Ernest Patrick Smith John M. Spatola CPA/ABV/CFF, CVA, CFE - - PowerPoint PPT Presentation

Ernest Patrick Smith

CPA/ABV/CFF, CVA, CFE Nawrocki Smith LLP

John M. Spatola

CPA/ABV/CFF, CVA, CFE Nawrocki Smith LLP

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“The best way to solve our economic problem would be put less money through the government grinder, which is extremely inefficient. They’re constantly building bridges to nowhere – power plants to get disassembled – wasting billions of dollars per year

• n really stupid things.”

“Mr. Wonderful” – Kevin O’Leary

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 The

economy has continued to gain strength during November.

 Improvements have been observed in jobs and consumer

spending.

 Estimated 3rd quarter GDP growth was estimated at 5.0%,

capping its two strongest back-to-back quarters of growth since 2003.

 The U.S. national debt continues to grow, soaring past

$18.0 trillion on November 28th.

 Budget deficit for FY 2014 was $483 billion, compared to

$1.09 trillion in FY 2012.

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 As of November 2014:

• Unemployment fell to 5.8%

 Lowest unemployment rate in last 6 years

• Underemployment rate fell to 11.5% in October.

 Unemployed individuals + part-time works who would prefer to work full time.

• Long-Term unemployment fell to 30.7% of unemployed.

 Those who have been jobless for 27+ weeks.

• When referring to the above statistics, PNC economist

Stuart Hoffman indicated, “if you don’t like this [report], nothing is going to make you happy.”

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 According

to the Center for Immigration Studies, net employment growth in the United States since 2000 has gone entirely to immigrants – legal and illegal. From November 2007 to November 2013:

 #

• f

employed native-born Americans decreased 1.45million+.  # of employed immigrants increased by 2million+.

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 Amnesty Plan:

 Will add 5 million illegal immigrants to U.S.  Will add as many foreign workers to the nation’s legal labor force as the total number of new jobs created by the economy since 2009.  New workers include not only low-wage laborers from Mexico and Central America, but also a large influx of foreign college graduates competing for higher-paying salaried jobs.  These workers are not eligible for Obamacare, so the Obamacare employer mandate gives employers a $3,000 incentive to hire foreign vs. American workers.

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 Consumer confidence present situation index is

now at its highest level since February 2008.

 Acccording

to Thomson Reuters, Consumer sentiment to its highest level in nearly 8 years on cheaper gasoline and better job and wage prospects.

 The Bloomberg Consumer Comfort index is at its

highest level in 7 years.

 Economic optimism hits 18-month high.

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 According to HealthPocket, insurance premiums

have risen by as much as 78% in the year since Obamacare’s full implementation.

 33%

• f

American’s put

• ff

seeking medical treatment in 2014 due to high costs.

 According to a Gallup poll, 37% of American’s

approve of Obamacare and 56% disapprove.

 Approximately 25% of all active U.S. physicians

have

• pted
• ut
• f

Obamacare and will not participate in the new Affordable Care Act plans.

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“I find it insane to say, “Work hard,” when the harder you work, the more you pay in taxes…. Crazy.”

Ziad Abdelnour

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CEO of Blackhawk Partners, Inc. a NY based private equity firm.

 Federal tax revenues set record of $3.02 trillion

in taxes during FY 2014.

 According to the Tax Policy Center the top 1% of

U.S. households (income averaging $1.4 million) will pay an average federal tax rate of 35.5% this year, among the highest in the history of such reporting (1979).

 According to The Wall Street Journal, the U.S.

ranks 32nd in the world in terms

• f

the favorability of its tax code toward business.

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 The outlook for Long Island’s economy is

positive on a whole.

 Consumer confidence is high and spending

appears solid.

 Labor market is improving steadily  Growth and strong economic conditions are

expected to increase on Long Island in 2015.

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 As of November 2014:

• The unemployment rate was 4.6%, compared to 5.3% the

previous year.

• Unemployment in Nassau was 4.4% and Suffolk was

4.8%.

• Nassau

and Suffolk have among the lowest unemployment rates relative to other counties in NY State.

• Number of private sector jobs on Long Island rose by

1.4% to 1,116,600.

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 The

NY Metropolitan area consumer sentiment increased significantly in November 2014, when compared to the previous year.

 The

NY Metropolitan area consumer sentiment was considerably more favorable than that of the rest of NY State.

