Developing News: 2013

Capitalizing on the De Minimis Exception

For years, the IRS has tried to wrap its arms around rules related to the capitalization vs. deductible repairs and supplies for tangible property. In September 2013 – two years after the proposed regulations were issued – the IRS issued the Final Tangible Property Regulations. For many, the final regulations provide a more generous de minimis expensing rule than what was anticipated. Under the de minimis safe harbor election, taxpayers may elect to expense amounts paid for tangible property, up to $5,000 per item or invoice.

To qualify for the $5,000 de minimis exception you must have an applicable financial statement (AFS),

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Have you adjusted your estate planning, investment and tax strategies to take advantage (or not hurt yourself) in light of the new tax rates? Higher income earners can potentially be in the 39.6%, and may have an additional 3.8% Medicare surtax on investment income to be in the 43.4% tax-bracket. Also, the highest estate tax rate has risen to 40% on the Federal side (not including state estate taxes). Here are some tax tips for real estate developers:

What does this mean to you?

With different tax treatment for earned income, investment income and capital gains, it’s become imperative to look at your income and investments in a different way.

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Do Your Year-End Tax Planning Now

By now, everyone should have filed their 2012 business and individual income tax returns. Before we settle into the holidays, let’s not forget to do some basic year-end tax planning.

The American Taxpayer Relief Act of 2012 (ATRA) passed in January 2013, as well as the Patient Protection and Affordable Care Act (Obamacare), contained significant tax law changes that take effect in 2013 of which taxpayers may not be aware.

3.8% Tax on Net Investment Income

What’s Included in This Tax?

The Affordable Care Act is funded by the addition of a 3.8% tax on Net Investment Income.

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Washington business and occupation (B&O) tax is generally imposed on the gross revenues of a business, without deductions for operating expenses. Because expenses cannot be deducted, a potential for multiple layers of tax obligations exists for business models that involve more than one entity, and the property management industry is no exception.

Hotel, senior living and similar property owners commonly hire third-party managers to manage and operate their facilities. Both the property owner and the property manager have B&O tax obligations on their gross receipts for properties located in Washington State. The property owner may have B&O tax liability on some or all of the gross receipts generated by the property.

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As we rapidly approach the fourth quarter of 2013 and the impending year end for many clients, we start to get questions on many of the facets of financial statement reporting that may be ignored in the first part of the year. One question that we receive somewhat frequently during the year-end financial reporting work is: how do we test goodwill for impairment?

The guidance on this became much less cumbersome effective for periods after December 15, 2011 which was (finally!) some good news from the Financial Accounting Standards Board (FASB).

Here are some common questions we get in relation to goodwill:

  • I acquired an entity 5 years ago and recorded goodwill.

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A common misconception about implementing internal controls over financial reporting and operations is that doing so would be overwhelming and costly. I often hear from CFO’s and management of real estate development and construction companies that implementing internal controls is not an option for them because they have a limited number of accounting staff. However, experience has proven that it is far more costly and time consuming to deal with possible legal and financial consequences of ineffective internal controls after the fact.

Internal accounting controls are the processes and procedures used by a company to ensure accurate and valid financial reporting, and which aid in receiving information in an accurate and timely manner.

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