With Saltmarsh S.A.F.E. you can easily and securely transfer data directly to your Saltmarsh accountant.

Saltmarsh BRIDGE is a service that allows you to have instant access to your own QuickBooks virtual desktop already installed and ready to use.

Featured Video

CPA - Featured Video - Qualifying for the Research and Development Tax Credit

Qualifying for the Research and Development Tax Credit

The R&D tax credit is a Federal incentive provided by Congress to U.S. Manufacturers to offset the cost of innovating. As it is a credit as opposed to a deduction, it is a dollar for dollar offset to your tax liability. Also, since the credit is open for the 3 immediately preceding tax years, filing a claim for refund for the credit for past years can be a direct cash infusion into your company. This video explains the tax credit and how Saltmarsh can help your business claim the credits you deserve.

Featured News & Articles

Molly Murphy Recognized as Distinguished Alumni Posted -Monday, April 08, 2013

Saltmarsh shareholder, Molly Murphy, was recently recognized at the University of West Florida’s annual Alumni brunch, where she received the Distinguished Alumni award.

» Read More

Green Construction: It's More Than Just a Fad Posted -Friday, March 01, 2013

In 21st century America, it seems that everybody is “going green.” It’s hard to open a newspaper or magazine or watch TV without hearing about one organization or another that’s going green or implementing new environmental “sustainability practices.”

» Read More

Summary of the Taxpayer Relief Act of 2012 - H.R. 8 Posted -Wednesday, February 27, 2013

International Tax and Miscellaneous Provisions

» Read More

Featured Blog Posts

Jacksonville Community Bank CFO Roundtable Posted - Tuesday, May 14, 2013

Real Estate Professionals Posted - Monday, May 13, 2013

Tax Reform: A Hot Topic Posted - Tuesday, May 07, 2013

Saltmarsh News & Articles Top stories from Saltmarsh's Pensacola, Fort Walton Beach, Tampa, and Orlando offices

New Legislative Alert - Deducting Bonuses

Release Date: Monday, November 21, 2011


Background:

Internal Revenue Code (IRC) S. 461 governs the timing of deduction for certain expenses incurred by accrual method taxpayers. A common expense for which many companies provide an accrual is incentive compensation. The IRS released Revenue Ruling 2011-29 on November 9, 2011, providing guidance on how a plan should be structured in order to permit a deduction in the year the services are provided.

S. 461 and its associated regulations require the following tests be considered in order to determine the timing of a deduction:

• All events must have occurred to establish the fact of the liability,
• The amount of the liability must be able to be determined with reasonable accuracy
• Economic performance must occur for the liability.

The economic performance rule as it relates to deductions for bonus payments, as defined in IRC S. 404, is straightforward. Regulations S.1.404(b)-1T prescribes that economic performance is deemed to occur in the current taxable year as long as payment is made by the 15th day of the 3rd month following such taxable year.

The New Ruling:

The first test, in which all events must have occurred to establish the fact of the liability, is the focus of Rev. Rul. 2011-29. This has been a topic scrutinized in various court cases and previous Internal Revenue Service (IRS) rulings. The Washington Post Co. v. United States case allowed deduction of a bonus accrual even when the employer provided a general bonus accrual at the end of the year but did not specifically identify the bonus recipient and the amount payable to that particular recipient prior to the end of the taxable year.

IRS Rev. Rul. 76-345 stated that the IRS would not follow the holding in that case. This suggested that individual recipients and the amounts payable to such recipient do need to be specifically identified prior to the end of the year in order for the all events test to be met. Rev. Rul. 2011-29 revokes Rev. Rul. 76-345.

The new ruling states that the following facts are now acceptable evidence to prove the all events test has been met in determining the timing of the deduction:

• The taxpayer’s liability to pay a minimum amount of bonuses to a group of eligible employees is fixed as the end of the year in which the services are rendered,
• The taxpayer is obligated under the program to pay the group the minimum amount of bonuses determined by the end of the taxable year, and
• Any bonus allocable to an employee who is not employed on the date on which bonuses are paid is reallocated to other eligible employees.

In order to satisfy the above conditions, the incentive compensation plan should specifically identify which employees are eligible to participate. The plan requirements should be communicated to eligible employees prior to the end of the taxable year. Lastly, the exact amount of the bonuses payable should be determinable through a formula in effect prior to the end of the taxable year. It is advisable that the plan be formally documented. If all the conditions noted further above are met, all events which fix the liability should be deemed to have occurred and the accrual should be determined with reasonable certainty. Provided the economic performance rule is also met, the tax deduction should be permitted in the year the services are provided.

Observation:

Changes in a taxpayer’s treatment of bonuses to conform to this ruling constitute a change in accounting method under Revenue Procedure 2011-14. This procedure allows for an automatic accounting method change. An automatic change is permitted to be submitted with the taxpayer’s timely filed tax return, including extensions, and no user fee is required.

Limitation:

A distinction should be noted with respect to bonuses paid to related parties. The related party rules under IRC S. 267 require the matching of income and deductions arising from transactions between related parties. Related parties include individuals owning more than 50% in value of the outstanding stock of the company. The law requires that even if all events have occurred to fix the liability and the economic performance rules are met, the deduction may not be claimed until the year in which the related party recognizes the income. Thus, in the instance of a bonus payment to a greater than 50% shareholder, the amounts will not be deductible by the company until the period in which the income is recognized by the shareholder.

Featured Video View all CPA Videos

Qualifying for the Research and Development Tax Credit

The R&D tax credit is a Federal incentive provided by Congress to U.S. Manufacturers to offset the cost of innovating. As it is a credit as opposed to a deduction, it is a dollar for dollar offset to your tax liability. Also, since the credit is open for the 3 immediately preceding tax years, filing a claim for refund for the credit for past years can be a direct cash infusion into your company. This video explains the tax credit and how Saltmarsh can help your business claim the credits you deserve.

Archived News View all CPA News & articles

More News...

Follow our feeds.

Pensacola CPA on Facebook Pensacola CPA on LinkedIn Pensacola CPA RSS Feed Pensacola CPA on Twitter Pensacola CPA on YouTube

Areas of Expertise

Locations

Pensacola
CPA and Bank Consultants - Pensacola, FL 900 N. 12th Avenue, Pensacola, FL 32501
Local Phone: 850.435.8300 • Fax: 850.435.8352
Fort Walton Beach
CPA and Bank Consultants - Fort Walton Beach, FL 34 Walter Martin Rd, Ft Walton Bch, FL 32549
Local Phone: 850.243.6713 • Fax: 850.243.4137
Tampa
CPA and Bank Consultants - Tampa, FL 201 N. Franklin St., Ste 2720, Tampa, FL 33602
Local Phone: 813.287.1111 • Fax: 813.207.0201
Orlando
4767 New Broad Street, Ste 222, Orlando, Florida 32814
Phone: 800.477.7458

Resources

Quick Downloads

Toll Free: (800) 477-7458 • Email: info@saltmarshcpa.com

Website by Grendelfly Studio - A Division of SC&G

(c) 2013 Saltmarsh, Cleaveland & Gund • Certified Public Accountants And Consultants • Serving Florida And The Southeast