According to COSO, the updates are designed to help organizations design and implement internal control in light of changes in the business landscape since the framework’s original release in 1992 and last updated in 2009.

Also released were two illustrative documents to help organizations assess internal control according to the new framework:

• Tools for Assessing Effectiveness of a System of Internal Control
• Internal Control over External Financial Reporting (ICEFR): A Compendium of Approaches and Examples

These documents along with the framework are available for purchase at www.coso.org through Dec. 31, 2013. Free tools available for download include:

• An executive summary of the framework
• FAQs
• PowerPoint slides

The updated framework will supersede the original framework on Dec. 15, 2014.

For assistance navigating the framework, contact our internal auditors in Michigan, Houston or Ft. Lauderdale.

1. Federal Withholding

If you received a large tax refund, it might be time to adjust the amount of tax the federal government withholds from your paycheck. Although next year your refund check may not be as large, you will have the advantage of seeing a larger sum deposited directly into your pocket every month. To adjust your withholding, fill out and sign a Form W-4, and submit it to your employer. Do this in cases where your adjustments to income, exemptions and deductions remain relatively steady from year-to-year, and where the government consistently is required to give you a large refund.

2. State Withholding

Some people are entirely exempt from state tax, but it is withheld from their paychecks nevertheless. At the end of each year, they may include the amount of their state taxes in their itemized deductions, but then receive a refund they have to declare as income in the next year. This problem particularly applies to active duty military families, many of whom are posted in states other than their state of residency. Military families can check with their state income tax authority to see if there is an appropriate form that can be completed and filed to exempt them from withholding. A higher adjusted gross income (AGI), even if it is subsequently reduced by itemized deductions, can erode other adjustments to income, such as a deduction for student loans, IRA contributions, higher education expenses and more because of certain AGI caps on these benefits.

3. Tax Rates and Adjusted Gross Income

As you may have heard, Congress allowed the Bush-era tax cuts to expire for higher-income earners. That means joint filers with more than $450,000 of adjusted gross income ($400,000 for single individuals) are now in the 39.6 percent tax bracket. Taxpayers at this level of income or above are also subject to a higher long-term capital gains tax rate: 20 percent, up from 15 percent paid by other taxpayers.

In addition, for tax years beginning in 2013, the 33 percent tax bracket for individual taxpayers ends at $398,350 for married individuals filing joint returns, heads of households and single individuals. If you were hovering near the bottom of the 35 percent bracket for the 2012 tax year, then you might want to see if you can readjust your income so that you fall within the 33 percent category.

Higher-income taxpayers also have two new taxes to worry about for 2013 and beyond. Joint-filing taxpayers with modified adjusted gross income of $250,000 ($200,000 for single filers) are also subject to the 3.8 percent surtax on net investment income and a .9 percent additional Medicare tax. Does your adjusted gross income for last year approach these figures? Is it on the edge of the income brackets? Will stock market increases this year put you over the top of those income thresholds? If so, it may be time to find ways to reduce your income for 2013.

4. Investments

At some point in your efforts over the years to accumulate a savings nest egg, you will need to consider diversification, the process of putting your money in the right kind of investment vehicles to satisfy your personal risk strategy and achieve your goals. Looking at your tax return will help you decide whether the investments you now have are the right ones for you. For example, if you are in a high tax bracket and need to diversify away from common stocks, investing in tax-exempt bonds might help, especially if you have state income taxes to worry about, too.

5. Medical Costs

Should you be taking advantage of the medical expense deduction? Many people assume that with the 10 percent adjusted gross income floor on medical expenses now imposed for tax years starting in 2013 (7.5 percent for seniors) that it doesn’t pay for them to keep track of expenses to test whether they are entitled to itemize. But with the premiums for certain long-term care insurance contracts now counted as a medical expense, some individuals are discovering that along with other health insurance premiums, deductibles and timing of elective treatments, the medical tax deduction may be theirs for the taking.

