Weinberg & Company
 
SIMPLY STATED
MARCH  2014

Following are a few important issues our accounting professionals wanted to briefly share with you. As always, should you desire more in-depth information please feel free to contact us.

IS A TAX OVERHAUL IN THE WORKS?

In the January issue of Simply Stated, Weinberg’s Director of Tax, Jeffrey B. Engler, reported that comprehensive tax reform had been gaining momentum, spearheaded by Senate Finance Committee Chairman Max Baucus (D-Montana). He cautioned, however, that momentum may stall as Senator Baucus leaves his influential position in the Senate to become U.S. Ambassador to China.  

House Ways and Means Committee Chairman, Dave Camp (R-Mich.) appears to be filling the leadership gap and is pushing a new comprehensive tax overhaul proposal. What are the chances of success? Read Mr. Engler’s “Thought Leadership” article by clicking {Is a Tax Overhaul in the Works?}

RELIEF FOR DEVELOPMENT STAGE ENTITIES

The Financial Accounting Standards Board (FASB) is in the final phase of updating the accounting standards for development stage entities (DSE). 

Unlike most companies, DSEs are burdened by special reporting requirements according to Corey Fischer, Weinberg’s Firm Managing Partner. 

“The financial information required specifically of DSEs under U.S. Generally Accepted Accounting Principles (GAAP) is excessive, repetitive, costly, and has limited relevance to financial report readers. It’s just not useful for decision making,” says Fischer. 

Relief is on the way. 

Last November, the FASB circulated an Exposure Draft proposing changes to the accounting standards for DSEs. With the public comment period now closed, the Board has finalized its changes and is moving toward a final vote of approval. 

Under the new accounting standards, DSEs will no longer be required to present inception-to-date information on the statements of operations, cash flows, and shareholder’s equity. In essence, FASB has diminished the distinction of DREs and will completely remove the definition of development stage entity from the codification. 

It was the stated objective of this FASB project to improve financial reporting by reducing the cost and complexity associated with the incremental reporting requirements for DSEs, notes Fischer. “These are major changes that will substantially reduce the accounting, audit, and legal costs for emerging companies.”

FBAR DEADLINE APPROACHING

 

The Foreign Bank and Financial Accounts Act (FBAR) was created to help identify persons who may be using foreign financial accounts for illicit purposes and to identify unreported income maintained or generated abroad. 

If you have a financial interest in, or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, you may need to report the account yearly to the Internal Revenue Service by filing a Report of Foreign Bank and Financial Accounts (FBAR). 

United States persons (defined as a U.S. citizen, a U.S. resident, an entity created in the United States and trusts or estates formed under the laws of the United States) are required to file an FBAR if: 

*    The person had a financial interest in, or signature authority over at least one financial account located outside of the United States; and
*    The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported. 

The FBAR must be electronically filed on or before June 30th for the preceding calendar year.Penalties for failing to comply can be up to $10,000 for non-willful violators and the greater of $100,000 or 50% of the account’s balance for willful violators. The FBAR is not filed with a federal income tax return. There is no provision to request an extension of time to file an FBAR. 

May Also Need to File Form 8938 

U.S. Citizens, resident aliens and certain non-resident aliens that have an interest in specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. The form 8938 is filed with a U.S. income tax return and the requirement to file is in addition to the FBAR filing requirement. 

The reporting threshold includes accounts with an asset value exceeding $50,000 on the last day of the tax year or $75,000 at any time during the tax year. (The thresholds are $100,000 and $150,000 respectively for married individuals filing jointly. Higher thresholds apply to individuals living abroad). 

Penalties for failing to comply can be up to $10,000 for failure to disclose and an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60,000; criminal penalties may also apply. 

Weinberg & Company’s Private Client Services represents high net worth individuals, entrepreneurs and family office clients. In addition to FBAR filings, our tax accounting professionals can assist in preparation of individual, trust, estate, gift, tax-exempt and private foundation tax returns.

WHAT’S UP WITH FUTA?  

If you are an employer, you no doubt are very familiar with the Federal Unemployment Tax (FUTA) — a federally collected tax solely on employers covered by a state’s unemployment insurance (UI) program. What you may be wondering about, however, is why your FUTA payment has radically increased. The simply stated answer is that your state is a “deadbeat” — your state’s delinquency in paying its bill to the Feds has resulted in the Feds billing you! 

