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3 ways to get more from your marketing dollars

Posted by Admin Posted on Nov 15 2018

A strong economy leads some company owners to cut back on marketing. Why spend the money if business is so good? Others see it differently — a robust economy means more sales opportunities, so pouring dollars into marketing is the way to go.

The right approach for your company depends on many factors, but one thing is for sure: Few businesses can afford to cut back drastically on marketing or stop altogether, no matter how well the economy is doing. Yet spending recklessly may be dangerous as well. Here are three ways to creatively get more from your marketing dollars so you can cut back or ramp up as prudent:

1. Do more digitally. There are good reasons to remind yourself of digital marketing’s potential value: the affordable cost, the ability to communicate with customers directly, faster results and better tracking capabilities. Consider or re-evaluate strategies such as:

  • Regularly updating your search engine optimization approaches so your website ranks higher in online searches and more prospective customers can find you,
  • Refining your use of email, text message and social media to communicate with customers (for instance, using more dynamic messages to introduce new products or announce special offers), and
  • Offering “flash sales” and Internet-only deals to test and tweak offers before making them via more expansive (and expensive) media.

2. Search for media deals. During boom times, you may feel at the mercy of high advertising rates. The good news is that there are many more marketing/advertising channels than there used to be and, therefore, much more competition among them. Finding a better deal is often a matter of knowing where to look.

Track your marketing efforts carefully and dedicate time to exploring new options. For example, podcasts remain enormously popular. Could a marketing initiative that exploits their reach pay dividends? Another possibility is shifting to smaller, less expensive ads posted in a wider variety of outlets over one massive campaign.

3. Don’t forget public relations (PR). These days, business owners tend to fear the news. When a company makes headlines, it’s all too often because of an accident, scandal or oversight. But you can turn this scenario on its head by using PR to your advantage.

Specifically, ask your marketing department to craft clear, concise but exciting press releases regarding your newest products or services. Then distribute these press releases via both traditional and online channels to complement your marketing efforts. In this manner, you can make the news, get information out to more people and even improve your search engine rankings — all typically at only the cost of your marketing team’s time.

These are just a few ideas to help ensure your marketing dollars play a winning role in your company’s investment in itself. We can provide further assistance in evaluating your spending in this area, as well as in developing a feasible budget for next year.

As we approach the end of 2018, it’s a good idea to review the mutual fund holdings in your taxable accounts and take steps to avoid potential tax traps. Here are some tips.

Mutual funds: Handle with care at year end

Posted by Admin Posted on Nov 13 2018

As we approach the end of 2018, it’s a good idea to review the mutual fund holdings in your taxable accounts and take steps to avoid potential tax traps. Here are some tips.

Avoid surprise capital gains

Unlike with stocks, you can’t avoid capital gains on mutual funds simply by holding on to the shares. Near the end of the year, funds typically distribute all or most of their net realized capital gains to investors. If you hold mutual funds in taxable accounts, these gains will be taxable to you regardless of whether you receive them in cash or reinvest them in the fund.

For each fund, find out how large these distributions will be and get a breakdown of long-term vs. short-term gains. If the tax impact will be significant, consider strategies to offset the gain. For example, you could sell other investments at a loss.

Buyer beware

Avoid buying into a mutual fund shortly before it distributes capital gains and dividends for the year. There’s a common misconception that investing in a mutual fund just before the ex-dividend date (the date by which you must own shares to qualify for a distribution) is like getting free money.

In reality, the value of your shares is immediately reduced by the amount of the distribution. So you’ll owe taxes on the gain without actually making a profit.

Seller beware

If you plan to sell mutual fund shares that have appreciated in value, consider waiting until just after year end so you can defer the gain until 2019 — unless you expect to be subject to a higher rate next year. In that scenario, you’d likely be better off recognizing the gain and paying the tax this year.

When you do sell shares, keep in mind that, if you bought them over time, each block will have a different holding period and cost basis. To reduce your tax liability, it’s possible to select shares for sale that have higher cost bases and longer holding periods, thereby minimizing your gain (or maximizing your loss) and avoiding higher-taxed short-term gains.

Think beyond just taxes

Investment decisions shouldn’t be driven by tax considerations alone. For example, you need to keep in mind your overall financial goals and your risk tolerance.

But taxes are still an important factor to consider. Contact us to discuss these and other year-end strategies for minimizing the tax impact of your mutual fund holdings.

If most of your money is tied up in your business, retirement can be a challenge. So if you haven’t already set up a tax-advantaged retirement plan, consider doing so this year. There’s still time to set one up and make contributions that will be deductible on your 2018 tax return!

It’s not too late: You can still set up a retirement plan for 2018

Posted by Admin Posted on Nov 12 2018

If most of your money is tied up in your business, retirement can be a challenge. So if you haven’t already set up a tax-advantaged retirement plan, consider doing so this year. There’s still time to set one up and make contributions that will be deductible on your 2018 tax return!

More benefits

Not only are contributions tax deductible, but retirement plan funds can grow tax-deferred. If you might be subject to the 3.8% net investment income tax (NIIT), setting up and contributing to a retirement plan may be particularly beneficial because retirement plan contributions can reduce your modified adjusted gross income and thus help you reduce or avoid the NIIT.

If you have employees, they generally must be allowed to participate in the plan, provided they meet the qualification requirements. But this can help you attract and retain good employees.

And if you have 100 or fewer employees, you may be eligible for a credit for setting up a plan. The credit is for 50% of start-up costs, up to $500. Remember, credits reduce your tax liability dollar-for-dollar, unlike deductions, which only reduce the amount of income subject to tax.

3 options to consider

Many types of retirement plans are available, but here are three of the most attractive to business owners trying to build up their own retirement savings:

1. Profit-sharing plan. This is a defined contribution plan that allows discretionary employer contributions and flexibility in plan design. You can make deductible 2018 contributions as late as the due date of your 2018 tax return, including extensions — provided your plan exists on Dec. 31, 2018. For 2018, the maximum contribution is $55,000, or $61,000 if you are age 50 or older and your plan includes a 401(k) arrangement.

2. Simplified Employee Pension (SEP). This is also a defined contribution plan, and it provides benefits similar to those of a profit-sharing plan. But you can establish a SEP in 2019 and still make deductible 2018 contributions as late as the due date of your 2018 income tax return, including extensions. In addition, a SEP is easy to administer. For 2018, the maximum SEP contribution is $55,000.

3. Defined benefit plan. This plan sets a future pension benefit and then actuarially calculates the contributions needed to attain that benefit. The maximum annual benefit for 2018 is generally $220,000 or 100% of average earned income for the highest three consecutive years, if less. Because it’s actuarially driven, the contribution needed to attain the projected future annual benefit may exceed the maximum contributions allowed by other plans, depending on your age and the desired benefit.

You can make deductible 2018 defined benefit plan contributions until your tax return due date, including extensions, provided your plan exists on Dec. 31, 2018. Be aware that employer contributions generally are required.

Sound good?

If the benefits of setting up a retirement plan sound good, contact us. We can provide more information and help you choose the best retirement plan for your particular situation.

Taking the hybrid approach to cloud computing

Posted by Admin Posted on Nov 07 2018

For several years now, cloud computing has been touted as the perfect way for companies large and small to meet their software and data storage needs. But, when it comes to choosing and deploying a solution, one size doesn’t fit all.

Many businesses have found it difficult to fully commit to the cloud for a variety of reasons — including complexity of choices and security concerns. If your company has struggled to make a decision in this area, a hybrid cloud might provide the answer.

Public vs. private

The “cloud” in cloud computing is generally categorized as public or private. A public cloud — such as Amazon Web Services, Google Cloud or Microsoft Azure — is shared by many users. Private clouds, meanwhile, are created for and restricted to one business or individual.

Not surprisingly, public clouds generally are considered less secure than private ones. Public clouds also require Internet access to use whatever is stored on them. A private cloud may be accessible via a company’s local network.

Potential advantages

Hybrid computing, as the name suggests, combines public and private clouds. The clouds remain separate and distinct, but data and applications can be shared between them. This approach offers several potential advantages, including:

Scalability. For less sensitive data, public clouds give businesses access to enormous storage capabilities. As your needs expand or shrink — whether temporarily or for the long term — you can easily adjust the size of a public cloud without incurring significant costs for additional on-site or remote private servers.

Security. When it comes to more sensitive data, you can use a private cloud to avoid the vulnerabilities associated with publicly available options. For even greater security, procure multiple private clouds — this way, if one is breached, your company won’t lose access or suffer damage to all of its data.

Accessibility. Public clouds generally are easier for remote workers to access than private clouds. So, your business could use these for productivity-related apps while confidential data is stored on a private cloud.

Risks and costs

Using a blended computer infrastructure like this isn’t without risks and costs. For example, it requires more sophisticated technological expertise to manage and support compared to a straight public cloud approach. You’ll likely have to invest more dollars in procuring multiple public and private cloud solutions, as well as in the IT talent to maintain and support the infrastructure.

Overall, though, many businesses that have been reluctant to solely rely on either a public or private cloud may find that hybrid cloud computing brings the best of both worlds. Our firm can help you assess the financial considerations involved.

If you’re an executive or other key employee, your employer may offer you a nonqualified deferred compensation (NQDC) plan. As the name suggests, NQDC plans pay employees in the future for services currently performed. The plans allow deferral of the income tax associated with the compensation.

Time for NQDC plan deferral elections

Posted by Admin Posted on Nov 06 2018

If you’re an executive or other key employee, your employer may offer you a nonqualified deferred compensation (NQDC) plan. As the name suggests, NQDC plans pay employees in the future for services currently performed. The plans allow deferral of the income tax associated with the compensation.

But to receive this attractive tax treatment, NQDC plans must meet many requirements. One is that employees must make the deferral election before the year they perform the services for which the compensation is earned. So, if you wish to defer part of your 2019 compensation, you generally must make the election by the end of 2018.

NQDC plans vs. qualified plans

NQDC plans differ from qualified plans, such as 401(k)s, in that:

  • NQDC plans can favor highly compensated employees,
  • Although your income tax liability can be deferred, your employer can’t deduct the NQDC until you recognize it as income, and
  • Any NQDC plan funding isn’t protected from your employer’s creditors.

While some rules are looser for NQDC plans, there are also many rules that apply to them that don’t apply to qualified plans.

2 more NQDC rules

In addition to the requirement that deferral elections be made before the start of the year, there are two other important NQDC rules to be aware of:

1. Distributions. Benefits must be paid on a specified date, according to a fixed payment schedule or after the occurrence of a specified event — such as death, disability, separation from service, change in ownership or control of the employer, or an unforeseeable emergency.

2. Elections to make certain changes. The timing of benefits can be delayed but not accelerated. Elections to change the timing or form of a payment must be made at least 12 months in advance. Also, new payment dates must be at least five years after the date the payment would otherwise have been made.

Be aware that the penalties for noncompliance with NQDC rules can be severe: You can be taxed on plan benefits at the time of vesting, and a 20% penalty and interest charges also may apply. So if you’re receiving NQDC, check with your employer to make sure it’s addressing any compliance issues.

No deferral of employment tax

Another important NQDC tax issue is that employment taxes are generally due when services are performed or when there’s no longer a substantial risk of forfeiture, whichever is later. This is true even though the compensation isn’t actually paid or recognized for income tax purposes until later years.

So your employer may withhold your portion of the tax from your salary or ask you to write a check for the liability. Or your employer might pay your portion, in which case you’ll have additional taxable income.

Next steps

Questions about NQDC — or other executive comp, such as incentive stock options or restricted stock? Contact us. We can answer them and help you determine what, if any, steps you need to take before year end to defer taxes and avoid interest and penalties.

Buy business assets before year end to reduce your 2018 tax liability

Posted by Admin Posted on Nov 05 2018

The Tax Cuts and Jobs Act (TCJA) has enhanced two depreciation-related breaks that are popular year-end tax planning tools for businesses. To take advantage of these breaks, you must purchase qualifying assets and place them in service by the end of the tax year. That means there’s still time to reduce your 2018 tax liability with these breaks, but you need to act soon.

Section 179 expensing

Sec. 179 expensing is valuable because it allows businesses to deduct up to 100% of the cost of qualifying assets in Year 1 instead of depreciating the cost over a number of years. Sec. 179 expensing can be used for assets such as equipment, furniture and software. Beginning in 2018, the TCJA expanded the list of qualifying assets to include qualified improvement property, certain property used primarily to furnish lodging and the following improvements to nonresidential real property: roofs, HVAC equipment, fire protection and alarm systems, and security systems.

The maximum Sec. 179 deduction for 2018 is $1 million, up from $510,000 for 2017. The deduction begins to phase out dollar-for-dollar for 2018 when total asset acquisitions for the tax year exceed $2.5 million, up from $2.03 million for 2017.

100% bonus depreciation

For qualified assets that your business places in service in 2018, the TCJA allows you to claim 100% first-year bonus depreciation • compared to 50% in 2017. This break is available when buying computer systems, software, machinery, equipment and office furniture. The TCJA has expanded eligible assets to include used assets; previously, only new assets were eligible.

However, due to a TCJA drafting error, qualified improvement property will be eligible only if a technical correction is issued. Also be aware that, under the TCJA, certain businesses aren’t eligible for bonus depreciation in 2018, such as real estate businesses that elect to deduct 100% of their business interest and auto dealerships with floor plan financing (if the dealership has average annual gross receipts of more than $25 million for the three previous tax years).

Traditional, powerful strategy

Keep in mind that Sec. 179 expensing and bonus depreciation can also be used for business vehicles. So purchasing vehicles before year end could reduce your 2018 tax liability. But, depending on the type of vehicle, additional limits may apply.

Investing in business assets is a traditional and powerful year-end tax planning strategy, and it might make even more sense in 2018 because of the TCJA enhancements to Sec. 179 expensing and bonus depreciation. If you have questions about these breaks or other ways to maximize your depreciation deductions, please contact us.

A tried-and-true year end tax strategy is to make charitable donations. As long as you itemize and your gift qualifies, you can claim a charitable deduction. But did you know that you can enjoy an additional tax benefit if you donate long-term appreciated stock instead of cash?

Donate appreciated stock for twice the tax benefits

Posted by Admin Posted on Oct 31 2018

A tried-and-true year end tax strategy is to make charitable donations. As long as you itemize and your gift qualifies, you can claim a charitable deduction. But did you know that you can enjoy an additional tax benefit if you donate long-term appreciated stock instead of cash?

2 benefits from 1 gift

Appreciated publicly traded stock you’ve held more than one year is long-term capital gains property. If you donate it to a qualified charity, you may be able to enjoy two tax benefits:

  1. If you itemize deductions, you can claim a charitable deduction equal to the stock’s fair market value, and
  2. You can avoid the capital gains tax you’d pay if you sold the stock.

Donating appreciated stock can be especially beneficial to taxpayers facing the 3.8% net investment income tax (NIIT) or the top 20% long-term capital gains rate this year.

Stock vs. cash

Let’s say you donate $10,000 of stock that you paid $3,000 for, your ordinary-income tax rate is 37% and your long-term capital gains rate is 20%. Let’s also say you itemize deductions.

If you sold the stock, you’d pay $1,400 in tax on the $7,000 gain. If you were also subject to the 3.8% NIIT, you’d pay another $266 in NIIT.

By instead donating the stock to charity, you save $5,366 in federal tax ($1,666 in capital gains tax and NIIT plus $3,700 from the $10,000 income tax deduction). If you donated $10,000 in cash, your federal tax savings would be only $3,700.

Watch your step

First, remember that the Tax Cuts and Jobs Act nearly doubled the standard deduction, to $12,000 for singles and married couples filing separately, $18,000 for heads of households, and $24,000 for married couples filing jointly. The charitable deduction will provide a tax benefit only if your total itemized deductions exceed your standard deduction. Because the standard deduction is so much higher, even if you’ve itemized deductions in the past, you might not benefit from doing so for 2018.

Second, beware that donations of long-term capital gains property are subject to tighter deduction limits — 30% of your adjusted gross income for gifts to public charities, 20% for gifts to nonoperating private foundations (compared to 60% and 30%, respectively, for cash donations).

Finally, don’t donate stock that’s worth less than your basis. Instead, sell the stock so you can deduct the loss and then donate the cash proceeds to charity.

Minimizing tax and maximizing deductions

For charitably inclined taxpayers who own appreciated stock and who’ll have enough itemized deductions to benefit from itemizing on their 2018 tax returns, donating the stock to charity can be an excellent year-end tax planning strategy. This is especially true if the stock is highly appreciated and you’d like to sell it but are worried about the tax liability. Please contact us with any questions you have about minimizing capital gains tax or maximizing charitable deductions.

Change management doesn’t have to be scary

Posted by Admin Posted on Oct 31 2018

Business owners are constantly bombarded with terminology and buzzwords. Although you probably feel a need to keep up with the latest trends, you also may find that many of these ideas induce more anxiety than relief. One example is change management.

This term is used to describe the philosophies and processes an organization uses to manage change. Putting change management into practice in your company may seem scary. What is our philosophy toward change? How should we implement change for best results? Can’t we just avoid all this and let the chips fall where they may?

About that last question — yes, you could. But businesses that proactively manage change tend to suffer far fewer negative consequences from business transformations large and small. Here are some ways to implement change management slowly and, in doing so, make it a little less scary.

Set the tone

When a company creates a positive culture, change is easier. Engaged, well-supported employees feel connected to your mission and are more likely to buy in to transformative ideas. So, the best place to start laying the foundation for successful change management is in the HR department.

When hiring, look for candidates who are open to new ideas and flexible in their approaches to a position. As you “on board” new employees, talk about the latest developments at your company and the possibility of future transformation. From there, encourage openness to change in performance reviews.

Strive for solutions

The most obvious time to seek change is when something goes wrong. Unfortunately, this is also when a company can turn on itself. Fingers start pointing and the possibility of positive change begins to drift further and further away as conflicts play out.

Among the core principles of change management is to view every problem as an opportunity to grow. When you’ve formally discussed this concept among your managers and introduced it to your employees, you’ll be in a better position to avoid a destructive reaction to setbacks and, instead, use them to improve your organization.

Change from the top down

It’s not uncommon for business owners to implement change via a “bottom-up” approach. Doing so involves ordering lower-level employees to modify how they do something and then growing frustrated when resistance arises.

For this reason, another important principle of change management is transforming a business from the top down. Every change, no matter how big or small, needs to originate with leadership and then gradually move downward through the organizational chart through effective communication.

Get started

As the cliché goes, change is scary — and change management can be even more so. But many of the principles of the concept are likely familiar to you. In fact, your company may already be doing a variety of things to make change management far less daunting. Contact us to discuss this and other business-improvement ideas.

The Tax Cuts and Jobs Act (TCJA) didn’t change the federal tax credit for “increasing research activities,” but several TCJA provisions have an indirect impact on the credit. As a result, the research credit may be available to some businesses for the first time.

Research credit available to some businesses for the first time

Posted by Admin Posted on Oct 30 2018

The Tax Cuts and Jobs Act (TCJA) didn’t change the federal tax credit for “increasing research activities,” but several TCJA provisions have an indirect impact on the credit. As a result, the research credit may be available to some businesses for the first time.

AMT reform

Previously, corporations subject to alternative minimum tax (AMT) couldn’t offset the research credit against their AMT liability, which erased the benefits of the credit (although they could carry unused research credits forward for up to 20 years and use them in non-AMT years). By eliminating corporate AMT for tax years beginning after 2017, the TCJA removed this obstacle.

Now that the corporate AMT is gone, unused research credits from prior tax years can be offset against a corporation’s regular tax liability and may even generate a refund (subject to certain restrictions). So it’s a good idea for corporations to review their research activities in recent years and amend prior returns if necessary to ensure they claim all the research credits to which they’re entitled.

The TCJA didn’t eliminate individual AMT, but it did increase individuals’ exemption amounts and exemption phaseout thresholds. As a result, fewer owners of sole proprietorships and pass-through businesses are subject to AMT, allowing more of them to enjoy the benefits of the research credit, too.

More to consider

By reducing corporate and individual tax rates, the TCJA also will increase research credits for many businesses. Why? Because the tax code, to prevent double tax benefits, requires businesses to reduce their deductible research expenses by the amount of the credit.

To avoid this result (which increases taxable income), businesses can elect to reduce the credit by an amount calculated at the highest corporate rate that eliminates the double benefit. Because the highest corporate rate has been reduced from 35% to 21%, this amount is lower and, therefore, the research credit is higher.

Keep in mind that the TCJA didn’t affect certain research credit benefits for smaller businesses. Pass-through businesses can still claim research credits against AMT if their average gross receipts are $50 million or less. And qualifying start-ups without taxable income can still claim research credits against up to $250,000 in payroll taxes.

Do your research

If your company engages in qualified research activities, now’s a good time to revisit the credit to be sure you’re taking full advantage of its benefits.

Protecting your company through the purchase of various forms of insurance is a risk-management necessity. But just because you must buy coverage doesn’t mean you can’t manage the cost of doing so.

Reduce insurance costs by encouraging employee wellness

Posted by Admin Posted on Oct 24 2018

Protecting your company through the purchase of various forms of insurance is a risk-management necessity. But just because you must buy coverage doesn’t mean you can’t manage the cost of doing so.

Obviously, the safer your workplace, the less likely you’ll incur costly claims and high workers’ compensation premiums. There are, however, bigger-picture issues that you can confront to also lessen the likelihood of expensive payouts. These issues tend to fall under the broad category of employee wellness.

Physical well-being

When you read the word “wellness,” your first thought may be of a formal wellness program at your workplace. Indeed, one of these — properly designed and implemented — can help lower or at least control health care coverage costs.

Wellness programs typically focus on one or more of three types of services/activities:

  1. Health screenings to identify medical risks (with employee consent),
  2. Disease management to support people with existing chronic conditions, and
  3. Lifestyle management to encourage healthier behavior (for example, diet or smoking cessation).

The Affordable Care Act offers incentives to employers that establish qualifying company wellness programs. As mentioned, though, it’s critical to choose the right “size and shape” program to get a worthwhile return on investment.

Mental health

Beyond promoting physical well-being, your business can also encourage mental health wellness to help you avoid or prevent claims involving:

  • Discrimination,
  • Wrongful termination,
  • Sexual harassment, or
  • Other toxic workplace issues.

If you’ve already invested in employment practices liability insurance, you know that it doesn’t come cheap and premiums can skyrocket after just one or two incidents. But, in today’s highly litigious society, many businesses consider such coverage a must-have.

Controlling these costs starts with training. When employees are taught (and reminded) to behave appropriately and understand company policies, they have much less ground to stand on when considering lawsuits. And, on a more positive note, a well-trained workforce should get along better and, thereby, operate in a more upbeat, friendly environment.

To take mental health wellness one step further, you could implement an employee assistance program (EAP). This is a voluntary and confidential way to connect employees to outside providers who can help them manage substance abuse and mental health issues. Although it will call for an upfront investment, an EAP can lower insurance costs over the long term by discouraging lifestyle choices that tend to lead to accidents and lawsuits.

