President Obama’s 2013 Budget Proposal Includes Many Tax Reform Provisions

On Monday, President Barack Obama unveiled his proposed fiscal year 2013 budget. The proposed $3.8 trillion budget emphasizes creating jobs while backing away from further spending cuts. He called for increased spending for job training, community colleges, research and development, and infrastructure, saying the nation "can’t cut our way to growth." Obama abandoned his promise to cut the deficit in half by the end of his first term.

Additionally, the budget is full of specific tax proposals, and five principles for tax reform:

1. Simplify the Internal Revenue Code and lower tax rates;
2. Reform inefficient and unfair tax breaks;
3. Decrease the deficit and protect progressivity;
4. Increase job creation and growth; and
5. Observe the “Buffett Rule.”

The budget defines the “Buffet Rule” as: “No household making over $1 million annually should pay a smaller share of its income in taxes than middle class families pay”.  It’s name comes from the famous comments of Warren Buffet observing that he pays a lower effective tax rate than his secretary.  The reason being of course, is his income is derived mostly from capital gains, which are taxed at a lower tax rate to incentivize investment in the economy.  The budget proposal would replace the current alternative minimum tax with the “Buffet Rule”, and allow certain 2001 and 2003 tax cuts to expire.

The budget would also repeal the LIFO method of accounting for inventories.

Other proposed changes include:

• Reinstate the limitation on itemized deductions for upper-income taxpayers;
• Reinstate the personal exemption phaseout for upper-income taxpayers;
• Tax qualified dividends as ordinary income for upper-income taxpayers;
• Tax net long-term capital gains at a 20% rate for upper-income taxpayers;
• Cap the value of itemized deductions;
• Tax carried interests as ordinary income

The list of potential tax changes is lengthy, and the Journal of Accountancy has prepared a great in-depth analysis in their article here.

We will continue to monitor these proposals as they progress through the government.

2012 OC Economic Forecast

On January 24th, Dr. Esmael Adibi presented the 2012 Economic Forecast at the California Society of CPA’s event in Orange County.  Dr. Adibi is the director of the A. Gary Anderson Center for Economic Research at Chapman University. 

His presentation projected a positive but small growth in the economy in 2012 and mild improvements in consumer spending. 

One of the main area’s that Dr. Adibi focused on was job growth.  He indicated that it is taking so much longer for our country to break out of the recession because there is less job creation than at the end of previous recessions.  There have been 11 recessions in the US since World War II and this recession is one of the longest because there are no new jobs to boost the economy.  He mentioned that presidents are irrelevant when it comes to our economic growth but new jobs are the key. 

Dr. Adibi projected mild increases in auto sales and consumer spending in 2012.  One encouraging sign for the US is that Canada and Mexico are both growing.  These countries are the leading export for the US.

Dr. Adibi concluded that consumer’s personal income should rise by 5.4% in 2012 but that the housing market will still remain flat with only a .2% increase in the current year.

Tax Issues to Watch tor When Working From Home

The home-office deduction has always been viewed as one of those things that very few taxpayers qualify for, and a deduction that was sure to get you audited.  Times have changed, and court cases and revised rulings have made this a much more mainstream deduction, that qualifying taxpayers should take advantage of. 

However, although it can be a boon to the self-employed and other qualifying taxpayers, it still can be an Internal Revenue Service audit hazard if not properly claimed. This article provides a great summary of the basic rules. Journal of Accountancy

Partners’ Interest Expense Allocation Subject of New Regulations

New temporary and proposed regulations issued by the Internal Revenue Service make changes to the way partners allocate and apportion interest expense. The changes affect corporate partners with a 10% or more interest in a partnership as well as certain other partners. The regulations also address allocation and apportionment of interest expense using the fair market value method.

Read more about the new regulations at this article by the Journal of Accountancy.

Stephen Tierney on “Real Orange” television show on Thursday

On Thursday at 5pm, Stephen Tierney will be featured on the PBS broadcast of “Real Orange”.  Stephen is partner at Nienow & Tierney, LLP and also the Chief Running Officer for Up and Running Again.  Up and Running again is a nonprofit dedicated to training homeless and at-risk youth to run half marathons.

