Tax-exempt organizations are required to file annual reports with the IRS by the 15th day of the fifth month after their year-end. Those with gross receipts below $50,000 can file an E-postcard rather than a longer version of Form 990. For calendar-year organizations, the filing deadline for 2012 reports is May 15, 2013.

Do you know where your money is? If some of it is offshore, you might have tax reporting responsibilities – and those responsibilities generally go further than checking the familiar box on the Schedule B you submit with your federal income tax return. Here are two:

1. FBAR. Foreign bank account reporting has been required since 1970, so you may be familiar with “Form TD F 90-22.1,” commonly known as “FBAR.” Unless you qualify for an exception, that’s the form you fill out when you control assets in a foreign financial account and the total value of your account exceeds $10,000 at any time during the calendar year.
   
   The FBAR is an annual information form, filed separately from your federal income tax return. You may need to file it even if you receive no taxable income from your foreign account.
   
   The due date for the FBAR differs from Form 1040 as well. Your 2012 FBAR must be received by the Treasury Department no later than June 30, 2013. No extension is available. “Received by” means you’ll need to mail the FBAR before June 30. Since that’s a Sunday, your return must reach its destination by Friday, June 28.
   
   You can also file electronically.
2. Form 8938. The requirement to file “Form 8938 – Statement of Specified Foreign Financial Assets” began in 2011. Whether you have to complete Form 8938 depends on your federal income tax filing status, and if you’re living in the U.S. or abroad.
   
   For example, say you’re married filing a joint return, and live in the U.S. You may be required to file Form 8938 if the total value of your reportable foreign assets is more than $100,000 on December 31, or more than $150,000 at any time during the year.
   
   Reportable foreign assets include accounts at foreign banks and financial institutions, as well as certain stocks, bonds, and foreign investments. When determining if you meet the threshold for filing, consider the entire value of accounts you own jointly with someone other than your spouse, as well as assets owned by your dependent children.
   
   File Form 8938 with your federal income tax return. Depending on the amount and type of your foreign accounts and other assets, you might need to file both the FBAR and Form 8938.
   
   Please call if you need details or assistance with your filing responsibilities and options.

Tax rules are daunting at the best of times – and they’re more so at the worst of times, such as during a divorce, when you may feel too stressed to face decisions involving your taxes. Yet the choices you make will affect your future, both financially and personally. Here’s where to start.

~Filing status. For tax purposes, the timing of your divorce matters. The date of your final decree determines your filing status, which in turn has an impact on what you’ll owe.

Will your divorce be final by the last day of your tax year (generally December 31)? If so, you’ll file your income tax return as single or head of household. You can also use one of those filing statuses if you were legally separated according to the laws of your state by the end of your tax year.

If your divorce is closed after the end of your tax year, you’re considered married for that year. In that case, you’ll choose between married filing jointly and married filing separately. Head of household status may be available in certain situations.

Tip: Remember to adjust the income tax withholding statements you have on file with your employer.

~Exemptions. When you prepare your federal income tax return for 2013, you can deduct $3,900 for each qualified child or relative that you claim. In addition, you get the benefit of other credits and deductions related to your dependent, such as the child tax credit.

The general rule: You’re the custodial parent if you’re the one your child lives with for the majority of the year. You can release your claim to the exemption by filing a form with your return. The release will also allow your former spouse to claim the child tax credit.

Tip: Consider adjusted gross income and your exposure to the alternative minimum tax when discussing who will get dependency exemptions.

~Asset transfers. In general, ex-spouses can make a tax-free transfer of assets within a year of the divorce. “Tax-free” means the initial transfer is considered a gift, so you’ll want to make sure you’re fully informed about the basis of assets you receive. Why? Because you get the same basis and holding period your ex-spouse had before the transfer. That will be important when you sell the assets later.

Another caveat: Some types of property, such as retirement plans, have extra rules to be aware of. For example, to remain tax-free, a transfer from your traditional IRA to your spouse must be mentioned in your divorce decree, and should take place post-divorce, via a direct transfer to the new account.

