Personal Insurance Services

: : Neal B. Patel, Managing Director,
Personal Insurance Services | G.R. Reid Agency, LLC
631.923.1595 ext. 303

Boating Season is Right Around the Corner

Americans love the sense of freedom and adventure that comes from boating. But the price tag of recreational boating accidents is high: about $36 million dollars per year. And these figures are probably only the tip of the iceberg since the Coast Guard believes that more than 80 percent of all boating accidents go unreported.

Given this level of risk for accidents, it would make sense that boat owners would look for a way to protect themselves, but that doesn't seem to be the case. A study conducted by Progressive Insurance revealed that nearly one third of U.S. boat owners don't own a separate watercraft policy. That's probably because boat owners assume that their craft is covered by their personal auto policy or their homeowner's policy. This is a mistake that can cost them big time.

The standard auto policy covers the boat trailer for liability with the option to add coverage for physical damage. The boat itself, however, is not covered for liability or damage.

Some homeowner's policies offer coverage for physical damage for boats, but only for smaller vessels. The typical homeowner's policy contains a special property limit of $1,500 on watercraft, which doesn't begin to equal the dollar value of most boats. In addition, the covered perils specific to the boat are also greatly restricted. There is also liability coverage available for boats under the majority of homeowner's policies, but once again, it is only applicable to smaller watercraft. The only exception is a boat with an outboard motor. That means that any type of boat you own that is powered by an inboard or inboard-outboard motor is excluded from liability coverage under the homeowner's policy.

Until You Know It's Protected, Keep Your Boat on Dry Land 

Because most boat owners are unaware how large a property and liability loss they expose themselves to without proper insurance, the Institutional Risk Management Institute (IRMI) has created a list of loss scenarios that demonstrate the need for specialized boat owners coverage:

• Your cruiser collides with a speedboat whose operator fails to yield the right of way, causing extensive damage to your boat. The owner of the speedboat does not have any insurance coverage.
• An expensive fishing boat you just purchased is stolen from your home.
• Your 27-foot-long sailboat is damaged by a hailstorm and high winds while docked at the marina.
• Your sport fishing boat is struck by lightning, incapacitating its electrical system.
• Your daughter's friend is water skiing behind your boat and  falls into the lake, injuring herself, due to the excessive speed of the boat.
• You negligently cause another boat to overturn to avoid a collision.
• Your outboard motor explodes, seriously injuring your next-door neighbor.

These scenarios illustrate the need to factor insurance costs into the equation when buying a boat. If you fail to insure your boat properly, your boat loan may become the smallest of your financial worries.

Obtain the property and liability protection that makes sense for you. 

What To Consider:

• Size Of Vessel
  We can insure boats of all sizes, from small runabouts to some of the world’s largest super yachts.
• Your Comfort Level
  Various deductible options empower you to choose how much up-front risk you’d like to take; higher deductibles often can result in meaningful premium savings.
• Your Cruising Itinerary
  We can cover vessels cruising anywhere in the world.
• Presence & Size Of Crew
  Different circumstances call for different solutions.
• On-Board Contents
  Broad coverage extends to large amounts of fine art and/or other personal effects.
• Your Liability Exposure
  We can provide adequate protection, including coverage for crew claims under the Federal Jones Act.

Visit the G.R. Reid website for more information and to request a quote.

Accounting & Tax News

G.R. Reid Associates, LLP
Certified Public Accountants 


631.425.1800   www.GRReid.com

 

 

Small Employers: Reminder to Utilize Small Business Health Care Tax Credit

The IRS is encouraging small employers that provide health insurance coverage to their employees to check out the Small Business Health Care Tax Credit.

This program, which was enacted two years ago as part of the Affordable Care Act, provides income tax credits to small employers that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement. The credit is specifically targeted to help small businesses and tax-exempt organizations provide health insurance for their employees.

The IRS recently revised the Small Business Health Care Tax Credit page on IRS.gov and included information and resources designed to help small employers determine if they qualify for the credit and then to compute it correctly. The webpage includes a step-by-step guide for determining eligibility and examples of typical tax savings under various scenarios. The credit is computed utilizing IRS forms 8941 and 3800.

Filing deadlines differ depending upon how a small business is structured, such as a sole proprietor, corporation, partnership, limited liability company or a tax-exempt organization. Taxpayers needing more time to determine eligibility should consider obtaining an automatic tax-filing extension. Businesses that have already filed and later find that they qualified in 2010 or 2011 can still claim the credit by filing an amended return. 

