Archive for February, 2014


February 25th, 2014 No comments

A tax professional is often asked when providing tax preparation or tax planning services as to the tax consequences when an employer compensates an employee. There are three basic types of benefits currently in use for compensating the key employee. These are direct compensation; perks or non-cash fringe benefits; and deferred compensation plans. There are basic differences among these three major types of compensation, including their respective tax implications for you, as the employer, and the employee.

Direct compensation: Direct compensation is comprised of immediate pay to employees in the form of salary, cash bonuses and qualified stock bonus plans. Direct compensation differs from fringe benefits in that it typically involves cash payments or other evidences of indebtedness to the executive that can be readily negotiated or sold for cash. Direct compensation also differs from deferred compensation in that its impact is immediate (or within a year’s time) rather than delayed until some future date. Generally, employees must recognize income in the year they receive direct compensation, and employers can deduct corresponding amounts in the year they pay direct compensation.

“Perks” or non-cash fringe benefits: Perks are those benefits that most employees think of as being fringe benefits. Thus, the perks that an employer may provide its employees consist of such non-cash benefits as company cars, exercise facilities and employee cafeterias.

Perks tend to differ from direct compensation in that they typically involve the use of employer-provided facilities or reimbursement of employer-induced expenses rather than the payment of cash or its equivalent. Like direct compensation and unlike deferred compensation, perks provide an immediate economic and financial benefit to participating employees. Generally, the Internal Revenue Code provides that all perks are taxable as wages to participating employees unless the perk is specifically exempted from taxation.

Deferred compensation: Deferred compensation refers to what would otherwise be direct compensation or a perk (i.e., fringe benefit), except that it is so structured as to postpone receipt of a portion of an employee’s taxable compensation until sometime after it has been earned by the employee. Conceptually, deferred compensation plans are a type of benefit located midway between the immediate benefits of direct compensation and perks, and the long-range benefits bestowed under a retirement plan. Some employers use deferred plans as “golden handcuffs”. Since the benefit the employee will receive is delayed until some future date and the employee may run the risk of forfeiture of receiving the benefit if not employed by that certain future date, the employee has a compelling reason to stay with the employer.

A common aim of a deferred compensation plan is to shift otherwise taxable compensation Read more…



February 18th, 2014 No comments

The tax law is constantly changing. While Congress talks about tax simplification, the complexity of the law continues to escalate. The law has become so complex that even those who specialize in tax preparation and tax planning find it challenging to keep abreast of all the changes. How is it possible for those who self-prepare their returns or tax preparation firms who don’t specialize in taxation to keep abreast of the effective dates, phase-outs, and tax planning opportunities? Traps for the unwary, for both individuals and business owners, include . . .




February 11th, 2014 No comments

There is value to having a tax professional handle complex tax preparation and tax planning issues. We have heard many a taxpayer who has IRS debt problems say that rather than paying a fee to a professional who specializes in resolving IRS debts that the individual will resolve the problem himself.

With respect to criminal trials, there is an adage that says “A lawyer who represents himself has a fool for a client.”

Apparently an attorney acting on his own behalf found this adage also applies to making an offer-in-compromise (OIC) to the IRS to settle tax liabilities owed to the IRS. In the case of Fincourt B Shelton PC, TC Memo 2013-273, Dec. 59,707(M), the Tax Court found that an attorney’s payment on behalf of his professional corporation did not constitute a valid OIC for its remaining tax liabilities.

The attorney failed Read more…



February 4th, 2014 No comments

If you apply for a loan or wish to re-finance your current mortgage, the lender needs to verify your income. The lender usually does this by having you sign IRS Form 4506-T which allows the lender to obtain a copy of your tax transcripts directly from the IRS. The lender will also request that the individual applying for the loan submit the three most recent years of tax return filings. The lender will usually compare the IRS transcripts against the tax returns you supply to make sure that the returns provided to the lender were those filed by you.

Instead of rummaging through your residence to find your prior years’ IRS tax returns, calling your tax professional to obtain copies, or requesting copies from the IRS which charges a fee for this service and takes weeks to respond, the IRS is now offering a convenient, free and valuable service to taxpayers. Yes, you read that correctly, the IRS is now offering a convenient, free and valuable service to taxpayers.

You can now log onto the IRS website Read more…

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