CLIENT NEWS

Chris Dorsey

Chris Dorsey, of Dorsey Builders, is a co-host of the new sports talk show on Maddog 93.9 FM from 6 to 8pm.  The show is called, “The Front Row with Matt and the Dorsey Boys”.

Click here to read the full Article

NEWS FROM BP&S

Welcome back, Shellie
This month, just in time for busy season, we welcomed back Shellie Arnold.  Shellie took an extended (almost ten month) maternity leave.  We are very happy to have Shellie back.

New Hires
The Firm is happy to welcome the following people, who started with us in January:

Beth Watkins
Beth is working with us as an audit intern during busy season.  Originally from Lynchburg, VA, Beth graduated in December from the University of South Carolina with an undergraduate degree in finance.  After working with BP&S for a few months, she will be moving to Greenville, SC to begin a career with Fluor Corp. 

Chris Ward
Chris has joined our tax staff on a part-time basis until May, when he finishes his last semester at USC.  He will join us full-time upon graduation.

Chris is a native of Ft. Worth, Texas and flew in the Air Force (including Desert Storm) from 1988-1992.  After leaving the Air Force, Chris worked as a software engineer until 2003, when he decided that accounting was a sexier career and he went back to school.  Chris and his wife, Shannon, live in Columbia.

Brian Keach Jordan
Keach is a home-grown Columbia boy.  He graduated with a degree in history from the University of South Carolina but decided to shift careers and go into accounting.  He graduated in December 2005 with a Masters in Accounting (taxation focus).

Keach has joined our tax staff.

Joseph Graham
Joe is an intern, working with our tax staff.  He is currently a senior at Clemson, majoring in accounting.  He will work with us full-time through busy season and then return to school.

Joe previously received an undergraduate degree in history from the College of Charleston.  His studies were concentrated on Pre-American Revolution in the Chesapeake Bay region.

Joe has been a member of the PDGA: Professional Disc Golf Association since 2004 (wacky tax guy).

Daniel Nelson
Daniel is also an intern, working with our tax staff.  He is currently a senior at Clemson, majoring in financial management.

Daniel enjoys playing sports like tennis and basketball.  During the summer he volunteers for mission work with an organization called World Changers, where they go to different cities and do construction projects for low income citizens to help improve their housing.

TECHNICAL ISSUES

Wireless Networks

Without wireless security options configured in your wireless router, an eavesdropper within your wireless range may be able to access your computer and the data that is being transmitted over it.  Wireless routers provide WEP encryption for wireless security. Make sure you enable it. All router brands have different configuration screens, so there is no “one” way to configure it. Best advice is to consult your manual or call your router manufactures support line. It should be a free support call.

If you are interested in reading about IT services provided by BP&S, go to our Computer Hardware & Software Consulting web page.

Many business tax law changes go into effect in 2006 (from RIA, with permission)

Along with the numerous indexing changes that go into effect in 2006, many other important tax changes also go into effect in 2006. These non-indexing changes are primarily the result of the Gulf Opportunity Zone Act of 2005 (GO Zone Act), the Katrina Emergency Tax Relief Act of 2005 (KETRA), and the Energy Tax Incentives Act of 2005 (Energy Act). However, they are also the result of earlier legislation with phased-in changes, such as the Economic Growth and Tax Relief Reconciliation Act of 2001 and IRS guidance. This article carries an overview of the non-indexing changes for businesses for 2006.

Broad-based Tax Changes for Businesses

Electronic filing of returns. Corporations that have assets of $50 million or more and file at least 250 returns annually must electronically file their income tax returns (Form 1120, U.S. Corporation Income Tax Return, or Form 1120S, U.S. Income Tax Return for an S Corporation) for tax years ending on or after Dec. 31, 2005. (Beginning with tax year 2006 returns, e-filing is mandatory for corporations, including electing small business corporations, that have $10 million or more in assets and file at least 250 returns annually.) 

