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1.Sale of company
2.Shareholder buyout
3.Management buyout
4.Employee Stock Option Plan (ESOP)
5.Gift to children
This paper, written by Daniel Goleman and published by HBR, is a summary of Goleman’s leadership research and is also the subject of his book, “Primal Leadership.” His book is outstanding and so is this paper. For Goleman, there are six leadership styles: Coercive, Authoritative, Affiliative, Democratic, Pacesetting, and Coaching. His research regarding which leadership style has the strongest impact on business results is very insightful. The coercive and pacesetting styles actually have a negative impact on business results. The authoritative style has the highest impact but not by much. His research concludes that a good leader actually uses most of these styles, on an as needed basis. He uses the metaphor of a golfer picking a club depending on the nature of the shot. In order to effectively use these styles, a leader has to master the four Emotional Intelligence (EI) skills of: Self-Awareness, Self-Management, Social Awareness and Social Skills. These four skills build one upon another. We highly recommend both the article and the book for anyone who is interested in building stronger leadership capabilities.
This HBR paper about how to map out a strategic plan is very insightful. Mapping a strategy is a great way to visually help every team member understand the plan, and their roll in executing it. This paper explains how to map strategy from four aspects: 1) financial perspective; 2) customer perspective; 3) internal process perspective; and learning & growth perspective. Each of these perspectives contributes to increasing company value in different ways. The best strategies blend these perspectives in a complimentary way to simultaneously produce increasing revenue and increasing productivity. This paper explains these concepts while using Mobil Oil Company as an example. We think you will find it very useful.
This is a presentation in bullet point format and provides some great suggestions about upgrading your talent acquisition, retention & development strategies in difficult economic times…like now! The four strategies SuccessFactors Research suggests are: 1) Establish clarity of goals and align your workforce to execute a new strategy; 2) Make workforce cuts with a scalpel, not a machete; 3) Focus on your core talent and invest in your talent where it will have the most leverage; 4) Create greater trust by being more transparent. We think there is some wisdom in what they teach. This is worth taking a few minutes to read and see if you think your company should make some talent management changes.
How do Google, UPS, GE, Marriott and others leverage their internal talent? Great companies figure out ways to transfer their knowledge base through out their organizations that create synergies—new ideas, products, processes, efficiencies, etc., that add significant value. Learn how they do it and at the same time come up with ideas that will work in your unique organization. Cross pollinating skill sets, knowledge, competencies, experience and unique expertise can generate singular value for any company if it is mined properly.
Nasty people don’t just make others feel miserable; they create economic problems for their employers. Jerks and bullies in the workplace not only hinder recruiting and retention but also raise levels of customer churn, damage reputations. Employees join a company, but leave a manager. Find out what steps to take to root out jerks and bullies.
This brief one page article discusses four ways to counter the commoditization of your product or service. The primary weapon in this arsenal is innovation. The longer you can keep your product out of commodity status by differentiating it from the competition, the stronger you can keep your pricing structure. This article has a few other valuable tips on maintaining profitable pricing.
This HBR paper, written by Michael Mankins discusses the various ways Executive Committees (“EXCO”) waste an inordinate amount of time in meetings and delay making important decisions. He provides seven cures for this malady. The biggest problem EXCO’s have is that the urgent always crowds out the important. That is another way of saying that operations (the how) always supersedes strategy (the what). The best cure for this malady is to hold separate meetings for operations and strategy. Mankins discusses six other EXCO illnesses and their cures. This is an outstanding article if you are having trouble making strategic headway with your company.
This HBR paper, written by Michael Porter of "Porter's Five Forces" strategic model fame, does a tremendous job of clearly separating strategy from operational excellence. Porter explains why it is important to perform your chosen processes or functions efficiently; which is known as operational excellence. However, it is strategy that determines exactly which process or functions you will-and maybe more importantly-won't perform. Using examples such as IKEA, Neutrogena and Southwest Air, Porter demonstrates that strategic planning really consists of determining how to piece together and carefully link chosen processes, activities or functions into a seamless "fit" that creates a strategic advantage. This paper is 21 pages long, but well worth your time.
