Healthcare Reform. No doubt, this emotionally-charged topic has generated an incredible amount of discussion, debate and confusion. And it’s no wonder, considering the resulting legislation —which can be perceived as positive or negative, depending on which side of the fence you stand —has created a slew of new tax law changes and compliance issues for business owners and individual taxpayers alike. Certainly, everyone is anticipating the results of the upcoming presidential election, which will help shape the future of how healthcare reform will transition into 2013 and beyond.

HEALTHCARE REFORM:

ACCOUNTING FOR THE CELEBRITY CLIENT ISSUE

FALL 2012

10 NON-TAX REASONS FOR ESTATE PLANNING

VACATION HOMES: THE TAX PERSPECTIVE

Certified Public Accountants and ConsultantsNew Jersey. New York. Pennsylvania. Maryland. Florida. Coloradow i t h u m . c o m

BY WILLIAM R. HAGAMAN, JR., CPA; CEO, MANAGING PARTNER

(continued, overleaf)

BE IN A POSITION OF STRENGTHSM

EXAMINING THE CONTROVERSY AND CONFUSION

HEALTHCARE

IS A CIVIL RIGHT

MAKE YOUR OWN HEALTHCARE CHOICES!

UNCLE SAM KEEP AWAY

WithumSmith+Brown, PCCertified Public Accountants and Consultants

(CONTINUED FROM FRONT PAGE)

HEALTHCARE REFORM: EXAMINING THE CONTROVERSY AND CONFUSIONAs you are aware, the Patient Protection and Affordable Care Act was signed into law by President Barack Obama on March 23, 2010, along with the Healthcare and Education Reconciliation Act of 2010 following a week later. In the months and years ahead, this legislation as we know it today will likely change, but probably will not disappear in its entirety, as it is expected that certain provisions contained within the healthcare reform act will continue even in the event the act is overturned in the future. Regulations and additional implementation guidance will be issued; new initiatives will be proposed; and those that have already passed may be adjusted or withdrawn. As professional service providers and advisors, it is imperative that our views be both bipartisan and neutral, preparing our clients for whatever may come post-election. At this point, however, there is much more clarification to be provided by the IRS on definitions and compliance rules, so we cannot advise on too many specifics just yet. However, we do have some guidance to share in times like these.

FOR BUSINESS OWNERS AND FINANCIAL EXECUTIVESThe most important piece of advice we can share with our business clients is to be proactive in running a lean and mean company, focusing on the areas of employee utilization, operational efficiencies and expense cutting, getting the most value out of every dollar. Depending on the size and structure of the business, we can assist in evaluating a variety of issues as they relate to the provisions included in the healthcare reform act. For example, we are working with our clients who are deemed to be “large employers” in determining advantages and disadvantages associated with the provision of minimum essential coverage versus the penalty for not providing such coverage. For our business clients of all sizes, we are discussing issues related to healthcare reform act provisions such as the premium assistance credit and, importantly, reporting of the aggregate cost of employer-sponsored group health coverage provided to employees on their 2012 Form W-2.

FOR INDIVIDUAL TAXPAYERSIf you are a high-net-worth individual, you are likely wondering what you need to do to protect yourself and your assets. We have the resources to provide education on a cost/benefit analysis of your health insurance programs. And we are discussing strategies to minimize the impact of a variety of surcharges including, but not limited to, upcoming changes in flexible spending accounts, the 0.9% hospital insurance tax on high income tax payers, and a 3.8% Medicare tax on investment income. And don’t forget that starting in 2014 —depending on election results —the requirement for most U.S. citizens to have minimum health coverage or face an additional tax will come into play. Additionally, our Estate & Trust

professionals are not waiting until after the election to speak with the clients, but are proactively reaching out to them now to review their current financial and estate planning strategies. Discussions include utilization of the increased gift exemption and evaluation of current investment and financial planning decisions to determine if they are appropriate for lifestyle needs and family estate planning objectives, before and after the election.

