October, 2013 | RKL LLP
Posted on: October 29th, 2013

2013 Marginal Tax Rates

Remember we started 2013 with talk of the “fiscal cliff?” This year has seen some significant changes to the income tax code.  The fiscal cliff deal – or American Taxpayer Relief Act of 2012 – brought some noteworthy changes to taxpayers, particularly those with an annual income above $200,000.

The year has flown by.  As we approach another calendar year-end what impact will these changes have on your tax situation in 2013? For higher income taxpayers, year-end planning will be as important as ever.  Take a look at the following charts to see the tax rates that apply to different categories of income.  As you can see, this is not a one-size fits all issue.  Consult your tax advisor now to help prevent any unexpected tax surprises!

marginal tax rates 2013 married filing jointly

 2013 Marginal Tax Rates Unmarried Taxpayers

Posted on: October 25th, 2013

RKL Team Shares Money Smarts with Local Students

Around 2nd and 3rd grade, children begin to develop an understanding about the value of money. To ensure they’re positioned for future financial literacy and success, members of the RKL team took their money smarts on the road to an area elementary school as part of the PICPA’s “Invest in Reading” program.

Lancaster Accounting Firm RKL

RKL’s Alison Dowdrick leads a financial literacy activity at Landisville Elementary School.

On Thursday, October 24, RKL team members Alison Dowdrick, Rachel Horst, Andrew Rice, Beth Sauder, Grant Weaver and Jordan Zimmerman visited Landisville Elementary School to read an age-appropriate book about money management and facilitate two activities that teach money smarts. As part of the lesson, the team members helped the students understand the difference between wants and needs and how to plan for and reach a financial goal.

The program is part of an educational initiative headed by the PICPA, a statewide membership organization of more than 20,000 CPAs, with the goal of improving the general public’s understanding of personal finance. As members of the PICPA, the RKL team was excited and honored to take part in the program – which provided us the opportunity to share our financial knowledge and experience with the next generation.

Posted on: October 22nd, 2013

Is Now the Time to Sell Your Business?

right time to sell businessIt is not uncommon for business owners to wonder: when is the right time to sell my business? There are many factors that play into the change from a question of “when” to a determination that “now” is the right time to sell a business. These include the company’s financial condition and performance, ownership’s personal financial situation, age of owners, succession goals and business climate.

According to GF Data®, which provides data on private equity-sponsored M&A transactions with enterprise values of $10 – $250 million, the transaction environment has stagnated in 2013 after a very active fourth quarter 2012. Tax-driven transaction activity in 2012 led to the widespread sales of businesses. However, many of the companies that did not close deals prior to the end of the year were taken off the market once the perceived tax benefit was lost. GF Data reported 130 completed transactions in the second half of 2012 compared to only 33 in the first half of 2013.

What does this mean for business owners?

It signals that the transaction environment may now be prime for selling. Here’s why:

  1. Investors are looking for quality investment opportunities. In 2013, investors have struggled to identify quality investment opportunities resulting in a build-up of cash, particularly with private equity groups.  Private equity groups have more money sitting on the sidelines than ever, with funds having raised significant amounts of capital that hasn’t been fully deployed. Businesses, particularly those with $1 million or more of EBITDA (earnings before interest, taxes, depreciation, and amortization), are experiencing more traction from buyers today than they have in the past decade. Big firms have come downstream and are making serious offers for smaller companies.
  2. The transaction multiples are likely in your favor. The supply and demand mismatch for good deals is also being reflected in an increase in recent transaction multiples, a common basis for purchase price. While transaction multiples tend to vary by industry, GF Data reported an average purchase price of 6.1 times adjusted EBITDA in the fourth quarter of 2012. The average multiple increased to 6.4 times in the second quarter of 2013. To illustrate the impact, this would result in an increase in value of $300,000 for a company with EBITDA of $1 million, or almost 5%. It should be noted that due to lower deal counts the transaction multiples may be reflective of outliers.
  3. Low interest rates mean more potential buyers. Interest rates are also a factor in the current transaction environment. As the United States continues to experience the lowest interest rates in decades, buyers are able to finance the purchase of a business very inexpensively. This has a compounding effect on the demand for quality companies.

So is now the right time to sell? Although there is no definitive answer, many signs point to “yes.” If your goals include the ultimate sale of your business, now may be the right time to explore the possibilities.

(Information in this blog post from RKL and GF Data may not be use without permission of RKL and GF Data.)

