Education Credit and Depreciation Forms Can Now be Electronically Filed with the IRS

Earlier in the year, the IRS announced that they would officially start the tax filing season on January 30 due to extensive form and processing systems changes.  They also warned that many taxpayers would not be able to electronically file returns until February or March. 

As of February 14, the IRS has been accepting tax returns that include Form 4562, Depreciation and Amortization, and Form 8863, Education Credits.  Form 4562 is filed by taxpayers claiming a deduction for depreciation or amortization, making an election under Section 179 or reporting information on the business or investment use of automobiles and other property.  Form 8863 is filed by those claiming the American opportunity and the lifetime learning tax credits.

There are still 29 forms that cannot be electronically filed; however, the IRS hopes to start accepting returns with these delayed forms in the first week of March.

For more information on when the IRS will begin accepting the additional 29 forms, please contact a Bergan Paulsen team member or visit our blog and website for updates.

What is Consumer's Use Tax?

Iowa defines consumer’s use tax as the tax on the use of a taxable good or service in Iowa when sales tax has not been paid.   Some people confuse use tax with sales tax; however, they aren’t the same and a taxable good or service is subject to only one of the taxes, never both. 

The majority of the time, consumer’s use tax is due when purchases are made out-of-state or from an online or mail order distributor.   If no sales tax was paid during these transactions, and the service or good was used in Iowa, the buyer is responsible for paying a 6% use tax to the state of Iowa.  If sales tax was paid during the transaction, the buyer is only responsible for additional use tax when the other state’s sales tax is lower than 6%. In this case, the buyer owes the state of Iowa the difference.  One note: consumer’s use tax is not subject to any local option sales tax.

For example, if a business purchases office supplies from a vendor in a state that isn’t required to collect Iowa tax, and the Iowa business uses the supplies, the business owes the state of Iowa a 6% consumer’s use tax.  In addition, a service can be subject to the consumer’s use tax.  For example, if a business has a vehicle repaired in another state, consumer’s use tax would be owed if the vendor didn’t charge it since vehicle repair is a taxable service in Iowa. 

If you are a business that makes purchases requiring a use tax payment on a regular basis, you should apply for a consumer’s use tax permit.  There is no cost to apply.   If your purchases are less frequent, you can report the purchases on line 2 Goods Consumed of your quarterly sales tax return.

Hint:  If you make regular purchases using the same vendor, you can ask them to start adding sales tax to your purchases.  Some vendors will accommodate your request while others won’t, but it never hurts to ask. 

Our Time to Shine!

We’re heading into tax season. You can feel it in all five of our offices – the energy is palpable. Sure, this means we’re starting to get to the office before the sun rises and we’re staying way past sunset. It also means we’re here on Saturdays, and we’re eating lots of pizza! But, this is what we do. This is what we studied for and it’s much of what we work toward each year. It’s the time when everyone turns to us for our smarts, savvy and problem-solving skills. THIS is our time to shine.

We do lots for our clients all year long and are constantly looking to give our clients MORE personalized service, financial advice and business expertise. But, this is the time when we really hunker down and see what our team is made of (breadsticks!).

So, don’t be scared to give us a call in the next few months. We’re excited to show off our skills and to let you see us shine!

Cedar Falls - (319) 268-1715

Cedar Rapids - (319) 294-8000

Coralville - (319) 248-0367

The Greater Des Moines Area - (515) 727-5700

Waterloo - (319) 234-6885

IRS Announces Extended Farmer Deadline

Deadline for Federal Tax
The Internal Revenue Service announced that due to the extended processing time for many tax forms including form 4562 (Depreciation), that the deadline for any farmer and fisherman has been extended April 15, 2013 from March 1, 2013. 

To take advantage of the extended due date, the farmer will file out Form 2210-F and check the waiver box and attach it to the tax return.  Nothing else will be required.

Deadline for Iowa Tax
As for the Iowa state tax, if at least 2/3 of your income is from farming or commercial fishing, you may normally avoid penalty for underpayment of 2012 estimated tax in one of the following ways:

1. Pay the estimated tax in one payment on or before January 15, 2013, and file the Iowa income tax return by April 30, or 
2. File the Iowa income tax return and pay the tax due in full on or before March 1, 2013.

The federal legislation passed on January 1, 2013 to avert the “fiscal cliff” required revisions to Internal Revenue Service (IRS) forms and processes. Included were revisions impacting farmers and commercial fishers. These revisions may affect the ability of many farmers and fishermen to file and pay their taxes by the March 1 deadline. Therefore, farmers or fishers who miss the March 1 deadline will not be subject to the penalty if they file and pay their Iowa taxes by April 15, 2013. 