Often executives themselves are responsible for suppressing dissent: They are not fully listening, they’re cutting people off, or they have a preconceived notion of where they’re going. In fact, many times leaders prefer an orderly shop and aren’t actually looking for dissent.
In the corporate world, Detroit’s V-8 car culture was long unable to entertain the notion that a large segment of consumers might prefer automobiles that were safe and fuel-efficient. Coca-Cola ignored evidence that “New Coke” would fizzle and launched it anyway. Companies in the mechanical-watch and analog-photography industries refused to heed the messengers and the message that adaptation and change were necessary if they were going to continue to exist.
You may have heard about BlueOceanStrategy (BOS) already. BOS is currently one of the hot strategy development models. Its name comes from a contrast with red oceans where the sharks merely compete, eat each other (usually with pricing), and the water is filled with their blood. Blue oceans by contrast lack competition and the profits are high. Examples include Cirque du Soleil, Southwest Air, Dell Computers Novo Nordisk, and NetJets, among many others. The authors of this Harvard Business Review paper, Kim & Mauborgne, argue that hallmarks of a good strategy are: 1) Divergence; 2) Focus; and 3) Compelling tagline. Divergence is identification and creation of those unique, value-creating factors that separate your company from the competition. Focus is a single minded emphasis on executing those value factor(s). The tagline is a concise, accurate and memorable encapsulation of your unique value offering. And lots more. Eleven pages, but worth the time.
"Blue Ocean Strategy"
Another excellent Accenture paper. This time focusing on the impact of culture in strategy execution. Knowing that companies don’t execute strategy, but that people do, the authors Ana Dutra and Richard Hagberg discuss a business culture model which their studies have shown to be effective in strategy execution. Its five pillars are 1) Leadership; 2) People; 3) Organization Architecture & Infrastructure; 4) Processes & Technology; and 5) Business Success Metrics (our personal favorite). The roll that your company’s’ culture plays in its strategy execution is usually underestimated—significantly! Knowing what your culture is capable of impacts directly the plan and its execution. You’ll get some good ideas about the dynamic interplay of strategy, culture and execution. These insights will help in your quest for value.”
"Strategy in Action"
Article lead author Robert J. Thomas has co-authored the acclaimed leadership book “Geeks & Geezers” with leadership guru Warren Bennis. This article discusses a five point business leadership model. The model includes: 1) Maintaining the right balance between market-making and disciplined execution; 2) Obsessively identifying and multiplying talent, 3) Using a scorecard to measure business performance; 4) Recognizing technology as a strategic asset; and 5) Emphasizing continuous renewal. We thought it was worth our time Leadership: How to Create a Culture of High Performance
Published in 2001, this paper discusses the why’s and how’s of employee engagement. It discusses the value "engaged" employees bring to the workplace, and steps you can take to increase engagement at you company; including such things as constructing compensation systems. It talks about the differences between "engagement" and "disengagement." On page 9 is a diagram of the Hay Group Engagement Model. Some of you have had a glimpse of that model in our presentations. The downside is that this paper is a little long, but we think it’s worth it and will produce many ideas regarding your labor force. Engage Employees and Boost Performance
"This is an outstanding paper from McKinsey Consulting regarding the importance of critical thinking when strategic planning. They emphasize that there is no one single pat formula or method that works for businesses. It’s important to do your own critical and robust thinking based on the uniqueness of your company, industry and analysis. That means that leaders must avoid "group think" by surrounding themselves with people that have differing opinions and are willing to voice them. We highly recommend this paper." Read The Halo Effect, and other Managerial Delusions
“The stakes are considerable. A fully engaged workforce can pay big dividends. In fact, research has shown that the more engaged the workforce, the more innovative, productive and profitable the company.”
“Highly engaged employees have a good understanding of their own organization’s strategic objectives. They are also clear how their individual work contributes directly to the execution of that strategy and to the company’s success.” Read more… Read
Harnessing the Power of an Engaged Workforce
Duncan estimates that senior leaders who get the best results devote at least 10 percent of their time to strategizing and overseeing an action plan, roughly two days a month. The [three] basic questions to be covered are simple: 1)What will we…
“What you really get out of this thing is tremendous alignment,” Davissays. “It creates a lot of energy and activity. Suddenly you don’t have to manage because people understand where you’re going without someone having to dictate it to them.”