RKL’s Business Services Consulting Group is comprised of professionals with extensive experience helping business owners successfully navigate acquisitions. To learn more, contact Paula K. Barrett, CPA/ABV, CVA, partner and functional leader of RKL’s Business Consulting Services Group at pbarrett@rklcpa.com.

Jamie Spencer business valuation analystContributed by James M. Spencer, CPA, MBA, CVA, a manager in RKL’s Business Consulting Services Group. He provides business valuation, financial modeling and analysis including projections and forecasts, project feasibility analysis and assistance with acquisition and sales of closely-held businesses.

 

Posted on: October 15th, 2013

Is a Delaware Holding Company Still Viable in PA?

delaware loophole delaware holdings company in PAFor years, companies have been using a Delaware Holding Company (DHC) structure to mitigate state income taxes. After years of wrestling with possible solutions, Pennsylvania introduced the Pennsylvania Tax Reform Code Bill (House Bill 465) as part of the recent state budget to include a corporate tax expense addback provision to close the so-called “Delaware Loophole.” Given this change, what are the options companies with a DHC should consider?

New Reform Rules and Exceptions

The new legislation includes a corporate tax expense addback provision requiring addbacks of intangible expenses (patents, royalties, trademarks, etc.) between related parties unless the purpose of the transaction is not tax avoidance and the transactions were made at arm’s-length. The bill includes a provision requiring the addback of interest expense between related parties if the expense is related to the licensing of intangibles. These changes become effective as of 1/1/2014.

 There are some exceptions to the addback.  For example, the addback is not required if the transaction is “made at arm’s length,” and it has a valid business purpose other than tax avoidance.  The addbacks are also excepted if:

  • The expense is ultimately paid to a non-affiliated entity;
  • The DHC or the royalty income is subject to tax in another jurisdiction; or
  • If the DHC is domiciled in a jurisdiction that has a comprehensive tax treaty with the U.S. (subject to certain provisions).

Is the DHC still viable in PA?

While most taxpayers will have done a cost/benefit analysis of this long-standing state tax planning strategy and many have ultimately “unwound” the structure, there is still some merit to considering how to use the structure to mitigate state tax liabilities:

  • Would your current structure establish a valid business purpose other than tax ‘mitigation’? Review all formation documents, agreements and contracts, and performance of duties by DHC personnel.
  • Do you have a current royalty study and/or performed a Section 482 type analysis of the transactions?

Next Steps and Planning Ideas for Companies with a DHC

  • “Activate” the DHC in other jurisdictions (requiring a review of all activities and jurisdictions and a cost/benefit analysis). Take advantage of apportionment formulas and lower tax rates in many jurisdictions.
  • Consider geographic expansion of DHC operations to establish a multiform business unit.
  • Re-purpose the DHC into a management and intangible asset protection company.
  • Split the intangible licensing and finance activities of the DHC. Segregate the operations, people, and assets into multiple entities so that each can fulfill its own purpose/function and be respected for tax purposes.
  • Consider forming a Delaware Headquarters Management Corporation (HMC’s) as an alternative to the DHC. An HMC is exempt from taxation under Chapter 19 of Title 30 of the Delaware Code but will be subject to an alternative tax calculation under the new Chapter 64.

To “enjoy” a robust discussion of the changes in Pennsylvania or of the above ideas, contact your RKL tax services provider. For timely updates and insights on the tax code, accounting and business issues, sign up for RKL Alerts or follow us on Twitter, LinkedIn and Facebook.

frank tobias on the delaware holding companyContributed by Frank J. Tobias, CGFM, (ftobias@rklcpa.com) a principal in RKL’s Tax Services Group. He specializes in the area of multi-state planning and compliance with extensive experience in all areas of Pennsylvania taxation. Frank brings a well-rounded perspective on state and local tax issues with his experience in both public accounting and his previous professional experience overseeing the administration of PA Corporation taxes for the PA Department of Revenue.

Posted on: October 10th, 2013

Summary Slides from NFP Event Keynote

Thank you for attending RKL and Susquehanna Bank’s “Keys to Not-for-Profit Success” event on October 2. To follow up on keynote speaker David Reinhardt’s inspiring message, we wanted to share the summary slides from his presentation with you.

Click Here to View or Download Slides

To learn more about RKL’s Not-for-Profit Services Group, click here.

