The FASB concluded that immediately converting donated securities to cash is economically similar to receiving a cash donation, and accordingly, the cash inflows from this type of transaction should be a component of cash flows from operating activities, rather than cash flows from investing or financing activities. The criteria established by the FASB for operating cash flow treatment are:

• Upon receipt by the NFP, the securities are directed for sale, and
• The NFP has the ability to avoid significant investment risks and rewards through near immediate conversion to cash

This is particularly relevant because many NFPs have accounting or organizational policies in place that require donated securities to be immediately converted to cash. By classifying these transactions as an operating activity, the FASB is attempting to avoid instances where the reader of the financial statements would inappropriately rely upon investing results of the NFP.

As is normally the case with NFP accounting, the donor ultimately dictates proper accounting treatment. If the donor restricts the donated securities, or its proceeds, for long-term purposes, the cash inflows should then be reported in the financing section of the statement of cash flows. Examples of long-term purposes include the purchase or construction of long-lived assets, or the establishment of a permanent endowment.  Cash inflows from the sale of donated securities that do not meet the operating requirements above, or are not restricted by the donor, should be reported in the investing section of the statement of cash flows.

The full exposure draft can be found on the FASB website (www.fasb.org) and is open for public comment until July 16, 2012. Public comments received by the FASB are also available for viewing. The date of adoption has not yet been determined, and it is proposed that the standards in the exposure draft will be applied prospectively to cash receipts from the sale of donated securities, with retroactive application permitted, but not required. The provisions of this exposure draft are limited to “securities” and do not apply to donated items such as works of art, equipment, and other long-lived assets.

Please feel free to contact Jim Shellenberger, Senior Manager at McKonly & Asbury, at jshellenberger@macpas.com to further discuss this exposure draft, or any other questions or comments you may have regarding the not-for-profit industry.

Hosted by McKonly & Asbury, this seminar will provide timely, relevant topics to nonprofit organizations and will be held at the Giant Community Center in the Giant Food Store located at 3301 Trindle Road, Camp Hill, PA.  Registration and breakfast will begin at 8:30am and the seminar will run from 9:00am until 12:00pm. The cost to attend is $25 and CPE credits will be available.

A glimpse of the morning’s speakers and topics are as follows:

Victoria Radabaugh Lindstrom, President of Suasion, LLC
Marketing Isn’t Really An Expense! – Sure, we categorize any costs associated with marketing a nonprofit organization in an expense account of some sort.  However, when done right, marketing should be an investment of resources that yields real results.  So what can you expect to get out of this investment?  And how do you invest for the maximum return?  We’ll discuss the best way to approach marketing, how to get the most out of your marketing dollars, and which tools you should consider, including the latest trend, Social Media.

Gary Dubas, Partner with McKonly & Asbury
Tax Issues Facing Nonprofit Organizations – We will cover a number of areas regarding tax reporting requirements of nonprofit organizations. Topics covered will include changes to the Form 990, emerging issues regarding unrelated business income, and tax matters regarding contributions.

Jim Shellenberger, Senior Manager with McKonly & Asbury
Hot Topics in Nonprofit Accounting and Auditing – This session will include a number of hot topics that impact nonprofit organizations including changes to the nonprofit reporting model, changes to yellow book and A-133 auditing standards, and a lease accounting standard update. We will also present 10 tips for year end closing and audit preparation, performing risk assessments, and segregation of duties in the accounting department.

To register for this event, please contact us at events@macpas.com or by calling (717) 972-5822.

We reviewed some great tips and insight on hiring and keep great employees. We reviewed strategies such as; inclusion culture, buddy and mentor programs, special and unique benefits, and stay interviews.

Check out our Upcoming Events page for news and updates on our future seminars and webinars.

For more information on this topic contact Katie or Suzanne at info@macpas.com.

Watch a recording of the presentation below.

Click here to view the video on YouTube.

