September 28th, 2010
New Annual and Final Account Filing Requirements for Conservators
Effective January 1, 2011, all annual and final adult conservatorship accountings must be filed through the Minnesota Courts’ new CAMPER (Conservator Account Monitoring Preparation and Electronic Reporting) system, which is an online filing system on the Minnesota Courts’ website. Conservators must obtain a username and password and complete a CAMPER tutorial on the Minnesota Courts website before filing any accounting documents. We recommend that conservators familiarize themselves with the CAMPER system prior to January 1, 2011. For more information, visit the CAMPER website.
September 28th, 2010
President signs small business jobs legislation into law
On September 27, President Obama signed into law H.R. 5297, the Small Business Lending Funding Act. The Act includes a number of important tax provisions. Here’s a brief overview of some notable provisions:
Enhanced small business expensing (Section 179 expensing). In order to help small businesses quickly recover the cost of certain capital expenses, small business taxpayers can elect to write off the cost of these expenses in the year of acquisition in lieu of recovering these costs over time through depreciation. Under pre-2010 Small Business Jobs Act law, taxpayers could expense up to $250,000 of qualifying property—generally, machinery, equipment and certain software—placed in service in tax years beginning in 2010. This annual expensing limit was reduced (but not below zero) by the amount by which the cost of qualifying property placed in service in tax years beginning in 2010 exceeded $800,000 (the investment ceiling). Under the new law, for tax years beginning in 2010 and 2011, the $250,000 limit is increased to $500,000 and the investment ceiling to $2,000,000.
The new law also makes certain real property eligible for expensing. For property placed in service in any tax year beginning in 2010 or 2011, the up-to-$500,000 of property expensed can include up to $250,000 of qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property).
100% exclusion of gain from the sale of small business stock for qualifying stock acquired after date of enactment and before Jan. 1, 2011. Before the 2009 Recovery Act, individuals could exclude 50% of their gain on the sale of qualified small business stock (QSBS) held for at least five years (60% for certain empowerment zone businesses). To qualify, QSBS must meet a number of conditions (e.g., it must be stock of a corporation that has gross assets that don’t exceed $50 million, and the corporation must meet active business requirements). Under the 2009 Recovery Act, the percentage exclusion for gain on QSBS sold by an individual was increased to 75% for stock acquired after Feb. 17, 2009 and before Jan. 1, 2011. Under the new law, the amount of the exclusion is temporarily increased yet again, to 100% of the gain from the sale of qualifying small business stock that is acquired in 2010 after date of enactment and held for more than five years.
S corporation holding period. Generally, a C corporation converting to an S corporation must hold onto any appreciated assets for 10 years following its conversion or face a business-level tax imposed on the built-in gain at the highest corporate rate of 35%. This holding period is reduced where the 7th tax year in the holding period preceded the tax year beginning in 2009 or 2010. The 2010 Small Business Jobs Act temporarily shortens the holding period of assets subject to the built-in gains tax to 5 years if the 5th tax year in the holding period precedes the tax year beginning in 2011.
Boosted deduction for start-up expenditures. The new law allows taxpayers to deduct up to $10,000 in trade or business start-up expenditures for 2010. The amount that a business can deduct is reduced by the amount by which startup expenditures exceed $60,000. Previously, the limit of these deductions was capped at $5,000, subject to a $50,000 phase-out threshold.
Deductibility of health insurance for the purpose of calculating self-employment tax. The new law allows business owners to deduct the cost of health insurance incurred in 2010 for themselves and their family members in calculating their 2010 self-employment tax.
Cell phones removed from listed property category. This means that cell phones can be deducted or depreciated like other business property, without onerous recordkeeping requirements.
September 22nd, 2010
Non-Profits and Tax-Exempt Organizations – A Confusing Distinction
We receive many questions from clients who want to start a nonprofit company, but the questions we hear most often are how is it done and will it be a tax-exempt or, put another way, a 501(c). What we have observed over the years is that there is a lot of confusion about the differences between being a nonprofit organization and a 501(c) or tax-exempt entity.
Establishing a nonprofit is pretty simple. We prepare Articles of Incorporation or Organization and file these with the Minnesota Secretary of State in order to establish the legal entity. We also prepare bylaws that control the governance of the nonprofit corporation and miscellaneous resolutions that address other housekeeping type matters such as officers and directors, banking resolutions and the adoption of several necessary policy statements (conflict of interest, record retention and whistleblower policies being the main ones). This typically costs around $500, including in that figure the $70 filing fee that the Secretary of State collects when the Articles of Incorporation or Organization are filed.
What we will have accomplished by taking these steps is to create a separate legal entity for nonprofit activities. This will not be a tax exempt entity. Instead, the nonprofit status simply means that the entity’s purposes do not include making a profit for the benefit of its owners (the raison d’être for a for-profit entity). This means that the nonprofit still files tax returns, still pays taxes on any revenue in excess of its expenses, and that contributions to the entity are not tax deductible by the donor and are taxable income for the nonprofit entity. None of this represents an issue if the venture will never make a profit (that is, have earnings or income that exceed its costs) and if the entity is not dependent upon donations for its operations.
In order to qualify as tax-exempt, an organization must apply to the Internal Revenue Service and seek a formal determination of exemption. Not all nonprofit corporations will qualify as tax-exempt; generally, only those entities that are engaged in the activities described in Section 501(c) of the Internal Revenue Code will receive that designation from the IRS. Among the types of organizations and activities that do qualify for tax-exempt status are those that (i) are organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, (ii) that foster national or international amateur sports competition (but only if no part of its activities involve the provisions of athletic facilities or equipment), or (iii) promote the prevention of cruelty to children or animals.
The process of applying for tax exempt status (that is, to become a 501(c) organization) is complex and we recommend that you work with an experienced CPA or tax practitioner to ensure that the extensive IRS application (IRS Form 1023 – you may find this at www.irs.gov) is filled out correctly. We understand that the IRS receives hundreds of 501(c) applications each year, and considers them on a state-by-state, rotating basis. The time period for receiving approval is, therefore, quite unpredictable – if your application is received just before the applications from your state make it to the top of the IRS’s stack, then you might hear back from the IRS quite quickly. If your application is received, however, right after your state had its turn, you will be behind the applications from the 49 other states! At this time, the IRS is currently reviewing applications it received in March 2010, a 6 month backlog. Therefore, it is critical that your application be correct and complete – you would not want to have the application rejected due to an error and have to start your application process (and waiting period) all over again.
If you would like more information about nonprofit or tax-exempt organizations, please send us a message on our “Contact Us” page.
September 20th, 2010
Good time to buy a home?
Brett Arends from the Wall Street Journal just published his top 10 reasons why now is a good time to buy a home. This article challenges the recent Time magazine cover article claiming ”Owning a home may no longer make economic sense.” He makes some excellent points.
CLICK HERE to see the Article