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With the housing market beginning to show signs of coming off life support, you may begin to think about moving. The good news is that, even if you make a profit from the sale of your home, you may not have to report it as income.
Here are 10 tax tips to consider when planning a sale of your principal residence:
©2013 CPAmerica International
A business’s tax deduction hinged on whether assembling a gift basket was merely a packaging activity or was actually producing a distinct product.
A federal district court in California has determined that the 9 percent domestic production activities deduction (DPRD) is available to a corporation whose production process involved packaging gift baskets of various food and wine items.
To qualify for the DPRD, the company must be engaged in the lease, rental, license, sale, exchange or other disposition of qualified production property (including tangible personal property and computer software) manufactured, produced, grown or extracted (MPGE) by the taxpayer in whole or in significant part within the United States.
Under the regulations, MPGE includes manufacturing, producing, growing, extracting, installing, developing, improving and creating qualified production property. It also includes manipulating, refining or changing the form of an article, or combining or assembling two or more articles.
However, activities do not qualify as MPGE if the business packages, repackages, labels or performs minor assembly of qualified production property and engages in no other MPGE activity with respect to that property.
In this case, the company designed, assembled and sold gift baskets. The production process included selecting the basket and the items, such as candy or wine, to be placed inside. The gift baskets were shrink-wrapped and decorated with bows.
The IRS asserted that the company merely packaged and repackaged the items in its gift baskets and was not entitled to the DPRD. The court found that the activities qualified as MPGE.
The court determined that the company’s production process may qualify as manufacturing or producing but may also be packaging or repackaging (a nonqualified activity). The court found that the company’s production process produced a final product that is distinct in form and purpose from the individual items inside (United States v. Timothy J. Dean, et. al., 112 AFTR 2d 2013-5164, May 7, 2013).
Essentially, the court concluded that the company produced a new product with a different market demand than the individual components.
©2013 CPAmerica International
A federal district court has determined that an individual prosecuting a lawsuit was engaged in a trade or business, allowing him to claim a deduction for his attorneys’ fees as a business expense.
Richard Bagley brought the lawsuit against his former employer under the provisions of the federal False Claims Act (FCA). The FCA imposes civil liability on any person who presents to the federal government “a false or fraudulent claim for payment or approval.” Under the whistleblower provisions of the FCA, individuals may sue in the name of the government as a “relator” and receive an award of 15 percent to 25 percent of the amount recovered by the government.
Bradley’s case against his former employer, which stretched for almost nine years, resulted in his being awarded over $36 million, about one-half of which went to his attorneys. Bradley reported the $36 million as business income on Schedule C and deducted the attorneys’ fees as a business expense.
The IRS contended that the $36 million was “other income” – not derived from a trade or business – and that the attorneys’ fees were deductible only as an itemized deduction.
The court found that Bagley’s activities while pursuing the lawsuit were a trade or business and his litigation expenses were deductible as ordinary and necessary business expenses (Richard D. Bagley v. United States, 2013-2 USTC ¶50,462, Aug. 5, 2013).
The court noted that Bagley spent more than 5,900 hours investigating and prosecuting the FCA claim. He actively participated in the prosecution of the case, reviewing documents, attending meetings and providing his attorneys with his particular expertise regarding the regulations governing federal contracts and pricing.
After applying the various tests for an activity not engaged in for profit, the court concluded that Bagley’s activities were not a hobby or an activity engaged in for pleasure or amusement.
©2013 CPAmerica International
A new form is in the works to implement a portion of the healthcare law related to net investment income.
The IRS has released the first draft of Form 8960, Net Investment Income. Form 8960 will be used to report the new 3.8 percent Medicare tax on net investment income. The form will be attached to the 2013 Form 1040, U.S. Individual Income Tax Return, and the 2013 Form 1041, U.S. Income Tax Return for Estates and Trusts.
Beginning this year, individuals, estates and trusts whose modified adjusted gross income exceeds the threshold amount will be subject to the new 3.8 percent tax.
The threshold amounts are:
Net investment income (NII), for purposes of the 3.8 percent tax calculation, includes the following:
NII is the income after deductions for expenses that are “properly allocable” to the income, such as investment interest expense, investment advisory and brokerage fees, expenses related to rental and royalty income, etc. Investment income does not include wages, active business income, pension/IRA distributions or tax-exempt income.
Many of the entries on Form 8960 refer to instructions that the IRS expects to release later in the year.
©2013 CPAmerica International
There are many signs that the economy is strengthening and expanding. What could this mean for businesses?
