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    New W-2 Reporting Requirements for 2012

    Posted 1:31 PM by

    When the Patient Protection & Affordable Care Act (PPACA) was passed in March 2010, a number of mandates became law. While some of these mandates have been widely discussed – such as the employer requirement to provide affordable health coverage and the requirement for individuals to buy health insurance by 2014 – other directives are not as well known. One of the lesser known mandates is the act’s new Form W-2 reporting requirement. Effective for 2012 W-2s, employers must report the cost of coverage under an employer-sponsored group health plan.

    More specifically, employers must report the total cost of all “applicable employer sponsored coverage” provided to an employee. Applicable employer sponsored coverage is defined as “coverage under a group health plan that the employer makes available to the employee that is non-taxable to the employee.” In other words, employers must report the costs of major medical insurance and similar plans on employees’ W-2s. The amount reported will be comprised of both employer and employee contributions. Employee contribution amounts must include both pre-tax and after-tax contributions.

    The coverage costs of the following types of plans must be indicated on 2012 Form W-2s in box 12 with a code “DD” designation:

    • Medical plans;
    • Prescription drug plans;
    • Executive physicals;
    • On-site clinics, if they provide more than minimal care;
    • Medicare supplemental policies;
    • Employee assistance programs; and
    • Dental and vision plans, unless they are “stand-alone” plans.

    It is important to note that the costs of coverage under health flexible spending accounts, health savings accounts, and long-term care insurance are excluded from the reporting requirement.

    In interim guidance, the IRS remarked that this additional reporting is for informational purposes only. The PPACA does not cause any previously excludable employer-provided health coverage to become taxable. According to the service, the main purpose of this legislation is to notify employees about the true cost of their healthcare coverage.

    If you are a business owner it will be important to track this cost of coverage data for the entire year. If your business uses a payroll company you may consider discussing this new reporting requirement with your payroll provider in order to be aware of any additional information the provider will need.  

    Below is a quick reference chart provided for your convenience that contains the new requirements for 2012 and beyond. Items listed as “optional” may be changed by future IRS rules; however, any such change will not be applicable until the tax year beginning at least six months after the date the guidance is issued.

    Coverage TypeReport on form W-2Do Not Report on Form W-2Optional
    Reporting
    Major medicalX  
    Dental or vision plan not integrated into another medical or health plan  X
    Dental or vision plan which gives the choice of declining or electing and paying an additional premium  X
    Health Flexible Spending Arrangement (FSA) funded solely by salary-reduction amounts X 
    Health FSA value for the plan year in excess of employee’s cafeteria plan salary reductions for all qualified benefitsX  
    Health Reimbursement Arrangement (HRA) contributions  X
    Health Savings Arrangement (HSA) contributions (employer or employee) X 
    Archer Medical Savings Account (Archer MSA) contributions (employer or employee) X 
    Hospital indemnity or specified illness (insured or self-funded), paid on after-tax basis X 
    Hospital indemnity or specified illness (insured or self-funded), paid through salary reduction (pre-tax) or by employerX  
    Employee Assistance Plan (EAP) providing applicable employer-sponsored healthcare coverageRequired if employer charges a COBRA premium Optional if employer does not charge a COBRA premium
    On-site medical clinics providing applicable employer-sponsored healthcare coverageRequired if employer charges a COBRA premium Optional if employer does not charge a COBRA premium
    Wellness programs providing applicable employer-sponsored healthcare coverageRequired if employer charges a COBRA premium Optional if employer does not charge a COBRA premium
    Multi-employer plans  X
    Domestic partner coverage included in gross incomeX  
    Military plan provided by a governmental entity X 
    Federally recognized Indian tribal government plans and plans of tribally charted corporations wholly owned by a federally recognized Indian tribal government X 
    Self-funded plans not subject to Federal COBRA  X
    Accident or disability income X 
    Long-term care X 
    Liability insurance X 
    Supplemental liability insurance X 
    Workers' compensation X 
    Automobile medical payment insurance X 
    Credit-only insurance X 
    Excess reimbursement to highly compensated individual, included in gross income X 
    Payment/reimbursement of health insurance premiums for 2% shareholder-employee, included in gross income X 
    Other SituationsReportDo Not ReportOptional
    Employers required to file fewer than 250 Forms W-2 for the preceding calendar year  X
    Forms W-2 furnished to employees who terminate before the end of a calendar year and request, in writing, a Form W-2 before the end of that year  X
    Forms W-2 provided by third-party sick-pay provider to employees of other employers  X

    Please contact your Katz, Sapper & Miller tax advisor if you have any questions about this new reporting requirement.

