After the American Taxpayer Relief Act of 2012 (ATRA)

Congratulations on surviving the end of the “Mayan Calendar” and the United States “Fiscal Cliff”.  This article will focus on some domestic business tax issues resulting from recent legislation that may affect your moving company and/or other local businesses.

Business Tax Provisions

Many popular but temporary tax extenders relating to business are included in the American Taxpayer Relief Act of 2012 (ATRA).  Among them are Code Sec. 179 Small Business Expensing, Bonus Depreciation, the Research Tax Credit, and the Work Opportunity Tax Credit.

1. Small Business Expensing – The ATRA extends through 2013 enhanced Code Sec. 179 Small Business Expensing.  The Code Sec. 179 dollar limit for tax years 2012 and 2013 is $ 500,000 with a $ 2,000,000 investment limit.  The rule allowing off-the-shelf computer software is also extended.

2. Bonus Depreciation – The ATRA extends 50 percent bonus depreciation through 2013.  Some transportation and longer period production property are eligible for 50 percent bonus depreciation through 2014. To be eligible for bonus depreciation, qualified property (must be new) must be depreciable under the Modified Accelerated Cost Recovery System and have a recovery period of 20 years or less.

3. Research Tax Credit – The ATRA extends through 2013 the Code Sec. 41 Research Tax Credit, which expired after 2011.  This incentive rewards taxpayers that engage in qualified research activities with a tax credit.  Most moving companies will not qualify for this credit.  If your company is considering this tax credit, you are encouraged to hire a research tax credit consultant to assist with your research tax credit application.  There is a high IRS audit incidence rate when this tax credit is claimed on a tax return.

4. Work Opportunity Tax Credit – The ATRA extends through 2013 the Work Opportunity Tax Credit (WOTC), which rewards employers that hire individuals from targeted groups (i.e. hard-to-employ workers) with a tax credit worth up to $ 2,400 per qualified worker.

More Business Tax Extenders

A number of other business tax extenders expired after 2011 and they are extended through 2013 under the ATRA.  They include, among others:

v  Employer wage credit for activated military reservists

v  100 percent exclusion for gain on sale of qualified small business stock

v  Reduced recognition period for S Corporation built-in gains tax

v  S Corporations making charitable donations of property

S Corporations

The income of an S Corporation (S Corp) generally is taxed to the shareholders of the corporation rather than to the corporation itself.  A domestic corporation must use Form 2553 to make an election to be an S Corporation.  There can be no more than 100 shareholders in an S Corp.

1. Eligible Shareholders for an S Corp include individuals and certain trusts.  However, a Roth IRA is not a qualified shareholder.  Ineligible shareholders could invalidate the S Corp Election.

2. Shareholder tax basis is necessary for owners of the S Corp to take losses from an S Corp on the shareholder’s tax return.  This is a significant audit issue for the Internal Revenue Service.

3. Debt (for example a loan from the shareholder to the S Corp) may count for shareholder basis however the debt must be “Bona Fide Debt”.  That means there is a loan document, there is a formal transfer of money and there is interest on the loan.

4. S Corp shareholders that work in that business can become the subject of the Reasonable Compensation issue.  Some shareholder/workers will try to maintain a low salary to reduce the payroll tax liability.  During an IRS audit, the auditor may review comparable salaries for other workers or try to determine what a reasonable salary for the services being provided is. 

Illinois

1. The combined Illinois corporate tax rate is 9.5% for the years 2012 thru 2014.

2. Net Operating Losses (NOL) – as you may know the use of an Illinois NOL against taxable income from a different tax year was suspended beginning with the year 2011 which was the same time the state increased the Illinois income tax rates.  That restriction limited the value of the NOL.  Due to recently passed legislation, companies are now allowed to use a maximum of $ 100,000 of their NOL’s for the years 2012, 2013 and 2014.  Taxpayers file Illinois Schedule NLD to claim the Illinois Net Loss Deduction.

3. If a business receives a Notice of Proposed Deficiency or is contacted by an Illinois tax auditor and there is a dispute regarding the audit results, the business can request an Informal Conference Board (ICB) review.  This hearing would be the step before the appeals court.  One benefit to this type of hearing is that you may be represented by any person of your choice (such as a Certified Public Accountant) – your representative need not be an attorney.  Taxpayers file Illinois Form ICB-1 to request an Informal Conference Board Review.

Please consult with your tax advisor before acting on these or any income tax topics.  Your tax advisor can ensure you receive the maximum tax benefits considering your filing status, income tax rates, etc.  You can also visit the Internal Revenue Service website http://www.irs.gov/ and the Illinois Department of Revenuehttp://tax.illinois.gov/  for more information on these issues.