Link to video http://youtu.be/jnRzokkiDDQ

The seminar will be held on Thursday, May 31, 2012 at the Giant Community Center in the Giant Food Store located at 3301 Trindle Rd., Camp Hill, PA. Registration and breakfast will begin at 7:30am and the seminar will run from 8:00am until 12:00pm. There is no charge for this seminar, and CPE credits are available.

Topics and speakers will include:

• Asset Protection: Keeping Your Assets Safe – Kurt Trimarchi, Partner & Dan Matarrese, Tax Manager, McKonly & Asbury
• Will Private Company “GAAP” Become a Reality? – Janice Snyder, Principal, McKonly & Asbury
• IT Fraud/Controls: Is Your Company Protected? – Dave Hammarberg, Director of IT and Consulting Senior Manager & Samuel BowerCraft, Senior Manager, McKonly & Asbury
• Branding, Social and Digital Media – A Primer – Pavone
• Payroll Update and Hot Topics for 2012 – Paytime
• Legal Update in Today’s Economy – Todd Shill, Partner, Rhoads & Sinon LLP

It’s sure to be another great seminar that you won’t want to miss! To register, please contact us at events@macpas.com or by calling (717) 972-5822.

This free, hour-long webinar will take place on Thursday, May 17th at 2:00 p.m. EST, and CPE credit is available.

Reserve your webinar seat now by clicking here:
https://www1.gotomeeting.com/register/771424880

After registering, you will receive a confirmation email containing information about joining the webinar.

For more information, please contact us at info@macpas.com.

So what gives some people the ability to control their emotions and make cool and calm decisions? Two main reasons are that they know how to measure risk and how to manage it. And, to the extent that individual investors learn both, they increase their chances for making smart decisions that keep their portfolios on track toward meeting their goals.

Two Ways of Measuring Risk

Beta – Professionals have two common ways to measure risk. The first is beta, which is how closely a portfolio’s performance matches or varies from that of a benchmark index. The benchmark for large-company U.S.-traded stocks is the S&P 500 stock index, while a generational benchmark for bonds of medium-range maturity is the Barclays Aggregate Bond index. The performance of indexes is normally expressed as a percentage and reflects their total return, which is a combination of any interest or dividend payments and their change in price.

Beta is expressed as a number on an open-ended scale, and it can be a positive number, a negative number, or zero. A beta of 1.0 means that a stock or portfolio’s returns are identical in both size and direction to the benchmark, while a beta of -2.0 means that the portfolio’s returns are twice as large in the opposite direction of the index. For example, when the S&P 500 index return is 12%, a portfolio with a beta of 1.0 should also return 12%, while a stock with a beta of -2.0 should lose 24%. A beta of 0.0 means there is no patterned relationship between the two returns.

Standard deviation – A second way professionals measure investment risk is with standard deviation. Expressed as a percentage, it reflects a range of returns above and below an annual average rate of return for the stock or portfolio itself, without reference to a benchmark. It’s standard deviation that measures the way many define risk: volatility.

In statistics, when applied to investment returns, one standard deviation covers about two-thirds of all returns. So a portfolio that has an average rate of return of 9% and a standard deviation of 12% means that in six to seven years out of 10, the portfolio’s returns range between -3% and 21%. In general, a lower standard deviation is better, because it reflects less change of a negative return.

Techniques to Manage Risk

Individual investors can use several methods to help reduce the risk and volatility in their portfolios. These include:

