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The Inflation Reduction Act Includes Wide-Ranging Tax Provisions

Posted by Sweeney Conrad on Aug 16, 2022 12:37:41 PM

The U.S. Senate and House of Representatives have passed the Inflation Reduction Act (IRA) and President Biden signed the bill into law on August 16th. The IRA includes significant provisions related to climate change, health care, and, of course, taxes. The IRA also addresses the federal budget deficit. According to the Congressional Budget Office (CBO), the IRA is projected to reduce the deficit by around $90 billion over the next 10 years.

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Topics: News

How to Account for Collaborative Agreements

Posted by Jamie Gardner, CPA on Jul 22, 2022 5:51:00 PM

Today, many companies share research or technology to develop new products. For example, manufacturers might enter into a joint venture to conduct scientific research to design a new medical device. Or a watchdog group might work with a production company to create and distribute a documentary film.

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Topics: Audit & Assurance

Remote Auditing: A Brave New World

Posted by Jamie Gardner, CPA on Jul 15, 2022 5:41:00 PM

The pandemic has presented numerous challenges for businesses, but it also taught us how to be resilient, cost-conscious and adaptable. Over the last few years, we’ve learned that remote working arrangements offer many benefits, including reducing the time and cost of performing many tasks. Here’s how these lessons translate to the work auditors do to prepare your company’s financial statements.

Transitioning from on-site to remote procedures

Traditionally, audit fieldwork has involved a team of auditors camping out for weeks (or even months) in one of the conference rooms at the headquarters of the company being audited. Now, thanks to technological advances — including cloud storage, smart devices and secure data-sharing platforms — many audit firms conduct certain auditing procedures remotely, rather than sending auditors on-site.

For example, drones and video-conferencing technology can be used to observe physical inventory counts, eliminating the expense of sending auditors to facilities that store inventory. For companies with multiple sites, performing this task in-person was costly and difficult to schedule, especially around the holidays.

In addition to saving time and audit fees, allowing auditors to work remotely improves the work-life balance for auditors and in-house accounting personnel. Your employees won’t need to stay glued to their desks for the duration of the audit, because they can respond to the auditor’s inquiries and document requests remotely.

Facilitating remote work

The transition to remote audits requires flexibility, including a willingness to embrace the technology needed to exchange, review and analyze relevant documents. You can assist the transition process by:

Being responsive to electronic requests. Auditors who are out of sight shouldn’t be out of mind. Answer all remote requests from your auditors in a timely manner. If a key employee will be on vacation or out of the office for an extended period, give the audit team the contact information for the key person’s backup.

Giving employees access to the requisite software. Sharing documents with remote auditors may require you to install specific software on employees’ computers. But your company’s policies may prohibit employees from downloading software without approval from the IT department.

Before remote auditors start their work, ask for a list of software and platforms that will be used to interact with in-house personnel. Give the appropriate employees access and authorization to share audit-related data from your company’s systems. Work with IT specialists to address any security concerns they may have with sharing data with the remote auditors.

Tracking audit progress. With less face-to-face time with your auditors, you’ll have fewer opportunities to receive updates on the team’s progress. Ask the engagement partner to explain how they’ll track the performance of their remote auditors, and how they plan to communicate the team’s progress to in-house accounting personnel.

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Topics: Audit & Assurance

Estates Now Have an Additional Three Years to File for a Portability Election

Posted by Melanie Abigania and Jessica Simons on Jul 14, 2022 12:46:00 PM

Portability allows a surviving spouse to apply a deceased spouse’s unused federal gift and estate tax exemption amount toward his or her own transfers during life or at death. To secure these benefits, however, the deceased spouse’s executor must have made a portability election on a timely filed estate tax return (Form 706). The return is due nine months after death, with a six-month extension option.

Unfortunately, estates that aren’t otherwise required to file a return (typically because they don’t meet the filing threshold) often miss this deadline. The IRS recently revised its rules for obtaining an extension to elect portability beyond the original nine-months after death (plus six-month extension) timeframe.

What’s new?

In 2017, the IRS issued Revenue Procedure 2017-34, making it easier (and cheaper) for estates to obtain an extension of time to file a portability election. The procedure grants an automatic extension, provided:

* The deceased was a U.S. citizen or resident,
* The executor wasn’t otherwise required to file an estate tax return and didn’t file one by the deadline, and
* The executor files a complete and properly prepared estate tax return within two years of the date of death.

Since the 2017 ruling, the IRS has had to issue numerous private letter rulings granting an extension of time to elect portability in situations where the deceased’s estate wasn’t required to file an estate tax return and the time for obtaining relief under the simplified method (two years of the date of death) had expired. According to the IRS, these requests placed a significant burden on the agency’s resources.

The IRS has now issued Revenue Procedure 2022-32. Under the new procedure, an extension request must be made on or before the fifth anniversary of the deceased’s death (an increase of three years). This method, which doesn’t require a user fee, should be used in lieu of the private letter ruling process. (The fee for requesting a private letter ruling from the IRS can cost hundreds or thousands of dollars.)

Don’t miss the revised deadline

If your spouse predeceases you and you’d benefit from portability, be sure that his or her estate files a portability election by the fifth anniversary of the date of death.

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Topics: Estate Planning

Does Your Washington Tax Return Need a Tune-Up?

Posted by Rachel Roberson, CPA on Jul 7, 2022 1:12:01 PM

The only constant is change. Each year the legislature makes changes to the Washington tax codes, the Department of Revenue (DOR) updates rules and publishes guidance, and the courts issue decisions interpreting the tax laws. And this doesn’t even consider changes businesses make to their operations. If your business hasn’t revisited its filing procedures and recordkeeping recently, it may be time for a tune-up!