Thomas L. Broderick is the Treasurer of Pickens-Kane Moving & Storage Co. in Chicago, Illinois.  He is a Certified Public Accountant (C.P.A.), a Chartered Global Management Accountant (C.G.M.A.), holds Federal Securities Licenses #6, #63, and #65 and holds an Illinois Insurance License.  He has served as Chairman of the Board of Trustees of the Illinois Movers’ and Warehousemen’s Risk Management Trust from 1996 to 2012.  He has also served as president of the West Central Association Chamber of Commerce for the years 2007 through 2009.  In 2012, he was named the chairman of the Parish Pastoral Council at St. John Fisher Church in Chicago.  Many individuals, small businesses and non-profit organizations consult him for various accounting, investment, insurance and tax issues.

Note 1:  Illinois CPA Society Fiscal Cliff Update Meeting on January 17, 2013 was used as a resource for this article.

Note 2:  CCH Tax Briefing (Special Report) dated January 3, 2013 was used as a resource for this article.

Revised: January 25, 2013

The Internal Revenue Service (IRS) has released the “Dirty Dozen” ranking of tax scams, reminding taxpayers to use caution at any point during the year but especially during tax filing season to protect themselves against a wide range of schemes ranging from identity theft to tax return preparer fraud.

 “Tax payers should be careful and avoid falling into a trap with the Dirty Dozens,” said IRS Commissioner Doug Shulman.  “Scam artists will tempt people in-person, on-line and by e-mail with misleading promises about lost refunds and free money.  Don’t be fooled by these scams.”  Shulman is the 47^th commissioner of the IRS and his term ends November 9, 2012.  IRS Commissioners are nominated by the President and confirmed by the United States Senate for a term of up to 5 years.

 Illegal scams can lead to significant penalties and interest and possible criminal prosecution.  The IRS Criminal Investigation Division (CID) works closely with the United States Department of Justice to shutdown scams and prosecutes the criminals behind them.

 The following is the Dirty Dozen tax scams for 2012:

 1.  Identity Theft

 Topping the Dirty Dozen list is identity theft.  In response to growing identity theft concerns the IRS has embarked on a comprehensive strategy that is focused on preventing, detecting and resolving identity theft cases as soon as possible.  In addition to the law-enforcement crackdown, the IRS has stepped up its internal reviews to spot false tax returns before tax refunds are issued as well as working to help victims of the identity theft refund schemes.

 Identity theft cases are among the most complex ones the IRS handles, but the agency is committed to working with taxpayers who have become victims of identity theft.

The IRS is increasingly seeing identity thieves looking for ways to use a legitimate taxpayer’s identity and personal information to file a tax return and claim a fraudulent refund.  Typically, identity thieves attempt to get fraudulent refunds early in the income tax filing season.

 An IRS notice informing a taxpayer that more than one return was filed in the taxpayer’s name or that the taxpayer received wages from an unknown employer may be the first tip off the individual receives that he or she has been victimized.

 The IRS has a robust screening process with measures in place to stop fraudulent returns.  While the IRS is continuing to address tax-related identity theft aggressively, the agency is also seeing an increase in identity crimes, including more complex schemes.  In 2011, the IRS protected more than $1.4 billion of taxpayer funds from getting into the wrong hands due to identity theft.

 The IRS has announced the results of a massive, national sweep cracking down on suspected identity theft perpetrators as part of a stepped-up effort against refund fraud and identity theft.  Working with the Justice Department’s Tax Division and local U.S. Attorney’s offices, the nationwide effort targeted over 100 people in 23 states.  Over 900 criminal charges were included in numerous indictments.  The IRS also visited money services businesses and check cashing operations to make sure these businesses were not facilitating identity theft. 

 Anyone who believes his or her personal information has been stolen and used for tax purposes should immediately contact the IRS Identity Protection Specialized Unit.  For more information, visit the special identity theft page at www.IRS.gov/identitytheft.

 2.  Phishing

 Phishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information.  Armed with this information, a criminal can commit identity theft or financial theft.

 If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EETPS), report it by sending it to phishing@irs.gov.

 It is important to keep in mind the IRS does not initiate contact with taxpayers by email to request personal or financial information.  This includes any type of electronic communication, such as text messages and social media channels. 

 3.  Return Preparer Fraud

 About 60 percent of taxpayers will use tax professionals to prepare and file tax returns.  Most return preparers provide honest service to their clients.  But as in any other business, there are also some who prey on unsuspecting taxpayers.

