Social Media: All the Cool Kids are Doing It by Carolyn Flaherty

Although Linked In is widely accepted among professionals as a means to expand networks, search for employment or employees and seek professional guidance; some professionals have been more leery of jumping on to other popular sites. I believe that most of the hesitation stems from a perception that their presence on Facebook, Twitter or certain other platforms could somehow compromise their professional persona. However, Facebook has become the new golf course.

Indeed, Facebook is said by some to BE the new internet. It is where people get to know you and it provides a platform to build relationships. However, it is important to remember some key points in order to successfully utilize any social media venue:

• God gave you two ears and one mouth. He had purpose in that design. Listen twice as much as you speak. Strive not just to be interesting but moreover to be INTERESTED.
• Provide value to others. Value is not determined by you, it is determined by your audience. Evaluate your audience. Determine what they respond to and comment on. Their activity illustrates their interests. They may be primarily seeking entertainment rather than hard facts. You need to play to your audience or you will lose them.
• Keep your posts PG.
• Facebook was made for people not for businesses, so put PERSONality into your posts.
• Create a brand. People want to do business with other people that they like. They cannot like you if you do not allow them to know you. Use your real name, be honest, be authentic and be transparent.
• Serve others. By reviewing comments and posts within your network you can discern their needs. This gives you an opportunity to serve them; to connect and share your knowledge.
• Posts with pictures and video attract attention more than simple posts. Whenever possible include a picture, video or link with your post.
• Post regularly. Fresh and consistent content is crucial. Most sources suggest posting three to five times daily.
• Selling should be done modestly. Your intent should primarily be to collaborate and share as opposed to selling.
• Posts are rated and prioritized by the powers that be on Facebook and these ratings determine where your post falls in the newsfeed. If your posts do not generate comments and “likes” they may be deemed unimportant and may not even appear in your friend’s newsfeeds. Therefore, the goal is interaction. Be sure to “like” comments left by others on your post and respond in the comment thread because the Facebook rating system gives you credit for ALL interaction.
• Sometimes being different can be better than being better.
• Embrace the negative comments. Feedback, BOTH positive and negative, helps you to improve. Negative comments give you an opportunity to respond publicly, (which may actually help you build your reputation if handled properly).
• Developing your network and your social presence is not a race. Take time to develop quality relationships because it is not the quantity of your relationships but the quality that determines value.

Finally, consider implementing a social media policy in your firm. The policy does not have to be overly specific but should include general guidelines such as: no talking about clients and no bad mouthing the firm.

Factors Influencing Key Employees Decisions-making by Andrea Hottleman

Business owners either rely on themselves or key employees for important decisions within their companies. Behavioral finance looks at the way emotions and psychology influence attitudes and beliefs in decision-making.

Examples of emotional and psychological influences are when decisions are made based on a trend that a person believes to exist but does not; or a feeling that a person has control over events when they do not.

Psychologists have broken the factors that influence the interpretation of data into the following areas: anchor effect, overreaction to random occurrences, overconfidence, optimism, follow the herd, loss aversion and the endowment effect.

Anchor effect occurs when more weight is given to the initial information received on a subject. This happens more often when the information is shared with others and it agrees with the key employee or owner’s point of view.

Overreaction to random occurrence happens when we create a relationship that does not exist based on data results. People tend to look for systematic patterns but sometimes these patterns are actually random.

Overconfidence results in mistakes of significant size. People tend to overestimate their abilities and knowledge.

Optimism is when a person underestimates a poor outcome. A few optimistic decisions put together could result in an overly positive financial forecast.

Follow the Herd provides a false sense of not being alone. A decision made based on the way the company has always done it or the way others in the company would agree with. The employee may not feel comfortable stepping outside the box for fear of failure.

Loss Aversion can hinder the growth of a company. Sometimes it may take a small loss first to take a giant step forward.

Endowment Effect is human nature to value an item they own higher than it is actually worth. For example, ask someone how much their house is worth?

Understanding the psychology behind decision making will help you to understand the management styles and decisions at work in your organization. Avoiding these psychological pit falls can be achieved by implementing a strong network of checks and balances within the company’s internal control structure. An organization’s internal controls should be evaluated annually.

Passive Activity Loss Rules by Karla Hopkins

The "passive activity loss rules" have developed into a complicated set of guidelines since their inception in the mid-1980s. However, if you keep in mind the general principles that drive loss limitations in this area, you will have a good foundation for selecting investment strategies that take full advantage of, rather than solely reacting to, the current tax rules.

A passive activity is one that involves the conduct of any trade or business in which the taxpayer does not materially participate. Any rental activity is a passive activity whether or not the taxpayer materially participates. However, there are special rules for real estate rental activities and real estate professionals.

Losses and credits that are attributable to limited partnership interests are generally treated as arising from a passive activity. However, losses from working interests in oil and gas property are not subject to the limitation.