• Diversification. The fewer the number of securities you own in your portfolio, the greater the risk that one or more will produce losses that reduce your ability to generate positive compound returns. In a stock portfolio, that means owning stocks of at least 10 different companies from at least five different sectors (such as, but not limited to, technology, consumer staples, finance, energy, and basic materials).
• Asset allocation. This refers to spreading your investments over the three classic asset classes (stocks, bonds, and cash) according to a formula that potentially matches the rate of return you need to meet your goals. The formula determines what percentage of your holdings should be from each asset class (e.g., 70% stocks, 25% bonds, and 5% cash). Because bonds and cash generate more steady (if smaller) average returns than stocks, the more of each included in your portfolio, the less volatile your overall returns should be.
• Dollar cost averaging. This is a technique that puts price declines to your advantage. It involves making periodic purchases in the same dollar amount of the same securities, in good markets and bad. When you continue to buy shares when their prices fall, you buy more shares than when the prices are higher. This gives you more shares, which increases your dollar gains when prices start going back up. However, it neither guarantees a profit nor protects against loss in a prolonged declining market. Because dollar cost averaging involves continuous investment regardless of fluctuating price levels, investors should carefully consider their financial ability to continue investment through periods of low prices.
• Portfolio rebalancing. This is a two-step process by which you restore your holdings to the proportions defined by your asset allocation strategy. The first step is to sell a portion of the investments in those asset classes where your holdings have grown to be larger than their prescribed percentage. The second step is to use the sale proceeds to buy more of the securities from those asset classes whose proportions have become too small.

If you need help aligning your investment strategy with your goals while adapting to changing market trends, or have any questions regarding this article, contact Donald Yost or Michael Howard, Partners with Anchor Financial Group, at anchor@anchorfinancialgroup.com.

Examples of unclaimed property include:

• Wages/Payroll
• Uncashed checks
• Accounts receivable (credit balances)
• Commissions
• Refunds/Rebates
• Gift Certificates/Gift Cards

A more comprehensive listing by industry can be found on Pennsylvania Treasury website:  Property Types by Industry

The dormancy periods vary depending on the type of property, but most types of property have a dormancy period of 5 years.  Wages and commissions are one of the exceptions with a dormancy period of only 2 years.  The property dormancy matrix can be found on the Pennsylvania Treasury’s website.

The Treasury offers a Voluntary Disclosure Program for holders of unclaimed property that have never filed a report or may have overlooked certain property types in the past.  Through this program, holders will become compliant while receiving a waiver of penalties and interest. Holders may be considered for the program if they meet the following criteria:

• Voluntarily coming forward due to non-reporting or underreporting of unclaimed property.
• Not under audit by the Pennsylvania Treasury related to unclaimed property reporting.
• Not been granted voluntary compliance or participated in the Pennsylvania self-audit program in the past 10 years.

Additional information, including a FAQ about unclaimed property, is available at www.patreasury.gov.

The new temporary regulations apply to expenditures made on or after January 1, 2012, and will affect virtually all taxpayers that purchase, lease, produce, or improve tangible property, such as buildings, machinery, vehicles, furniture, and equipment.  They will have an impact on businesses of all sizes, large and small.  Although the regulations are “temporary” they have the same binding effect as final regulations.

The regulations provide a general framework for assessing whether a capital expenditure is currently deductible as a repair and maintenance expense, or whether it is required to be capitalized and depreciated over the useful life of the asset.  The following paragraphs summarize some of the most pertinent parts of the new regulations.

Tangible Property Improvements

One of the most applicable areas of the regulations are the provisions that relate to improvements of property, and the definition of unit of property for building property and non-building property.  For a building, the unit of property consists of the building and its structural components.  The unit of property for real and personal property, other than buildings, is defined to include all functionally interdependent components.

Once the unit of property is determined for a specific expenditure, a taxpayer must apply the standards set forth in the regulations to determine if the expenditure results in an improvement that needs to be capitalized.  An amount paid for an improvement to a unit of property must be capitalized if the amount results in betterment, restoration, or adapts the unit of property to a new or different use.  The regulations go on to further define what is meant by betterments, restoration, and adaptation to a new or different use.

• Betterments ameliorate a material condition or defect at the time of acquisition or production; result in a material addition; or result in a material increase in the quality, capacity, efficiency, or strength of the unit of property.
• Restoration results if any of the following conditions are met: repair of a unit of property to ordinarily efficient operating condition from a state of non-functional disrepair; rebuilding a unit of property to a “like new” condition after the end of its class life, or; replacement of a major component or substantial structural part of the unit of property.
• Adaptation to a new or different use results in the property being converted from one functional use to another functional use.