Hand in hand

Happy and healthy — there’s a reason these two words go hand in hand. Create a workforce that’s both and you’ll stand a much better chance of maintaining affordable insurance premiums. We can provide further information on how to reduce potential liability and lower the costs of various forms of business insurance.

Could “bunching” medical expenses into 2018 save you tax?

Posted by Admin Posted on Oct 23 2018

Some of your medical expenses may be tax deductible, but only if you itemize deductions and have enough expenses to exceed the applicable floor for deductibility. With proper planning, you may be able to time controllable medical expenses to your tax advantage. The Tax Cuts and Jobs Act (TCJA) could make bunching such expenses into 2018 beneficial for some taxpayers. At the same time, certain taxpayers who’ve benefited from the deduction in previous years might no longer benefit because of the TCJA’s increase to the standard deduction.

The changes

Various limits apply to most tax deductions, and one type of limit is a “floor,” which means expenses are deductible only to the extent that they exceed that floor (typically a specific percentage of your income). One example is the medical expense deduction.

Because it can be difficult to exceed the floor, a common strategy is to “bunch” deductible medical expenses into a particular year where possible. The TCJA reduced the floor for the medical expense deduction for 2017 and 2018 from 10% to 7.5%. So, it might be beneficial to bunch deductible medical expenses into 2018.

Medical expenses that aren’t reimbursable by insurance or paid through a tax-advantaged account (such as a Health Savings Account or Flexible Spending Account) may be deductible.

However, if your total itemized deductions won’t exceed your standard deduction, bunching medical expenses into 2018 won’t save tax. The TCJA nearly doubled the standard deduction. For 2018, it’s $12,000 for singles and married couples filing separately, $18,000 for heads of households, and $24,000 for married couples filing jointly.

If your total itemized deductions for 2018 will exceed your standard deduction, bunching nonurgent medical procedures and other controllable expenses into 2018 may allow you to exceed the applicable floor and benefit from the medical expense deduction. Controllable expenses might include prescription drugs, eyeglasses and contact lenses, hearing aids, dental work, and elective surgery.

Planning for uncertainty

Keep in mind that legislation could be signed into law that extends the 7.5% threshold for 2019 and even beyond. For help determining whether you could benefit from bunching medical expenses into 2018, please contact us.

Selling your business? Defer — and possibly reduce — tax with an installment sale

Posted by Admin Posted on Oct 22 2018

You’ve spent years building your company and now are ready to move on to something else, whether launching a new business, taking advantage of another career opportunity or retiring. Whatever your plans, you want to get the return from your business that you’ve earned from all of the time and money you’ve put into it.

That means not only getting a good price, but also minimizing the tax hit on the proceeds. One option that can help you defer tax and perhaps even reduce it is an installment sale.

Tax benefits

With an installment sale, you don’t receive a lump sum payment when the deal closes. Instead, you receive installment payments over a period of time, spreading the gain over a number of years.

This generally defers tax, because you pay most of the tax liability as you receive the payments. Usually tax deferral is beneficial, but it could be especially beneficial if it would allow you to stay under the thresholds for triggering the 3.8% net investment income tax (NIIT) or the 20% long-term capital gains rate.

For 2018, taxpayers with modified adjusted gross income (MAGI) over $200,000 per year ($250,000 for married filing jointly and $125,000 for married filing separately) will owe NIIT on some or all of their investment income. And the 20% long-term capital gains rate kicks in when 2018 taxable income exceeds $425,800 for singles, $452,400 for heads of households and $479,000 for joint filers (half that for separate filers).

Other benefits

An installment sale also might help you close a deal or get a better price for your business. For instance, an installment sale might appeal to a buyer that lacks sufficient cash to pay the price you’re looking for in a lump sum.

Or a buyer might be concerned about the ongoing success of your business without you at the helm or because of changing market or other economic factors. An installment sale that includes a contingent amount based on the business’s performance might be the solution.

Tax risks

An installment sale isn’t without tax risk for sellers. For example, depreciation recapture must be reported as gain in the year of sale, no matter how much cash you receive. So you could owe tax that year without receiving enough cash proceeds from the sale to pay the tax. If depreciation recapture is an issue, be sure you have cash from another source to pay the tax.

It’s also important to keep in mind that, if tax rates increase, the overall tax could end up being more. With tax rates currently quite low historically, there might be a greater chance that they could rise in the future. Weigh this risk carefully against the potential benefits of an installment sale.

Pluses and minuses

As you can see, installment sales have both pluses and minuses. To determine whether one is right for you and your business — and find out about other tax-smart options — please contact us.

Following the ABCs of customer assessment

Posted by Admin Posted on Oct 17 2018

When a business is launched, its owners typically welcome every customer through the door with a sigh of relief. But after the company has established itself, those same owners might start looking at their buying constituency a little more critically.

If your business has reached this point, regularly assessing your customer base is indeed an important strategic planning activity. One way to approach it is to simply follow the ABCs.

Assign profitability levels

First, pick a time period — perhaps one, three or five years — and calculate the profitability level of each customer or group of customers based on sales numbers and both direct and indirect costs. (We can help you choose the ideal calculations and run the numbers.)

Once you’ve determined the profitability of each customer or group of customers, divide them into three groups:

  1. The A group consists of highly profitable customers whose business you’d like to expand.
  2. The B group comprises customers who aren’t extremely profitable, but still positively contribute to your bottom line.
  3. The C group includes those customers who are dragging down your profitability. These are the customers you can’t afford to keep.

Act accordingly

With the A customers, your objective should be to grow your business relationship with them. Identify what motivates them to buy, so you can continue to meet their needs. Is it something specific about your products or services? Is it your customer service? Developing a good understanding of this group will help you not only build your relationship with these critical customers, but also target marketing efforts to attract other, similar ones.

Category B customers have value but, just by virtue of sitting in the middle, they can slide either way. There’s a good chance that, with the right mix of product and marketing resources, some of them can be turned into A customers. Determine which ones have the most in common with your best customers; then focus your marketing efforts on them and track the results.

When it comes to the C group, spend a nominal amount of time to see whether any of them might move up the ladder. It’s likely, though, that most of your C customers simply aren’t a good fit for your company. Fortunately, firing your least desirable customers won’t require much effort. Simply curtail your marketing and sales efforts, or stop them entirely, and most will wander off on their own.

Cut costs, bring in more

The thought of purposefully losing customers may seem like a sure recipe for disaster. But doing so can help you cut fruitless costs and bring in more revenue from engaged buyers. Our firm can help you review the pertinent financial data and develop a customer strategy that builds your bottom line.

Consider all the tax consequences before making gifts to loved ones

Posted by Admin Posted on Oct 16 2018

Many people choose to pass assets to the next generation during life, whether to reduce the size of their taxable estate, to help out family members or simply to see their loved ones enjoy the gifts. If you’re considering lifetime gifts, be aware that which assets you give can produce substantially different tax consequences.

Multiple types of taxes

Federal gift and estate taxes generally apply at a rate of 40% to transfers in excess of your available gift and estate tax exemption. Under the Tax Cuts and Jobs Act, the exemption has approximately doubled through 2025. For 2018, it’s $11.18 million (twice that for married couples with proper estate planning strategies in place).

Even if your estate isn’t large enough for gift and estate taxes to currently be a concern, there are income tax consequences to consider. Plus, the gift and estate tax exemption is scheduled to drop back to an inflation-adjusted $5 million in 2026.

Minimizing estate tax

If your estate is large enough that estate tax is a concern, consider gifting property with the greatest future appreciation potential. You’ll remove that future appreciation from your taxable estate.

If estate tax isn’t a concern, your family may be better off tax-wise if you hold on to the property and let it appreciate in your hands. At your death, the property’s value for income tax purposes will be “stepped up” to fair market value. This means that, if your heirs sell the property, they won’t have to pay any income tax on the appreciation that occurred during your life.

Even if estate tax is a concern, you should compare the potential estate tax savings from gifting the property now to the potential income tax savings for your heirs if you hold on to the property.

Minimizing your beneficiary’s income tax

You can save income tax for your heirs by gifting property that hasn’t appreciated significantly while you’ve owned it. The beneficiary can sell the property at a minimal income tax cost.

On the other hand, hold on to property that has already appreciated significantly so that your heirs can enjoy the step-up in basis at your death. If they sell the property shortly after your death, before it’s had time to appreciate much more, they’ll owe no or minimal income tax on the sale.

Minimizing your own income tax

Don’t gift property that’s declined in value. A better option is generally to sell the property so you can take the tax loss. You can then gift the sale proceeds.

Capital losses can offset capital gains, and up to $3,000 of losses can offset other types of income, such as from salary, bonuses or retirement plan distributions. Excess losses can be carried forward until death.

Choose gifts wisely

No matter your current net worth, it’s important to choose gifts wisely. Please contact us to discuss the gift, estate and income tax consequences of any gifts you’d like to make.

As we approach the end of the year, it’s a good idea to review your business’s expenses for deductibility. At the same time, consider whether your business would benefit from accelerating certain expenses into this year.

Now’s the time to review your business expenses

Posted by Admin Posted on Oct 15 2018

As we approach the end of the year, it’s a good idea to review your business’s expenses for deductibility. At the same time, consider whether your business would benefit from accelerating certain expenses into this year.

Be sure to evaluate the impact of the Tax Cuts and Jobs Act (TCJA), which reduces or eliminates many deductions. In some cases, it may be necessary or desirable to change your expense and reimbursement policies.

What’s deductible, anyway?

There’s no master list of deductible business expenses in the Internal Revenue Code (IRC). Although some deductions are expressly authorized or excluded, most are governed by the general rule of IRC Sec. 162, which permits businesses to deduct their “ordinary and necessary” expenses.

An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your business. (It need not be indispensable.) Even if an expense is ordinary and necessary, it may not be deductible if the IRS considers it lavish or extravagant.

What did the TCJA change?

The TCJA contains many provisions that affect the deductibility of business expenses. Significant changes include these deductions:

Meals and entertainment. The act eliminates most deductions for entertainment expenses, but retains the 50% deduction for business meals. What about business meals provided in connection with nondeductible entertainment? In a recent notice, the IRS clarified that such meals continue to be 50% deductible, provided they’re purchased separately from the entertainment or their cost is separately stated on invoices or receipts.

Transportation. The act eliminates most deductions for qualified transportation fringe benefits, such as parking, vanpooling and transit passes. This change may lead some employers to discontinue these benefits, although others will continue to provide them because 1) they’re a valuable employee benefit (they’re still tax-free to employees) or 2) they’re required by local law.

Employee expenses. The act suspends employee deductions for unreimbursed job expenses — previously treated as miscellaneous itemized deductions — through 2025. Some businesses may want to implement a reimbursement plan for these expenses. So long as the plan meets IRS requirements, reimbursements are deductible by the business and tax-free to employees.

Need help?

The deductibility of certain expenses, such as employee wages or office supplies, is obvious. In other cases, it may be necessary to consult IRS rulings or court cases for guidance. For assistance, please contact us.

529 plans offer two tax-advantaged education funding options

Posted by Admin Posted on Oct 09 2018

Section 529 plans are a popular education-funding tool because of tax and other benefits. Two types are available: 1) prepaid tuition plans, and 2) savings plans. And one of these plans got even better under the Tax Cuts and Jobs Act (TCJA).  

Enjoy valuable benefits

529 plans provide a tax-advantaged way to help pay for qualifying education expenses. First and foremost, although contributions aren’t deductible for federal purposes, plan assets can grow tax-deferred. In addition, some states offer tax incentives for contributing in the form of deductions or credits.  

But that’s not all. 529 plans also usually offer high contribution limits. And there are no income limits for contributing.  

Lock in current tuition rates  

With a 529 prepaid tuition plan, if your contract is for four years of tuition, tuition is guaranteed regardless of its cost at the time the beneficiary actually attends the school. This can provide substantial savings if you invest when the child is still very young.

One downside is that there’s uncertainty in how benefits will be applied if the beneficiary attends a different school. Another is that the plan doesn’t cover costs other than tuition, such as room and board.  

Fund more than just college tuition 

A 529 savings plan can be used to pay a student’s expenses at most postsecondary educational institutions. Distributions used to pay qualified expenses (such as tuition, mandatory fees, books, supplies, computer equipment, software, Internet service and, generally, room and board) are income-tax-free for federal purposes and typically for state purposes as well, thus making the tax deferral a permanent savings.  

In addition, the Tax Cuts and Jobs Act expands the definition of qualified expenses to generally include elementary and secondary school tuition. However, tax-free distributions used for such tuition are limited to $10,000 per year.  

The biggest downside may be that you don’t have direct control over investment decisions; you’re limited to the options the plan offers. Additionally, for funds already in the plan, you can make changes to your investment options only twice during the year or when you change beneficiaries.  

But each time you make a contribution to a 529 savings plan, you can select a different option for that contribution, regardless of how many times you contribute throughout the year. And every 12 months you can make a tax-free rollover to a different 529 plan for the same child.  

Picking your plan

Both prepaid tuition plans and savings plans offer attractive benefits. We can help you determine which one is a better fit for you or explore other tax-advantaged education-funding options.

Tax-free fringe benefits help small businesses and their employees

Posted by Admin Posted on Oct 08 2018

In today’s tightening job market, to attract and retain the best employees, small businesses need to offer not only competitive pay, but also appealing fringe benefits. Benefits that are tax-free are especially attractive to employees. Let’s take a quick look at some popular options.

Insurance

Businesses can provide their employees with various types of insurance on a tax-free basis. Here are some of the most common:

Health insurance. If you maintain a health care plan for employees, coverage under the plan isn’t taxable to them. Employee contributions are excluded from income if pretax coverage is elected under a cafeteria plan. Otherwise, such amounts are included in their wages, but may be deductible on a limited basis as an itemized deduction.

Disability insurance. Your premium payments aren’t included in employees’ income, nor are your contributions to a trust providing disability benefits. Employees’ premium payments (or other contributions to the plan) generally aren’t deductible by them or excludable from their income. However, they can make pretax contributions to a cafeteria plan for disability benefits, which are excludable from their income.

Long-term care insurance. Your premium payments aren’t taxable to employees. However, long-term care insurance can’t be provided through a cafeteria plan.

Life insurance. Your employees generally can exclude from gross income premiums you pay on up to $50,000 of qualified group term life insurance coverage. Premiums you pay for qualified coverage exceeding $50,000 are taxable to the extent they exceed the employee’s coverage contributions.

Other types of tax-advantaged benefits

Insurance isn’t the only type of tax-free benefit you can provide — but the tax treatment of certain benefits has changed under the Tax Cuts and Jobs Act:

Dependent care assistance. You can provide employees with tax-free dependent care assistance up to $5,000 for 2018 though a dependent care Flexible Spending Account (FSA), also known as a Dependent Care Assistance Program (DCAP).

Adoption assistance. For employees who’re adopting children, you can offer an employee adoption assistance program. Employees can exclude from their taxable income up to $13,810 of adoption benefits in 2018.

Educational assistance. You can help employees on a tax-free basis through educational assistance plans (up to $5,250 per year), job-related educational assistance and qualified scholarships.

Moving expense reimbursement. Before the TCJA, if you reimbursed employees for qualifying job-related moving expenses, the reimbursement could be excluded from the employee’s income. The TCJA suspends this break for 2018 through 2025. However, such reimbursements may still be deductible by your business.

Transportation benefits. Qualified employee transportation fringe benefits, such as parking allowances, mass transit passes and van pooling, are tax-free to recipient employees. However, the TCJA suspends through 2025 the business deduction for providing such benefits. It also suspends the tax-free benefit of up to $20 a month for bicycle commuting.

Varying tax treatment

As you can see, the tax treatment of fringe benefits varies. Contact us for more information.

It’s easy to understand why more and more businesses are taking a “bring your own device” (BYOD) approach to the smartphones, tablets and laptops many employees rely on to do their jobs. BYOD can boost employee efficiency and satisfaction, often while reducing a company’s IT costs. But the approach isn’t without risk for both you and your staff. So, it’s highly advisable to create a strong formal policy that combines convenience with security.

A strong BYOD policy combines convenience with security

Posted by Admin Posted on Oct 03 2018

It’s easy to understand why more and more businesses are taking a “bring your own device” (BYOD) approach to the smartphones, tablets and laptops many employees rely on to do their jobs. BYOD can boost employee efficiency and satisfaction, often while reducing a company’s IT costs. But the approach isn’t without risk for both you and your staff. So, it’s highly advisable to create a strong formal policy that combines convenience with security.

Primary concerns

As an employer, your primary concern with BYOD is no doubt the inevitable security risks that arise when your networks are accessible to personal devices that could be stolen, lost or hacked. But you also must think about various legal compliance issues, such as electronic document retention for litigation purposes or liability for overtime pay when nonexempt employees use their devices to work outside of normal hours.

For employees, the main worry comes down to privacy. Will you, their employer, have access to personal information, photos and other non-work-related data on the device? Could an employee lose all of that if you’re forced to “wipe” the device because it’s been lost or stolen, or when the employee leaves your company?

Important obligations

A BYOD policy must address these and other issues. Each company’s individual circumstances will determine the final details, but most employers should, at minimum, require employees to sign an acknowledgment of their obligations to:

  • Use strong passwords and automatic lock-outs after periods of inactivity,
  • Immediately report lost or stolen devices,
  • Install mandated antivirus software and other protective measures,
  • Regularly back up their devices,
  • Keep apps and operating systems up to date, and
  • Encrypt their devices.

The policy also should prohibit the use of public wi-fi networks or require employees to log in through a secure virtual private network when connecting via public wi-fi. You may want to forbid certain apps, too.

In addition, you need to spell out your rights to access, monitor and delete data on employees’ devices — including the types of data you can access and under which conditions. In particular, explain your wiping procedures and the steps employees can take to protect their personal information from permanent erasure.

Protection now

Nearly everyone who works for your company likely has a smartphone at this point. As such devices integrate themselves ever more deeply into our daily lives, it’s only natural that they’ll affect our jobs. Establishing a BYOD policy now can help prevent costly mistakes and potential litigation down the road. We can provide further information.

If you’re age 70½ or older, you can make direct contributions — up to $100,000 annually — from your IRA to qualified charitable organizations without owing any income tax on the distributions. This break may be especially beneficial now because of Tax Cuts and Jobs Act (TCJA) changes that affect who can benefit from the itemized deduction for charitable donations.

Charitable IRA rollovers may be especially beneficial in 2018

Posted by Admin Posted on Oct 03 2018

If you’re age 70½ or older, you can make direct contributions — up to $100,000 annually — from your IRA to qualified charitable organizations without owing any income tax on the distributions. This break may be especially beneficial now because of Tax Cuts and Jobs Act (TCJA) changes that affect who can benefit from the itemized deduction for charitable donations.

Counts toward your RMD

A charitable IRA rollover can be used to satisfy required minimum distributions (RMDs). You must begin to take annual RMDs from your traditional IRAs in the year you reach age 70½. If you don’t comply, you can owe a penalty equal to 50% of the amount you should have withdrawn but didn’t. (Deferral is allowed for the initial year, but you’ll have to take two RMDs the next year.)

So if you don’t need the RMD for your living expenses, a charitable IRA rollover can be a great way to comply with the RMD requirement without triggering the tax liability that would occur if the RMD were paid to you.

Doesn’t require itemizing

You might be able to achieve a similar tax result from taking the RMD and then contributing that amount to charity. But it’s more complex because you must report the RMD as income and then take an itemized deduction for the donation.

And, with the TCJA’s near doubling of the standard deduction, fewer taxpayers will benefit from itemizing. Itemizing saves tax only when itemized deductions exceed the standard deduction. For 2018, the standard deduction is $12,000 for singles, $18,000 for heads of households, and $24,000 for married couples filing jointly.

Doesn’t have other deduction downsides

Even if you have enough other itemized deductions to exceed your standard deduction, taking your RMD and contributing that amount to charity has two more possible downsides.

First, the reported RMD income might increase your income to the point that you’re pushed into a higher tax bracket, certain additional taxes are triggered and/or the benefits of certain tax breaks are reduced or eliminated. It could even cause Social Security payments to become taxable or increase income-based Medicare premiums and prescription drug charges.

Second, if your donation would equal a large portion of your income for the year, your deduction might be reduced due to the percentage-of-income limit. You generally can’t deduct cash donations that exceed 60% of your adjusted gross income for the year. (The TCJA raised this limit from 50%, but if the cash donation is to a private nonoperating foundation, the limit is only 30%.) You can carry forward the excess up to five years, but if you make large donations every year, that won’t help you.

A charitable IRA rollover avoids these potential negative tax consequences.

Have questions?

The considerations involved in deciding whether to make a direct IRA rollover have changed in light of the TCJA. So contact us to go over your particular situation and determine what’s right for you.

Could a cost segregation study help you accelerate depreciation deductions?

Posted by Admin Posted on Oct 01 2018

Businesses that acquire, construct or substantially improve a building — or did so in previous years — should consider a cost segregation study. It may allow you to accelerate depreciation deductions, thus reducing taxes and boosting cash flow. And the potential benefits are now even greater due to enhancements to certain depreciation-related breaks under the Tax Cuts and Jobs Act (TCJA).

Real property vs. tangible personal property

IRS rules generally allow you to depreciate commercial buildings over 39 years (27½ years for residential properties). Most times, you’ll depreciate a building’s structural components — such as walls, windows, HVAC systems, elevators, plumbing and wiring — along with the building. Personal property — such as equipment, machinery, furniture and fixtures — is eligible for accelerated depreciation, usually over five or seven years. And land improvements — fences, outdoor lighting and parking lots, for example — are depreciable over 15 years.

Too often, businesses allocate all or most of a building’s acquisition or construction costs to real property, overlooking opportunities to allocate costs to shorter-lived personal property or land improvements. In some cases — computers or furniture, for instance — the distinction between real and personal property is obvious. But often the line between the two is less clear. Items that appear to be part of a building may in fact be personal property, like removable wall and floor coverings, removable partitions, awnings and canopies, window treatments, signs and decorative lighting.

In addition, certain items that otherwise would be treated as real property may qualify as personal property if they serve more of a business function than a structural purpose. This includes reinforced flooring to support heavy manufacturing equipment, electrical or plumbing installations required to operate specialized equipment, or dedicated cooling systems for data processing rooms.

A cost segregation study combines accounting and engineering techniques to identify building costs that are properly allocable to tangible personal property rather than real property. Although the relative costs and benefits of a cost segregation study depend on your particular facts and circumstances, it can be a valuable investment.

Depreciation break enhancements

Last year’s TCJA enhances certain depreciation-related tax breaks, which may also enhance the benefits of a cost segregation study. Among other things, the act permanently increased limits on Section 179 expensing. Sec. 179 allows you to immediately deduct the entire cost of qualifying equipment or other fixed assets up to specified thresholds.

The TCJA also expanded 15-year-property treatment to apply to qualified improvement property. Previously this break was limited to qualified leasehold-improvement, retail-improvement and restaurant property. And it temporarily increased first-year bonus depreciation to 100% (from 50%).