Splitting assets in your 401(k) or other qualified retirement plan requires a “qualified domestic relations order,” a document you must get from the court.

These are just a few of the taxing aspects of divorce. Contact us for planning and advice specific to your situation.

Did you spend hours pulling together your tax records in preparation for filing your 2012 tax return? It doesn't have to be that way. Avoid the problem next year by taking a few simple steps now.

• First, decide what records you need to keep for the current year. Generally speaking, you'll need records of income items and deductible expenses. Use your 2012 tax return as a guide.
  
• You'll also need to keep some items for longer periods. For example, you may need purchase records for your house and other investments years later to calculate your capital gains.
  
• Set up a filing place for each category. Use folders or plastic pouches for paper records, such as charitable receipts, property tax payments, and mortgage reports.
  
• If you manage your banking and finances online, open up a series of folders on your hard drive. Save copies of electronic statements or transaction receipts in the relevant folder. Remember to make regular data backups.
  
• Then stay current with your records as you go through the year. It's easier to spend a few minutes each month than to have to spend hours reconstructing everything at the end of twelve months.
  
• At the end of each month, highlight income and deduction items in your check register. Use one color for charitable contributions, another for work expenses, and so on. You can do this whether you keep your register on paper or on a computer. Make sure any associated receipts are filed away correctly.
  
• At year-end, you should know exactly what falls into each category and where the records are.
  

Remember, the better your recordkeeping, the better your chances of maximizing tax breaks. If you have questions about the records you need to keep, give us a call.

Every business should give serious consideration to how the company would deal with the death, disability, or departure of one of the owners. Like a will, a buy/sell agreement spells out how assets and other business interests will be distributed should an owner quit, become disabled, or die.

Without such an agreement, complications arising from ownership succession may capsize an otherwise thriving company. The remaining owners might be forced to share management and profits with unskilled or contentious outsiders. They may be embroiled in legal disputes over business assets and liabilities. A firm’s internal squabbles may spill over to customer service, resulting in lost sales. If the firm’s ownership seems doubtful or its future uncertain, creditors might accelerate collection efforts, bringing unwanted pressure on company resources.

The possible death of an owner isn’t the only reason to prepare a buy/sell agreement. Sometimes an owner voluntarily decides to leave a company. By providing a mechanism for assessing a firm’s value and ensuring that all parties are treated equitably, a carefully crafted buy/sell agreement will facilitate that kind of transition as well. At a minimum, a buy/sell agreement should cover the following:

• Triggering events. What happens if an owner dies, becomes disabled, or leaves the company? What happens if he or she files for divorce or is caught skimming profits? The buy/sell agreement should spell out the company’s response to such events, including how assets will be transferred, stock ownership controlled, and voting rights secured by the remaining owners.
  
• Valuation. The agreement should lay out how the business will be valued should a triggering event occur. For example, it might include a specific price for an owner’s interest or specify a formula for determining the company’s value. It might even name a specific firm to conduct the valuation. If the triggering event is the death of an owner, the buy/sell agreement might also guarantee a specific lump sum to be paid to the deceased owner’s estate.
  
• Buyout method. If one owner leaves the firm, becomes disabled, or dies, the buy/sell agreement should contain provisions specifying how remaining owners will buy out the interest of that partner. (In many cases, owners use life or disability insurance proceeds to fund a buyout.)

To ensure that the buy/sell agreement remains relevant and up to date, owners should review it periodically and revise it as needed. For assistance, contact us and your attorney.

The delayed passage of the American Taxpayers Relief Act of 2012 has put the IRS behind schedule. Due to several provisions of the law affecting 2012 tax returns, the IRS could not open the Form 1040 filing season for the majority of taxpayers until late January.

Starting Sunday, February 10, the IRS will start processing tax returns that contain Form 4562 (Depreciation and Amortization), and on Thursday, February 14, the IRS plans to start processing Form 8863 (Education Credits).

Those taxpayers filing Form 5695 (Energy Credit) and Form 3800 (General Business Credit) will not be able to file until late February or possibly not until March.

The IRS said that taxpayers will receive refunds faster by e-filing and using direct deposit.