 

 

 

 

 

Posted on: October 8th, 2013

PA Legislation Brings Changes to Bank Shares Tax Calculation

Recent legislation in Pennsylvania brings several changes to the calculation of the Bank Shares Tax.  This is a tax imposed on the apportioned taxable capital of “banks.”  The term, “bank,” has been defined to include corporations operating as a bank and having capital stock.  It also includes those having the powers of companies commonly known as “trust companies.”  The Bank Shares Tax is exclusive of the Mutual Thrift Institution Tax that is imposed by Pennsylvania on savings institutions, savings banks, savings and loan associations, and building and loan associations.  Most financial institutions will pay one or the other of these two types of taxes. Credit unions are not subject to tax.

PA House Bill No. 465 eliminated the six-year averaging of taxable share capital, reduced the tax rate from 1.25% to 0.89%, changed from a 3-factor to a single-factor state apportionment calculation, expanded the definition of “receipts” for purposes of the state apportionment calculation, and provides a new choice of two ways to compute the receipts’ factor in the state apportionment calculation.  This election is irrevocable, so careful attention should be given to this option.

Legislation added this statement to the existing law: “the taxable amount of shares shall be ascertained and fixed by the book value of total bank equity capital as determined by the Reports of Condition at the end of the preceding calendar year in accordance with the requirements of the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the Federal Deposit Insurance Corporation or other applicable regulatory authority.” It also expanded the definition of a bank “doing business in this Commonwealth.”

These updates are important because they 1) define that the calculation starts with financial statement capital and not regulatory capital (therefore, automatically including all goodwill and forces taxpayers to seek an exclusion) and, 2) expand the definition of the “receipts factor” to ensure that banks with apportioned receipts in excess of $100,000, that are doing business in Pennsylvania, are required to file Bank Shares Tax Return.

The term, “Doing business in this Commonwealth,” has been greatly expanded to encompass such actions as having one or more employees, representatives, independent contractors or agents conducting business in Pennsylvania as well as directly or indirectly soliciting business in Pennsylvania using person-to-person contact, mail, telephone or other electronic means or using advertising published, produced or distributed in Pennsylvania.

All of these changes are applicable for Bank Shares Tax Returns due January 1, 2014.

Contributed by Debby H. Wells, manager, RKL’s Tax Services Group. Debby has over 20 years experience in public accounting. She specializes in middle-market federal and multi-state corporate and pass-through entity tax planning and compliance.  She also provides tax outsourcing services to public companies and private businesses to aid them in computing quarterly (and annual) income tax provisions for their financial statements.

Posted on: October 5th, 2013

Reporting Requirements for Employer-Provided Taxable Fringe Benefits

With the end of the year approaching, it is time to consider the reporting requirements related to taxable fringe benefits that you provide to your employees. If you answer yes to any of the following questions, please share this information with the person who handles your payroll:

  1. Do you pay health insurance premiums on behalf of any 2% or greater shareholders? (S Corporations only)?
  2. Do you provide company cars to any of your employees (owned or leased)? If yes, do the employees use the company cars for personal use? (Personal use includes commuting to and from work.)
  3. Do you provide Group-term Life Insurance in excess of  $50,000 to any of your employees?
  4. Do you provide Group-term Life Insurance to non-employees  (such as a spouse or dependent of employee)?

Health Insurance Premiums
Health insurance premiums paid on behalf of any 2% or greater shareholders are deductible by the S Corporation and included in the wages of the S Corporation shareholder. Provided the premiums are included in the wages (form W-2, Box 1, Federal wages only) of the S Corporation shareholder, the shareholder may deduct the cost of the premiums on their individual tax return. The premiums are not subject to social security or Medicare taxes and are not taxable for Pennsylvania or local tax purposes.

Personal Use of Company Owned Vehicles
Click here for the Vehicle Information Summary sheet, which must be filled out by each employee using company-owned vehicles for personal use.  The vehicle information should be provided for the period November 1, 2012 through October 31, 2013.  Please inform us if you have elected not to withhold federal income tax from these fringe benefits. Note that this election had to be made by January 31, 2013.

Group-Term Life Insurance
Click here for the Group Term Life Insurance Summary Sheet.

Employees
The premium value of employer-provided Group-term Life Insurance in excess of $50,000 is subject to Social Security/Medicare taxes and is required to be reported at least once a year as gross wages. You should be able to obtain the value subject to tax for these employees from your insurance company.

Non-employee
In addition, the cost of Group-term Life Insurance coverage on the life of a non-employee (spouse or dependent of the employee) in excess of $2,000 is taxable to the employee and should be included in gross wages. You should be able to obtain the value subject to tax for these employees from your insurance company.

Please return this info to your tax provider to calculate and report the fringe benefit value and the corresponding payroll taxes to be withheld from your employees’ wages before the end of this year.

