Patrick Mutchler

A recent article by Mark Sanchez published in MiBiz, discusses a proposed change in federal regulation that may change how credit unions structure business loans. Proposed by the National Credit Union Administration, this change would essentially allow greater flexibility in business lending through credit unions. Key changes in the proposal include:

• Allowing credit union loan officers to waive personal guarantees on member business loans,
• Removing the 80 percent loan-to-value limits for collateral, and
• Raising limits on construction and development loans.

While credit unions are looking forward to more latitude while structuring a deal, many banks oppose the proposed regulation changes, claiming Congress enacted lending caps for good reason.

For more information on credit unions and business loans, please visit the referenced article by Mark Sanchez in MiBiz, or contact Patrick Mutchler at pmutchler@brickleydelong.com or (231) 726-5870.

The Foreign Account Tax Compliance Act (FATCA) legislation was passed as part of the Hiring Incentives to Restore Employment Act of 2010. This legislation created various new requirements for account holders and financial institutions. The requirements have been phased in over the last few years.

A quick recap of the individual filing requirements

Individuals are required to file form 8938 as an attachment to their personal tax return starting in 2012. The form refers to foreign financial assets such as stocks, bonds, bank accounts, pensions, and other various assets. The foreign financial assets need to meet a certain dollar amount before the form is required.   If you think this may apply, I would encourage you to review this blog post related specifically to this form.

Financial institutions were affected in a couple of ways and these rules took effect as of July 1, 2014.

1. Foreign financial institutions are now required to provide certain financial information. This is in regards to financial accounts with United States owners, as well as entities’ accounts that have substantial United State owners to the Internal Revenues Service. So, many people will be seeing requests from their foreign financial institution to provide accounts owner’s name, address, and social security number. Companies with assets overseas will see similar requests, since they face the same filing requirement.
2. U.S. financial institutions, with account owned by foreign individuals or entities, also have new requirements. The U.S. financial institution will have to collect specific data, as required by this legislation, or they will need to complete a 30% backup withholding on certain payments.

These two points became effective July 1. Therefore, banks will be working hard this year to gather the required data to comply with these new requirements. In addition, account holders will receive their requests for forms and information so the financial institutions can get their records in compliance.

For more information on this topic, please contact Patrick Mutcher, at (231)726-5870.

Author: Patrick Mutchler, CPA

The IRS has just simplified the process for taxpayers who hold interest in Canadian retirement plans. Prior to now, the reporting for Canadian retirement accounts was different than other countries, and this led to failed compliance by many taxpayers.

It is necessary to point out that U.S. citizens are taxed on their worldwide income regardless of where they live. So, a U.S. citizen living aboard should be filing a U.S. tax return every year. The filing of these returns is complicated by the fact that each country has a unique tax structure and unique types of retirement accounts.

Canadian Retirement Plans Previous Requirements

As stated above, Canadian Registered Retirement Savings Plan (RRSP) and Registered Retirement Income Funds (RRIF) have been taxed differently than one would expect. The accumulation of income within these plans was taxable every year, unless an election was made. Many individuals were unaware that an election was required, and treated these plans like an Individual Retirement Account (IRA) in the United States.

RRSP and RRIF information was required to be reported annually on form 8891, whether an election to defer this income is made or not. The different components of income inside the accounts would need to be reported in a similar manner to a brokerage account income.

Current Changes

The IRS now has now made it so that those with RRSF or RRIF accounts automatically quality for tax deferral, similar to U.S. IRA and 401(k) plans. In addition, the requirement to file for 8891has been eliminated.

For more information on taxation of RRSP and RRIF’s please visit Revenues Procedures 2014-55, the IRS website, or contact Patrick Mutchler at pmutchler@brickleydelong.com.

 Author: Patrick Mutchler

The 2014 tax year brings us some very significant tax changes in the area of fixed asset and depreciation. For businesses, it will be even more important to review and plan expansions due to reduced immediate tax benefit for these additions.

Code Section 179 changes

One of the most commonly used tax provisions is code section 179, deduction for fixed assets. The code section has been around since the 1980’s. This provision allows companies to expense a portion of the cost of the equipment purchased each year, as long as the deduction does not create a year to date tax loss for the business after the deduction. These fixed assets may be used or new.

The most significant change in 2014 is the upper limited of the allowed election.

• In 1980, when it was established, the amount of the election was $10,000 per year
• In 2013, the amount of the election was $500,000.

Now, in 2014, election amount is $25,000.So, companies will not be able to benefit from the significant instant deduction that they have over the last few years. (Note that the year is not over. There may be changes made to the law before the end of the year.)

Code Section 168(k) changes

Another deduction that has benefited businesses is the special depreciation deduction provided by IRC code section 168(k). This code section has allowed business to write off between 50 and 100 percent of their equipment purchased during the year, as long as the equipment was brand new (i.e. not previously owned by anyone). This code section allowed for a 50% immediate depreciation deduction or bonus depreciation for qualifying fixed assets. Currently, this is no longer available. It is possible that this could change; but, as of the writing of this article, it is no longer available.