Strategic Planning for the Time-Challenged
Cast this way, leadership becomes something that one can learn or improve through practice. The key to mastering a leadership move is practice—not lengthy off-site executive retreats or boxed audio cassettes. Special events and tools have their uses, but since most leaders see themselves as engaged in continuous performance, it is generally not possible to schedule practice “after hours.” Practice, therefore, has to be woven into performance.” Here’s how to practice the five essential leadership skills while performing. Read
“Information must cascade appropriately. For instance, problems usually occur when managers and their direct reports get the same information at the same time. Managers feel “out of the loop” from the start and may very well not buy into the intent of the program if their questions and concerns are not addressed. This alienation is exacerbated when they cannot answer employee questions…
Continual communication in the third act is usually essential to put a new program over the top—and integrate it into the corporate culture, rather than a loose-leaf binder, gathering dust…"Read
“No single aspect of managerial skill is more important. If the company’s assessment of the external landscape is inaccurate, the company’s strategic positioning will likely be wrong. But the ability to perceive trends quickly, or even to make sense of them, will not automatically guarantee success. Rather the success depends on the rigor and discipline applied to the entire process of envisioning the changes, deducing specific actions, and implementing the plan. Business acumen demands intense mental activity...”Read
Strategy & Implementation - Common to every great company is the ability to create and maintain a unique combination of business attributes that enable it to outperform its rivals. This competitive essence comprises both a company's ability to succeed in today's markets and its positioning for the future.
Your 2011 tax return has been filed, or you have properly filed for an extension. In either case, now it’s time to start thinking about important post-filing season activities to save you tax in 2012 and beyond. A few loose ends may pay dividends if you take care of them sooner instead of later.
Your 2011 tax return has been filed, or you have properly filed for an extension. In either case, now it’s time to start thinking about important post-filing season activities to save you tax in 2012 and beyond. A few loose ends may pay dividends if you take care of them sooner instead of later. Successful filing season The IRS reported that the 2012 filing season moved along without significant problems. The IRS continued to upgrade its return processing programs and systems. Early in the filing season, some filers experienced a short delay in receiving refunds but the delay was quickly resolved. The IRS reported just before the end of the filing season that it had processed nearly 100 million returns and issued 75 million refunds. Extensions Individuals are eligible for an automatic six-month extension until October 15 to file a return. To get the extension, taxpayers must estimate their tax liability and pay any amount due. When a taxpayer properly files for an extension, he or she avoids the late-filing penalty, generally five percent per month based on the unpaid balance, which applies to returns filed after the April 17 deadline. Any payment made with an extension request will reduce or eliminate interest and late-payment penalties that apply to payments made after April 17. The current interest rate is three percent per year, compounded daily, and the late-payment penalty is normally 0.5 percent per month. Installment agreements Installment agreements generally can be set up quickly with the IRS and help to spread out payments to make them more manageable. In 2012, the IRS increased the threshold for a streamlined installment agreement from $25,000 to $50,000. Installment agreements however, come with some costs. The IRS charges a fee to set up an installment agreement. If you cannot pay the full amount within 120 days, the fee for setting up an agreement is: - $52 for a direct debit agreement;
- $105 for a standard agreement or payroll deduction agreement; or
- $43 for qualified lower income taxpayers.