There is a safe harbor rule in the regulations that states that amounts for certain routine maintenance costs for tangible property, other than buildings, can be deducted rather than capitalized.  In order to be currently deductible, the routine maintenance costs must be for recurring activities that a taxpayer expects to perform more than once over the life of the asset, as a result of the use of the property, to keep the property in its ordinary efficient operating condition.

Materials and Supplies

The temporary regulations modify and expand the definition of materials and supplies.  Materials and supplies are defined as tangible property, not inventory used or consumed in the taxpayer’s operations that is:

• A component acquired to maintain, repair, or improve a unit of tangible property;
• Fuel, lubricants, water, or similar items that are reasonably expected to be consumed in 12 months or less;
• A unit of property that has an economic useful life of 12 months or less;
• A unit of property with an acquisition or production cost less than $100.

Non-incidental materials and supplies are deductible when used or consumed, while incidental materials and supplies are deductible when purchased if no consumption records are maintained and no physical inventories are performed, so long as taxable income is clearly reflected.

De Minimus Rule

The regulations contain an exception to capitalization for certain acquisitions, up to a threshold, that meet specific guidelines.  In order to be able to deduct the amount for tax purposes, the taxpayer must expense the purchase price for financial reporting purposes, have an applicable financial statement, and have a formal written capitalization policy.  The deduction must be less than or equal to the greater of 0.1% of the gross receipts for the tax year for income tax purposes or 2% of the total depreciation expense for the tax year.

What’s Next?

On March 7, 2012, the IRS released two revenue procedures which explain the procedures for securing automatic consent to change to the accounting methods provided in the regulations discussed above.  Taxpayers should review their capitalizations policies to determine their compliance with the regulations and assess whether an accounting method change is necessary.

Here is a glance at our upcoming summer webinars:

May 17 at 2 PM – Fraud Engagement from A to Z. Taking a step by step detailed walk though of an actual fraud engagement.

June 21 at 2 PM – Buy-Sell Agreements: Will Yours Work…or Add Fuel to the Fire? Learn the essential valuation criteria that should be in every buy-sell agreement.

July 19 at 2 PM – Federal Tax Webinar. Discussion of the new tangible property regulations; depreciation of fixed assets; how to apply the correct methods and lives, and avoid errors; and cost segregation.

August 23 at 2 PM – Financial Reporting Changes on the Horizon. Learn about the recent trends in financial reporting.

More details and registration information for the May webinar will be announced shortly, and keep watch in this blog for upcoming details for the other webinars as well! As always, we appreciate any feedback. If you have topics you’d like to see covered in future webinars, please feel free to email us at info@macpas.com.

The financial crisis of 2008 has brought risk management to light in many new (and shocking) ways.  The crisis showed how failure to manage risk by companies put their future in jeopardy (or ended it). Additionally, the impact on the rest of the country from their failure was substantial, and we are now paying for their risk management failure… in one way or another.

These impacts are varied and the source of a great deal of discussion, planning, and heartache.  But while the outcomes from the crisis are ongoing, I think that for those who wish to avoid the same trap, it is vital we learn from the mistakes that were made.  Otherwise, we are destined to repeat them.

What was the main cause of the fallout?  What was not done that should have been done? How can we act to better (1) avoid the same trap or failure and (2) prepare to weather any consequences if a similar situation occurs?

A great deal of inquiry and evaluation has gone into the crisis, its beginnings, results, and impact.  I recently had the fortune to hear Thomas Stanton speak on this matter.  Mr. Stanton has a background in government and regulatory oversight that is formidable, and his discussion delved into the crisis and its many facets.  One comment in particular that spoke to the nature of the crisis was what he called Stanton’s Law:

“Risk will migrate to the place where government is least equipped to deal with it.”

