GJ Making Inroads In DC Region
March 22, 2011 | 
Subscribe to our RSS Feed
The Montgomery County Gazette covers Glass Jacobson’s expansion into the DC Region on Tuesday, March 15, 2011. Visit the Gazette for the full story, or read on below.
Rockville merger boosts market share for CPA firm
Glass Jacobson of Baltimore makes inroads in D.C. suburbs
A longtime Baltimore-area accounting firm has made solid headway since entering Montgomery County last fall with a merger, executives said.
Glass Jacobson, which was founded in Baltimore in 1962 as a conventional certified public accounting firm, joined with the firm of Rockville accountant Douglas C. White. White is now a partner of Glass Jacobson in its Rockville office.
Glass Jacobson had thought about moving into the suburban Maryland-Washington, D.C., market, with its extensive government contracting and international business, for a couple of years, said Glass Jacobson’s president, Ed Jacobson. White, who previously had worked on projects with Jacobson, called with the merger idea about a year ago, Jacobson said.
“That’s when it clicked,” Jacobson said. “It made sense for us to associate with someone who was highly established in the area, rather than open a brand new office.” The merger was completed Nov. 1.
Clients that receive federal stimulus spending are a key target in Montgomery County, Jacobson said.
“We have been picking up more government contracting clients,” he said. “We are able to piggyback off their technical knowledge.”
Glass Jacobson’s array of services gives White’s clients a much greater range in areas such as investment management and planning and auditing, White said. In turn, White’s firm brings extensive knowledge and clients in the government contracting, nonprofit, high-tech and international areas, he said.
“It’s been a good fit,” White said.
With the merger, the Glass Jacobson-White operation has added three or four more people from the old company and is hiring, White said.
“We are able to compete now with the larger local firms,” he said. “Most of our clients before were in the $2 million to $10 million range. Now, they are in the $5 million to $75 million range.”
White is president of the executive committee of the AAA division of Integra International, an affiliation of more than 100 firms worldwide. This enables Glass Jacobson to leverage the expertise of larger firms, he said.
Sanford E. Saidman also joined the firm as a principal in January after operating his own accounting firm, Saidman Financial Services of Rockville, since 1977.
At some point, the company will likely review opening an office in Northern Virginia, perhaps in the Tysons Corner area, which is undergoing transit improvements, White said.
“That is a big high-tech and business area,” he said.
kshay@gazette.net
IRS to Examine Rental Losses More Closely
March 14, 2011 | Subscribe to our RSS Feed
The Internal Revenue Service has agreed with recommendations in a newly released government report urging the agency to increase its examinations of individual tax returns that report losses from rental real estate activity.
The report, by the Treasury Inspector General for Tax Administration, was conducted because a Government Accountability Office report in August 2008 found that at least 53 percent of individual taxpayers with rental real estate activity for tax year 2001 misreported their rental real estate activity, resulting in an estimated $12.4 billion of net misreported income.
“Given the magnitude of underreporting in our voluntary system of tax compliance, even small improvements in the IRS’s examination of tax returns with rental real estate activity could increase taxpayer compliance and generate substantial additional revenue to the federal government, helping reduce the tax gap,” said TIGTA Inspector General J. Russell George in a statement.
In its report, TIGTA recommended:
- IRS officials conduct an analysis to determine the population of tax returns with rental real estate activity that meets the criteria for inclusion in the IRS’s rental real estate Compliance Initiative Program.
- The IRS should also revise the instructions for Form 8582 to require all taxpayers with prior-year unallowed passive activity losses to submit the form with their tax return.
- The IRS ensure that the information taxpayers provide to report the net amount of income earned or losses incurred from being a real estate professional is transcribed.
IRS management agreed with all three recommendations. The IRS, in connection with the development of compliance strategies, plans to consider whether additional CIP examinations are appropriate. In addition, the IRS plans to revise the 2011 instructions for Form 8582 and transcribe the information taxpayers provide to report the net amount of income earned, or losses incurred, from being a real estate professional.