WS+B’S HRAT TEAMIn response to the healthcare reform policy and the impact it has upon businesses of all sizes, WithumSmith+Brown formed a Healthcare Reform Advisory Team (HRAT). The group is comprised of WS+B’s most seasoned healthcare and tax professionals, whose mission is to answer and address client questions and issues related to the federal policy. “Healthcare reform affects every business from every industry,” says Anthony Panico, CPA, WS+B partner and team leader of this advisory group. “Members of the Healthcare Reform Advisory Team are here to help clients navigate the rules and regulations of this policy.” Feel free to contact Tony with questions related to healthcare reform at healthcare@withum.com. He and the HRAT team are very knowledgeable about the subject.

In conclusion, our goal as ‘trusted advisors’ is to work alongside our clients as true partners, helping their business grow and thrive through good times and not-so-good times. As during all times of significant upheaval and change, individuals and businesses of all sizes will need to seek the guidance of their professional advisors and consultants, including CPAs, who, in turn, will need to stay informed as to the changing aspects of the U.S. healthcare delivery system.

IN RESPONSE TO THE HEALTHCARE REFORM POLICY AND THE IMPACT IT HAS UPON BUSINESSES OF ALL SIZES, WITHUMSMITH+BROWN FORMED A HEALTHCARE REFORM ADVISORY TEAM (HRAT). THE GROUP IS COMPRISED OF WS+B’S MOST SEASONED HEALTHCARE AND TAX PROFESSIONALS, WHOSE MISSION IS TO ANSWER AND ADDRESS CLIENT QUESTIONS AND ISSUES RELATED TO THE FEDERAL POLICY.

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In the accounting profession, CPAs are typically in a position of trust and loyalty with their clients. For many high-profile or “celebrity” clients, the trust and loyalty placed in their CPAs is even greater.

Many celebrities come into fame at a relatively young age with little understanding of finances and how to plan for the future. As an example, professional athletes tend to sign contracts soon after graduating college (and sometimes even before graduating). In their early twenties and with their first big pay check, it’s important that the CPA meet with these young clients and get them involved with their finances from the start. Careers of professional athletes are typically short-lived so it is imperative that they effectively plan for the future. CPAs can advise them during contract negotiations, by reviewing the contract and focusing in on their client’s best interest. In addition, they are also there to assist with estate planning, insurance protection, entity selection and structure, asset protection, budgeting and planning, state tax compliance, offshore investments, organizing and controlling the athlete’s cash flow —even on a daily basis, if needed. In order to help extend their short-lived careers, CPAs can provide assistance in generating lasting value by effective brand creation and management.

There’s a benefit of having a CPA, a Certified Public Accountant (contrary to a “Celebrity Personal Assistant”), not only for those new athletes inexperienced with their new fortunes, but also for the more “seasoned” veterans. CPAs can help advise their client in investing opportunities and new business ventures by performing projections, an investment analysis and matching the investment to the celebrity’s long-range goals. For example, Warren Sapp, defensive tackle for the Tampa Bay Buccaneers and Oakland Raiders filed for Chapter 7 bankruptcy in 2012. According to the Tampa Bay Times article dated April 13, 2012, Warren Sapp stated his financial troubles started with the wrong construction deal at the wrong time. CPAs may have been able to help avoid some of Sapp’s financial troubles by performing an investment analysis and helping Sapp determine whether the investment in the construction project was in his best interest financially. Occasionally, assessing risk can be the most important thing a CPA can do.

For those more musically-inclined celebrities, CPAs may be able to perform an analysis on contracts to identify the royalty rates, payment schedules and discover any unpaid royalties due to the artist and copyright holders. Young music artists, like Justin Bieber and Miley Cyrus, are similar to those young athletes who need guidance on handling their day-to-day finances and planning effectively for the future. CPAs that are able to provide trustworthy recordkeeping and a realistic future planning strategy can help maximize the artists’ personal net worth and long-term wealth. With a successful music career, artists typically tour the country and the world showcasing their music. CPAs can help properly budget for upcoming tours, in order to avoid mismanagement of the artists’ finances. Pop music star, Rihanna, recently sued her prior accountants for failing to do just that. All of the services provided by CPAs for celebrity clients are not exclusive or unique to that type of clientele. Even the non-celebrities of the world can benefit from the financial advice, future planning and management of finances by a CPA.

