November, 2013 | RKL LLP
Posted on: November 26th, 2013

What the New Medicare Surtax Will Mean to Trust Distributions in 2013

medicare surtax on trust distributionsAs the end of 2013 approaches, trustees will need to make important decisions about making  discretionary distributions to minimize the impact of the new Medicare surtax.

Starting in 2013, a trust will be subject to the 3.8% Medicare surtax if it has undistributed net investment income of more than $11,950. This means that a trust with investment income of more than $11,950 will pay income tax at the rate of 39.6% as well as the surtax of 3.8% on all investment income over $11,950. That’s a total tax of 43.4%!

To reduce this tax, you may want to consider making distributions to trust beneficiaries who would not be subject to the Medicare surtax on their individual returns. Distributions can be made up to 65 days into 2014 (until March 5) and still count as 2013 distributions. This allows you to look at income for the year for both the trust and the beneficiaries and then decide if and how much to distribute.

Although the Medicare surtax applies individuals too, it starts at a much higher threshold level than it does for trusts. For single individuals the threshold amount is $200,000 and for married individuals the threshold is $250,000. Making distributions to young adults, who are no longer subject to the “kiddie” tax, as well as to any adult beneficiary who has income well below the thresholds would be worth consideration.

Obviously taxes are not the only issue to consider when deciding whether or not to make trust distributions. The goals and purposes of the trust, as well as the age and maturity level of the beneficiaries are also very important considerations. There may be very valid reasons for paying the additional taxes at the trust level and not making the distributions. Either way, now be may be the time to talk with your tax advisor about these tax law changes and their impact on your trust’s total tax liability.

RKL’s Tax Services Group is here to answer your questions regarding trust distribution planning and other tax planning issues. Contact your tax advisor today.

2013 medicare surtax trust distribtuionsContributed by Karen L. Rohde, CPA, CSEP, a manager in RKL’s Tax Services Group. Her responsibilities include serving clients in individual tax compliance and consulting, trust and estate tax compliance and estate planning.

Posted on: November 22nd, 2013

RKL eSolutions Sees Dramatic Growth in Sage 500 ERP Practice

RKL_esolutions_logos01RKL eSolutions, an ERP provider and Sage Endorsed Development Partner headquartered in Pennsylvania, reports dramatic growth in their Sage 500 ERP practice with the addition of 5 new team members and about 100 new customer accounts… Read the full press release.

A subsidiary of RKL, RKL eSolutions offers technical expertise and bandwidth of resources to support the technology needs of companies from a wide variety of industries, from accounting to manufacturing, including software, IT and custom development.

Posted on: November 20th, 2013

2013 Year-End Planning: Now’s the Time to Review Your Written Capitalization Policies

new tangible asset regulationsReleased in September, the new tangible asset regulations added a de minimis safe harbor rule. To take advantage of this change, now is the time to review your written asset capitalization policies to make sure that they coincide with the new regulations.

Who is impacted by this new regulation?

All taxpayers with fixed assets on their books, whether it’s a S Corporation, Partnership, C Corporation or Schedule C, will need to look at the accounting procedures they have in place.

How have the regulations changed the rules?

In the past taxpayers could deduct certain amounts paid for tangible property if the taxpayer had an applicable financial statement (AFS), had written account policies for expensing amounts under specific dollar amounts, and treated those amounts as expenses on its AFS.  The ceiling was the greater of .1% of the taxpayer’s gross receipts for the tax year or 2% of the taxpayer’s total depreciation and amortization expense for the tax year.

The new regulations have eliminated that ceiling. The new de minimis safe harbor is now determined at the invoice item level, but the policy must be the same for book purposes.  If the taxpayer has an AFS, the taxpayer may rely on de minimis safe harbor only if the amount paid for property does not exceed $5,000 per item on each invoice.  The de minimis safe harbor has been expanded to include amounts paid for property having an economic useful life of less than 12 months, provided the amount per invoice items does not exceed $5,000.  So as long as you have an AFS and a capitalization policy in place, you can expense all items purchased that are under $5,000 if that is your capitalization policy.

