Major Family Gifting Faces Headwind if Obama’s Budget Proposal Passes
On February 13th, the Obama Administration released its fiscal year 2013 budget, including various estate tax proposals that, starting in 2013, would result in:
- Reducing the lifetime gift exemption back to $1M (the 2009 level)
- Reducing the overall estate tax exemption to $3.5M (the 2009 level)
- Increasing the top estate tax rate back to 45% (the 2009 level)
- Making the trust assets in the IDGTs (Intentionally Defective Grantor Trusts) includible in the grantor’s estate
- Modifying the rules on valuation discounts
- Requiring a minimum 10-year term on GRATs (Grantor Retained Annuity Trusts)
- Making permanent the portability (carryover) of unused estate tax exemption amounts between spouses.
- Limiting the duration of the GST exemption to 90 years
Among the Administration’s various proposals on estate tax law changes, the most damaging one is the proposed reduction of the Continue reading »
Need cash? Don’t borrow from the IRS!
Many businesses and individuals are experiencing cash flow difficulties in today’s economy. To ease the cash crunch, it may be tempting to delay payment of taxes in the hope that finances will improve soon. Unlike other creditors, the IRS moves relatively slowly, lulling the taxpayer into complacency. During this time, interest and penalties accrue which, in some situations, can even exceed the original tax due. When the IRS decides to act, they often file liens, levies, and other garnishments that can cause significant and sometimes permanent economic damage. In addition to these civil penalties and collection actions, the IRS can pursue criminal charges. The failure to truthfully account for or turn over taxes is a felony, with the potential of up to five years of jail time. This applies to all taxes under the Internal Revenue Code – income tax, payroll tax, gift tax, and excise tax, to name a few. Continue reading »
Opportunity for Maryland Taxpayers: Get Credit for Taxes Paid to Other States!
Maryland taxpayers who were not permitted to claim a credit for personal income taxes paid to other states against their local income tax (i.e., City, County or Town) may still claim such a credit on a timely filed protective claim for refund for a tax year with respect to which such opportunity is still available.
Last year, the Howard County Circuit Court ruled that Maryland’s current application of the credit for taxes paid to other states is unconstitutional in so far as the credit is not allowed to offset the Maryland local personal income tax. That decision is still working its way through the appeal process and is unlikely to get to a final determination anytime soon. Nonetheless, the decision presents an opportunity for Maryland taxpayers to amend prior years’ tax returns and claim credits Continue reading »
The Total Cost of Healthcare?
Starting in tax year 2012, the “aggregate cost” of employer-sponsored health plans is required to be reported in Box 12 (Code DD) of Form W-2. This amount includes the costs paid by both the employer and employee, regardless of whether those contributions were pre-tax or after-tax. This provision, IRC §6051(a)(14), applies to employers with 250 or more employees starting in 2012 and Continue reading »
Have Foreign Bank Accounts or Other Assets? The IRS Wants to Know!
The IRS recently released a new tax form (Form 8938) that may need to be filed with your tax return this year if you have an ownership in certain “foreign financial assets.” Foreign financial assets include: foreign bank accounts; foreign broker accounts; investments in foreign bonds or securities; ownership interests in a foreign trust; certain foreign pension payments; and investments in any foreign entity which may hold such assets as real estate, a trade business, etc.
The reporting rules and filing thresholds are complex, but if the value of your foreign financial assets was in excess of $50,000 (or $100,000 if married filing jointly) at the end of 2011 or exceeded $75,000 ($150,000 if married filing jointly) at any time during 2011, and you are a United States citizen or resident alien, you are required to file the new form. These dollar thresholds are four times higher for taxpayers who lived abroad during 2011.
The penalty for failure to provide the required information with your tax returns is $10,000 unless your failure to file is due to reasonable cause. Continue reading »
3% Withholding Tax Update
It appears that those construction contractors who work with federal, state and local governments that were subject to the 3% withholding tax are a couple steps closer to a collective sigh of relief. As of November 10, H.R. 674 has made its way through both the House of Representatives and the Senate. The bill is actually on its way back to the House of Representatives for a vote due to slight modifications in the Senate’s passed bill. The bill is expected to pass the House.
The 3% tax was anticipated to first be levied in 2013, however has met stiff opposition from many organizations throughout the country, including many construction industry trade associations as noted a our previous blog post. This opposition has prompted congress to act, and it appears the construction industry is on its way to scoring a victory.
