The CPA Desk

A Thought Leader Production by PKFTexas

All Income Investments Aren’t Alike When It Comes To Taxes

The tax treatment of investment income varies, and not just based on whether the income is in the form of dividends or interest. Qualified dividends are taxed at the favorable long-term capital gains tax rate (generally 15% or 20%) rather than at the applicable ordinary-income tax rate (which might be as high as 39.6%). Interest income generally is taxed at ordinary-income rates. So stocks that pay qualified dividends may be more attractive tax-wise than other income investments, such as CDs and taxable bonds.

But there are exceptions. For example, some dividends aren’t qualified and therefore are subject to ordinary-income rates, such as certain dividends from:

• Real estate investment trusts (REITs),
• Regulated investment companies (RICs),
• Money market mutual funds, and
• Certain foreign investments.

Also, the tax treatment of bond income varies. For example:

• Interest on U.S. government bonds is taxable on federal returns but exempt on state and local returns.
• Interest on state and local government bonds is excludable on federal returns. If the bonds were issued in your home state, interest also might be excludable on your state return.
• Corporate bond interest is fully taxable for federal and state purposes.

While tax treatment shouldn’t drive investment decisions, it’s one factor to consider — especially when it comes to income investments. For help factoring taxes into your investment strategy, contact us.

The Birkman Reveals Communication & Esteem Of Executives

Byron: Hi, my name is Byron Hebert and this is another Tool Time Update brought to you by your friends at PKF Texas and the Entrepreneur’s Playbook. In the last Tool Time Update I talked to you about Birkman and how we use it in coaching our clients, hiring, conflict resolution and all the things that come up from the people side of our business, which as we all know is very important. Within Birkman there are 11 component parts and these component parts make up our personality if you will in how we come to work every day and it’s really am accumulation of our life experiences. The first one I’m going to talk to you about is esteem. Now esteem, not to be confused with self esteem, is how we relate to each other on a one on one basis. So the predominant style usually people are fairly direct communicators; you’ve got a low esteem score, means you’re going to be a direct communicator. You may sound blunt to some people you’re so direct.

If you have a high esteem score that means that you may be more cautious in the way you talk to people, maybe a little bit more sensitive to what people are hearing. And do there’s not a good or bad, there’s not a right or wrong, it’s just the way we are hard-wired if you will.

So we also have a need in esteem and our need in esteem is how people are going to communicate to us; how we hear people and how we want to be communicated with. The interesting thing is the predominant score on this is that people have a fairly low esteem – they’re fairly direct communicators – but their need may be that they don’t want to be talked to that directly. And so it’s interesting to find that out about someone so you know how to communicate with them, and this is the power of Birkman. All these things you’ll learn about someone over time, but with a tool like this you can learn it much quicker. And so what we want to do, again, is make sure that we know what people’s communication style, what their need is, so we’re meeting that so we keep them out of their stress behavior. Stress behavior is what we want to avoid because it’s destructive behavior. We’re going to be going over more component parts in more Tool Time Updates coming.

Again, my name is Byron Hebert, this is another Tool Time Update brought to you by your friends at PKF Texas and the Entrepreneur’s Playbook.

Saudi Arabia’s Role In The Global Energy Economy

I recently read an interesting article in the Wall Street Journal. The article was titled “Oil’s Drop Puts Spotlight on Saudi Arabia.” The article provides insight about Saudi Arabia’s current role in the world of oil markets.

I found the increase in their budgetary shortfall particularly interesting. Saudi Arabia has gone from three to 20% of their domestic Gross Domestic Product. This makes one wonder how long will they produce at these levels, especially if they continue to eat into their sovereign wealth fund at such an escalating pace.

It appears they are placing a rather large bet to try and permanently take world market share. We need to continue to watch how this plays out. This will be interesting and very impactful for the Gulf Coast economy.

The Birkman Personality Profile Test & The Three Components

Byron: Hi, my name is Byron Hebert and this is another Tool Time update brought to you by your friends at PKF Texas and The Entrepreneurs Playbook. Today I want to talk to you about the Birkman Personality Profile Test. Now many of you have probably heard of Birkman, many of you may have even taken the exam. There’s been many copies of it afterwards; the discs, and Meyer’s Briggs, but Birkman’s been around for the longest, about 60 years. We use it here for hiring executives, for coaching, for conflict resolution and things like that. It’s a very in depth tool. So let me just give you an overview of it.