There is also a de minimis safe harbor for taxpayers that do not have an AFS.  If a taxpayer does not have an AFS, but still has a capitalization policy in place, the de minimis safe harbor is $500 per item.  If cost exceeds $500 per invoice, no portion will qualify for the safe harbor.

Some other things to know about the de minimis rule include the following:

  • The de minimis safe harbor is elected annually by including a statement on the taxpayer’s tax return for the year elected.
  • A taxpayer electing the de minimis rule must include in the cost of the property all additional costs (i.e., delivery fees, installation services, or similar costs) of acquiring or producing the property if these costs are included on the same invoice as the tangible property.  If the additional costs are not included on the same invoice, then they do not need to be included.

What are my next steps?

Now that you have a background on the de minimis rule, the one step that we need to take before the end of the year is to review your capitalization policy.  If you already have one in place, let’s review it together to ensure it is up to date.  If you don’t have one yet, let’s talk about getting one in place.  The capitalization policy must be in place before January 1, 2014, so be sure to contact your RKL advisor to discuss.

Contributed by Kyle L. Weller, CPA, a supervisor in RKL’s Tax Services Group. Kyle is responsible for tax planning and compliance for corporations, partnerships and individual clients. 

 

Posted on: November 18th, 2013

RKL York Office Expands to Accomodate Exceptional Growth

accounting firms in York PARKL recently added nearly 6,000 square feet of additional office space to accommodate the firm’s growth and staffing increases in the York market.

Located at 3501 Concord Road, the additional space increases the York office to more than 24,000 square feet. Since 2010, the York office has grown its team from 18 staff members to over 75 to serve its fast-growing client base.

“The new space represents the latest development in what has been a very exciting time of growth for RKL in York,” commented Douglas L. Berman, managing partner of RKL’s York office.

RKL is a leading CPA and business consulting firm with more than 300 team members and offices in Lancaster, Reading, York and Harrisburg. RKL is ranked among the 100 top accounting firms in the nation by Accounting Today.

Posted on: November 18th, 2013

Preparing for Year-End Physical Inventory Audit

preparing for physical inventory audits The execution of your year-end physical inventory count represents the culmination of efforts from various internal departments and your external auditor.  Internal personnel must coordinate activities to ensure the counts are completed accurately, results are collected timely and disruptions to operations are kept to a minimum.  As a major milestone to your financial statement audit, the independent auditors will also observe the year-end inventory count and make test counts to support the physical existence of inventories.  The coordination of these activities requires advance planning and communication among all participants.

Want to develop a mutually effective and efficient year-end inventory plan with your auditor? Considering these six factors will get you off on the right start.

  1. Timing – The planned timing of the year-end inventory count should be discussed in advance with your auditors to confirm that procedures are suitable for the unique nature and management structure of your operations. The timing of your year-end inventory count will be influenced by several factors including the nature of the accounting system (perpetual v. periodic), extent of internal control activities, number and location of sites and operational characteristics of your business.
  2. Shutting Down – Freezing warehouse operations for the performance of the inventory count and observation represents the preferred protocol thereby eliminating transportation in and out of the facility and halting production movement.  The use of multiple counting teams paired with auditors may reduce the amount of downtime associated with the inventory count shutdown. Materials received after the performance of the count should be segregated from counted inventories until all areas are cleared by the auditor. In isolated circumstances where it is not feasible to shutdown warehouse operations, personnel should be prepared to support movement variances by supplying supporting documentation to the field auditor.  This includes receiving tickets, bills of lading and production/pick-tickets as applicable.
  3. Organize – A clean warehouse with inventories organized in an orderly fashion will facilitate the observation by allowing faster identification of test-count items and instilling a higher degree of auditor confidence that everything has been accurately counted.
  4. Site Assistance – Arrange to have knowledgeable warehouse personnel available to assist the auditors during the observation.  Experienced warehouse personnel can expedite the auditor’s evaluation of the overall condition of inventories as well as assist with locating/identifying items selected by the auditor for test counts.
  5. Documentation – Provide your auditor with the count instructions issued by management to inventory management personnel.  If your inventory count procedures are not documented, consider compiling a memo which summarizes management’s protocol for the count and collection of the results.
  6. Third-party Locations – Inventories are occasionally held by outside parties such as a public warehouse or a consignment customer.  Management should instruct third-party inventory custodians to count inventories as of the same date as the principal inventory count and forward records to management.  Your auditors may request those records for use in direct confirmation with third-party custodians.