 Questionable return preparers have been known to skim off their clients’ refunds, charge inflated fees for return preparation services and attract new clients by promising guaranteed or inflated refunds.  Taxpayers should choose carefully when hiring a tax preparer.  Federal courts have issued hundreds of injunctions ordering individuals to cease preparing returns, and the Department of Justice has pending complaints against many others.

 Every paid preparer need to have a Preparer Tax Identification Number (PTIN) and enter it on the returns he or she prepares.

 Signals to watch for when you are dealing with an unscrupulous return preparer would include that they:

• Do not sign the return or place a Preparer Tax identification Number on it.
• Do not give you a copy of your tax return.
• Promise larger than normal tax refunds.
• Charge a percentage of the refund amount as preparation fee.
• Require you to split the refund to pay the preparation fee.
• Add forms to the return you have never filed before.
• Encourage you to place false information on your return, such as false income, expenses and/or credits.

For advice on how to find a competent tax professional, see Tips for Choosing a Tax Preparer on the IRS website.

 4.  Hiding Income Offshore

 Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities, using debit cards, credit cards or wire transfers to access the funds.  Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

 The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas.  The IRS works closely with the Department of Justice to prosecute tax evasion cases.

 While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled.  U.S. taxpayers who maintain such accounts and who do not comply with reporting and disclosure requirements are breaking the law and risk significant penalties and fines as well as the possibility of criminal prosecution.

 Since 2009, 30,000 individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to bring their money back into the U.S. tax system and resolve their tax obligations.  And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore will become increasingly more difficult.

 5.  “Free Money” from the IRS & Tax Scams Involving Social Security

 Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file a tax return with little or no documentation, have been appearing in community churches around the country.  These schemes are also often spread by word of mouth as unsuspecting and well-intentioned people tell their friends and relatives.

 Scammers prey on low income individuals and the elderly.  They build false hopes and charge people good money for bad advice.  In the end, the victims discover their claims are rejected.  Meanwhile, the promoters are long gone. The IRS warns all taxpayers to remain vigilant.

 There are a number of tax scams involving Social Security.  For example, scammers have been known to lure the unsuspecting with promises of non-existent Social Security refunds or rebates.  In another situation, a taxpayer may really be due a credit or refund but uses inflated information to complete the return.

 Beware.  Intentional mistakes of this kind can result in a $5,000 penalty.

6.  False/Inflated Income and Expenses

 Including income that was never earned, either as wages or as self-employment income in order to maximize refundable credits, is another popular scam.  Claiming income you did not earn or expenses you did not pay in order to secure larger refundable credits such as the Earned Income Tax Credit could have serious repercussions.  This could result in repaying the erroneous refunds, including interest and penalties, and in some cases, even prosecution.

 Additionally, some taxpayers are filing excessive claims for the fuel tax credit.  Farmers and other taxpayers who use fuel for off-highway business purposes may be eligible for the fuel tax credit.  But other individuals have claimed the tax credit when their occupations or income levels make the claims unreasonable.  Fraud involving the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000.

7.  False Form 1099 Refund Claims

 In this ongoing scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return.  In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS.

 Don’t fall prey to people who encourage you to claim deductions or credits to which you are not entitled or willingly allow others to use your information to file false returns.  If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution.

8.  Frivolous Arguments

 Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe.  While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.  Some of these schemes are:

1. The filing of a tax return or payment of tax is voluntary
2. Wages for personal services are not income
3. Taxpayer is not a citizen of the United States, thus not subject to Income Tax laws
4. Taxpayers can refuse to pay income taxes on religious grounds by invoking the first amendment

 These arguments are false and have been thrown out of court.

 9.  Falsely Claiming Zero Wages

 Filing a phony information return is an illegal way to lower the amount of taxes an individual owes.  Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero.  The taxpayer may also submit a statement rebutting wages and taxes reported by a payer to the IRS.

 Sometimes, fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation.  Taxpayers should resist any temptation to participate in any variations of this scheme.  Filing this type of return may result in a $5,000 penalty.

 10.  Abuse of Charitable Organizations and Deductions

 IRS examiners continue to uncover the intentional abuse of 501 (c) (3) organizations, including arrangements that improperly shield income or assets from taxations and attempts by donors to maintain control over donated assets or the income from donated property.  The IRS is investigating schemes that involve the donation of non-cash assets – including situations in which several organizations claim the full value of the same non-cash contribution.  Often these donations are highly overvalued or the organization receiving the donation promises that the donor can repurchase the items later at a price set by the donor.  The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and set new standards for qualified appraisals. 