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    New Reporting Obligation for Foreign Financial Assets

    Posted 2:48 PM by

    A new tax reporting obligation is being imposed on U.S. individuals that have an interest in specified foreign financial assets when the total aggregate value of those assets exceeds an applicable reporting threshold. This reporting obligation is effective starting for tax year 2011 and is satisfied by attaching Form 8938, Statement of Foreign Financial Assets, to the individual taxpayer’s 2011 Form 1040. The penalties for failing to file a required Form 8938 are severe. Thus, U.S. individuals with interests in foreign assets must carefully analyze their potential obligation to report such interest on a Form 8938 attached to their 2011 Form 1040.

    Only Individuals … For Now

    The IRS anticipates issuing regulations that will require certain domestic entities to file Form 8938 if such entity were formed or availed of to hold specified foreign financial assets. Until the IRS issues such regulations, only individuals must file Form 8938. The IRS has stated that they intend to issue regulations applicable to domestic entities during 2012. Thus, some domestic entities may have this filing obligation starting with their 2012 tax returns. However, the obligation will only be imposed on individuals with respect to 2011 tax returns.

    Specified Foreign Financial Assets

    Individuals must identify whether they have an interest in any specified foreign financial assets. For this purpose, a specified foreign financial asset is defined as:

    • Any financial account maintained by a foreign financial institution; and
    • The following assets to the extent that they’re held for investment and not held in a financial account:
      • Any interest in a foreign entity;
      • Any stock or securities issued by someone that is not a U.S. person; and
      • Any financial instrument or contract with an issuer or counterparty that is not a U.S. person.

    The term “held for investment” encompasses all assets that are not used in, or held for use in, the conduct of any trade or business. Stock is never considered used or held for use in the conduct of a trade or business.

    There are exceptions to the definition of “specified foreign financial asset” for assets that are subject to the mark-to-market accounting rules and for assets held in a domestic bankruptcy trust.

    Applicable Reporting Threshold

    Individuals that own an interest in specified foreign financial assets must then value each interest based on the highest fair market value of each asset during the tax year as well as the value of each asset as of the last day of the tax year. The Form 8938 is required if the aggregate fair market value of all the individual’s specified foreign financial assets exceeds certain thresholds. Married individuals that file a joint income tax return file a single Form 8938 that reports all the specified foreign financial assets of both spouses. The filing thresholds vary based on the individual’s filing status and whether or not the individual lives within the U.S. The following table summarizes the filing thresholds:

    Filing StatusLiving InValue on Last Day of YearValue on Any Day of Year
    Unmarried or Married Filing SeparatelyU.S.$50,000$75,000
    Married Filing JointlyU.S.$100,000$150,000
    Unmarried or Married Filing SeparatelyForeign Country$200,000$300,000
    Married Filing JointlyForeign Country$400,000$600,000

    Penalties

    The failure to comply with the Form 8938 reporting obligation can result in significant penalties. The penalties can be waived by the IRS if the failure to file was due to reasonable cause and was not willful. However, there can be no guarantees that the failure to file penalties will be waived. There are at least seven different penalties that can be imposed with respect to Form 8938. The general failure to file penalty is $10,000 per failure. The IRS can impose an additional $10,000-per-month penalty if the failure continues after the taxpayer is notified by the IRS. If unreported income is associated with the undisclosed specified foreign financial assets, there is a 40% accuracy related penalty. The statute of limitations remains open for all or part of the tax return until three years after the date on which the required Form 8938 is filed. Furthermore, there is a special six-year statute of limitations for unreported income associated with disclosed specified foreign financial assets. Finally, fraud and criminal penalties can be imposed when there is a willful failure to file that is part of a tax evasion scheme.

    The above client alert provides a brief summary of this new reporting obligation. There are significant nuance and details that are beyond the scope of this alert. Please contact your Katz, Sapper & Miller advisor to discuss specific questions that may be applicable to you.

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    State & Local Tax Update - 2/24/12

    Posted 2:50 PM by

    Idaho Updates Guidance Regarding Sales Tax on Interstate Vehicles – Effective 7/1/12, HB 361 provides that, in the context of the tax exemption for motor vehicles and trailers substantially used in interstate commerce and registered under the International Registration Plan (IRP), “substantially used in interstate commerce” means that the vehicle or trailer is operated in a fleet that logs at least 10% of its fleet miles outside of Idaho in the four fiscal quarters beginning July 1 and ending June 30 of each year (previously, in an annual registration period) under the IRP. If such motor vehicle or trailer is not substantially used in interstate commerce during the four fiscal year quarters beginning July 1 and ending June 30 of each year (previously, during an annual registration period), it is deemed to be used in Idaho and it is subject to the Idaho use tax.