Importance of Closing Procedures

The end of the month can be a hectic time in any office, and it can be easy to focus on just getting the job done for now, thinking you’ll develop a more organized process in the future.  It will come as no surprise that having a monthly checklist can help ensure that all financial transactions are recorded timely and accurately.  In turn, your managers and directors will have the accurate financial information available that is critical in enabling them to respond to changing conditions. Simply put, it is impossible to make informed decisions without accurate information, and implementing a month-end process or checklist for your organization’s closing procedures will achieve three main things:

1. Increase Efficiencies:  Having a written month-end closing process will speed up the time it takes to prepare and have internal financial statements available since the accounting staff will have a well organized list of items to complete and will be able to stay on task.  Setting a deadline for the month-end close can help too (for example the second Monday of the following month).  Once this process is implemented, the accounting staff and managers will be on the same page as to when to expect reports.
2. Increase Reliance on Internal Financial Statements:  Without a systematic method for timely and accurate monthly closing procedures, it leads to a continuing and growing backlog of transactions and journal entries that are not posted into the accounting system, which renders the accounting information virtually useless in making well informed business decisions.  Beyond the inconvenience of inaccurate records, this accounting disorganization will ultimately cause significant errors in the financial records and financial statements, as well as allow possible irregularities, including fraud, to exist and continue without notice.
3. Reduce Adjustments at Year-End:  Generally, organizations that have a well written and implemented checklist will identify errors early.  Of course, there are the usual day to day activities to post, but there are several unique transactions that only get posted on a monthly basis that need to be accounted for. Identifying mis-posted transactions and errors throughout the year will lead to fewer adjustments at the end of the year, saving time and money on compilations, reviews, and audits.

A good rule of thumb when closing a month is to print a trial balance and thoroughly check each balance sheet account.  Balance sheet accounts should reconcile to either a bank statement or internal schedule, such as a spreadsheet or list.  Utilizing, a comprehensive month-end checklist will help your organization gain efficiencies throughout the year, but creating your own checklist can be overwhelming.  That is why we developed a month-end checklist and have posted it to our website – www.berganpaulsen.com/monthlychecklist.html.  The checklist covers an abundance of areas and will need to be tailored to fit your organization’s needs. 

If you would like to learn more about developing a customized checklist for your organization or other ways in which you can benefit from accurate and timely financial statements, please get in touch with one of the nonprofit experts at Bergan Paulsen.

Maximize Revenue and Trim Expenses by Streamlining Practice Operations

When it comes to operating a medical practice, it’s important to constantly review processes and improve operational efficiency on an ongoing basis.  Examining current procedures can help identify areas that may be draining revenue, increasing costs and lowering the bottom line. 

Review Your Coding for Accuracy
An inaccurate code can reduce reimbursements, and therefore cause delays or denied claims.  Often times mis-coding occurs when old data is present and inexperienced support staff are charged with making the coding decisions. 

To keep your codes accurate, ensure you are maintaining coding manuals and software.  Keep a code reference summary handy in exam rooms and offer easy access to online coding resources.  Remind staff members that making notes during each patient visit, allows for more accurate billing. 

Finally, take the time to periodically review your practice’s coding accuracy to uncover problem areas.  These assessments could include a review of your practice’s forms and a comparison of billing codes with the actual services that were provided.

Improve Employee Productivity

• Consider these ideas for improving productivity:
• Set productivity goals and offer incentives to your staff for reaching those goals.
• Delegate administrative functions:
• Ensure that physicians spend their time doing the tasks that can only be done by a physician.
• Maximize your physician and medical assistant’s time by reviewing your patient flow.

Exercise More Efficient Control over Staff Time
It is often possible to trim overtime expenses without reducing the quality of patient care.  You can start by reviewing those employees who worked overtime and what was happening when they worked the overtime.  If overtime was necessary because you were short-staffed, see if this was due to vacations or some other controllable situation. It may be time to revise your practice’s policy on vacation time if scheduled time off was the cause of the jump in overtime.

Update Fee Schedules
Although patients are price conscious in today’s market, it is important to review your fees to ensure you are maintaining an appropriate fee structure.  If your practice hasn’t raised fees regularly, you may want to consider appropriate increases. In addition, you should periodically examine the reimbursement rates of all the plans you participate with and re-evaluate whether it makes economic sense to continue accepting patients from some of the ones that reimburse poorly.