 11.  Disguised Corporate Ownership

 Third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of business.

 These entities can be used to underreport income, claim fictitious deductions, avoid filing tax returns, participate in listed transactions and facilitate money laundering, and financial crimes.  The IRS is working with state authorities to identify theses entities and bring the owner into compliance with the law.

 12.  Misuse of Trusts

 For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts.  While there are legitimate uses of trusts in tax and estate planning, some highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes.  Such trusts rarely deliver the tax benefits promised and are used primarily as a means of avoiding income tax liability and hiding assets from creditors, including the IRS.

 IRS personnel have seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses.  As with other arrangements, taxpayers should seek the advice of a trusted professional before entering a trust arrangement. 

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There were over 142,000,000 individual income tax returns filed regarding the year 2010 (most recent data available).  Most of those income tax returns were electronically filed.  The 142 million tax returns represented a 12% increase in tax returns filed compared to the year 1999.  Although the electronic filing helps the IRS with the increase in volume, it presents other challenges for the IRS as noted in this article. 

Please consult with your tax advisor before acting on these or any income tax topics.  Your tax advisor can ensure you receive the maximum tax benefits considering your filing status, income tax rates, etc.  You can also visit the Internal Revenue Service website http://www.irs.gov/ for more information on these issues.

Thomas L. Broderick is the Treasurer of Pickens-Kane Moving & Storage Co. in Chicago, Illinois.  He is a Certified Public Accountant (C.P.A.), Chartered Global Management Accountant (C.G.M.A.), holds Federal Securities Licenses #6, #63, and #65 and holds an Illinois Insurance License.  He has served as Chairman of the Board of Trustees of the Illinois Movers’ and Warehousemen’s Risk Management Trust from 1996 to 2012.  He has also served as president of the West Central Association Chamber of Commerce for the years 2007 through 2009.  In 2012, he was named the chairman of the Parish Pastoral Council at St. John Fisher Parish in Chicago.  Many individuals, small businesses and non-profit organizations consult him for various accounting, investment, insurance and tax issues.

Note 1:  CCH Federal Tax Weekly was used as a resource for this article.

Note 2:  Internal Revenue Service and Treasury Department notice dated 02/16/2012 was used as a resource for this article.

Revised: October 19, 2012

Protect your moving company and your customers from theft during a move

Theft in the moving and storage industry has been, is now, and will always be a concern and a potential for loss.  Whether its internal questions of employee theft of shippers goods, to theft of equipment and pads, to theft of a vehicle, trailer, or fuel, there are things any moving company can do to lessen the risk of loss through theft.

Screen and Train your employees:

This doesn’t always have to be through an employment screening company.  There are free options on the internet to check someone’s criminal record.  Finding a pattern of retail theft could be very good to know about someone who you may be sending into a shipper’s home.  Make the calls to previous employers because it’s not unheard of for someone to fabricate their work history.  When it comes to training, make sure drivers (and movers) are taught good habits when entering a shippers home (for example, what to do if a purse or money is lying around), and how to load the truck in a way to bury things like TV’s or electronics so they aren’t easily accessible.  Having periodic meetings on security issues are just as important as safety meetings.

Secure Your Vehicles to avoid Theft:

Whether on your lot, at the job site, or on the road, secure your vehicles from theft.  It can be as simple as having locks on all the doors to avoid theft.  Now I know that locks can be cut, but if you have a truck or trailer loaded in your yard back it up to another trailer and block the side doors with trucks to make sure that no one gets into it.  Use pin locks on trailers and never leave keys in the trucks. Having a well lit parking lot also can be a deterrent against thieves, or rogue movers who want to steal equipment or walk boards out of empty trucks.  The same types of rules apply on the road.  Lock it up, park in a busy well lit lot, and never leave the keys in a vehicle (even for a few minutes.)  When at a shipper’s location, especially in urban areas, make sure if the truck is unattended, lock it.  Thieves can grab something off the back of a truck like a tool box and walk away in seconds.  With the price of fuel being so high, stealing fuel has become prevalent in many areas.  A good way to protect yourself against fuel theft is locking caps on fuel tanks. This is the most effective method of protection.  If locking caps aren’t available, don’t leave tanks full of fuel in your parking lot.  If your moving company is in a cold climate, you have to leave at least a quarter tank when it gets cold, but don’t make it a habit of filling up trucks at the end of the day.  A fuel thief that scouts your location for a week can see the pattern and prey on your full tanks of fuel.

These are just a few tips on how to protect your moving company from theft.  Remember to inspect to protect.

