By: Heather I-D Graham, CPA, CVA

Drafting Buy-Sell Agreements requires that special consideration be given to a number of special rules that affect valuations for estate and gift tax purposed.  For example, options to acquire property at less than FMV and restrictions on the right to sell property are generally disregarded in determining value.  An independent valuation, or the assistance of a valuator in deriving a formula approximating FMV at the date of the agreement helps insure the proper tax result of the Buy-Sell agreement.  Buy-Sell Agreements also have numerous other non-tax issues, all of which can be enhanced by a proper valuation formula.

The business valuation formula can be different or each business, depending on the industry, risks, and case circumstances.  If you need professional assistance, pelase give us a call.

Written by: Keith Frame, CPA

We haven’t talked much about it. We have not yet done much planning in consideration of it. I think most of us CPAs believed it would never come to be (and still don’t in some cases). But the year 2013 is set to usher in a wave of tax increases that will cost all taxpayers dearly.

Not only do the temporary Bush tax cuts disappear, but new taxes appear to fund Obamacare. A brief rundown of changes affecting individual taxpayers is as follows:

• Tax rates increase across the board with the top marginal rate rising from 35% to 39.6%
• Capital gains tax rates rise from 15% to 20%
• Tax rates on dividends increase from 15% to your marginal income tax rate which could be as high as 39.6%
• Reduction of the child tax credit from $1,000 to $500
• A new .9% hospital insurance tax on wages in excess of $250,000 for married taxpayers filing a joint return ($200,000 for single taxpayers)
• A new 3.8% tax on net investment income for married taxpayers with income in excess of $250,000 ($200,000 for single taxpayers). Net investment income includes interest, dividends, capital gains and rental income

 There are several strategies that should be considered as we get closer to the year 2013:

•  Arrange to receive income in 2012 instead of 2013 if possible
• Sell profitable investments this year – if  you are considering the sale of an asset with a significant capital gain, selling in 2012 will result in a capital gain rate of no more than 15% plus avoiding the 3.8% tax on investment income
• Reduce exposure to taxable dividends – it might make sense to include dividend paying stocks in tax-deferred accounts and purchase growth stocks and tax exempt bonds in taxable accounts
• Distributions from tax-deferred accounts are not included in investment income so this gives taxpayers an additional incentive to maximize retirement plan contributions

Taxes will be THE hot topic during this year’s presidential election. We don’t expect to see much action on these issues prior to the election as the candidates weave and dodge on their real positions.

The effect of these increased taxes on the economy in general, the housing market and the stock market will not be a positive one. The outcome of the election and the last month of this year will dictate planning decisions for many of our clients.

Written by: Scot Smith, CPA

NEW MICHIGAN CORPORATE INCOME TAX (CIT) EFFECTIVE JANUARY 1, 2012

With the new Michigan Corporate Income Tax replacing the old Michigan Business Tax effective January 1, 2012 we want to inform you of a new law regarding flow-through income tax withholding responsibilities:

Michigan based partnerships, “S” corporations and Limited Liability Companies (also known as flow-through entities) are now required to withhold and pay Michigan corporate income tax on a quarterly basis at a rate of 6%, if:

• The partner, shareholder or member (K-1 recipient) is a “C” corporation, and
• The business income of the flow-through entity is over $200,000.

Michigan business income is Federal taxable income adding back bonus depreciation and the domestic production activities deduction, if any. Withholding and payment of income taxes is required quarterly based on the K-1 recipients’ distributive share of income, using Form 4917. In addition, the withholding requirement only applies to Michigan-based sales, so a proration will be necessary if there are sales in other states.

If the flow-through entity has K-1 recipients who are also flow-through entities, it must be determined who the ultimate taxpayer is to determine if there should be Michigan corporate income tax withheld at 6% or Michigan individual income tax withheld at 4.35%.

OLD LAW REGARDING NON-RESIDENT MICHIGAN WITHHOLDING

If the K-1 recipient is a Michigan non-resident individual, the flow-through entity is required to withhold and remit Michigan income tax at a rate of 4.35% on their distributive share of income regardless of the amount of the flow-through entity’s business income.

