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Your broker statement for 2011 reported the basis in the stocks you acquired last year. This basis reporting requirement expands in 2012 to include mutual fund shares and stock acquired in a dividend reinvestment plan. The cost basis for these investments is included in reports that brokers send to the IRS. The IRS will compare this information with the basis you report on your tax return when you sell the investment.  As a result of this change you will notice that the Schedule D looks different and there is a new Form 8949.

Most brokerage firms were required to send out their statements by February 15^th.  Please review your statements to see if the brokerage firms expect to be sending amended forms.

To increase transparency for the more than 72 million 401k plan participants, the US Department of Labor issued new regulations regarding fees paid to advisors by the plan participants and sponsors.  The intent of the new regulations is for plan participants to be better equipped to make informed decisions about their investment choices.  Considering that many plan participants believe they pay nothing for the services provided in their 401(k) plan, the new quarterly disclosures will be quite an eye-opener for those future retirees.

Beginning in 2012, plan fees and expenses are required to be disclosed to participants in dollars and cents.  Often, the fees associated with a participant’s account are a function of some complex formula.  Fees are sometimes paid out of earnings and not easy to identify or quantify.  Now, quarterly statements will very plainly disclose the fees from a participant’s account. 

Department of Labor Employee Benefits Security Administration Assistant Secretary Phyllis C. Borzi  was quoted in a news release dated October 14, 2010 as saying “We are giving workers the tools they need to make the best possible decision about investing the nearly $3 trillion held in their 401(k)-type plans.  Now they will have information about different investment options to help them make wise decisions.” 

Initial disclosures must be made by May 31, 2012 and subsequent disclosures by the 45^th day following the end of the calendar quarter.  The regulations require the following to be disclosed on participant statements:

1.  Quarterly statements will reflect plan fees and expenses deducted from a participant’s account

2.  Provide information about investments available under their plan, including the cost of those investments

3.  Use standard methodologies when calculating  and disclosing expense and return information to achieve uniformity across the spectrum of investments that exist in plans

4.  Present the information in a format that makes it easier for participants to comparison shop among the plan’s investment options

5.  Give access to supplemental investment information in addition to the basic information required under the final rule

Plan administrators who fail to provide participants with the required information may be deemed to have violated their fiduciary duty under the Employee Retirement Income Security Act.  In that case, the administrator may be held liable for monetary damages to participants. However, as a result of the new regulations, plan participants will much better equipped to make informed decisions about their investment choices. 

Today Congress passed a deal to extend the payroll tax cut through December 31.

Last December, the 4.2% social security tax rate that workers pay on wages was extended through February 29, 2012.

Writing up the minutes of board of directors’ meetings is not exactly a high priority for most business owners. Yet well-documented corporate minutes can provide valuable supporting evidence if your tax positions are ever questioned.

Owner Compensation

Minutes are especially important where any kind of related-party transactions occur, such as payments, loans, or distributions between the company and its owners. For example, the IRS may challenge the amount of compensation paid to a business owner as unreasonable. Corporate minutes that document the factors considered by the board in approving the compensation can be a strong defense against such a challenge.

Retained Earnings & Dividends

Another area that receives close scrutiny from the IRS is the amount of earnings that are retained in the business rather than distributed as taxable dividends. A penalty applies to retained earnings over a certain limit unless they can be justified by business needs. Corporate minutes can be a strong piece of supporting evidence if they clearly spell out the reasons that the company needs to retain funds — for example, to purchase assets or for working capital.

Retirement plans & fringe benefits

If your company has a tax-qualified retirement plan or a stock option plan, the minutes should show decisions by the board adopting or modifying the plan. They should also document annual decisions on the percentage of contribution to profit-sharing plans and any decisions on fringe benefits, such as medical reimbursement accounts.

Corporate minutes need not be lengthy, but they should provide a clear record of corporate actions and the business factors that were considered when those actions were taken. You should think of your minutes as a key element of your tax planning strategy.

If your corporate minutes need updating, contact your attorney and take care of this important bit of business housekeeping.

The Delaware State Housing Authority has put together a program that can make a difference in your community while you receive Delaware State tax credits for 2012.  The Neighborhood Assistance Act (“NAA”) serves impoverished neighborhoods and low income  families.

Here’s how it works…..

Individual and business taxpayers can participate if they pay Delaware state income tax.  By making a contribution to one of the many participating Non-Profit organizations that serve local neighborhoods, a state tax credit of 50% of your contribution will be received.  This credit is used to offset Delaware state income taxes.

To qualify:

1.  You must first pay Delaware state income taxes.

2.  Your investment must be made to an approved NAA non-profit organization.  (Click here to review the
list of approved 501(c)(3) organizations.)

3.  The credit is available each year for a cumulative statewide credit of $500,000, so the first $1,000,000 of contributions will receive the credit. However, the maximum credit per taxpayer is $100,000.

Contributions:

1.  For a business, a minimum contribution amount of $10,000 is required.

2.  For an individual, a minimum contribution amount of $5,000 is required.

Remember, the credit is on a first-come, first-served basis, so as contributions are made, the credit will diminish.  Take action sooner rather than later if you feel this is a worthwhile cause.  In 2011, the credit ran out before the end of the year.  Please do not miss out.

If you have any questions, or you would like Gunnip & Company to assist you in the application process to obtain the credit, please do not hesitate to contact Sean Balliet, CPA .