6. Retirement Planning

Don’t forget to protect for eventualities. Are you maximizing the amount that Uncle Sam allows you to save tax-free for retirement? A look at your W-2 for the year, and at the retirement contribution deductions allowed in determining adjusted gross income, should tell you a lot. Should your spouse set up his or her own retirement fund, too? Are you over-invested in tax-deferred retirement plans? If so, you may lose a significant amount of your nest egg to tax after retirement.

Look to our dedicated Tax Group to help you plan properly for maximizing future tax savings. For more information, contact our Michigan CPAs, Houston CPAs or Ft. Lauderdale CPAs.

Although the most recent tax changes have decreased the savings associated with this benefit, it is still a viable savings strategy, producing a typical savings of 11.2 percent on export income.
Below are some of our clients’ most frequently asked questions about this tax planning tool.

How does the IC-DISC tax planning tool work

A U.S. exporter can set up a separate legal entity, known as an IC-DISC. The exporting company then pays a commission to the IC-DISC: The greater of 4 percent of its export sales, or 50 percent of the combined taxable income from export sales. The IC-DISC does not pay income tax on the commission income from the export sales. Instead, it takes the profits and pays a dividend to the owners of the IC-DISC.

Why should I consider an IC-DISC?

There are several benefits to consider, including:

• Permanent tax savings on your global sales – 23.8 percent tax rate (which includes the Medicare tax on net investment income) versus 35 percent corporate tax rate on 4 percent of export sales
• One-time tax deferral opportunity
• Ability to leverage cost of capital
• Means to facilitate your succession or estate planning

Consider this sample savings scenario:

ABC Company has $10 million in export revenues and pays $400,000 in commissions to the IC-DISC, which reduces taxable income by $400,000 (commission paid to the IC-DISC). The $400,000 is distributed to owners as a dividend—taxed at only 23.8 percent as opposed to the regular tax rate of 35 percent. The owners pay $95,200 in taxes instead of $140,000 – a savings of $44,800.

How do I qualify?

For an IC-DISC tax savings program to work, your export profits must be earned on items manufactured in the United States and shipped out of the country. Goods sold and shipped to a reseller, and then shipped out of the country (within one year) are also covered as export sales.

Some services also qualify as export profits; however any engineering or construction services related to mineral exploration are excluded. Imported items that are modified in the United States, then exported, as well as items manufactured and sold overseas, also do not qualify.

To explore whether you may qualify for IC-DISC tax savings, contact Doeren Mayhew’s dedicated Tax Incentives Group, with CPAs in Michigan, Houston and Ft. Lauderdale.

Driven by the CFPB’s mission to strengthen consumer protection, the new rules are designed to help:

• Prevent consumers from purchasing homes they can’t afford due to taxes and insurance not being taken into account at the time of purchase
• Avoid unexpected cost shock for consumers by spreading tax and insurance costs over a year instead of a burdensome lump sum
• Minimizing foreclosure rates for first-lien, higher-priced mortgages

What Are the New Rule Changes?

The final rule, resulting from amendments to the Truth in Lending Act (Regulation Z) established by the Dodd-Frank Act, lengthens the time frame for which an escrow account should be maintained for HPMLs. It will now be extended to a minimum of five years, up from the current requirement of one year. Consumers will have the opportunity to remove the escrow after this five-year time allotment if they have not been delinquent in payments and the loan value is less than 80 percent of the original property value.

Be aware that having additional years of the escrow account will impact the costs associated to extending maintenance.

Although the new rule will apply to many, not every creditor and transaction will be impacted by the escrow account modifications. The rule defines and expands upon several exemptions, including:

Transaction Exemptions – The following transactions are exempt from obliging to the statute’s escrow requirements:

• Loans on cooperative properties
• Construction loans that do not include permanent financing
• Temporary or bridge loans with terms less than 12 months
• Reverse mortgages
• Subordinate liens
• Open-end credit (home equity lines of credit)
• Insurance premiums purchased by the consumer, but not required by the creditor

Creditor Exemptions – Creditors who operate in predominantly rural or underserved areas are exempt if they:

• Made more than 50 percent of first-lien covered transactions in rural or underserved counties
• Combined with affiliates, completed less than 500 first-lien loans in the preceding calendar year
• Have total assets fewer than $2 billion, adjusted annually for inflation
• Generally do not escrow for mortgage obligations they or their affiliates currently service
• Hold the consumer’s loan in their portfolio

Existing Exemption Expansion – Expanding on existing exemptions related to escrowing insurance premiums for condominium units, the new rule includes an exemption for instances where an individual’s policy is covered by a master insurance policy.

