“We have been receiving excellent service from CBM for ten years now. Tony Cuozzo goes the extra mile for us and annually reviews our audit with the Board of Directors. We are proud to have them as our accounting firm."
Marti Worshtil, Executive Director Prince George’s Child Resource Center
It is our pleasure to offer you CBM's tax planning guide for 2007. Please seek advice from your tax advisor based on your particular circumstances before acting on any information presented. If you click the following link, you will be connected to our online guide.
If you have any questions or concerns, please contact our Director of Tax Services, Richard E. Morris, CPA, MST at .
Summary of the Pension Protection Act of 2006
On August 17, 2006 the President signed the Pension Protection Act of 2006 (PPA). Besides strengthening traditional pension plans, the act includes provisions affecting retirement savings plans (such as IRAs and 401(k) plans), charitable deductions, charitable organizations, Section 529 college savings and prepaid tuition plans, and other areas of tax law.
Following is a summary of key PPA provisions. Councilor, Buchanan & Mitchell, P.C. offers this information to help you understand how the act may affect you. Please let us know if you have any questions about this new law or other tax or benefits matters.
Traditional pension plans
To help ensure the security of employer-provided pension plans, PPA takes measures to ensure full funding, including even stricter requirements on plans deemed “at risk.” It also prohibits employers maintaining underfunded or terminated single-employer pension plans from funding nonqualified deferred compensation plans (which typically benefit top executives). This provision is effective for transfers or other reservations of assets that occur after Aug. 17, 2006, the date of enactment.
On the other hand, PPA allows assets in excess of 120% of current liability to be used to fund retiree health benefits for both single-employer plans and collectively bargained plans, effective for transfers made after Aug. 17, 2006.
In addition, the act makes permanent the increases in the annual benefit limit that had been set to expire after 2010.
IRAs and defined contribution plans
PPA includes provisions that enhance the retirement savings benefits of IRAs and defined contribution plans, such as 401(k)s, 403(b)s, 457s and SIMPLEs. For example, the act:
Makes permanent provisions from the 2001 tax act that were to “sunset” after 2010. These include the higher annual contribution limits for IRAs and defined contribution plans, catch-up contributions for those 50 and over, and Roth 401(k) and 403(b) plans.
Makes permanent the Saver’s credit, which had been set to expire Dec. 31, 2006.
Waives the early withdrawal penalty from IRAs or 401(k)s (and similar plans) for National Guard members and Reservists who are called up between Sept. 11, 2001, and Dec. 31, 2007, for a period exceeding 179 days. Plus it allows repayment within two years of the distribution without regard to the annual contribution limit.
Simplifies the rules for automatic enrollment in employer-sponsored defined contribution plans, effective for plan years beginning after Dec. 31, 2007.
Allows taxpayers to direct the IRS to deposit their income tax refunds into an IRA, effective for taxable years beginning after Dec. 31, 2006.
Charitable giving
In an effort to encourage donations, PPA:
Allows taxpayers to make tax-free distributions from their IRAs (up to $100,000 annually) to tax-exempt charities through 2007.
Extends to Dec. 31, 2007, the enhanced food and book contribution rules that were enacted after Hurricane Katrina.
But to curtail charitable deduction abuses, the act:
Allows deductions for cash contributions only if the donor can produce a bank record or written communication from the charity as to the contribution amount, effective for contributions made in tax years beginning after Aug. 17, 2006.
Allows deductions for donations of clothing and household goods only if they are at least in “good condition,” effective after Aug. 17, 2006.
Clarifies the charitable deduction allowed with respect to easements for buildings and for land and structures located in a historic district.
Lowers the threshold for imposing accuracy-related penalties on taxpayers who claim a deduction for donated property for which a qualified appraisal is required, effective for returns filed after Aug. 17, 2006.
Charitable organizations
To further curtail charity-related abuses, PPA also tightens federal oversight of the organizations themselves. For example, the act:
Requires reports to the Treasury on an exempt organization’s acquisition of certain life insurance contracts after Aug. 17, 2006.
Doubles fines and penalties for certain activities by exempt organizations, effective for taxable years beginning after Aug. 17, 2006.
Requires certain organizations exempt from annual filing requirements because of their level of gross receipts to file an annual notice with the IRS containing basic contact and financial information, beginning with taxable years beginning after Dec. 31, 2006.
