The Florida Department of Revenue recently announced the following amendments, modifications and/or updates and we want our clients and all Florida taxpayers to be well-informed of how these changes may impact them.

Please be aware of the changes in the paragraphs that follow and feel free to contact Hill, Barth and King, LLC with any questions.

Fuels & Minerals / Fuel Tax Rules

Rules 12B-5.090 and Rule 12B-5.100 have been amended to remove a reference to the incorporation of a refund permit that does not meet the definition of a “rule” and is not incorporated by reference. The amendments to Rule 12B-5.150 remove Form DR-179 (Corporate Surety Bond Form for Refund Permit Application), which is no longer used by the Department. The amendments to Rule 12B-5.200 clarify that it is unlawful to put alternative fuel into a vehicle that does not have a required decal attached to the vehicle.

General Administrative Provisions

1. Electronic Payments and Recordkeeping – Rule 12-24.011 to adopt, by reference: (1) simplification of the tax types and filing method selections contained in Form DR-600 (Enrollment and Authorization for e-Services Program); and (2) changes that will update the privacy notice statement on Form DR-654 (Request for Waiver from Electronic Filing), used by the Department in the administration of the e-Services program. The amendments to Rule 12-24.028 change the reference regarding recordkeeping requirements. Rule 12-24.030 is repealed to remove an unnecessary rule that only refers to a statutory provision. 
2. Final orders – Rules 12-2.021, 12-2.027, and 12-2.028 have been amended to remove unnecessary requirements and provisions regarding the indexing and handling of final orders that are redundant of other departmental rules. Rule 12-3.006 is repealed to remove provisions regarding the Department’s official reporter for final orders that are redundant.
3. Large Currency Transaction Rule Repealed – Rule 12-19.001 has been amended to remove unnecessary provisions that are redundant of provisions contained in Rule 12-19.002 regarding the reporting of large currency transactions pursuant to the Money Laundering Control Act.
4. Debt Collection Rules – Rule 12-15.001 has been appealed. The repeal of Rule 12-15.005 removes unnecessary provisions regarding the confidentiality of state tax information required in the performance of contracts with the Department to collect certain delinquent taxes.
5. Vending Machine Rule – Rule 12-18.008 has been amended to update the notice to customers that must be affixed to a vending machine by the operator of the machine.

Florida Sales & Use Tax

1. Amended and Repealed Rules – Effective May 9, 2013, the Florida Department of Revenue has repealed or amended various sales and use tax rules. The changes are as follows:
   1. Rule 12A-1.003 is repealed to remove unnecessary rule provisions requiring sales tax to be collected on each single sale.
   2. Rules 12A-1.014, 12A-1.034, 12A-1.064, and 12A-1.0641, F.A.C., remove obsolete provisions regarding when an application for refund must be filed with the Department for tax paid on or after October 1, 1994, and prior to July 1, 1999.
   3. Rule 12A-1.035 is amended to reflect changes concerning the licensing of funeral directors.
   4. The amendments to Rule 12A-1.0371 correct the referenced value of a U.S. Double Eagle Coin.
   5. The amendments to Rules 12A-1.038 and 12A-1.039 remove obsolete provisions which required dealers to maintain blanket resale and exemption certificates and obsolete references to other suggested exemption certificates.
   6. The amendments to Rule 12A-1.044 remove the requirement for churches, synagogues, and qualified sponsoring organizations to place their name and address on vending machines they operate; and also remove obsolete provisions regarding the application of tax to agreements between a vending machine owner and the owner of the location where the machine is placed for operation entered into prior to July 1, 1991.
   7. The amendments to Rule 12A-1.056 remove provisions regarding the imposition of interest on tax due prior to January 1, 2000.
   8. The amendments to Rule 12A-1.059 remove provisions regarding the filling of 22-pound liquefied petroleum gas tanks that are no longer available; and provide that the charge for filling liquefied petroleum gas tanks with gas to be used for purposes of residential heating, cooking, lighting, or refrigeration is tax-exempt when the selling dealer documents the tax-exempt use of the gas on the customer’s invoice or other written evidence of sale.
   9. Rule 12A-1.068 is repealed to remove an unnecessary rule regarding the recapping of tires and the sale of recapped tires.
   10. The amendments to Rule 12A-1.0911 remove the requirement for holders of direct pay permits to submit an annual report of the amount of total purchases by county.
   11. Rule 12A-1.097 is amended to adopt, by reference, updates to Form DR- 231, Certificate of Exemption for Entertainment Industry Qualified Production Company, to remove obsolete taxpayer contact information and to correctly title the Florida Office of Film and Entertainment. 2)
2. Convention development tax rules repealed – Dade County Convention Development Tax rules 12A-8.001 and 12A-8.002; Duval County Convention Development Tax rules, 12A-9.001 and 12A-9.002; and Volusia County Convention Development Tax rules 12A-10.001 and 12A-10.002 have all been repealed.
3. Motor vehicle fee rules – Rule 12A-13.002 has been amended to provide the definition of “motor vehicle” for purposes of the fee on the sale or lease of motor vehicles. In addition, the amendments provide that such fees should be remitted to the Department at or within the times that a private tag agent’s sales and use tax and return is due (previously the fee was due not later than seven days from the close of the week in which the private tag agency received the fees). In addition, Fla. Admin. Code Ann. Rule 12A-13.001 is repealed.
4. Tourist development tax rules repealed – Rules 12A-3.001; 12A-3.002 and 12A-3.006 relating to the tourist development tax have been repealed.
5. Transient accommodations rule amended – Rule 12A-1.061 dealing with rentals, leases and licenses to use transient accommodations to provide that the provisions of the rule govern the administration of the taxes imposed on transient accommodations including the sales tax imposed under Fla. Stat. § 212.03 has been amended. Any locally-imposed discretionary sales surtax; any convention development tax; any tourist development tax; or any tourist impact tax. The rule is effective May 9, 2013.
6. Communications services tax rules – Rule 12A-19.050 and Form DR-700021 (Local Communications Services Tax Notification of Tax Rate Change) have been amended and, adopted by reference, in Rule 12A-19.100, in order to clarify provisions applicable to emergency local tax rate changes and to remove obsolete rate change provisions for the adoption of emergency tax rate ordinances for 2002.