Whether you are a dog, cat, fish, or other type of pet owner, pets can cause a big mess and make your home dirty.  Today we will discuss some easy steps to keeping your home clean and smelling fresh.

When the weather is rainy, or it is muddy outside, it’s good to place a towel in a waterproof box to avoid getting mud everywhere. Then you can wipe your pets paws off and avoid getting mud everywhere.  If they have an animal door, keep a pad before the entrance where you can wash them off before entering in the home.

Keep a vacuum on hand; vacuuming daily can avoid the problem of having hair everywhere. Pets tend to shed a lot so a broom is not always the best solution.  You can also use an odor eliminator powder when vacuuming which will eliminate any nasty odors that can accumulate over time.

For furniture, using a slip cover or blanket can also eliminate getting hair on a couch or bed.  Make sure to wash it on a weekly basis to keep it fresh.

Keep your home well ventilated (windows open), fan, etc to keep air circulating.

Change litter boxes daily, and make sure to keep them near a door, kitchen, tor somewhere that gets a lot of ventilation.  It’s easier to replace often than having it on the opposite side of your home.  Out of sight (and smell) equals out of mind.

It’s a good idea to disinfect your home on a regular basis, pets can pick up germs from outside, so make sure you are washing down windows, floor, furniture, etc.

Keep your pet groomed and bathed regularly; from paws, to teeth, to brushing, etc.  There are animal grooming places, and animal grooming kits you can do in your home.

Protect your back yard by picking up waste on a daily basis, that way you do not end up with a collection of tall green spots in your lawn.

If you own a bird, or rodent, it is a good idea to clean the cage on a weekly basis.  Also, change the water to avoid smells.

These simple steps will take some time and effort on your part, but will keep your home sanitized and smelling fresh which will make a more comfortable environment for you and your pet.  It can also make your home more appealing when you are preparing to sell (or potentially save you a security deposit on a rental property).

In late 2011, the Internal Revenue Service (IRS) issued long awaited, comprehensive regulations (The 2011 Regs) on the treatment of payments to “acquire, produce, or improve” tangible property.  The essential question addressed is whether taxpayers such as moving companies, can deduct these payments up front as repairs under IRS Code Section 162(a), or if they must capitalize them under IRS Code Section 263(a) and then recover those costs as depreciation over a period of years.

                Although this determination is a matter of timing, the stakes are high: taxpayers such as moving companies generally want to deduct expenses when paid, to minimize taxable income or even generate a loss in the current year.  The difference in treatment can be substantial – for example, payments for work performed on a storage warehouse if not deductible as a repair, may have to be capitalized and then depreciated over a period of 39 years.  Payments for work performed on rolling stock (such as a moving van) if not deductible as a repair, may have to be capitalized and then depreciated over a period of 5 years.

                Historically, there has been a lot of controversy over repair and maintenance costs for tax purposes.  The 2011 Regs provide a more defined framework for determining capital expenditures.  For calendar year taxpayers, The 2011 Regs apply to amounts paid or incurred after January 1, 2012.  Whether work performed on property is an improvement is the major question addressed by the IRS.  Improvements must be capitalized and then depreciated over a certain number of years, whereas repairs can be deducted in the same year the work was performed.   The IRS Tax Code and The 2011 Regs require capitalization of amounts paid for permanent improvements, betterments, and restorations, as well as payments that add to the property’s value, prolong its useful life, or adapt the property to a new use.  See below for further information regarding Improvements, Betterments and Restorations that require capitalization of certain amounts paid.

                Building Improvements

                The 2011 Regs requires that building improvements (and thus capital expenditures) be determined by considering the effect of the work on eight significant, specifically defined building components (Units of Property):

1.        HVAC
2.        Plumbing
3.        Electrical
4.        Escalators
5.        Elevators
6.        Fire Protection
7.        Security
8.        Gas Distribution

This approach will require greater amounts to be capitalized and is a significant change.  However, since the retirement of a structural component of a building is considered a disposition, this allows taxpayers to deduct expenditures upon disposition (the year of disposition) that originally had to be capitalized and depreciated over the life (normally 39 years) of the building.   For example, if your company had capitalized roof expenditure and then began depreciating it over a 39 year period but then replaced that roof in say 10 years, your company could deduct the cost less accumulated depreciation for the roof that was replaced.  The amounts paid for the “new” roof would then be capitalized and then depreciated.

