Wash Sales: What to Watch Out For
What is a wash sale? A wash sale occurs when you sell securities at a loss and within 30 days before or after the sale you acquire substantially identical securities. When this happens, the loss cannot be deducted, instead the tax basis in the new securities is adjusted and the loss is deferred until the replacement securities are sold. This rule limits a taxpayer's ability to obtain a tax benefit from an "artificial" loss.
Unfortunately, these rules can come into play in unintended situations. For example, distributions from a mutual fund could create a wash sale when dividends are reinvested within the 60 day window. Brokers are now required to track wash sales within an account, but that is not the only time a wash sale occurs. The rules apply across all the accounts an individual owns, even an IRA. So the deduction from a loss on a sale in a regular investment account would be limited if substantially identical securities are purchased in an IRA within 30 days. It is the taxpayer's responsibility to track these situations.
What is substantially identical? Ordinarily, stock of one company is not considered substantially identical to stock in another. So trades of different companies in the same market sector would not trigger a wash sale. Likewise, preferred and common stock in the same company are not ordinarily considered identical, but trading in options or warrants of the same security could trigger a wash sale.
Reporting Requirements for
You may not know it, but your company could have a growing liability: abandoned and unclaimed property (AUP). Generally, AUP is defined as property held in the ordinary course of business that the owner has not claimed for a certain period. This includes uncashed checks, unapplied customer credit balances and benefit plan payments. When these items become abandoned under state law, the business owner is responsible for turning the property over to the state.
Every state has AUP laws and they are not the same in every state. For example, Connecticut does not accept gift cards or certificates, but some states do. A company may be under the jurisdiction of multiple states, typically the states it does business in and its state of formation. Delaware is a popular state to be incorporated in and it has been aggressively collecting AUP. Delaware contracts with firms that audit past years and will estimate the liability if the company hasn't maintained appropriate records.
Connecticut requires due diligence letters to be sent
prior to considering property abandoned. Payments must be sent to the State Treasurer by March 31st of the following year. Connecticut requires companies to file a negative report each year when there is no unclaimed property. This report is also due by March 31st each year. You can find out more at the Treasurer's website.
Don't Fall For IRS Impersonators
Your telephone rings, the caller ID says its from a government agency. The caller knows your personal information, including your social security number, and says you owe back taxes and will be arrested if you don't pay immediately. The Justice Department has estimated that tens of thousands of victims have lost hundreds of millions of dollars to such schemes.
Late last year five call centers in India were raided and 70 people were arrested in connection with fraudulent calls. Twenty others in the U.S. were arrested. This won't end what has proven to be a lucrative business. Remember that the IRS does not make initial contacts by telephone and will never demand that you pay with prepaid debit or gift cards. Always contact your tax adviser if something like this happens to you.
Elderly persons are particularly at risk to this type of fraud, so warn older relatives and friends and investigate if you see signs that someone may have been contacted.
Small Employer HRAs
On December 13th President Obama signed into law the "21st Century Cures Act" which included a provision that allows employers who do not offer group health insurance and have fewer than 50 employees to establish a new type of HRA, the qualified small employer health reimbursement arrangement (QSEHRA). A QSEHRA isn't subject to penalties for failing to satisfy the Internal Revenue Code's group health plan requirements, such as group health plan portability, access, and renewability requirements under HIPAA and market reform provisions under the ACA. This new plan will reduce the compliance burden for small employers who wish to provide some health care benefits to their employees.
The maximum reimbursement for health expenses a small employer can provide through a QSEHRA is $4,950 for single coverage and $10,000 for family coverage, adjusted annually for inflation. The QSEHRA must be offered to all full-time employees, except those who have not completed 90 days of service, are under age 25, or are seasonal workers. Each employee must be offered the same terms, the maximum annual benefit caps must be allocated for employees entering the plan during the year, and the employee's compensation cannot be reduced as a result of them accepting the QSEHRA benefit.