Material Participation:
Generally, to be considered as materially participating in an activity during a tax year an individual must satisfy any one of the following tests:

(1) he participates more than 500 hours;
(2) his participation constitutes substantially all of the participation in the activity;
(3) he participates for more than 100 hours and this participation is not less than the participation of any other individual;
(4) the activity is a "significant participation activity" and his participation in all such activities exceeds 500 hours.  A significant participation activity is one in which the taxpayer participates more than 100 hours during the tax year but does not materially participate under any of the other six tests.
 (5) he materially participated in the activity for any five years of the 10 years that preceded the year in question;
(6) the activity is a "personal service activity" and he materially participated in the activity for any three years preceding the tax year in question;

or

(7) he satisfies a facts and circumstances test that requires him to show that he participated on a regular, continuous, and substantial basis.

How losses are deducted:
In most cases, losses from passive activities may not be deducted from other types of income (for example, wages, interest, or dividends). Therefore, to the extent that the total deductions from passive activities exceed the total income from these activities for the tax year, the excess (the passive activity loss) is not allowed as a deduction for that year.

Losses that are not deductible for a particular tax year because there is insufficient passive activity income to offset them (suspended losses) are carried forward indefinitely and are allowed as deductions against passive income in subsequent years. Unused suspended losses are allowed in full upon a fully taxable disposition of the taxpayer's entire interest in the activity.

Impacts of the JOBS ACT by Carolyn Flaherty

The Jumpstart Our Business Startups Act, known as the JOBS Act allows middle market company investment opportunities such as:

• raising small amounts of money using the Internet
• staying a private company longer and raising money in private placements from sophisticated investors
• raising significant sums of money, up to $50 million, in a 12-month period in a new Regulation A+ hybrid offering mechanism
• Tapping the U.S. capital markets in an initial public offering sooner than management may have considered

The JOBS Act also creates an “on-ramp” for middle market, non-public companies to access the IPO markets by easing accounting and reporting requirements for qualified emerging growth companies, (ECG). An emerging growth company is a company with less than $1 Billion that issues new common equity after December 8, 2011.

As a result of the JOBS ACT emerging growth companies are:

• Exempted from the requirement to have auditor reporting on their internal control systems
• Exempted from adopting new or revised accounting standards until the effective date of such standards for nonpublic companies
• Not generally subject to future PCAOB rules that require mandatory audit firm rotation or a supplement to the auditor’s report unless the SEC determines that the application is necessary for the public interest
• Allowed to present only two rather than three years of audited financial statement in the initial registration statements
• Exempted from requirements from certain Regulation S-K disclosure information
• Allowed an increased exemption limit for small offerings under Regulation A
• Able to enjoy scaled executive compensation disclosure

In addition emerging growth companies have the benefits of being able to file confidential submission drafts of registration statements to the SEC before filing and can also test the IPO waters by communicating with potential investors before a registration statement is filed.

Once a company achieves ECG status, the company can maintain this standing for up to five years after closing its first sale of common equity or until the occurrence of one of the below listed events (whichever is earlier):

• The last date of the fiscal year with gross revenues over $1 billion
• The date where over the previous three-year period $1 billion in nonconvertible debt has been issued
• The date on which the issuer is deemed a large accelerated filer

HIGH INCOME TAXPAYERS WILL BE IMPACTED BY THE ADDITIONAL MEDICARE TAX IN 2013 by Karla Hopkins

There are two parts to this new provision.  The first is a .9% increase in the employee portion of Medicare tax withheld on wages over a certain threshold amount.  The second part is an additional 3.8% tax on the lesser of unearned income or modified adjusted gross income over a threshold amount.

The threshold amount for both provisions is $250,000 for a joint return and $200,000 for a single return.  This means that an employer is obligated to withhold the .9% Medicare tax only on a person’s wages in excess of $200,000 (disregarding spousal wages). 

The 3.8% tax is on the lesser of the net investment income or the amount by which a modified adjusted gross income exceeds a threshold amount.  Thus individuals whose modified adjusted gross income does not exceed the threshold are not subject to this tax and individuals whose modified adjusted gross income does exceed the threshold are subject to the tax but only on their net investment income.

Net investment income includes:

·         Passive trade or businesses

·         Other nonbusiness passive income like interest, dividends, rents

·         Disposition of property ( i.e. net gain)

Income from retirement accounts are not considered net investment income for this tax.

Both of these taxes must be considered when planning your 2013 estimated income tax requirements. Proper planning may allow a taxpayer to develop a scenario for avoiding the tax all together.  When planning you could consider: bunching your income into every other year instead of each year, investing in growth instead of income paying stocks to minimize dividend and interest income, sharing wage income with a spouse or child, paying distributions instead of wages from an S corporation etc.  While there could be many tools, each plan is specific to a certain set of circumstances for each taxpayer.

WHO DEDUCTS THE MORTGAGE WHEN THERE ARE MULTIPLE OWNERS by Karla Hopkins

Due to the difficult economy, many individuals are having difficulty obtaining a loan for a new or a refinanced current home.  An alternative for many has been to tap into the credit worthiness of parents or other family members.  In which case, the debt is obtained by and in the name of, a family member with the understanding of the parties that the occupants of the home will be responsible for the monthly mortgage payment.  The question is: who deducts the mortgage interest? 