How to Prepare for the Changes

With any regulatory change come adjustments. To avoid penalties and potential punitive damage claims by consumers related to ineffectively implementing the regulation, be proactive in accommodating the change at your financial institution by:

• Developing and implementing systematic changes and business practices to ensure escrow accounts for HPMLs are not waived in the first five years
• Training impacted departments and staff on the new requirements and related new procedures
• Evaluating the need to outsource escrowing to a third-party servicing firm to help minimize internal resources’ time and related cost

Even if your institution is exempt from this rule, but still escrows for higher-priced mortgages today, you may need to rethink your current escrow program to accommodate applications received on or after June 1, 2013, to remain exempt.

To learn more about what you can do to prepare for the regulatory change, contact our dedicated Financial Institutions Group, with regulatory compliance specialists in Michigan, Houston and Ft. Lauderdale.

Despite the appeal of earning higher returns in a tax-advantaged account, alternative-asset IRAs contain a minefield of tax traps that can quickly wipe out the potential benefits. For example:

• Mortgaged real estate held in an IRA can trigger unrelated business income tax. Real estate may also create problems when traditional IRA minimum distributions are required (beginning after age 70½).
• Your dealings with a business in which your IRA has an interest may violate the prohibited transaction rules, resulting in substantial taxes and penalties.
• Transferring S corporation stock to an IRA may terminate the company’s S status and trigger corporate tax liability.

If you’re contemplating an alternative-asset IRA, contact Doeren Mayhew’s Michigan CPAs, Houston CPAs or Ft. Lauderdale CPAs to find out what it means for your tax liability.

• A fire, flood, hurricane, tornado or ice storm that damages, destroys or isolates your business’ premises.
• A power surge that fries your computer systems and the intellectual property it contains.
• A virulent computer virus.
• A power failure that leaves a warehouse full of perishable goods susceptible to decay.
• A business disaster, taking the form of a sudden bankruptcy of a major client or supplier, or a sudden and serious illness to a key team member who has irreplaceable knowledge.
• The direct or indirect effects of a terrorist attack.

Analyzing the Business as a First Step

When considering financial matters, an accounting firm such as Doeren Mayhew can help you analyze your business to determine insurance needs as well as how much to spend on disaster recovery.
Insurance can cover not only your loss of property, but also the costs related to income interruption. This will depend on, for example, the financial consequences of catastrophic failure in various parts of your operation.
With your CPA, work out the amount of time you can afford to be shut down, which will give you a better idea of how to invest in procedures to get your business up and running again.

Planning to Ensure Your Business Can Navigate a Crisis

How quickly your company can get back to business after a disaster depends on emergency planning done today. Ready.gov offers the following considerations when devising your plan:

1. Which staff, materials, procedures and equipment are absolutely necessary to keep the business operating?

• Identify operations critical to survival and recovery.
• Include emergency payroll, expedited financial decision-making, and accounting systems to track and document costs in the event of a disaster.
• Establish procedures for succession of management. Include at least one person who is not at the company headquarters, if applicable.

2. Which suppliers, shippers, resources and other businesses must you interact with on a daily basis to run the business?

• Develop professional relationships with more than one company to use in case your primary contractor cannot service your needs. A disaster that shuts down a key supplier can be devastating to your business.
• Create a contact list for existing critical business contractors and others you plan to use in an emergency. Keep this list with other important documents on file, in your emergency supply kit and at an off-site location.

3. What will you do if your building, plant or store is not accessible?

• Consider if you can run the business from a different location or from your home.
• Develop relationships with other companies to use their facilities in case a disaster makes your location unusable.