It’s important to make your scheduled payments timely and in full. The IRS expects you to pay the minimum amount agreed on; you can always pay more if you are able. If your installment agreement goes into default, the IRS can charge a reinstatement fee. An installment agreement does not reduce the amount of the taxes, interest, or penalties owed, and penalties and interest will continue to accrue. In determining the amount of the penalty for failure to pay tax, the penalty is reduced from 0.5 percent per month to 0.25 percent per month during any month that an installment agreement for the unpaid tax is in effect. You must specify the amount you can pay and the day of the month (1st-28th) on which you wish to make your payment each month. The IRS expects to receive your payment on the date you select. The IRS will respond to your request, usually within 30 days, to advise you as to whether your request has been approved or denied, or if more information is needed. Amended returns Taxpayers can file an amended return if they find an error, uncover unreported income or discover an item that will generate a deduction. Amended returns are filed on Use Form 1040X, Amended U.S. Individual Income Tax Return, to correct a previously filed Form 1040, Form 1040A, Form 1040EZ, Form 1040NR, or Form 1040NR-EZ. If you are filing to claim an additional refund, wait until you have received your original refund. If you owe additional tax for a tax year for which the filing date has not passed, file Form 1040X and pay the tax by the filing date for that year to avoid penalties and interest. Generally, to claim a refund, Form 1040X must be filed within 3 years from the date of your original return or within two years from the date you paid the tax, whichever is later. Returns filed before the due date (without regard to extensions) are considered filed on the due date. Taxpayers must file a separate Form 1040X for each year they are amending. Targeted penalty relief This year – for the first time – the IRS offered penalty relief to qualified individuals who were unable to pay their taxes by the April 17 deadline. Unemployed filers and self-employed individuals whose business income dropped substantially can apply for a six-month extension of time to pay, the IRS explained. Eligible taxpayers will not be charged a late-payment penalty if they pay any tax, penalty and interest due by October 15, 2012. Taxpayers qualify if they were unemployed for any 30-day period between January 1, 2011 and April 17, 2012. Self-employed people qualify if their business income declined 25 percent or more in 2011, due to the economy. However, income limits apply, which excluded many taxpayers from the program. Records The IRS advises that taxpayers maintain tax records for three years. In many cases, especially for individuals with complex returns, records should be kept longer. Our office maintains taxpayer records with the utmost care and confidentiality. We encourage you to contact us if you have any questions about the end of the 2011 filing season and how your 2011 return can provide a roadmap to tax savings in 2012.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
After three days of oral arguments in March, the Supreme Court is deciding the fate of the Pension Protection and Affordable Care Act (PPACA) and its companion law, the Health Care and Education Reconciliation Act (HCERA). Not only do the new laws impact health care, they contain numerous tax provisions, many of which have yet to take effect. The Supreme Court may uphold the laws, strike them down in whole or in part, or decide that the case is premature. The Supreme Court is expected to render its decision in June. In the meantime, a quick checklist of the tax provisions in the two laws reveals how extensively they impact individuals, businesses and taxpayers of all types.
After three days of oral arguments in March, the Supreme Court is deciding the fate of the Pension Protection and Affordable Care Act (PPACA) and its companion law, the Health Care and Education Reconciliation Act (HCERA). Not only do the new laws impact health care, they contain numerous tax provisions, many of which have yet to take effect. The Supreme Court may uphold the laws, strike them down in whole or in part, or decide that the case is premature. The Supreme Court is expected to render its decision in June. In the meantime, a quick checklist of the tax provisions in the two laws reveals how extensively they impact individuals, businesses and taxpayers of all types. Challenges Congress passed, and President Obama signed, the PPACA and HCERA in 2010. Almost immediately, several states and taxpayers challenged the laws in court. The lawsuits generally argued that Congress had exceeded its authority by requiring individuals to obtain health insurance. The cases made their way from federal district courts to the various federal courts of appeal, which reached different conclusions. One circuit court invalidated the individual mandate; two circuit courts upheld the individual mandate and another circuit court dismissed the challenge on procedural grounds. Supreme Court grants review On November 14, 2011, the United States Supreme Court agreed to review the Eleventh Circuit Court’s decision in Florida v. U.S. Department of Health and Human Services. The Supreme Court stated it would examine four issues: (1) the Constitutionality of the individual mandate; (2) whether the individual mandate is severable from the PPACA; (3) whether the challenge to the individual mandate is barred by the Anti-Injunction Act; and (4) whether PPACA’s expansion of Medicaid exceeded Congress's authority. The Supreme Court heard oral arguments in the case on March 26-28 in Washington, D.C. Individual mandate and penalty The individual mandate generally requires individuals to maintain minimum essential coverage for themselves and their dependents after 2013. Individuals will be required to pay a penalty for each month of noncompliance, unless they are exempt (such as individuals covered by Medicaid and Medicare). The PPACA also provides tax incentives to help individuals obtain minimum essential coverage. Beginning in 2014, individuals with incomes within certain federal poverty thresholds may qualify for a refundable health insurance premium assistance tax credit. The PPACA also provides for advance payment of the credit. In Florida v. HHS, the Eleventh Circuit struck down the individual health insurance mandate but did not declare the entire PPACA unconstitutional. In contrast, the Sixth Circuit held that the individual mandate was a valid exercise of Congress’ power to regulate commerce (Thomas More Law Center v. Obama). The Court of Appeals for the District of Columbia Circuit also upheld the individual mandate (Mead v. Holder). The Supreme Court could find the entire PPACA unconstitutional or could find that the individual mandate is severable, thereby preserving other parts of the statute, including various tax provisions. Tax provisions While much attention has focused on the individual mandate, the Supreme Court may also decide the fate of many tax provisions in the PPACA and the HCERA. Among the tax provisions potentially affected by the Supreme Court’s decision are: - Code Sec. 45R small employer health insurance tax credit;
- 3.8 percent Medicare contribution tax on unearned income for higher income taxpayers after 2012;
- Additional 0.9 percent Medicare tax on wages and self-employment income of higher income taxpayers after 2012;
- Increased itemized deduction for unreimbursed medical expenses after 2012;
- Prohibition on over-the-counter medicines being eligible for health flexible spending arrangement (FSA), health reimbursement arrangement (HRA), health savings account (HSA), and Archer Medical Savings Account (MSA) dollars.