– Thomas Stanton

In essence Mr. Stanton is pointing out that risk (the exposure to danger) will flow to areas that are weakest in control or oversight.  He also pointed out in his comments that the failure in oversight is usually the result of moving towards profitable ventures that are usually not as well supervised financial activities.

I think he is right.  I have seen many companies doing many things: some good, some bad.  But in all cases where I have seen frauds, problems with financial reporting, or operational issues, it has been the result of either:

(1) A failure to identify and evaluate the risk ahead of time (“We did not know that could happen!”) or

(2) A lack of diligence by those responsible for oversight (“We don’t think that is important.”).

These two issues are the same issues present in the 2008 crisis (in a much larger scale), or Enron.

For me, Stanton’s Law is a summation of key concepts:

• The first: Risk is changing in your organization all the time, and it is moving toward places where the organization is less prepared.
• The second: In order to mitigate changing risks, we must have a changing and vigilant approach to addressing risk; otherwise we may fail to move to address the changes in risk.

Regardless of what your organization makes, grows, produces, services or manages, the world is changing around it.  That external change alters circumstances and changes risk inside the company.  As an organization, being aware of these changes (actual and possible) that could occur can help you to prepare for risks now, before something happens that you are not prepared to deal with.

I leave you with a question:

What is your organization doing to prioritize risks inside and outside the organization?

Next Time: I will discuss “Governance: The Purpose” and we will dive into what governance means and why defining its purpose and direction helps the success of the organization.

To read more about Thomas Stanton and his work, visit these links:

• http://www.thomas-stanton.com/
• 2007 Presentation: “The Privatization of Sallie Mae and its Consequences”
• Presentation to Senate Committee on Oversight and Government Reform

There is still uncertainty as to the ultimate outcome of the recommendations of the Blue-Ribbon Panel on Standard Setting for Private Companies, which were released in its Report to the Board of Trustees of the Financial Accounting Foundation (FAF) in January of 2011.  However, despite the ongoing uncertainty, there has been further movement and discussion in recent weeks on this important topic.

In FASB Chairman Leslie Seidman’s “2012 Chairman’s Outlook on the FASB” webcast on March 12, 2012, the chairman discussed the initiatives of the FASB and FAF in this area and indicated further discussion would take place at a FAF trustees meeting in May, and a plan of action might come out of this discussion.  At issue is FAF’s proposal to create a Private Company Standards Improvement Council that would recommend exceptions for private companies to existing GAAP, and those recommendations would be subject to FASB approval.  The AICPA has been very vocal in its opinion that the ultimate decisions on private company GAAP should lie with an independent board, and not be merely recommendations that would be subject to FASB approval.

In conjunction with the continued discussions on who would ultimately be responsible for private company standard setting, the FASB also announced a new project whereby it will reexamine the  definition of a “nonpublic entity”.  The goal of the project is to define what constitutes a private company in order to distinguish between different types of entities for standard-setting purposes, and to give clarity on determining which companies are to be included in the scope of the Private Company Decision-Making Framework.  The FASB expects to begin deliberations on this topic in the second quarter of this year.

Preparers and users of financial statements of nonpublic companies should have more clarity in late May as to the direction private company standard setting may take.  In the meantime, if you have any questions, please reach out to Michael Hoffner, Partner at McKonly & Asbury by emailing ­mhoffner@macpas.com.

We reviewed some great tips and insight on some core concepts of making your business LEAN, how to increase Net Income, and how to reduce Direct, Labor, and Overhead costs. Some specific areas that we looked into reducing costs were:

• Rent
• Insurance
• Marketing
• Utilities
• Data/Telecommunications
• Research and Development
• Sales and Use Tax
• Interest/Fees

Check out our Upcoming Events page for news and updates on our future seminars and webinars.

For more information on this topic contact Greg Lowe at glowe@macpas.com.

Hiring top talent continues to be a challenge for many companies. What is even more challenging is retaining the talent you recruited. In this webinar, we will cover ways to keep your talent from walking out the door.