Opposition to the 3% Withholding Tax Continues to Grow
As discussed in previous articles on this blog, there is a strong opposition to the 3%Withholding Tax that will be levied against all contractors who provide goods or services to federal, state, and local governmental agencies with expenditures of $100 million or more.
There have been a number of construction trade associations and coalitions, such as the Associated Builders and Contractors , The Associated General Contractors of America, and The Quality Construction Alliance that have voiced their concerns and opposition. All of these agencies have encouraged their members and supporters to back pending legislation in the House of Representatives and the Senate to repeal this tax. The current measures are H.R. 674, S.89 and S. 164. Continue reading »
Construction Spending Unexpectedly Increases In August
The roller coaster ride of 2011 continues for the construction industry. Following a 1.1% decrease in July, construction spending saw an unexpected increase in the month of August for nonresidential construction spending of 1.6% compared to the previous month. This is based on the U.S. Census Bureau’s press release. McGraw Hill Construction also reported an 8% increase in construction spending starts versus a 10% decline in July in their most recent report.
The good news was also seen in the employment spectrum according to The Associated General Contractors of America (AGC). AGC stated in their press release that construction employers added 26,000 jobs during the months of August and September. This increase brought the current unemployment level for the industry to 13.3% but AGC cautioned that some of the recent declines in the unemployment rate were a result of construction workers leaving the industry all together.
Based on the statistics that have been released over the past 3 months it is hard to gauge whether the industry has begun to stabilize or not. These mixed economic signals may be frustrating for contractors attempting to prepare budgets or who are considering hiring additional employees for the future. Continue reading »
Worker Classification: The New ‘Get Out of Audit Jail Free’ Card!
In recent years, the battle over how workers are classified has heated up. Federal and state government agencies have been going after businesses that intentionally or unintentionally classify their workers inaccurately as independent contractors when they should have been classified as employees. The resulting audits have proven to be very costly for companies that aren’t in compliance. Unfortunately this is something that has occurred frequently in the construction industry.
In a surprising move, the IRS recently announced the Voluntary Classification Settlement Program (VCSP), which will enable employers to address their worker classification noncompliance issues and resolve them with certainty at a relatively low tax cost. The VCSP does not add any clarity to existing laws, but rather provides a mechanism for employers to reclassify its workers prospectively without incurring substantial costs and without being subject to an audit.
To be eligible, an employer must meet these three criteria:
- The employer has treated all workers consistently – the individual has never been classified as an employee, and workers who hold a substantially similar position have also never been classified employees.
- The employer has filed a form 1099 for each misclassified worker for each of the past three years.
- The employer cannot be presently under examination by the IRS for any reason, and is not presently under examination by the Department of Labor or any state government agency with respect to the worker classification issue.
To be part of the VCSP, the employer must fill out form 8952 (Application for Voluntary Classification Settlement Program) at least 60 days prior to the date the employer wants to begin to reclassify the workers as employees. The IRS will then review the employer’s eligibility, and contact the employer to complete the process and enter into a closing agreement.
If accepted into the VCSP, the employer will then:
- prospectively treat the subject workers as employees;
- pay 10% of the employment tax liability that would have been due for the previous year as computed under Code Section 3509;
- not be liable for interest or penalties;
- not be subject to a federal employment tax audit for prior years on the classification of these workers; and
- agree to extend the employment tax statute of limitations from 3 years to 6 years for each of the first three calendar years beginning after the VCSP closing agreement.
Further information can be found on the IRS’ FAQ page, and we strongly advise you to contact your Aronson tax advisor at 301.231.6200 to help avoid the potentially costly consequences of trying to handle this matter on your own
AIA Architecture Billings Index Unexpectedly Turns Positive in August
One month after the steepest one month decline in over a year, the American Institute of Architects (AIA) Architecture Billing Index (ABI) saw an unexpected increase in the month of August. The August ABI score was 51.4 after a previous score of 45.1, and indicates an increase in the demand for design services, which in turn means the possibility of increased construction spending in the future. According to Kermit Baker, the AIA’s Chief Economist, this score indicates that the industry may have finally hit the bottom of this current down cycle, a much welcome sign for the construction industry.
You can read the full press release for the August ABI at the AIA website.
