All of us at Cornerstone appreciate your business and our working relationship with you. If you have any questions or want additional information for any of the topics in this edition of our E-bulletin, please do not hesitate to give us a call.
Cornerstone CPA Group, P.A.
IRS Refund Delays
The IRS has warned us that refunds may be delayed a week due to their new anti-fraud safeguards. The IRS gives a range of refund receipt as 10 – 21 days from the date of submission.
E-file Acceptance Emails
We are providing a new service this year! We are setting up our system to send out an e-file acceptance email when your return is accepted by the taxing authorities. From that, you will have record of the exact date of acceptance.
Due Date is April 17, 2012
The due date for individuals (and partnerships) is April 17th this year. Once again, there is a Washington D.C. holiday on Monday, April 16th that is pushing the federal due date back another day. Kansas and Missouri are following the federal deadline.
New Form 8949
All capital asset transactions are now to be reported on the new Form 8949 with Schedule D. For sales of securities, your broker should have basis on the Form 1099-B you receive. We must now report your security sales based on the distinction of 1) sales with basis shown by broker, 2) sales without basis shown by broker, 3) sales not shown on Form 1099-B, and 4) sales with no Form 1099-B issued. A separate Form 8949 is required for each type.
Net self-employment income
Self-employed health insurance premiums no longer reduce self-employment income for purposes of calculating self-employment taxes. If you are self-employed and your spouse works for you, give us a call. We can discuss some alternatives.
IRS Areas of Interest
Over the years, we see what the IRS is interested in as it relates to your taxes. Areas that pique their curiosity are areas such as large charitable donations, the office in home deduction, rental losses, deducting business meals, travel/entertainment, and claiming your auto in your business. Some other areas of interest are: businesses that are really hobbies, and of late, the IRS is very interested in whether you have a foreign bank account. We have also seen an uptick in
inquiries regarding whether Form 1099s were issued properly – with stiff penalties if they weren’t. Finally, the IRS is especially interested in finding out whether you are properly reporting people working for you – are they outside contractors or should they actually be employees?
All of the above are valid when documented properly. Always keep your documentation, receipts, and other information that will back up any claim of deduction you may have. Additionally, if you have questions on how you are reporting independent contractors or employees, give us a call.
IRS Releases 2012 Standard Mileage Rates
The 2012 business mileage rate will continue to be 55.5 cents for business miles driven, the same as the adjusted mid-year rate.
IRS may be interested in your Quickbooks/Peachtree files
IRS agents are starting to request Quickbooks and Peachtree backup files from businesses under audit. The taxpayer must provide electronic records upon request. From these electronic records, the IRS can look at dates of transactions/entries, who performed the entries, and subsequent changes to the entries in an attempt to uncover errors or weaknesses. At this time, the software companies have not released an “audit copy” as an alternative to a full back up file. We will keep you posted on this as it develops.
IRS Changes Rules on Repairs vs. Capitalization
The IRS just released temporary regulations regarding repairs and maintenance vs. property that needs to be capitalized. Virtually any business that buys tangible property will be affected by these temporary regulations. These temporary regulations are in place for the 2012 tax year. Below are some highlights of the new rules.
New definition for materials and supplies. Materials and supplies is tangible property that is not inventory and falls within any of these categories:
1) It is property that is a component acquired to maintain or repair another unit of tangible property.
2) Items reasonably expected to be consumed in (or with a useful life of) 12 months or less.
3) Items that cost $100 or less
4) Items that have already been published by the IRS as being materials and supplies
“Placed in service” date matters. Under the temporary regulations, if the materials and supplies rule above doesn’t apply, a taxpayer must capitalize
amounts paid for items and for work performed after the property is acquired, but before it is placed in service. An example in the regulations is that of a company that buys a building for its business use. Before placing the building in service, costs incurred include repairing the cement steps, refinishing wood floors, patching holes in walls, painting, etc. The company must capitalize these costs as costs of acquiring the building because they were performed prior to it being placed in service (Regulation 1.263(a)-2T9d)(2)).
“Unit of Property” Defined – important for determining repair vs. capitalized asset. “Unit of Property” for buildings has been defined in the new regulations and will affect how expenses are expensed or capitalized. Under the new regulations, a building and each of its structural components is considered one “unit of property” – the building. Amounts are treated as improvements to a building if they improve the building structure, its components, or any designated building system.
What are structural components? Structural components of a building consist of walls, partitions, floors, ceilings, paneling, tiling, windows, and doors. For example, if a taxpayer replaces the entire roof, it is an improvement to the building and must be capitalized.
What is a designated building system? For our clients, the items that will most impact them are: HVAC systems, plumbing systems, electrical systems, fire protection (sprinklers) and alarm systems. For example, if a taxpayer makes an improvement to the HVAC, then that expense is an improvement and must be
capitalized (T.D. 9564).
Important note – any improvements to a building system must be capitalized as part of the building – using the building’s depreciable life. The flip side to this
is if something is disposed of as part of an improvement, the taxpayer can claim a loss on the disposition of that structural component.
Nonbuilding routine maintenance safe harbor. Routine maintenance costs are not treated as improvements and are currently deductible. Examples include: inspection, cleaning, testing, and replacement of parts with comparable and commercially available/reasonable replacement parts. However, if the replacement parts are a significant upgrade, that may require capitalization.
Building Improvements – Lessees.
If a taxpayer is a lessee (tenant) of all or a part of a building, its unit of property is that part of a building/structural component subject to the lease. In general, a taxpayer who is a tenant must capitalize what it pays to improve a unit of leased property.
Building Improvements – Lessors.
A lessor must capitalize amounts 1) that it pays directly to improve a unit of leased property where the lessor owns the improvement; 2) that it pays indirectly through a construction allowance to the lessee; or 3) that the lessee pays to improve a unit of leased property, where the lessee’s improvement constitutes a substitute for rent (Reg. 1.263(a)-3T(f)(1)(iii)(A)).