BY MICHELLE MORRIS

ACCOUNTING FOR THE CELEBRITY CLIENT

BE IN A POSITION OF STRENGTHSM

WithumSmith+Brown, PC Certified Public Accountants and Consultants withum.com

CPAs can help advise their client in investing opportunities and new business ventures by performing projections, an investment analysis and matching the investment to the celebrity’s long-range goals.

People associate estate planning with saving estate taxes, but in reality, very few pay estate taxes. However, there are many good reasons to plan, and here are ten of them:

BY EDWARD MENDLOWITZ, CPA; PARTNER

10 NON-TAX REASONS FOR ESTATE PLANNING

Execute a will. When you do not have a will, your affairs will be settled according to legislative and bureaucratic norms, which is usually never the full way the deceased would have chosen. A will also allows the appointment of people to settle your affairs, and says whether they will be compensated and need to obtain surety bonds.

Provisions can be made in a will or trust for an allowance or regular stipend to be paid to the guardian, and also to provide for funding for additions to the guardian’s home or to acquire a bigger home, if needed, for the appropriate care of your children.

Choosing a guardian can be easily done in a will, or done with much difficultly, confusion and cost in a Surrogate’s Court when there is no will. Choosing a guardian is necessary in the event of an untimely death of both parents of a minor child or children.

Probate is the process of settling an estate by proving the will, qualifying the executors, administering the estate, resolving all claims, accumulating and liquefying assets, filing all tax returns, paying taxes and making distributions to beneficiaries. In many cases probate can be minimized by a careful titling of assets.

Planning can provide for charitable bequests, delayed distributions to beneficiaries, different classes of beneficiaries and asset protection for your heirs. This can be done through a will, trusts or by the way assets are owned and beneficiaries designated.

An estate plan can provide for estate liquidity such as making funds available to heirs soon after death, providing for the management and operation of any businesses or real estate, or indicating a need for life insurance. Note that for people with young children, there are many low-cost fixed premium 20- and 30-year term policy options available.

Planning forces the organization of information and your affairs. And a final word is to leave a list somewhere with all your passwords so your family won’t go crazy trying to decipher your email accounts, your computer and cell phone.

This is an appropriate time to prepare a letter providing pertinent information you would want your family to have regarding your affairs, your background and ethical, moral and/or religious values, and any other sage advice you want to leave behind.

A plan enables the preparation of healthcare proxies, living wills, powers of attorney and provisions for care when incapacitated or disabled. In many instances determining who “pulls your plug” could be much more important to you than who gets your money.

Planning enables the synchronization of non-probate assets such as IRA, 401k and 403b accounts; pension plans; annuities; and jointly-owned accounts or houses with assets individually owned. It is important to understand that many assets that people own are not distributed or covered by a will, and care needs to be taken to consider the complete distribution of all of a deceased’s assets in accordance with what is desired to be done.

For additional information, contact your WS+B advisor who will arrange for the appropriate person from our estate planning group to assist you.

Nothing beats being prepared. Planning is essential even when there is no taxable estate.

VACATION HOMES: THE TAX PERSPECTIVE

w i t h u m . c o m

WithumSmith+Brown, PC Certified Public Accountants and Consultants withum.com

BY ERIC WILSON

The Internal Revenue Code has specific tax laws surrounding vacation homes that a taxpayer rents and also enjoys for personal use. Ultimately, the number of days rented versus days of personal use will impact tax reporting and to what extent expenses relating to the vacation home are deductible. The following highlights some of the most important aspects of these tax laws but is not intended to be a complete discussion.

When a vacation home is rented for less than 15 days, it is considered a personal home, and you are not required to report the rental income; it is “tax-free.” The qualified mortgage interest and real estate taxes are included with a taxpayer’s itemized deductions on the taxpayer’s personal income tax return (Schedule A), subject to limitation. All other expenses related to the vacation home are considered nondeductible personal expenses.