Additional information about eligibility requirements and figuring the credit can be found on IRS.gov or by contacting your G.R. Reid Tax Professional.

Accounting & Tax News

G.R. Reid Associates, LLP
Certified Public Accountants 


631.425.1800   www.GRReid.com

IRS Releases 2012 Auto and Truck Valuation Rules

With the release of Rev. Proc. 2012-13, the IRS has set the maximum fair market value amounts regarding the proper valuation rule for employees calculating fringe benefit income from employer-provided automobiles, trucks, and vans first made available for personal use in 2012.

Taxpayers whose employers provide company cars (or trucks and vans) for their personal use must factor that usage into in his or her income and wages as fringe benefit income.

The taxpayers may calculate the value of their personal use using the cents-per-mile valuation rule. The calculation involves imputing the fair-market value of the employer-provided vehicle. The IRS limits the dollar amount of the fair market value of the employer’s vehicle. In 2012, the mileage allowance rate is 55.5 cents-per-mile and the maximum fair market value allowed in 2012 is $15,900 for a passenger automobile, and $16,700 for a truck or van. This means that the cents-per-mile rule cannot be used to value an automobile whose fair market value, as of the first day on which it is made available to any employee for personal use, exceeds certain amounts set by the IRS.

It is important to note that the maximum fair market values released by Rev. Proc. 2012-13 only applies to automobiles that were allowed to be used as personal property beginning in the year 2012. Therefore, if the automobile in question was first used for personal purposes prior to 2012, then the fair market value limits that apply are those designated by the IRS for those years.

Employers that maintain a fleet of at least 20 automobiles can value the fair market value of each automobile as equal to the average value of the entire fleet. This is known as the Fleet-average value method. This method averages the fair market value of all automobiles used in the fleet. The maximum fair market value for the fleet-average valuation allowed by the IRS in 2012 is $21,000 for a passenger automobile and $21,900 for a truck or van. If a vehicle within the fleet owned by the employer exceeds the maximum fair market value allowed by the IRS, then the fleet-average valuation rule cannot be used.

Financial & Wealth Services News

:: George G. Elkin, Managing Director, Financial & Wealth Services
631.923-1595 ext. 336
G. R. Reid Wealth Management Services, LLC  

 What Is the Most Tax-Efficient Way to Take a Distribution from a Retirement Plan?
 
If you receive a distribution from a qualified retirement plan, such as a 401(k), you need to consider whether to pay taxes now or to roll over the account to another tax-deferred plan. A correctly implemented rollover can avoid current taxes and allow the funds to continue accumulating tax deferred.
 
Paying Current Taxes with a Lump-Sum Distribution
 
If you decide to take a lump-sum distribution, income taxes are due on the total amount of the distribution and are due in the year in which you cash out. Employers are required to withhold 20 percent automatically from the check and apply it toward federal income taxes, so you will receive only 80 percent of your total vested value in the plan.
 
The advantage of a lump-sum distribution is that you can spend or invest the balance as you wish. The problem with this approach is parting with all those tax dollars. Income taxes on the total distribution are taxed at your marginal income tax rate. If the distribution is large, it could easily move you into a higher tax bracket. Distributions taken prior to age 59½ are subject to an additional 10% federal income tax penalty.
 

If you were born prior to 1936, there are two special options that can help reduce your tax burden on a lump sum.

 
The first special option, 10-year averaging, enables you to treat the distribution as if it were received in equal installments over a 10-year period. You then calculate your tax liability using the 1986 tax tables for a single filer.
 
The second option, capital gains tax treatment, allows you to have the pre-1974 portion of your distribution taxed at a flat rate of 20 percent. The balance can be taxed under 10-year averaging, if you qualify.
 
To qualify for either of these special options, you must have participated in the retirement plan for at least five years and you must be receiving a total distribution of your retirement account.
 
Note that these special tax treatments are one-time propositions for those born prior to 1936. Once you elect to use a special option, future distributions will be subject to ordinary income taxes.
 
 
Deferring Taxes with a Rollover
 
If you don’t qualify for the above options or don’t want to pay current taxes on your lump-sum distribution, you can roll the money into a traditional IRA.
 