If you use an outside payroll service for processing your payroll, we would like to remind you that these services must receive the information by the first week of December.

Questions about employer-provided fringe benefits? Contact your RKL tax advisor.

Posted on: October 3rd, 2013

RKL Hosts Not-for-Profit Best Practices Event

nonprofit accounting auditMore than 60 not-for-profit executives joined RKL and Susquehanna Bank for a complimentary best practices seminar on Wednesday, October 2 in Harrisburg. The “Keys to Not-for-Profit Success” event provided attendees insights into maintaining a strong financial foundation, engaging staff and board and tackling tough leadership issues.

The event featured a keynote address from David Reinhardt, speaker, explorer and consultant, who shared an inspirational message based on his experience leading sled dogs, “Arctic Insights: Learning from the Pack about Leadership and Life.”

The morning also included break-out sessions from RKL and Susquehanna Bank experts. Wayne Groff, RKL audit manager, presented “Reporting Aspects of Fundraising Costs” to help community benefit organization CFOs and executives understand how to properly capture fundraising expenses for better transparency and compliance. RKL’s Bethany Novis, consulting partner, and Grant Weaver, consultant, presented a session on “Internal Controls and Fraud Prevention” with insights on how to deter, detect and handle instances of fraud.

Sessions presented by Susquehanna Bank experts included “Employee and Board Engagement” and “The Educational Improvement Tax Credit Program.”

The event was part of RKL’s ongoing efforts to support and educate Central Pennsylvania not-for-profit organizations. The firm proudly serves the accounting, audit, tax planning, compliance and business consulting needs of more than 200 area not-for-profits.

To learn more about RKL’s wide array of services designed to help community benefit organizations thrive, visit our nonprofit accounting page.

nonprofit accounting in lancaster pa

Attendees from Junior Achievement and M.S. Hershey Foundation.

nonprofit accounting in pa

Attendees from “Someone To Tell It To,” a Hershey-based non-profit.

nonprofit accounting in pa

Attendees from YMCA Hanover and the Dauphin County Library System.

nonprofit accounting in pa

Keynote speaker David Reinhardt.

Posted on: October 1st, 2013

Gifting and estate planning tax implications in 2013

2013 gifting estate planning strategyThink you heard the last of the debate over estate and gift tax reform when President Obama signed The American Taxpayer Relief Act (ATRA) of 2012 in early January?  Well, think again. This legislation established and made permanent the current estate tax parameters.  But, permanent doesn’t always mean permanent in Washington.

Only three short months later, estate taxes were back on the table.  The President’s 2014 fiscal budget proposal, released in April, includes significant changes to estate and gift taxes including undoing the so‑called “permanent changes.”  While the budget will likely face a number of revisions before it reaches its final form and many of these proposals will never become law, it is still important to take a look at the proposals to see what changes we might soon be seeing in the tax law.  According to an AICPA analysis, if the President’s 2014 fiscal budget proposal passes, the following would be implemented (after December 31, 2017):

  • The per-person estate tax exemption would drop from the current level of $5.25 million, as indexed for inflation, to $3.5 million and would not be indexed for inflation.
  • The top estate tax rate would jump from the current level of 40% to a maximum of 45%.
  • The lifetime gift tax exemption would decrease to $1 million and would not be indexed for inflation.

If you are one of the millions of taxpayers who elected to take a “wait-and-see” approach in 2012, you may want to rethink your strategy.  While it is impossible to predict the timing and content of the next tax act, now is an ideal time to take advantage of the estate and gift tax provisions of the ATRA.

Gifting remains an effective estate planning tool.  The annual exclusion increased from $13,000 in 2012 to $14,000 in 2013. This means that you can gift $14,000 per individual, or $28,000 for a married couple, to as many individuals as you would like, without eating into your lifetime exemption.  Also, for the immediate future, the applicable exclusion amounts will continue to be indexed for inflation annually.  With the current $5.25 million lifetime exemption, gifting allows you to remove considerable asset value and subsequent appreciation from your estate.

The October 1st budget deadline looms only weeks ahead.  No one knows what provisions of President Obama’s proposed 2014 fiscal budget will wind up in the final version.  We do know that permanent isn’t always permanent, especially with estate and gift taxes.

Have questions about the tax implications of gifting or estate planning? Contact your RKL Tax Advisor.

Contributed by Gretchen G. Naso, CVA, MBA, a principal in RKL’s Business Consulting Services Group. A Certified Valuation Analyst, Gretchen has extensive experience in general and family limited partnerships and valuations for financial reporting, purchase price allocation and gifting and estate tax purposes.

 

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