For specific questions, please contact Elizabeth Slater at Hill, Barth & King LLC by calling the office at (239) 482-5522 or e-mailing her at lslater@hbkcpa.com .

Libby is a Principal in the Fort Myers, Florida office of Hill, Barth & King LLC (HbK). She joined HbK in 2002, when the Batson, Carnahan & Company accounting firm joined the HbK family. Libby had previously worked with BC&C for eight years and the majority of her client base lies in her specific area of proficiency: the medical industry and, particularly, physician practices. She has extensive experience in consulting with medical practices of all sizes in Southwest Florida ranging from single practitioners to larger multi-specialty groups.

Libby earned both her Bachelor of Professional Accountancy degree and her Master of Business Administration degree from Mississippi State University. She is a member of both the American Institute of Certified Public Accountants (AICPA) and the Florida Institute of Certified Public Accountants (FICPA).

Libby also serves as the Chair of the Professional Women’s Advisory Committee of HbK and is involved with many community and civic organizations and initiatives in the Fort Myers region.

Hill, Barth and King LLC® ranks as the 90th largest public accounting firm in the nation. HBK LLC® employs nearly 300 professional and support staff members who serve clients in 12 offices located throughout Pennsylvania, Ohio and Florida. To learn more about Hill, Barth and King LLC® visit www.hbkcpa.com.

Whether you know it or not, you are involved in the SHALE ENERGY arena that is changing the world’s energy platform and our local economies.

In 2013, shale is the expected catalyst for creating more jobs than any other single energy development in decades.

Why should you care about this? You may need to create leases, contracts or other documents with huge financial implications that will potentially impact your business, grow your wealth, consider new investments, valuate your personal or professional interests, plan for your future or simply organize your finances.

How can we help you? By constantly analyzing international, national and local data to determine the impact to business/economic growth.  It’s our job.

Here’s what we can do for you and/or your business:

• Identify and secure the right producer to maximize the monetization of your interests
• Create strategic plans for business growth related to shale
• Develop entry and exit strategies into the shale industry, connecting investors and sellers
• Conduct financial evaluations of leases, agreements and contracts
• Draft financial blueprints for your future by planning out the details of mineral asset acquisitions, sales, investments or transactions
• Deliver reliable industry forecasting including breaking news alerts on up-to-date changes in legislation impacting your shale interests
• Act as your data portal to the industry, whether your company is industrial, investment or peripheral in terms of the shale phenomenon
• Facilitate the BEST AVAILABLE offer and deal, whether you’ve already signed a lease or have yet to create one

This year proves to be one of significant impact in the shale energy arena. Now is the time to create strategic plans that will help determine your finances for the future.   You know you can trust us to take care of all your shale energy financial needs. All you need to do is tell us.

Anyone interested in any stage of the process should contact Steve Franckhauser for crucial information on how to move forward in their efforts by calling the Fort Myers office of HbK LLC at (239) 482-5522 or e-mailing a request to sfranckhauser@hbkcpa.com.  For general information, please visit the HbK Energy™ tab of the HbK LLC webpage at www.hbkenergy.com. 

According to a press release from his office, Governor Scott is suggesting the elimination of sales tax on manufacturing equipment and the exemption of some 2,000 small businesses from paying business taxes as part of the new state budget.

Governor Scott’s $74.2 billion plan, which he has dubbed Florida Families First, promises the elimination of “burdensome regulations while providing tax relief to Florida job creators”.