4. How will you ensure payroll continuity?

5. What will your crisis management procedures be, and who will carry them out?

• Make sure those involved know what they are supposed to do.
• Train others in case you need back-up help.

6. With whom do you need to share your plan?

• Ensure the plan is communicated to all staff, with emphasis on those with responsibilities within the plan.
• Meet with other businesses in your building or industrial complex.
• Talk with first responders, emergency managers, community organizations and utility providers.
• Plan with your suppliers, shippers and others you regularly do business with.
• Share your plans and encourage other businesses to set in motion their own continuity planning and offer to help others.

For assistance analyzing your business as a first step in disaster planning, contact Doeren Mayhew’s Michigan CPAs, Houston CPAs or Ft. Lauderdale CPAs.

But making lifetime asset transfers and setting up trusts can provide benefits that exemption portability doesn’t offer. For example, portability doesn’t protect future growth on assets from estate tax like applying the exemption to a credit shelter trust does. Also, the portability provision doesn’t apply to the GST tax exemption, and some states don’t recognize exemption portability.

Have questions about the best estate planning strategies for your situation? Contact Doeren Mayhew’s Tax Group, with CPAs in Michigan, Houston and Ft. Lauderdale.

1. Identity Theft

Identify theft occurs when personal information such as your name, Social Security number or other identifying information is used without your permission. In many cases, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund.

2. Phishing

Phishing scams are typically carried out through unsolicited emails or fake websites that prompt taxpayers to provide valuable personal and financial information. The IRS will never request personal or financial information via email, text message, social media or any other form of electronic communication.

3. Return Preparer Fraud

To avoid refund fraud or identity theft, taxpayers are encouraged to use preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers.

4. Hiding Income Offshore

Several taxpayers evade U.S. taxes by:

• Hiding income in offshore banks, brokerage accounts or nominee entities, using debit cards, credit cards or wire transfers to access the funds.
• Employing foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

Be sure to comply with reporting and disclosure requirements to avoid penalties and fines.

5. “Free Money” from the IRS and Tax Scams Involving Social Security

Low-income individuals, the elderly and members of church congregations are often targeted by scammers, promising them refunds by filing a tax return with little or no documentation. Another tax scam involves Social Security, where scammers promise taxpayers non-existent refunds or rebates.

6. Impersonation of Charitable Organizations

Following major disasters, scam artists impersonate charities to get money or private information from taxpayers by using a variety of tactics, including:

• Contacting people by telephone or email to solicit money or financial information for bogus charities.
• Contacting disaster victims and claiming they are helping victims file casualty loss claims and obtain tax refunds.
• Attempting to get personal financial information to steal the victims’ identities or financial resources.
• Creating bogus websites to solicit funds for disaster victims.

7. False/Inflated Income and Expenses

Claiming unearned income or unpaid expenses to secure larger refundable credits could result in repaying the erroneous refunds, including interest and penalties. Additionally, some taxpayers are filing excessive claims for the fuel tax credit, which is considered a frivolous tax claim and can result in a $5,000 penalty.

8. False Form 1099 Refund Claims

To justify a false refund claim on a corresponding tax return, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount. Unqualified taxpayers who claim deductions or credits could be liable for financial penalties or face criminal prosecution.

9. Frivolous Arguments

Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying owed taxes. Check out this list of frivolous tax arguments that taxpayers should avoid.

10. Falsely Claiming Zero Wages

A Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. Filing this type of return may result in a $5,000 penalty.

11. Disguised Corporate Ownership

Third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of the business. These entities can be used to underreport income, claim fictitious deductions, avoid filing tax returns, participate in listed transactions, and facilitate money laundering and financial crimes.

12. Misuse of Trusts

While there are legitimate uses of trusts in tax and estate planning, some highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised and are used primarily to avoid income tax liability and hide assets from creditors.

If you are in need tax assistance, contact our dedicated Tax Group, with CPAs in Michigan, Houston and Ft. Lauderdale.