Articles

Planning Can Be Tricky for Childless Seniors

Picking a Trustee, Family or Banker?

Roth 401(k)

Is a Roth 401(k) in your future? An often overlooked way to makeup lost investments is to look into an employer Roth 401(k). Of course, the contributions an employee makes to the Roth 401(k) are on an after-tax basis; that is, you don’t receive a reduction of taxable compensation for Federal income tax purposes, but you do have the opportunity to grow income on a tax free basis. The aggregate deferrals to both a traditional 401(k) and a Roth 401(k) cannot exceed $17,500 plus $5,500.00 in “catch up contributions” for individuals age 50 or over for 2013. And if you establish a Roth 401(k), distributions are tax-free and penalty-free, at a later date, if you hold the Roth 401(k) for a period of at least five years. Qualified distributions aren’t included in income. Qualified distributions include distributions: 1) after the participant attains age 59 1/2, 2), at or after death (to a beneficiary or estate), or 3) due to disability. Roth 401(k) accounts are subject to the required minimum distributions. So that when you reach age 70 1/2, you must examine the options for receiving the required minimum distribution. As tax rules continuously change, you should consult a professional. If you would like more information about Pennsylvania Elder Law, Business Law or Tax Law, please contact an experienced Pennsylvania Lawyer who is also a Certified Public Accountant (CPA) via email or phone us at (724) 216.6551 at our office in Greensburg, Pennsylvania. The Iezzi Law Office serves clients in southwestern Pennsylvania, including Greensburg, Pittsburgh, Delmont, Monroeville, Murrysville, Latrobe, Irwin, Uniontown, Connellsville, Indiana, Somerset, and other towns located in Westmoreland County, Allegheny County, Fayette County, Indiana County, and Somerset County. Evening and weekend appointments available. MasterCard, Visa, and Discover are accepted. IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

The Importance of Corporate Minutes

When a business decides to incorporate, benefits and rights accrue to the corporation, its shareholders, and officers under state law. These advantages include, for example, limited liability to the shareholders, and tax advantages for operation as a corporation. Without maintaining accurate corporate minutes, these benefits and rights may be lost. Corporate minutes set the policies for the board of directors and officers of the corporation. These directions provide a means for the corporation to maintain its corporate status. Of course, corporate minutes may be a bothersome task, but they may be the proof needed to support a position if the Internal Revenue Service, “IRS,” challenges an item on the corporate tax return, or if a third party desires to disregard the corporation for purposes of a lawsuit. A corporation does provide limited liability to its officers, directors, and share holders. However, improperly recorded minutes can result in “piercing of the corporate veil.” This means officers, directors, and shareholders can be named in a lawsuit, which may hold them personally liable for corporate debts. Corporate minutes also help distinguish between expenses and dividends. Expenses may be written off, while dividends are not deductible. If a discrepancy exists, the IRS, generally, will take a position adverse to the question of the expense which may change the expense to a dividend resulting in double taxation for the shareholders. In addition, if a corporation fails to keep minutes, the IRS can consider the shareholders of a closely-held corporate as individuals not operating as a corporation. This may lead to an allocation of net income to the shareholders at higher individual rates. Corporate minutes may support justification of reasonableness of an employee’s salary rather than a disguised dividend. Also, minutes can justify increases in salary due to job performance or exceptional skills. The imposition of an accumulated earnings tax may be waived if the corporation shows that accumulation was for a valid business purpose. A properly maintained minute book also substantiates fringe benefits, and employment law liabilities. While accurate corporate minutes may help to prove the existence of a corporation in a lawsuit, they can settle internal disputes as well, for example, the acceptance of contract, approval of mergers, authorization of loans, and compliance with governmental regulations. The corporate minutes are in place to inform and to protect the employees of a corporation. Basic topics for inclusion in the minutes are: Election of the board and officers Statement of corporate policies Declaration of dividends Authorize contracts involving the corporation Compensation of officers and key employees Loans to or from officers or shareholders Plans liquidating or reorganizing the company Intended use of corporate retained earnings Purchase, lease, or sale of assets, including property Write off of accounts receivable as bad debts Acquisition or sale of treasury stock Investigation of new business opportunities Start of business operations in other states Initiation, amendments & termination of retirement plans Issuing and selling stock Approval of financial statements If you would like more information about Pennsylvania Estate Planning, Business Law or Tax Law, please contact an experienced Pennsylvania Attorney who is also a Certified Public Accountant (CPA) via email or phone us […]