    Illinois Issues Ruling on Independent Contractor and Nexus - The Illinois Department of Revenue determined that a taxpayer's contracting sales of services in Illinois on a regular basis would “likely” subject the taxpayer to Illinois income taxation. The taxpayer operates a 24/7 call center for national retailers with multi-site locations. The business consists of coordinating contracted labor on an as-needed basis for its national customers, some of them located in Illinois. The “contracted” work is done by independent contractors as the taxpayer does not have payroll, inventory, personal property or a physical presence in Illinois. However, Ill. Admin. Code 86 § 100.9720(c)(6) provides that the use of independent contractors may only afford a nonresident immunity from taxation for “limited activities.” The IL DOR indicated that the fact that the taxpayer's business is entirely set up around using independent contractors on a regular basis may jeopardize the protections otherwise afforded. See IT 12-0001-GIL for details.

     

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    Chad Miller to Lead Katz, Sapper & Miller’s Property Tax Practice

    Posted 5:39 PM by

    Indianapolis, Ind. - The certified public accounting firm of Katz, Sapper & Miller LLP is pleased to announce that Chad Miller has joined the firm as the leader of its property tax practice. Miller brings more than 12 years of experience in Indiana real estate taxation, including serving as one of the lead real estate appraisers for the Hamilton County Assessor’s office. 

    Miller provides a wide range of real and personal property services including real property tax appeal services for his clients. He frequently advises clients on technical property tax matters, including Tax Increment Financing (TIF) and property tax abatement.

    Miller graduated from University of Central Missouri with a Bachelor of Science degree in business administration. He is a state-certified Level III Indiana Assessor-Appraiser and holds a certified tax representative certificate.

     ###

    About Katz, Sapper & Miller
    As one of the top 65 CPA firms in the nation, Katz, Sapper & Miller has earned a reputation as a leader in the areas of accounting, tax and consulting services. Founded in 1942, the firm has more than 250 employees and is located in Indianapolis and Fort Wayne, Indiana. Katz, Sapper & Miller was named one of the “Best of the Best” accounting firms in the nation by INSIDE Public Accounting magazine and has been recognized by the Indiana Chamber of Commerce as one of the “Best Places to Work in Indiana” for seven consecutive years. The firm is an independent member of Nexia International, a leading global organization of independent accounting and consulting firms. For more information, visit us at ksmcpa.com.

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    State & Local Tax Update - 2/3/12

    Posted 2:58 PM by

    Indiana Use Tax Not Due on Promotional Items: An Indiana corporation was not liable for use tax on items it manufactured and pulled from its inventory in Indiana for use as promotional items in other states because the items were only temporarily stored in Indiana for subsequent use outside Indiana. The items were consumed in the course of demonstrations at non-Indiana locations. The products did not return to Indiana. This is temporary storage for use outside Indiana and does not constitute storage subject to Indiana use tax. See LOF 04-20110134 for more information.

    Connecticut To Issue Debit Cards for Refunds: The CT Department of Revenue Services will issue personal income tax refunds in the form of debit cards, rather than checks, to taxpayers who do not use direct deposit. DRS has contracted with JP Morgan Chase to administer the debit card program. Taxpayers will have to call Chase to activate the card and select a PIN. The debit card can be used at ATMs; banks and credit unions displaying the VISA logo; gas stations and retail locations that accept VISA. If the taxpayer does not activate the debit card within 365 days, the debit card account will be closed and the available balance will be returned to DRS. If the debit card is activated and a balance remains, after the 12th consecutive month of inactivity (365 consecutive days of inactivity), Chase will begin charging an inactivity fee of $1.00 per month. Visit the FAQs for more information on the program.

    Kentucky Requires Estimates of Nonresident Withholding for 2012: Effective for taxable years beginning after December 31, 2011, every pass-through entity required to withhold Kentucky income tax will be required to make a declaration and pay estimated tax if : (1) the nonresident individual owner's tax liability can reasonably be expected to exceed $500; and/or (2) a corporate owner doing business in Kentucky only through its ownership interest in a pass-through entity has a tax liability that can reasonably be expected to exceed $5,000. When withholding on the distributable share income of nonresident individuals, estates, trusts and corporations, no withholding is made for partners or members that are pass-through entities. The distributive share income will continue to pass through as Kentucky source income requiring withholding at each level of each pass-through entity of multiple tier structures. Therefore, withholding, as well as the calculation to determine if an entity is required to make declaration payments, will be at each level of the structure using only the nonresident individual and corporations doing business in Kentucky only through their ownership interest in the pass-through entity. Trusts and estates are entities treated as individuals and are included in the withholding requirement. See KY Tax Alert 1 for additional information.