As outlined and summarized on the official website of the proposal, which is maintained by the Governor’s office, the proposed budget “will eliminate restrictions on businesses to receive the sales tax exemption, which can inhibit a business’s investment decision. Through 2012, the sales tax exemption was available for expanding businesses which could show that they increased their output by at least 10 percent.”

The site goes on to explain that, as of January 1, 2013, this requirement was lowered to 5%.

“Through cost savings and efficiencies across state government, the Governor will generate the recurring $115.3 million necessary to pay for the cost of his proposal to fully eliminate the 5% requirement. The removal of this outdated requirement, beginning January 1, 2014, will assist businesses in making the investments necessary to add equipment and create jobs for Florida families” reads the statement.

Many provisions are outlined in the proposal, including those for education, workforce training, job retention, increases in public transportation and the protection of jobs and the expansion of research in the citrus and seafood industries.

Yet, arguably one of the most important suggested measures is a recommendation to cut business taxes through special subsidies.

The budget allots for funding to save roughly 2,000 taxpayers from having to pay the state business tax by increasing the corporate income tax exemption from $50,000 to $75,000. This exemption was increased from $5,000 to $25,000 in 2011. However, the exemption has been further raised –to $50,000– effective January 1, 2013. As stated on the Florida Families First site, “The Governor proposes generating the recurring $19.7 million necessary to pay for the increased exemption through cost savings across state government. Eliminating this tax will ensure more small businesses can hire more workers, providing Florida families with jobs”.

To read more about the Governor’s proposed budget, visit http://www.floridafamiliesfirst.com/HomeFY14.htm.

For specific tax questions, please contact Keith Veres at Hill, Barth & King LLC by calling the office at  (239) 482-5522 or e-mailing him at kveres@hbkcpa.com.

Keith is a Principal in the Fort Myers, Florida office of Hill, Barth & King LLC (HbK). He earned a BA degree in Accounting and Business Administration with a minor in Hotel, Restaurant and Institutional Management from Mercyhurst College and began his accounting career with HbK in 1991.  He has extensive experience in accounting and auditing, tax planning and business consulting. Keith’s industry experience includes medical practices, construction industry, automobile dealerships, retail establishments and various other businesses and individual clients. Keith is a member of the American Institute of Certified Public Accountants (AICPA) and the Florida Institute of Certified Public Accountants (FICPA).  He is also a member of Leadership Lee County (of which he is a 2007 graduate) and the Southwest Florida Chamber of Commerce.  Keith is also a member of the Cape Coral Construction Industry Association, the Financial Solutions Advisory Committee for the Southwest Regional Manufacturers Association, the Cape Coral Building Industry Oversight Committee and the Lee County Building Industry Association.  Keith likewise serves as a Stewardship Committee member at Cape Christian Fellowship of Cape Coral and is a board member of the Cape Coral Community Foundation. Hill, Barth and King LLC® ranks as the 83rd largest public accounting firm in the nation.  HBK LLC® employs nearly 300 professional and support staff members who serve clients in 12 offices located throughout Pennsylvania, Ohio and Florida. 

To learn more about Hill, Barth and King LLC® visit www.hbkcpa.com.  

Tax Provisions of the “Fiscal Cliff” Legislation

On New Year’s Day, Congress passed legislation that supposedly prevented our economy from falling over the “Fiscal Cliff.” This legislation has raised the income tax rate on higher income individuals, permanently extended certain tax provisions while only temporarily extending others, continued emergency unemployment insurance and other programs, postponed the automatic reduction in Medicare reimbursement to doctors, and effectively delayed (until March) the broad range of federal spending cuts that were scheduled to take effect this month.

This article focuses on the provisions made permanent by the new legislation, as well as those business provisions that have been reinstated and/or temporarily extended. Certain other individual provisions that have either been reinstated or only temporarily extended fall outside the scope of this article. We begin by identifying some of the important provisions that were not addressed by the recent legislative process.

I.  Issues Not Addressed by the Legislation

Not addressed by the new legislation was the temporary “payroll tax holiday,” which had lowered the Social Security portion of the payroll tax from 6.2% to 4.2% for years 2011 and 2012.  This holiday was allowed to end, effectively creating a 2% payroll tax increase in 2013 on the first $113,700 of earned income for every taxpayer, whether employee or self-employed.  Many employees have already felt the effect of this increase through reduced paychecks. For those who are self-employed, the increase will affect any 2013 quarterly estimates that may be required.

It is significant to note that this legislation had no impact on several other tax provisions that took effect on January 1 as part of health care reform.   The Medicare portion of the payroll tax has been increased by 0.9% on earned income for taxpayers with adjusted gross income exceeding certain threshold amounts. These threshold amounts are, generally, $200,000 for single filers, $250,000 for taxpayers that are married and file jointly, and $125,000 for taxpayers that are married and file separately.  In addition, a new Medicare surtax of 3.8% will be imposed on the lesser of a taxpayer’s net investment income, or the amount by which modified adjusted gross income exceeds the above threshold amounts. Another provision that the health care legislation implemented was an increase of the itemized deduction floor for unreimbursed medical expenses from 7.5% to 10%. For those who reach the age of 65 by the end of years 2013 through 2016, the floor remains at 7.5%.