Marcellus Shale in Pennsylvania

Have you leased minerals, that is, oil and gas, and retained a royalty interest? Usually, a landowner receives a bonus or an advance upon the execution of an oil and gas lease. This payment for the right to explore for oil and gas can be for a year or several years. As the landowner, this represents ordinary income. Now, with reference to the royalty interest for oil and gas reserves, the landowner grants to the lessee, the driller, the right to ascertain whether a commercial quantity of oil and gas exists, and, if the lessee finds oil and gas in producing quantities, the lessee pays a royalty. Once the lessor, the landowner, receives royalties, it is considered ordinary income. As the owner of the property, you are entitled to a depletion deduction, which is a tax deduction against the royalties. As the lessor, the deduction to you could be either on cost or percentage basis. Independent and royalty owners are entitled to deduct the greater of cost or percentage depletion. Passing on the income to a family member What happens if you have a family and you desire to pass the some this new found stream of income to other beneficiaries? Do you form a partnership? A corporation? A limited partnership? A limited liability company (LLC)? A trust? The tax consequences can be substantial both for income and estate tax purposes. Limited partnership and limited liability company (LLC) Let’s take a quick look at a limited partnership and a limited liability company. Generally, the landowner wants to manage and maintain so he would be considered the manager. The other owners, such as limited partnership interests or limited liability membership interests, do not control the management of the entity. The operating agreement spells out the management, that is, who is the manager. What happens upon the death, disability, or resignation of the manager? The operating agreement also defines the interests of the partners in a limited partnership or members in a limited liability company. The limited partnership or LLC can be arranged to limit who can receive an interest in the entity. That, in turn, creates an interest that can be transferred. Do the person or persons have the ability to transfer the ownership? Do you want non-family persons to acquire an interest? All of these questions should be addressed in a buy-sell agreement. There are other decisions that result in whether to form a limited partnership or LLC, which are beyond the scope of this article, and should be discussed with a competent tax advisor. One factor, though, is liability. Holding your mineral interest in a limited liability entity is prudent for income and estate tax purposes, but also to protect the mineral interests from the personal liabilities of the landowner or other partners or members. What are some of the key provisions of an operating agreement? • Capital Contributions – Must the partners or members contribute if the company fails to produce sufficient cash? What happens if they fail to pay? • Tax Distributions – Often you will find a provision that distribution of cash is required to be at least equal to […]

Job Hunting Expenses

With the jobless rate close to 6.5% nationwide, many individuals are seeking new employment. Taxes may not take precedence at the time, but job hunters should take into consideration whether or not job-hunting expenses are deductible, and what expenses qualify for deductions. Questions To Ask Yourself: Is the job in my current field? If you are seeking a job that falls in your current line of work, then expenses may be claimed as miscellaneous itemized deductions. However, if you are seeking employment in a new field (with no prior experience), there is no deduction for expenses. Was there a time lapse in my employment? If there is a substantial break between your previous job and the time you begin to look for a new job, then you may not qualify for expense deductions. What if I am working for the first time? If this is the first time you are looking for a job, then you will not qualify for expense deductions. Some Typical Deductions: Resume: Costs for preparation and mailing Outsourcing Agency Fees: An individual can deduct employment and outplacement agency fees the pay in looking for a new job at their present occupation. Fee Reimbursement: If a year later your employer reimburses you for employment agency fees, you must include the amount received in your gross income up to the amount of tax benefit in the earlier year. Employer Pays Agency Fees: If the employer pays the fees directly to the employment agency and the individual is not responsible for them, then they are not included in gross income. Travel/Transportation: Out of pocket expenses, such as travel, meals and lodging, for traveling to an area and searching for employment within your present occupation field may be a deduction. The ratio of time spent looking for a job vs. personal activities is important in calculating whether or not the trips primary purpose is that of job-hunting. As far as transportation, the standard mileage rate can be used to calculate expense. The 2014 rate for business use of a vehicle is 56 cents per mile. These expenses are subject to strict substantiation rules. Please see our articles on business use of vehicles and business meals and entertainment expenses for some of the substantiation requirements. Personal, Living and Family Expenses: These are typically not deductible, but there are exceptions. The above discussion relates solely to your Federal income taxes. The rules for your individual state income taxes may differ. If you would like more information about Pennsylvania Elder Law, Business Law or Tax Law, please contact an experienced Pennsylvania Attorney who is also a Certified Public Accountant (CPA) via email or phone us at (724) 216.6551 at our Greensburg, Pennsylvania office. The Iezzi Law Office serves clients in southwestern Pennsylvania, including Greensburg, Pittsburgh, Delmont, Monroeville, Murrysville, Latrobe, Irwin, Uniontown, Connellsville, Indiana, Somerset, and other towns located in Westmoreland County, Allegheny County, Fayette County, Indiana County, and Somerset County. Evening and weekend appointments available. MasterCard, Visa, and Discover are accepted. IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, […]