If instead you choose a rollover from a tax-deferred plan to a Roth IRA, you must pay income taxes on the total amount converted in that tax year. However, future withdrawals of earnings from a Roth IRA are free of federal income tax as long as the account has been held for at least five tax years.
 
If you elect to use an IRA rollover, you can avoid potential tax and penalty problems by electing a direct trustee-to-trustee transfer; in other words, the money never passes through your hands. IRA rollovers must be completed within 60 days of the distribution to avoid current taxes and penalties.
 
An IRA rollover allows your retirement nest egg to continue compounding tax deferred. Remember that you must begin taking annual required minimum distributions (RMDs) from tax-deferred retirement plans after you turn 70½ (the first distribution must be taken no later than April 1 of the year after the year in which you reach age 70½). Failure to take RMDs subjects the funds that should have been withdrawn to a 50 percent federal income tax penalty.  
 
Of course, there is also the possibility that you may be able to keep the funds with your former employer, if allowed by your plan.
 
Before you decide which method to take for distributions from a qualified retirement plan, it would be prudent to consult with a professional tax advisor. 


Visit our website:  G.R. Reid Wealth Management Services, LLC


George Elkin is a Registered Representative offering Securities through American Portfolios Financial Services, Inc. Member: FINRA, SIPC. Investment Advisory products/services are offered through American Portfolios Advisors Inc., an SEC Registered Investment Advisor. G.R. Reid Consulting Services, LLC  is not a registered investment advisor and is independent of American Portfolios Financial Services Inc. and American Portfolios Advisors Inc. Unless specifically stated otherwise, the written advice in this memorandum or its attachments is not intended or written to be used for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. Information is time sensitive, educational in nature, and not intended as investment advice or solicitation of any security.

This material was written and prepared by Emerald.

Accounting & Tax News

G.R. Reid Associates, LLP 

Certified Public Accountants
631.425.1800   www.GRReid.com

President's FY 2013 budget proposals carry numerous tax changes
 
On February 13, the President released his federal budget proposals for fiscal year 2013, and, on the same day, the Treasury released its “General Explanations of the Administration's Fiscal Year 2013 Revenue Proposals” (the so-called “Green Book”). The revenue proposals include over 130 large and small proposed tax changes for businesses and individuals, including new incentives to “insource” jobs, higher taxes for upper-income taxpayers, and the extension of key tax breaks.
 
Business Tax Proposals
The budget's proposals for business include the following:
 