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 As of November 2014:

• Residential real estate performed poorly on Long

Island in 2014 and could exert a drag on economic growth if the pattern persists.

• Both Nassau & Suffolk county experienced median

property sales price increases in October 2013:

 Suffolk County median sales price = $325,000 (2.9%↑)  Nassau County median sales price = $428,000 (3.1%↑)

• However, number of home sales:

 Suffolk County = 961 (0.7%↓)  Nassau County = 813 (14.1%↓)

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Source: Business Valuation Update – January 2015 Vol. 21 No. 1

** Numbers based upon % change from preceding period. ** Forecasts are based upon % change from preceding period (excluding unemployment rate, 3- month treasury bill, 10-year treasury bond yield)

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“One thing is clear: The Founding Fathers never intended a nation where citizens would pay nearly half of everything they earn to the government.”

Ron Paul

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 The days of the Wild Wild West are

Over

X

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 All matters connected with a presentation to

the IRS relating to a taxpayer’s rights, privileges,

• r

liabilities under laws

• r

regulations administered by the IRS.

 Preparing or filing documents, corresponding

and communicating with the IRS, rendering written advice, and representing a client at conferences, hearings and meetings.

 Practice = All Tax Return Preparation

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 Reprimand (Private)  Censure  Suspension  Disbarment  Monetary Sanction (Individual & Firms)

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 Must exercise Due Diligence in:

• Preparing,

approving and filing tax returns, documents, affidavits, etc. relating to IRS matters.

• Determining

correctness

• f
• ral/written

representations made to the client or to Treasury personnel.

 Reliance on another’s work product must be

done with reasonable care.

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 May not sign a tax return or advise a position

• n

a tax return, willfully, recklessly,

• r

through gross incompetence if:

• Lacks reasonable basis
• Unreasonable position
• Willful attempt to understate liability
• Reckless,

intentional disregard

• f

rules and regulations

 Patterns matter.

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 May

not advise taking positions that are frivolous.

 May not advise submissions:

• To delay or impede tax administration
• That are frivolous
• Containing
• r
• mitting

information that demonstrates an intentional disregard of rules or regulations

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 Must advise client of potential penalties and their

avoidance through disclosure.

 Reliance on client information in good faith,

without verification, is ok, but:

• Cannot

ignore implications

• f
• ther

information furnished.

• Cannot ignore actual knowledge.
• Must

make reasonable inquiries for incorrect, inconsistent or incomplete information.

 No willful blindness.  No Don’t ask, don’t tell.

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 No participating in any way in the giving of

false/misleading info to the Department of Treasury or any officer/employee thereof.

 Includes:

• Testimony
• Federal tax returns
• Financial statements
• Applications
• Affidavits, declarations, and any other document or

statement, written or oral

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 Willfully assisting, counseling, encouraging,

suggesting to a client/prospective client:

• Any illegal plan to evade Federal taxes or payment

thereof

• Violation of any Federal tax law

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“It’s not rocket science. Hong Kong has 95% tax compliance, because it’s code is

• nly 4 pages long with a 15% flat tax.”

Ziad Abdelnour

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CEO of Blackhawk Partners, Inc. a NY based private equity firm.

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Summary ry: www.congress.gov/bill/113th- congress/house-bill/5771 Complete te Act: www.gpo.gov/fdsys/pkg/BILLS- 113hr5771enr/pdf/BILLS-113hr5771enr.pdf

 Passed by the House on December 3, 2014.  Passed by the Senate on December 16, 2014.  Provides 1 year retroactive extension for over 50

tax benefits and incentives that expired in 2014.

 The extension is only for 2014, and does not

apply to 2015.

 Estimated to cost approximately $42 billion over

10 years. (http://taxfoundation.org/blog/congress-approves-tax-extenders-2014).

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 Teachers in grades K – 12, were allowed a

deduction from gross income in arriving at AGI, for up to $250 of teaching expenses incurred.

 The ACT reinstates this provision for 2014.

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 Energy-efficient home improvements qualify

for a tax credit up to 10% of the purchase price of qualified products, up to a maximum

• f $500.

 The ACT reinstates this provision for 2014.

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 Taxpayers could exclude from gross income

up to $2 Million of discharge of indebtedness

• n their qualified principal residence.

 The ACT extends this provision for 2014.

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 Certain federally insured mortgages require

borrowers to

• btain

mortgage insurance. Prior law allowed these borrowers to deduct the mortgage premiums as additional acquisition indebtedness interest. The MIP was able to be allocated over the shorter of the term of the loan or 84 months.