Local and PA Tax Updates

The Pennsylvania Department of Revenue has announced that the deadline to apply for Pennsylvania’s Property Tax/Rent Rebate Program for older adults and residents with disabilities has been extended from June 30, 2012 to December 31, 2012. The program benefits eligible Pennsylvanians who are age 65 and older; widows and widowers age 50 and older; and people with disabilities age 18 and older. A 2006 program expansion increased the income limit from $15,000.00 to $35,000.00 (which excludes half of Social Security income) for homeowners and raises the maximum standard rebate for both homeowners and renters from $500.00 to $650.00, with supplemental rebates that can boost the amount of $975.00. As of May 31, 2012, the Department had received 529,023 rebate applications. Rebates will be distributed starting on July 1, 2012. (Property Tax/Rent Rebate Program Application Deadline Extended to End of Year, Dept. of Rev., 06/04/2012.) IMPORTANT CHANGES TO THE LOCAL EARNED INCOME TAX LAW Effective with the 2009 tax year, business losses from unincorporated businesses or sole member limited liability companies that are taxed as a disregarded entity are no longer allowed to offset earned income, such as wages; however, a loss from one business may be used to offset income from another business. PA Act 32 of 2008, which amends Act 511 of 1965 (also known as the “Local Tax Enabling Act”), is responsible for the change. What this means to you is that if you have “earned” income and you have a business that reports income and expenses on the Federal and/or the Pennsylvania Schedules C, you are no longer going to be able to reduce the amount of your taxable income by the amount of the loss from the business. If the loss from the first business is smaller than the income from the second business, Jim will have to pay local earned income tax on the total of his wages and the net business income. Local earned income tax is assessed at different rates and in different manners in almost every jurisdiction. It is important to know what the rules are for your individual locale. If you would like more information about Pennsylvania Elder Law, Business Law or Tax Law, please contact an experienced Pennsylvania Attorney who is also a Certified Public Accountant (CPA) via email or phone us at (724) 216.6551 at our Greensburg, Pennsylvania office. The Iezzi Law Office serves clients in southwestern Pennsylvania, including Greensburg, Pittsburgh, Delmont, Monroeville, Murrysville, Latrobe, Irwin, Uniontown, Connellsville, Indiana, Somerset, and other towns located in Westmoreland County, Allegheny County, Fayette County, Indiana County, and Somerset County. Evening and weekend appointments available. MasterCard, Visa, and Discover are accepted. IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Pennsylvania Sales and Use Tax

Does your business have a connection to Pennsylvania? It may not be obvious but even the slightest tie could have adverse tax consequences. That connection, referred to as “nexus,” may be sufficient to subject the business to sales tax. Pennsylvania imposes sales taxes on the sale of certain tangible personal property or services. If you are a vendor in Pennsylvania, you are required to collect the tax and remit it on each sale at retail. So how does Pennsylvania define a vendor that has a place of business within the state? Pennsylvania defines business nexus in various ways. For example, a vendor might consider the following definition: “Having any contact within this Commonwealth (Pennsylvania) which would allow the Commonwealth to require a person to collect and remit tax under the Constitution of the United States” A vendor may still be taxable even if it has no employees in the state. In a recent Tax Bulletin, Pennsylvania provided insight into how it defines the business connection. Here are a few examples of a business connection: A remote seller stores property or the property of a representative at a distribution or fulfillment center located within the Commonwealth. A remote seller who has a contractual relationship with an entity or individual physically located in Pennsylvania whose website has a link that encourages purchasers to place orders with the remote sellers. A remote seller who regularly solicits orders from Pennsylvania customers via the website of an entity or individual physically located in Pennsylvania. A vendor should investigate whether its website activities subject it to the Pennsylvania Sales and Use Statute. Pennsylvania provides that remote sellers with a physical presence in the state must be licensed and begin collecting sales tax. That includes sellers with a subsidiary, representative or an agent in Pennsylvania. Vendors that lease, sell or deliver tangible personal property within Pennsylvania must be aware that they may be required to remit sales tax. Pennsylvania intends to undertake enforcement actions against any seller deemed non-compliant with the statute. If you would like more information about Pennsylvania Elder Law, Business Law or Tax Law, please contact an experienced Pennsylvania Attorney who is also a Certified Public Accountant (CPA) via email or phone us at (724) 216.6551 at our Greensburg, Pennsylvania office. The Iezzi Law Office serves clients in southwestern Pennsylvania, including Greensburg, Pittsburgh, Delmont, Monroeville, Murrysville, Latrobe, Irwin, Uniontown, Connellsville, Indiana, Somerset, and other towns located in Westmoreland County, Allegheny County, Fayette County, Indiana County, and Somerset County. Evening and weekend appointments available. MasterCard, Visa, and Discover are accepted. IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Employee or Independent Contractor