- Additional tax on distributions from HSAs and Archer MSAs not used for qualified medical expenses;
- Excise tax on high-dollar health plans after 2017;
- Tax credit for therapeutic discovery projects;
- Annual fees on manufacturers and importers of branded prescription drugs;
- Reporting of employer-provided health coverage on Form W-2;
- Codification of the economic substance doctrine.
Anti-Injunction Act The Supreme Court could decide that the challenge to the PPACA is premature. Under the Anti-Injunction Act, a taxpayer must wait to oppose a tax until after it is collected. The PPACA’s individual mandate and its related penalty do not take effect until 2014. The Fourth Circuit Court of Appeals found that the penalty amounted to a tax and taxpayers could not challenge the tax until it took effect (Liberty University v. Geithner). If you have any questions about the tax provisions in the health care reform laws, please contact our office. We will be following developments as they ensue after the Supreme Court issues its decision in June.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
Proposals to reform retirement savings plans were highlighted during an April 2012 hearing by the House Ways and Means Committee. Lawmakers were advised by many experts to move slowly on making changes to current retirement programs that might discourage employers from sponsoring plans for their workers. Nevertheless, it is clear that Congress wants to make some bold moves in the retirement savings area of the tax law and that likely it will do so under the broader umbrella of general “tax reform.” While tax reform is gaining momentum, it is unlikely to produce any change in the tax laws until 2013 or 2014. Considering that retirement planning necessarily looks long-term into the future, however, now is not too soon to pay some attention to the proposals being discussed.
Proposals to reform retirement savings plans were highlighted during an April 2012 hearing by the House Ways and Means Committee. Lawmakers were advised by many experts to move slowly on making changes to current retirement programs that might discourage employers from sponsoring plans for their workers. Nevertheless, it is clear that Congress wants to make some bold moves in the retirement savings area of the tax law and that likely it will do so under the broader umbrella of general “tax reform.” While tax reform is gaining momentum, it is unlikely to produce any change in the tax laws until 2013 or 2014. Considering that retirement planning necessarily looks long-term into the future, however, now is not too soon to pay some attention to the proposals being discussed. Testimony The Chief of Actuarial Issues and Director of Retirement Policy for the American Society of Pension Professionals and Actuaries testified that current federal tax incentives can transform taxable bonuses for business owners into retirement savings contributions that benefit both owners and employees. “This incentive for the business owner to contribute for other employees results in a distribution of tax benefit that is more progressive than the current income tax structure," she observed. An American Benefits Council representation warned at the hearing that the wisest course for lawmakers is to not enact new laws that would disrupt the success of the current system. Short-term retirement legislation designed to boost tax revenues generally do so by eliminating the existing savings incentives and eroding the amount that workers actually save. Committee Chairman Dave Camp, R-Mich. questioned whether the large number of retirement plans now existing with their different rules and eligibility criteria leads to confusion, reducing the effectiveness of the incentives in increasing retirement savings. Ranking member Sander Levin, D-Mich., questioned the value of making tax reform-inspired changes to retirement plans. "Tax reform should approach retirement savings incentives with an eye toward strengthening our current system and expanding participation, not as an opportunity to find revenue," Levin said. JCT report In advance of the hearing, the Joint Committee on Taxation (JCT) summarized the tax treatment of current-law retirement savings plans and described some recent reform proposals in a report, “Present Law and Background Relating to the Tax Treatment of Retirement Savings” (JCX-32-12). The report highlighted several of the recent proposals on retirement savings: Automatic enrollment payroll deduction IRA. President Obama has proposed mandatory automatic enrollment payroll deduction IRA programs. An employer that does not sponsor a qualified retirement plan, SEP, or SIMPLE IRA plan for its employees (or sponsors a plan and excludes some employees) would be required to offer an automatic enrollment payroll deduction IRA program with a default contribution to a Roth IRA of three percent of compensation. An employer would not be required to offer the program if the employer has been in existence less than two years or has 10 or fewer employees. Expand the saver's credit. The Administration has also proposed to make the retirement savings contribution credit, known as the saver's credit, fully refundable and for the saver’s