 The ACT provides for this treatment for tax

year 2014.

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 Prior law allowed taxpayers to deduct State

and Local Sales Taxes in lieu of deducting State and Local Income Tax.

 This ACT extends this provision for tax year

2014.

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 Prior law allowed a deduction for qualified

tuition and related expenses. The maximum amount was $4,000 per year.

 The ACT allows these for tax year 2014.

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 Taxpayers who obtained the age of 70 ½ on

the date of the contribution could make their contributions directly from their IRA up to $100,000.

 Under the ACT, the direct contributions rules

will apply for 2014.

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 Tax credit available to employers for hiring

individuals from certain target groups:

 Veterans  Temporary Assistance for Needy Families recipient  Food stamp recipient  Designated community resident  Vocational rehabilitation referral  Ex-felon  Supplemental security income recipient  Summer youth employee

 Work Opportunity Tax Credit is extended for

tax year 2014.

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 Section 179 deduction amount ($500,000)

and the threshold amount ($2,000,000) are extended through 2014.

 50% bonus depreciation has been extended

for 2014.

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 Exclusion

• f

100%

• f

the gain

• n

small business stock (C Corp) purchase in 2014 and held for more than 5 years.

 The

reduced built-in gains (BIG) tax recognition period of 5-years will apply for tax year 2014.

 The research credit is extended and will apply

for 2014.

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“We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”

Winston Churchill

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 Hospital Insurance Tax: The employee portion

• f the hospital insurance tax part of FICA,

normally 1.45%

• f

covered wages, is increased by 0.9% on wages that exceed the following thresholds:

• MFJ - $250,000
• HH - $200,000
• S -

$200,000

• MFS - $125,000

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 Medicare Tax: Section 1411 imposes a tax on

individuals equal to 3.8% of the lesser of the individual’s net investment income for the year or the amount the individual’s modified AGI exceeds a thresholds:

• MFJ - $250,000
• HH - $200,000
• S -

$200,000

• MFS - $125,000

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3.8% Medicare Tax: Continued

 Applies to individuals and estates that have

undistributed net investment income.

 Net

investment income includes interest, dividends, capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments and commodities and businesses that are passive to the taxpayer.

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 Medical Care Itemized Deduction Threshold:

The threshold for the itemized deduction for unreimbursed medical expenses has increased from 7.5% of AGI to 10% of AGI for regular income tax purposes.

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 New Penalty for uninsured individuals

• 2014 – Higher of

 1% of your household income  $95 per person ($47.5 per child under 18), not to exceed $285.

• 2015 – Higher of

 2% of your household income  $325 per person

• 2016 - Higher of

 2.5% of your household income  $695 per person

• 2017+ is indexed for inflation

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 New tax credit for participating in the health

exchange:

• Refundable tax credit.
• Available to taxpayers who purchase insurance through

the exchange and are not eligible to obtain affordable coverage from other sources.

• The taxpayers income must fall within two to four times

the federal poverty limit.

 Coverage

and credit are reconciled

• n

Form 8962.

 Subsidies received by the government will be

reported on Form 1095-A.

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“To compel a man to furnish funds for the propagation of ideas he disbelieves and abhors is sinful and tyrannical.”

Thomas Jefferson

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 Form 1095-A: Health Insurance marketplace

statement.

 Form

1094-B/1095-B: Health coverage, including marketplace, SHOP.

 Form

1094-C/1095-C: Employer health coverage to employee.

 Form 1095-Other: Health insurance coverage.  Form 8962: Premium tax credit.  Form 8965: Health coverage exemption.  Form 8885: Health coverage tax credit

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 New penalty for employers not offering coverage

(delayed from 2014 to 2015)

• Applies

to employers

• f

100

• r

more full-time equivalent employees who do not provide affordable health insurance.

• $2,000

per year per full time employee

• ver

80 employees (First 80 employees exempt).

• If any employee actually receives coverage through an

exchange with a premium tax credit, the penalty is the lesser of:

 $3,000 for each employee that receives coverage through the exchange  $750 for each full-time employee

• Note: This fee is not tax deductible

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 New penalty for employers not offering coverage

(2016)

• Applies to employers of 50 or more full-time equivalent

employees who do not provide affordable health insurance.

• $2,000

per year per full time employee

• ver

30 employees (First 30 employees exempt).

