U P D A T E Margaret McDeed, Editor Spring Issue 2014

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1 U P D A T E Margaret McDeed, Editor Spring Issue 2014 Certified Public Accountants In This Issue New Net Investment Income Tax pg. 2 Notables pg. 3 Reporting Foreign Financial Assets pg. 4 Not-for-Profit Gift Acceptance Policy pg. 5 Claiming Home Deductions & After-tax Refresher pg. 6 John Brannan Managing Partner Brad Tushaus Senior Partner Kathy Tushaus Audit Partner Dawn Lopez Audit Partner Wayne Bond Senior Member 611 S. Magnolia Ave. Tampa, FL DWIGHT DARBY & COMPANY ANNOUNCES NEW MANAGING PARTNER Please join us in congratulating John B. Brannan, formerly an Audit Partner at Dwight Darby & Company (Firm), as the new Managing Partner effective January 1, He has been with the Firm for 35 years and has served as a shareholder for 24 years. John has provided audit, accounting and tax services for the construction, franchising and manufacturing industries as well as other closelyheld businesses in the Tampa Bay Area. Brad Tushaus, the Managing Partner for the past 15 years, will maintain a Senior Partner role at the Firm following the transition and says, Given John s long-term commitment to the Firm, it is only natural that he is prepared to take on the role. His experience and community involvement have established him as a great leader for our Firm. John is a member of the Florida Institute of Certified Public Accountants (FICPA) and the American Institute of Certified Accountants (AICPA). He leads the Firm s Peer Review Program and performs reviews of other certified public accounting firms on behalf of the AICPA. Further, he has served on the peer review committee of the FICPA for numerous years. Following graduation from Furman University with a B.S. in accounting in 1979, John joined Dwight Darby & Company. Over the years he has served on the board of numerous civic and charitable organizations. Currently, he serves as Treasurer of Hyde Park Presbyterian Church and the Hillsborough Education Foundation. Recently, John was honored by the Hillsborough County School Board for his 19 years of service to the community in this role. John and his wife, Kim Harvey Brannan, live in Tampa and have three children, all of which are in college.

2 WILL THE NEW NET INVESTMENT INCOME TAX AFFECT YOU? Thomas Ladd The Healthcare and Education Reconciliation Act passed on March 25, 2010 created the Net Investment Income (NII) Tax to help fund health care reform. This is a surtax that is in addition to the regular income tax and will affect many high income taxpayers. For tax years beginning with January 1, 2013, the NII surtax on individuals equals 3.8% of the lesser of: Thus, if a single taxpayer has $220,000 of modified adjusted gross income for 2013, which includes $70,000 of net investment income, $20,000 of the income will be subject to the 3.8% tax. Per the tax code, there are three categories of net investment income: Net investment income for the tax year, or The excess, if any, of the individual s modified adjusted gross income (MAGI) for the tax year over the threshold amount which is $200,000 for individuals and $250,000 for married taxpayers filing jointly. Gross income from interest, dividends, annuities, royalties and rents, other than such income which is derived in the ordinary course of a trade or business. Other gross income derived from a trade or business which is considered to be a passive activity to the taxpayer. Net gain attributable to the disposition of property described in the above two categories (for example, capital gains on the sale of marketable securities). Total net investment income is reduced by properly allocable deductions such as investment interest expense, investment expenses and state, local and foreign taxes allocable to investment income. The IRS has issued final regulations defining net investment income but many observers feel that the guidance contained in these regulations regarding what exactly constitutes a trade or business, including rental activities, is lacking in clarity and will lead to audit controversy and litigation. The IRS does have a safe harbor provision in the final regulations for real estate professionals, which are defined as professionals that materially participate in rental real estate activities for more than 500 hours per year or alternatively, have participated in rental real estate activities for more than 500 hours in five of the last ten tax years. If a taxpayer passes either one of these two tests, any rental income associated with that activity will be deemed to have been derived in the ordinary course of a trade or business and not subject to the 3.8% tax. Note that this is a safe harbor rule only and a given taxpayer may still be able to establish that rental income from a given activity does not constitute net investment income. As you can see, the rules for this new tax are extremely complex, yet there are many opportunities for planning where we may be able to help you to reduce its cost to you. Please feel free to contact us if you have any questions. Net investment income also includes pass-through income from partnerships and S corporations, if they are considered to be passive activities with regard to the taxpayer. For example, if you own 50% of the stock in an S corporation that is engaged in a trade or business, but you do not personally materially participate in the corporation s trade or business, the income flow-through to you reported on the S corporation s Schedule K-1 will be considered net investment income and might possibly be subject to the 3.8% tax depending on your modified adjusted gross income. Spring 2014, Page 2