• The payroll tax cut currently in place for January and February of this year would be extended for the rest of 2012.
• Qualified employers would be provided a tax credit for increases in wage expense, whether driven by new hires, increased wages, or both. The credit would be equal to 10% of the increase in the employer's 2012 eligible wages (OASDI wages) over the prior year (2011). The maximum amount of the increase in eligible wages would be $5 million per employer, for a maximum credit of $500,000, to focus the benefit on small businesses. For employers with no OASDI wages in 2011, eligible wages for 2011 would be 80% of their OASDI wage base for 2012. The credit would generally be considered a general business credit. A similar credit would be provided for qualified tax-exempt employers. The credit would be effective for wages paid during the one-year period beginning on Jan. 1, 2012.
• Employers currently pay FUTA tax at a rate of 6.0% (beginning July 1, 2011) on the first $7,000 of covered wages paid annually to each employee. The rate for the first half of 2011 was 6.2%, including the 6% permanent tax rate and the 0.2% temporary surtax that expired on June 30, 2011. The net federal unemployment insurance tax on employers would permanently revert to 6.2%, effective for wages paid with respect to employment on or after Jan. 1, 2013. Also, under current law, employers in States that meet certain Federal requirements are allowed a credit against FUTA taxes of up to 5.4%, making the minimum net Federal rate 0.6%. States that become non-compliant are subject to a reduction in FUTA credit, causing employers to face a higher Federal UI tax. Effective on the enactment date, short-term relief would be provided, for example, the FUTA credit reduction for employers in borrowing States would be suspended in 2012 and 2013. Other changes would be made. For example, the FUTA wage base would be raised in 2015 to $15,000 per worker.
• The 100% bonus first-year depreciation deduction that generally applies only for assets placed in service before 2012, would be extended through 2012.
• Use of the last-in, first-out (LIFO) accounting method would be repealed, for tax years beginning after Dec. 31, 2013. Taxpayers required to change from the LIFO method also would be required to report their beginning-of-year inventory at its first-in, first-out (FIFO) value in the year of change, causing a one-time increase in taxable income that would be recognized ratably over 10 years.
• For tax years beginning after Dec. 31, 2013, bar the use of the lower-of-cost-or market and subnormal goods methods of inventory accounting, which currently allow certain taxpayers to take cost-of-goods-sold deductions on certain merchandise before the merchandise is sold. Any resulting income inclusion would be recognized over a four-year period beginning with the change year.
• An additional $5 billion of credits for investments in eligible property used in a qualifying advanced energy manufacturing project. Taxpayers would be able to apply for a credit with respect to part or all of their qualified investment. Applications for the additional credits would be made during the two-year period beginning on the date on which the additional authorization is enacted.
• Replace the existing deduction for energy efficient commercial building property with a tax credit equal to the cost of property that is certified as being installed as part of a plan designed to reduce the total annual energy and power costs with respect to the interior lighting, heating, cooling, ventilation, and hot water systems of the building by 20% or more in comparison to a reference building which meets certain minimum requirements. The tax credit would be available for property placed in service during calendar year 2013.
• Effective for bonds issued after the enactment date, make the Build America Bonds program permanent at a Federal subsidy level equal to 30% through 2013 and 28% of the coupon interest on the bonds thereafter. The 28% Federal subsidy level would be intended to be approximately revenue neutral relative to the estimated future Federal tax expenditure for tax-exempt bonds. The eligible uses for Build America Bonds also would be expanded.
• Effective after 2013, require employers in business for at least two years that have more than ten employees to offer an automatic IRA option to employees, under which regular contributions would be made to an IRA on a payroll-deduction basis. If the employer sponsored a qualified retirement plan, SEP, or SIMPLE for its employees, it would not be required to provide an automatic IRA option for its employees. Additionally, the non-refundable “start-up costs” tax credit for a small employer that adopts a new qualified retirement, SEP, or SIMPLE would be doubled from the current maximum of $500 per year for three years to a maximum of $1,000 per year for three years and extended to four years (rather than three) for any employer that adopts a new qualified retirement plan, SEP, or SIMPLE during the three years beginning when it first offers (or first is required to offer) an automatic IRA arrangement. This expanded “start-up costs” credit for small employers, like the current “start-up costs” credit, would not apply to automatic or other payroll deduction IRAs.
• For qualified small business stock (QSBS) acquired after Dec. 31, 2011, make the 100% exclusion for qualified small business stock permanent. The AMT preference item for gain excluded under Code Sec. 1202 would be repealed for all excluded small business stock gain. Also, the time for a taxpayer to reinvest the proceeds of sales of small business stock under Code Sec. 1045 would be increased to 6 months for qualified small business stock the taxpayer has held longer than three years.
• For tax years ending on or after the date of enactment, the maximum amount of start-up expenditures that a taxpayer may deduct (in addition to amortized amounts) in the tax year in which a trade or business begins, would be permanently doubled from $5,000 to $10,000. This maximum amount of expensed start-up expenditures would be reduced (but not below zero) by the amount by which start-up expenditures with respect to the active trade or business exceed $60,000.
• For tax years beginning after Dec. 31, 2011, liberalize the tax credit available to small employers providing health insurance to employees. For example, the group of employers who are eligible for the credit would be expanded to include employers with up to 50 full-time equivalent employees and the phase-out would begin at 20 full-time equivalent employees.
• Require corporate business jets that carry passengers to be depreciated over seven years instead of five, effective for property placed in service after Dec. 31, 2012.
• Eliminate these tax preferences for oil and gas companies, generally effective after Dec. 31, 2012: investment tax credit for enhanced oil recovery projects, production credit for oil and gas from marginal wells, intangible drilling cost deduction, the deduction for tertiary injectants used as part of a tertiary recovery method, the exception to passive loss limits for working interests in oil and natural gas properties, percentage depletion, and two-year amortization of independent producers' geological and geophysical expenditures (amortization period would be increased to seven years).
• Eliminate tax preferences for coal activities beginning in 2013 (expensing of exploration and development costs, percentage depletion for hard mineral fossil fuels, capital gains treatment for royalties, and the Code Sec. 199 deduction).
• Tax certain “carried interest” as ordinary income, instead of at the 15% capital gains rate.
• Permit IRS to issue generally applicable guidance about the proper classification of workers and to require prospective reclassification of workers who are currently misclassified and whose reclassification is prohibited under section 530 of the '78 Revenue Act. Penalties would be waived for service recipients with only a small number of workers, if they had consistently filed all required information returns reporting all payments to all misclassified workers and agreed to prospective reclassification of misclassified workers. This proposal would apply on enactment, but the prospective reclassification for those covered currently by section 530 of the '78 Revenue Act would not be effective for at least one year after the enactment date.