Also not addressed by the legislation was the corporate income tax rate.  However, since most businesses in America are conducted as a proprietorship or flow-through entity (such as an “S” corporation, partnership or limited liability company), through which business income is reported by and taxed to the individual owners, the new legislation is likely to have a profound impact on American business.

II.   Permanent Provisions of the New Legislation

Individual Tax Rates.  Beginning in 2013, the income brackets will generally remain the same and the tax rates will stay at 10%, 15%, 25%, 28%, 33% and 35% for most taxpayers.  A new 39.6% rate will apply for taxable income above $450,000 for joint filers and surviving spouses, $425,000 for heads of household, $400,000 for single filers, and $225,000 for married taxpayers filing separately.  These dollar amounts are inflation-adjusted for tax years after 2013.

Capital Gains and Dividends.  Beginning in 2013, the top rate for capital gains and dividends will rise to 20% (up from 15%) for taxpayers who fall within the new 39.6% income tax bracket. For taxpayers whose ordinary income is generally taxed at a rate below 25%, capital gains and dividends will continue to be subject to a 0% rate.  Taxpayers subject to a 25% or greater rate on ordinary income, but whose taxable income levels fall below the $400,000/$450,000 thresholds, will continue to be subject to a 15% rate on capital gains and dividends.  For those taxpayers who meet the threshold amounts for the 3.8% Medicare surtax, discussed above, the marginal rates on capital gains and qualified dividends will be either 18.8% (for those taxed at the 15% level) or 23.8% (for those taxed at the 20% level.)

Personal Exemption Phase-Out.  Beginning in 2013, the Personal Exemption Phase-out (PEP), which had previously been suspended, is reinstated with a starting threshold of $300,000 for joint filers and surviving spouses, $275,000 for heads of household, $250,000 for single filers, and $150,000 for married taxpayers filing separately.  Under the phase-out, the total amount of exemptions that can be claimed by a taxpayer subject to the limitation is reduced by 2% for each $2,500 (or portion thereof) by which the taxpayer’s adjusted gross income exceeds the applicable threshold. These dollar amounts are inflation-adjusted for tax years after 2013.

Itemized Deduction Phase-Out.  Beginning in 2013, the “Pease“ limitation on itemized deductions, which had previously been suspended, is reinstated with a starting threshold of $300,000 for joint filers and surviving spouses, $275,000 for heads of household, $250,000 for single filers, and $150,000 for married taxpayers filing separately.  Thus, for taxpayers subject to the “Pease” limitation, the total amount of itemized deductions is reduced by 3% of the amount by which the taxpayer’s adjusted gross income exceeds the threshold amount, with the reduction not to exceed 80% of the otherwise allowable itemized deductions.  These dollar amounts are inflation-adjusted for tax years after 2013.

AMT Exemption Increase.  Effective retroactively for tax years beginning after 2011, the new legislation permanently increases the AMT exemption amounts to $50,600 for unmarried taxpayers, $78,750 for joint filers and $39,375 for married persons filing separately.  In addition, for tax years beginning after 2012, the exemption amounts are indexed for inflation.

Nonrefundable Personal Credits.  Effective retroactively for tax years beginning after 2011, taxpayers may now offset both regular tax and AMT by nonrefundable credits, such as the adoption credit, child credit, savers’ credit, residential energy efficient property credit, non-depreciable property portions of the alternative motor vehicle credit, qualified plug-in electric vehicle credit, and the new qualified plug-in electric drive motor vehicle credit.

Estate and Gift Tax.  Extended by the new legislation is the estate and gift tax exclusion amount of $5 million.  This amount is indexed for inflation ($5.12 million in 2012).  However, the top tax rate increased from 35% to 40% as of January 1, 2013.  Also made permanent by the new legislation is the estate tax portability election, which allows the unused portion of the exemption of a deceased spouse to be added to the exemption amount of the surviving spouse.

III.  Temporary Business Provisions of the New Legislation

Bonus Depreciation.  The 50% bonus depreciation has been extended for qualified property acquired and placed in service before January 1, 2014.  Also extended through 2013 are the special rules allowing for qualified leasehold improvement, qualified restaurant and qualified retail improvement property to be depreciated over 15 years rather than the standard 39 years.  Qualified leasehold improvements will qualify for the 50% bonus depreciation, as will qualified restaurant and qualified retail improvement property that also meets the definition of a qualified leasehold improvement.  The new law also extends the election by C corporations to forego bonus depreciation in exchange for an increase to the AMT credit limitation.