The timing of taxable income and deductions for federal income tax purposes is relatively straightforward. Generally, income is taxable in the year it is earned and received. Likewise, deductible expenses incurred and paid this year can offset taxable income on this year’s return. The Internal Revenue Code is riddled with exceptions, but these basic rules usually apply, especially for calendar-year taxpayers.

The tax law also includes several provisions commonly referred to as “carrybacks” and “carryforwards” (or “carryovers”). As their names imply, the tax item can be carried back to a prior year or carried forward to a succeeding year.

Two items that are often carried forward by individuals are capital losses and excess charitable deductions. For instance, capital losses realized in 2012 offset capital gains plus up to $3,000 of ordinary income for the year. If you have an excess capital loss of $10,000, you can carry forward $7,000 to 2013 after offsetting $3,000 of ordinary income in 2012.

Similarly, your current deduction for charitable donations may be limited by one or more percentage thresholds in the law. For example, donations of appreciated property are generally limited to 30% of your adjusted gross income (AGI). If you exceed the 30%-of-AGI limit this year, you may carry over the excess for up to five years.

Carrybacks aren’t as common, but may also be available in certain situations. Take a “net operating loss” (NOL) sustained by your small business. If you have an NOL in 2012, you can carry back the loss for two years. Thus, you’re effectively able to reduce your tax liability for one or two of the previous years for a refund of taxes already paid. Then you can carry forward any remaining NOL for up to 20 years. If it suits your purposes, you can elect to waive the NOL carryback. For more information on carrybacks and carryforwards, give us a call. We can help you make the best tax return choices for your situation.

It’s time to file various tax returns once again. Among the tax deadlines you may be required to meet in the next few months are the following:

• January 15 – Due date for the fourth quarterly installment of 2012 estimated taxes for individuals unless you file your tax return and pay any taxes due by January 31.
  
  
• January 31 – Employers must furnish 2012 W-2 statements to employees. Payers must furnish payees with Form 1099s for various payments made. (The deadline for providing Form 1099-B and consolidated statements to customers is February 15.)
  
  
• January 31 – Employers must generally file annual federal unemployment tax returns.
  
  
• February 28 – Payers must file information returns, such as Form 1099s, with the IRS. This deadline is extended to April 1 for electronic filing.
  
  
• February 28 – Employers must send Form W-2 copies to the Social Security Administration. This deadline is extended to April 1 for electronic filing.
  
  
• March 1 – Farmers and fishermen who did not make 2012 estimated tax payments must file 2012 tax returns and pay taxes in full.
  
  
• March 15 – 2012 calendar-year corporation income tax returns are due.
  
  
• April 15 – 2012 federal partnership returns are due.
  
  
• April 15 – Individual federal income tax returns for 2012 are due.
  

• Individual income taxes. Only the wealthiest taxpayers face an income tax increase in 2013. A new individual tax rate of 39.6% will apply to single filers with income above $400,000 and joint filers with income above $450,000. Otherwise, the 2012 tax rate structure is permanently extended. However, beginning in 2013, a new 3.8% Medicare surtax authorized by the 2010 health care law also applies to certain high-income investors.
  
  
• Capital gains and dividends. Under prior law, the maximum tax rate for net long-term capital gain would have been boosted to 20%, while qualified dividends were scheduled to be taxed at ordinary income rates, beginning in 2013. The new law extends the favorable 15% tax rate for most taxpayers and extends the zero tax rate for those in the 10% and 15% brackets for ordinary income. However, for single filers with income above $400,000 and joint filers with income above $450,000, the maximum tax rate on long-term gains and qualified dividends increases to 20%.
  
  
• Alternative minimum tax. Retroactive to January 1, 2012, the new tax law permanently revamps the alternative minimum tax (AMT) to avoid increased exposure to this “stealth tax.” Without the latest fix, an estimated 30 million more filers would have been required to pay the AMT for the 2012 tax year.
  
  
• Payroll tax holiday. The 2% reduction in payroll taxes ends. Employees will pay a 6.2% social security tax instead of the 2012 rate of 4.2%. Similarly, the social security tax rate for self-employed individuals reverts to 12.4% from 10.4%.
  