Proposals to Boost U.S. Manufacturing and Insourcing of Jobs
To encourage businesses to locate jobs and business activity in the U.S., the President's budget proposes to make these changes, among others:

• Effective for expenses paid or incurred after the date of enactment, create a new general business credit against income tax equal to 20% of the eligible expenses paid or incurred in connection with insourcing a U.S. trade or business. Insourcing a U.S. trade or business would mean reducing or eliminating a trade or business (or line of business) currently conducted outside the U.S. and starting up, expanding, or otherwise moving the same trade or business within the U.S., to the extent that this action results in an increase in U.S. jobs.
• Effective for expenses paid or incurred after the date of enactment, deductions for expenses paid or incurred in connection with outsourcing a U.S. trade or business would be disallowed. Outsourcing a U.S. trade or business would mean reducing or eliminating a trade or business or line of business currently conducted inside the U.S. and starting up, expanding, or otherwise moving the same trade or business outside the U.S., to the extent that this action results in a loss of U.S. jobs.
• Creation of a new allocated tax credit to support investments in communities that have suffered a major job loss event (i.e., when a military base closes or a major employer closes or substantially reduces a facility or operating unit, resulting in a long-term mass layoff). About $2 billion in credits would be provided for qualified investments approved in each of the three years, 2012 through 2014.
• For tax years beginning after Dec. 31, 2012, limit the extent to which the Code Sec. 199 domestic production deduction is allowed with respect to nonmanufacturing activities by excluding from the definition of domestic production gross receipts (DPGR) any gross receipts derived from sources such as the production of oil and gas, the production of coal and other hard mineral fossil fuels, and certain other nonmanufacturing activities. Additional revenue obtained from this retargeting would be used to increase the general deduction percentage and to fund an increase of the deduction rate for activities involving the manufacture of certain advanced technology property to approximately 18%.
• Retroactively effective after Dec. 31, 2011, make the research credit permanent and increase the rate of the alternative simplified research credit from 14% to 17%.
•  

International Tax System
Following are highlights of the President's proposals for reforming the U.S. international tax system:

• Defer the deduction of interest expense properly allocated and apportioned to a taxpayer's foreign-source income that is not currently subject to U.S. tax until such income is subject to U.S. tax.
• Require a taxpayer to determine foreign tax credits from the receipt of a dividend from a foreign subsidiary on a consolidated basis for all its foreign subsidiaries. Foreign tax credits from the receipt of a dividend from a foreign subsidiary would be based on the consolidated earnings and profits and foreign taxes of all the taxpayer's foreign subsidiaries.
• Provide that if a U.S parent transfers an intangible to a controlled foreign corporation (CFC) in circumstances that demonstrate excessive income shifting from the U.S., then an amount equal to the excessive return would be treated as subpart F income.
• Clarify the definition of intangible property for purposes of the special rules relating to transfers of intangibles by a U.S. person to a foreign corporation (Code Sec. 367(d)) and the allocation of income and deductions among taxpayers (Code Sec. 482) to prevent inappropriate shifting of income outside the U.S.
• Amend the rules that limit the deductibility of interest paid to related persons subject to low or no U.S. tax on that interest to prevent inverted companies from using foreign-related party and certain guaranteed debt to inappropriately reduce the U.S. tax on income earned from their U.S. operations.
• Disallow the deduction for non-taxed reinsurance premiums paid to affiliates.
• Modify tax rules for dual capacity taxpayers.
• Tax gain from the sale of a partnership interest on look-through basis.
• Prevent use of leveraged distributions from related foreign corporations to avoid dividend treatment.
• Extend Code Sec. 338(h)(16), which provides that (subject to certain exceptions) the deemed asset sale resulting from a section 338 election is not treated as occurring for purposes of determining the source or character of any item for purpose of applying the foreign tax credit rules to the seller, to certain asset acquisitions.
• Remove foreign taxes from a Code Sec. 902 corporation's foreign tax pool when earnings are eliminated.

