Archive for the ‘Tax Planning’ Category

What Does The 2014 Farm Bill Mean For Your Dairy?

Wednesday, April 2nd, 2014

Nathan Shields, CPA, Jr Manager has been with the firm 6 years and spends a lot of time helping dairy clients understand accounting, taxes and the farm bill.

The 2014 farm bill was signed by President Obama on February 7, 2014. It is an expansive bill that is also known as the “jobs bill,” “innovation bill,” “research bill,” or “conservation bill.”

The two focuses of the bill are to help rural communities and provide food assistance to poor families and children. I am going to focus specifically on the impact the farm bill will have on dairies.

There is a new “Made in Rural America” initiative that will help rural businesses market their products globally. Along with the “Made in Rural America” branding, there will also be five regional forums on rural exports and an “investing in rural America” conference. It is expected that the USDA staff members in each state will be trained to help promote rural exports.

The Dairy Product Support Program (DPPSP) from the 2008 farm bill has been repealed but the permanent DPPSP from the 1949 Agricultural Act is still in effect. The Milk Income Loss Contract (MILC) has been replaced with the new Margin Protection Program for Dairy Producers. The Dairy Export Incentive Program (DEIP) is gone, effective immediately.

The farm bill moves more of the risk, and decisions to the farmer. The dairy section is no different. There are two new programs that will affect dairies. They are:

1. The Margin Protection Program for Dairy Producers (MPP). It is a voluntary program that depending on the level of protection purchased, pays out if a national benchmark for milk income over feed costs falls below the insured level.

2. The Dairy Product Donation Program (DPDP). This program requires the Secretary of Agriculture to immediately procure and distribute certain dairy products when the actual dairy production margin (ADPM) falls below the lowest margin level specified in the MPP.

The national benchmark for the MPP uses a hypothetical, but a nationally representative dairy herd. The calculation is calculated by using the national average price for all grades of milk less a factor of the cost of corn, soybean meal and alfalfa hay. The calculation is as follows:

National average of all classes of milk less 1.0278 x price of corn + 0.00735 x price of soybean meal + 0.0137 x the price of alfalfa hay. This is a calculation that is performed at a national level. It will not be calculated at a regional level. It is assumed that if the national average is “bad,” then each farm will be “bad” and qualify for the payment. They do not guarantee a specific dairy’s margin, but expect that each dairy will follow the national trend.

The cost for a $4.00 cwt income of feed cost (IOFC) is free. You may elect up to $8.00 cwt of coverage in $0.50 increments. The first 4 million pounds have a lower premium than the rest of the milk that you insure. There is also an additional 25% discount on the first 4 million pounds for producers who sign up in 2014 and 2015.

What are Some Common Red Flags that Could Prompt the IRS to Take a Closer Look?

Thursday, March 6th, 2014

Authored By: Sheri Lewis, Staff Accountant, who has worked at Cook Martin Poulson since November 2011. She recently received her Master of Accounting Degree and is in the process of taking the CPA exams.

Although the IRS will audit less than an estimated of 1% of all the individual tax returns each year, the chance of being audited is a common fear of many clients. While no one can predict with certainty who will be audited, there are some common “red flags” that could increase your chance of audit. The IRS won’t come right out and provide a list of items they consider for audit, but there have been recent articles by tax professionals that outline some key areas that past data has shown to have been more heavily scrutinized by the IRS.

Some of the common “red flags” are as follows: (more…)

My Top 10 Questions of Tax Filing Season

Friday, February 21st, 2014

Authored by David Cash, CPA, MAcc. Dave has worked in the Logan and Salt Lake City offices of CMP. He spent 2 years in the Logan office and has been in the Salt Lake City office for over 5 years. Dave specializes in oil and gas taxation, pension administration and reporting, and individual and business tax planning and compliance.

As we turn the corner and are now into the rigors of our busy season it makes me ponder on the questions that seem to be raised most often by clients and also random people that I may run into on the streets on Sundays (my day off this time of year). (more…)

American Opportunity Tax Credit Extended

Tuesday, February 4th, 2014

Authored by: Chad Lambert, staff accountant in the Logan CMP office.

The education credit known as the American Opportunity Credit (AOC) that was set to expire at the end of 2012 has been extended for five years until the end of 2017. The AOC is available for the first four years of post-secondary education to students who are enrolled, at least half time, in a program leading to a degree or certificate. Eligible taxpayers may receive a credit of up to $2,500 per student ($1,000 refundable and $1,500 non-refundable) for educational expenses paid to a qualified educational institution. This is based on a maximum of $4,000 of qualified expenses.

Although many taxpayers have benefitted from the American Opportunity Credit, not all of them include all of the expenses that can maximize the credit. (more…)

Business vs. Hobby

Wednesday, January 29th, 2014

Authored By: Tara Williams is a CPA in the Logan office of Cook Martin Poulson, P.C. Tara enjoys interacting with clients and working with them to create solutions to problems. Tara is a native of Layton and earned a bachelor’s degree in accounting from Utah State University and a master’s degree in accounting from Weber State University.

If the money you spend on your business exceeds your business income for the year, your business has incurred a loss. The good thing about having a loss is that you can use it to offset other income you may have. If your business continues to incur losses year after year, you should be aware of the hobby loss rules and how to prove to the IRS your business is not hobby.

You must report any income you earn from a hobby, and you can deduct expenses up to the level of that income. You cannot, however, write off losses from a hobby. In order for you to claim a loss, your activity must be entered into and conducted with the reasonable expectation of making a profit. If your activity generates profit three out of every five years, you are presumed to be in business to make a profit. Deducting losses from a hobby or hobby like business is a red flag to IRS auditors. The IRS is looking closely at tax returns that report losses from small businesses that could possibly be a hobby. To ensure that your business looks and acts like a business instead of a hobby, you should ask yourself the following questions.

1. Does the time and effort put into the activity indicate an intention to make a profit?
2. Do you depend on income from the activity?
3. If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
4. Have you changed methods of operation to improve profitability?
5. Do you have the knowledge needed to carry on the activity as a successful business?
6. Do you seek the advice of professionals to help you make a profit?
7. Have you made a profit in similar activities in the past?
8. Does the activity make a profit in some years?
9. Do you expect to make a profit in the future from the appreciation of assets used in the activity?

People who have lost money in their business for multiple years have been able to convince the IRS that they were in business. In one recent case, for example, the tax court ruled that a taxpayer’s music career, which had losses for seven straight years of $130,000 total and total income of only $13,000, was a business for tax purposes. With losses of that amount, how did the musician win his case?

• He was able to show the court that he had a business plan. He was in the business to make a profit and had recorded multiple CDs and original compositions.
• He showed that he had made changes to the business so that he could become profitable.
• He had substantial expertise to compose and produce music.
• He spent a substantial amount of time on his music and tried to overcome the changes in the musical industry to make a profit.

As long as your business consistently has net income, you don’t have to worry about the distinction between being a business or hobby. However, if you have been in business for several years without making a profit, you should go back to the drawing board and figure out how to change your business so that it can begin to produce profits. If you have any additional question on hobby losses, please contact any of our professionals at either our Logan or Salt Lake offices.

 

quoteCook Martin Poulson amended my taxes and got me several thousand dollars in a refund.quote

Rob Corcoran
Influence Real Estate

Utah Accountant and CPA

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