Are you affected by misclassification of an employee as an independent contractor? Both federal and state governments are microscopically looking into the issue. In 2011, Pennsylvania implemented Act 72 (the Construction Worker Misclassification Act) which makes it both a civil and a criminal offense to knowingly misclassify a construction employee as an independent contractor. If, as an employer, you knowingly misclassify a worker, in addition to possible criminal prosecution, you could face fines up to $2,500 per violation. Independent contractors must meet the following requirements: 1. There must be a written contract with the business or person for the work to be performed; 2. They must control and direct their own work; 3. They must possess the tools needed to perform the work; 4. They must realize a profit or loss from their performance; 5. They must be an owner or partner in their own business; 6. Their business location must be separate from the location of the work to be performed; 7. They either worked as an independent contractor, or they present themselves to others as available and able to perform similar work as an independent contractor; and, 8. They must maintain liability insurance of at least $50,000. If the worker does not meet the above requirements, they are an EMPLOYEE and are subject to mandatory tax withholding. It is also illegal for anyone to enter into a contract with an employer knowing that the employer intentionally misclassifies workers as well as for employers to retaliate against workers who exercise their rights under the new law, including the right to file a complaint. Although the Act addresses the construction industry, other employers should be wary of a misclassification due to continued review of the issue of employee or independent contractor by the Internal Revenue Service. If you would like more information about Pennsylvania Elder Law, Business Law or Tax Law, please contact an experienced Pennsylvania Attorney is who is also a Certified Public Accountant (CPA) via email or phone us at (724) 216.6551 at our Greensburg, Pennsylvania office. The Iezzi Law Office serves clients in southwestern Pennsylvania, including Greensburg, Pittsburgh, Delmont, Monroeville, Murrysville, Latrobe, Irwin, Uniontown, Connellsville, Indiana, Somerset, and other towns located in Westmoreland County, Allegheny County, Fayette County, Indiana County, and Somerset County. Evening and weekend appointments available. MasterCard, Visa, and Discover are accepted. IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Changes to Medical Coverage Laws

Michelle’s Law has been effective since October 9, 2009. This law extends the healthcare coverage for one year for a dependent child who needs a medically necessary leave of absence while attending college or another post-secondary educational institution. The leave of absence must be medically necessary; commence while the child is suffering from a serious illness or injury; and, cause the child to lose coverage under the plan. Change to Pennsylvania Medical Coverage Law The mini-COBRA law went into effect on July 10, 2009, and since that time small businesses with more than one but less than 20 employees must offer continuation of coverage benefits to their employees if their employment or eligibility is terminated due to a qualifying event. A qualifying event is an event that would result in the loss of health coverage for the covered employee or eligible dependents, including the following: (i) termination of employment (either voluntarily or involuntarily if not due to gross misconduct); (ii) death of the covered employee; (iii) reduction in hours of employment which renders the employee ineligible to participate in the group health coverage; (iv) divorce or legal separation; (v) a dependent child becomes ineligible to participate in the group health coverage because he or she fails to meet the overage criteria. The qualifying event may occur before the effective date, July 10, 2009, but if the employee or dependent does not lose group health coverage until on or after July 10, 2009, the eligibility for Mini-COBRA coverage exists. If you would like more information about Pennsylvania Elder Law, Business Law or Tax Law, please contact an experienced Pennsylvania Attorney who is also a Certified Public Accountant (CPA) via email or phone us at (724) 216.6551 at our Greensburg, Pennsylvania office. The Iezzi Law Office serves clients in southwestern Pennsylvania, including Greensburg, Pittsburgh, Delmont, Monroeville, Murrysville, Latrobe, Irwin, Uniontown, Connellsville, Indiana, Somerset, and other towns located in Westmoreland County, Allegheny County, Fayette County, Indiana County, and Somerset County. Evening and weekend appointments available. MasterCard, Visa, and Discover are accepted. IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.