Assess the potential savings

Cost segregation studies may yield substantial benefits, but they’re not right for every business. To find out whether a study would be worthwhile for yours, contact us for help assessing the potential tax savings.

Like many business owners, you probably created a business plan when you launched your company. But, as is also often the case, you may not have looked at it much since then. Now that fall has arrived and year end is coming soon, why not dig it out? Reviewing and revising a business plan can be a great way to plan for the year ahead.

Dig out your business plan to prepare for the year ahead

Posted by Admin Posted on Sept 26 2018

Like many business owners, you probably created a business plan when you launched your company. But, as is also often the case, you may not have looked at it much since then. Now that fall has arrived and year end is coming soon, why not dig it out? Reviewing and revising a business plan can be a great way to plan for the year ahead.

6 sections to scrutinize

Comprehensive business plans traditionally are composed of six sections. When revisiting yours, look for insights in each one:

1. Executive summary. This should read like an “elevator pitch” regarding your company’s purpose, its financial position and requirements, its state of competitiveness, and its strategic goals. If your business plan is out of date, the executive summary won’t quite jibe with what you do today. Don’t worry: You can rewrite it after you revise the other five sections.

2. Business description. A company’s key features are described here. These include its name, entity type, number of employees, key assets, core competencies, and product or service menu. Look at whether anything has changed and, if so, what. Maybe your workforce has grown or you’ve added products or services.

3. Industry and marketing analysis. This section analyzes the state of a company’s industry and explicates how the business will market itself. Your industry may have changed since your business plan’s original writing. What are the current challenges? Where do opportunities lie? How will you market your company’s strengths to take advantage of these opportunities?

4. Management team description. The business plan needs to recognize the company’s current leadership. Verify the accuracy of who’s identified as an owner and, if necessary, revise the list of management-level employees, providing brief bios of each. As you look over your management team, ask yourself: Are there gaps or weak links? Is one person handling too much?

5. Operational plan. This section explains how a business functions on a day-to-day basis. Scrutinize your operating cycle — that is, the process by which a product or service is delivered to customers and, in turn, how revenue is brought in and expenses are paid. Is it still accurate? The process of revising this description may reveal inefficiencies or redundancies of which you weren’t even aware.

6. Financials. The last section serves as a reasonable estimate of how your company intends to manage its finances in the near future. So, you should review and revise it annually. Key projections to generate are forecasts of your profits and losses, as well as your cash flow, in the coming year. Many business plans also include a balance sheet summarizing current assets, liabilities and equity.

Keep it fresh

The precise structure of business plans can vary but, when regularly revisited, they all have one thing in common: a wealth of up-to-date information about the company described. Don’t leave this valuable document somewhere to gather dust — keep it fresh. Our firm can help you review your business plan and generate accurate financials that allow you to take on the coming year with confidence.

For investors, fall is a good time to review year-to-date gains and losses. Not only can it help you assess your financial health, but it also can help you determine whether to buy or sell investments before year end to save taxes. This year, you also need to keep in mind the impact of the Tax Cuts and Jobs Act (TCJA). While the TCJA didn’t change long-term capital gains rates, it did change the tax brackets for long-term capital gains and qualified dividends.

Tax planning for investments gets more complicated

Posted by Admin Posted on Sept 25 2018

For investors, fall is a good time to review year-to-date gains and losses. Not only can it help you assess your financial health, but it also can help you determine whether to buy or sell investments before year end to save taxes. This year, you also need to keep in mind the impact of the Tax Cuts and Jobs Act (TCJA). While the TCJA didn’t change long-term capital gains rates, it did change the tax brackets for long-term capital gains and qualified dividends.

For 2018 through 2025, these brackets are no longer linked to the ordinary-income tax brackets for individuals. So, for example, you could be subject to the top long-term capital gains rate even if you aren’t subject to the top ordinary-income tax rate.

Old rules

For the last several years, individual taxpayers faced three federal income tax rates on long-term capital gains and qualified dividends: 0%, 15% and 20%. The rate brackets were tied to the ordinary-income rate brackets.

Specifically, if the long-term capital gains and/or dividends fell within the 10% or 15% ordinary-income brackets, no federal income tax was owed. If they fell within the 25%, 28%, 33% or 35% ordinary-income brackets, they were taxed at 15%. And, if they fell within the maximum 39.6% ordinary-income bracket, they were taxed at the maximum 20% rate.

In addition, higher-income individuals with long-term capital gains and dividends were also hit with the 3.8% net investment income tax (NIIT). It kicked in when modified adjusted gross income exceeded $200,000 for singles and heads of households and $250,000 for married couples filing jointly. So, many people actually paid 18.8% (15% + 3.8%) or 23.8% (20% + 3.8%) on their long-term capital gains and qualified dividends.

New rules

The TCJA retains the 0%, 15% and 20% rates on long-term capital gains and qualified dividends for individual taxpayers. However, for 2018 through 2025, these rates have their own brackets. Here are the 2018 brackets:

  • Singles:
    • 0%: $0 – $38,600
    • 15%: $38,601 – $425,800
    • 20%: $425,801 and up
  • Heads of households:
    • 0%: $0 – $51,700
    • 15%: $51,701 – $452,400
    • 20%: $452,401 and up
  • Married couples filing jointly:
    • 0%: $0 – $77,200
    • 15%: $77,201 – $479,000
    • 20%: $479,001 and up


For 2018, the top ordinary-income rate of 37%, which also applies to short-term capital gains and nonqualified dividends, doesn’t go into effect until income exceeds $500,000 for singles and heads of households or $600,000 for joint filers. (Both the long-term capital gains brackets and the ordinary-income brackets will be indexed for inflation for 2019 through 2025.) The new tax law also retains the 3.8% NIIT and its $200,000 and $250,000 thresholds.

More thresholds, more complexity

With more tax rate thresholds to keep in mind, year-end tax planning for investments is especially complicated in 2018. If you have questions, please contact us.

Businesses aren’t immune to tax identity theft

Posted by Admin Posted on Sept 24 2018

Tax identity theft may seem like a problem only for individual taxpayers. But, according to the IRS, increasingly businesses are also becoming victims. And identity thieves have become more sophisticated, knowing filing practices, the tax code and the best ways to get valuable data.

How it works

In tax identity theft, a taxpayer’s identifying information (such as Social Security number) is used to fraudulently obtain a refund or commit other crimes. Business tax identity theft occurs when a criminal uses the identifying information of a business to obtain tax benefits or to enable individual tax identity theft schemes.

For example, a thief could use an Employer Identification Number (EIN) to file a fraudulent business tax return and claim a refund. Or a fraudster may report income and withholding for fake employees on false W-2 forms. Then, he or she can file fraudulent individual tax returns for these “employees” to claim refunds.

The consequences can include significant dollar amounts, lost time sorting out the mess and damage to your reputation.

Red flags

There are some red flags that indicate possible tax identity theft. For example, your business’s identity may have been compromised if:

  • Your business doesn’t receive expected or routine mailings from the IRS,
  • You receive an IRS notice that doesn’t relate to anything your business submitted, that’s about fictitious employees or that’s related to a defunct, closed or dormant business after all account balances have been paid,
  • The IRS rejects an e-filed return or an extension-to-file request, saying it already has a return with that identification number — or the IRS accepts it as an amended return,
  • You receive an IRS letter stating that more than one tax return has been filed in your business’s name, or
  • You receive a notice from the IRS that you have a balance due when you haven’t yet filed a return.

Keep in mind, though, that some of these could be the result of a simple error, such as an inadvertent transposition of numbers. Nevertheless, you should contact the IRS immediately if you receive any notices or letters from the agency that you believe might indicate that someone has fraudulently used your Employer Identification Number.

Prevention tips

Businesses should take steps such as the following to protect their own information as well as that of their employees:

  • Provide training to accounting, human resources and other employees to educate them on the latest tax fraud schemes and how to spot phishing emails.
  • Use secure methods to send W-2 forms to employees.
  • Implement risk management strategies designed to flag suspicious communications.

Of course identity theft can go beyond tax identity theft, so be sure to have a comprehensive plan in place to protect the data of your business, your employees and your customers. If you’re concerned your business has become a victim, or you have questions about prevention, please contact us.

Keeping a king in the castle with a well-maintained cash reserve

Posted by Admin Posted on Sept 19 2018

You’ve no doubt heard the old business cliché “cash is king.” And it’s true: A company in a strong cash position stands a much better chance of obtaining the financing it needs, attracting outside investors or simply executing its own strategic plans.

One way to ensure that there’s always a king in the castle, so to speak, is to maintain a cash reserve. Granted, setting aside a substantial amount of dollars isn’t the easiest thing to do — particularly for start-ups and smaller companies. But once your reserve is in place, life can get a lot easier.

Common metrics

Now you may wonder: What’s the optimal amount of cash to keep in reserve? The right answer is different for every business and may change over time, given fluctuations in the economy or degree of competitiveness in your industry.

If you’ve already obtained financing, your bank’s liquidity covenants can give you a good idea of how much of a cash reserve is reasonable and expected of your company. To take it a step further, you can calculate various liquidity metrics and compare them to industry benchmarks. These might include:

  • Working capital = current assets − current liabilities,
  • Current ratio = current assets / current liabilities, and
  • Accounts payable turnover = cost of goods sold / accounts payable.

There may be other, more complex metrics that better apply to the nature and size of your business.

Financial forecasts

Believe it or not, many companies don’t suffer from a lack of cash reserves but rather a surplus. This often occurs because a business owner decides to start hoarding cash following a dip in the local or national economy.

What’s the problem? Substantial increases in liquidity — or metrics well above industry norms — can signal an inefficient deployment of capital.

To keep your cash reserve from getting too high, create financial forecasts for the next 12 to 18 months. For example, a monthly projected balance sheet might estimate seasonal ebbs and flows in the cash cycle. Or a projection of the worst-case scenario might be used to establish your optimal cash balance. Projections should consider future cash flows, capital expenditures, debt maturities and working capital requirements.

Formal financial forecasts provide a coherent method to building up cash reserves, which is infinitely better than relying on rough estimates or gut instinct. Be sure to compare actual performance to your projections regularly and adjust as necessary.

More isn’t always better

Just as individuals should set aside some money for a rainy day, so should businesses. But, when it comes to your company’s cash reserves, the notion that “more is better” isn’t necessarily correct. You’ve got to find the right balance. Contact us to discuss your reserve and identify your ideal liquidity metrics.

If you’re charitably inclined and you collect art, appreciated artwork can make one of the best charitable gifts from a tax perspective. In general, donating appreciated property is doubly beneficial because you can both enjoy a valuable tax deduction and avoid the capital gains taxes you’d owe if you sold the property. The extra benefit from donating artwork comes from the fact that the top long-term capital gains rate for art and other “collectibles” is 28%, as opposed to 20% for most other appreciated property.

The tax deduction ins and outs of donating artwork to charity

Posted by Admin Posted on Sept 18 2018

If you’re charitably inclined and you collect art, appreciated artwork can make one of the best charitable gifts from a tax perspective. In general, donating appreciated property is doubly beneficial because you can both enjoy a valuable tax deduction and avoid the capital gains taxes you’d owe if you sold the property. The extra benefit from donating artwork comes from the fact that the top long-term capital gains rate for art and other “collectibles” is 28%, as opposed to 20% for most other appreciated property.

Requirements

The first thing to keep in mind if you’re considering a donation of artwork is that you must itemize deductions to deduct charitable contributions. Now that the Tax Cuts and Jobs Act has nearly doubled the standard deduction and put tighter limits on many itemized deductions (but not the charitable deduction), many taxpayers who have itemized in the past will no longer benefit from itemizing.

For 2018, the standard deduction is $12,000 for singles, $18,000 for heads of households and $24,000 for married couples filing jointly. Your total itemized deductions must exceed the applicable standard deduction for you to enjoy a tax benefit from donating artwork.

Something else to be aware of is that most artwork donations require a “qualified appraisal” by a “qualified appraiser.” IRS rules contain detailed requirements about the qualifications an appraiser must possess and the contents of an appraisal.

IRS auditors are required to refer all gifts of art valued at $20,000 or more to the IRS Art Advisory Panel. The panel’s findings are the IRS’s official position on the art’s value, so it’s critical to provide a solid appraisal to support your valuation.

Finally, note that, if you own both the work of art and the copyright to the work, you must assign the copyright to the charity to qualify for a charitable deduction.

Maximizing your deduction

The charity you choose and how the charity will use the artwork can have a significant impact on your tax deduction. Donations of artwork to a public charity, such as a museum or university with public charity status, can entitle you to deduct the artwork’s full fair market value. If you donate art to a private foundation, however, your deduction will be limited to your cost.

For your donation to a public charity to qualify for a full fair-market-value deduction, the charity’s use of the donated artwork must be related to its tax-exempt purpose. If, for example, you donate a painting to a museum for display or to a university’s art history department for use in its research, you’ll satisfy the related-use rule. But if you donate it to, say, a children’s hospital to auction off at its annual fundraising gala, you won’t satisfy the rule.

Plan carefully

Donating artwork is a great way to share enjoyment of the work with others. But to reap the maximum tax benefit, too, you must plan your gift carefully and follow all of the applicable rules. Contact us to learn more.

Be sure your employee travel expense reimbursements will pass muster with the IRS

Posted by Admin Posted on Sept 17 2018

Does your business reimburse employees’ work-related travel expenses? If you do, you know that it can help you attract and retain employees. If you don’t, you might want to start, because changes under the Tax Cuts and Jobs Act (TCJA) make such reimbursements even more attractive to employees. Travel reimbursements also come with tax benefits, but only if you follow a method that passes muster with the IRS.

The TCJA’s impact

Before the TCJA, unreimbursed work-related travel expenses generally were deductible on an employee’s individual tax return (subject to a 50% limit for meals and entertainment) as a miscellaneous itemized deduction. However, many employees weren’t able to benefit from the deduction because either they didn’t itemize deductions or they didn’t have enough miscellaneous itemized expenses to exceed the 2% of adjusted gross income (AGI) floor that applied.

For 2018 through 2025, the TCJA suspends miscellaneous itemized deductions subject to the 2% of AGI floor. That means even employees who itemize deductions and have enough expenses that they would exceed the floor won’t be able to enjoy a tax deduction for business travel. Therefore, business travel expense reimbursements are now more important to employees.

The potential tax benefits

Your business can deduct qualifying reimbursements, and they’re excluded from the employee’s taxable income. The deduction is subject to a 50% limit for meals. But, under the TCJA, entertainment expenses are no longer deductible.

To be deductible and excludable, travel expenses must be legitimate business expenses and the reimbursements must comply with IRS rules. You can use either an accountable plan or the per diem method to ensure compliance.

Reimbursing actual expenses

An accountable plan is a formal arrangement to advance, reimburse or provide allowances for business expenses. To qualify as “accountable,” your plan must meet the following criteria:

  • Payments must be for “ordinary and necessary” business expenses.
  • Employees must substantiate these expenses — including amounts, times and places — ideally at least monthly.
  • Employees must return any advances or allowances they can’t substantiate within a reasonable time, typically 120 days.

The IRS will treat plans that fail to meet these conditions as nonaccountable, transforming all reimbursements into wages taxable to the employee, subject to income taxes (employee) and employment taxes (employer and employee).

Keeping it simple

With the per diem method, instead of tracking actual expenses, you use IRS tables to determine reimbursements for lodging, meals and incidental expenses, or just for meals and incidental expenses, based on location. (If you don’t go with the per diem method for lodging, you’ll need receipts to substantiate those expenses.)

Be sure you don’t pay employees more than the appropriate per diem amount. The IRS imposes heavy penalties on businesses that routinely overpay per diems.

What’s right for your business?

To learn more about business travel expense deductions and reimbursements post-TCJA, contact us. We can help you determine whether you should reimburse such expenses and which reimbursement option is better for you.

Most business owners want to grow their companies. And one surefire sign of growth is when ownership believes the company can expand its operations to a second location.

Are you ready to expand to a second location?

Posted by Admin Posted on Sept 12 2018

Most business owners want to grow their companies. And one surefire sign of growth is when ownership believes the company can expand its operations to a second location.

If your business has reached this point, or is nearing it, both congratulations and caution are in order. You’ve clearly done a great job with growth, but that doesn’t necessarily mean you’re ready to expand. Here are a few points to keep in mind.

Potential conflicts

Among the most fundamental questions to ask is: Can we duplicate the success of our current location? If your first location is doing well, it’s likely because you’ve put in place the people and processes that keep the business running smoothly. It’s also because you’ve developed a culture that resonates with your customers. You need to feel confident you can do the same at subsequent locations.

Another important question is: How might expansion affect business at both locations? Opening a second location prompts a consideration that didn’t exist with your first: how the two locations will interact. Placing the two operations near each other can make it easier to manage both, but it also can lead to one operation cannibalizing the other. Ideally, the two locations will have strong, independent markets.

Finances and taxes

Of course, you’ll also need to consider the financial aspects. Look at how you’re going to fund the expansion. Ideally, the first location will generate enough revenue so that it can both sustain itself and help fund the second. But it’s not uncommon for construction costs and timelines to exceed initial projections. You’ll want to include some extra dollars in your budget for delays or surprises. If you have to starve your first location of capital to fund the second, you’ll risk the success of both.

It’s important to account for the tax ramifications as well. Property taxes on two locations will affect your cash flow and bottom line. You may be able to cut your tax bill with various tax breaks or by locating the second location in an Enterprise Zone. But, naturally, the location will need to make sense from a business perspective. There may be other tax issues as well — particularly if you’re crossing state lines.

A significant step

Opening another location is a significant step, to say the least. We can help you address all the pertinent issues involved to minimize risk and boost the likelihood of success.

You might save tax if your vacation home qualifies as a rental property

Posted by Admin Posted on Sept 11 2018

Do you own a vacation home? If you both rent it out and use it personally, you might save tax by taking steps to ensure it qualifies as a rental property this year. Vacation home expenses that qualify as rental property expenses aren’t subject to the Tax Cuts and Jobs Act’s (TCJA’s) new limit on the itemized deduction for state and local taxes (SALT) or the lower debt limit for the itemized mortgage interest deduction.

Rental or personal property?

If you rent out your vacation home for 15 days or more, what expenses you can deduct depends on how the home is classified for tax purposes, based on the amount of personal vs. rental use:

Rental property. If you (or your immediate family) use the home for 14 days or less, or under 10% of the days you rent out the property, whichever is greater, the IRS will classify the home as a rental property. You can deduct rental expenses, including losses, subject to the real estate activity rules.

Your deduction for property tax attributable to the rental use of the home isn’t subject to the TCJA’s new SALT deduction limit. And your deduction for mortgage interest on the home isn’t subject to the debt limit that applies to the itemized deduction for mortgage interest. You can’t deduct any interest that’s attributable to your personal use of the home, but you can take the personal portion of property tax as an itemized deduction (subject to the new SALT limit).

Nonrental property. If you (or your immediate family) use the home for more than 14 days or 10% of the days you rent out the property, whichever is greater, the IRS will classify the home as a personal residence. You can deduct rental expenses only to the extent of your rental income. Any excess can be carried forward to offset rental income in future years.

If you itemize deductions, you also can deduct the personal portion of both property tax and mortgage interest, subject to the TCJA’s new limits on those deductions. The SALT deduction limit is $10,000 for the combined total of state and local property taxes and either income taxes or sales taxes ($5,000 for married taxpayers filing separately). For mortgage interest debt incurred after December 15, 2017, the debt limit (with some limited exceptions) has been reduced to $750,000.

Be aware that many taxpayers who have itemized in the past will no longer benefit from itemizing because of the TCJA’s near doubling of the standard deduction. Itemizing saves tax only if total itemized deductions exceed the standard deduction for the taxpayer’s filing status.

Year-to-date review

Keep in mind that, if you rent out your vacation home for less than 15 days, you don’t have to report the income. But expenses associated with the rental (such as advertising and cleaning) won’t be deductible.

Now is a good time to review your vacation home use year-to-date to project how it will be classified for tax purposes. By increasing the number of days you rent it out and/or reducing the number of days you use it personally between now and year end, you might be able to ensure it’s classified as a rental property and save some tax. But there also could be circumstances where personal property treatment would be beneficial. Please contact us to discuss your particular situation.

2018 Q4 tax calendar: Key deadlines for businesses and other employers

Posted by Admin Posted on Sept 10 2018

Here are some of the key tax-related deadlines affecting businesses and other employers during the fourth quarter of 2018. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

October 15

  • If a calendar-year C corporation that filed an automatic six-month extension:
    • File a 2017 income tax return (Form 1120) and pay any tax, interest and penalties due.
    • Make contributions for 2017 to certain employer-sponsored retirement plans.

October 31

  • Report income tax withholding and FICA taxes for third quarter 2018 (Form 941) and pay any tax due. (See exception below under “November 13.”)

November 13

  • Report income tax withholding and FICA taxes for third quarter 2018 (Form 941), if you deposited on time and in full all of the associated taxes due.

December 17

  • If a calendar-year C corporation, pay the fourth installment of 2018 estimated income taxes.

Every business with more than one owner needs a buy-sell agreement to handle both expected and unexpected ownership changes. When creating or updating yours, be sure you’re prepared for the valuation issues that will come into play.

Prepare for valuation issues in your buy-sell agreement

Posted by Admin Posted on Sept 05 2018

Every business with more than one owner needs a buy-sell agreement to handle both expected and unexpected ownership changes. When creating or updating yours, be sure you’re prepared for the valuation issues that will come into play.

Issues, what issues?

Emotions tend to run high when owners face a “triggering event” that activates the buy-sell. Such events include the death of an owner, the divorce of married owners or an owner dispute.

The departing owner (or his or her estate) suddenly is in the position of a seller who wants to maximize buyout proceeds. The buyer’s role is played by either the other owners or the business itself — and it’s in the buyer’s financial interest to pay as little as possible. A comprehensive buy-sell agreement takes away the guesswork and helps ensure that all parties are treated equitably.

Some owners decide to have the business valued annually to minimize surprises when a buyout occurs. This is often preferable to using a static valuation formula in the buy-sell agreement, because the value of the interest is likely to change as the business grows and market conditions evolve.

What are our protocols?

At minimum, the buy-sell agreement needs to prescribe various valuation protocols to follow when the agreement is triggered, including:

  • How “value” will be defined,
  • Who will value the business,
  • Whether valuation discounts will apply,
  • Who will pay appraisal fees, and
  • What the timeline will be for the valuation process.

It’s also important to discuss the appropriate “as of” date for valuing the business interest. The loss of a key person could affect the value of a business interest, so timing may be critical.

Are we ready?

Business owners tend to put planning issues on the back burner — especially when they’re young and healthy and owner relations are strong. But the more details that you put in place today, including a well-crafted buy-sell agreement with the right valuation components, the easier it will be to resolve buyout issues when they arise. Our firm would be happy to help.

Do you need to make an estimated tax payment by September 17?

