Maxwell Shmerler & Co., CPAs Newsletter

ABOUT US

With 88 years of continuous service to our clients throughout the US, Maxwell Shmerler & Co. provides accounting, tax, financial & estate planning, computer and consulting services.

With locations in Westchester County, N.Y., Central NJ, Southern Florida and a site on the internet, we can provide our services to our clients when and where it is needed.

Our firm began in 1913, co-incident with the first federal income tax law. We are constantly monitoring the changing tax laws in order to minimize our client's potential tax liabilities.

We take pride in the service we provide to our clients. Please contact me if you would like more information.

Sincerely,

Ford J Levy Editor

STOCK OPTION LOOPHOLES

1. Gains from sales of stock held more than one year aftaer an ISO is exercised, and more than two years after the ISO is granted, are taxed at favorable long-term capital gains rates. Otherwise, they are taxed as ordinary compensation. The problem arises when the untaxed difference between the option price and the fair market value of the stock when the option is exercised results in additional AMT tax.

To avoid the AMT, exercise only enough options every year so that the AMT is equal to your regular tax, but not higher. Most tax practitioners can assist in this periodic calculation.

2. Option holders that exercise nonvested ISOs should consider making an election under Section 83(b) of the Internal Revenue Code within 30 days of the exercise. The election is made by filing a statement containing certain information with your IRS Service Center and attaching a copy to your tax return.

An 83(b) election freezes the amount of preference income subject to AMT at the amount existing on the date of early exercise. Otherwise, the AMT income is calculated on the date that the shares would have vested, at the difference between the value of the shares at that time and the amount paid for the option.

Example: You pay $1 for ISOs on stock worth $10 a share. When you make an 83(b) election in 30 days, your AMT taxable income is limited to $9. If you don't make the election, and the stock price rises to $25 whe your option vests, your AMT taxable income is $24 per share. Of course, if the stock drops in price, then the election was not advantageous.

For more information, contact the tax experts at Maxwell Shmerler & Co., CPAs. Whether you are issuing the options or receiving them, we can help.

E-COMMERCE & SALES TAX

Many businesses are venturing into e-commerce, either independently, or via strategic alliances with e-commerce firms.

Unfortunately, the tax implications of such a new venture can catch many executives off guard.

Theoretically, a small company with one office can become liable for collecting and remitting sales and use taxes in scores, if not hundreds of jurisdictions. Therefore, effective tax planning, up front, can prepare your business for the potential tax consequences of e-commerce.

When establishing e-commerce relationships, the criteria for nexus creating activities of supply chain partners should be determined, including where potential partners’

1. Servers are located;
2. Fulfillment is located;

3. Technical people are providing services; and
4. Call centers are located.

In order for states not to have jurisdiction over business operations and demand that the business collect and remit sales or use tax, a business has to be very conscious of where it has physical presence – what’s referred to as nexus. And, this nexus can take many forms.

The Supreme Court has ruled that a state cannot require an out-of-state vendor to collect and pay use tax on goods sold to the state’s customers when the company has no outlets, sales representatives, or other significant property in the state.

However, the Court has not yet ruled whether physical presence is a precondition to establishing state tax jurisdiction over a remote vendor. Currently, that’s left to the states to decide.

The recently adjourned Advisory commission on Electronic Commerce made recommendations to Congress based on the majority of its members. Factors were listed that in and of themselves do not have the power to create a physical presence.

An eye should be kept on Congress for future legislation on this topic.

Learning New Technology

Advances in technology serve to make our life both easier and more complex. It is often difficult for a busy executive to find the time to stay abreast of all the latest technologies, and it is often even more difficult to determine whether a particular technology is right for you and your business. That is where we can help. Our computer professionals know technology and business, and are there to answer your questions and provide you with guidance.

Whether you need help selecting accounting software, or want to know what network to install, ask us. Many of our clients already do.

CONTACT US

Phone: (914) 681-0400 Email:info@msco-cpa.com

Maxwell Shmerler & Co. One N. Lexington Avenue White Plains, N.Y. 10601

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STOCK OPTION LOOPHOLES

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