FOR EXAMPLEJim owns a vacation home located on a golf course which hosts an annual PGA tournament. Jim rents his vacation home every year for two weeks (14 days) during the tournament for an annual sum of $60,000. As favored by the tax laws, Jim does not have to report any of the money received as income. Assuming Jim rented the home for the past five years, that’s $300,000 in his pocket tax-free! Jim is also able to include the qualified mortgage interest and real estate taxes with his itemized deductions on his personal income tax return.

When a vacation home is rented for more than 15 days, a taxpayer has to determine if it’s considered a residence by applying the personal use test from the IRS. The vacation home is considered a residence if the amount of days spent for personal use is more than the greater of:

1. 14 days, or2. 10% of the total days rented to others

FOR EXAMPLE: Sally has a vacation home she rented for six months (180 days) and vacationed at for 20 days during the year. Sally’s vacation home is considered a “residence” because her 20 personal use days were

more than the greater of 14 days or 10% of the days rented (18 days). In other words, her vacation home passed the personal use test.

When a vacation home is considered a residence, all rental income is reported on Schedule E. However, expenses are to be divided between rental use and personal use based on the number of days used for each purpose. In addition, rental related expenses are limited to the extent of rental income (cannot generate a tax loss). Expenses that are limited under this rule may be carried forward to future years but remain subject to the income limitation.

When a vacation home fails the personal use test (not considered a residence), the vacation home is considered a rental property, and deductions are not limited to income but are subject to passive activity rules.

FOR EXAMPLE: Using the same fact pattern above, assume Sally collected $12,000 of rental income which is reported on Schedule E. She also incurred $10,000 of property expenses during the tax year which must be split between personal use and rental expenses. This bifurcation is accomplished by taking the rental days of 180 divided by 200 total days (180/200 = 90%). Thus, $9,000 ($10,000 x 90%) of the property expenses offset the rental income and is deducted on Schedule E. The balance of the expenses is considered nondeductible personal expenses.

The classification of a vacation home as a personal home, residence or rental is determined on a year-to-year basis. Therefore, it is important to maintain accurate records on a vacation home to document the number of personal days and days rented.

Please contact your local WS+B advisor if you have any questions regarding the rental of a vacation home.

10 NON-TAX REASONS FOR ESTATE PLANNING

When a vacation home is rented for less than 15 days, it is considered a personal home, and you are not required to report the rental income; it is “tax-free.”

WithumSmith+Brown, PCCertified Public Accountants and Consultants

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WS+B is pleased to announce the promotion of Cathy Bendall, CPA, PSA, from senior manager to partner level. Based in the firm’s New Brunswick office, Cathy joined WS+B in 2007. A member of WS+B’s Not-for-Profit & Education Services Group, she has over 25 years of experience in highly complex not-for-profit and governmental audits of many types and performs audits at agencies funded by federal, state and local sources including single audits.

“It brings me a great deal of personal satisfaction in knowing that all the hard

WS+B NEW PARTNERS

work has been worth it,” Cathy said. “Being recognized by the partners of WS+B and invited to join the firm as a partner is definitely one of the most significant accomplishments of my career. It makes me smile!”

In addition, WS+B welcomes Marc Silverman, CPA, as a partner based in the firm’s Morristown office. Marc has 22 years dedicated to the profession, most of which were with a ‘Big 4’ firm. He has extensive experience serving mid-market private companies in the industries of business services,

manufacturing, technology and life sciences, as well as expertise working with public companies, having been an audit partner for several Fortune 1000 multi-national SEC public registrants. Marc comes to WS+B from his boutique firm, MH Silverman and Associates, which specialized in providing assurance services to high-net-worth individuals.

“I am thrilled about my union with WithumSmith+Brown,” says Marc. “I now have access to more resources and staff expertise, allowing me to better serve my clients.”

Cathy Bendall, CPA, PSA, Partner New Brunswick, NJ • 732.828.1614 • cbendall@withum.com

Marc Silverman, CPA, Partner Morristown, NJ • 973.898.9494 • msilverman@withum.com