Posted by Admin Posted on Sept 05 2018

To avoid interest and penalties, you must make sufficient federal income tax payments long before your April filing deadline through withholding, estimated tax payments, or a combination of the two. The third 2018 estimated tax payment deadline for individuals is September 17.

If you don’t have an employer withholding tax from your pay, you likely need to make estimated tax payments. But even if you do have withholding, you might need to pay estimated tax. It can be necessary if you have more than a nominal amount of income from sources such as self-employment, interest, dividends, alimony, rent, prizes, awards or the sales of assets.

A two-prong test

Generally, you must pay estimated tax for 2018 if both of these statements apply:

  1. You expect to owe at least $1,000 in tax after subtracting tax withholding and credits, and
  2. You expect withholding and credits to be less than the smaller of 90% of your tax for 2018 or 100% of the tax on your 2017 return — 110% if your 2017 adjusted gross income was more than $150,000 ($75,000 for married couples filing separately).

If you’re a sole proprietor, partner or S corporation shareholder, you generally have to make estimated tax payments if you expect to owe $1,000 or more in tax when you file your return.

Quarterly payments

Estimated tax payments are spaced through the year into four periods or due dates. Generally, the due dates are April 15, June 15 and September 15 of the tax year and January 15 of the next year, unless the date falls on a weekend or holiday (hence the September 17 deadline this year).

Estimated tax is calculated by factoring in expected gross income, taxable income, deductions and credits for the year. The easiest way to pay estimated tax is electronically through the Electronic Federal Tax Payment System. You can also pay estimated tax by check or money order using the Estimated Tax Payment Voucher or by credit or debit card.

Confirming withholding

If you determine you don’t need to make estimated tax payments for 2018, it’s a good idea to confirm that the appropriate amount is being withheld from your paycheck. To reflect changes under the Tax Cuts and Jobs Act (TCJA), the IRS updated the tables that indicate how much employers should withhold from their employees’ pay, generally reducing the amount withheld.

The new tables might cause some taxpayers to not have enough withheld to pay their ultimate tax liabilities under the TCJA. The IRS has updated its withholding calculator (available at irs.gov) to assist taxpayers in reviewing their situations.

Avoiding penalties

Keep in mind that, if you underpaid estimated taxes in earlier quarters, you generally can’t avoid penalties by making larger estimated payments in later quarters. But if you also have withholding, you may be able to avoid penalties by having the estimated tax shortfall withheld.

To learn more about estimated tax and withholding — and for help determining how much tax you should be paying during the year — contact us.

If you’ve done any research into employee benefits for your business recently, you may have come across a bit of alphabet soup in the form of “HSA + HDHP.” Although perhaps initially confusing, this formula represents an increasingly popular model for health care benefits — that is, offering a Health Savings Account (HSA) coupled with, as required by law, a high-deductible health plan (HDHP).

HSA + HDHP can be a winning health benefits formula

Posted by Admin Posted on Aug 29 2018

If you’ve done any research into employee benefits for your business recently, you may have come across a bit of alphabet soup in the form of “HSA + HDHP.” Although perhaps initially confusing, this formula represents an increasingly popular model for health care benefits — that is, offering a Health Savings Account (HSA) coupled with, as required by law, a high-deductible health plan (HDHP).

Requirements

An HSA operates somewhat like a Flexible Spending Account (FSA), which employers can also offer to eligible employees. An FSA permits eligible employees to defer a pretax portion of their pay to later use to reimburse out-of-pocket medical expenses. But, unlike an FSA, an HSA is permitted to carry over unused account balances to the next year and beyond.

The most significant requirement for offering your employees an HSA is that, as mentioned, you must also cover them under an HDHP. For 2019, this means that each participant’s health insurance coverage must come with at least a $1,350 deductible for single coverage or $2,700 for family coverage. It’s okay if the HDHP doesn’t impose any deductible for preventive care (such as annual checkups), but participants can’t be eligible for Medicare benefits or claimed as a dependent on another person’s tax return.

The benefit of the high deductible requirement is that premiums for HDHPs are typically less expensive than for health plans with lower deductibles. You and your employees can use some or all of the money saved on premiums to fund their HSAs.

Pretax contributions

You and the employee combined can make pretax HSA contributions in 2019 of up to $3,500 for single coverage or $7,000 for family coverage. An account beneficiary who is age 55 or older by the end of the tax year for which the HSA contribution is made may contribute an additional $1,000.

The good news for you, the business owner: First, employer contributions are optional. Second, pretax contributions to an employee’s HSA, whether by you or the employee, are exempt from Social Security, Medicare and unemployment taxes.

Growing popularity

Just how popular is the HSA + HDHP model? A 2018 report by the trade association America’s Health Insurance Plans found that enrollment in these plans increased by nearly 400% over the last 10 years — from about 4.5 million in 2007 to about 21.8 million in 2017. Of course, this doesn’t mean your business should blindly jump on the bandwagon. Contact us to discuss the concept further or for other ideas regarding affordable employee benefits.

When teachers are setting up their classrooms for the new school year, it’s common for them to pay for a portion of their classroom supplies out of pocket. A special tax break allows these educators to deduct some of their expenses. This educator expense deduction is especially important now due to some changes under the Tax Cuts and Jobs Act (TCJA).

Back-to-school time means a tax break for teachers

Posted by Admin Posted on Aug 28 2018

When teachers are setting up their classrooms for the new school year, it’s common for them to pay for a portion of their classroom supplies out of pocket. A special tax break allows these educators to deduct some of their expenses. This educator expense deduction is especially important now due to some changes under the Tax Cuts and Jobs Act (TCJA).

The old miscellaneous itemized deduction

Before 2018, employee expenses were potentially deductible if they were unreimbursed by the employer and ordinary and necessary to the “business” of being an employee. A teacher’s out-of-pocket classroom expenses could qualify.

But these expenses had to be claimed as a miscellaneous itemized deduction and were subject to a 2% of adjusted gross income (AGI) floor. This meant employees, including teachers, could enjoy a tax benefit only if they itemized deductions (rather than taking the standard deduction) and all their deductions subject to the floor, combined, exceeded 2% of their AGI.

Now, for 2018 through 2025, the TCJA has suspended miscellaneous itemized deductions subject to the 2% of AGI floor. Fortunately, qualifying educators can still deduct some of their unreimbursed out-of-pocket classroom costs under the educator expense deduction.

The above-the-line educator expense deduction

Back in 2002, Congress created the above-the-line educator expense deduction because, for many teachers, the 2% of AGI threshold for the miscellaneous itemized deduction was difficult to meet. An above-the-line deduction is one that’s subtracted from your gross income to determine your AGI.

You don’t have to itemize to claim an above-the-line deduction. This is especially significant with the TCJA’s near doubling of the standard deduction, which means fewer taxpayers will benefit from itemizing.

Qualifying elementary and secondary school teachers and other eligible educators (such as counselors and principals) can deduct up to $250 of qualified expenses. If you’re married filing jointly and both you and your spouse are educators, you can deduct up to $500 of unreimbursed expenses — but not more than $250 each.

Qualified expenses include amounts paid or incurred during the tax year for books, supplies, computer equipment (including related software and services), other equipment and supplementary materials that you use in the classroom. For courses in health and physical education, the costs of supplies are qualified expenses only if related to athletics.

Many rules, many changes

Some additional rules apply to the educator expense deduction. Contact us for more details or to discuss other tax deductions that may be available to you this year. The TCJA has made significant changes to many deductions for individuals.

If your small business doesn’t offer its employees a retirement plan, you may want to consider a SIMPLE IRA. Offering a retirement plan can provide your business with valuable tax deductions and help you attract and retain employees. For a variety of reasons, a SIMPLE IRA can be a particularly appealing option for small businesses. The deadline for setting one up for this year is October 1, 2018.

Keep it SIMPLE: A tax-advantaged retirement plan solution for small businesses

Posted by Admin Posted on Aug 27 2018

If your small business doesn’t offer its employees a retirement plan, you may want to consider a SIMPLE IRA. Offering a retirement plan can provide your business with valuable tax deductions and help you attract and retain employees. For a variety of reasons, a SIMPLE IRA can be a particularly appealing option for small businesses. The deadline for setting one up for this year is October 1, 2018.

The basics

SIMPLE stands for “savings incentive match plan for employees.” As the name implies, these plans are simple to set up and administer. Unlike 401(k) plans, SIMPLE IRAs don’t require annual filings or discrimination testing.

SIMPLE IRAs are available to businesses with 100 or fewer employees. Employers must contribute and employees have the option to contribute. The contributions are pretax, and accounts can grow tax-deferred like a traditional IRA or 401(k) plan, with distributions taxed when taken in retirement.

As the employer, you can choose from two contribution options:

  1. Make a “nonelective” contribution equal to 2% of compensation for all eligible employees. You must make the contribution regardless of whether the employee contributes. This applies to compensation up to the annual limit of $275,000 for 2018 (annually adjusted for inflation).
  2. Match employee contributions up to 3% of compensation. Here, you contribute only if the employee contributes. This isn’t subject to the annual compensation limit.

Employees are immediately 100% vested in all SIMPLE IRA contributions.

Employee contribution limits

Any employee who has compensation of at least $5,000 in any prior two years, and is reasonably expected to earn $5,000 in the current year, can elect to have a percentage of compensation put into a SIMPLE IRA.

SIMPLE IRAs offer greater income deferral opportunities than ordinary IRAs, but lower limits than 401(k)s. An employee may contribute up to $12,500 to a SIMPLE IRA in 2018. Employees age 50 or older can also make a catch-up contribution of up to $3,000. This compares to $5,500 and $1,000, respectively, for ordinary IRAs, and to $18,500 and $6,000 for 401(k)s. (Some or all of these limits may increase for 2019 under annual cost-of-living adjustments.)

You’ve got options

A SIMPLE IRA might be a good choice for your small business, but it isn’t the only option. The more-complex 401(k) plan we’ve already mentioned is one alternative. Some others are a Simplified Employee Pension (SEP) and a defined-benefit pension plan. These two plans don’t allow employee contributions and have other pluses and minuses. Contact us to learn more about a SIMPLE IRA or to hear about other retirement plan alternatives for your business.

Late summer and early fall, when so many families have members returning to educational facilities of all shapes and sizes, is also a good time for businesses to creatively step up their business development efforts, whether it’s launching new marketing initiatives, developing future employees or simply generating goodwill in the community. Here are a few examples that might inspire you.

Business tips for back-to-school time

Posted by Admin Posted on Aug 23 2018

Late summer and early fall, when so many families have members returning to educational facilities of all shapes and sizes, is also a good time for businesses to creatively step up their business development efforts, whether it’s launching new marketing initiatives, developing future employees or simply generating goodwill in the community. Here are a few examples that might inspire you.

Becoming a sponsor

A real estate agency sponsors a local middle school’s parent-teacher organization (PTO). The sponsorship includes ads in the school’s weekly e-newsletter and in welcome packets for new PTO members. Individual agents in the group also conduct monthly gift card drawings for parents and teachers who follow them on Facebook.

The agency hopes parents and teachers will remember its agents’ names and faces when they’re ready to buy or sell their homes.

Planting the seeds of STEM

An engineering firm donates old computers and printers to an elementary school that serves economically disadvantaged students. The equipment will be used in the school district’s K-12 program to get kids interested in careers in science, technology, engineering and math (STEM) disciplines.

At back-to-school time, a firm rep gives presentations at the schools and hands out literature. Then, in the spring, the company will mentor a select group of high school seniors who are planning to pursue engineering degrees in college.

Participating in STEM programs fosters corporate charity and goodwill. It can also pay back over the long run: When the firm’s HR department is looking for skilled talent, kids who benefited from the firm’s STEM efforts may return as loyal, full-time employees.

Launching an apprenticeship program

The back-to-school season motivates a high-tech manufacturer to partner with a vocational program at the local community college to offer registered apprenticeships through a state apprenticeship agency. In exchange for working for the manufacturer, students will receive college credits, on-the-job training and weekly paychecks. Their hourly wages will increase as they demonstrate proficiency.

The company hopes to hire at least some of these apprentices to fill full-time positions in the coming year or two.

Finding the right fit

Whether schools near you are already in session or will open soon, it’s not too late to think about how your business can benefit. Sit down with your management team and brainstorm ways to leverage relationships with local schools to boost revenues, give back to your community and add long-term value. We can provide other ideas and help you assess return on investment.

If you gamble, be sure you understand the tax consequences. Both wins and losses can affect your income tax bill. And changes under the Tax Cuts and Jobs Act (TCJA) could also have an impact.

Play your tax cards right with gambling wins and losses

Posted by Admin Posted on Aug 21 2018

If you gamble, be sure you understand the tax consequences. Both wins and losses can affect your income tax bill. And changes under the Tax Cuts and Jobs Act (TCJA) could also have an impact.

Wins and taxable income

You must report 100% of your gambling winnings as taxable income. The value of complimentary goodies (“comps”) provided by gambling establishments must also be included in taxable income as winnings.

Winnings are subject to your regular federal income tax rate. You might pay a lower rate on gambling winnings this year because of rate reductions under the TCJA.

Amounts you win may be reported to you on IRS Form W-2G (“Certain Gambling Winnings”). In some cases, federal income tax may be withheld, too. Anytime a Form W-2G is issued, the IRS gets a copy. So if you’ve received such a form, remember that the IRS will expect to see the winnings on your tax return.

Losses and tax deductions

You can write off gambling losses as a miscellaneous itemized deduction. While miscellaneous deductions subject to the 2% of adjusted gross income floor are not allowed for 2018 through 2025 under the TCJA, the deduction for gambling losses isn’t subject to that floor. So gambling losses are still deductible.

But the TCJA’s near doubling of the standard deduction for 2018 (to $24,000 for married couples filing jointly, $18,000 for heads of households and $12,000 for singles and separate filers) means that, even if you typically itemized deductions in the past, you may no longer benefit from itemizing. Itemizing saves tax only when total itemized deductions exceed the applicable standard deduction.

Also be aware that the deduction for gambling losses is limited to your winnings for the year, and any excess losses cannot be carried forward to future years. Also, out-of-pocket expenses for transportation, meals, lodging and so forth can’t be deducted unless you qualify as a gambling professional.

And, for 2018 through 2025, the TCJA modifies the limit on gambling losses for professional gamblers so that all deductions for expenses incurred in carrying out gambling activities, not just losses, are limited to the extent of gambling winnings.

Tracking your activities

To claim a deduction for gambling losses, you must adequately document them, including:

  1. The date and type of gambling activity.
  2. The name and address or location of the gambling establishment.
  3. The names of other persons (if any) present with you at the gambling establishment. (Obviously, this is not possible when the gambling occurs at a public venue such as a casino, race track, or bingo parlor.)
  4. The amount won or lost.

You can document income and losses from gambling on table games by recording the number of the table you played and keeping statements showing casino credit issued to you. For lotteries, you can use winning statements and unredeemed tickets as documentation.

Please contact us if you have questions or want more information about the tax treatment of gambling wins and losses.

Assessing the S corp

Posted by Admin Posted on Aug 20 2018

The S corporation business structure offers many advantages, including limited liability for owners and no double taxation (at least at the federal level). But not all businesses are eligible • and, with the new 21% flat income tax rate that now applies to C corporations, S corps may not be quite as attractive as they once were.

Tax comparison

The primary reason for electing S status is the combination of the limited liability of a corporation and the ability to pass corporate income, losses, deductions and credits through to shareholders. In other words, S corps generally avoid double taxation of corporate income — once at the corporate level and again when distributed to the shareholder. Instead, S corp tax items pass through to the shareholders’ personal returns and the shareholders pay tax at their individual income tax rates.

But now that the C corp rate is only 21% and the top rate on qualified dividends remains at 20%, while the top individual rate is 37%, double taxation might be less of a concern. On the other hand, S corp owners may be able to take advantage of the new qualified business income (QBI) deduction, which can be equal to as much as 20% of QBI.

You have to run the numbers with your tax advisor, factoring in state taxes, too, to determine which structure will be the most tax efficient for you and your business.

S eligibility requirements

If S corp status makes tax sense for your business, you need to make sure you qualify • and stay qualified. To be eligible to elect to be an S corp or to convert to S status, your business must:

  • Be a domestic corporation and have only one class of stock,
  • Have no more than 100 shareholders, and
  • Have only “allowable” shareholders, including individuals, certain trusts and estates. Shareholders can’t include partnerships, corporations and nonresident alien shareholders.

In addition, certain businesses are ineligible, such as insurance companies.

Reasonable compensation

Another important consideration when electing S status is shareholder compensation. The IRS is on the lookout for S corps that pay shareholder-employees an unreasonably low salary to avoid paying Social Security and Medicare taxes and then make distributions that aren’t subject to payroll taxes.

Compensation paid to a shareholder should be reasonable considering what a nonowner would be paid for a comparable position. If a shareholder’s compensation doesn’t reflect the fair market value of the services he or she provides, the IRS may reclassify a portion of distributions as unpaid wages. The company will then owe payroll taxes, interest and penalties on the reclassified wages.

Pros and cons

S corp status isn’t the best option for every business. To ensure that you’ve considered all the pros and cons, contact us. Assessing the tax differences can be tricky — especially with the tax law changes going into effect this year.

6 ways to get more value from an IT consultant

Posted by Admin Posted on Aug 15 2018

IT consultants are many things — experts in their field, champions of the workaround and, generally, the “people persons” of the tech field. But they’re not magicians who, with the wave of a smartphone, can solve any dilemma you throw at them. Here are six ways to get more value from your company’s next IT consulting relationship:

1. Spell out your needs. Define your desired outcome in as much detail as possible up front, so that both you and the consultant know what’s expected of each party. To do so, create a project scope document that clearly delineates the job’s purpose, timeframe, resources, personnel, reporting requirements, critical success factors and conflict resolution methods.

2. Appoint an internal contact. Assign someone within your organization as the internal project manager as early in the process as possible. He or she will be the go-to person for the consultant and, therefore, needs to have a thorough knowledge of the job’s requirements and be able to fairly assess the consultant’s performance.

3. Put in some prep time. Before the consultant arrives, prepare his or her workstation, ensuring that any equipment you’re providing works and allows appropriate access to the required systems — including email. Don’t forget to set up the phone, too, and add the consultant to your company phone list. Also, alert your staff that you have engaged a consultant and, to alleviate potential concerns, explain why.

4. Roll out the welcome wagon. Try to arrange an orientation on the Friday before the start date (assuming it’s a Monday). That way, you can give the consultant the project scope document as well as a written company overview (perhaps your employee procedures manual) that includes policies, safety protocols, office hours and tips on company culture to review over the weekend.

5. Keep in touch. Conduct regular project status meetings with the consultant to assess progress and provide feedback. Notify the consultant or the internal project manager immediately if you suspect the job is off track.

6. Conclude courteously. If you need to end the consulting engagement earlier than expected (for reasons other than poor performance) or extend it beyond the agreed-on timeframe, give as much notice as possible.

Act toward a good consultant as you would any valued vendor with whom you’d like to work again. After all, establishing a positive relationship with someone who knows your business could provide even greater return on investment in the future. Our firm would be happy to explain further or explore other ideas.

Choosing the right accounting method for tax purposes

Posted by Admin Posted on Aug 13 2018

The Tax Cuts and Jobs Act (TCJA) liberalized the eligibility rules for using the cash method of accounting, making this method — which is simpler than the accrual method — available to more businesses. Now the IRS has provided procedures a small business taxpayer can use to obtain automatic consent to change its method of accounting under the TCJA. If you have the option to use either accounting method, it pays to consider whether switching methods would be beneficial.

Cash vs. accrual

Generally, cash-basis businesses recognize income when it’s received and deduct expenses when they’re paid. Accrual-basis businesses, on the other hand, recognize income when it’s earned and deduct expenses when they’re incurred, without regard to the timing of cash receipts or payments.

In most cases, a business is permitted to use the cash method of accounting for tax purposes unless it’s:

  1. Expressly prohibited from using the cash method, or
  2. Expressly required to use the accrual method.

 

Cash method advantages

 

The cash method offers several advantages, including:

Simplicity. It’s easier and cheaper to implement and maintain.

Tax-planning flexibility. It offers greater flexibility to control the timing of income and deductible expenses. For example, it allows you to defer income to next year by delaying invoices or to shift deductions into this year by accelerating the payment of expenses. An accrual-basis business doesn’t enjoy this flexibility. For example, to defer income, delaying invoices wouldn’t be enough; the business would have to put off shipping products or performing services.

Cash flow benefits. Because income is taxed in the year it’s received, the cash method does a better job of ensuring that a business has the funds it needs to pay its tax bill.

Accrual method advantages

In some cases, the accrual method may offer tax advantages. For example, accrual-basis businesses may be able to use certain tax-planning strategies that aren’t available to cash-basis businesses, such as deducting year-end bonuses that are paid within the first 2½ months of the following year and deferring income on certain advance payments.

The accrual method also does a better job of matching income and expenses, so it provides a more accurate picture of a business’s financial performance. That’s why it’s required under Generally Accepted Accounting Principles (GAAP).

If your business prepares GAAP-compliant financial statements, you can still use the cash method for tax purposes. But weigh the cost of maintaining two sets of books against the potential tax benefits.

Making a change

Keep in mind that cash and accrual are the two primary tax accounting methods, but they’re not the only ones. Some businesses may qualify for a different method, such as a hybrid of the cash and accrual methods.

If your business is eligible for more than one method, we can help you determine whether switching methods would make sense and can execute the change for you if appropriate.

As a business grows, one of many challenges it faces is identifying a competitive yet manageable compensation structure. After all, offer too little and you likely won’t have much success in hiring. Offer too much and you may compromise cash flow and profitability.

Contemplating compensation increases and pay for performance

Posted by Admin Posted on Aug 08 2018

As a business grows, one of many challenges it faces is identifying a competitive yet manageable compensation structure. After all, offer too little and you likely won’t have much success in hiring. Offer too much and you may compromise cash flow and profitability.

But the challenge doesn’t end there. Once you have a feasible compensation structure in place, your organization must then set its course for determining the best way for employees to progress through it. And this is when you must contemplate the nature and efficacy of linking pay to performance.

Issues in play

Some observers believe that companies shouldn’t use compensation to motivate employees because workers might stop focusing on quality of work and start focusing on money. Additionally, employees may feel that the merit — or “pay-for-performance” — model pits staff members against each other for the highest raises.

Thus, some businesses give uniform pay adjustments to everyone. In doing so, these companies hope to eliminate competition and ensure that all employees are working toward the same goal. But, if everyone gets the same raise, is there any motivation for employees to continually improve?

2 critical factors

Many businesses don’t think so and do use additional money to motivate employees, whether by bonuses, commissions or bigger raises. In its most basic form, a merit increase is the amount of additional compensation added to current base pay following an employee’s performance review. Two critical factors typically determine the increase:

  1. The amount of money a company sets aside in its “merit” budget for performance-based increases — usually based on competitive market practice, and
  2. Employee performance as determined through a performance review process conducted by management.