credit to be deposited automatically in an employer-sponsored retirement plan account or IRA to which the eligible individual contributes. In addition, in place of the current credit ranging from 10 percent to 50 percent for qualified retirement savings contributions up to $2,000 per individual, the proposal would provide a credit of 50 percent of such contributions up to $500 (indexed for inflation) per individual. Consolidate plans. The JCT also reviewed two retirement proposals from the Bush administration: Consolidating traditional and Roth IRAs into a single type of account called Retirement Savings Accounts (RSAs) and creating Lifetime Savings Accounts (LSAs) that could be used to save for any purpose with an annual limit for contributions of $2,000. The JCT explained that the tax treatment of RSAs and LSAs would be similar to the current tax treatment of Roth IRAs (contributions would not be deductible, and earnings on contributions generally would not be taxable when distributed). Additionally, the Bush Administration had proposed to consolidate various current-law employer-sponsored retirement arrangements under which individual accounts are maintained for employees and under which employees may make contributions into a single type of arrangement called an employer retirement savings account (ERSA). The American Society of Pension Professionals and Actuaries (ASPPA) told the Ways and Means Committee that the large number of plans with different rules and criteria does not reduce the effectiveness of the incentives in increasing retirement savings. ”Consolidating all types of defined-contribution type plans into one type of plan would not be simplification,” the ASPPA cautioned. “It would disrupt savings, and force state and local governments and nonprofits to modify their retirement savings plans and procedures.”
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
Code Sec. 1231 applies to gains and losses from property used in the trade or business and from involuntary conversions. Normally, you have to determine whether property is a capital asset or is ordinary income property. Property generally can’t be both. However, Code Sec. 1231 allows you to “have it” both ways. Any gains are taxed at low capital gains rates (generally 15 percent for 2012), and any losses are treated as ordinary losses, taxable at more favorable ordinary loss rates, and available (without limit) to offset other ordinary income.
Code Sec. 1231 applies to gains and losses from property used in the trade or business and from involuntary conversions. Normally, you have to determine whether property is a capital asset or is ordinary income property. Property generally can’t be both. However, Code Sec. 1231 allows you to “have it” both ways. Any gains are taxed at low capital gains rates (generally 15 percent for 2012), and any losses are treated as ordinary losses, taxable at more favorable ordinary loss rates, and available (without limit) to offset other ordinary income. Who qualifies? Code Sec. 1231 gains include: --Recognized gains on the sale or exchange of property used in the trade or business; and --Recognized gains from the involuntary or compulsory conversion (into money or other property) of property used in a trade or business, or of property held for more than one year and either used in the trade or business or used in a transaction entered into for profit. Property used in a trade or business is property that is subject to depreciation and held by the taxpayer for more than one year. Code Sec. 1231 losses are any recognized loss from a sale, exchange, or conversion of the same categories of property. A win-win equation Gains and losses from these transactions are referred to as Code Sec. 1231 gains and Code Sec. 1231 losses. The character of the gain or loss depends on whether Code Sec. 1231 gains exceed Code Sec. 1231 losses for the tax year. If the Code Sec. 1231 gains exceed the Code Sec. 1231 losses, then all of the Code Sec. 1231 gains and losses are treated as long-term capital gains and losses. The result is a net long-term capital gain. This amount can then be netted with other capital gains and losses. Code Sec. 1231 does not apply to depreciation that must be recaptured as ordinary income under either Code Sec. 1245 (depreciable personal property and certain real property) or Code Sec. 1250 (depreciable real property that is not Code Sec. 1245 property). If, however, the Code Sec. 1231 losses equal or exceed the Code Sec. 1231 gains, then all of the Code Sec. 1231 gains and losses are treated as ordinary income and losses. The net result is an ordinary loss, which can offset other ordinary income.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
The family partnership is a common device for reducing the overall tax burden of family members. Family members who contribute property or services to a partnership in exchange for partnership interests are subject to the same general tax rules that apply to unrelated partners. If the related persons deal with each other at arm's length, their partnership is recognized for tax purposes and the terms of the partnership agreement governing their shares of partnership income and loss are respected.