• If any employee actually receives coverage through an

exchange with a premium tax credit, the penalty is the lesser of:

 $3,000 for each employee that receives coverage through the exchange  $750 for each full-time employee

• Note: This fee is not tax deductible

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 Excise tax on high-cost employer-sponsored

health coverage “Cadillac Plans” (2018)

• Beginning in 2018, a 40% non-deductible excise tax

will be assessed

• n

companies and plan administrators whose premium exceeds:

 Single - $10,200  Family - $27,500

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“You don’t pay taxes-they take taxes.”

Chris Rock

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 2014 tax returns can begin to be filed on

January 20, 2015.

 Personal Exemptions

• 2014 - $3,950
• 2015 - $4,000

 Maximum Earned Income Credit

• 2014 - $6,143
• 2015 - $6,242

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 Standard Deduction (2014)

• Single - $6,200
• Head of Household - $9,100
• Married Filing Joint - $12,400

 Standard Deduction (2015)

• Single - $6,300
• Head of Household - $9,250
• Married Filing Joint - $12,600

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 Itemized Deduction Limitation Begins (2014)

• Single - $254,200
• Married Filing Joint - $305,050

 Itemized Deduction Limitation Begins (2015)

• Single - $258,250
• Married Filing Joint - $309,900

 Reduced by the lesser of 3% of AGI above the

threshold or 80% of the total amount of

• therwise allowable itemized deductions.

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 Mileage Rate

• 2014 – 56.0 cents
• 2015 – 57.5 cents

 Per Diem Rate

• Low Cost (Prior to 9/30/14) - $170
• Low Cost (After 9/30/14) - $172
• High Cost (Prior to 9/30/14) - $251
• High Cost (After 9/30/14) - $259

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 Child Tax Credit

• 2014 – $1,000
• 2015 – $1,000

 Phased out by $50 for each $1,000 over

threshold:

• Single: $75,000
• MFJ: $110,000

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 Foreign Earned Income Exclusion

• 2014 - $99,200
• 2015 - $100,800

 AMT Exemption

• 2014 (Individual) – $52,800
• 2014 (MFJ) - $82,100
• 2015 (Individual) - $53,600
• 2015 (MFJ) - $83,400

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 FSA Contributions

• 2014 - $2,500
• 2015 - $2,550.

 HSA Contributions

• 2014 Individual - $3,300
• 2014 Family - $6,550
• 2015 Individual – $3,350
• 2015 Family – $6,650

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 Retirement Plan Limits

• 2014 & 2015 IRA - $5,500 (+$1,000 catch-up)
• 2014 Defined Contribution - $52,000
• 2015 Defined Contribution - $53,000
• 2014 401(k)/403(b) deferral - $17,500
• 2015 401(k)/403(b) deferral - $18,000

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 Section 179 Depreciation

• 2014 Deduction Limit- $500,000
• 2014 Limit on Capital Purchases - $2,000,000
• 2015 Deduction Limit– $25,000
• 2015 Limit on Capital Purchases - $200,000

 Bonus Depreciation

• 2014 – 50%
• 2015 – 0%

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 Hope Scholarship Credit

• 2014 Max - $2,500
• 2015 Max - $2,500

 Lifetime Learnings Credit Threshold

• 2014 (Single) – $55,000
• 2014 (MFJ) – $110,000

 Student Loan Deduction Threshold

• 2014 (Single) – $65,000 (Phased out at $80,000)
• 2014 (MFJ) – $130,000 (Phased out at $160,000)

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 Qualified Pensionable Compensation Limits

 2014 Salary Cap - $260,000  2015 Salary Cap - $265,000

 Social Security Taxable Wage Base

 2014 - $117,000  2015 - $118,500

 Salary

to determine highly compensated employee

 2014 - $115,000  2015 - $120,000

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 Federal Estate Tax Exemption

• 2014 - $5,340,000
• 2015 - $5,430,000

 Federal Gift Tax Exclusion

• 2014 – $14,000
• 2015 – $14,000

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“New York State is upside down and backwards; high taxes and low performance. The New York State government was at one time a national model. Now, unfortunately, it’s a national

• disgrace. Sometimes, the corruption in Albany

could even make Boss Tweed blush.”