Special Depreciation for Cars and Trucks.  The additional first-year depreciation of $8,000 has been extended for qualifying vehicles placed in service by December 31, 2013.  For passenger autos, the maximum first-year deduction is now $11,160.  For light trucks, the maximum first-year deduction is now $11,360.

Section 179 Expensing.  Effective retroactively for tax years beginning in 2012 and extending through tax years beginning in 2013, the maximum Section 179 expense is restored to $500,000.  The maximum property acquisition limits are also restored to $2,000,000 for the same tax periods.  Off-the-shelf computer software continues to be eligible for Section 179 expensing.  In addition, up to $250,000 of qualified leasehold improvement, qualified retail improvement, or qualified restaurant property may be expensed under Section 179 through tax years beginning in 2013.

Research Credit.  The credit has been extended for qualifying amounts paid or accrued before January 1, 2014.  The rules have also been liberalized to allow for the inclusion of certain qualifying expenses incurred by a predecessor upon the acquisition of a trade or business or separate business unit.

Work Opportunity Tax Credit.  An employer hiring a worker from a targeted group is eligible for a credit equal to 40% of first year wages (up to $6,000 per employee).  The credit is available in connection with individuals who begin work before January 1, 2014.

Reduction in Recognition Period for “S” Corporation Built-In Gains.  The new law provides that for the purpose of determining the net recognized built-in gain for tax years beginning in 2012 or 2013, the recognition period is the five-year period beginning with the first day of the first tax year for which the corporation was an “S” corporation.

IV.   Other Temporarily Extended Business Provisions

• Exclusion of 100% of Gain on Certain Small Business Stock
• Lower Shareholder Basis Adjustments for Charitable Contributions by “S” Corporations
• Seven-Year Write Off for Motorsport Racing Track Facilities
• Indian Employment Credit
• Differential Wage Payment Credit for Employers
• Enhanced Deduction for Food Inventory
• New Markets Tax Credit
• Expensing Election for Costs of Film and TV Production
• Allowance of Domestic Production Activities Deduction for Puerto Rico
• Subpart F Exception for Active Financing Income
• Look-Through Rule for Payments Between Related CFCs under Foreign Personal Holding Company Income Rules
• Special Rule for Payments to a Charity From a Controlled Entity
• Empowerment Zone Tax Breaks
• Qualified Zone Academy Bond Limitation
• Exemption for RIC Interest-Related Dividends and Short-Term Capital Gains Dividends
• Treatment of RIC As Qualified Investment Entity
• Railroad Track Maintenance Credit
• Mine Rescue Team Training Credit
• Accelerated Depreciation for Qualified Indian Reservation Property
• Election to Expense 50% of the Cost of Advanced Mine Safety Equipment
• Tax Exempt Bond Financing for the New York Liberty Zone
• Production Tax Credit for Facilities that Produce Energy from Wind Facilities
• Credits for Alternative Fuel Vehicle Refueling Property
• Credits for Cellulosic Biofuel Production
• Credits for Biodiesel and Renewable Diesel
• Production Credits for Indian Coal Facilities
• Credit for Energy-Efficient New Homes
• Credit for Energy-Efficient Appliances
• Allowance for Cellulosic Biofuel Plant Property
• Special Rules for Sales of Electric Transmission Property
• Tax Credits and Outlay Payments for Ethanol

This article is intended to offer helpful, detailed information to individuals and businesses potentially impacted by the 2012 American Tax Payer Relief Act.  HBK LLC will continue to update our clients and interested consumers about how this and other upcoming changes in state and federal tax legislation may affect them.

Keith A. Veres, CPA is a Principal with Hill, Barth & King LLC in the Fort Myers, Florida office.   Keith has worked as a CPA helping clients in Fort Myers, Cape Coral and other Southwest Florida communities for the last 8 years.  He has been with Hill, Barth & King LLC, a top 75 accounting firm, since 1991.  Keith can be contacted by phone at 239-482-5522 or email at kveres@hbkcpa.com.

Article contributors also included Mark R. Giallonardo, JD, LLM, a Principal in the Naples, Florida office of Hill, Barth and King LLC, and Amy Dalen, JD, a Supervisor in the Naples, Florida office of Hill, Barth and King LLC.

Here is a summary of the most relevant provisions of the new law.

Income tax rate increase. A 39.6% rate (up from 35 percent) would be imposed on single individuals with taxable income of more than $400,000 a year and for joint filers with taxable income over $450,000.  These are increases from the scheduled $200,000 and $250,000 thresholds.  IRS issued new withholding tables shortly before the Senate vote, but will need to re-issue the withholding tables now that the legislation has passed.

Payroll tax holiday ends. The two-percent cut in the Social Security tax for all earners up to the Social Security wage base ($113,700) would not be extended into 2013.  Employees will see an immediate decrease in their first paycheck in 2013.