Tax Changes for Individuals
The President's plan calls for numerous changes to be made for individuals, including the following:

• For tax years beginning after Dec. 31, 2012, reinstatement of upper-income taxpayers' reduction of itemized deductions and phaseout of personal exemptions.
• The expiration of the 2001 and 2003 (EGTRRA and JGTRRA) tax cuts for those with household income over $250,000 a year for joint filers ($200,000 for single taxpayers), effective after 2012.
• For dividends received after Dec. 31, 2012, the current reduced tax rates on qualified dividends would expire for income that would be taxable in the 36% or 39.6% brackets. In other words, qualified dividends for upper income taxpayers would be taxed as ordinary income.
• For long-term capital gains realized after Dec. 31, 2012, the current reduced tax rates on long-term capital gains would expire for capital gain income that, in the absence of any preferential treatment of long-term capital gains, would be taxable in the 36% or 39.6% brackets. Thus, the maximum long-term capital gains tax rate for upper-income taxpayers would be 20%.
• For tax years beginning after Dec. 31, 2012, the tax value of specified deductions or exclusions from AGI and all itemized deductions would be limited to 28% of the specified exclusions and deductions that would otherwise reduce taxable income in the 36% or 39.6% tax brackets. A similar limit also would apply under the alternative minimum tax. The limit would apply to tax-exempt state and local bond interest, employer-sponsored health insurance paid for by employers or with before-tax employee dollars, health insurance costs of self-employed individuals, employee contributions to defined contribution retirement plans and individual retirement arrangements, the deduction for income attributable to domestic production activities, certain trade and business deductions of employees, moving expenses, contributions to health savings accounts and Archer MSAs, interest on education loans, and certain higher education expenses. The change would apply to itemized deductions after they have been reduced by the proposed statutory limit on certain itemized deductions for higher income taxpayers.
• The budget proposal would make permanent the American Opportunity Tax Credit (AOTC), a partially refundable tax credit worth up to $10,000 per student over four years of college.
• For tax years beginning after Dec. 31, 2012, the expansion of the EITC for workers with three or more qualifying children would be made permanent. Specifically, the phase-in rate of the EITC for workers with three or more qualifying children would be maintained at 45%, resulting in a higher maximum credit amount and a longer phase-out range.
• For tax years beginning after Dec. 31, 2012, the AGI level at which the child and dependent care credit begins to phase down would permanently increase from $15,000 to $75,000. The percentage of expenses for which a credit may be taken would decrease at a rate of 1 percentage point for every $2,000 (or part thereof) of AGI over $75,000 until the percentage reached 20% (at incomes above $103,000).
• The exclusion for income from the discharge of qualified principal residence indebtedness (QRPI) would be extended to amounts that are discharged before Jan. 1, 2015, and to amounts that are discharged pursuant to an agreement entered before that date.