3 Notables In November 2013, Dawn Lopez, Pam Mattox and Margaret McDeed attended the Florida Council of Independent Schools (FCIS) convention in Orlando, Florida as exhibitors. FCIS is a professional education association and their purpose is to establish high standards for private schools. FCIS evaluates and accredits independent schools throughout Florida. The convention is held annually to provide updates and latest information to heads of schools, business managers, administrative staff and teachers. Kevin Plummer (pictured below), Head of School for Tampa Preparatory School, Co-Chaired the event. Dwight Darby & Company provides audit, accounting and tax services to independent schools and this year s convention was a great success with over 2,000 attending. Pictured are Pam Mattox, Dawn Lopez, Margaret McDeed and Kevin Plummer (Head of School for Tampa Preparatory School) Florida Institute of CPA s 2014 Women to Watch Awards Dawn Lopez, Partner at Dwight Darby & Company, was nominated in the Florida Institute of CPA s (FICPA) 2014 Women to Watch Awards (Awards). It was originally created by The American Institute of CPAs (AICPA). Started in 2010, the Awards were created to focus on the outstanding women who not only shape the Florida Institute of CPAs, but also the profession. Dawn was nominated in the Established Leader category and her nomination is a testament of how her clients and peers feel about her leadership and dedication to the profession. Good Luck Dawn! Dwight Darby & Company is pleased to announce our latest promotions. Join us in congratulating David Bove, Erica Usry and Susan Ghaly (not pictured). Dave has been promoted to Tax Supervisor. Erica and Susan have been promoted to Senior Accountants. We appreciate all of their hard work and dedication to the firm. Spring 2014, Page 3

4 REPORTING OF FOREIGN FINANCIAL ASSETS Taxpayers have two possible filing requirements when they hold foreign financial assets. The Report of Foreign Bank and Financial Accounts (FBAR) may be required to be filed with the U.S. Department of Treasury Financial Crimes Network (FinCEN) through FinCen Form 114 (Form 114). Also, Form 8938, Statement of Specified Foreign Financial Assets may be required to be filed along with the Form A mandatory electronic filing requirement became effective July 1, 2013 for Form 114. Form 114 has replaced Form TD F The due date for Form 114 is June 30 th of the year immediately following the calendar year to be reported and the due date may not be extended. A United States (U.S.) person who has a financial interest in or signature authority over one or more foreign financial accounts must file an FBAR, if the total value exceeds $10,000 at any time during the year. A U.S. person means U.S. citizens, U.S. residents, entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States. There are exceptions to the FBAR reporting requirements that include foreign accounts maintained on a U.S. military banking facility, IRA owners and beneficiaries, among other exceptions. FinCEN Form 114(a) is also now available and allows a third party to file the FBAR on behalf of a person with an obligation to file an FBAR. Pam Mattox Form 8938, Statement of Specified Foreign Financial Assets, is also required to be filed by specified individuals, along with their tax return, when specified foreign financial assets exceed certain thresholds. A specified individual is a U.S. citizen, a resident alien of the U.S. for any part of the tax year and certain nonresident aliens. It is anticipated the IRS will issue regulations that require specified domestic entities to also file Form 8938, but currently only specified individuals are required to file Form Even when the specified foreign financial assets do not impact a taxpayer s tax liability for the year, if the thresholds are met, the taxpayer must file Form The thresholds for taxpayers living in the U.S. are as follows: If the total value of specified foreign assets was in excess of $50,000 on the last day of the tax year or was in excess of $75,000 at any time during the year, Form 8938 is required, unless the taxpayer is married filing joint, then the threshold to file Form 8938 is in excess of $100,000 on the last day of the tax year or in excess of $150,000 at any time during the year. The thresholds are higher for those living abroad. Specified foreign assets include foreign financial accounts and stocks or securities of a foreign corporation, interests in foreign entities, unless held inside a U.S. brokerage or financial account. The above is a summary of general information related to compliance of foreign financial asset reporting. Please contact our office if more specific information is needed to ensure compliance with reporting of foreign financial assets. Spring 2014, Page 4