Steve will be given the opportunity to share with the Orange County community the mission of Up and Running Again.  In the interview, he hopes to communicate the amazing achievements that so many of the homeless and at-risk kids have completed over the past year. 

The show will air on channel 50 in the Orange County area.

Also don’t forget to look for Up and Running Again at the Surf City half marathon on Sunday February 5th!

Client Spotlight: Arctic Leasing & the Anema Family

Nienow & Tierney, LLP is excited to highlight our client Arctic Leasing and the Anema family.  The Anema family has been in the used truck sales business in Bellflower for over 60 years and operates under the name J & J Truck Sales, which is located off the 91 freeway in Bellflower. 

In recent years due to changes in government regulations, the sale of used trucks and trailers has slowed dramatically.  It was in 2007 that the family started an offshoot called Arctic Leasing with another business partner.   This business leases out refrigerated trailers to grocery or other retail stores and also has a freezer service division.  Trailer rentals run anywhere from a few days to a few years in duration with a high volume of rentals during the holiday months.  The business started in 2007 with four partners and $1,342 in revenues.  The company’s profits have steadily increased along with the number of trailers in service and service accounts, and as of December 2011 the company’s yearly revenues were around $777,000.  They also just opened up a second facility in Ontario which will accommodate outside truck/trailer parking as well.

We are excited to see the progress this company has made over the past few years and applaud them at finding an underserved niche in their industry.

Worker Classification Becoming Major Tax Administration Issue

Between the recent voluntary classification settlement program introduced by the Internal Revenue Service, a memorandum of understanding between the IRS and the Department of Labor to share employment tax data, and the president’s proposed economic growth plan, misclassification of workers and independent contractors has been receiving a lot of attention in Washington.

Additionally, as previously reported on our blog here, the State of California has enacted new reporting requirements as well as new fines and penalties for failure to comply.

Learn more about the latest issues related to worker classification issues in this Tax Advisor article.

Please Welcome Our New Staff

On January 9, Nienow & Tierney, LLP hired two new staff accountants to join our team!

Joanna Nguyen and Michael Davis both completed their MS in Accountancy in 2011 from Cal State University of Fullerton.  Together they bring a diverse background of work experience and education to their new positions.  They started just over two weeks ago, but have already proven to have excellent technical and analytic skills as well as a strong work ethic.  We are excited that Nienow & Tierney, LLP is growing and that we have added such valuable members to our team.

Additionally, we have brought an intern on board to assist us through the busy tax season of 2012.  Matthew Fortney is a student at Cal State University of Fullerton, working toward his BA in Finance.  Matthew will be an integral part of our firm’s operations for the next several months.

Welcome Joanna, Michael and Matthew!

State of the Union Address Provides Insight Into President’s Income Tax Reform Agenda

President Barack Obama, in his State of the Union address, proposed a minimum 30% tax on income over $1 million. High earners would lose deductions for mortgage interest, health care, retirement and child care. There seems to be little chance of enactment of any of these provisions this year, given the amount of congressional gridlock we have seen this year.

In order to raise the tax rate of high income earners, instead of raising taxes on investment income, the Obama proposal would create a new 30% alternative minimum tax (AMT) for high earners.  Interestingly, the AMT is often cited as the most complicated part of the Internal Revenue Code, and is the first target of reforms aimed to simplify” the tax code.

Obama also said he would increase scrutiny of Wall Street by setting up a Financial Crimes Unit in the Justice Department to investigate fraud.

IRS–Exempt Organization tool

On Friday, the Internal Revenue Service launched a new online tool called Exempt Organization Select Check.  This new resource is designed to help taxpayers gather more information regarding exempt organizations. 

Individuals can now go to this online part of IRS.gov and search whether or not an entity is eligible to receive tax exempt donations.  The taxpayer can also search and determine if the organization has lost their tax exempt status due to failure to file form 990 or  the IRS postcard for 990N for the past three years.  Finally, the taxpayer is also allowed to view all 990N postcard returns that have been filed by the selected entity.

For more information go to:

http://www.irs.gov/charities/article/0,,id=249767,00.html