Estate and Gift Tax Proposals
Restoration of transfer tax to 2009 levels. The estate, generation-skipping transfer (GST), and gift tax parameters as they applied during 2009 would be made permanent. The top tax rate would be 45% and the exclusion amount would be $3.5 million for estate and GST taxes, and $1 million for gift taxes. These changes would apply for estates of decedents dying, and for transfers made, after Dec. 31, 2012.
Portable estate tax exclusion made permanent. The provision allowing a surviving spouse to use the deceased spouse's unused estate tax exclusion, which expires for decedents dying after Dec. 31, 2012, would be made permanent.
Basis consistency and reporting requirement for donated and inherited property. The basis of property in the hands of the recipient could be no greater than the value of that property as determined for estate or gift tax purposes (subject to subsequent adjustments). A reporting requirement would be imposed on executors and donors to provide the necessary valuation and basis information to both the recipient and IRS. These rules would apply for transfers on or after the enactment date.
Toughened rules for valuation discounts. Certain additional restrictions (“disregarded restrictions”) would be ignored under Code Sec. 2704 in valuing an interest in a family-controlled entity transferred to a member of the family if, after the transfer, the restriction will lapse or may be removed by the transferor and/or the transferor's family. The transferred interest would be valued by substituting for the disregarded restrictions certain assumptions to be specified in regs. These rules would apply to transfers after the enactment date of property subject to restrictions created after Oct. 8, 1990 (the effective date of Code Sec. 2704)
Minimum and maximum term for grantor retained annuity trusts (GRATs). A GRAT would be required to have a minimum term of ten years and a maximum term of the life expectancy of the annuitant plus ten years. Also, the remainder interest would have to have a value greater than zero at the time the interest is created and any decrease in the annuity during the GRAT term would be prohibited. These rules would apply to trusts created after the enactment date.
Duration of GST tax exemption limited. On the 90th anniversary of the creation of a trust, the GST exclusion allocated to the trust would terminate. This rule would apply to trusts created after the enactment date, and to the portion of a preexisting trust attributable to additions to such a trust made after that date.
Coordination of income and transfer tax rules applicable to grantor trusts. The current lack of coordination between the income and transfer tax rules applicable to a grantor trust creates opportunities to structure transactions between the deemed owner and the trust that can result in the transfer of significant wealth by the deemed owner without transfer tax consequences. New rules for grantor trusts would prevent this by: (1) including the assets of the trust in the grantors' gross estate of that grantor for estate tax purposes, (2) subjecting to gift tax any distribution from the trust to one or more beneficiaries during the grantor's life, and (3) subjecting to gift tax the remaining trust assets at any time during the grantor's life if the grantor ceases to be treated as an owner of the trust for income tax purposes. These rules would apply for trusts created on or after the enactment date and with regard to any portion of a pre-enactment trust attributable to a contribution made on or after the enactment date.
Extension of estate tax lien on Code Sec. 6166 deferrals. The estate tax lien under Code Sec. 6324(a)(1) would be extended to apply throughout the Code Sec. 6166 deferral period, effective for estates of decedents dying on or after the effective date and for estates of decedents dying before the enactment date as to which the current law Code Sec. 6324(a)(1) lien period had not expired on the effective date.
 
Other Proposals
Many expiring provisions would be extended. The Administration proposes to extend a number of provisions that have expired or are scheduled to expire on or before Dec. 31, 2012. For example, the optional deduction for State and local general sales taxes, the deduction for qualified out-of-pocket classroom expenses, the deduction for qualified tuition and related expenses, the Subpart F “active financing” and “look-through” exceptions, and the modified recovery period for qualified leasehold, restaurant, and retail improvements, would be extended through Dec. 31, 2013.
Reducing the tax gap. The President's budget calls for increases in IRS's tax enforcement and compliance budget to enable IRS to more effectively crack down on “tax cheats and delinquents,” and thereby bring in more revenue, and implement many recent tax law changes. The plan also includes a host of measures to expand information reporting, improve compliance by businesses (e.g., require more forms to be filed electronically), and specific changes to step up collection of taxes.
 

The following web links can go to the White House or Treasury websites to access the official release material:

• White House FY2013 budget webpage can be viewed at http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/budget.pdf .
• Treasury press release can be viewed at http://www.treasury.gov/press-center/press-releases/Pages/tg1414.aspx.
• Full text of the FY2013 Green Book can be viewed at http://www.treasury.gov/resource-center/tax-policy/Documents/General-Explanations-FY2013.pdf.

Source:  Federal Tax Updates on Checkpoint News tab 2/14/2012 
Source:  WG&L Accounting & Compliance Alert on Checkpoint 2/14/2012
© 2012 by Thomson Reuters/RIA. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of Thomson Reuters/RIA.

Healthcare and Benefit Services

: : Julie Seiden, Managing Director,
Health Benefits Services | 

631.923.1595 ext. 310

G.R. Reid Healthcare & Benefit Services, LLC

Behavior-Based Design Promotes Healthy Lifestyle Changes

 According to the Centers for Medicaid Services, at $8,086 per person annually, the United States spends more per capita on health care than any other country in the world. However, at least half of the country's population has one or more chronic diseases, 33% are diabetic or pre-diabetic and 66% are overweight or obese. These statistics came from the U.S. Centers for Disease Control and Prevention. However, Americans inflict these statistics upon themselves. Lack of exercise, poor nutrition and smoking are three leading contributors to such a high percentage of unhealthy people.

Promoting A Healthy Lifestyle
People are naturally wired to keep doing what they're already doing. If there is no incentive to change, even if it's beneficial, they won't. This also applies to offering passive open enrollment. Employees are more likely to keep their current coverage. VBID is a new insurance design based on value. It also encourages wellness proponents. The main idea is to match patients' out-of-pocket expenses with heath service values. Different levels of value are recognized in this approach. By making high-value treatments more available and discouraging low-value treatments, this approach works to yield improved health outcomes on all health care expenditure levels. Research shows that barrier reductions improve patient compliance for recommended treatments.