In addition to the quarterly forms and remittances noted above (Form 4917), Form 4918, Annual Withholding Reconciliation Return is due by February 28th.

Written by: Lisa Whyte, CPA

If you use QuickBooks, you understand that we use your data to prepare your tax return.  You may not realize that we don’t simply take your numbers and use them as is.  We typically verify the accuracy of your accounts. 

We frequently need to make some adjustments to correct your QuickBooks balances.   If our adjustments are not entered in your QuickBooks file, then your balances will remain incorrect.    If you have received adjustments from your accountant for your 2011 tax return, please be sure to enter them.   I personally prefer to use (when possible) the QuickBooks Accountant’s Copy because it allows clients to simply import our adjustments into their file.

Please review the adjustments that your accountant gives you.  Some adjustments, such as recording depreciation, we expect to do every year.  Other adjustments, such as reclassifying an expense, may signal that transactions have been improperly recorded.  Discuss these adjustments with your accountant; they may need you to start recording transactions in a different manner.

After you have entered our adjustments, discussed with your CPA what transactions need to be recorded differently, and followed these recommendations your QuickBooks reports will be more accurate.

The old GM stock (more recently being traded as MTLQQ) stopped trading on the pink sheets in 2011, so now investors are allowed to take the loss on their 2011 tax returns.

If you have already filed your return but have a loss you would like to take, we can certainly help you amend that return.

Call us today!

Written by: Annette Clark, CPA

You may be eligible for a Michigan Unemployment Tax Credit.

To determine if you are eligible for the Michigan Unemployment Tax Credit you need to locate your “actual reserve” balance as of June 30, 2010 as shown on your 2011 Michigan Unemployment Annual Tax Rate Determination.   If this balance is positive you are eligible for the credit. 

Complete form UIA 1110 which is available at: http://www.michigan.gov/uia/  Just type in UIA 1110 2012 in the search field, choose the top item and scroll down to you get to the correct form.  All you need is your Unemployment Insurance Agency account number and Michigan wages as reported on your 2011 IRS Form 940 Schedule A.  Remove the bottom portion of the form and mail to the address at the top of the form. 

The bottom half of the form is not required for you to receive the credit, but for you to verify the amount the State credits your account for.  Once the form is processed by the State, a credit will show up on your quarterly preprinted UIA 1020 form.

If Robert F. Murray & Company prepares your quarterly payroll tax returns we will prepare this form for you if you are eligible. We ask that you provide us with the preprinted quarterly UIA 1020 forms when received so that we can utilize the credit when it becomes available.

If you have any questions or need assistance in the preparation of this form please let us know, we’d be happy to assist you.

Written by: Michael P. Riley, CPA
Worker classification cases have been a bone of contention for the IRS for many decades and still are.  Businesses that hire workers as independent contractors save money on federal and state employment taxes.  Determining whether a worker should be treated as an employee or as an independent contractor depends upon a “facts-and-circumstances” test revolving around a common-law test to whether the service recipient has the right to DIRECT AND CONTROL how the worker performs the services provided.

In September of 2011, the IRS issued Announcement 2011-64 establishing a new voluntary classification program (VCSP).  This program will provide partial relief from federal employment taxes for eligible taxpayers that agree to prospectively treat workers as employees.

Under the VCSP, taxpayers may voluntarily reclassify workers as employees for federal income tax purposes.  To become eligible for the VCSP the taxpayer must:

• Have filed all required Form 1099’s for the workers for the past three years.
•  Not currently be under audit by the IRS, the DOL or a state agency concerning worker classification issues.

 If the taxpayer or entity is interested in applying for the VCSP, the taxpayer should complete Form 8952 at least sixty (60) days before it wants to start treating the workers as employees.  Taxpayers accepted into the VCSP will pay an amount that equates to 10% of the employment tax liability due on compensation paid to the reclassified workers for the past year.

In addition, in September of 2011, the Department of Labor and Hour Division will now share information or data with the IRS related to DOL investigations involving employment tax compliance.  In return, the IRS will evaluate these referrals provided by the DOL and share that information with State and Local Taxing agencies.