Betterments

1.        Amelioration (or to make better) of a material condition or defect
2.        Material addition or expansion
3.        Material increase in quality, capacity, efficiency, productivity, strength
4.        Costs incurred during an improvement – A taxpayer must capitalize all direct costs of an improvement and all the indirect costs, including otherwise deductible repair costs, that directly benefit or are incurred by reason of the improvement

Restorations

1.        Replacement after recognizing a loss on disposal
2.        Replacement after a sale or exchange
3.        Repair after a casualty loss
4.        Return to ordinary operating condition if deteriorated to state of disrepair
5.        Rebuild to a like-new condition after end of class life
6.        Replacement of major component or substantial structural part of the Unit of Property.  See Building Improvements above for list of Units of Property.

There are some items that can be deducted as repairs up front rather than be capitalized and then depreciated over a certain number of years.  Here are a few of those examples:

1.       Components acquired to maintain, repair, or improve a unit of tangible property that is not acquired as part of that Unit of Property.  See Building Improvements above for list of Units of Property.
2.       Fuel, lubricants, water, and similar items that are reasonably expected to be consumed in 12 months or less
3.       A Unit of Property with an economic useful life of 12 months or less
4.       A Unit of Property with an acquisition or production cost of $100 or less

Please note that this article does not address issues such as “Bonus Depreciation” and/or “Section 179 Expense Election” which may allow your business tax deductions for amounts paid subject to certain limitations.  Please consult with your tax advisor regarding these issues.

Investing in business assets is never just a matter of taxes.  A company must consider whether the investment makes economic sense for them.  Please consult with your tax advisor before acting on any of the topics discussed in this article.  Your tax advisor can ensure you receive the maximum tax benefits considering your company structure, income tax rates, etc.

Thomas L. Broderick, C. P. A. & CGMA is the Treasurer of Pickens-Kane Moving & Storage Co. in Chicago, Illinois.  He has served as Chairman of the Board of Trustees of the Illinois Movers’ and Warehousemen’s Risk Management Trust since 1996.  He has also served as president of the West Central Association Chamber of Commerce for the years 2007 thru 2009.  Many individuals, small businesses and non-profit organizations consult him for various accounting, investment, insurance and tax issues.

Note 1:  CCH Federal Tax Weekly dated 01/12/2012 was used as a resource for this article.

Note 2:  Baker Tilly Virchow Krause LLP webinar dated 01/24/2012 was used as a resource for this article.

Note 3:  Internal Revenue Service and Treasury Department notice dated 12/27/2011 was used as a resource for this article.

Revised: February 16, 2012

Given the difficult economic times, many movers (and other trucking companies) are keeping their vehicles longer.  When a movers’ fleet gets old the choice becomes purchase new, purchase used or repair.  There are pro’s and con’s to each depending on the movers’ financial stability, credit worthiness, and downtime tolerance.  We’ll take a look at each.

Purchasing a New Moving Truck

Purchasing a new moving truck is a popular choice if the moving company can pay for (or secure financing for) the new vehicle.  New vehicles consistently have better fuel mileage and lower maintenance costs.  However, when repairs do occur with newer vehicles they can be more expensive than their older counterparts.  Warranties can be purchased so while a new vehicle may have a payment involved, the costs are usually more predictable than on an older vehicle.  New vehicles are often best for long haul applications or for moving companies that can’t afford to have a vehicle down all the time or for an extended period of time.  One last thing to remember about purchasing new is financing rates are lower now than ever.

Purchasing a Used Moving Truck

The second option for a moving company in need of another vehicle is to purchase a use moving truck.  Many people will tell you that used vehicle pricing has gone up in recent years because of demand (more people are buying used versus new), but there are still deals out there to be had if you look hard enough.  Remember to have the vehicle checked out by a mechanic you trust, not only to verify things like overall motor health and transmission health but also other wear items that can really add up; items like brake life, clutch life, and the tire wear can add thousands and thousands to a vehicle that appears to be good from the outside.  A good idea is to get a complete history file on all work performed on the vehicle (anyone who cannot provide this for a vehicle should be avoided); this way you can see if certain parts or systems have been repaired or serviced or if they could be potentially be up for repair soon.  Items like fuel injectors fall into this category.  A truck with about 100,000 miles either has had some injector work or will need it soon.  Keep these things in mind when purchasing a used moving truck.  A used truck is perfectly fine for a mover with a fleet where one truck down for a week or two doesn’t cripple the operation.