In addition to increasing compliance for treatments, this approach has also been shown to increase compliance in patients who need regular medication. A study performed by the Center for Health Value Innovation and the University of Michigan Center for Value-Based Insurance Design showed that patients with chronic illnesses who required medication were more willing to take it. Their cooperation for preventative services was also better. However, there is still one troubling issue, which is people who have the opportunity and encouragement to comply but don't. This has left researchers wondering what is missing from the VBID approach that is necessary to make such people more compliant. The solution is to implement the use of loss aversion and productive tension to raise individual involvement for improving healthy behavior.

Raising The Productive Tension Level
The main idea of productive tension is to create a program that gives enough initiative to provide patients with a positive reason to change. In order to be optimal, productive tension needs to have four different components:

• Information - Although it increases knowledge, it doesn't always encourage action. If it did, the country's population would be rich, fit and happy. After purchasing $46 billion on diet and self-help books in 2010, Americans still need help.
• Infrastructure - This includes having the right tools, technology and resources to help people. Keep in mind that infrastructure alone doesn't necessarily initiate action.
• Incentives - Nothing works better for motivation than a reward. Financial rewards are especially enticing. These still may not initiate action in all people. In a Global Survey of Health Promotion and Workplace Wellness Strategies, only 48% of employers stated that their incentive programs were minimally effective.
• Imperatives - These are important for accountability and understanding. People need to know what they must accomplish, why they need to do so and what happens if they fail.

Applying The Behavioral Design
One illustrative example of applying the behavior-based design is depicted by Safeway. The supermarket chain's CEO, Steven Burd, said that 70% of his employees' health care costs were because of their own behavior. In addition to this, 74% of those cases included four major chronic health conditions. The conditions were cancer, diabetes, cardiovascular disease and obesity. During the following five years, the supermarket chain redesigned its health care infrastructure. Their new focus, after launching the Healthy Measures Initiative, is consumer-based strategies. As a result of the positive changes, Safeway has seen a great increase in voluntary participation among their workers for controlling and preventing these conditions.

Solutions For Creating Tension
There are several different ways to encourage participants to become healthier. The following are a few good examples of beneficial changes:

• Health Requirements - Having employees pass an annual physical and health exam is a great idea for an incentive.
• Company Gym - While providing an outside gym membership may be effective sometimes, having a gym or fitness center in the workplace is even more effective.
• Company Contests - Hosting contests that all employees can participate in is beneficial. Weight loss or health competitions with cash prizes and contribution pools are extremely successful.

The bottom line is that increasing tension to promote a healthy lifestyle change is the best way to make it happen. People are much easier to convince when there are both incentives and rewards. 


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Congress Passes Payroll Tax Cut Extension

Last Friday, the House of Representatives and the Senate both passed a bill that will extend the reduced 4.2% Social Security tax rate through the end of the year (The Middle Class Tax Relief and Job Creation Act of 2012, H.R. 3630). The vote was 293–132 in the House and 60–36 in the Senate. The bill now goes to President Barack Obama, who is expected to sign it quickly.
 
The employee portion of the Social Security tax was reduced from 6.2% of the first $106,800 of wages to 4.2% for 2011 by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312. (The employer portion remained at 6.2%.) Under the Temporary Payroll Tax Cut Continuation Act of 2011, P.L. 112-78, enacted Dec. 23, 2011, the 4.2% rate was extended through Feb. 29, 2012. For 2012, that rate applies to the first $110,100 of wages. H.R. 3630 extends the 4.2% rate through the end of 2012. As a result, a recapture provision included in the temporary extension will not take effect. Under that rule, taxpayers with income from employment for January and February that exceeds $18,350 would have been required to recapture the excess benefit they receive. The act also extends certain unemployment benefits and blocks a cut in Medicare payments to doctors. The extension of the payroll tax cut is estimated by the Joint Committee on Taxation staff to cost $93 billion in revenue over the next two years. The act raises revenue through an auction of the spectrum of public airwaves, currently reserved for television, to allow for more wireless Internet systems. The auctions are projected to raise $15 billion. The act also repeals earlier-enacted shifts in the timing of corporate estimated tax payments.

Content provided by the Journal of Accountancy http://www.journalofaccountancy.com/Web/20125176.htm