Andrew Cuomo

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 Increased

exclusion amount from $1,000,000 to:

• April 1, 2014 – March 31, 2015: $2,062,500
• April 1, 2015 – March 31, 2015: $3,125,000
• April 1, 2016 – March 31, 2015: $4,187,500
• April 1, 2017 – December 31, 2018: $5,250,000
• January 1, 2019 forward: Matches IRS exclusion

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 New law effective for individuals with dates of

death on or after April 1, 2014.

 Estate must file and pay taxes within nine

months after decedent’s death.

 An extension of time may be requested, not

to exceed 6 months.

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 Refundable credit paid in advance in the fall

• f 2014.

 $350 payment to certain middle-income New

Yorkers.

 Eligibility:

• Were a resident of NY State for entire year of 2012.
• Claimed

a child under the age

• f

17 as a dependent.

• Had NYS AGI of between $40,000 and $300,000.
• Had a NY State liability after credits.

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 Refundable credit paid in advance in 2014.  2 Year tax relief program (2014 & 2015) that

reimburses homeowners for increase in local property tax on their primary residence.

 Eligibility:

• Received

STAR property exemption (primary residence with household income of $500,00 or less)

• School district must comply with tax cap.

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“Respect your mom, respect your money, respect your business. Each of them will slap you if you don’t.”

Marcus Lemonis

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 When did valuation of closely held businesses

first become a formal issue???

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 Main Purposes of Business Valuations

• Tax

 Gi Gift, t, es esta tate te and inco come ta tax

• Litigation

 Shareholder disputes, divorces, insurance claims

• Transactions

 Mergers, acquisitions and sales

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 Main Purposes of Business Valuations

• Regul

ulatory atory

 Fair Va Value ue for financ ancia ial sta tate tement ment pres esen entati tation  Employe

• yee Stock Option Plan

ans (ESOP) P)

• Other

 Buy-sell agreements

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 Income Approach

• Capitalization of Earnings Method
• Discounted Cash Flow Method
• Excess Earnings Method

 Asset Approach

• Adjusted Net Asset Method
• Liquidation Method

 Market Approach

• Guideline Public Company Method
• Guideline Company Transaction Method

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 Effective for all engagements to estimate value

after January 1, 2008.

 Provide “best practices” in valuation services.  Provide “generally accepted appraisal standards”.  Improve the quality and consistency of valuation

services.

 Enhance

transparency and replicability

• f

valuation analyses and reports.

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 Encourage the standardization of valuation analysis

data gathering, valuation content and format.

 Recognize what are (and are not) generally accepted

valuation approaches and methods.

 Enhance the reliance on the valuation process by

clients, triers of fact, the investment community, etc.

 Encourage

a clear, documented understanding between valuators and clients as to the level of service provided and the type

• f

report to be rendered.

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 What are the most common Business

Valuation Certifications?

Accredited in Business Valuation (ABV) – AICPA Certified Valuation Analyst (CVA) – NACVA Accredited Senior Appraiser (ASA) – ASA

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 Issued by the American Institute of Certified

Public Accountants (AICPA) since 1997.

 Approximately 3,000 credential holders.  Requirements:

• Hold a valid CPA license.
• Pass the ABV examination (180 questions).
• Have

performed at least 6 business valuation engagements

• r

complete 150 hours

• f

business valuation experience in past 5 years.

• Earn 75 hours of business valuation CPE in past 5 years.

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 Issued by the National Association of Certified

Valuators and Analysts (NACVA) since 1991.

 Approximately 5,800 credential holders.  Requirements:

• Hold a valid CPA license or hold a business degree and

demonstrate “substantial experience.”

• Pass the CVA examination (400 questions).
• Pass peer review of a case study or submit an actual

sanitized fair market value report prepared within the last 12 months.

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 Issued by the American Society of Appraisers

(ASA) since 1981.

 Approximately 1,200 credential holders.  Requirements:

• Pass the ASA Ethics Exam.
• Pass the Uniform Standards of Professional Appraisal

Practice (USPAP) Exam.

• Complete a four course education requirement.
• Submit appraisal log documenting 5 years of full-time

appraisal experience.

• Submit one narrative appraisal report.

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“The trick is to stop thinking of it as ‘your’ money”

Anonymous IRS Auditor

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QUESTIONS???

Ernest Patrick Smith

CPA/ABV/CFF, CVA, CFE epsmith@nsllpcpa.com Phone: (631) 756-9500 ext. 223

John M. Spatola

CPA/ABV/CFF, CVA, CFE jspatola@nsllpcpa.com Phone: (631) 756-9500 ext. 271

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