Although pay-for-performance can achieve its original intent — recognizing employee performance and outstanding contributions to the company’s success — beware that your employees may perceive merit increases as an entitlement or even nothing more than an inflation adjustment. If they do, pay-for-performance may not be effective as a motivational tool.

Communication is the key

The ideal solution to both compensation structure and pay raises will vary based on factors such as the size of the business and typical compensation levels of its industry. Nonetheless, to avoid unintended ill effects of the pay-for-performance model, be sure to communicate clearly with employees. Be as specific as possible about what contributes to merit increases and ensure that your performance review process is transparent, interactive and understandable. Contact us to discuss this or other compensation-related issues further.

Converting a traditional IRA to a Roth IRA can provide tax-free growth and tax-free withdrawals in retirement. But what if you convert your traditional IRA — subject to income taxes on all earnings and deductible contributions — and then discover you would have been better off if you hadn’t converted it?

The TCJA prohibits undoing 2018 Roth IRA conversions, but 2017 conversions are still eligible

Posted by Admin Posted on Aug 07 2018

Converting a traditional IRA to a Roth IRA can provide tax-free growth and tax-free withdrawals in retirement. But what if you convert your traditional IRA — subject to income taxes on all earnings and deductible contributions — and then discover you would have been better off if you hadn’t converted it?

Before the Tax Cuts and Jobs Act (TCJA), you could undo a Roth IRA conversion using a “recharacterization.” Effective with 2018 conversions, the TCJA prohibits recharacterizations — permanently. But if you executed a conversion in 2017, you may still be able to undo it.

Reasons to recharacterize

Generally, if you converted to a Roth IRA in 2017, you have until October 15, 2018, to undo it and avoid the tax hit.

Here are some reasons you might want to recharacterize a 2017 Roth IRA conversion:

  • The conversion combined with your other income pushed you into a higher tax bracket in 2017.
  • Your marginal income tax rate will be lower in 2018 than it was in 2017.
  • The value of your account has declined since the conversion, so you owe taxes partially on money you no longer have.

If you recharacterize your 2017 conversion but would still like to convert your traditional IRA to a Roth IRA, you must wait until the 31st day after the recharacterization. If you undo a conversion because your IRA’s value declined, there’s a risk that your investments will bounce back during the waiting period, causing you to reconvert at a higher tax cost.

Recharacterization in action

Sally had a traditional IRA with a balance of $100,000 when she converted it to a Roth IRA in 2017. Her 2017 tax rate was 33%, so she owed $33,000 in federal income taxes on the conversion.

However, by August 1, 2018, the value of her account had dropped to $80,000. So Sally recharacterizes the account as a traditional IRA and amends her 2017 tax return to exclude the $100,000 in income.

On September 1, she reconverts the traditional IRA, whose value remains at $80,000, to a Roth IRA. She will report that amount when she files her 2018 tax return. The 33% rate has dropped to 32% under the TCJA. Assuming Sally is still in this bracket, this time she’ll owe $25,600 ($80,000 × 32%) — deferred for a year and resulting in a tax savings of $7,400.

(Be aware that the thresholds for the various brackets have changed for 2018, in some cases increasing but in others decreasing. This, combined with other TCJA provisions and changes in your income, could cause you to be in a higher or lower bracket in 2018.)

Know your options

If you converted a traditional IRA to a Roth IRA in 2017, it’s worthwhile to see if you could save tax by undoing the conversion. If you’re considering a Roth conversion in 2018, keep in mind that you won’t have the option to recharacterize. We can help you assess whether recharacterizing a 2017 conversion or executing a 2018 conversion makes sense for you.

One of the biggest concerns for family business owners is succession planning — transferring ownership and control of the company to the next generation. Often, the best time tax-wise to start transferring ownership is long before the owner is ready to give up control of the business.

An FLP can save tax in a family business succession

Posted by Admin Posted on Aug 06 2018

One of the biggest concerns for family business owners is succession planning — transferring ownership and control of the company to the next generation. Often, the best time tax-wise to start transferring ownership is long before the owner is ready to give up control of the business.

A family limited partnership (FLP) can help owners enjoy the tax benefits of gradually transferring ownership yet allow them to retain control of the business.

How it works

To establish an FLP, you transfer your ownership interests to a partnership in exchange for both general and limited partnership interests. You then transfer limited partnership interests to your children.

You retain the general partnership interest, which may be as little as 1% of the assets. But as general partner, you can still run day-to-day operations and make business decisions.

Tax benefits

As you transfer the FLP interests, their value is removed from your taxable estate. What’s more, the future business income and asset appreciation associated with those interests move to the next generation.

Because your children hold limited partnership interests, they have no control over the FLP, and thus no control over the business. They also can’t sell their interests without your consent or force the FLP’s liquidation.

The lack of control and lack of an outside market for the FLP interests generally mean the interests can be valued at a discount — so greater portions of the business can be transferred before triggering gift tax. For example, if the discount is 25%, in 2018 you could gift an FLP interest equal to as much as $20,000 tax-free because the discounted value wouldn’t exceed the $15,000 annual gift tax exclusion.

To transfer interests in excess of the annual exclusion, you can apply your lifetime gift tax exemption. And 2018 may be a particularly good year to do so, because the Tax Cuts and Jobs Act raised it to a record-high $11.18 million. The exemption is scheduled to be indexed for inflation through 2025 and then drop back down to an inflation-adjusted $5 million in 2026. While Congress could extend the higher exemption, using as much of it as possible now may be tax-smart.

There also may be income tax benefits. The FLP’s income will flow through to the partners for income tax purposes. Your children may be in a lower tax bracket, potentially reducing the amount of income tax paid overall by the family.

FLP risks

Perhaps the biggest downside is that the IRS scrutinizes FLPs. If it determines that discounts were excessive or that your FLP had no valid business purpose beyond minimizing taxes, it could assess additional taxes, interest and penalties.

The IRS pays close attention to how FLPs are administered. Lack of attention to partnership formalities, for example, can indicate that an FLP was set up solely as a tax-reduction strategy.

Right for you?

An FLP can be an effective succession and estate planning tool, but it isn’t risk free. Please contact us for help determining whether an FLP is right for you.

In an increasingly global economy, keeping a close eye on your supply chain is imperative. Even if your company operates only locally or nationally, your suppliers could be affected by wider economic conditions and developments. So, make sure you’re regularly assessing where weak links in your supply chain may lie.

Is there a weak link in your supply chain?

Posted by Admin Posted on Aug 01 2018

In an increasingly global economy, keeping a close eye on your supply chain is imperative. Even if your company operates only locally or nationally, your suppliers could be affected by wider economic conditions and developments. So, make sure you’re regularly assessing where weak links in your supply chain may lie.

3 common risks

Every business faces a variety of risks. Three of the most common are:

1. Legal risks. Are any of your suppliers involved in legal conflicts that could adversely affect their ability to earn revenue or continue serving you?

2. Political risks. Are any suppliers located in a politically unstable region — even nationally? Could the outcome of a municipal, state or federal election adversely affect your industry’s supply chain?

3. Transportation risks. How reliant are your suppliers on a particular type of transportation? For example, what’s their backup plan if winter weather shuts down air routes for a few days? Or could wildfires or mudslides block trucking routes?

Potential fallout

The potential fallout from an unstable supply chain can be devastating. Obviously, first and foremost, you may be unable to timely procure the supplies you need to operate profitably.

Beyond that, high-risk supply chains can also affect your ability to obtain financing. Lenders may view risks as too high to justify your current debt or a new loan request. You could face higher interest rates or more stringent penalties to compensate for it.

Strategies to consider

Just as businesses face many supply chain risks, they can also avail themselves of a variety of coping strategies. For example, you might divide purchases equally among three suppliers — instead of just one — to diversify your supplier base. You might spread out suppliers geographically to mitigate the threat of a regional disaster.

Also consider strengthening protections against unforeseen events by adding to inventory buffers to hedge against short-term shortages. Take a hard look at your supplier contracts as well. You may be able to negotiate long-term deals to include upfront payment terms, exclusivity clauses and access to computerized just-in-time inventory systems to more accurately forecast demand and more closely integrate your operations with supply-chain partners.

Lasting success

You can have a very successful business, but if you can’t keep delivering your products and services to customers consistently, you’ll likely find success fleeting. A solid supply chain fortified against risk is a must. We can provide further information and other ideas.

Do you still need to worry about the AMT?

Posted by Admin Posted on July 31 2018

There was talk of repealing the individual alternative minimum tax (AMT) as part of last year’s tax reform legislation. A repeal wasn’t included in the final version of the Tax Cuts and Jobs Act (TCJA), but the TCJA will reduce the number of taxpayers subject to the AMT.

Now is a good time to familiarize yourself with the changes, assess your AMT risk and see if there are any steps you can take during the last several months of the year to avoid the AMT, or at least minimize any negative impact.

AMT vs. regular tax

The top AMT rate is 28%, compared to the top regular ordinary-income tax rate of 37%. But the AMT rate typically applies to a higher taxable income base and will result in a larger tax bill if you’re subject to it.

The TCJA reduced the number of taxpayers who’ll likely be subject to the AMT in part by increasing the AMT exemption and the income phaseout ranges for the exemption:

  • For 2018, the exemption is $70,300 for singles and heads of households (up from $54,300 for 2017), and $109,400 for married couples filing jointly (up from $84,500 for 2017).
  • The 2018 phaseout ranges are $500,000–$781,200 for singles and heads of households (up from $120,700–$337,900 for 2017) and $1,000,000–$1,437,600 for joint filers (up from $160,900–$498,900 for 2017).

You’ll be subject to the AMT if your AMT liability is greater than your regular tax liability.

AMT triggers

In the past, common triggers of the AMT were differences between deductions allowed for regular tax purposes and AMT purposes. Some popular deductions aren’t allowed under the AMT.

New limits on some of these deductions for regular tax purposes, such as on state and local income and property tax deductions, mean they’re less likely to trigger the AMT. And certain deductions not allowed for AMT purposes are now not allowed for regular tax purposes either, such as miscellaneous itemized deductions subject to the 2% of adjusted gross income floor.

But deductions aren’t the only things that can trigger the AMT. Some income items might do so, too, such as:

  • Long-term capital gains and dividend income, even though they’re taxed at the same rate for both regular tax and AMT purposes,
  • Accelerated depreciation adjustments and related gain or loss differences when assets are sold,
  • Tax-exempt interest on certain private-activity municipal bonds, and
  • The exercise of incentive stock options.

AMT planning tips

If it looks like you could be subject to the AMT in 2018, consider accelerating income into this year. Doing so may allow you to benefit from the lower maximum AMT rate. And deferring expenses you can’t deduct for AMT purposes may allow you to preserve those deductions. If you also defer expenses you can deduct for AMT purposes, the deductions may become more valuable because of the higher maximum regular tax rate.

Please contact us if you have questions about whether you could be subject to the AMT this year or about minimizing negative consequences from the AMT.

Do you qualify for the home office deduction?

Posted by Admin Posted on July 30 2018

Under the Tax Cuts and Jobs Act, employees can no longer claim the home office deduction. If, however, you run a business from your home or are otherwise self-employed and use part of your home for business purposes, the home office deduction may still be available to you.

Home-related expenses

Homeowners know that they can claim itemized deductions for property tax and mortgage interest on their principal residences, subject to certain limits. Most other home-related expenses, such as utilities, insurance and repairs, aren’t deductible.

But if you use part of your home for business purposes, you may be entitled to deduct a portion of these expenses, as well as depreciation. Or you might be able to claim the simplified home office deduction of $5 per square foot, up to 300 square feet ($1,500).

Regular and exclusive use

You might qualify for the home office deduction if part of your home is used as your principal place of business “regularly and exclusively,” defined as follows:

1. Regular use. You use a specific area of your home for business on a regular basis. Incidental or occasional business use is not regular use.

2. Exclusive use. You use the specific area of your home only for business. It’s not necessary for the space to be physically partitioned off. But, you don’t meet the requirements if the area is used both for business and personal purposes, such as a home office that also serves as a guest bedroom.

Regular and exclusive business use of the space aren’t, however, the only criteria.

Principal place of business

Your home office will qualify as your principal place of business if you 1) use the space exclusively and regularly for administrative or management activities of your business, and 2) don’t have another fixed location where you conduct substantial administrative or management activities.

Examples of activities that are administrative or managerial in nature include:

  • Billing customers, clients or patients,
  • Keeping books and records,
  • Ordering supplies,
  • Setting up appointments, and
  • Forwarding orders or writing reports.

Meetings or storage

If your home isn’t your principal place of business, you may still be able to deduct home office expenses if you physically meet with patients, clients or customers on your premises. The use of your home must be substantial and integral to the business conducted.

Alternatively, you may be able to claim the home office deduction if you have a storage area in your home — or in a separate free-standing structure (such as a studio, workshop, garage or barn) — that’s used exclusively and regularly for your business.

Valuable tax-savings

The home office deduction can provide a valuable tax-saving opportunity for business owners and other self-employed taxpayers who work from home. If you’re not sure whether you qualify or if you have other questions, please contact us.

Get SMART when it comes to setting strategic goals

Posted by Admin Posted on July 25 2018

Strategic planning is key to ensuring every company’s long-term viability, and goal setting is an indispensable step toward fulfilling those plans. Unfortunately, businesses often don’t accomplish their overall strategic plans because they’re unable to fully reach the various goals necessary to get there.

If this scenario sounds all too familiar, trace your goals back to their origin. Those that are poorly conceived typically set up a company for failure. One solution is to follow the SMART approach.

Definitions to work by

The SMART system was first introduced to the business world in the early 1980s. Although the acronym’s letters have been associated with different meanings over the years, they’re commonly defined as:

Specific. Goals must be precise. So, if your strategic plan includes growing the business, your goals must then explicitly state how you’ll do so. For each goal, define the “5 Ws” — who, what, where, when and why.

Measurable. Setting goals is of little value if you can’t easily assess your progress toward them. Pair each goal with one or more metrics to measure progress and success. This may mean increasing revenue by a certain percentage, expanding your customer base by winning a certain number of new accounts, or something else.

Achievable. Unrealistically aggressive goals can crush motivation. No one wants to put time and effort into something that’s likely to fail. Ensure your goals can be accomplished, but don’t make them too easy. The best ones are usually somewhat of a stretch but still doable. Rely on your own business experience and the feedback of your trusted managers to find the right balance.

Relevant. Let’s say you identify a goal that you know you can achieve. Before locking it in, ask whether and how it will move your business forward. Again, goals should directly and clearly support your long-term strategic plan. Sometimes companies can be tempted by “low-hanging fruit” — goals that are easy to accomplish but lead nowhere.

Timely. Assign each goal a deadline. Doing so will motivate those involved by creating a sense of urgency. Also, once you’ve established a deadline, work backwards and set periodic milestones to help everyone pace themselves toward the goal.

Eye on the future

Strategic planning, and the goal setting that goes along with it, might seem like a waste of time. But even if your business is thriving now, it’s important to keep an eye on the future. And that means long-term strategic planning that includes SMART goals. Our firm would be happy to explain further and offer other ideas.

Why the “kiddie tax” is more dangerous than ever

Posted by Admin Posted on July 24 2018

Once upon a time, some parents and grandparents would attempt to save tax by putting investments in the names of their young children or grandchildren in lower income tax brackets. To discourage such strategies, Congress created the “kiddie” tax back in 1986. Since then, this tax has gradually become more far-reaching. Now, under the Tax Cuts and Jobs Act (TCJA), the kiddie tax has become more dangerous than ever.

A short history

Years ago, the kiddie tax applied only to children under age 14 — which still provided families with ample opportunity to enjoy significant tax savings from income shifting. In 2006, the tax was expanded to children under age 18. And since 2008, the kiddie tax has generally applied to children under age 19 and to full-time students under age 24 (unless the students provide more than half of their own support from earned income).

What about the kiddie tax rate? Before the TCJA, for children subject to the kiddie tax, any unearned income beyond a certain amount ($2,100 for 2017) was taxed at their parents’ marginal rate (assuming it was higher), rather than their own likely low rate.

A fiercer kiddie tax

The TCJA doesn’t further expand who’s subject to the kiddie tax. But it will effectively increase the kiddie tax rate in many cases.

For 2018–2025, a child’s unearned income beyond the threshold ($2,100 again for 2018) will be taxed according to the tax brackets used for trusts and estates. For ordinary income (such as interest and short-term capital gains), trusts and estates are taxed at the highest marginal rate of 37% once 2018 taxable income exceeds $12,500. In contrast, for a married couple filing jointly, the highest rate doesn’t kick in until their 2018 taxable income tops $600,000.

Similarly, the 15% long-term capital gains rate takes effect at $77,201 for joint filers but at only $2,601 for trusts and estates. And the 20% rate kicks in at $479,001 and $12,701, respectively.

In other words, in many cases, children’s unearned income will be taxed at higher rates than their parents’ income. As a result, income shifting to children subject to the kiddie tax will not only not save tax, but it could actually increase a family’s overall tax liability.

The moral of the story

To avoid inadvertently increasing your family’s taxes, be sure to consider the big, bad kiddie tax before transferring income-producing or highly appreciated assets to a child or grandchild who’s a minor or college student. If you’d like to shift income and you have adult children or grandchildren who’re no longer subject to the kiddie tax but in a lower tax bracket, consider transferring such assets to them.

Please contact us for more information about the kiddie tax — or other TCJA changes that may affect your family.

Meal, vehicle and travel expenses are common deductions for businesses. But if you don’t properly document these expenses, you could find your deductions denied by the IRS.

Business deductions for meal, vehicle and travel expenses: Document, document, document

Posted by Admin Posted on July 23 2018

Meal, vehicle and travel expenses are common deductions for businesses. But if you don’t properly document these expenses, you could find your deductions denied by the IRS.

A critical requirement

Subject to various rules and limits, business meal (generally 50%), vehicle and travel expenses may be deductible, whether you pay for the expenses directly or reimburse employees for them. Deductibility depends on a variety of factors, but generally the expenses must be “ordinary and necessary” and directly related to the business.

Proper documentation, however, is one of the most critical requirements. And all too often, when the IRS scrutinizes these deductions, taxpayers don’t have the necessary documentation.

What you need to do

Following some simple steps can help ensure you have documentation that will pass muster with the IRS:

Keep receipts or similar documentation. You generally must have receipts, canceled checks or bills that show amounts and dates of business expenses. If you’re deducting vehicle expenses using the standard mileage rate (54.5 cents for 2018), log business miles driven.

Track business purposes. Be sure to record the business purpose of each expense. This is especially important if on the surface an expense could appear to be a personal one. If the business purpose of an expense is clear from the surrounding circumstances, the IRS might not require a written explanation — but it’s probably better to err on the side of caution and document the business purpose anyway.

Require employees to comply. If you reimburse employees for expenses, make sure they provide you with proper documentation. Also be aware that the reimbursements will be treated as taxable compensation to the employee (and subject to income tax and FICA withholding) unless you make them via an “accountable plan.”

Don’t re-create expense logs at year end or when you receive an IRS deficiency notice. Take a moment to record the details in a log or diary at the time of the event or soon after. The IRS considers timely kept records more reliable, plus it’s easier to track expenses as you go than try to re-create a log later. For expense reimbursements, require employees to submit monthly expense reports (which is also generally a requirement for an accountable plan).

Addressing uncertainty

You’ve probably heard that, under the Tax Cuts and Jobs Act, entertainment expenses are no longer deductible. There’s some debate as to whether this includes business meals with actual or prospective clients. Until there’s more certainty on that issue, it’s a good idea to document these expenses. That way you’ll have what you need to deduct them if Congress or the IRS provides clarification that these expenses are indeed still deductible.

For more information about what meal, vehicle and travel expenses are and aren’t deductible — and how to properly document deductible expenses — please contact us.

When business use of websites began, getting noticed was the name of the game. Remember pop-up ads? Text scrolling up the screen? How about those mesmerizing rotating banners? Yes, there were — and remain — a variety of comical and some would say annoying ways to get visitors’ attention.

Trust is an essential building block of today’s websites

Posted by Admin Posted on July 18 2018

When business use of websites began, getting noticed was the name of the game. Remember pop-up ads? Text scrolling up the screen? How about those mesmerizing rotating banners? Yes, there were — and remain — a variety of comical and some would say annoying ways to get visitors’ attention.

Nowadays, most Internet users are savvy enough not to be impressed by flashy graphics. They tend to want simplicity and the ability to navigate intuitively. Most of all, they want to feel protected from scams and hackers. That’s why, when maintaining or updating your company’s website, trust is an essential building block.

Make it personal

Among the simplest ways to establish trust with customers and prospects is conveying to them that you’re a bona fide business staffed by actual human beings.

Include an “About Us” page with the names, photos and short bios of the owner, executives and key staff members. This will help make the site friendlier and more relatable. You don’t want to look anonymous — it makes customers suspicious and less likely to buy.

Beyond that, be sure to clearly provide general contact info. This includes a phone number and email address, hours of operation (including time zone), and your mailing address. If you’re a small business, use a street address if possible. Some companies won’t deliver to a P.O. box — and some customers won’t buy if you use one.

Keep contact links easy to find. No one wants to search all over a site looking for a way to get in touch with someone at the business. Include at least one contact link on every page.

Mind the details

Everyone makes mistakes, but typos and inaccuracies on a website can send many users to the “close tab” button. Remember, one of the hallmarks of many Internet trolls and scamsters is ineffective or even nonsensical use of the English language.

Check and doublecheck the spelling and grammar used on your site. Bear in mind that spellcheck programs look only for misspelled words. If you have correctly spelled a word but it’s misused — for example, “to” instead of “two” — spellcheck won’t catch it.

Also, regularly check all links. Nothing sends a customer off to a competitor more quickly than the frustration of encountering nonfunctioning links. Such problems may also lead visitors to think they’ve been hacked. Link-checker software can automatically find broken links within your site and links to other sites.

Construct good content

Obviously, there are many more technical ways to secure your website. It goes without saying that cybersecurity measures such as encryption software and firewalls must be maintained to the fullest. But, from a content perspective, your site should be constructed first and foremost on a foundation of trust. Our firm can provide other ideas and further information.

3 traditional midyear tax planning strategies for individuals that hold up post-TCJA

Posted by Admin Posted on July 17 2018

With its many changes to individual tax rates, brackets and breaks, the Tax Cuts and Jobs Act (TCJA) means taxpayers need to revisit their tax planning strategies. Certain strategies that were once tried-and-true will no longer save or defer tax. But there are some that will hold up for many taxpayers. And they’ll be more effective if you begin implementing them this summer, rather than waiting until year end. Take a look at these three ideas, and contact us to discuss what midyear strategies make sense for you.

1. Look at your bracket

Under the TCJA, the top income tax rate is now 37% (down from 39.6%) for taxpayers with taxable income over $500,000 (single and head-of-household filers) or $600,000 (married couples filing jointly). These thresholds are higher than for the top rate in 2017 ($418,400, $444,550 and $470,700, respectively). So the top rate might be less of a concern.