Alternative minimum tax patched.  The Act permanently fixes the AMT by increasing the AMT exemptions and adjusting the AMT exemption for inflation retroactive to 2012.  This change will prevent millions of taxpayers from an unexpected substantial increase to their taxes in 2012.  Personal credits would be allowed against the AMT.  The AMT exemption amounts for 2012 would be as follows:

Joint:   $78,750 (increased from $45,000)
Single: $50,600 (increased from $33,750)

Dividends and capital gains. The maximum capital gains tax will rise from 15 percent in 2012 to 20 percent in 2013 for single individuals with taxable income over $400,000 and joint filers with taxable income over $450,000.  Dividends and capital gain tax rate will remain at 15% for taxpayers below these thresholds.  The 15% and 20% capital gain and dividend tax rates will also apply for AMT purposes.

Pease and personal exemption phaseouts. The Pease itemized deduction phase out and Personal Exemption Phase-out (PEP) would be reinstated, but with different starting thresholds: $300,000 income for the Pease limitation and $250,000 for the PEP.  This will raise the effective income tax rate for higher income taxpayers by about 1 percentage point.

Estate tax. The estate, gift and generation skipping tax regime would continue to provide an inflation-adjusted $5 million exemption (effectively $10 million plus for married couples) but will be applied at a higher 40 percent rate (up from 35 percent in 2012).  The portability of unused estate tax exemption has been made permanent.

Personal tax credits. The $1,000 child tax credit, the enhanced earned income tax credit and the enhanced American Opportunity college tuition tax credit will all be extended until 2017.

Individual Extenders.  The following, among others, would be extended through 2013:

• Sales tax deduction
• Tuition deduction for qualified tuition and related expenses
• Tax-free distribution from IRAs to charities – Special rules:
  • Any qualified charitable distribution made after 12/31/12 and before 2/1/13 shall be deemed to have been made on 12/31/12
  • Any portion of a distribution from an IRA to the taxpayer made after 11/30/12 and before 1/1/13 may be treated as a qualified charitable distribution if the taxpayer transfers cash to qualified charities before 2/1/13.
• Deduction of capital gain real property for conservation purposes
• $250 deduction for elementary and secondary school teachers
• Exclusion of income of discharge of qualified personal residence debt
• Mortgage insurance premium deduction

Business Extenders.  The following, among others, would be extended through 2013:

• Extend the 50% bonus depreciation.
• Extending the $500,000 Section 179 expensing limitation to 2012 and 2013 and the treatment of certain real property as Section 179 property
• The research tax credit and the production tax credits.
• The New Markets tax credit and allow unused credits to carryover until 2018
• Employer wage credit for employees who are active duty military
• Work Opportunity tax credit.
• 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements and qualified retail improvements.
• Enhanced charitable deduction for contributions of food inventory.
• 100% exclusion of gain on certain small business stock.
• Basis adjustment to stock of S corporation making charitable contributions of property.
• Reduction in S corporation built-in gain period to 5 years

Look for continued updates from Hill, Barth & King LLC on this evolving tax and financial story.  As always, we remain committed to keeping you informed on developments that affect your personal and business finances and taxes.  Be assured that HBK LLC is proactively working to create strategic plans to ensure the best tax and financial solutions available to our clients.  We look forward to working with you in 2013 and beyond. Please contact a professional at HBK with any questions (239-482-5522).

Background
HCERA imposed a 3.8 percent surtax on NII above certain statutory amounts. The surtax, under new Code Sec. 1411, is effective for tax years beginning after December 31, 20 12, and will apply to individuals, estates and trusts.

The 3.8 percent rate applies to the lesser of NII or the amount of modified adjusted gross income (MAGI) over a threshold amount. For individuals, the thresholds are $250,000 for married taxpayers filing jointly; $200,000 for single taxpayers; and $125,000 for married taxpayers filing separately. For estates and trusts, the threshold is the dollar amount for the highest tax bracket for an estate or trust ($11,650 for 2012; $1 1,950 for 2013). The threshold is not adjusted for inflation for individuals.

NII includes, but is not limited to, interest, dividends, capital gains, rents, royalties, nonqualified annuities, income from businesses that are passive activities to the taxpayer, and income from the trading of financial instruments or commodities. Other items are not included in NII, such as wages, self-employment income, Social Security benefits, tax-exempt interest, operating income from a non passive business, and distributions from celtain retirement plans and arrangements. To arrive at NII, gross investment income is reduced by properly allocable deductions. According to the FAQs posted on the IRS website, examples of properly allocable deductions include investment income expenses, advisory and brokerage fees, expenses related to rental and royalty income, and state and local income taxes allocable to items included in NII. The NII tax will be reported on, and paid with, the applicable income tax return: Form 1040 for individuals, and Form 1041 for estates and trusts. The surtax is subject to the estimated tax provisions; the IRS recommended that taxpayers adjust withholding or estimated payments to avoid underpayment penalties. The surtax is not deductible in computing any other tax under Subtitle A of the Tax Code (Income Taxes).