This free, hour-long webinar will take place on Thursday, April 19th at 2:00 p.m. EST, and CPE credit is available.

Reserve your webinar seat now by clicking here:
https://www1.gotomeeting.com/register/305104713

After registering, you will receive a confirmation email containing information about joining the webinar.

For more information, please contact us at info@macpas.com.

Focusing on accounting and audit issues for the insurance industry, we have an exciting array of topics and speakers planned! The following provides the agenda for the day.

Session Agenda

To register, please email us at events@macpas.com or call (717) 972-5822.

As well as changing the single audit process for the recipients of federal funds, this would also require stricter follow up on audit findings by the federal agency that provides the funding. To assist with this, all single audit reports would be digitized and entered into a searchable database.

To see the full document of proposed changes issued by the OMB, click here.

The OMB is looking for comments on the proposed changes by March 29, 2012. All types of organizations are encouraged to provide feedback. Comments can be submitted electronically by clicking here. It is anticipated that a revised proposal will be issued in late spring based on comments received. Pending any further changes, an issuance date of late fall would be expected.

McKonly & Asbury is committed to keeping you informed of any updates regarding these proposed changes. If you would like further information or clarification, please contact Jennifer Keller, Supervisor, at JKeller@macpas.com or Jim Shellenberger, Senior Manager, at JShellenberger@macpas.com.

In Governor Corbett’s proposed 2012-2013 fiscal budget, he addressed several key business tax issues.  He confirmed his promise to continue the phase-out of the Pennsylvania Capital Stock/Foreign Franchise Tax already in place. The rate for 2012 has been reduced to 1.89 mills and is scheduled to be completely eliminated by 2014.

The budget also proposes capping the retail vendor’s sales tax discount. Currently, the discount is 1% of sales tax collected by the vendor. The 1% discount will continue to remain in place. However, the maximum discount a vendor will be allowed to receive is $250 a month ($3,000 a year). Therefore, retailers with taxable sales under $5 million will continue to receive the full discount as is currently in place.  By capping the discount for large Pennsylvania retailers, the Commonwealth is expected to save upwards of $40 million annually.

Due to lower than expected revenue collection for the current year, the Governor has been forced to cut funding for certain departments, including the Department of Revenue. However, the state’s primary revenue source (tax collection and enforcement) is administrated by the Department. Thus, Corbett is proposing an enhanced enforcement package that will allow the Department to more aggressively pursue tax delinquencies without increasing its operating budget. Some of these initiatives will include administrative bank attachments for trust fund taxes and required personal income tax withholding on oil and gas royalty payments as well as nonresident independent contractor payments. The administrative bank attachments will allow the Department to freeze and access bank accounts of delinquent taxpayers, similar to wage garnishments. Some of these initiatives are very aggressive and will most likely meet resistance from the business community.

The Pennsylvania Legislature is also in the process of debating House Bill No. 2150. If passed, this bill will bring about several significant changes to Pennsylvania Corporate Net Income (CNI) Tax, including:

• The CNI tax rate will be reduced from 9.99% to 6.99% over a 6 year period beginning with the 2013 tax year. Currently, Pennsylvania’s corporate income rate is one of the highest in the nation.
• The Net Operating Loss (NOL) cap will be completely phased-out by 2022 beginning with the 2014 tax year. Currently, the NOL deduction is capped at the greater of 20% of taxable income or $3 million. The trend of states capping NOL’s has all but disappeared, and Pennsylvania is one of two remaining states to enforce such a cap.
• Pennsylvania will move to a 100% weighted (single) sales factor in 2013. This will not be a significant change from the current 90% sales, 5% payroll, and 5% property apportionment structure. However, this continues to be the trend in a number of states in an effort to encourage payroll and property investment within the state. Pennsylvania manufacturers and retailers that employ a majority of their workforce within Pennsylvania while having sales outside the state will see a reduction in their apportioned Pennsylvania income for CNI tax purposes.
• Certain inter-company transactions, such as royalty payments, between related entities will be added back to taxable income in computing CNI tax. The add back of royalty expenses paid to out of state holding companies is expected to curb some of the decreased tax revenue attributable to the combination of lowering the corporate income tax rate, phasing out Capital Stock/Foreign Franchise tax, and reducing the restrictions on corporate net operating loss deductions.