Repair the Moving Truck

The third option a mover has in the purchase versus repair decision.  This option too has become very popular because of economic times and movers’ resistance or inability to purchase another vehicle.  One thing is to look at when weighing options is to look at the overall cost to operate a vehicle for a year.  For instance, calculate payment (or not), and all repairs associated with a truck over a given 12 month period.  Although an older vehicle many times doesn’t have a fixed monthly payment the variable and unpredictable cost of repairs can make an older vehicle more expensive than a newer one.  Once you do the math, the decision becomes easier.  Sometimes a repair like a rebuilt motor on a truck with other possible future large ticket repairs makes it easier to just go out and purchase another vehicle.  Like with new trucks,  financing rates are lower now than in the past.  The last thing to remember with multiple repairs and downtime is the potential cost of rental vehicles, this is an expense some moving companies forget to put into the equation when evaluating the purchase versus repair decision.

Hopefully, this helps add a little insight when making moving truck decisions.  Remember, it’s always best to gather as much information as possible and bounce it off coworkers, peers or friends in a similar industry when making a big decision like moving truck purchase versus repair.

  Tax Treatment of Cell Phones 

The Internal Revenue Service (IRS) has recently clarified (via IRS Notice 2011-72) the tax treatment of employer-provided cell phones or other similar telecommunications equipment that was originally enacted (changed) last fall in the Small Business Jobs Act of 2010.  Before the Small Business Jobs Act of 2010 employer-provided cell phones were considered listed property that required additional recordkeeping by taxpayers regarding the business use of each cell phone and many people felt it was an administrative burden.  Now the employer-provided cell phones are considered an excludible working condition fringe benefit (IRS Code Section 132) subject to some qualifications.  IRS Notice 2011-72 provides that when an employer provides an employee with a cell phone primarily for noncompensatory business reasons, the business and personal use of the cell phone is generally nontaxable to the employee.  The IRS will not require recordkeeping of the business use of the cell phone in order to receive this tax-free treatment.  Likewise, employer reimbursements to employees who use their personal cell phones for business will not be taxable.

However, a cell phone provided to promote the morale or good will of an employee, to attract a prospective employee or as a means of furnishing additional compensation to an employee is not provided primarily for noncompensatory business purposes.  Cell phones in those instances will not qualify as an excludable working condition fringe benefit. 

An employer will be considered to have provided an employee with a cell phone primarily for noncompensatory business purposes if there are substantial reasons relating to the employer’s business for providing the employee with a cell phone.  For example, the employer’s need to contact the employee at all times for work-related emergencies, the employer’s requirement that the employee be available to speak with clients at times when the employee is away from the office, and the employee’s need to speak with clients located in other time zones at times outside of the employee’s normal work day are possible substantial noncompensatory business reasons.

Generally, the IRS has three years to assess additional tax if it determines that a taxpayer’s return has understated the amount of tax owed.  For most business that were audited by the IRS in recent years, the IRS would propose a reduction in the business cell phone expense due to the alleged non deductible personal use of those cell phones.  That expense adjustment could be 25% to 50% or more of the total actual cell phone expenses.  The result would be additional tax due to the United States Treasury (via the IRS) from the business, plus a penalty and interest on the additional taxes.  The only way to protest that IRS tax adjustment would be to provide the IRS with detail substantiation of the business use of each cell phone.

 With this clarification in IRS Notice 2011-72 there is welcome relief for small business regarding cell phone expenses.  The IRS did a very good job of addressing the tools of everyday work life.  One issue not addressed by the IRS in this notice is the treatment of cell phones by self-employed individuals.  Those individuals may consider allocating their cell phone cost between business and personal use so they would better positioned for a challenge during an IRS audit.

 Tax Scams Update

The Internal Revenue Service (IRS) recently reported an increase in tax scams, especially schemes involving return filing.  The IRS cautioned that unscrupulous promoters are targeting the lower-income individuals and senior citizens.  The IRS discovered that some con artists are persuading individuals to file returns even though they have no filing requirement.  Unsuspecting individuals are led to believe they should file a return with the IRS for tax credits, refunds or rebates for which they are not really entitled.  Victims typically discover their claims are rejected or the refund barely exceeds what they paid the promoter.  Meanwhile, their money and the promoters are long gone.  With the 2012 income tax filing season (for 2011 returns) only a few months away, now may be a good time to remind your friends and relatives of the issues below.