Gain
Because the provisions of Chapter I (Code Secs. 1- 1400) apply, unless otherwise provided, gain that is not recognized under Chapter 1 is not recognized under Code Sec. 1411. Examples include gain under the installment method, gain from like-kind exchanges or involuntary conversions, and gain from the sale of a principal residence (up to the statutory exclusion). Deferral and disallowance provisions, as well as deduction carryovers, also apply.

The income tax rules in Chapter 1 generally determine whether there has been a disposition of property under Code Sec. 1411. Amounts recognized as mark-to-market income are NII. Losses allowable from capital assets are permitted to offset an individual’s gain from non-capital assets.

Individuals, estates and trusts
The tax applies to any individual, except for a nonresident alien (NRA). A U.S. citizen or resident married to an NRA is treated as married filing separately, unless the NRA elects to be treated as a U.S. resident. The tax applies to residents of non-mirror code U.S. territories, unless they are NRAs.

The tax applies to ordinary trusts. While it does not apply to business trusts or common trust funds, it may apply to pooled income funds. The tax does not apply to tax-exempt trusts, even if the trust is taxable on unrelated business income. It does not apply to grantor trusts, although grantor trust income is treated as received directly by the grantor and may be subject to the tax.

While a charitable remainder trust is not subject to the tax, distributions may be NII to the noncharitable beneficiary, equal to the lesser of trust distributions or the current and accumulated NII of the trust. As a general rule, foreign estates and trusts are not subject to the tax; however, U.S. persons may be taxable on trust income accumulated for or distributed to them. A bankruptcy estate of an individual is treated as a married taxpayer filing separately, and must apply an NII tax threshold of $125,000, the IRS explained.

NII exceptions
Items normally considered NII, such as dividends or interest, are not NII if they are derived in the ordinary course of a trade or business. This exception requires that the business not be a passive activity, with respect to the taxpayer, and not be trading in financial instruments or commodities. For a sole proprietor or disregarded entity, this test applies at the individual level. For a taxpayer owning an interest in a passthrough entity, the passive activity test is applied at the taxpayer level, but the financial trading test is applied at the entity level.

If you have any questions or need assistance with your taxes or accounting, contact Hill, Barth & King in the Fort Myers, Florida office at 239-482-5522 and ask to speak with one of our Certified Public Accountants.

Proposed regulations, which would take effect for sales of taxable medical devices after Dec. 31, 2012, would make clear that the existing rules governi ng Chapter 32 manufacturers excise taxes (statutory, regulatory, lRS guidance, and published case law) apply to the Code Sec. 4191 excise tax on medical devices.

Taxable medical devices defined.
“Taxable medical device”, for the purposes of the manufacturers excise tax, means any device, as defined in Sec. 201(h) of the Federal Food, Drug, and Cosmetic Act (FFDCA) (21 USC § 321), intended for humans, unless excepted from tax as described below.

FFDCA Sec. 201(h) provides that a device is an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other si milar or related mticle, including any component, part, or accessory, that is:

• recognized in the official National Formulary, or the United States Pharmacopeia, or any supplement to them;
• intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in humans or other animals; or
•  intended to affect the structure or any function of the body of humans or other animals, and that doesn’t achieve its primary intended purposes through chemical action within or on the body of humans or other an imals and that isn’t dependent upon being metabolized for the achievement of its primary intended purposes.

Exemptions from the excise tax on medical devices. The following devices are specifically exempted from the above definition of taxable medical device subject to the manufacturers excise tax:

• eyeglasses;
• contact lenses;
• hearing aids; and
• any other medical device the IRS determines to be of a type that is generally purchased- including over the Internet- by the general public at retail for individual use, i.e, an item that meets the “retail exemption” discussed below.

Under the above-described proposed regs, for purposes of the excise tax on medical devices, a device defined in FFDCA Sec. 201(h) that’s intended for humans would be defined as one that’s listed as a device with the Food and Drug Administration (FDA) under FFDCA Sec. 510(j) and 21 CFR Palt 807, under FDA requirements. That is, the definition of a “taxable medical device” would be tied to the FDA’s listing requirements for devices. And so, a device that’s listed with the FDA under FDA requirements would be a taxable medical device, unless it falls within an exemption from the tax under Code Sec. 4191 , such as the retail exemption (see below).

Under the proposed regs, if a device isn’t listed as a device with the FDA but the FDA determines that the device should have been listed as a device, then the device would be deemed to be listed as a device with the FDA as of the date the FDA notifies the manufacturer or importer in writing that corrective action with respect to listing is required.

Retail exemption.
In add ition to the specific items above that are excepted from the definition of taxable medical devices and so are exempt from the manufacturers excise tax, also excepted from that definition and exempted from tax are any other medical devices determined by the IRS to be of a type that are generally purchased-including on the Internet-by the general public at retail for individual use (the so-called “retail exemption” or “retail exception”).