The standard FUTA tax rate is 6.0% on the first $7,000 of wages for each subject employee. The funds go into the Federal Unemployment Trust Fund, administered by the United States Department of Labor. 

Generally, employers may receive a credit of 5.4% when they file their Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, resulting in a net FUTA tax rate of 0.6% (6.0% – 5.4% = 0.6%). 

However, some states take Federal Unemployment Trust Fund loans from the federal government if they lack the funds to pay UI benefits for residents of their states. Several states including California (now in its third year of delinquency) have not repaid those loans on time and are now referred to as a credit reduction state. 

If a state has outstanding loan balances on January 1 for two consecutive years, and does not repay the full amount of its loans by November 10 of the second year, the FUTA credit rate for employers in that state is reduced until the loan is repaid. 

The reduction schedule is 0.3% for the first year and an additional 0.3% for each year thereafter. 

So, an employer in a state with a credit reduction of 0.3% would compute its FUTA tax by reducing the 6.0% FUTA tax rate by a FUTA credit of only 5.1% (the standard 5.4% credit minus the 0.3% credit reduction) for an effective FUTA tax rate of 0.9% for the year. 

Employers must calculate the credit reduction using the Schedule A (Form 940). The schedule was revised in 2011 to allow for the growth in the number of credit reduction states and for the calculation of the increased FUTA tax liability. 

In conclusion, the result of being an employer in a credit reduction state is a substantially higher tax due on your Form 940 — and that, simple stated, is what’s up with FUTA!

THE TAX MAN GETS CREATIVE 

From the Tax & Accounting division of Thomson Reuters comes a sampling of various state sales tax changes for 2013. Notables include:

 

*    Taking a bite out of tax, orthodontic devices are no longer subject to sales or use tax in Arizona. 

*    Clear sailing in Connecticut, just don’t dock. The state eliminated the luxury tax on yachts, and there’s no tax at all if the boat is docked 60 days or less a year. 

*    Chiropractors must be telling North Carolina to get off their backs because now they must collect sales tax on nutritional supplements and vitamins as part of a patient’s treatment plan. 

*    Also in North Carolina, college kids are getting a lesson from government. Meals bought on campuses are now eligible for sales tax. We think it’s a teachable moment. 

*    Rhode Island eliminated sales and use tax on wine and spirits sold at package and liquor stores, but only from December 1, 2013 through March 31, 2015. So after 2015 it’s back to the bar — no more drinking in the Quickie Mart parking lot. 

*    Now that’s high! Both recreational marijuana states Washington and Colorado are taxing marijuana at 25 percent. 

*    If you can afford a personal chef then perhaps you won’t be complaining that it is now a taxable service in the state of Washington. But wait, if your meal is prepared with raw or undercooked eggs, fish, meat or poultry and refrigerated or frozen for consumption at a later time, and cooked prior to consumption to prevent food-borne illness, then the sales tax is waived. Presumably we can thank the raw and undercooked eggs lobby for the exemption! 

*    And finally from Massachusetts — the state that made tax collection an art form, comes word that two of its cities have increased city sales taxes on meals – from 6.25 to 7%. The two Massachusetts cities to impose the increases are named Sandwich and Salisbury. No, were not making this stuff up.

WEINBERG & COMPANY

Simply the right choice

 

Weinberg & Company is a leading, international, full service, multi-office CPA firm serving clients throughout the United States and the Pacific Rim. Founded over two decades ago, the practice groups include: Assurance and Audit, Tax and Accounting, and Advisory Services. Weinberg has a depth of knowledge and experience to meet the needs of both public and privately held companies, high net worth individuals, entrepreneurs, family offices, and can provide customized business management services. www.weinbergla.com

1925 Century Park East, Suite 1120  

Los Angeles, CA 90067

(310) 601-2200

6100 Glades Road, Suite 205

Boca Raton, FL 33434

(561) 487-5765 

DISCLAIMER:
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related
penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
Quick Links

 

Corey Fischer
Firm Managing Partner

310-601-2200

CoreyF@weinbergla.com 

Bruce Weinberg
Florida Managing Partner

561-487-5765
BruceW@cpaweinberg.com

Jeffrey B. Engler
Director of Tax,

Los Angeles 

310-601-2200
 JeffreyE@weinbergla.com

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