  
• Itemized deductions and personal exemptions. Restrictions are imposed on high-income taxpayers with income above a specified threshold. For single filers with adjusted gross income (AGI) above $250,000 and joint filers with income above $300,000, certain itemized deductions are reduced by 3% above the threshold, but the overall reduction can’t exceed 80%. Personal exemptions are phased out above the same AGI thresholds without the 80% cap.
  
  
• Tax extensions. The new law generally extends, for varying time periods and with certain modifications, several favorable provisions that had expired. The list includes the child, dependent care, adoption, and earned income credits; tax relief from the “marriage penalty”; the American Opportunity Tax Credit for higher education expenses; the deduction for tuition and related fees; the optional state sales tax deduction; the enhanced deduction for student loan interest; the $250 deduction for an educator’s classroom expenses; energy credits for qualified home improvements; a conservation donation tax benefit; and the tax-free IRA-to-charity contribution of assets up to $100,000 for taxpayers age 70½ and older.
  
  
• Estate and gift taxes. The new law avoids drastic changes for several provisions that had officially ended after 2012. Significantly, the estate tax exemption, which had been scheduled to drop to $1 million from $5 million (inflation-indexed to $5.12 million in 2012) remains at $5 million with inflation indexing. Portability of exemptions between spouses is preserved. The top estate tax rate, which had been scheduled to increase from 35% to 55% in 2013, is bumped up to 40%. The estate and gift tax changes are permanent.
  
  
• Other provisions. The new law also temporarily preserves several tax breaks for businesses – including the research credit, the enhanced work opportunity tax credit, a higher Section 179 deduction, 50% bonus depreciation and faster write-offs for qualified leasehold improvements – as well as extending unemployment benefits and higher payments to Medicare providers.
  
  

This latest tax law is not likely to be the final word on taxes in 2013. Congress is once again talking about a complete revision of the tax code. Also, the spending side of the “fiscal cliff” issue is yet to be dealt with. Stay tuned for ongoing changes that could affect your personal and business tax planning.

Emotions add zest to life. They propel us to our feet when our favorite running back scores a touchdown. They warm us at an inspirational concert or movie. But in the realm of business, emotions sometimes hinder good choices. In fact, business owners and managers often let emotions dominate the decision-making process.

This is especially true when choices are based on “sunk costs.” Broadly defined, sunk costs are past expenses that are irrelevant to current decisions. For example, many firms hire consultants who sell and install software. In some cases, a company is still waiting – three or four years into the contract term – for a functional and error-free system. Meanwhile, costs continue to escalate. But are those costs relevant? Managers, especially those who initially procured the software and contractor, may reason that pulling the plug on a failed contract would be “wasting all that money we’ve spent.”

Not true. That money is “sunk”; it’s beside the point. Deciding to continue with a non-performing contract instead of staunching the flow of cash and changing course is irrational. It may be difficult to admit that a mistake was made. It may bruise the ego of the decision maker. But abandoning a failed contract is often the wisest decision. The only relevant costs are those that influence the company’s current and future operations.

Irrelevant costs
Let’s say your firm hires a new salesman. You spend thousands of dollars sending him to training seminars. You assign mentors who take time from their busy schedules to provide on-the-job coaching and oversight. But despite your best efforts, the new hire isn’t working out. He doesn’t fit your firm’s culture; he doesn’t grasp the company’s goals and procedures; he doesn’t generate adequate revenues for the business.

As a manager, what should you do? At some point, you may need to terminate that employee and start over with someone else. But what about all that time and money you spent training and mentoring the new salesman? Those costs are irrelevant; they’re “sunk.” You can’t get them back. So the best decision – as of today – may involve cutting your losses and starting anew.

Other examples of sunk costs may be found in the areas of product research, advertising, inventory, equipment, investments, and other types of business expenses. In each of these areas, companies spend money that can’t be recovered, dollars that become irrelevant for current decision making. Throwing good money after bad won’t salvage a poor business investment – or a poor business decision.