However, singles and heads of households in the middle and upper brackets could be pushed into a higher tax bracket much more quickly this year. For example, for 2017 the threshold for the 33% tax bracket was $191,650 for singles and $212,500 for heads of households. For 2018, the rate for this bracket has been reduced slightly to 32% — but the threshold for the bracket is now only $157,500 for both singles and heads of households.

So a lot more of these filers could find themselves in this bracket. (Fortunately for joint filers, their threshold for this bracket has increased from $233,350 to $315,000.)

If you expect this year’s income to be near the threshold for a higher bracket, consider strategies for reducing your taxable income and staying out of the next bracket. For example, you could take steps to accelerate deductible expenses.

But carefully consider the changes the TCJA has made to deductions. For example, you might no longer benefit from itemizing because of the nearly doubled standard deduction and the reduction or elimination of certain itemized deductions. For 2018, the standard deduction is $12,000 for singles, $18,000 for heads of households and $24,000 for joint filers.

2. Incur medical expenses

One itemized deduction the TCJA has retained and — temporarily — enhanced is the medical expense deduction. If you expect to benefit from itemizing on your 2018 return, take a look at whether you can accelerate deductible medical expenses into this year.

You can deduct only expenses that exceed a floor based on your adjusted gross income (AGI). Under the TCJA, the floor has dropped from 10% of AGI to 7.5%. But it’s scheduled to return to 10% for 2019 and beyond.

Deductible expenses may include:

  • Health insurance premiums,
  • Long-term care insurance premiums,
  • Medical and dental services and prescription drugs, and
  • Mileage driven for health care purposes.

You may be able to control the timing of some of these expenses so you can bunch them into 2018 and exceed the floor while it’s only 7.5%.

3. Review your investments

The TCJA didn’t make changes to the long-term capital gains rate, so the top rate remains at 20%. However, that rate now kicks in before the top ordinary-income tax rate. For 2018, the 20% rate applies to taxpayers with taxable income exceeding $425,800 (singles), $452,400 (heads of households), or $479,000 (joint filers).

If you’ve realized, or expect to realize, significant capital gains, consider selling some depreciated investments to generate losses you can use to offset those gains. It may be possible to repurchase those investments, so long as you wait at least 31 days to avoid the “wash sale” rule.

You also may need to plan for the 3.8% net investment income tax (NIIT). It can affect taxpayers with modified AGI (MAGI) over $200,000 for singles and heads of households, $250,000 for joint filers. You may be able to lower your tax liability by reducing your MAGI, reducing net investment income or both.

Close-up on the new QBI deduction’s wage limit

Posted by Admin Posted on July 17 2018

The Tax Cuts and Jobs Act (TCJA) provides a valuable new tax break to noncorporate owners of pass-through entities: a deduction for a portion of qualified business income (QBI). The deduction generally applies to income from sole proprietorships, partnerships, S corporations and, typically, limited liability companies (LLCs). It can equal as much as 20% of QBI. But once taxable income exceeds $315,000 for married couples filing jointly or $157,500 for other filers, a wage limit begins to phase in.

Full vs. partial phase-in

When the wage limit is fully phased in, at $415,000 for joint filers and $207,500 for other filers, the QBI deduction generally can’t exceed the greater of the owner’s share of:

  • 50% of the amount of W-2 wages paid to employees during the tax year, or
  • The sum of 25% of W-2 wages plus 2.5% of the cost of qualified business property (QBP).

When the wage limit applies but isn’t yet fully phased in, the amount of the limit is reduced and the final deduction is calculated as follows:

  1. The difference between taxable income and the applicable threshold is divided by $100,000 for joint filers or $50,000 for other filers.
  2. The resulting percentage is multiplied by the difference between the gross deduction and the fully wage-limited deduction.
  3. The result is subtracted from the gross deduction to determine the final deduction.

Some examples

Let’s say Chris and Leslie have taxable income of $600,000. This includes $300,000 of QBI from Chris’s pass-through business, which pays $100,000 in wages and has $200,000 of QBP. The gross deduction would be $60,000 (20% of $300,000), but the wage limit applies in full because the married couple’s taxable income exceeds the $415,000 top of the phase-in range for joint filers. Computing the deduction is fairly straightforward in this situation.

The first option for the wage limit calculation is $50,000 (50% of $100,000). The second option is $30,000 (25% of $100,000 + 2.5% of $200,000). So the wage limit — and the deduction — is $50,000.

What if Chris and Leslie’s taxable income falls within the phase-in range? The calculation is a bit more complicated. Let’s say their taxable income is $400,000. The full wage limit is still $50,000, but only 85% of the full limit applies:

($400,000 taxable income - $315,000 threshold)/$100,000 = 85%

To calculate the amount of their deduction, the couple must first calculate 85% of the difference between the gross deduction of $60,000 and the fully wage-limited deduction of $50,000:

($60,000 - $50,000) × 85% = $8,500

That amount is subtracted from the $60,000 gross deduction for a final deduction of $51,500.

That’s not all

Be aware that another restriction may apply: For income from “specified service businesses,” the QBI deduction is reduced if an owner’s taxable income falls within the applicable income range and eliminated if income exceeds it. Please contact us to learn whether your business is a specified service business or if you have other questions about the QBI deduction.

3 keys to a successful accounting system upgrade

Posted by Admin Posted on July 13 2018

Technology is tricky. Much of today’s software is engineered so well that it will perform adequately for years. But new and better features are being created all the time. And if you’re not getting as much out of your financial data as your competitors are, you could be at a disadvantage.

For these reasons, it can be hard to decide when to upgrade your company’s accounting software. Here are three keys to consider:

1. Your users are ready. When making a major change to your accounting software, the sophistication of the system needs to align with the technological savvy of its primary users. Sometimes companies buy expensive software only to have many of its features gather virtual dust because the employees who use it are resistant to change.

But if your users are well trained and adaptable, they may be able to extract added value from a more sophisticated accounting system. For instance, they could track key performance indicators to generate more meaningful financial reports.

2. The price is right. You’ll of course need to consider the costs involved. As holds true for any technology purchase, project leaders must set a budget and focus the search on products and vendors offering only the functions your company needs.

But don’t stop there. Explore add-on services such as free trials, initial training and ongoing support. You want to get the most value from the software, which goes beyond the new and improved features themselves.

3. You need to integrate. This is the concept of networking your accounting system with your other mission-critical systems such as sales, inventory and production.

For most companies today, integration is essential to maximizing the return on investment in accounting software. So, if you haven’t yet implemented this functionality, an upgrade may be highly advisable. Just be aware that a successful companywide integration will call for buy-in from every nook and cranny of your business.

Typically, if a company doesn’t need any major accounting process changes, it probably doesn’t need a major accounting software change either. But if upgrading both will help grow your business, it’s absolutely a step worth considering. We can provide further guidance and info.

What you can deduct when volunteering

Posted by Admin Posted on July 10 2018

Because donations to charity of cash or property generally are tax deductible (if you itemize), it only seems logical that the donation of something even more valuable to you — your time — would also be deductible. Unfortunately, that’s not the case.

Donations of time or services aren’t deductible. It doesn’t matter if it’s simple administrative work, such as checking in attendees at a fundraising event, or if it’s work requiring significant experience and expertise that would be much more costly to the charity if it had to pay for it, such as skilled carpentry or legal counsel.

However, you potentially can deduct out-of-pocket costs associated with your volunteer work.

The basic rules

As with any charitable donation, for you to be able to deduct your volunteer expenses, the first requirement is that the organization be a qualified charity. You can use the IRS’s “Tax Exempt Organization Search” tool (formerly “Select Check”) at https://www.irs.gov/charities-non-profits/tax-exempt-organization-search to find out.

Assuming the charity is qualified, you may be able to deduct out-of-pocket costs that are:

  • Unreimbursed,
  • Directly connected with the services you’re providing,
  • Incurred only because of your charitable work, and
  • Not “personal, living or family” expenses.

Supplies, uniforms and transportation

A wide variety of expenses can qualify for the deduction. For example, supplies you use in the activity may be deductible. And the cost of a uniform you must wear during the activity may also be deductible (if it’s required and not something you’d wear when not volunteering).

Transportation costs to and from the volunteer activity generally are deductible, either the actual cost or 14 cents per charitable mile driven. But you have to be the volunteer. If, say, you drive your elderly mother to the nature center where she’s volunteering, you can’t deduct the cost.

You also can’t deduct transportation costs you’d be incurring even if you weren’t volunteering. For example, if you take a commuter train downtown to work, then walk to a nearby volunteer event after work and take the train back home afterwards, you won’t be able to deduct your train fares. But if you take a cab from work to the volunteer event, then you potentially can deduct the cab fare for that leg of your transportation.

Volunteer travel

Transportation costs may also be deductible for out-of-town travel associated with volunteering. This can include air, rail and bus transportation; driving expenses; and taxi or other transportation costs between an airport or train station and wherever you’re staying. Lodging and meal costs also might be deductible.

The key to deductibility is that there is no significant element of personal pleasure, recreation or vacation in the travel. That said, according to the IRS, the deduction for travel expenses won’t be denied simply because you enjoy providing services to the charitable organization. But you must be volunteering in a genuine and substantial sense throughout the trip. If only a small portion of your trip involves volunteer work, your travel expenses generally won’t be deductible.

Keep careful records

The IRS may challenge charitable deductions for out-of-pocket costs, so it’s important to keep careful records. If you have questions about what volunteer expenses are and aren’t deductible, please contact us.

How to avoid getting hit with payroll tax penalties

Posted by Admin Posted on July 10 2018

For small businesses, managing payroll can be one of the most arduous tasks. Adding to the burden earlier this year was adjusting income tax withholding based on the new tables issued by the IRS. (Those tables account for changes under the Tax Cuts and Jobs Act.) But it’s crucial not only to withhold the appropriate taxes — including both income tax and employment taxes — but also to remit them on time to the federal government.

If you don’t, you, personally, could face harsh penalties. This is true even if your business is an entity that normally shields owners from personal liability, such as a corporation or limited liability company.

The 100% penalty

Employers must withhold federal income and employment taxes (such as Social Security) as well as applicable state and local taxes on wages paid to their employees. The federal taxes must then be remitted to the federal government according to a deposit schedule.

If a business makes payments late, there are escalating penalties. And if it fails to make them, the Trust Fund Recovery Penalty could apply. Under this penalty, also known as the 100% penalty, the IRS can assess the entire unpaid amount against a “responsible person.”

The corporate veil won’t shield corporate owners in this instance. The liability protections that owners of corporations — and limited liability companies — typically have don’t apply to payroll tax debts.

When the IRS assesses the 100% penalty, it can file a lien or take levy or seizure action against personal assets of a responsible person.

“Responsible person,” defined

The penalty can be assessed against a shareholder, owner, director, officer or employee. In some cases, it can be assessed against a third party. The IRS can also go after more than one person. To be liable, an individual or party must:

  1. Be responsible for collecting, accounting for and remitting withheld federal taxes, and
  2. Willfully fail to remit those taxes. That means intentionally, deliberately, voluntarily and knowingly disregarding the requirements of the law.

Prevention is the best medicine

When it comes to the 100% penalty, prevention is the best medicine. So make sure that federal taxes are being properly withheld from employees’ paychecks and are being timely remitted to the federal government. (It’s a good idea to also check state and local requirements and potential penalties.)

If you aren’t already using a payroll service, consider hiring one. A good payroll service provider relieves you of the burden of withholding the proper amounts, taking care of the tax payments and handling recordkeeping. Contact us for more information.

Is your inventory getting the better of you?

Posted by Admin Posted on July 09 2018

On one level, every company’s inventory is a carefully curated collection of inanimate objects ready for sale. But, on another, it can be a confounding, slippery and unpredictable creature that can shrink too small or grow too big — despite your best efforts to keep it contained. If your inventory has been getting the better of you lately, don’t give up on showing it who’s boss.

Check your math

Getting the upper hand on inventory is essentially one part mathematics and another part strategic planning. You need to have accurate inventory counts as well as the controls in place to regulate quality and keep things moving.

As is true for so much in business, timing is everything. Companies need raw materials and key components in place before starting a production run, but they don’t want to bring them in too soon and suffer excess costs. The same holds true for finished products — you need enough on hand to fulfill sales without over- or understocking.

If you’re struggling in this area, re-evaluate your counting process. One alternative to consider is cycle counting. This process involves taking a weekly or monthly physical count of part of your warehoused inventory. These physical counts are then compared against the levels shown on your inventory management system.

The goal is to pinpoint as many inventory discrepancies as possible. By identifying the source of accuracy problems, you can figure out the best solutions. Of course, you can’t conduct cycle counting once and expect a cure-all. You’ll need to use it regularly.

Use technology

With all this data flying around, you need the right tools to gather, process and store it. So, investing in a good inventory software system (or upgrading the one you have) is key. As the saying goes, “garbage in, garbage out” — imprecise information coming from your current system could be leading to all those write-offs, inflated costs, missed sales and lost profits.

As is true for so much in business, timing is everything. Companies need raw materials and key components in place before starting a production run, but they don’t want to bring them in too soon and suffer excess costs. The same holds true for finished products — you need enough on hand to fulfill sales without over- or understocking.

As always, you get what you pay for: Investing in a new software system and then paying ongoing maintenance fees (which are usually recommended to keep it running smoothly) could seem like a bitter pill to swallow. But, in the long run, strong inventory management can pay for itself.

Show some tough love

In an ideal world, every company’s inventory would be its best friend. But don’t be surprised if you have to regularly show yours some tough love to keep it from making a mess of your bottom line. Let us help you identify the best metrics and methods for managing your inventory.

Home green home: Save tax by saving energy

Posted by Admin Posted on July 09 2018

Going green” at home — whether it’s your principal residence or a second home — can reduce your tax bill in addition to your energy bill, all while helping the environment, too. The catch is that, to reap all three benefits, you need to buy and install certain types of renewable energy equipment in the home.

Invest in green and save green

For 2018 and 2019, you may be eligible for a tax credit of 30% of expenditures (including costs for site preparation, assembly, installation, piping, and wiring) for installing the following types of renewable energy equipment:

  • Qualified solar electricity generating equipment and solar water heating equipment,
  • Qualified wind energy equipment,
  • Qualified geothermal heat pump equipment, and
  • Qualified fuel cell electricity generating equipment (limited to $500 for each half kilowatt of fuel cell capacity).

 

Because these items can be expensive, the credits can be substantial. To qualify, the equipment must be installed at your U.S. residence, including a vacation home — except for fuel cell equipment, which must be installed at your principal residence. You can’t claim credits for equipment installed at a property that’s used exclusively as a rental.

To qualify for the credit for solar water heating equipment, at least 50% of the energy used to heat water for the property must be generated by the solar equipment. And no credit is allowed for solar water heating equipment unless it’s certified for performance by the nonprofit Solar Rating & Certification Corporation or a comparable entity endorsed by the state in which your residence is located. (Keep this certification with your tax records.)

The credit rate for these expenditures is scheduled to drop to 26% in 2020 and then to 22% in 2021. After that, the credits are scheduled to expire.

Does your business have to begin collecting sales tax on all out-of-state online sales?

Posted by Admin Posted on July 02 2018

You’ve probably heard about the recent U.S. Supreme Court decision allowing state and local governments to impose sales taxes on more out-of-state online sales. The ruling in South Dakota v. Wayfair, Inc. is welcome news for brick-and-mortar retailers, who felt previous rulings gave an unfair advantage to their online competitors. And state and local governments are pleased to potentially be able to collect more sales tax.

But for businesses with out-of-state online sales that haven’t had to collect sales tax from out-of-state customers in the past, the decision brings many questions and concerns.

What the requirements used to be

Even before Wayfair, a state could require an out-of-state business to collect sales tax from its residents on online sales if the business had a “substantial nexus” — or connection — with the state. The nexus requirement is part of the Commerce Clause of the U.S. Constitution.

Previous Supreme Court rulings had found that a physical presence in a state (such as retail outlets, employees or property) was necessary to establish substantial nexus. As a result, some online retailers have already been collecting tax from out-of-state customers, while others have not had to.

What has changed

In Wayfair, South Dakota had enacted a law requiring out-of-state retailers that made at least 200 sales or sales totaling at least $100,000 in the state to collect and remit sales tax. The Supreme Court found that the physical presence rule is “unsound and incorrect,” and that the South Dakota tax satisfies the substantial nexus requirement.

The Court said that the physical presence rule puts businesses with a physical presence at a competitive disadvantage compared with remote sellers that needn’t charge customers for taxes.

In addition, the Court found that the physical presence rule treats sellers differently for arbitrary reasons. A business with a few items of inventory in a small warehouse in a state is subject to sales tax on all of its sales in the state, while a business with a pervasive online presence but no physical presence isn’t subject to the same tax for the sales of the same items.

What the decision means

Wayfair doesn’t necessarily mean that you must immediately begin collecting sales tax on online sales to all of your out-of-state customers. You’ll be required to collect such taxes only if the particular state requires it. Some states already have laws on the books similar to South Dakota’s, but many states will need to revise or enact legislation.

Also keep in mind that the substantial nexus requirement isn’t the only principle in the Commerce Clause doctrine that can invalidate a state tax. The others weren’t argued in Wayfair, but the Court observed that South Dakota’s tax system included several features that seem designed to prevent discrimination against or undue burdens on interstate commerce, such as a prohibition against retroactive application and a safe harbor for taxpayers who do only limited business in the state.

Please contact us with any questions you have about sales tax collection requirements.

Finding a 401(k) that’s right for your business

Posted by Admin Posted on June 27 2018

By and large, today’s employees expect employers to offer a tax-advantaged retirement plan. A 401(k) is an obvious choice to consider, but you may not be aware that there are a variety of types to choose from. Let’s check out some of the most popular options:

Traditional. Employees contribute on a pretax basis, with the employer matching all or a percentage of their contributions if it so chooses. Traditional 401(k)s are subject to rigorous testing requirements to ensure the plan is offered equitably to all employees and doesn’t favor highly compensated employees (HCEs).

In 2018, employees can defer a total amount of $18,500 through salary reductions. Those age 50 or older by year end can defer an additional $6,000.

Roth. Employees contribute after-tax dollars but take tax-free withdrawals (subject to certain limitations). Other rules apply, including that employer contributions can go into only traditional 401(k) accounts, not Roth 401(k)s. Usually a Roth 401(k) is offered as an option to employees in addition to a traditional 401(k), not instead of the traditional plan.

The Roth 401(k) contribution limits are the same as those for traditional 401(k)s. But this applies on a combined basis for total contributions to both types of plans.

Safe harbor. For businesses that may encounter difficulties meeting 401(k) testing requirements, this could be a solution. Employers must make certain contributions, which must vest immediately. But owners and HCEs can maximize contributions without worrying about part of their contributions being returned to them because rank-and-file employees haven’t been contributing enough.

To qualify for the safe harbor election, the employer needs to either contribute 3% of compensation for all eligible employees, even those who don’t make their own contributions, or match 100% of employee deferrals up to the first 3% of compensation and 50% of deferrals up to the next 2% of compensation. The contribution limits for these plans are the same as those for traditional 401(k)s.

Savings Incentive Match Plan for Employees (SIMPLE). If your business has 100 or fewer employees, consider one of these. As with a Safe Harbor 401(k), the employer must make certain, immediately vested contributions, and there’s no rigorous testing.

So, how is the SIMPLE 401(k) different from a safe harbor 401(k)? Both the required employer contributions and the limits on participant deferrals are lower: The employer generally needs to either contribute 2% of compensation for all eligible employees or match employee contributions up to 3% of compensation. The employee deferral limits are $12,500 in 2018, with a $3,000 catch-up contribution for those age 50 or older.

This has been but a brief look at these types of 401(k)s. Our firm can provide you with more information on each, as well as guidance on finding the right one for your business.

There continues to be much uncertainty about the Affordable Care Act and how such uncertainty will impact health care costs. So it’s critical to leverage all tax-advantaged ways to fund these expenses, including HSAs, FSAs and HRAs. Here’s how to make sense of this alphabet soup of health care accounts.

Do you know the ABCs of HSAs, FSAs and HRAs?

Posted by Admin Posted on June 26 2018

There continues to be much uncertainty about the Affordable Care Act and how such uncertainty will impact health care costs. So it’s critical to leverage all tax-advantaged ways to fund these expenses, including HSAs, FSAs and HRAs. Here’s how to make sense of this alphabet soup of health care accounts.

HSAs

If you’re covered by a qualified high-deductible health plan (HDHP), you can contribute pretax income to an employer-sponsored Health Savings Account — or make deductible contributions to an HSA you set up yourself — up to $3,450 for self-only coverage and $6,900 for family coverage for 2018. Plus, if you’re age 55 or older, you may contribute an additional $1,000.

You own the account, which can bear interest or be invested, growing tax-deferred similar to an IRA. Withdrawals for qualified medical expenses are tax-free, and you can carry over a balance from year to year.

FSAs

Regardless of whether you have an HDHP, you can redirect pretax income to an employer-sponsored Flexible Spending Account up to an employer-determined limit — not to exceed $2,650 in 2018. The plan pays or reimburses you for qualified medical expenses.

What you don’t use by the plan year’s end, you generally lose — though your plan might allow you to roll over up to $500 to the next year. Or it might give you a grace period of two and a half months to incur expenses to use up the previous year’s contribution. If you have an HSA, your FSA is limited to funding certain “permitted” expenses.

HRAs

A Health Reimbursement Account is an employer-sponsored account that reimburses you for medical expenses. Unlike an HSA, no HDHP is required. Unlike an FSA, any unused portion typically can be carried forward to the next year.

There’s no government-set limit on HRA contributions. But only your employer can contribute to an HRA; employees aren’t allowed to contribute.

Maximize the benefit

If you have one of these health care accounts, it’s important to understand the applicable rules so you can get the maximum benefit from it. But tax-advantaged accounts aren’t the only way to save taxes in relation to health care. If you have questions about tax planning and health care expenses, please contact us.

Choosing the best business entity structure post-TCJA

Posted by Admin Posted on June 25 2018

For tax years beginning in 2018 and beyond, the Tax Cuts and Jobs Act (TCJA) created a flat 21% federal income tax rate for C corporations. Under prior law, C corporations were taxed at rates as high as 35%. The TCJA also reduced individual income tax rates, which apply to sole proprietorships and pass-through entities, including partnerships, S corporations, and, typically, limited liability companies (LLCs). The top rate, however, dropped only slightly, from 39.6% to 37%.

On the surface, that may make choosing C corporation structure seem like a no-brainer. But there are many other considerations involved.

Conventional wisdom

Under prior tax law, conventional wisdom was that most small businesses should be set up as sole proprietorships or pass-through entities to avoid the double taxation of C corporations: A C corporation pays entity-level income tax and then shareholders pay tax on dividends — and on capital gains when they sell the stock. For pass-through entities, there’s no federal income tax at the entity level.

Although C corporations are still potentially subject to double taxation under the TCJA, their new 21% tax rate helps make up for it. This issue is further complicated, however, by another provision of the TCJA that allows noncorporate owners of pass-through entities to take a deduction equal to as much as 20% of qualified business income (QBI), subject to various limits. But, unless Congress extends it, the break is available only for tax years beginning in 2018 through 2025.