The family partnership is a common device for reducing the overall tax burden of family members. Family members who contribute property or services to a partnership in exchange for partnership interests are subject to the same general tax rules that apply to unrelated partners. If the related persons deal with each other at arm's length, their partnership is recognized for tax purposes and the terms of the partnership agreement governing their shares of partnership income and loss are respected. Interfamily gifts Because of the tax planning opportunities family partnerships present, they are closely scrutinized by the IRS. When a family member acquires a partnership interest by gift, however, the validity of the partnership may be questioned. For example, a partnership between a parent in a personal services business and a child who contributes little or no services is likely to be disregarded as an attempt to assign the parent's income to the child. Similarly, a purported gift of a partnership interest may be ignored if, in substance, the donor continues to own the interest through his power to control or influence the donee's business decision. When a partnership interest is transferred to a guardian or trustee for the benefit of a family member, the beneficiary is considered a partner only if the trustee or guardian must act independently and solely in the beneficiary's best interest. Capital or services The determination of whether a person is recognized as a partner depends on whether capital is a material income-producing factor in the partnership. Any person, including a family member, who purchases or is given real ownership of a capital interest in a partnership in which capital is a material income-producing factor is recognized as a partner automatically. If capital is not a material income-producing factor (for example, if a partnership derives most income from services, a family member is not recognized as a partner unless all the facts and circumstances show a good faith business purpose for forming the partnership. If the family partnership is recognized for tax purposes, the partnership agreement generally governs the partners' allocations of income and loss. These allocations are not respected, however, to the extent the partnership agreement does not provide reasonable compensation to the donor for services he renders to the partnership or allocates a disproportionate amount of income to the donee. The IRS can re-allocate partnership income between the donor and donee if these requirements are not met. Investment partnerships The general rule for determining gain recognition for marketable securities does not apply to the distribution of marketable securities by an investment partnership to an eligible partner. An investment partnership is a partnership that has never been engaged in a trade or business (other than as a trader or dealer in the certain specified investment-type assets) and substantially all the assets of which have always consisted of certain specified investment-type assets (which do not include, for example, interests in real estate or real estate limited partnerships). If a family limited partnership (FLP) qualifies as an investment partnership, the FLP could redeem the partnership interest of an eligible partner with marketable securities without the recognition of any gain by the redeemed partner. To qualify, substantially all the assets of the FLP must always have consisted of the eligible investment assets, and the holding of even totally passive real estate interests (real estate that does not constitute a trade or business), for instance, must be kept to a minimum. In addition, any eligible partner must have contributed only the specified investment assets (or money) in exchange for his or her partnership interest.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important tax reporting and filing data for individuals, businesses and other taxpayers for the month of May 2012.
As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important tax reporting and filing data for individuals, businesses and other taxpayers for the month of May 2012. May 2 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates April 25–27. May 4 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates April 28–May 1. May 9 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates May 2–4. May 10 Employees who work for tips. Employees who received $20 or more in tips during April must report them to their employer using Form 4070. May 11 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates May 5–8. May 16 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates May 9–11. May 18 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates May 12–15. May 23 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates May 16–18. May 25 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates May 19–22. May 31 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates May 23–25. June 1 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates May 26–29.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
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