Some people are expecting the Federal Reserve to begin to back off quantitative easing during the upcoming months. From a tax standpoint, economic improvement may mean the end of the line for several stimulus-type tax breaks that are scheduled to expire Dec. 31, 2013.
If you own or operate a business, a number of favored depreciation tax breaks may not be available next year, including:
In addition, the Code Section 179 expensing limit – $500,000 in 2013 – is slated for a drastic reduction next year.
Although the above benefits may be extended beyond 2013, there is no guarantee. If your business is planning to purchase machinery and equipment or invest in eligible real estate assets in the next year, you should consider accelerating your buying plans if it makes sound business sense. You may be able to lock in the accelerated deductions by buying qualifying assets this year and placing them in service by year-end.
Check with your tax adviser to be sure your planned purchase qualifies for an enhanced write-off.
©2013 CPAmerica International
Would you normally wake up and want to go to work? Most people would probably answer NO to this question, especially during tax season.
Tax season is a stressful time for employees of CPA firms. Does it make a difference if there is a good company culture to help alleviate some of the stress? 
The workplace should not be something an employee dreads. While work may be difficult, the culture should not. On the contrary, a positive and fulfilling work culture should be designed to alleviate stress not increase it.
How do you create a positive and fulfilling company culture? The most important and first step in the process, starts by hiring people who fit your company’s goals and vision. Tony Hsieh, CEO of Zappos, one of the strongest advocates of company culture, states “when you hire people, they represent your company even outside of work, and if you have a positive opinion about this person most likely you’ll view their company in a positive light.”
It’s key to be flexible to change. These days employees are looking for more flexibility in the workplace than ever before. More companies are recognizing how important the work+life issue is for everyone, not just women and parents. Studies have shown that flexible schedules decreased employee “burn out” and have helped retain valuable employees that may otherwise leave.
Most importantly, build a culture where everyone is part of a team. This is a big one! 
If you feel valued and part of a team, you contribute to the overall success of the company. You may have a specific job function; however, you are joined with other members of the company to accomplish the overall goals of the company.
When you’re part of a company that has achieved a good culture, you may just wake up and answer that question, YES I do want to go to work!
When I advised my clients to complete their transactions in 2012, it was apparent that the effects of the actions our elected officials were going to take to avoid the “fiscal cliff” could only have a negative effect on taxes. 
At the twelfth hour, Mitch McConnell, Republican Senate Minority Leader bypassed Nevada’s own Harry Reid and reached out to Vice President Joe Biden with whom he had worked with when Biden was in the Senate. They worked out a compromise that was passed in the Senate and the House on January 1.
How does this affect you?
The tax rate for taxpayers with income over $450,000 married and $400,000 single increased from 35% to 39.6%. The tax rate on capital gains and dividends increase from 15% to 20% also applies to this threshold. When combined with the 3.8% healthcare tax, that tax rate on capital gains and dividends becomes 23.8%.
Some of you may be breathing a sigh of relief that the tax rate increase will apply only to those taxpayers. However, the 3.8% healthcare tax on investment income will hit those of you with taxable over $250,000 married and $200,000 single (see my blog in November 2012 regarding the healthcare tax of 3.8%). Also, itemized deductions are phased out at $300,000 for joint filers and $250,000 for singles, effectively raising their taxes.
Interestingly, the bill does not say whether the $400K/$450,000 threshold refers to adjusted gross income (AGI) or taxable income. AGI doesn’t include subtractions for itemized deductions, while taxable income does. With so many phase-outs of itemized deductions for taxpayers in the higher brackets, this may not be of much consequence to most of these affected taxpayers.
The payroll tax holiday reducing payroll taxes and self-employment taxes by 2% is over. 
The tax rate increases from 4.2% to 6.2%. That means for an individual earning the maximum 2013 cap of $113,700 or more, the increase would be $2,274, or nearly $200 per month.
The alternative minimum tax (AMT) still effectively eliminates many tax breaks for the higher income tax brackets. AMT was created in 1969 to ensure that wealthy taxpayers pay at least some minimum amount of federal income tax, regardless of deductions, credits or exemptions. In essence, it is a flat tax with two brackets, 26 percent and 28 percent. Under the new deal, Congress has finally created a permanent inflation “patch” that would allow millions to escape AMT. Without the patch, the AMT would have hit 31 million taxpayers this year, reaching deeply into the middle class.
What the bill did not include:
The bill only addressed the revenue side of the budget question and deferred action on the spending side for two months. Additionally, the agreement does not address any increase in the nation’s debt ceiling.