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    State & Local Tax Update - 1/20/12

    Posted 3:40 PM by

    Indiana Updates Sales Tax Guidance for Colleges and Universities:  The IDOR has revised Information Bulletin 68 concerning nonprofit and state colleges and universities to include separate sales tax treatment for colleges and universities that operate as nonprofit organizations and those that operate as governmental agencies. Indiana state colleges and universities that are nonprofit organizations or governmental agencies are entitled to certain exemptions from sales and use tax for purchases and sales that support the exempt government function or educational mission of the institutions. Transactions that do not support the exempt educational mission of a nonprofit educational institution or that are associated with a proprietary activity on the part of a state government educational institution are subject to tax. The bulletin details: purchases and sales by nonprofit colleges and universities; purchases and sales by state colleges and universities; application of the key terms “educational materials,” “proprietary activity,” “accommodations,” and “student”; furnishing or selling intrastate telecommunication services; and student organizations at state colleges and universities.

    Missouri Upholds Use Tax on Repair Parts: The MO Sup Ct. held that a company that provides maintenance and repair services for mainframe computers is liable for use tax on parts it purchased and used in fulfilling maintenance contracts because it engaged in taxable use in MO. The company did not just store the parts temporarily in MO, but unpacked, inspected, tested, and repackaged the parts then certified them for use and shipped them to its customers. Further, it was not entitled to resale exemption because it did not purchase the parts for subsequent taxable sale. For more information, see Custom Hardware Engineering & Consulting Inc. v. Director of Revenue.

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    State & Local Tax Update - 1/13/12

    Posted 10:53 PM by

    Indiana and Amazon Agree on Tax Collection
    Indiana Governor Mitch Daniels has announced that amazon.com will begin collecting Indiana sales tax on Internet purchases under an agreement reached between Amazon and the IDOR. Amazon will voluntarily begin to collect and remit Indiana sales tax beginning Jan. 1, 2014, or 90 days from the enactment of federal legislation, whichever is earlier. Indiana will not assess the company for sales tax for other periods. See the governor's news release for additional details.

    Michigan Amends Apportionment Calculation
    Effective Jan. 1, 2012, the Michigan sales factor numerator of a corporate taxpayer must include its proportionate share of the total sales in Michigan of a flow-through entity that is unitary with the taxpayer. The denominator of a taxpayer must include its proportionate share of the total sales everywhere of a flow-through entity that is unitary with the taxpayer. A flow-through entity is unitary with a taxpayer when that taxpayer owns or controls, directly or indirectly, more than 50 percent of the ownership interests with voting rights or ownership interests that confer comparable rights to voting rights of the flow-through entity, and that has business activities or operations which result in a flow of value between the taxpayer and the flow-through entity, or between the flow-through entity and another flow-through entity unitary with the taxpayer, or has business activities or operations that are integrated with, are dependent upon, or contribute to each other. Sales between a taxpayer and flow-through entities unitary with that taxpayer, or between flow-through entities unitary with a taxpayer, must be eliminated in calculating the sales factor. See SB 673 for details of the new law.

    Michigan to Follow Federal Classification for Disregarded Entities
    Effective retroactive for taxes levied on and after Jan. 1, 2008, Michigan law has been amended to provide that a person that is a disregarded entity for federal income tax purposes under the Internal Revenue Code must be classified as a disregarded entity for purposes of the MBT. This legislation negates the requirement outlined in Notice to Taxpayers Regarding Federally Disregarded Entities for entities to amend prior year MBT returns to separate activities of disregarded entities resulting from the Kmart decision. See SB 369 for additional information.

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    Reporting of 2011 Organizational Actions Affecting Basis of Securities Due January 17

    Posted 8:03 PM by

    The IRS has released a new form, Form 8937, for the reporting of transactions that affect a security holder's basis. Examples of transactions that may require Form 8937 are stock splits, stock dividends, nontaxable dividends, mergers, and acquisitions. This form is required retroactively to report transactions occurring on or after Jan. 1, 2011.

    Form 8937 has two parts. Part I is the general information regarding the reporting entity. Part II requires the information related to the specific transaction.

    Who must file: Any taxpayer that takes an organizational action that affects the basis of all holders of the security.

    Exceptions: Form 8937 is not required to be filed with the IRS if, by the due date of the form, a completed Form 8937 is posted to a primary public website. In addition, the form is not required if all the holders of the security are exempt recipients.