Taxes paid by credit card. Beginning Jan. 1, 2006, businesses filing Form 940, Employer's Federal Unemployment Tax Return, and Form 941, Employer's Quarterly Federal Tax Return, can pay any balance due using a credit card over the phone or Internet. Credit card payments—which can be made through either of two authorized service providers who are permitted to charge a fee based on the amount of the payment—can be made for the balance due on the current return. In addition, Form 941 filers can make credit card payments for up to three prior quarters. The service providers give a confirmation number as proof of payment, and payments are effective on the date the charge is authorized. (SSA/IRS Reporter, Fall 2005) However, tax deposits cannot be paid by credit card. ( IRS Publication 3452, Oct. 2005 )

Employers' Annual Federal Tax Program. Under new temporary regs that are effective on Jan. 1, 2006, employers who receive written notification from IRS of their qualification for the new Employers' Annual Federal Tax Program generally file a Form 944, Employer's Annual Federal Tax Return, rather than Form 941, Employer's Quarterly Federal Tax Return. IRS says that the new Form 944 Program will significantly reduce tax filing burdens for nearly 950,000 small business owners because they will only have to file the new Form 944 once a year rather than filing Form 941 four times a year.

Withholding on nonresident alien employees. For wages paid on or after Jan. 1, 2006, employers must calculate income tax withholding on wages of nonresident alien employees (except for students and business apprentices from India) by adding an amount to their wages solely for purposes of calculating their income tax withholding for each payroll period. The specific amount depends on the payroll period. Employers determine income tax withheld by applying the Publication 15 tables to the sum of the wages paid for the payroll period plus the additional amount.

Roth 401(k). For tax years beginning after 2005, an employers's Code Sec. 401(k) plan or Code Sec. 403(b) annuity can include a qualified Roth contribution program (i.e, a “Roth 401(k)”) that allows participants to elect to have all or part of their elective deferrals treated as Roth contributions. These deferrals will not be excludable from gross income (i.e., they'll be currently taxed). The annual dollar limit on a participant's Roth contributions will be the applicable Code Sec. 402(g) limitation on elective deferrals (e.g., $15,000 in 2006), reduced by the elective deferrals that he doesn't designate as Roth contributions. ( Code Sec. 402A ) However, final regs on this EGTRRA provision carry a few surprises that will complicate designated Roth contributions and may make them less attractive to plan participants, including making the contributions subject to the lifetime required minimum distribution (RMD) rules that apply to non-pension qualified plan payouts.

Final 401(k) regs. Taxpayers must apply final Code Sec. 401(k) regs, which cover enrollment, timing, withdrawal restrictions and other items, for plan years beginning on or after Jan. 1, 2006. (The regs could have been applied to any plan year ending after Dec. 29, 2004, if the regs were applied in their entirety.) These comprehensive regs cover the requirements (including the nondiscrimination requirements) for cash or deferred arrangements (CODAs) under Code Sec. 401(k) and matching contributions and employee contributions under Code Sec. 401(m) . The regs generally adopt proposed regs issued in 2003, with a number of changes and modifications, and incorporate numerous statutory changes and administrative developments in the Code Sec. 401(k) area since final regs were last published.

Six-month automatic extension for most 2005 returns. IRS has issued new temporary regs that allow most businesses to request a six-month automatic filing extension on a single form, without a reason or even a signature, for a tax year which ends on or after Dec. 31, 2005. The regs are generally helpful, in many cases eliminating the time and expense of filing a second extension, but may operate to increase filing burdens for partners (who need Schedules K-1 from their partnerships) because now partners and partnerships may both apply for a six-month automatic extension. While the regs don't change the rules regarding filing extensions for corporations, taxpayers filing the following returns will also use Form 7004 to request an automatic six-month extension of time to file: Form 2758, Application for Extension of Time To File Certain Excise, Income, Information, and Other Returns; Form 8736, Application for Automatic Extension of Time To File U.S. Return for a Partnership, REMIC, or for Certain Trusts; and Form 8800, Application for Additional Extension of Time To File U.S. Return for a Partnership, REMIC, or for Certain Trusts.