Congress says that the retail exemption isn’t limited by device class as defined in FFDCA Sec. 513. For example, items purchased by the general public at retail for individual use could include Class I items such as certain bandages and tipped applicators, Class II items such as certain pregnancy test kits and diabetes testing supplies, and Class III items such as certain denture adhesives and snake bite kits. These items would be exempt only if they are generally designed and sold for individual use. Congress says that it expects the IRS to publish a list of medical device classifications that are of the type generally purchased by the general public at retail for individual use.

Under the above-described proposed regs, a device would be considered to be of a type generally purchased by the general public at retail for individual use if:

• it is regularly available for purchase and use by individual consumers who aren’t medical professionals, and
• the device’s design demonstrates that it isn’t primarily intended for use in a med ical institution or office or by a medical professional.

Whether a device satisfies the above definition would be evaluated based on all the relevant facts and circumstances. Factors relevant to the evaluation are listed below. There may be facts and circumstances that are relevant in evaluating whether a device is of a type generally purchased by the general public at retail for individual use, in addition to those listed below. The fact that a device is of a type that requires a prescription isn’t a factor in the determination of whether the device falls under the retail exemption. The proposed regs provide that the following factors would indicate that a device is of a type that’s regularly available for purchase and use by individual consumers who aren’t medical professionals:

1. Consumers who aren’t medical professiona ls can purchase the device tlU’ough retail businesses that also sell items other than medical devices, such as drug stores, supermarkets, and similar vendors.
2. Consumers who aren’t medical professionals can use the device safely and effectively for its intended medical purpose with minimal or no training from a medical professional.
3. The device is classified by the FDA under Subpart D of 21 CFR Part 890 (Physical Medicine Devices).

If you have any questions or need assistance with your taxes or accounting, contact Hill, Barth & King in the Fort Myers, Florida office at 239-482-5522 and ask to speak with one of our Certified Public Accountants.

Click here to view our Individual Tax Planning Letter

Click here to view our Business Tax Planning Letter

Effective July 1, 2012, applicants seeking prequalification to bid on road and bridge construction projects up to $1,000,000 can apply by submitting financial statements reviewed by a Certified Public Accountant.  All other requirements of Rule 14-22, F.A.C. still apply.  Therefore, the application and financial statements must be submitted within 4 months of the applicant’s fiscal year end.  Applications must be submitted online at the following URL:  https://www3.dot.state.fl.us/ContractorPreQualification/

A reviewed financial statement is much cheaper to prepare than an audited statement. This new rule should enable many of the smaller contractors to bid FDOT as the prime contractor. The 4 month rule essentially requires December year end contractors to submit both a December 2012 reviewed statement and a reviewed interim statement within 4 months of the pre-qualification application. Many December year end contractors may want to wait until December 2013 to pre-qualify with only one reviewed financial statement that must be submitted by April 30, 2013.

Many FDOT projects fall within the $250,000 to $1,000,000 range.

Contact Hill, Barth & King regarding this new opportunity by calling 239-482-5522 or email kveres@hbkcpa.com.

May 23, 2012 – IMA CFO Breakfast Roundtable – Collier County
May 24, 2012 – IMA CFO Breakfast Roundtable – Lee County
Sponsored by HBKS Wealth Advisors

Most CFOs have some responsibility for their company’s qualified retirement plan. Therefore, a CFO’s understanding of how the U.S. Department of Labor’s new fee disclosure regulations will impact your company, employees, and plan’s operation is critically important.

Become informed and take action now or you may put your company’s qualified retirement plan at risk for committing a prohibited transaction, which may trigger interest, penalties and endanger the viability of the plan. A change of this scale has never occurred before in the pension industry and has the potential to be disruptive to the marketplace. On a national basis, as many as 483,000 retirement plans and 72 million participants will be affected.

These two regulations including ERISA Regulation 408(b)(2) which goes into effect on July 1st and ERISA Regulation 404(a)(5) which takes effect on August 30th will shine a spotlight on fees charged by service providers against plan assets that impact participant returns. Together, they require specific disclosures to both sponsors of retirement plans and participants. After plan sponsors receive these disclosures on July 1, they will have to make an assessment as to whether not these fees are reasonable. Additionally, for the first time ever, actual hard dollar fees taken from participant accounts for various services will be disclosed to participants beginning this year.

At this roundtable, Dean Piccirillo will discuss the most pertinent aspects of these regulations which require close attention by CFOs and plan sponsors, specifically those going into effect this summer. Mr. Piccirillo is a Principal and Senior Financial Advisor who also heads the Retirement Plan Unit at HBKS Wealth Advisors, a regional firm affiliated with top 100 accounting firm Hill, Barth & King.

There is no charge to attend, but reservations are required.  Please click on one of the links at the top of the article for the Collier or Lee County event, or visit www.swflima.org.

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