 For more information regarding worker classification issues please contact one of our professionals at Robert F Murray and Company.

If you are one of the millions that receive a sizable tax refund every year, why not use the extra money to help out your personal balance sheet.  Here are some ideas for your refund that will be more beneficial than just spending it on whatever…

1. Use the cash to pay down your debt.  Reduce any high-interest credit card debt you may have, or pay down the principal on your mortgage.
2. Contribute to an IRA or a 529 plan for your children.
3. Want to have a vacation, set aside some of your refund for just that.  Setting up a separate account helps for just that.  You could even do this for your holiday shopping!
4. Have some smaller home improvements you want to make, use some of this money to do just that.
5. Have a stock you want to invest a little in, open up a brokerage account and do just that!
6. Do a check on your emergency fund to make sure there is enough in there in case you get laid off or hurt.
7. Maybe it’s time for some additional life insurance?

These and may more tips are available at kiplinger.com

Written By: Tina Powell, CPA

Most of you may have heard that there is a new tax in town.    Effective January 1, 2012, the Michigan Corporate Income Tax (CIT) replaces the unpopular Michigan Business Tax (MBT.)  It is estimated that it will relieve 95,000 Michigan businesses from the burden of filing a business return and paying business taxes.

The CIT applies only to C corporations and entities taxed as C corporations for federal income tax purpose (for example, a limited liability company that checks-the-box to be taxed as a corporation.)  A C corporation will be exempt from the CIT if its Michigan annual gross receipts are less than $350,000 or its CIT liability is less than $100.  C corporations with an ownership or beneficial interest in a flow-through entity with Michigan nexus will also be subject to the CIT.

For those of you who do business in multiple states, gross receipts will be apportioned based on the ratio of Michigan sales to total sales.

The CIT is equal to 6% of the federal taxable income subject to specified additions and subtractions.

Since the CIT will apply only to C corporations, businesses that are taxed as C corporations may want to consider converting to an S corporation or another type of “pass-through” entity.  This conversion could help reduce the business’s effective income tax rate, and it might also help to reduce the owner’s payroll or self-employment taxes.  However, several tax and business issues should be considered before pursuing such a conversion.

A downside to the CIT is that all of the tax credits and deductions that were available under the MBT are no longer available.  One exception is the small business alternative tax credit.  The credit will allow qualified small businesses to pay tax at a rate of 1.8% of adjusted business income instead of 6%.  This credit will be available to C corporations with gross receipts of less than $20 million and adjusted business income of $1.3 million or less, and officers’ and owners’ compensation that does not exceed $180,000 per individual.  The credit will be subject to phase-out for gross receipts between $19 million and $20 million and officers’ and owners’ compensation between $160,000 and $180,000 per individual.

Another downside is that there are no provisions for the use of net operating losses incurred during years that the MBT was in effect (2008-2011.)

The MBT is gone, or is it?  Actually, some businesses may have select credits available under the MBT and if they elect, they may continue to file under the MBT, rather than the CIT.  But beware, if you were filing as a unitary group, and if one member of the group elects to continue to file under the MBT, ALL members must continue to file under the MBT.  Additionally, the CIT retains unitary filing requirements for C corporations under common control.  Unitary groups are required to file a combined return.

Fiscal-year taxpayers will have a short year for both 2011 and 2012.  A fiscal-year taxpayer will likely be allowed to file its first return on April 30, 2013, the same as a calendar-year taxpayer.

Our very own Mike Harter will be hosting the Ask the Financial Planner show on the CMU Public Broadcasting channel on March 29th at 7:30 p.m.

If you would like to participate by asking questions, you can do so the following ways:

1.  Call in and speak to our phone volunteers from 7:30pm-8pm during our live program toll-free at 1-800-727-9268

2. Email the producer, Courtney Brooks, before the show at brook2c@cmich.edu

3. Tweet the production crew at @WCMU_AskThe

Visit http://www.wcmu.org/tv/askthe.html for more information!