A strong economy depends upon predictable behavior and decision-making by the government. The competitive environment is unpredictable enough without our government making it more unpredictable. This has been lost on our elected officials much to the consternation of almost everyone: businessmen, employees, bankers, homeowners, and investors. Get ready for the budget and spending standoff two months from now.
It has been known for quite some time that women make up most of the purchasing decision power in households but their increasing presence in the workforce is becoming nearly as significant. 
According to a recent post by XYZ University, these are a few of their interesting statistics:
Even from only 10 years ago, these are huge changes and these trends do not show any indication of reversing. This impacts today’s businesses in two major areas: employees and customers.
Having more female employees brings new skills as well as challenges to the table. Many studies have shown that women tend to have a management style that is more consensual and inclusive which can be an advantage with today’s increasing social and crowd sourcing business methods. Also with more women working, maternity leave and child care, for example, will become bigger issues that companies must face and deal with. Further with more women in leadership roles, more men will take on more responsibilities at home leaving them less willing to sacrifice family for work.
As more women take on leadership roles and more men take on larger family roles, the change in these gender roles may change who has been the dominant purchasing power of households. Additionally, the upwardly mobile urban single woman may become a significant customer in areas of serious investments such as homes and travel.
So you think you have financial issues? Just listen to what Nina Olson, National Taxpayer Advocate, has to say about the IRS. In her annual report to Congress she suggested that the IRS’s increasing workload and declining resources are the most serious problems facing taxpayers. So how does she connect the dots to conclude that this is a “taxpayer” problem?
She reasons that the resulting inadequate taxpayer service, erosion of taxpayer rights and reduced taxpayer compliance are causing harm to the taxpayers. That’s how! I don’t know. Seems to me like an IRS problem rather than a taxpayer problem. But, then again, doesn’t the taxpayer always get stuck with the tab?
But wait. Maybe there is a solution that doesn’t stick the taxpayer with the bill. It turns out that increasing funding for the IRS might actually be a good investment. Current inadequate funding contributes to many of the problems facing today’s IRS. When the federal individual income tax was first enacted in 1913, it applied only to high-income taxpayers, which totaled about 358,000 people. That total today stands at 141.2 million with one tax return for about every two people in the United States. And believe me, the returns are a lot more complicated now than they were almost 100 years ago.
It seems that as the collection agency for the U.S. government, the IRS does a pretty good job. On a budget of $12.1 billion, the IRS collected $2.42 trillion in fiscal year 2011. That is to say that for every $1 that Congress appropriated for the IRS, it collected about $200. Now with the current “tax gap” at about 15%, every household is paying an annual “noncompliance surtax” of about $2,700 to enable the federal government to raise the same amount of money it would have collected if all taxpayers had reported their income and paid their taxes in full.
While I doubt that appropriating an extra $1 would produce the same collection rate when applied to the last 15% of noncompliance, I’ll bet it would provide an attractive return on the investment.
If you have a CIO or IT manager who is in the know, you may have already had discussions about the following items. If you manage the IT functions yourself, then read carefully so you don’t miss the boat!
The consumerization of IT. No surprise here, consumer technologies like the iPhone and the Droid, tablets, etc. are creeping into the workplace. If you haven’t dealt with this issue, the time has come to allocate a portion ofyour IT budget to secure and support these new technologies. These “cutting-edge” technologies (well, they were “cutting edge” at the writing of this blog-in a week they could already be dated) can allow employees to be more productive and most likely little training would need to be involved as employees are already using these technologies outside of the work environment.Handling all that data. A push for developing business intelligence and analytical tools is on the rise to help businesses manage the massive amounts of data they have. Experts agree that utilizing analytical tools will be a key competitive advantage in 2012. Why just store all that data? Why not try and get something out of it? Before building a giant data integration and business intelligence strategy, CFOs need to ask themselves one main question: What kind of data does the business value most? How can your IT staff deliver information and reports that your company needs most if they don’t know the answer to question 1?
Cloud computing. The Cloud is not going away. If you don’t even know what the Cloud is, it’s an umbrella term for delivering hosted services over the Internet. Low-cost cloud services are expected to become increasingly available, as well as traditional vendors are offering or will be offering cloud services. The ability that business leaders will have to reach out and download a new cloud service without the assistance of an IT staff will only increase in 2012. One key thing to think about if you move to the Cloud is how to keep all those services integrated and secure.
Blog based on article at CFO.com “How 3 Big IT Trends Will Affect You and Your CIO in 2012”