For more information on these depreciation changes or for assistance in planning the best way to utilize available deductions, contact Patrick Mutchler at pmutchler@brickleydelong.com or (231) 725-5870.

What is form 8938?

Form 8938 is utilized to report foreign financial assets. The form is filed as an attachment to your personal income tax return and is due with your personal tax return.

What constitutes a foreign financial asset?

A foreign financial asset is any assets included in a foreign financial account. It also includes many directly held foreign assets. For example, if you directly own shares of a foreign company, then these assets would need to be included on the form. Another example would be if you owned an interest in a foreign partnership, or foreign trust, these assets would need to be included on the form.

When is it required to file?

The form is only required if your foreign financial assets reach a certain level and is based upon various asset amounts (see table below). Many of the foreign assets are required to be reported on other special forms; however, these assets still need to be included in determining if you are required to file. This form is very similar to form 114 Report of Foreign Bank and Financial account. But, filing one of the forms does not alleviate the requirement to file the other. To compare differences between the form, visit Comparison of Form 8938 and FBAR Requirements.

Failing to file brings significant penalties

A person can be assessed a penalty of $10,000 for not filing a complete and accurate return by the due date of the personal return (including extensions). In addition, you can be assessed another $10,000 for each 30 day period that you do not reply to an Internal Revenues Service notice.

It is important to take a full inventory of all assets held overseas and review each one to determine if it is required to be reported, or you may face serious consequences. Contact Patrick Mutchler at 231-726-5870 or pmutchler@brickleydelong.com for questions or assistance on this subject.

Social security is one of the most misunderstood benefits available. Many people believe that they should take the benefit as soon as it is available. While doing so may be the correct course of action to take, it is important to look at your situation, as well as other strategies for drawing social security.

First, let’s take a look at the three of the most common forms of Social Security. Each of the following benefits has a place, and can provide you the best benefit.

1. A person can receive benefits as a worker who paid into the system.
2. A person can claim benefits as a spouse.
3. A person can receive benefits as a survivor of a spouse who has passed away.

Before making any decision in regards to social security, a person should determine a number of things.

1. What is the normal retirement age?

You can claim benefits at age 62, but at a reduced amount.

2. What is your current medical status, as well as your family history?

If you are in poor health, you may want to claim benefits early. It is also important to consider what your family medical history is. Does your family have a history of living well into their 80’s, or a history of genetic illnesses?

3. What is your current financial status?

What type of retirement assets do I have? How much do I need to live the type of retirement lifestyle that I desire? What assets do I have to meet these requirements?

4. What is your spouse’s age?

Even a slight age difference between couples can lead to opportunities, as well as challenges, when determining when and who should file for benefits.

So… should you draw early at 62? Should you wait until your full retirement age? Should you wait until age 70, and then receive a much larger benefit? Or, should you file for benefits (to open doors for your spouse) and then suspend receiving benefits for yourself? You can also receive benefits under a spouse’s account, under certain conditions, while your individual benefit continues to grow.

Making the wrong decision can seriously affect your retirement ages. Contact us to help you determine what strategy fits your situation. You only get one change to retire. Let’s do it right.

For those with foreign bank and financial accounts, it is extremely important that they understand how to report these accounts. New regulations can create serious penalties for a business or person that fails to file.

First, let’s take a look at what a foreign financial account is. A foreign account is an account outside of the United States and its territories, such as Puerto Rico and the District of Columbia. For example, a bank account located in a Mexican bank would be considered a foreign financial account. And, so would a brokerage account located in Italy. The securities insides the account are not the issue when defining a foreign financial account, it is the account itself. So, a brokerage account opened in the U.S. that invests its securities outside the U.S. would not be considered a foreign account, since the brokerage account was set up in the U.S.

When a person has foreign financial assets in foreign accounts, with a collective value exceeding $10,000 for a single day, it is necessary for the person to file form 114 (formerly form TD F 90-22.1) by June 30^th with no extension allowed. It is important to note that filing an extension for your tax return does not extend this deadline. The penalty for failure to file is applied on an account by account basis. The civil penalty is limited to not exceed $10,000 per violation. However, a willful violation will be assessed a penalty of $100,000 or 50% of the account value (whichever is greater).

So, who is considered a person? A person is defined as a U.S. citizen, a resident alien, or an entity organized in the United States. Therefore, corporations, partnerships, trusts, limited liability companies, and individuals are required to file.

When reporting, a person must include accounts where they have direct financial interest, owned through an entity or accounts that they have signature authority over. For example, if you have a family member overseas, who gives you signature authority over their personal accounts, in case you need to access them, you now have to include their account in determining if you are required to file and included their account in your filing.

The value is a collective value of all accounts. Therefore, if there are four accounts with one dollar each, and a fifth account with $9,999, a return would be required to be filed since the aggregate value of all five accounts exceeded $10,000. In addition, all five accounts would be required to be included on the form. Accounts that were closed during the year also must be included on the form as well.

As the world gets smaller, this will become a bigger and bigger issue. Please contact us if you need assistance or it is unclear whether you need to file.