Improve Your Purchasing Practices
Medical and office supplies can be a significant part of a practice’s expenses. Busy practices often continue to order these items from the vendors that have always supplied them which can be a costly mistake. Choose several of your practice’s “high-volume” items and find out how much other vendors are charging. Use that information to negotiate lower prices with your current suppliers, consolidate orders with fewer vendors, or switch to new suppliers to save money.

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John Warren, Tax Partner   |   jwarren@berganpaulsen.com

As an experienced tax partner, John connects with both individual and business clients on complex tax issues.  John focuses his practice on the health care and real estate industries.  With compassion toward the industry, John builds long-term relationships with clients through active listening and creating multifaceted solutions.  Read more about John.

Key Considerations for Audit/Finance Committee Review of Form 990

With the public availability of the Form 990, most nonprofit organizations and their audit/finance committees (or in some cases the governing board), have adopted the best practice of reviewing the 990 in detail.  Considering that the Form 990 also requires a description of the review process in Schedule O, this best practice is all but mandatory and is important to ensure that the governing body is financially responsible with the donors’ money and that the organization’s expenses are in line with their mission.

When reviewing Form 990, the governing body or committee should be asking questions such as:

• Is the mission statement on the 990 accurate?
• Do the program descriptions accurately reflect the activity of the organization?
• Can significant decreases or increases on page 1 of the 990 be explained?
• Does the checklist of required schedules contain answers that are a surprise?
• Do the questions on governance, management and disclosure contain answers which indicate the organization is well governed and has adopted the proper policies?  Does Schedule O accurately reflect the required descriptions for this process?
• Does the list of officers, directors and key or highly compensated employees who served at any time during the year seem complete and accurate?
• Does the overall compensation for the highest paid individuals appear reasonable and within expectations?
• Is the amount of gross unrelated business income disclosed on page 1 and in the statement of revenue a significant portion of total revenue?  If so, this can be a possible exemption issue and should be discussed with your legal or financial advisor. 

Additionally, the governing body or committee should also be asking the following questions to ensure their nonprofit is tax compliant:

• If the nonprofit is a 501(c)(3) or 501(c)(4) organization, does the total of program expenses in relation to total expenses indicate an organization which efficiently utilizes its funding on its mission?
• If the nonprofit is a 501(c)(3) publicly supported organization, is the public support percentage on Schedule A       comfortably above the 33 1/3 percent level required to maintain public charity status? If required to complete Part III, is the investment income percentage well below the required 33 1/3 percent level?
• If your organization receives audited financial statements, is the note from the financials about uncertain tax positions included in Schedule D, Part XIV? Does the note contain any disclosure of uncertain tax positions?
• If your organization is involved with foreign activities or grant-making, has Schedule F been prepared? Is there a note that describes a well-maintained monitoring process for foreign grants?
• Have there been any transactions with interested persons?  Has Schedule L been prepared to disclose these transactions?
• In addition to various required notes on Schedule O, are there additional disclosures that should be made to explain any other items on the return?
• Is there any disclosure anywhere on the return, including attachments, that contains personal information about individuals, including Social Security numbers?

We encourage the governing body or committee to thoroughly review the Form 990 and ask any other questions that may come up. 

2013 Payroll Information

Multiemployer Pension Plan Disclosure Requirements

Since many construction companies rely on union workers, multiemployer pension plans are quite common.  These plans are designed to allow union workers to accrue pension benefits in a single pension plan for their retirement.  The plans often work quite well, but they can run into issues when they are underfunded – an increasingly common occurrence in recent years.  Because of this, the Financial Accounting Standards Board (FASB) has issued a new standard that requires additional disclosures regarding a company’s participation in multiemployer pension plans.  These changes take effect for years ending after December 15, 2012.

What You Can Expect:
Previously, companies were required to disclose their total contributions to multiemployer plans in which they participate. For years ending after December 15, 2012, employers will be required to provide additional information related to multiemployer plans in their annual financial statements including:

1.  Legal name, plan number and employer identification number of all plans in which you participate
2.  The amount of employer contributions made to each significant plan
3.  The expiration dates of collective bargaining agreements and any minimum funding arrangements
4.  The most recent funded status of the plan

Preparing for the Change:
If you are a union contractor that participates in at least one multiemployer pension plan, you will want to prepare in advance in order to comply with the new standards, and Bergan Paulsen can help you with that transition.  Your plan administrator will need to provide the required disclosure information, and it may take time to make this information available. With a little planning, we hope to make this change as smooth as possible.