Extends present-law public disclosure requirements applicable to Form 990 to the Unrelated Business Income Tax (UBIT) returns of Section 501(c)(3) organizations, effective for returns filed after Aug. 17, 2006.
Applies an excess benefits transaction tax on any loan, grant, compensation or other similar payment from a donor-advised fund to a donor, donor advisor or related party, and from a supporting organization to a substantial contributor or related person, effective for transactions after Aug. 17, 2006.
Other provisions
PPA also includes several miscellaneous provisions, the most notable of which is a permanent extension of the Section 529 provisions with respect to college savings and prepaid tuition plans.
But a provision to allow a carryforward of up to $500 of unused Flexible Spending Account holdings didn’t make it into the final bill. And legislation containing extensions of expiring tax provisions, estate tax relief and an increase in the minimum wage was defeated in the Senate. This legislation may resurface again in some other form.
Join us for a Not-for-Profit Program on 11/16/06
SAVE THE DATE
Please join CBM for a free Not-for-Profit Program with topics including:
*Governance, Transparency and Financial Accountability in the Not-for-Profit Sector
*Conflicts of Interest
*Investment Strategies
Where: ASAE Headquarters (1575 I St. NW, Washington, DC 20005)
When: November 16, 2006
Time: 8:30am - 11:30am
Contact:
for more information.
Tax Increase Prevention and Reconciliation Act of 2005
New law brings tax relief to individuals and businesses alike:
On May 17 , President Bush signed the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA). This bill, which reconciles the Budget Resolution of 2005 (hence its date), provides a variety of tax breaks that may apply to you. Specifically, it extends expensing rules for small businesses and tax rate reductions on dividends and capital gains. It also temporarily protects some middle-income Americans from the alternative minimum tax (AMT), expands the kiddie tax to age 18 and makes it easier to convert traditional IRAs to Roth IRAs.
A summary of the act’s key provisions follows. Councilor, Buchanan & Mitchell offers this information to help you understand how TIPRA might help you reduce your tax liability. Please send an e-mail or call us at (301) 986-0600 with any questions you may have about this new law or other tax matters.
Small business expensing
Under present law, the limit on the amount that small businesses may expense is $100,000. This means that up to $100,000 of investments in depreciable assets can be deducted in the year they are placed in service. Currently, the deduction phases out dollar-for-dollar for annual investments exceeding $400,000.
This provision was due to sunset at the end of 2007. But under TIPRA, the effective date is extended to Dec. 30, 2009, thus allowing small businesses more time to plan their purchases. Because the limits involved are adjusted for inflation, the deduction cap is $108,000 for 2006, and the phaseout threshold is $430,000.
Had this provision not been adopted, the expensing limit would have dropped back to $25,000, and the phaseout threshold would have decreased to $200,000 after 2007.
Alternative minimum tax
Although the consensus is that the AMT should be overhauled, Congress has been reluctant to take such action because it could reduce federal revenues by $1 trillion. The White House wants repeal coupled with overall tax reform but hasn’t indicated what direction such reform should take.
In the interim, Congress has provided a “temporary and limited fix” for taxpayers caught in the AMT trap. TIPRA increases the AMT exemption to $62,550 for married couples filing jointly and $42,500 for single filers — but only through 2006.
In addition, such nonrefundable personal tax credits as the dependent care credit, the credit for the elderly and disabled, the credit for interest on certain home mortgages, the Hope credit for college expenses and the Lifetime Learning credit can now be claimed against the AMT, thus offsetting both regular and AMT tax liability.
Capital gains rate
Current law taxes most long-term capital gains at a 15% rate. This provision was scheduled to sunset at the end of 2008. TIPRA extends this lower rate two more years, so the provision now expires at the end of 2010.
Tax rate on dividends
Qualified dividends are currently taxed at a maximum 15% rate under a provision that was to expire at the end of 2008. Like the capital gains rate extension, this provision has been extended through 2010.
Expansion of kiddie tax
Previously, only children under the age of 14 were taxed on unearned income at their parents' tax rate. The new law changes the age threshold to 18 (with some exceptions), effective retroactively for all of 2006. The child is still entitled to $850 of tax-free income in 2006, and the next $850 is taxed at the child’s rate before the "kiddie tax" applies.
Roth IRA conversions
TIPRA removes entirely the $100,000 adjusted gross income cap on individuals qualified to convert a traditional IRA to a Roth account. Although this provision won’t be effective until 2010, it will then allow an individual of any income level to make a Roth conversion. By paying current income tax on the conversion, the IRA owner can avoid income tax on all future income and appreciation in the account.