The IRS cautioned taxpayers to be alert for:

1. A.     Fictitious claims for refunds or rebates based on excess or withheld social security benefits
2. B.    Claims that Treasury Form 1080 can be used to transfer funds from the Social Security Administration to the IRS enabling a payout from the IRS
3. C.    Unfamiliar for-profit tax services teaming up with local churches
4. D.    Home-made flyers and brochures implying credits or refunds are available without proof of eligibility
5. E.    Offers of free money with no documentation required
6. F.    Promises of refunds for “Low Income-No Documents Tax Returns”
7. G.    Claims for expired Economic Recovery Credit Program or Recovery Rebate Credit
8. H.    Advice on using the earned income tax credit (EITC) based on exaggerated reports of self-employment income

The IRS also reminded taxpayers to look carefully at the fees charged for tax return preparation.  Some promoters may charge unreasonable amounts for preparing legitimate returns that could have been prepared for free by the IRS or IRS-sponsored Volunteer Income Tax Assistance partners.

Please consult with your tax advisor before acting on these topics.  Your tax advisor can ensure you receive the maximum tax benefits considering your company structure, income tax rates, etc.  You can also visit the Internal Revenue Service web site http://www.irs.gov/ for more information on these issues.

 Thomas L. Broderick, C. P. A. is the Treasurer of Pickens-Kane Moving & Storage Co. in Chicago, Illinois.  He has served as Chairman of the Board of Trustees of the Illinois Movers’ and Warehousemen’s Risk Management Trust since 1996.  He has also served as president of the West Central Association Chamber of Commerce in Chicago for the years 2007 thru 2009. Many individuals, small businesses and non-profit organizations consult him for various accounting, investment, insurance and tax issues.

Revised: October 20, 2011

Move for hunger is an amazing non-for profit organization that has paired up with over 155 moving companies in 37 states at this time.  They are assisting with fighting the nation’s problem of hunger.  This organization is working hard to support the efforts of local food banks, who provide food to those in need.

They have paired up with moving companies and transportation companies who collect food from customers who are relocating who may be throwing out food and will deliver the food to the local food banks.  The local food banks can then sort and distribute out the food to those in need.  As stated there are over 155 companies involved at this time.

Why not get involved and join the task?  Any customer you know that may be relocating, have them set aside their perishable or non perishable items that they no longer need.  Deliver the food to a local food bank of your choice, and you have helped save someone from not having a meal.   This is a very simple task to help get involved with helping our nations fight the growing problem of hunger.

For more information, contact 732-774-0521, or email info@moveforhunger.org!

• 
• The Green Packer was created by moving professionals with over 40 years experience in packing and transporting households across America. Used just one time, moving professionals will never take on another job without a Green Packer on board. 
•  
• Packing and moving can be made easy with the new “Green Packer” moving/packing box.
• Pack and ship household items easily, quickly and CLAIM FREE!
• Pack fragile household items such as Flat Screen Tv’s, Computer monitors, Glass table tops and more in seconds!
• No Cardboard, tape, or other packing materials needed!
• Reusable for years!

With the cost of equipment, fuel and materials constantly going up, you cannot afford to run another job without a Green Packer on board. If you cannot afford to waste $5,000 to $15,000 or more, per year, per truck, you need a Green Packer on all of your trucks.

As every business knows the public and companies are being pushed toward green options to cut down on the use and waste of natural resources. The owner at Pack All, has designed the Green Packer to help the moving industry do their part to save trees and resources. The Green Packer gives your company the ability to truly be a Green Company and capitalize on this worldwide trend.  This will probably be the future trend of packing pictures, tvs, marble tops, etc without the use of cardboard.

For more information, check out http://www.pack-allllc.net

When inquiring about how to become a licensed household mover in Texas, this step by step guide on the requirements that need to be fulfilled use:

Obtain a USDOT # – www.fmcsa.dot.gov/online-registration – No fee, but have a MC or Visa ready to ensure a digital signature is on file.

Register with TxDMV – Must have USDOT # already assigned. Call 888/368-4689, option 3, option 1 to get a certificate # and PIN #.

Go to website www.txdmv.gov to create logon ID and password.

Choose “Motor Carrier Registration” Choose Online credentialing (MCCS)

To register with paper: download Form 1899 at: http://www.txdmv.gov/whatyouneed/forms/motor_carrier1.htm

Application Costs: $100 filing fee; $100 Liability Insurance Filing fee; $100 cargo Insurance filing fee; $10/$20 per truck.

Insurance – Filed by insurance company to the TxDDMV using your assigned TxDMV #
Workers Comp or Accidental Insurance Coverage.

File a maximum rate tariff with TxDMV (Join Southwest Movers www.southwestmovers.org to use a collective tariff already on file)

Print TxDMV certificate of registration.

Print out Insurance cab card (highlight applicable vehicle number and carry in the vehicle)

Advertising, including online, Carrier’s registration number and physical address; online add TxDMV toll free # 888/368-4689.