Sharp increase in IRS user fees. On Feb. 1, 2006, IRS will dramatically increase select user fees. Many of these increases are considerable. For example, a new $50,000 flat fee, instead of the previous $1,000 to $10,000 fee, will apply for pre-filing agreements for corporate taxpayers. Advance Pricing Agreements, which currently cost from $5,000 to $25,000, will cost from $22,500 to $50,000.

Tax Changes for Businesses Due to Expired Tax Provisions

A number of tax provisions affecting businesses expired at the end of 2005. While many expired provisions may eventually be revived and extended under proposed legislation, there is now no way to know for sure, which, if any, of the following provisions will be extended, and whether they'll be extended retroactively (i.e., as if they never expired):

Investment and employment provisions:

... The research and experimentation tax credit has terminated for amounts paid or incurred after 2005.

... The work opportunity tax credit (WOTC) isn't available for any amount paid to an employee who begins work for the employer after Dec. 31, 2005. However, this termination date doesn't apply to Hurricane Katrina employees, who are treated as member of a targeted group for purposes of the WOTC.

... The welfare-to-work tax credit doesn't apply to individuals who begin work for the employer after Dec. 31, 2005.

... The Indian employment tax credit doesn't apply for tax years beginning after 2005.

... Accelerated depreciation for business property on an Indian reservation doesn't apply for property placed in service after Dec. 31, 2005.

... 15-year straight-line cost recovery for qualified leasehold improvements and qualified restaurant improvements aren't available for property placed in service after Dec. 31, 2005.

Energy and environment provisions:

... Expensing of “brownfields” remediation costs doesn't apply for expenses paid or incurred after Dec. 31, 2005.  However, expensing is still allowed for qualified remediation expenses in connection with a contaminated site located in the GO Zone (as defined in Code Sec. 198(b) ) that's paid or incurred during the period beginning on Aug. 28, 2005 and ending on Dec. 31, 2007.

... The rule suspending the 100%-of-net-income limitation on percentage depletion for oil and gas from marginal wells isn't available for tax years beginning after Dec. 31, 2005.

Miscellaneous provisions:

... The deduction for corporate donations of computer technology doesn't apply for contributions made during any tax year beginning after Dec. 31, 2005.

... Incentives for investment in the District of Columbia: designation of enterprise zone (expired after Dec. 31, 2005), tax-exempt economic development bonds (doesn't apply to bonds issued after Dec, 31, 2005), and zero percent capital gains rate (doesn't apply for DC business zone stock, partnership interests, or business property acquired after Dec. 31, 2005).

Energy Act Changes for Businesses

New deduction for energy efficient commercial buildings. For property placed in service after Dec. 31, 2005, and before Jan. 1, 2008, taxpayers can claim a deduction for expenses incurred for energy-efficient commercial buildings that meet a 50% energy reduction standard. The deduction is a major incentive for current building owners to upgrade their systems and for those building new structures to design them in an energy-efficient manner. The maximum energy efficient commercial building deduction is equal to $1.80 per building square foot (60¢ per building square foot, for certain separate building systems), less the aggregate amount of these deductions allowed for the building for prior years. Among other requirements, the property must be depreciable or amortizable; installed on or in any building located in the U.S. as part of (a) the interior lighting systems, (b) the heating, cooling, ventilation, and hot water systems, or (c) the building envelope; and be certified as being installed as part of a plan designed to reduce the total annual energy and power costs with respect to the interior lighting systems, heating, cooling, ventilation, and hot water systems of the building by 50% or more.

New business tax credit for contractors building new energy efficient homes. An eligible contractor can claim either a $2,000 or $1,000 credit (depending on the type of home and the energy reduction standard it meets) for each qualified new energy efficient home that the contractor builds and which is acquired by a person from the contractor for use as a residence.   The credit applies to homes which are purchased after Dec. 31, 2005 and before Jan. 1, 2008. For a structure to qualify for the credit:

... it must be located in the U.S.;

... its construction (which includes substantial reconstruction and rehabilitation) must be substantially completed after Aug. 8, 2005;

... it must meet specific energy saving requirements;

... it must be built by the eligible contractor (the person who constructed the home, or the manufacturer, if the structure is a manufactured home); and

... it must be acquired (which includes purchases) by a person from the eligible contractor for use as a residence during the tax year.