There’s no one-size-fits-all answer when deciding how to structure a business. The best choice depends on your business’s unique situation and your situation as an owner.

3 common scenarios

Here are three common scenarios and the entity-choice implications:

1. Business generates tax losses. For a business that consistently generates losses, there’s no tax advantage to operating as a C corporation. Losses from C corporations can’t be deducted by their owners. A pass-through entity will generally make more sense because losses pass through to the owners’ personal tax returns.

2. Business distributes all profits to owners. For a profitable business that pays out all income to the owners, operating as a pass-through entity generally will be better if significant QBI deductions are available. If not, it’s probably a toss-up in terms of tax liability.

3. Business retains all profits to finance growth. For a business that’s profitable but holds on to its profits to fund future growth strategies, operating as a C corporation generally will be advantageous if the corporation is a qualified small business (QSB). Why? A 100% gain exclusion may be available for QSB stock sale gains. If QSB status is unavailable, operating as a C corporation is still probably preferred — unless significant QBI deductions would be available at the owner level.

Many considerations

These are only some of the issues to consider when making the C corporation vs. pass-through entity choice. We can help you evaluate your options.

Funny thing about customers: They can keep you in business — but they can also put you out of it. The latter circumstance often arises when a company overly relies on a few customers that abuse their credit to the point where the company’s cash flow is dramatically impacted.

Run the numbers before you extend customer credit

Posted by Admin Posted on June 20 2018

Funny thing about customers: They can keep you in business — but they can also put you out of it. The latter circumstance often arises when a company overly relies on a few customers that abuse their credit to the point where the company’s cash flow is dramatically impacted.

To guard against this, you need to diligently assess every customer’s creditworthiness before getting too deeply involved. And this includes running the numbers on entities you do business with, just as lenders and investors do with you.

Information, please

A first step is to ask new customers to complete a credit application. The application should request the company’s:

  • Name, address, phone number and website address,
  • Tax identification number,
  • General history (number of years in existence),
  • Legal entity type and parent company (if one exists), and
  • A bank reference and several trade references.

Depending on which industry or industries you serve, there may be other important data points to gather, as well. If you haven’t updated your credit application form in a while, consider doing so — especially if you’ve gotten burned on the same type of credit failure multiple times.

Financial data

When dealing with private companies, consider asking for an income statement and balance sheet. You’ll want to analyze financial data such as profit margin, or net income divided by net sales. Ideally, this will have remained steady or increased during the past few years. The profit margin also should be like those of other companies in the customer’s industry.

From the balance sheet, you can calculate the current ratio, or the customer’s current assets divided by its current liabilities. The higher this is, the more likely the customer will be able to cover its bills. Generally, a current ratio of 2:1 is considered acceptable. Again, there may be other metrics that are particularly important for the types of businesses you work with.

An evolving challenge

Reviewing financials is only one key step in determining whether a customer is creditworthy. It’s also important to contact the references the customer provided, and you may want to purchase a credit report. Finally, be sure to look at coverage of the customer both by traditional media and on social media. Doing so could reveal information that will impact your decision on whether to extend credit.

When competing to win and keep customers, it’s easy to get carried away with credit. Approach this task carefully and bear in mind that, for most businesses, extending customer credit is a learning process and an evolving challenge. For further help and info on assessing customers’ creditworthiness, please contact our firm.

While the Tax Cuts and Jobs Act (TCJA) reduced most ordinary-income tax rates for individuals, it didn’t change long-term capital gains rates. They remain at 0%, 15% and 20%.

Consider the tax advantages of investing in qualified small business stock

Posted by Admin Posted on June 19 2018

While the Tax Cuts and Jobs Act (TCJA) reduced most ordinary-income tax rates for individuals, it didn’t change long-term capital gains rates. They remain at 0%, 15% and 20%.

The 0% rate generally applies to taxpayers in the bottom two ordinary-income tax brackets (now 10% and 12%), but you no longer have to be in the top ordinary-income tax bracket (now 37%) to be subject to the top long-term capital gains rate of 20%. Many taxpayers in the 35% tax bracket also will be subject to the 20% rate.

So finding ways to defer or minimize taxes on investments is still important. One way to do that — and diversify your portfolio, too — is to invest in qualified small business (QSB) stock.

QSB defined

To be a QSB, a business must be a C corporation engaged in an active trade or business and must not have assets that exceed $50 million when you purchase the shares.

The corporation must be a QSB on the date the stock is issued and during substantially all the time you own the shares. If, however, the corporation’s assets exceed the $50 million threshold while you’re holding the shares, it won’t cause QSB status to be lost in relation to your shares.

2 tax advantages

QSBs offer investors two valuable tax advantages:

1. Up to a 100% exclusion of gain. Generally, taxpayers selling QSB stock are allowed to exclude a portion of their gain if they’ve held the stock for more than five years. The amount of the exclusion depends on the acquisition date. The exclusion is 100% for stock acquired on or after Sept. 28, 2010. So if you purchase QSB stock in 2018, you can enjoy a 100% exclusion if you hold it until sometime in 2023. (The specific date, of course, depends on the date you purchase the stock.)

2. Tax-free gain rollovers. If you don’t want to hold the QSB stock for five years, you still have the opportunity to enjoy a tax benefit: Within 60 days of selling the stock, you can buy other QSB stock with the proceeds and defer the tax on your gain until you dispose of the new stock. The rolled-over gain reduces your basis in the new stock. For determining long-term capital gains treatment, the new stock’s holding period includes the holding period of the stock you sold.

More to think about

Additional requirements and limits apply to these breaks. For example, there are many types of business that don’t qualify as QSBs, ranging from various professional fields to financial services to hospitality and more.

Before investing, it’s important to also consider nontax factors, such as your risk tolerance, time horizon and overall investment goals. Contact us to learn more about QSB stock.

2018 Q3 tax calendar: Key deadlines for businesses and other employers

Posted by Admin Posted on June 18 2018

Here are some of the key tax-related deadlines affecting businesses and other employers during the second quarter of 2018. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

July 31

  • Report income tax withholding and FICA taxes for second quarter 2018 (Form 941), and pay any tax due. (See the exception below, under “August 10.”)
  • File a 2017 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or request an extension.

August 10

  • Report income tax withholding and FICA taxes for second quarter 2018 (Form 941), if you deposited on time and in full all of the associated taxes due.

September 17

  • If a calendar-year C corporation, pay the third installment of 2018 estimated income taxes.
  • If a calendar-year S corporation or partnership that filed an automatic six-month extension:
    • File a 2017 income tax return (Form 1120S, Form 1065 or Form 1065-B) and pay any tax, interest and penalties due.
    • Make contributions for 2017 to certain employer-sponsored retirement plans.

A midyear review should go beyond financials

Posted by Admin Posted on June 13 2018

Every year is a journey for a business. You begin with a set of objectives for the months ahead, probably encounter a few bumps along the way and, hopefully, reach your destination with some success and a few lessons learned.

The middle of the year is the perfect time to stop for a breather. A midyear review can help you and your management team determine which objectives are still “meetable” and which ones may need tweaking or perhaps even elimination.

Naturally, this will involve looking at your financials. There are various metrics that can tell you whether your cash flow is strong and debt load manageable, and if your profitability goals are within reach. But don’t stop there.

3 key areas

Here are three other key areas of your business to review at midyear:

1. HR. Your people are your most valuable asset. So, how is your employee turnover rate trending compared with last year or previous years? High employee turnover could be a sign of underlying problems, such as poor training, lax management or low employee morale.

2. Sales and marketing. Are you meeting your monthly goals for new sales, in terms of both sales volume and number of new customers? Are you generating an adequate return on investment (ROI) for your marketing dollars? If you can’t answer this last question, enhance your tracking of existing marketing efforts so you can gauge marketing ROI going forward.

3. Production. If you manufacture products, what’s your unit reject rate so far this year? Or if yours is a service business, how satisfied are your customers with the level of service being provided? Again, you may need to tighten up your methods of tracking product quality or measuring customer satisfaction to meet this year’s strategic goals.

Necessary adjustments

Don’t wait until the end of the year to assess the progress of your 2018 strategic plan. Conduct a midyear review and get the information you need to make any adjustments necessary to help ensure success. Let us know how we can help.

The tax impact of the TCJA on estate planning

Posted by Admin Posted on June 12 2018

The massive changes the Tax Cuts and Jobs Act (TCJA) made to income taxes have garnered the most attention. But the new law also made major changes to gift and estate taxes. While the TCJA didn’t repeal these taxes, it did significantly reduce the number of taxpayers who’ll be subject to them, at least for the next several years. Nevertheless, factoring taxes into your estate planning is still important.

Exemption increases

The TCJA more than doubles the combined gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption, from $5.49 million for 2017 to $11.18 million for 2018.

This amount will continue to be annually adjusted for inflation through 2025. Absent further congressional action, however, the exemptions will revert to their 2017 levels (adjusted for inflation) for 2026 and beyond.

The rate for all three taxes remains at 40% — only three percentage points higher than the top income tax rate.

The impact

Even before the TCJA, the vast majority of taxpayers didn’t have to worry about federal gift and estate taxes. While the TCJA protects even more taxpayers from these taxes, those with estates in the roughly $6 million to $11 million range (twice that for married couples) still need to keep potential post-2025 estate tax liability in mind in their estate planning. Although their estates would escape estate taxes if they were to die while the doubled exemption is in effect, they could face such taxes if they live beyond 2025.

Any taxpayer who could be subject to gift and estate taxes after 2025 may want to consider making gifts now to take advantage of the higher exemptions while they’re available.

Factoring taxes into your estate planning is also still important if you live in a state with an estate tax. Even before the TCJA, many states imposed estate tax at a lower threshold than the federal government did. Now the differences in some states will be even greater.

Finally, income tax planning, which became more important in estate planning back when exemptions rose to $5 million more than 15 years ago, is now an even more important part of estate planning.

For example, holding assets until death may be advantageous if estate taxes aren’t a concern. When you give away an appreciated asset, the recipient takes over your tax basis in the asset, triggering capital gains tax should he or she turn around and sell it. When an appreciated asset is inherited, on the other hand, the recipient’s basis is “stepped up” to the asset’s fair market value on the date of death, erasing the built-in capital gain. So retaining appreciating assets until death can save significant income tax.

Review your estate plan

Whether or not you need to be concerned about federal gift and estate taxes, having an estate plan in place and reviewing it regularly is important. Contact us to discuss the potential tax impact of the TCJA on your estate plan.

2 tax law changes that may affect your business’s 401(k) plan

Posted by Admin Posted on June 11 2018

When you think about recent tax law changes and your business, you’re probably thinking about the new 20% pass-through deduction for qualified business income or the enhancements to depreciation-related breaks. Or you may be contemplating the reduction or elimination of certain business expense deductions. But there are also a couple of recent tax law changes that you need to be aware of if your business sponsors a 401(k) plan.

1. Plan loan repayment extension

The Tax Cuts and Jobs Act (TCJA) gives a break to 401(k) plan participants with outstanding loan balances when they leave their employers. While plan sponsors aren’t required to allow loans, many do.

Before 2018, if an employee with an outstanding plan loan left the company sponsoring the plan, he or she would have to repay the loan (or contribute the outstanding balance to an IRA or his or her new employer’s plan) within 60 days to avoid having the loan balance deemed a taxable distribution (and be subject to a 10% early distribution penalty if the employee was under age 59½).

Under the TCJA, beginning in 2018, former employees in this situation have until their tax return filing due date — including extensions — to repay the loan (or contribute the outstanding balance to an IRA or qualified retirement plan) and avoid taxes and penalties.

2. Hardship withdrawal limit increase

Beginning in 2019, the Bipartisan Budget Act (BBA) eases restrictions on employee 401(k) hardship withdrawals. Most 401(k) plans permit hardship withdrawals, though plan sponsors aren’t required to allow them. Hardship withdrawals are subject to income tax and the 10% early distribution tax penalty.

Currently, hardship withdrawals are limited to the funds employees contributed to the accounts. (Such withdrawals are allowed only if the employee has first taken a loan from the same account.)

Under the BBA, the withdrawal limit will also include accumulated employer matching contributions plus earnings on contributions. If an employee has been participating in your 401(k) for several years, this modification could add substantially to the amount of funds available for withdrawal.

Nest egg harm

These changes might sound beneficial to employees, but in the long run they could actually hurt those who take advantage of them. Most Americans aren’t saving enough for retirement, and taking longer to pay back a plan loan (and thus missing out on potential tax-deferred growth during that time) or taking larger hardship withdrawals can result in a smaller, perhaps much smaller, nest egg at retirement.

So consider educating your employees on the importance of letting their 401(k) accounts grow undisturbed and the potential negative tax consequences of loans and early withdrawals. Please contact us if you have questions.

Could a long-term deal ease your succession planning woes?

Posted by Admin Posted on June 06 2018

Some business owners — particularly those who founded their companies — may find it hard to give up control to a successor. Maybe you just can’t identify the right person internally to fill your shoes. While retirement isn’t in your immediate future, you know you must eventually step down.

One potential solution is to find an outside buyer for your company and undertake a long-term deal to gradually cede control to them. Going this route can enable a transition to proceed at a more manageable pace.

Time and capital

For privately held businesses, long-term deals typically begin with the business owner selling a minority stake to a potential buyer. This initiates a tryout period to assess the two companies’ compatibility. The parties may sign an agreement in which the minority stakeholder has the option to offer a takeover bid after a specified period.

Beyond clearing a path for your succession plan, the deal also may provide needed capital. You can use the cash infusion from selling a minority stake to fund improvements such as:

  • Hiring additional staff,
  • Paying down debt,
  • Conducting research and development, or
  • Expanding your facilities.

Any or all of these things can help grow your company’s market share and improve profitability. In turn, you’ll feel more comfortable in retirement knowing your business is doing well and in good hands.

Benefits for the buyer

You may be wondering what’s in it for the buyer. A minority-stake purchase requires less cash than a full acquisition, helping buyers avoid finding outside deal financing. It’s also less risky than a full purchase. Buyers can, for example, push for the company to achieve certain performance objectives before committing to buying it.

Integration may also be easier because buyers have time to coordinate with sellers to implement changes — an advantage when their IT, accounting or other major systems are dissimilar. In addition, in a typical M&A transaction, decisions must be made quickly. But under a long-term deal, the parties can debate and negotiate options, which may improve the arrangement for everyone.

What’s right for you

There are, of course, a wide variety of other strategies for creating and executing a succession plan. But if you’re leaning toward finding a buyer and are in no rush to complete a sale, a long-term deal might be for you. Our firm can provide further information.

Factor in state and local taxes when deciding where to live in retirement

Posted by Admin Posted on June 05 2018

Many Americans relocate to another state when they retire. If you’re thinking about such a move, state and local taxes should factor into your decision.

Income, property and sales tax

Choosing a state that has no personal income tax may appear to be the best option. But that might not be the case once you consider property taxes and sales taxes.

For example, suppose you’ve narrowed your decision down to two states: State 1 has no individual income tax, and State 2 has a flat 5% individual income tax rate. At first glance, State 1 might appear to be much less expensive from a tax perspective. What happens when you factor in other state and local taxes?

Let’s say the property tax rate in your preferred locality in State 1 is 5%, while it’s only 1% in your preferred locality in State 2. That difference could potentially cancel out any savings in state income taxes in State 1, depending on your annual income and the assessed value of the home.

Also keep in mind that home values can vary dramatically from location to location. So if home values are higher in State 1, there’s an even greater chance that State 1’s overall tax cost could be higher than State 2’s, despite State 1’s lack of income tax.

The potential impact of sales tax can be harder to estimate, but it’s a good idea at minimum to look at the applicable rates in the various retirement locations you’re considering.

More to think about

If states you’re considering have an income tax, also look at what types of income they tax. Some states, for example, don’t tax wages but do tax interest and dividends. Others offer tax breaks for retirement plan and Social Security income.

In the past, the federal income tax deduction for state and local property and income or sales tax could help make up some of the difference between higher- and lower-tax states. But with the Tax Cuts and Jobs Act (TCJA) limiting that deduction to $10,000 ($5,000 for married couples filing separately), this will be less help — at least through 2025, after which the limit is scheduled to expire.

There’s also estate tax to consider. Not all states have estate tax, but it can be expensive in states that do. While under the TJCA the federal estate tax exemption has more than doubled from the 2017 level to $11.18 million for 2018, states aren’t necessarily keeping pace with the federal exemption. So state estate tax could be levied after a much lower exemption.

Choose wisely

As you can see, it’s important to factor in state and local taxes as you decide where to live in retirement. You might ultimately decide on a state with higher taxes if other factors are more important to you. But at least you will have made an informed decision and avoid unpleasant tax surprises. Contact us to learn more.

Over the last several years, virtual currency has become increasingly popular. Bitcoin is the most widely recognized form of virtual currency, also commonly referred to as digital, electronic or crypto currency.

What businesses need to know about the tax treatment of bitcoin and other virtual currencies

Posted by Admin Posted on June 04 2018

Over the last several years, virtual currency has become increasingly popular. Bitcoin is the most widely recognized form of virtual currency, also commonly referred to as digital, electronic or crypto currency.

While most smaller businesses aren’t yet accepting bitcoin or other virtual currency payments from their customers, more and more larger businesses are. And the trend may trickle down to smaller businesses. Businesses also can pay employees or independent contractors with virtual currency. But what are the tax consequences of these transactions?

Bitcoin 101

Bitcoin has an equivalent value in real currency and can be digitally traded between users. It also can be purchased with real currencies or exchanged for real currencies. Bitcoin is most commonly obtained through virtual currency ATMs or online exchanges.

Goods or services can be paid for using “bitcoin wallet” software. When a purchase is made, the software digitally posts the transaction to a global public ledger. This prevents the same unit of virtual currency from being used multiple times.

Tax impact

Questions about the tax impact of virtual currency abound. And the IRS has yet to offer much guidance.

The IRS did establish in a 2014 ruling that bitcoin and other convertible virtual currency should be treated as property, not currency, for federal income tax purposes. This means that businesses accepting bitcoin payments for goods and services must report gross income based on the fair market value of the virtual currency when it was received, measured in equivalent U.S. dollars.

When a business uses virtual currency to pay wages, the wages are taxable to the employees to the extent any other wage payment would be. You must, for example, report such wages on your employees’ W-2 forms. And they’re subject to federal income tax withholding and payroll taxes, based on the fair market value of the virtual currency on the date received by the employee.

When a business uses virtual currency to pay independent contractors or other service providers, those payments are also taxable to the recipient. The self-employment tax rules generally apply, based on the fair market value of the virtual currency on the date received. Payers generally must issue 1099-MISC forms to recipients.

Finally, payments made with virtual currency are subject to information reporting to the same extent as any other payment made in property.

Deciding whether to go virtual

Accepting bitcoin can be beneficial because it may avoid transaction fees charged by credit card companies and online payment providers (such as PayPal) and attract customers who want to use virtual currency. But the IRS is targeting virtual currency transactions in an effort to raise tax revenue, and it hasn’t issued much guidance on the tax treatment or reporting requirements. So bitcoin can also be a bit risky from a tax perspective.

To learn more about tax considerations when deciding whether your business should accept bitcoin or other virtual currencies — or use them to pay employees, independent contractors or other service providers — contact us.

Bookings vs. shippings: A sales flash report primer

Posted by Admin Posted on May 31 2018

Do bad sales months often take you by surprise? If so, don’t forget the power of flash reports — that is, snapshots of critical data for quick, timely viewing every day or week.

One specific way to use them is to track bookings vs. shippings. Doing so can help you determine what percentage of volume for certain months should be booked by specific dates. These reports are particularly useful if more than 30 days elapse between these activities.

Get super specific

Here’s how your flash report might work: Every workday, record the new orders taken (bookings) and the orders filled (shippings).

Sort the flash report by order date and subtotal the sales amounts at various points in time before the last day of the month.

Look at how many of the month’s shipped orders are booked 60, 45, 30 and 15 days before the end of the month. If you don’t have this historical data, start recording it for at least three months to establish meaningful trends.

Once you know the timeframes of your bookings and shippings, expand this activity to your sales staff by displaying the totals of bookings and shippings by salesperson on the flash report. Use the percentage of business that ideally should be booked at certain time intervals to establish individual sales goals and compare your progress with these goals.

See the future

Don’t wait until month’s end to discover that your sales weren’t up to your desired results. With flash reports, you can tell in advance that sales performance is lagging and have enough time to take corrective action. What’s more, today’s business dashboard software can enable you to generate this data more quickly than ever. For further information about flash reports, and help developing your own that are specific to your company’s needs, please contact us.

Today many employees receive stock-based compensation from their employer as part of their compensation and benefits package. The tax consequences of such compensation can be complex — subject to ordinary-income, capital gains, employment and other taxes. But if you receive restricted stock awards, you might have a tax-saving opportunity in the form of the Section 83(b) election.

Saving tax on restricted stock awards with the Sec. 83(b) election

Posted by Admin Posted on May 29 2018

Today many employees receive stock-based compensation from their employer as part of their compensation and benefits package. The tax consequences of such compensation can be complex — subject to ordinary-income, capital gains, employment and other taxes. But if you receive restricted stock awards, you might have a tax-saving opportunity in the form of the Section 83(b) election.

Convert ordinary income to long-term capital gains

Restricted stock is stock your employer grants you subject to a substantial risk of forfeiture. Income recognition is normally deferred until the stock is no longer subject to that risk (that is, it’s vested) or you sell it.

At that time, you pay taxes on the stock’s fair market value (FMV) at your ordinary-income rate. The FMV will be considered FICA income, so it also could trigger or increase your exposure to the additional 0.9% Medicare tax.

But you can instead make a Sec. 83(b) election to recognize ordinary income when you receive the stock. This election, which you must make within 30 days after receiving the stock, allows you to convert future appreciation from ordinary income to long-term capital gains income and defer it until the stock is sold.

The Sec. 83(b) election can be beneficial if the income at the grant date is negligible or the stock is likely to appreciate significantly. With ordinary-income rates now especially low under the Tax Cuts and Jobs Act (TCJA), it might be a good time to recognize such income.

Weigh the potential disadvantages

There are some potential disadvantages, however:

  • You must prepay tax in the current year — which also could push you into a higher income tax bracket or trigger or increase the additional 0.9% Medicare tax. But if your company is in the earlier stages of development, the income recognized may be relatively small.
  • Any taxes you pay because of the election can’t be refunded if you eventually forfeit the stock or sell it at a decreased value. However, you’d have a capital loss in those situations.
  • When you sell the shares, any gain will be included in net investment income and could trigger or increase your liability for the 3.8% net investment income tax.

It’s complicated

As you can see, tax planning for restricted stock is complicated. Let us know if you’ve recently been awarded restricted stock or expect to be awarded such stock this year. We can help you determine whether the Sec. 83(b) election makes sense in your specific situation.