Based on what we have been seeing, Governor Corbett is standing behind his campaign promise of “no new taxes” while also managing to balance the state budget. A “business-friendly” approach will be positive for all Pennsylvania residents as the goal is to attract new businesses to invest in the state as well as maintain current businesses, which in turn will lead to job growth in Pennsylvania.

As a member of the State and Local Tax Committee and Legislative Committee of the Pennsylvania Institute of Certified Public Accountants (PICPA), we continue to evaluate proposed tax legislation and work with the legislators in determining the best course to take. We greatly welcome your thoughts, suggestions, or concerns that you might have with any future proposed Pennsylvania tax legislation. Please contact McKonly & Asbury’s Tax Principle, Jason Skrinak, at jskrinak@macpas.com.

If this delinquency rate is being assessed, you should immediately file an appeal in writing, as the employer self-service portal mentioned on page 2 of your Rate Notice will not be available until May 2012. The appeal letter should indicate that all payments and returns were filed timely, and therefore the delinquent rate should not apply. This letter should be mailed to: Department of Labor and Industry, Office of UC Tax Services, 651 Boas Street, Harrisburg, PA 17121-0750. In addition, you can call the UC office at 717-787-7679, Option 2, to inquire as to why the delinquency was assessed. Please be aware that the appeal process is your responsibility.

If you have any questions, please contact Lindsay Young, Supervisor with McKonly & Asbury at lyoung@macpas.com.

As of January 1, 2011, the Emergency Economic Stabilization Act of 2008 requires your brokers to track your cost basis. U.S. broker-dealers and other financial intermediaries must report that basis to investor clients on their 1099 Form and to the IRS. They will apply to shares of individual stocks you buy after January 1, 2011; to investments in mutual funds and dividend reinvestment plans after January 1, 2012; and to bonds, options, and other securities bought after January 1, 2013.

Because the new regulations do not apply to investments purchased before January 1, 2011, you’ll still need to do your own calculations on those transactions. These rules do not affect traditional or Roth IRAs, as investments in these tax-sheltered accounts don’t have a cost basis.

New Schedule D

Starting with 2011 tax year, there will be a new Schedule D in place. The old Schedule D-1 used for additional transaction history will be replaced by Form 8949 – Sales and Other Dispositions of Capital Assets. Every taxpayer with trading/investment activity will have to file at least one Form 8949 along with Schedule D. Then various totals from Form 8949 will flow into the Schedule D Form as it did with the old D-1 Form.

The new Form 8949 will help the IRS to better compare your reporting with what your broker reports to the IRS under new regulations. It will be critical for taxpayers to keep accurate records of their trade history so that they can fully comply with this new reporting. Although you broker is required to track and report some cost basis information, they are NOT required to track securities in your multiple accounts. You must adjust wash sales between ALL accounts before reporting them to the IRS.

As you might also imagine, the tax changes proposed will affect literally everyone.  The administration was very effective in making sure that no one would feel left out.  This article will cover some of the pertinent highlights which would affect most taxpayers.

Please note that these are simply proposals, and merely serve to represent what the White House would like to see Congress put into place.  These proposals are not laws, or even bills to be voted on.  However, the information released does give us a look into the Administration’s desired fiscal policy.

Effect on Individuals

The first thing you probably want to know is what the President wants to do to individual income tax rates.  The proposal would be to eliminate the Bush era tax cuts that are set to expire at the end of 2012 for the highest earners, but extend the lower tax brackets.  The effect would be that those currently taxed at 33% and 35% would see their rate increase to 39.6%.  Individuals falling into the 10%, 15%, 25%, and 28% percent brackets would see no change.  Keep in mind that, beginning in 2013, there will be an additional 3.8% tax imposed on investment income for those with AGI in excess of $200,000 ($250,000 for joint filers) via the Patient Protection and Affordable Care Act.