By considering these factors in advance, you’re well on your way to a more efficient physical inventory audit. For more on preparing for your physical inventory audit, contact your RKL advisor.

accounting cpa firms Lancaster PAContributed by Nick J. Hoefel, CPA, a manager in RKL’s Audit Services Group. Nick has more than seven years experience in public accounting, specializing in serving commercial, not-for-profit and governmental entities.

 

Posted on: November 14th, 2013

RKL Team Serves Dinner at Reading’s Opportunity House

In Reading, thousands of homeless and low-income men, women and children are helped by the Opportunity House, a nonprofit, multi-service organization, each year. On Monday, November 11, team members from RKL’s Reading office had the opportunity to support this extraordinary non-profit’s efforts by providing a hot dinner to more than 65 individuals.

“Helping members of our community in need is something that our team feels strongly about,” commented Lindsey Akers, a supervisor in RKL’s Small Business Services Group. “Being there, cooking dinner, interacting with the Opportunity House’s clients and seeing firsthand how our help can make a difference was a rewarding experience for everyone who volunteered.”

The November dinner was the second meal that RKL Reading’s team served at Opportunity House in 2013. As a volunteer group, the RKL team was responsible for planning, purchasing, preparing and serving the meal. The Opportunity House relies on volunteer groups to prepare and serve dinner 365 days a year and lunch on weekends. Visit Opportunity House’s website to learn more about the organization.

accounting firms in Reading PA

accounting firms in Reading PA

accounting firms in Reading PA

 

Posted on: November 7th, 2013

Tax Loss Harvesting to Offset Capital Gains

financial planners lancaster paIt’s that time of year again.  Yes, the holidays are upon us and it’s time to start running all over the place shopping and visiting family.  However, here at Kuntz Lesher Capital, “that time of year again” means something else for us – Tax Loss Harvesting.

Towards year-end, investors have a pretty good idea regarding what their realized capital gains picture looks like for the year.  These capital gains arise from selling investments that were winners.  Well, Uncle Sam catches word of your success as an investor and before you know it he’s at your doorstep standing there with his hand out.  That pesky Uncle Sam always seems to show up whenever you make money.  So how can you keep more out of his hands and more in your pocket?  Tax Loss Harvesting could be the answer.

This technique involves identifying  investments in your portfolio that, for whatever reason, have not performed well and are currently at a loss.  You can sell these investments realizing their capital loss which goes towards offsetting any realized capital gains you have dollar-for-dollar.  The nice thing about realizing capital losses is that you can carry them forward until your death to use in offsetting future realized capital gains.  If we find ourselves in an increasing tax rate environment in the future, it makes capital losses realized today even more valuable.  Some other important points:

  • Short-term capital gains must first be offset with short-term capital losses
  • Long-term capital gains are offset by long-term capital losses and unused short-term capital losses
  • Capital losses can be credited (used) against ordinary income up to a maximum $3,000 per year
  • If you die before using up all your loss-carry forwards, you lose them
  • Wash Sale Rule – be careful!  This occurs when you buy back a stock within 30 days from when you sold at a loss and use that loss to offset capital gains come tax time.  The IRS frowns upon this one.  If you really want to buy that stock back and don’t want to sit in cash for 30 days, you can perhaps just wait out those 30 days by buying an Exchange Traded Fund that tracks the stock market.

Now is the right time to talk to your investment advisor on whether Tax Loss Harvesting would work for you. Kuntz Lesher Capital, a Lancaster, PA-based investment advisory firm, is here to help. Visit our website or call us at (717) 399-1700. Be safe these Holidays, and happy harvesting.

investment advisory financial planning lancaster paContributed by Christopher C. Ginder, CFA, vice president/portfolio manager of Kuntz Lesher Capital, a wholly-owned subsidiary of RKL. Chris analyzes and manages a broad range of client portfolios and is responsible for investment strategy for client portfolios.

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