Form 1099-PATR Explained

Cooperatives issue Form 1099 PATR to those taxpayers that received money from the cooperative.  Taxpayers will receive these forms in January 2013 to report calendar year 2012 information to its patrons.  This form has a lot of information on it that affects an individual’s farm tax schedule, so it’s important that those receiving these forms from the cooperative understand these various elements.  You can find the updated form here:  http://www.irs.gov/pub/irs-pdf/f1099ptr.pdf. 

Boxes for taxpayer name and identification numbers: It is important that the cooperative and patron recipient have identification numbers aligned with the entity who actually received the distribution. 

Original, void or corrected Form 1099-PATRs:  The IRS will match all cooperative distributions reported on box 1 and 3 to the recipient’s tax returns.  If members are not flagged appropriately by the cooperative, and the form was issued to the party who did not receive the distribution, then voided and corrected forms should be issued. The issuer will check the "void" or "corrected" box at the top of the 1099 form if applicable.

Box 1 – Patronage Dividends:  Lists the patronage dividends paid to the recipient in cash, qualified written notices of allocation (at stated dollar value) or other property.

Cooperatives generally issue "qualified written notices of allocation" to their members in the form of equity in the cooperative.  At least 20% of the patronage dividend or payment must be in cash to be a "qualified written notice of allocation." In this case, if the source of the patronage dividend was derived from an expenditure deducted on your tax return, then the entire amount both cash and noncash portions of the patronage dividend must be reported as income on your tax return.  If related to farming expenditures, then report the patronage dividend on Schedule F as cooperative distributions. The noncash portion represents the amount of qualified patronage dividends which have been reported as income for tax purposes, but which have been retained by the cooperative for its use. At some future time, you may be able to receive additional cash redemptions. The cash received at the later date will not be taxable, because you have already reported the amounts on previous tax returns.

Box 2 – Non-patronage Distributions:  Shows the non-patronage distributions paid to the recipient in cash, qualified written notices of allocation or other property.

Box 3 – Per-Unit Retain Allocations:  A per-unit retain allocation is an amount paid to patrons for products sold for them that is fixed without regard to the net earnings of the cooperative. These allocations can be paid in money, other property, or qualified certificates.  Per-unit retain allocations issued by a cooperative generally receive the same tax treatment as patronage dividends and are reported on Schedule F as cooperative distributions.

Per-unit retain allocations paid in money (PURPIMs) include amounts paid to patrons for grain. The amount reported on Form 1099-PATR box 3 is the recipient’s calendar year 2012 gross grain sales (rather than net grain sales) to the cooperative.  Members should reclassify grain sales as PURPIMs on the farm income tax schedule.  Generally, the items that differ from net grain sales to gross grain sales include deductions from grain checks for storage, drying, trucking and check-off expenses.   Remember that even if the cooperative has a fiscal year, the cooperative will report these payments to members for their grain purchases paid during calendar year 2012 on Form 1099-PATR box 3.

Box 4 – Federal Income Tax Withheld: Lists the backup withholdings for the recipient.  If the recipient did not provide the cooperative with a tax ID number, the cooperative must withhold 28% of any distributions.

Box 5 – Redemption of Nonqualified Notices and Per Unit Retain Allocations:  Shows the amount the recipient got when he or she redeemed nonqualified written notices of allocation and nonqualified per-unit retain allocations.   If you receive a non-qualified patronage dividend, the cash received is taxable income.  If you receive a nonqualified notice of allocation, retain the notice in your permanent records, but no tax impact occurs at this time, only when cash is received upon later redemption.

Box 6 – Domestic Production Activities Deduction: Reports the amount of Section 199 Domestic Production Activities Deduction (DPAD) that the cooperative allocated to the recipient during calendar 2012.  The deduction represents the amount the recipient may take based on his or her portion of patronage dividends or per-unit retain allocations attributable to Qualified Production Activities Income (QPAI). 

Your local cooperative computes DPAD for its fiscal year-end based on 9% of QPAI.  Recent IRS rulings allow cooperatives to treat grain purchases from its members as per unit retain allocations paid in money (PURPIMs) for purposes of calculating the DPAD.  This classification means that the cooperative is not required to deduct the PURPIMs when calculating QPAI and therefore DPAD. The cooperative, for its fiscal year, computes the DPAD in accordance with these rules and then elects to pass through the deduction to its members during 2012.  The deduction is based on grain payments made to its members during the applicable payment period (from the beginning to the end of the cooperative’s fiscal year).  The deduction is also limited to 50% of qualified wages paid by cooperative.  The wage limitation does not apply a second time to the amount passed through to the member on its tax return. 