5 Does Your Not-For-Profit Have a Gift Acceptance Policy? Dawn Lopez The old adage, don't look a gift horse in the mouth, advises one to be thankful when a gift is received and not to wish for something better, but following it can sometimes cause an organization significant problems. Each organization needs a gift acceptance policy as it grows. Also, it is just as important to have policies for when to say, No, I'm sorry, we can't accept that gift. The Importance of a Gift Acceptance Policy A gift acceptance policy helps an organization in the following ways: Creating a gift acceptance policy educates the staff and the governing board about critical issues triggered by certain kinds of gifts. The discipline that results from a policy prevents the acceptance of gifts that could cost the organization time, money, and possibly its reputation. It is difficult to anticipate and investigate the practical issues associated with accepting a gift, when the gift is on the table and the donor is waiting for you to accept it. With a gift acceptance policy, the organization is prepared to discuss the issues with experts, if necessary, and to arrive at a decision that is right for the organization. A gift acceptance policy de-personalizes a refusal. It isn't a development officer telling a donor that a gift isn't acceptable; it is the organization and its board that is saying no. A gift acceptance policy can even save a donor from disappointment or worse from issues when filing a tax return. Donors, even if advised by an attorney or accountant, can make mistakes if not familiar with tax laws. A gift acceptance policy defines the roles of the people who will make the decisions and the roles of the people who will process the gift if it is accepted so that communications with the donor go smoothly. Developing a Gift Acceptance Policy The process of developing the gift acceptance policy may be almost as important as having one. The steps in this process are as follows: Identify the proper people to participate. Draft the policy and have it reviewed by legal counsel. Have the board of directors adopt the policy. Include the board's adoption date on the policy so that all who use it know that the instructions have authority. Assemble the group of experts (e.g., appraisers, brokers, lawyers, and environmental analysts) with whom the organization will consult as it applies the acceptance policies. An organization can't respond to the donor's offer on a timely basis, if it doesn't know who to call to appraise the property, determine its marketability, draft the gift agreement, etc. Review the policy once a year (to remind everyone of their roles, add new types of gifts, if the organization has grown, and learn from mistakes). A lawyer should always review a gift acceptance policy because state laws differ and they change over time. Policy Fundamentals Your organization should consider including the following sections in its gift acceptance policy: The organization's mission statement. The purpose of the policy. A promise to protect its donors and policies for use of legal counsel. A description of the donor recognition programs (if any). A description of acceptable gifts and gift acceptance process. Sections of article taken from The PPC Nonprofit Update November 2013, Volume 20, No. 11 Spring 2014, Page 5

6 CLOSING ENTRIES Simplified Option for Claiming Home Office Deduction Katie Poley The new, simplified deduction is capped at $1,500 per year based on $5 per square foot on up to 300 square feet of home office space. If you have an area of your home that you use exclusively and regularly for your business activities, let us know so we can determine if this deduction would benefit you! After-tax Refresher A mix of vodka, lime juice and muddled cucumber is perfectly refreshing for Spring! 2.5 oz. vodka 1 oz. fresh lime juice 3/4 oz. simple syrup 4 fresh cucumber wheels In the bottom of your shaker, muddle cucumber wheels with simple syrup. Add remaining ingredients, and shake with ice. Strain over one large ice cube into a tumbler and garnish with a cucumber wheel and a pinch of sea salt. This newsletter is published for our clients and other interested persons. Since this information may be of a technical nature, no final decision should be made without first consulting our office. Dwight Darby & Company 611 S. Magnolia Ave. Tampa, FL To receive this newsletter in electronic format, please send an to cpa@dwightdarby.com with the words mailing list in the subject line. Please also let us know if you are a business, individual or both.