There is no requirement that the property used as a residence be the person's principal residence. Thus, assuming the other requirements of Code Sec. 45L are met, an eligible contractor may claim the credit for vacation homes that it constructs and that are acquired by other persons for use as second homes.

New manufacturers' tax credit for energy efficient dishwashers, clothes washers, and refrigerators manufactured in 2006 and 2007. In general, the new tax credit (which is part of the general business credit) depends on the type of appliance and how much energy it saves. The maximum tax credit is $100 per dishwasher or clothes washer, and $175 per refrigerator.

New alternative motor vehicle credit. A taxpayer may be able to claim a credit for buying a hybrid or lean burn vehicle in 2006. The tax credit may be as much as $3,400 for those who buy the most fuel-efficient vehicles. The full amount of the allowable credit is available only up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th hybrid and advanced lean-burn technology motor vehicle. The credit is allowed to the vehicle owner, including the lessor of a vehicle subject to a lease.  There's also a new credit under Code Sec. 30C for 30% of the cost of alternative fuel vehicle refueling property. The credit can't exceed $30,000 for depreciable property and $1,000 for other property. Both these credits can also be personal credits. The portion of the credit attributable to property of a character subject to depreciation is treated as a part of the general business credit; the remainder is a personal credit. The new credits replace the deduction for certain clean fuel vehicles and clean fuel property that was available for property placed in service before 2006.

Nonconventional fuel credit. For tax years ending after Dec. 31, 2005, the tax credit for fuel produced from nonconventional sources is, at the taxpayer's election, included in the general business credit, resulting in a 1-year carryback, 20-year carryforward for unused credits. In addition, for fuel produced and sold after 2005, this credit is extended to coke and coke gas from qualified facilities placed in service before Jan. 1, '93, or after June 30, '98, and before Jan. 1, 2010.

Renewable diesel fuel. For fuel sold or used after Dec. 31, 2005 and before Jan. 1, 2009, producers of “renewable diesel” may claim income and excise tax credits at the $1.00 rate applicable to agri-biodiesel.

Hurricane-Related Tax Changes for Businesses

Extension of bonus depreciation deadline. While one of the requirements for bonus depreciation was generally that property be placed in service before Jan. 1, 2005, certain property with a long production period and certain aircraft qualified if placed in service before Jan. 1, 2006. The GO Zone Act grants IRS the authority to extend to no later than Dec. 31, 2006, the pre-Act law bonus depreciation extended placed-in-service date for certain property (from Dec. 31, 2005), on a case-by-case basis. The authority extends only to property placed in service or manufactured in the GO Zone, the Rita GO Zone, or the Wilma GO Zone (i.e., the areas hit hardest by Hurricanes Katrina, Rita, and Wilma. In addition, the authority extends only to circumstances in which the taxpayer was unable to meet the Dec. 31, 2005 deadline as a result of Hurricanes Katrina, Rita, or Wilma.

Credit for employer-provided housing. For lodging provided during the period beginning on Jan. 1, 2006 and ending on July 1, 2006, employers providing housing to certain employees are entitled to a credit equal to 30% of the amount which is excludable from the employee's gross income. A qualifying employee may exclude from gross income up to $600 per month for the value of in-kind lodging provided to him (and his spouse or dependents) by or on behalf of a qualified employer located in the GO Zone.

Electric company's five-year NOL carryback. During any tax year ending after Dec. 31, 2005, and before Jan. 1, 2009, certain electric companies can elects 5-year carryback of net operating losses (NOLs) of up to 20% of the cost of electric transmission capital and pollution control expenses. The election applies to NOLs for a tax year ending after Dec. 31, 2002 and before Jan. 1, 2006. Thus, an NOL for a tax year ending in 2003, 2004, or 2005 is eligible for the five-year carryback period election.

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