    Special rules: S corporations can satisfy the reporting requirement by reporting any actions that affect the basis of the stock on a timely filed Schedule K-1 for each shareholder and timely gives a copy to all proper parties. A real estate investment trust (REIT) that reports undistributed capital gains to shareholders on Form 2439 satisfies the reporting requirements if Form 2439 is timely filed and given to all the proper parties.

    Due date: For transactions occurring during 2011, the form is due Jan. 17, 2012. For transactions occurring after Dec. 31, 2011, the due date for Form 8937 is the earlier of: (1) the 45th day following the transaction; or (2) Jan. 15th of the year following the calendar year of the transaction.

    For more information, please contact your KSM advisor.

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    Unreimbursed Education Expenses Deduction

    Posted 12:00 AM by

    The state of Indiana recently released new legislation that entitles an individual tax deduction for up to $1,000 per dependent child for unreimbursed education expenditures. These expenditures include costs for tuition, fees, software, textbooks and school supplies for dependent children in grades K-12 enrolled in private school or who are homeschooled. This legislation is retroactive for year 2011 so the deduction can be made on the parent’s 2011 tax return.
     
    For more information on this deduction, please see the information bulletin released by the Indiana Department of Revenue or contact your KSM advisor.

     

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    Year-End Tax Planning

    Posted 12:00 AM by
    As each year comes to a close, Americans scamper to unearth tax deductions that have escaped their grasp until this point. It is an adage as old as time – or at least since The Revenue Act of 1861 was passed. This year is no different. In fact, due to the uncertain future of our tax laws, 2011 may prove to be one of the most beneficial years to plan accordingly.
     
    Here are some recommendations to maximize tax efficiency in 2011 and beyond:
     
    Debt Cancellation
    If possible, and if the circumstances so warrant, defer the debt cancellation until Jan. 1, 2012. Deferral of this event will typically provide increased opportunities to plan for the adverse tax consequences associated with cancellation of debt events.
     
    Qualified Higher Education Expenses
    Unless extended by Congress, the up-to-$4,000 deduction for qualified higher education expenses will expire at the end of 2011. As a result, individuals should consider prepaying eligible expenses if doing so will increase the deduction. The deduction is generally allowed for qualified education expenses paid in 2011 in connection with enrollment at an institution of higher education.
     
    Traditional IRA Conversion to Roth
    If you think that a Roth IRA is better than a traditional IRA, and you plan to remain in the market long-term, consider converting your traditional IRA (depressed valued stocks and mutual funds) into a Roth IRA, if eligible, because it will result in greater taxable income for 2011; however, your assets will increase in value tax-free under the Roth structure. This action is particularly attractive if you believe tax rates will increase in future years.
     
    Realize Losses on Stock
    Sell a depressed stock holding and repurchase the same holding 31 days later, which will allow you to take the loss in 2011. The obvious risk is that the stock appreciates during the period (31 days) that you are not an owner. Furthermore, this loss will only be allowed to the extent of your net capital gains plus $3,000. Any disallowed losses will carry forward to future tax years.
     
    Purchase Qualified Small Business Stock (QSBS)
    There is no tax on gain from the sale of QSBS if it is purchased before Jan. 1, 2012, and held for more than five years. To qualify for this break, the stock must be issued by a regular 'C' corporation with total gross assets of $50M or less (amongst other requirements).
     
    If You Own Partnership or S-Corporation Interests with Suspended Losses
    S-Corporation: Consider making a contribution to the entity to increase basis so the losses can be recognized in 2011. You may also be able to make loans to the entity that will provide you with basis and allow otherwise suspended losses to be recognized in 2011.
     
    Partnership: Consider making a contribution to the entity to increase basis so the losses can be recognized in 2011. Additionally, consider other debt arrangements which will increase basis and free up losses.
     
    Energy Credit
    Homeowners: Consider making energy saving improvements before Jan. 1, 2012. A tax credit may be available if these improvements are made in 2011.
     
    Annual Gift Exclusion
    If you have not done so already, consider making a gift of up to $13,000 per individual donee (spouses can give a combined $26,000 per individual donee). Qualifying gifts will not be subject to gift or estate taxes as they are below the annual gift tax exclusion amount. In order to utilize the 2011 annual gift tax exclusion, the gift must be made in 2011. Taxpayers are not permitted to carry the exclusion forward.
     
    Time Is Expiring
    With just weeks remaining in 2011, individuals should be considering these planning opportunities today. Each opportunity is dependent upon the individual's particular situation, so please consult your Katz, Sapper & Miller tax advisor before effectuating any of them.
     
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