Popular in recent weeks is discussion of the “Buffet Rule”.  Included in the proposal is a shift away from the AMT and implementation of a supplemental tax which would require individuals with income in excess of $1 million to pay a minimum tax rate of 30%.  Specifics of how to shift from the AMT to the “Buffet Rule” are not included, other than to extend the current AMT patch until Congress can agree on a transition plan.

Similar to ordinary income tax rates, the President’s proposal would also eliminate reduced rates on capital gains and dividends for those earning more than $200,000 ($250,000 for joint filers) per year.  Via the expiration of the Bush era tax cuts, the tax rate on long-term capital gains would increase to 20%.  Going one step further, qualified dividends would be taxed as ordinary income, meaning that they could be taxed at a rate as high as 39.6%.

Also included in the proposal are permanent extensions of the increased Child Tax Credit, Earned Income Tax Credit, and American Opportunity Tax Credits.  Also, the start of the phase-out of the Child and Dependent Care Credit would be increased to $75,000 of AGI.

Business Tax Proposals

There are two new credits proposed – both of which are meant to stimulate job growth.  First up is what is being called the “Manufacturing Communities Tax Credit”.  This credit is designed to encourage investment in areas that have undergone a significant increase in unemployment.  The total amount in mind for this credit is $2 billion through 2014.

The Tax Credit for New Jobs/Wage Increases would provide a temporary 10% tax credit for qualified employers who add new jobs, or increase wages of current employees.  This credit would only exist for 2012 wages, and would provide up to a $500,000 credit per employer for increases in wages over 2011.

Keeping jobs in the U.S. has generated a lot of talk lately, so it’s not surprising that this is addressed in the President’s proposals as well.  One plan would allow for a 20% credit for expenses related to keeping jobs in the U.S. (i.e. “insourcing” jobs).  Another proposal calls for the disallowance of all expenses related to the outsourcing of jobs to other countries.  We’re still waiting on more details for these items.

Along with these, the President has discussed the designation of 20 “Growth Zones” across the U.S.  Businesses which hire employees in these growth zones would be eligible for an employment tax credit.  Further, qualified property placed in service in these zones would be eligible for immediate 100% depreciation.

That’s it for new items.  Existing tax provisions that the President would like to extend or tweak include:

• IRC Section 199 Domestic Production Activities Deduction (Manufacturing Deduction) – This deduction would be disallowed for oil, gas, and coal manufacturers, but would be expanded to include advanced technology companies.
• 100% Bonus depreciation would be extended through to at least 2012.
• The IRC Section 45R Credit which gives a tax credit to qualified small employers would be simplified and expanded for years after 2011.
• The Research and Development Credit would be made permanent, and the deduction allowable would be increased in some cases.
• Capital Gains on small business stock – In 2010, gain on the sale of qualified small business stock, which is held for five years or more, was tax free.  However, this exemption expired in 2011.  The President’s proposed plan would make permanent the 100 percent exclusion for qualified stock acquired after 2011.
• The accelerated deduction for start-up expenses would be made permanent.
• The New Markets Tax Credit would be extended through 2013.
• The availability of LIFO and Lower of Cost or Market methods of inventory valuation would be eliminated.  It should be noted that these have been proposed for many years, yet Congress has not taken any action.
• FUTA taxes – The taxable wage base would be increased from $7,000 to $15,000 and would increase in future years.  Also, the 0.2% FUTA surtax would be reinstated and made permanent.

As you can see, proposed changes and additions to our tax code are plentiful – and this article only touches on the highlights of domestic business and individual taxation.  There are many more outlined in the President’s proposal.  If you would like to discuss any of these, or have any questions, please do not hesitate to contact us.