In order for the patron to qualify for the deduction, the cooperative must designate the patron’s portion of the Section 199 deduction in a written notice of allocation of DPAD (required to be mailed to the patron no later than the 15th day of the ninth month following the close of the cooperative’s fiscal year) indicating that the cooperative made an election to pass the DPAD on to its members. The recipient’s allocated DPAD is deductible on Form 8903 line 23 for members with a calendar or fiscal year ending within the date of the written notice.

Boxes 7, 8, 9 and 10 – Various Tax Credits:  These boxes list various tax credits, such as the investment tax credit or work opportunity credit, passed through from the cooperative to the recipient. 

Should you have any questions regarding the information on any tax form and what it means for you and your agribusiness, please contact one of the Bergan Paulsen ag team members for more information.

Summary of American Taxpayer Relief Act

Individual Tax Rates

All the individual marginal tax rates are retained (10%, 15%, 25%, 28%, 33%, and 35%). A new top rate of 39.6% is imposed on taxable income over $400,000 for single filers, $425,000 for head-of-household filers, and $450,000 for married taxpayers filing jointly ($225,000 for each married spouse filing separately).  These changes are considered permanent.

Phaseout of itemized deductions and personal exemptions

The personal exemptions and itemized deductions phaseout is reinstated at a higher threshold of $250,000 for single taxpayers, $275,000 for heads of household, and $300,000 for married taxpayers filing jointly. 

The phaseout for itemized deductions reduces total itemized deductions by 3% of excess income over the above threshold amounts.

The personal exemptions phaseout reduces personal exemptions by 2% of the total exemptions for each $2,500 of excess income over the above threshold amounts.

Capital gains and dividends

The 15% capital gain rate is retained except a 20% rate now applies to capital gains and dividends for individuals reaching into the 39.6% bracket mentioned above.  The 0% rate is retained to the extent income falls below the top of the 15% income tax bracket – projected for 2013 to be $72,500 for joint filers and $36,250 for singles.

Alternative minimum tax

The exemption amount for the AMT on individuals is permanently indexed for inflation. For 2012, the exemption amounts are $78,750 for married taxpayers filing jointly and $50,600 for single filers. Relief from AMT for nonrefundable credits is retained.

Estate and gift tax

The estate and gift tax exclusion amount is retained at $5 million indexed for inflation ($5.12 million in 2012), but the top tax rate increases permanently from 35% to 40% effective Jan. 1, 2013. The estate tax “portability” election, under which, if an election is made, the surviving spouse’s exemption amount is increased by the deceased spouse’s unused exemption amount, was made permanent by the act. 

Miscellaneous individual extension provisions

• The American opportunity tax credit for qualified tuition and other expenses of higher education will now run through 2017.
• The following are retroactively patched to 2012 and extended one year through 2013:

·       Deduction for up to $250 for elementary and secondary school teachers

·       Deduction of mortgage insurance premiums as qualified residence interest

·       Deduction for state and local sales taxes paid in lieu of state and local income taxes paid

·       Above-the-line deduction for up to $4,000 of higher-education-related-expenses

·       Exclusion from income for Qualified Charitable Distributions from an IRA to a charity

Business tax extenders

• Extended through 2013 the credit for increasing research and development activities, which expired at the end of 2011
•  Expensing amounts under Sec. 179 are changed to $500,00 for 2012 and 2013 with a $2 million investment limit
• Increased expensing amounts under Sec. 179 are extended through 2013
• The availability of an additional 50% first-year bonus depreciation was extended for one year and now generally applies to property placed in service before January 1, 2014
• The following were extended through 2013, and in some cases modified:

·       The Work Opportunity Tax Credit was extended through 2013

·       15 year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements

·       Temporary exclusion of 100% of gain on certain small business stock

·       Reduction in S corporation recognition period for built-in gains tax

·       For tax years beginning in 2012 and 2013, the S corporation recognition period for built-in gains tax is reduced to 5 years

Energy tax extenders

Extends and in some cases modifies the following energy credits that expired at the end of 2011:

• Credit for energy-efficient existing homes
• Cellulosic biofuel producer credit
• Incentives for biodiesel and renewable diesel
• Credits with respect to facilities producing energy from certain renewable resources
• Credit for energy-efficient new homes
• Alternative fuels excise tax credits