this new path has the potential of de-linking us from our current regulatory model. Instead, in my view, we need to return to a policy of convergence, where we focus on substantive milestones, not timing.”

At What Cost?

Larger public companies are beginning to assess the enormous cost and effort required to convert their transaction processing and financial reporting systems to accommodate IRFS.  If accounting is the language of business, IFRS adopter company personnel, including accounting staff, business managers, executives, and board members, must learn this new foreign language.

Barry C. Melancon, AICPA president and CEO, has called for a permanent, independent funding mechanism for the International Accounting Standards Committee Foundation, the governing body of the IASB.  In the United States, the AICPA will encourage the Securities and Exchange Commission to use part of the current levy on U.S. public companies for accounting standard setting activities as a permanent funding source for the IASB, Melancon said.

Who Will Write the Rules and Who Pays?

There will be 16 IASB standard writers of which only two will be from the United States.  Naturally, the United States will provide the super majority of the IFRS funding.

It’s Time to Get Involved.

IFRS is not an issue best left to the back office bean counters to deal with.  Now is the time for all U.S. financial system stakeholders to understand the movement toward IFRS and consider the possible ramifications, good or bad.  Interested parties should take the following steps:

  • Monitor the progress of the IFRS convergence/conversion and take appropriate action.
  • Learn: Attend relevant seminars on the subject matter
  • Share: Inform others within and without your organization to properly prepare for the transition.
  • Speak out: Let the AICPA, the SEC and others know your views on IFRS, its applicability to U.S. public and private companies, and the proposed implementation timetable.

It is our responsibility to our profession and our clients to stay abreast of this issue and do what we can to make sure that international politics do not trump good sense and that the baby is not discarded with the bathwater.

For more information on IFRS or any other accounting concerns,  please contact: info@templetonco.com