Let us know how we can help
Because our firm specializes in advising individuals and businesses on ways to minimize their taxes and maximize their financial well-being, we’ll keep you posted on any further tax law changes we think you should know about. Again, feel free to let us know how we can help you take advantage of these and other tax law provisions to keep more of your money where it belongs — in your pocket, not the government’s.
Hybrid Vehicles Certified for New Energy Tax Credit
The new tax credit for hybrid vehicles applies to vehicles purchased on or after January 1, 2006 and are as follows:
Please call Richard E. Morris, CPA, MST and Director of Tax Services at (301) 986-0600 if you need help determining the appropriate tax credit for your vehicle.
CBM's Privacy Policy
April 2006
CPAs, like all providers of personal financial services, are required by law to inform their clients of their policies regarding privacy of client information. CPAs have been and continue to be bound by professional standards of confidentiality that are even more stringent than those required by law. Therefore, we have always protected your right to privacy.
For current and former clients, we do not disclose any nonpublic personal information obtained in the course of our practice except as required or permitted by law. Permitted disclosures include, for instance, providing information to our employees, and in limited situations, to unrelated third parties who need to know that information to assist us in providing services to you. In all such situations, we stress the confidential nature of information being shared.
CBM Proudly Supports Yellow Ribbon Fund
April 2006
CBM will be supporting the Yellow Ribbon Fund in two upcoming events:
The Greater Washington Society of CPAs Annual Golf Outing on June 19, 2006 The CBM Annual Rod 'N' Reel Fishing Tournament on May 5, 2006
Yellow Ribbon Fund was created to welcome wounded servicemen and women returning from combat, (many to long-term rehabilitation at Walter Reed Army Medical Center and Bethesda Naval Hospital) into our community.
Long-term rehabilitation at any hospital is not easy. Family and community support helps a patient tremendously in their recovery. Most injured service members at Walter Reed and Bethesda Naval Hospital are away from their own communities, with only a few family members around and some with none. Many are amputees. These active duty service members' primary responsibility is to successfully accomplish their recovery mission. That mission still leaves many of them a substantial amount of free time.
Yellow Ribbon Fund offers these service members the following: (1) an opportunity to use their free time to learn job skills with a local company and to have meaningful interaction with the civilian business community (2) if appropriate, more formal training on the job, in a local business or at a technical institution (3) as required, transportation to and from the job or training site (4) community interns and friends who care. Yellow Ribbon Fund also arranges opportunities for the patient to enjoy our community. When the patient's family visits, Yellow Ribbon Fund arranges free hotel rooms and rental cars.
CBM is proud to support this organization by partcipating in the golf outing and by donating any winnings from the fishing tournament.
The Word From the IRS: Beware of an Online Notice of Refund
March 2006
The IRS is warning the public of a phishing scheme that uses its name to steal personal information. Fraudsters send out official looking e-mails, complete with an IRS logo.
The messages inform recipients that they are entitled to refunds if they fill out special forms. The messages provide a link, which, if followed, asks unwary consumers to enter personal data such as Social Security numbers and credit card information. Once the phisher collects the information, it may be used to steal the consumers' identities and assets.
The tax agency recently issued a press release warning consumers not to fall prey to such scams because:
"The IRS does not ask for personal identifying or financial information via unsolicited e-mail.
Taxpayers do not have to complete a special form to obtain a refund."
If you receive an unsolicited e-mail that claims to be from the IRS, take these steps:
Do not open any attachments to the e-mail, in case they contain malicious computer code that can infect your computer.
Contact the IRS at 1-800-829-1040 to determine whether the IRS is trying to contact you about a tax refund.
Anthony A. Cuozzo, Jr. Elected President of the CBNMC
February 2006
CBM is pleased to announce that Anthony A. Cuozzo, Jr, CPA, CGFM and Director of Not-for-Profit Services was recently elected President of the Catholic Business Network of Montgomery County (CBNMC). Mr. Cuozzo has served on boards of directors of various types of not-for-profit organizations over the years. He is a past president of the Rockville, Maryland Civitan Club, current treasurer of the Maryland Foundation of Dentistry for the Handicapped, and has served on the board of directors of several professional CPA societies. The CBNMC is an independent, non-profit organization of businesses and individual professionals working together to support Catholic education in Montgomery County Maryland.