Qualified mortgage interest is deducted with respect to acquisition or home equity indebtedness with respect to any qualified residence of the taxpayer.   Qualified mortgage interest is debt incurred to acquire, construct or improve a qualified residence of the taxpayer and is secured by such residence.

In most instances, interest can be deducted only by the person that is legally responsible for the debt.  Therefore if a family member enters into an agreement with another family member for the debt on his home, the interest deduction could be lost.  There is a potential exception to this limitation however. 

If interest is paid on a mortgage which a person is the EQUITABLE OWNER of even though not directly responsible for the debt, he may deduct the interest paid.

Taxpayers who are considering using another party to assist them and ultimately hold the debt on their residence should be thoughtful of the tax rules when setting up the arrangement.  They should carefully structure a written, enforceable agreement that clearly identifies them as equitable owners of the property and assigns to them the corresponding burdens and benefits.  The written documentation will help them demonstrate their intent for ownership.  Then, the key is to act consistently in keeping with the agreement.  In other words, make all of the mortgage payments, pay all expenses relating to the property, and be the sole occupants.  If you treat the home as your legal home, it is likely the tax courts will also.

Estate Planning for the International Taxpayer by Karla Hopkins

It is essential for people with multiple citizenship and/or residency to understand that the timing and manner of wealth ownership, transfers and growth can affect their tax burdens.

Questions to ask:

Is a donor a U.S. citizen or domiciled in the U.S.?
If either are true, all gifts made and assets owned worldwide at death are subject to U.S. transfer tax in the absence of a relevant tax treaty. In addition, even if the individual has no connection to the U.S. but passes away with certain types of property located in the U.S. the estate tax applies to the U.S. assets regardless of citizenship or residency unless a treaty exemption applies.

What creates U.S domicile for estate and gift purposes?
According to the IRS, a person can establish domicile by living in a place for even a brief period with no definite, present intention of moving. However this test requires a facts and circumstances analysis which includes factors such as citizenship in another country, location of investment assets, driver’s registration, bank accounts, homes etc. Domicile is separate from Income Tax Residency therefore it is possible to acquire income tax residency without becoming domiciled in the U.S. for estate and gift tax purposes.

If beneficiaries of a gift or bequest are located in the U.S. and the donor is not a U.S. citizen or with a U.S. domicile, must U.S. transfer taxes be paid?
In almost all cases the answer depends on the location of the transferred assets, not the location of the beneficiary. Gifts of real property located in the U.S. would be a type of asset subject to the U.S. transfer tax even for a nonresident. Gifts of intangibles, including stock, to a beneficiaries located in the U.S. from a nonresident would not be subject to U.S. transfer tax. Nonresident aliens who make gifts subject to U.S. transfer tax are not eligible for the unified credit either. The $13,000 exclusion is allowed thus a nonresident alien is only allowed the equivalent of $60,000 lifetime exclusion compared to the $5.12 million in 2012 for U.S. citizens and domiciled residents.

What are the benefits of an estate treaty?
Unless an estate/inheritance or gift tax treaty applies, lifetime transfers and all assets owned at death by a person domiciled in the U.S. who is a citizen of another country are subject to U.S. taxes and his or her country’s tax. Currently 16 countries have estate tax treaties or a combined estate and gift tax treaty with the U.S. Some of these include, France, Germany Ireland, Italy, Japan and the United Kingdom. The general purpose of these treaties is to avoid double taxation. However each treaty is different and can apply their provisions differently regarding the situs of property and the domicile of the taxpayer. In addition, there is a limit to the use of a treaty for preferential treatment if a person has lived for a significant period of time in the U.S. Longer term residents will not be eligible for relief under a treaty.


What are the implications of transfers to a Non U.S. Citizen spouse?
Even if U.S. domicile has been established and the taxpayer is allowed the full unified credit the tax law does not allow the unlimited marital deduction for spouses who are not U.S. citizens, with a few exceptions. So in addition to potentially all assets of a U.S. domiciled foreign person being subjected to U.S. estate tax, if there is no applicable estate tax treaty, the taxpayer cannot benefit from a full marital deduction unless the spouse is a U.S. citizen. Considering the lower tax rates in many countries such as Brazil, China, and Venezuela or even where there are no estate taxes, establishing domicile in the U.S. can be costly.

Other considerations include:
Many European Union countries have a forced heirship system which must be considered. This may require specific beneficiaries as a matter of law and could cause U.S. estate plans for foreign citizens to be problematic.

Many continental European countries along with many Latin American countries follow a community law system. International treatment of community property can bring up a variety of conflicts of laws too.

As a result of the possibly significant transfer tax issues that a global taxpayer could face, it is important to seek professional help from attorneys and CPA’s who are knowledgeable in this area and who can consult with professionals from the initial country of citizenship.