2012 Resolves Many Uncertainties

2012 Resolves Many Uncertainties, Creates Others; Sets Stage For Future Tax Reform.

Uncertainty during 2012 over what tax laws would govern in 2013 and beyond because of the expiring Bush-era tax cuts clearly was the most significant development of the year. Now that Congress and President Obama — through the American Taxpayer Relief Act of 2012 (ATRA) — have provided a degree of certainty over tax rates into at least the immediate future, taxpayers need to adjust their tax plans accordingly. Individuals and businesses should immediately recalibrate strategies in light of ATRA. 2012 was also a significant year for important tax developments from the Treasury Department, the IRS and the courts. These developments demand the attention of individual and business taxpayers not only to caution what is no longer allowed under the tax laws but also to shape what steps can be taken in 2013 and beyond to maximize tax savings. With that forward-looking perspective, this Tax Briefing reviews key federal tax developments that took place during 2012.

 

Self-employed can deduct Medicare premiums

Explaining a recent reversal of a long-held IRS stance, the Office of Chief Counsel advised IRS attorneys on Friday that self-employed individuals may deduct Medicare premiums from their self-employment income. Chief Counsel Advice (CCA) 201228037 clarifies an IRS position that previously has appeared only in instructions to Form 1040, U.S. Individual Income Tax Return, and IRS publications for tax years 2010 and forward allowing the deduction.

Taxpayers who failed to deduct Medicare premiums for prior tax years within the statute of limitation may file amended returns to claim the deduction.

Before tax year 2010, Form 1040 instructions for line 29 stated, “Medicare premiums cannot be used to figure the [self-employed health insurance] deduction.” Before 2010, Publication 535, Business Expenses, stated that Medicare Part B premiums were not deductible as a business expense, in keeping with Field Service Advisory (FSA) 3042, issued in 1995.

For the 2010 Form 1040, the instructions for line 29 were changed to specify, “Medicare Part B premiums can be used to figure the deduction.” The 2010 version of Publication 535 was similarly amended, but the IRS offered no guidance or explanation for the change.

Sec. 162(l)(2)(A) limits the deductible amount of payments made for health insurance to the taxpayer’s earnings from the trade or business “with respect to which the plan providing the medical care coverage is established.” FSA 3042 stated that this meant that payments under a plan that is not established with respect to the taxpayer’s trade or business (specifically including Medicare Part B, because it is a federal program) are not deductible.

CFO – Strategic Thinking

CFOs are increasingly involved in setting strategy – a transition that is requiring them to become more effective communicators and to think more holistically. 

CFOs from multinational companies such as Nike, Coca-Cola Enterprises, Ralph Lauren, Xerox, and Archer Daniels Midland, say they’re taking on more responsibility beyond finance and, as a result, are reporting high levels of career satisfaction, according to the report, Views. Vision. Insights. The evolving role of today’s CFO, which was released this week. Finance chiefs also report interest in roles beyond finance, including as chief executive officers.

1. CFOs are increasingly asked to develop strategy in existing and emerging markets while managing the on-going demands of the finance function role. In turn, some CFOs believe their role is evolving from “chief sceptic officer” to a manager of growth.

2. CFOs are increasingly pressured to become world-class communicators. They are challenged by the need to communicate complex issues to a variety of audiences – investors, financial analysts, customers, partners and employees – as stakeholders demand accurate information and transparency in real-time.

3. Most CFOs think they have viable internal candidates to succeed them. But few organisations have identified a specific candidate. And many lack a formal plan to prepare their next CFO.

The next generation of CFOs must possess a vastly broader set of skills than its predecessor. Other key developmental areas for aspiring finance leaders now include experience in corporate development and strategic M&A, in international markets and in the commercial side of the business.

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