With Birkman, you have three components basically: you have usual style, which is your reputation, the way you are with people on a normal basis; your needs, and that’s how you need people to relate to you and things like that, and then your stress behavior, and what you want to do is try to stay out of your stress behavior. So how do you stay out of your stress behavior? By getting your needs met. And so I tell people when I’m going over assessment, if you hear nothing else today, hear that you need to hear what your needs are and figure out how to ask for them. So how does that look like? Our usual style, if you can see it kind of looks like I’m drawing a picture of a productive person with usual style, getting things done through people. Our stress behavior kind of looks like this: we may be getting things done, it’s kind of helter skelter, but we’re leaving a wake of bad relationships and hurt feelings in our way.

So what we want to do is stay in our usual style, stay out of our stress behavior by getting our needs met. We’re going to be talking more about Birkman and I’m going to give you some of the component parts of it, and there are 11 of them, and how they relate to you, how you relate to people in the workplace. Again, my name is Byron Hebert, this has been another Tool Time update brought to you by PKF and your friends at The Entrepreneur Playbook.

What You Need To Know Before Donating Collectibles

If you’re a collector, donating from your collection instead of your bank account or investment portfolio can be tax-smart. When you donate appreciated property rather than selling it, you avoid the capital gains tax you would have incurred on a sale. And long-term gains on collectibles are subject to a higher maximum rate (28%) than long-term gains on most long-term property (15% or 20%, depending on your tax bracket) — so you can save even more taxes.

But choose the charity wisely. For you to receive a deduction equal to fair market value rather than your basis in the collectible, the item must be consistent with the charity’s purpose, such as an antique to a historical society.

Properly substantiating the donation is also critical, and this may include an appraisal. If you donate works of art with a collective value of $5,000 or more, you’ll need a qualified appraisal, and if the collective value is $20,000 or more, a copy of the appraisal must be attached to your tax return. If an individual item is valued at $20,000 or more, you may also be required to provide a photograph of that item.

If you’re considering a donation of artwork or other collectibles, contact us for help ensuring you can maximize your tax deduction.

Houston CPA Society Energy Conference Chair, Brian Baumler & Vice Chair, David Butler Discuss The 13th Annual Conference

Russ: Hi, I’m Russ Capper with The BusinessMakers Show and I’m here to talk about the 13th annual Houston CPA Society Energy Conference, and I’m joined by Brian Baumler, Audit Director and head of the energy practice at PKF Texas, and Chair of the conference; Brian, good to see you.

Brian: Good to see you too, Russ. Thank you.

Russ: You bet, and also David Butler, the Manager of Energy Valuations at HSSK, the Vice Chair of the conference; David, good to see you as well.

David: Glad to be here, Russ.

Russ: Ok, tell us about the conference.

Brian: Well Russ, as you know this is the 13th annual conference we’ve had. Attendance has over the years has grown substantially. The focus of the conference is really geared towards energy and energy related businesses, focusing on really trends in the industry and where things are going. It’s going to be an interesting dialogue this year with the change in the economics going on in the space here recently. It’s focusing on both upstream, midstream, and also downstream perspectives on what’s going on in the industry but also introduces the CPA profession by offering up a number of the Big Four representatives and the energy practices that they lead.

Russ: Ok, who should attend and why should they attend?

David: I think anybody who’s involved in accounting, or finance, taxation, and even valuation ought to attend because this, first and foremost, is a conference for grownups. We’re not going to sugarcoat things, we’re not going to give you a rosy crystal ball that will assure you that everything in the future is gonna be fine. We don’t know that. What we do know is that the industry is facing some pretty significant challenges; we’re seeing a lot of resilience and creativity, and how companies manage their call structure and how they manage their drilling program and so forth. So, that’s the sort of thing that people should expect to hear and hopefully they’ll be able to take some of that back to their jobs, and we’ve made sure that we’re covering topics in financial reporting, SEC reporting, taxation, as well as the interaction of the energy industry with the capital markets.

Russ: Ok. When is it and where is it?

Brian: Well, it’s actually going to be held this year on Tuesday, August 25th, 2015. It will be at the Norse conference center located over in the City Center.