Questions?
Converting C Corps to LLCs
March 4, 2011 | Subscribe to our RSS Feed
Owners of a C corporation might consider a conversion to a pass through entity (Limited Liability Corporation) as a means to retain the limited liability and transferability of ownership that the corporate entity provides, while avoiding the double taxation of corporate earnings. Here are some basics.
Why would I convert from a C Corp to an LLC?
- Avoid double taxation: This is an important consideration when the owners of a successful entity want to receive tax-favored distributions of the business profits.
- Retain limited liability protection: Conversion to a general partnership (as opposed to an LLC) may not be the right move.
- Minimize the tax costs of the conversion: As a corporate liquidation is a double-tax event, the conversion can be expensive to the owners. Converting during an economic downturn—i.e., when asset values are depressed and recognized gains are reduced—may be a good move.
- Unused or expiring capital or net operating loss carryovers: The conversion can allow such losses to be used to reduce the tax cost of the transaction. Such tax attributes usually are eliminated upon the liquidation.
- Likely higher future tax rates: Applicable tax rates for C corporations and individual investors almost certainly will increase in the near future, through tax rate changes, an expanded tax base, and/or the expiration of existing tax incentives.
- Higher taxes on dividend income: Also at risk from future legislation is the low tax rate on dividend income. This can be another reason to remove the entity from the double-tax structure of the C corporation.
What are the potential disadvantages?
- Liquidating distribution rules: The liquidation of a C Corporation is a double-taxed event. If the entity holds assets with sizable realized gains, the conversion could trigger significant and immediate income (and transfer) tax costs.
- Self-employment taxes: An LLC member is liable for the full amount of self-employment taxes on any guaranteed payments, plus its share of any passthrough ordinary income. Thus, future federal tax liabilities may increase.
- Goodwill effects: The C corporation may hold large amounts of goodwill, which could increase the gains recognized on the conversion. This may be the case particularly for successful service-oriented businesses.
Planning Considerations:
Deciding to convert from a C to LLC is a detailed, fact-oriented undertaking, but one that the tax professional can complete with good technical knowledge. A few things to consider:
- The present value of tax savings generated by the conversion increases, making the conversion more attractive, as one assumes higher future tax rates and higher asset bases relative to depreciation and amortization deductions.
- In the analysis, include projections of both corporate and individual tax rates, for income and payroll taxes, at the federal and state/local levels. Also include reasonable estimates of future price level increases, especially concerning depreciable assets.
- Payroll taxes will increase as the owners make up a larger portion of the entity’s workforce and as they take larger compensation amounts.
- Take into account any costs associated with the conversion itself, including legal and consulting fees, transfer taxes, and sales/use taxes on the deemed liquidation.
Questions?
10 Facts About Capital Gains and Losses
March 2, 2011 | Subscribe to our RSS Feed
Did you know that almost everything you own and use for personal or investment purposes is a capital asset? Capital assets include a home, household furnishings and stocks and bonds held in a personal account. When a capital asset is sold, the difference between the amount you paid for the asset and the amount you sold it for is a capital gain or capital loss.
Here are ten facts from the IRS about gains and losses and how they can affect your Federal income tax return.
- Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
- When you sell a capital asset, the difference between the amount you sell it for and your basis – which is usually what you paid for it – is a capital gain or a capital loss.
- You must report all capital gains.
- You may deduct capital losses only on investment property, not on property held for personal use.
- Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
- If you have long-term gains in excess of your long-term losses, you have a net capital gain to the extent your net long-term capital gain is more than your net short-term capital loss, if any.
- The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2010, the maximum capital gains rate for most people is 15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain. Special types of net capital gain can be taxed at 25% or 28%.
- If your capital losses exceed your capital gains, the excess can be deducted on your tax return and used to reduce other income, such as wages, up to an annual limit of $3,000, or $1,500 if you are married filing separately.
- If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.
- Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040.
Questions?