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Topics: State and Local Tax

Standard Business Mileage Rate Will Increase for the Second Half of 2022

Posted by Connor Tidd, CPA on Jun 21, 2022 6:41:33 PM

The IRS recently announced that it’ll increase the standard mileage rate for qualified business driving for the second half of 2022. The adjustment reflects the soaring cost of gasoline this year. In fact, as of June 13, the nationwide average price of regular unleaded gas was $5.01 a gallon, according to the AAA Gas Prices website. This is compared with $3.08 a gallon a year ago.

Beginning July 1, 2022, the standard mileage rate for business travel will be 62.5 cents per mile, up 4 cents from the 58.5 cents-per-mile rate effective for the first six months of the year. The IRS also announced an increased standard mileage rate for medical driving and moving for members of the military.

“The IRS is adjusting the standard mileage rates to better reflect the recent increase in fuel prices,” said IRS Commissioner Charles Rettig. “We are aware a number of unusual factors have come into play involving fuel costs, and we are taking this special step to help taxpayers, businesses and others who use this rate.”

Basic business driving deduction rules

There are two options for deducting business driving expenses. If you use a vehicle for business driving, you generally have the option to deduct the actual expenses attributable to your business use. This includes expenses such as gas, oil, tires, insurance, repairs, licenses and vehicle registration fees. In addition, you may claim a depreciation allowance for the vehicle, based on the percentage of business use. Note that your deduction may be subject to so-called “luxury car” limits, indexed annually.

But many taxpayers don’t want to keep track of all their vehicle-related expenses. Instead of deducting your actual expenses, you may be able to use a standard cents-per-mile rate. With the standard mileage deduction, you don’t have to account for all your actual expenses, although you still must record certain information such as the mileage for each business trip, the dates you drove and the business purpose of the travel.

The cents-per-mile rate is adjusted annually by the IRS. Initially, the agency established a rate of 58.5 cents per business mile for 2022 (up from 56 cents per mile in 2021). But higher gas prices spurred calls for a mid-year adjustment. There’s some precedent for this action: The standard mileage rate was increased for the last six months of 2011 and 2008 after gas prices soared.

With the IRS announcement that the standard business rate will increase to 62.5 cents per mile for the last half of this year, taxpayers who use it will have to use a “blended rate” for 2022 to figure their deductions.

For example, let’s assume that you drive 10,000 miles every six months on business. You also incur $1,100 in related tolls and parking fees during the year. Based on the initial IRS rate, your deduction for business driving for the first six months of 2022 is $5,850 (10,000 miles × 58.5 cents). However, you can deduct $6,250 (10,000 miles × 62.5 cents) for business auto trips during the last six months of 2022. Thus, your total deduction is $13,200 ($5,850 + $6,250 + $1,100 tolls and parking fees).

There are additional rules that may prevent a taxpayer from using the standard cents-per-mile rate or the actual expenses method. For example, leased vehicles must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen for the first year.

Medical and moving driving

In addition to business driving, you can use the standard mileage rate if you use your vehicle for medical reasons and you deduct medical expenses on your tax return. For example, you can include in medical expenses the amounts paid when you use a car to travel to doctors’ appointments. The new rate for deductible medical expenses will be 22 cents per mile beginning July 1, up from 18 cents per mile for the first six months of 2022.

And the rate for moving-expense driving (currently available only for active-duty members of the military) will also increase to 22 cents per mile beginning July 1, up from 18 cents per mile. The rate for charitable driving, which can be amended only by Congress, remains unchanged at 14 cents per mile for the entire year.

What’s the right option for you?

Keep in mind that you still may fare better from a tax standpoint using the actual expense method than you would with the standard mileage rate, even after the latest rate increases. 

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Topics: Tax

Management Letters: Follow Up on Your Auditor's Recommendations

Posted by Michelle Gartner, CPA on Jun 8, 2022 3:17:08 PM

Maintaining the status quo in today’s volatile marketplace can be risky. To succeed, businesses need to “level up” by being proactive and adaptable. But some managers may be unsure where to start or they’re simply out of new ideas.

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Contingent Liabilities: To Report or Not to Report?

Posted by Michelle Gartner, CPA on Jun 8, 2022 11:54:37 AM

Disclosure of contingent liabilities — such as those associated with pending litigation or government investigations — is a gray area in financial reporting. It’s important to keep investors and lenders informed of risks that may affect a company’s future performance. But companies also want to avoid alarming stakeholders with losses that are unlikely to occur or disclosing their litigation strategies.

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Topics: Audit & Assurance

How Inflation Could Affect Your Financial Statements

Posted by Michelle Gartner, CPA on Jun 8, 2022 11:53:51 AM

Business owners and investors are understandably concerned about skyrocketing inflation. Over the last year, consumer prices have increased 8.3%, according to the latest data from the U.S. Bureau of Labor Statistics. The Consumer Price Index (CPI) covers the prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. This was a slightly smaller increase than the 8.5% figure for the period ending in March, which was the highest 12-month increase since December 1981.

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Much Ado About Nexus

Posted by Rachel Roberson, CPA on Jun 6, 2022 11:03:55 AM

Like the Shakespearian play, nexus is a concept that has stood the test of time. But nexus isn’t nothing, rather it is the minimum connection that a business must have with a state that allows the state to require the business to comply with their tax laws. It’s a concept that has been interpreted over the years by states and courts, and understanding these nuances can help businesses manage their risk and avoid a tragic ending.

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Topics: State and Local Tax

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