Russ: Ok. So I guess when you said a while ago it’s been growing every year just like the industry has, but I suspect also that this whole cost accounting thing could be real important this year, and to think the event is really well attended, right?

Brian: Absolutely. Last year we were very fortunate, we were sold out. We had about 325 attendants, in attendance; represented across both the industry spectrum as well as a number of the representative CPA firms and practices in the energy space here in Houston and we’re expecting at least that this year.

Russ: Ok, sold out, wow. Ok, so how do you register?

Brian: Well, I think you can register in a number of different ways. One is, you can go to the website at; register online. There’s also a form you can download. You can go ahead and fill out the form and send that in. It’s $300 for non-members, $250 for members and if you want to send a small group then we’re offering also some discounts for small groups. You can also call directly and use your credit card online; it’s 713-622-7733.

Russ: Ok, Brian, David, thanks a lot; August 25th, Norris Center, City Center.

David: Absolutely.

Brian: That’s correct Be there.

Russ: Be there.

Stolen! My Tax Return? My Refund? What Do I Do?

Believe it or not there is an increasing problem of stolen-identity refund fraud with the IRS. Sound crazy? Here is a factoid that is crazy; the IRS lost $5.8 Billion to identity theft fraud in 2013. Criminals are using increasingly sophisticated strategies to steal names, social security numbers and information in order to file false tax returns with refund claims. Believe it or not Ripley’s, this could happen to you. How do I know? It happened to me four years ago. I am a CPA and have always prepared and filed my own tax return. When I tried to file my 2012 tax return before the extended due date, I was notified that my return had already been processed and a refund issued. What do you do!

First, do not panic. The IRS has taken extensive steps over the past couple of years to strengthen the security of the tax filing system, and expand its processes and avenues to assist in the resolution.

Second, realize this matter will take quite some time to resolve but it will get resolved.

If you receive a notice which leads you to believe that a return was fraudulently filed with your name and social security number, or you file a tax return and receive a notice that your return has already been processed consider the following steps which will help with the resolution process.

  • Immediately contact the IRS via the telephone number on the notice or the IRS’s Identity Protection Specialized Unit at 800-908-4490 and report that a return might have been fraudulently filed.
  • Once you have connected with a representative within the identity theft unit explain your situation and complete the necessary Form 14039. Begin a log of dates and times called. Ask for the representative’s direct number and name and follow up time to call back. If you are trying to get a refund which they will not give you due to the fraudulent return already being processed note that you will receive interest for the period of time you did not receive your refund if you were due one. The resolution process could take several months to a year or two to complete.
  • Request a security PIN number from the IRS. You will use this number on all future payments and filings. This notifies the IRS that you were a fraud victim and allows for additional security surrounding your account.
  • Follow up with your representative at least every two months.
  • Protect yourself. If you believe the fraud could extend to a larger scale, contact the Federal Trade Commission Identity Theft Hotline at 877-438-4338.
  • Remember, you get more with honey than vinegar. Although you feel violated and frustrated, the IRS wants to help you and will. This will get resolved.


Set up IRAs for Children with Summer Jobs

Teenagers’ retirement may seem too far off to warrant saving now, but IRAs can be perfect for teens precisely because they’ll likely have many years to let their accounts grow tax-deferred or tax-free.

The 2015 contribution limit is the lesser of $5,500 or 100% of earned income. A teen’s traditional IRA contributions typically are deductible, but distributions will be taxed. Roth IRA contributions aren’t deductible, but qualified distributions will be tax-free.

Choosing a Roth IRA is typically a no-brainer if a teen doesn’t earn income that exceeds the standard deduction ($6,300 for 2015 for single taxpayers), because he or she will likely gain no benefit from deducting a traditional IRA contribution. Even above that amount, the teen probably is taxed at a low rate, so the Roth will typically still be the better answer.

How powerful can an IRA for a teen be? Here’s an example: Both Madison and Noah contribute $5,500 per year to their IRAs through age 66 and earn a 6% rate of return. But Madison starts contributing when she gets her first job at age 16, while Noah waits until age 23, after he’s graduated from college and started his career. Madison’s additional $38,500 of early contributions results in a nest egg at full retirement age of 67 that’s nearly $600,000 larger than Noah’s — $1,698,158 vs. $1,098,669!

Contact us for more ideas on helping teens benefit from tax-advantaged saving.