Putting your child on your business’s payroll for the summer may make more tax sense than ever

Posted by Admin Posted on May 29 2018

If you own a business and have a child in high school or college, hiring him or her for the summer can provide a multitude of benefits, including tax savings. And hiring your child may make more sense than ever due to changes under the Tax Cuts and Jobs Act (TCJA).

How it works

By shifting some of your business earnings to a child as wages for services performed, you can turn some of your high-taxed income into tax-free or low-taxed income. For your business to deduct the wages as a business expense, the work done must be legitimate and the child’s wages must be reasonable.

Here’s an example: A sole proprietor is in the 37% tax bracket. He hires his 20-year-old daughter, who’s majoring in marketing, to work as a marketing coordinator full-time during the summer. She earns $12,000 and doesn’t have any other earnings.

The father saves $4,440 (37% of $12,000) in income taxes at no tax cost to his daughter, who can use her $12,000 standard deduction (for 2018) to completely shelter her earnings. This is nearly twice as much as would have been sheltered last year, pre-TCJA, when the standard deduction was only $6,350.

The father can save an additional $2,035 in taxes if he keeps his daughter on the payroll as a part-time employee into the fall and pays her an additional $5,500. She can shelter the additional income from tax by making a tax-deductible contribution to her own traditional IRA.

Family taxes will be cut even if an employee-child’s earnings exceed his or her standard deduction and IRA deduction. Why? The unsheltered earnings will be taxed to the child beginning at a rate of 10% instead of being taxed at the parent’s higher rate.

Avoiding the “kiddie tax”

TCJA changes to the “kiddie tax” also make income-shifting through hiring your child (rather than, say, giving him or her income-producing investments) more appealing. The kiddie tax generally applies to children under age 19 and to full-time students under age 24. Before 2018, the unearned income of a child subject to the kiddie tax was generally taxed at the parents’ tax rate.

The TCJA makes the kiddie tax harsher. For 2018-2025, a child’s unearned income will be taxed according to the tax brackets used for trusts and estates, which for 2018 are taxed at the highest rate of 37% once taxable income reaches $12,500. In contrast, for a married couple filing jointly, the 37% rate doesn’t kick in until their taxable income tops $600,000. In other words, children’s unearned income often will be taxed at higher rates than their parents’ income.

But the kiddie tax doesn’t apply to earned income.

Other tax considerations

If your business isn’t incorporated or a partnership that includes nonparent partners, you might also save some employment tax dollars. Contact us to learn more about the tax rules surrounding hiring your child, how the kiddie tax works or other family-related tax-saving strategies.

Most businesses approach technology as an evolving challenge. You don’t want to overspend on bells and whistles you’ll never fully use, but you also don’t want to get left behind as competitors use the latest tech tools to operate more nimbly.

Ask the right questions about your IT strategy

Posted by Admin Posted on May 24 2018

Most businesses approach technology as an evolving challenge. You don’t want to overspend on bells and whistles you’ll never fully use, but you also don’t want to get left behind as competitors use the latest tech tools to operate more nimbly.

To refine your IT strategy over time, you’ve got to regularly reassess your operations and ask the right questions. Here are a few to consider:

Are we bogged down by outdated tech? More advanced analytical software can eliminate many time-consuming, repeatable tasks. Systems based on paper files and handwritten notes are obviously ripe for an upgrade, but even traditional digital spreadsheets aren’t as powerful as they used to be.

Do we have information silos? Most companies today use multiple applications. But if these solutions can’t “talk” to each other, you may suffer from information silos. This is when different people and teams keep important data to themselves, slowing communication. Determine whether this is occurring and, if so, how to integrate your key systems.

Do we have a digital asset-sharing policy? Businesses tend to generate tremendous amounts of paperwork, but hard copies can get misfiled or lost. Sharing documents electronically can speed distribution and enable real-time collaboration. A digital asset-sharing policy could help define how to grant system access, share documents and track communications.

Do we have a training program? Mandatory training and ongoing refresher sessions ensure that all users are taking full advantage of available technology and following proper protocols. If you don’t feel like you can provide this in-house, you could shop for vendors that provide training and resources matching your needs.

Do we have a security policy? A security policy is the first line of defense against hackers, viruses and other threats. It also helps protect customers’ sensitive data. Every business needs to establish a policy for regularly changing passwords, removing inactive users and providing ongoing security training.

Do we evaluate user feedback? A successful IT strategy is built on user feedback. Talk to your employees who use your technology and find out what works, what doesn’t and why.

Answering questions such as these is a good first step toward crafting a total IT strategy. Doing so can also help you better control expenses by eliminating redundancies and lowering the risk of costly mistakes and data losses. Let us know how we can help.

When school lets out, kids participate in a wide variety of summer activities. If one of the activities your child is involved with is day camp, you might be eligible for a tax credit!

Sending your kids to day camp may provide a tax break

Posted by Admin Posted on May 22 2018

When school lets out, kids participate in a wide variety of summer activities. If one of the activities your child is involved with is day camp, you might be eligible for a tax credit!

Dollar-for-dollar savings

Day camp (but not overnight camp) is a qualified expense under the child and dependent care credit, which is worth 20% of qualifying expenses (more if your adjusted gross income is less than $43,000), subject to a cap. For 2018, the maximum expenses allowed for the credit are $3,000 for one qualifying child and $6,000 for two or more.

Remember that tax credits are particularly valuable because they reduce your tax liability dollar-for-dollar — $1 of tax credit saves you $1 of taxes. This differs from deductions, which simply reduce the amount of income subject to tax. For example, if you’re in the 24% tax bracket, $1 of deduction saves you only $0.24 of taxes. So it’s important to take maximum advantage of the tax credits available to you.

Qualifying for the credit

A qualifying child is generally a dependent under age 13. (There’s no age limit if the dependent child is unable physically or mentally to care for him- or herself.) Special rules apply if the child’s parents are divorced or separated or if the parents live apart.

Eligible costs for care must be work-related. This means that the child care is needed so that you can work or, if you’re currently unemployed, look for work.

If you participate in an employer-sponsored child and dependent care Flexible Spending Account (FSA), also sometimes referred to as a Dependent Care Assistance Program, you can’t use expenses paid from or reimbursed by the FSA to claim the credit.

Determining eligibility

Additional rules apply to the child and dependent care credit. If you’re not sure whether you’re eligible, contact us. We can help you determine your eligibility for this credit and other tax breaks for parents.

The TCJA changes some rules for deducting pass-through business losses

Posted by Admin Posted on May 21 2018

It’s not uncommon for businesses to sometimes generate tax losses. But the losses that can be deducted are limited by tax law in some situations. The Tax Cuts and Jobs Act (TCJA) further restricts the amount of losses that sole proprietors, partners, S corporation shareholders and, typically, limited liability company (LLC) members can currently deduct — beginning in 2018. This could negatively impact owners of start-ups and businesses facing adverse conditions.

Before the TCJA

Under pre-TCJA law, an individual taxpayer’s business losses could usually be fully deducted in the tax year when they arose unless:

  • The passive activity loss (PAL) rules or some other provision of tax law limited that favorable outcome, or
  • The business loss was so large that it exceeded taxable income from other sources, creating a net operating loss (NOL).

After the TCJA

The TCJA temporarily changes the rules for deducting an individual taxpayer’s business losses. If your pass-through business generates a tax loss for a tax year beginning in 2018 through 2025, you can’t deduct an “excess business loss” in the current year. An excess business loss is the excess of your aggregate business deductions for the tax year over the sum of:

  • Your aggregate business income and gains for the tax year, and
  • $250,000 ($500,000 if you’re a married taxpayer filing jointly).

The excess business loss is carried over to the following tax year and can be deducted under the rules for NOLs.

For business losses passed through to individuals from S corporations, partnerships and LLCs treated as partnerships for tax purposes, the new excess business loss limitation rules apply at the owner level. In other words, each owner’s allocable share of business income, gain, deduction or loss is passed through to the owner and reported on the owner’s personal federal income tax return for the owner’s tax year that includes the end of the entity’s tax year.

Keep in mind that the new loss limitation rules apply after applying the PAL rules. So, if the PAL rules disallow your business or rental activity loss, you don’t get to the new loss limitation rules.

Expecting a business loss?

The rationale underlying the new loss limitation rules is to restrict the ability of individual taxpayers to use current-year business losses to offset income from other sources, such as salary, self-employment income, interest, dividends and capital gains.

The practical impact is that your allowable current-year business losses can’t offset more than $250,000 of income from such other sources (or more than $500,000 for joint filers). The requirement that excess business losses be carried forward as an NOL forces you to wait at least one year to get any tax benefit from those excess losses.

If you’re expecting your business to generate a tax loss in 2018, contact us to determine whether you’ll be affected by the new loss limitation rules. We can also provide more information about the PAL and NOL rules.

When business people speak of innovation, the focus is usually on a pioneering product or state-of-the-art service that will “revolutionize the industry.” But innovation can apply to any aspect of your company — including customer service.

4 ways to encourage innovation in customer service

Posted by Admin Posted on May 18 2018

When business people speak of innovation, the focus is usually on a pioneering product or state-of-the-art service that will “revolutionize the industry.” But innovation can apply to any aspect of your company — including customer service.

Many business owners perceive customer service as a fairly cut-and-dried affair. Customers call, you answer their questions or solve their problems — and life goes on. Yet there are ways to transform this function and, when companies do, word gets around. People want to do business with organizations that are easy to interact with.

Here are four ways to encourage innovation in your customer service department:

1. Welcome failure. Providing world-class customer service involves risk, and inevitably you’ll sometimes fail. For example, many businesses have jumped at the chance to use “big data” to develop automated systems to direct customers to answers and solutions. But the impersonality of these systems can frustrate the buying public until you establish the right balance of machine and human interaction. Remember, every failure opens the door to better strategies for serving your customers.

2. Link compensation to employees’ contributions. Companies that fail to reward innovation aren’t likely to retain their best customers or establish a good reputation. Because customer service employees tend to be paid hourly or relatively nominal salaries, consider a cash bonus program for the “most innovative idea of the year.” Or you could hold semiannual or even quarterly innovation challenges with prizes such as gift cards or additional time off.

3. Praise the groundbreakers. Employees who challenge customer-service tradition may find themselves at odds with management. But don’t be too quick to reprimand those with new ideas or methods. Fresh language and modes of communication enter the public consciousness regularly. Give companywide recognition to those who find ways to adapt — even if their initial efforts bend the rules a bit.

4. Be the customer. Among the most simple and practical ways to innovate your customer service is to simply pretend you’re a customer to get a firsthand view on how your employees treat those who contact your business. Business owners can make these calls themselves or, if your voice is too recognizable, find someone who’s less familiar but capable of taking detailed notes of the interaction.

Finding new ways to improve your company’s customer service isn’t easy. But innovations are always just one bright idea away. If you’d like more information and ideas about building your bottom line, contact our firm.

In many parts of the country, summer is peak season for selling a home. If you’re planning to put your home on the market soon, you’re probably thinking about things like how quickly it will sell and how much you’ll get for it. But don’t neglect to consider the tax consequences.

Be aware of the tax consequences before selling your home

Posted by Admin Posted on May 16 2018

In many parts of the country, summer is peak season for selling a home. If you’re planning to put your home on the market soon, you’re probably thinking about things like how quickly it will sell and how much you’ll get for it. But don’t neglect to consider the tax consequences.

Home sale gain exclusion

The U.S. House of Representatives’ original version of the Tax Cuts and Jobs Act included a provision tightening the rules for the home sale gain exclusion. Fortunately, that provision didn’t make it into the final version that was signed into law.

As a result, if you’re selling your principal residence, there’s still a good chance you’ll be able to exclude up to $250,000 ($500,000 for joint filers) of gain. Gain that qualifies for exclusion also is excluded from the 3.8% net investment income tax.

To qualify for the exclusion, you must meet certain tests. For example, you generally must own and use the home as your principal residence for at least two years during the five-year period preceding the sale. (Gain allocable to a period of “nonqualified” use generally isn’t excludable.) In addition, you can’t use the exclusion more than once every two years.

More tax considerations

Any gain that doesn’t qualify for the exclusion generally will be taxed at your long-term capital gains rate, as long as you owned the home for at least a year. If you didn’t, the gain will be considered short-term and subject to your ordinary-income rate, which could be more than double your long-term rate.

Here are some additional tax considerations when selling a home:

Tax basis. To support an accurate tax basis, be sure to maintain thorough records, including information on your original cost and subsequent improvements, reduced by any casualty losses and depreciation claimed based on business use.

Losses. A loss on the sale of your principal residence generally isn’t deductible. But if part of your home is rented out or used exclusively for your business, the loss attributable to that portion may be deductible.

Second homes. If you’re selling a second home, be aware that it won’t be eligible for the gain exclusion. But if it qualifies as a rental property, it can be considered a business asset, and you may be able to defer tax on any gains through an installment sale or a Section 1031 exchange. Or you may be able to deduct a loss.

A big investment

Your home is likely one of your biggest investments, so it’s important to consider the tax consequences before selling it. If you’re planning to put your home on the market, we can help you assess the potential tax impact. Contact us to learn more.

Can you deduct business travel when it's combined with a vacation?

Posted by Admin Posted on May 16 2018

At this time of year, a summer vacation is on many people’s minds. If you travel for business, combining a business trip with a vacation to offset some of the cost with a tax deduction can sound appealing. But tread carefully, or you might not be eligible for the deduction you’re expecting. 

General rules

Business travel expenses are potentially deductible if the travel is within the United States and the expenses are “ordinary and necessary” and directly related to the business. (Foreign travel expenses may also be deductible, but stricter rules apply than are discussed here.)   Currently, business owners and the self-employed are potentially eligible to deduct business travel expenses. Under the Tax Cuts and Jobs Act, employees can no longer deduct such expenses. The potential deductions discussed below assume that you’re a business owner or self-employed.  

Business vs. pleasure

Transportation costs to and from the location of your business activity may be 100% deductible if the primary reason for the trip is business rather than pleasure. But if vacation is the primary reason for your travel, generally none of those costs are deductible.   The number of days spent on business vs. pleasure is the key factor in determining whether the primary reason for domestic travel is business:  

  • Your travel days count as business days, as do weekends and holidays — if they fall between days devoted to business and it would be impractical to return home.
  • Standby days (days when your physical presence is required) also count as business days, even if you aren’t called upon to work those days.
  • Any other day principally devoted to business activities during normal business hours also counts as a business day.

 

You should be able to claim business was the primary reason for a domestic trip if business days exceed personal days.

Deductible expenses

What transportation costs can you deduct? Travel to and from your departure airport, airfare, baggage fees, tips, cabs, etc. Costs for rail travel or driving your personal car are also eligible.   Once at the destination, your out-of-pocket expenses for business days are fully deductible. Examples of these expenses include lodging, meals (subject to the 50% disallowance rule), seminar and convention fees, and cab fare. Expenses for personal days aren’t deductible.   Keep in mind that only expenses for yourself are deductible. You can’t deduct expenses for family members traveling with you — unless they’re employees of your business and traveling for a bona fide business purpose. 

Substantiation is critical

Be sure to accumulate proof of the business nature of your trip and keep it with your tax records. For example, if your trip is made to attend client meetings, log everything on your daily planner and copy the pages for your tax file. If you attend a convention or seminar, keep the program and take notes to show you attended the sessions. You also must properly substantiate all of the expenses you’re deducting.   Additional rules and limits apply to the travel expense deduction. Please contact us if you have questions.  

Do you need to adjust your withholding?

Posted by Admin Posted on May 09 2018

If you received a large refund after filing your 2017 income tax return, you’re probably enjoying the influx of cash. But a large refund isn’t all positive. It also means you were essentially giving the government an interest-free loan.

That’s why a large refund for the previous tax year would usually indicate that you should consider reducing the amounts you’re having withheld (and/or what estimated tax payments you’re making) for the current year. But 2018 is a little different.

The TCJA and withholding

To reflect changes under the Tax Cuts and Jobs Act (TCJA) — such as the increase in the standard deduction, suspension of personal exemptions and changes in tax rates and brackets — the IRS updated the withholding tables that indicate how much employers should hold back from their employees’ paychecks, generally reducing the amount withheld.

The new tables may provide the correct amount of tax withholding for individuals with simple tax situations, but they might cause other taxpayers to not have enough withheld to pay their ultimate tax liabilities under the TCJA. So even if you received a large refund this year, you could end up owing a significant amount of tax when you file your 2018 return next year.

Perils of the new tables

The IRS itself cautions that people with more complex tax situations face the possibility of having their income taxes underwithheld. If, for example, you itemize deductions, have dependents age 17 or older, are in a two-income household or have more than one job, you should review your tax situation and adjust your withholding if appropriate.

The IRS has updated its withholding calculator (available at irs.gov) to assist taxpayers in reviewing their situations. The calculator reflects changes in available itemized deductions, the increased child tax credit, the new dependent credit and repeal of dependent exemptions.

More considerations

Tax law changes aren’t the only reason to check your withholding. Additional reviews during the year are a good idea if:

  • You get married or divorced,
  • You add or lose a dependent,
  • You purchase a home,
  • You start or lose a job, or
  • Your investment income changes significantly.

You can modify your withholding at any time during the year, or even multiple times within a year. To do so, you simply submit a new Form W-4 to your employer. Changes typically will go into effect several weeks after the new Form W-4 is submitted. (For estimated tax payments, you can make adjustments each time quarterly payments are due.)

The TCJA and your tax situation

If you rely solely on the new withholding tables, you could run the risk of significantly underwithholding your federal income taxes. As a result, you might face an unexpectedly high tax bill when you file your 2018 tax return next year. Contact us for help determining whether you should adjust your withholding. We can also answer any questions you have about how the TCJA may affect your particular situation

IRS Audit Techniques Guides provide clues to what may come up if your business is audited

Posted by Admin Posted on May 07 2018

IRS examiners use Audit Techniques Guides (ATGs) to prepare for audits — and so can small business owners. Many ATGs target specific industries, such as construction. Others address issues that frequently arise in audits, such as executive compensation and fringe benefits. These publications can provide valuable insights into issues that might surface if your business is audited.

What do ATGs cover?

The IRS compiles information obtained from past examinations of taxpayers and publishes its findings in ATGs. Typically, these publications explain:

* The nature of the industry or issue,
* Accounting methods commonly used in an industry,
* Relevant audit examination techniques,
* Common and industry-specific compliance issues,
* Business practices,
* Industry terminology, and
* Sample interview questions.

By using a specific ATG, an examiner may, for example, be able to reconcile discrepancies when reported income or expenses aren’t consistent with what’s normal for the industry or to identify anomalies within the geographic area in which the taxpayer resides.

What do ATGs advise?

ATGs cover the types of documentation IRS examiners should request from taxpayers and what relevant information might be uncovered during a tour of the business premises. These guides are intended in part to help examiners identify potential sources of income that could otherwise slip through the cracks.

Other issues that ATGs might instruct examiners to inquire about include:

* Internal controls (or lack of controls),
* The sources of funds used to start the business,
* A list of suppliers and vendors,
* The availability of business records,
* Names of individual(s) responsible for maintaining business records,
* Nature of business operations (for example, hours and days open),
* Names and responsibilities of employees,
* Names of individual(s) with control over inventory, and
* Personal expenses paid with business funds.

For example, one ATG focuses specifically on cash-intensive businesses, such as auto repair shops, check-cashing operations, gas stations, liquor stores, restaurants and bars, and salons. It highlights the importance of reviewing cash receipts and cash register tapes for these types of businesses.

Cash-intensive businesses may be tempted to underreport their cash receipts, but franchised operations may have internal controls in place to deter such “skimming.” For instance, a franchisee may be required to purchase products or goods from the franchisor, which provides a paper trail that can be used to verify sales records.

Likewise, for gas stations, examiners must check the methods of determining income, rebates and other incentives. Restaurants and bars should be asked about net profits compared to the industry average, spillage, pouring averages and tipping.

Avoiding red flags

Although ATGs were created to enhance IRS examiner proficiency, they also can help small businesses ensure they aren’t engaging in practices that could raise red flags with the IRS. To access the complete list of ATGs, visit the IRS website https://www.irs.gov/businesses/small-businesses-self-employed/audit-techniques-guides-atgs. And for more information on the IRS red flags that may be relevant to your business, contact us.

Say, just how competitive is your business anyway?

Posted by Admin Posted on May 03 2018

Every business owner launches his or her company wanting to be successful. But once you get out there, it usually becomes apparent that you’re not alone. To reach any level of success, you’ve got to be competitive with other similar businesses in your market.

Every business owner launches his or her company wanting to be successful. But once you get out there, it usually becomes apparent that you’re not alone. To reach any level of success, you’ve got to be competitive with other similar businesses in your market.

Industry environment. Determine whether there are any threats facing your industry that could affect your business’s ability to operate. This could be anything from extreme weather to a product or service that customers might use less should the economy sour or buying trends significantly change.

Tangible and intangible resources. Competitiveness can hinge on the resources to which a business has access and how it deploys them to earn a profit. What types of tangible — and intangible — resources does your business have at its disposal? Are you in danger of being cut off or limited from any of them?

For example, do you own state-of-the-art technology that allows you to produce superior products or offer premium services more quickly and cheaply than competitors? Assess how suddenly this technology could become outdated — or whether it already has.

Strength of leadership team. As the owner of the business, you may naturally and rightly assume that its management is in good shape. But be open to an objective examination of its strengths and weaknesses.

For instance, maybe you’ve had some contentious interactions with employees as of late. Ask your managers whether underlying tensions exist and, if so, how you might improve morale going forward. There’s probably no greater danger to competitiveness than a disgruntled workforce.

Relationships with suppliers, customers and regulators. For most businesses to function competitively, they must rely on suppliers and nurture strong relationships with customers. In addition, if your company is subject to regulatory oversight, it has to cooperate with local, state and federal officials.

Discuss with your management team the steps the business is currently taking to measure and manage the state of its relationships with each of these groups. Have you been paying suppliers on time? Are you getting positive customer feedback (directly or online)? Are you in compliance with applicable laws and regulations — and are there any new ones to worry about?

Loss of competitiveness can often sneak up on companies. One minute you’re operating in the same stable market you’ve been in for years, and the next minute a disruptor comes along and upends everything. Contact us for more information and other profit-building ideas.

Get started on 2018 tax planning now!

Posted by Admin Posted on May 02 2018

With the April 17 individual income tax filing deadline behind you (or with your 2017 tax return on the back burner if you filed for an extension), you may be hoping to not think about taxes for the next several months. But for maximum tax savings, now is the time to start tax planning for 2018. It’s especially critical to get an early start this year because the Tax Cuts and Jobs Act (TCJA) has substantially changed the tax environment.

Many variables

A tremendous number of variables affect your overall tax liability for the year. Looking at these variables early in the year can give you more opportunities to reduce your 2018 tax bill.

For example, the timing of income and deductible expenses can affect both the rate you pay and when you pay. By regularly reviewing your year-to-date income, expenses and potential tax, you may be able to time income and expenses in a way that reduces, or at least defers, your tax liability.

In other words, tax planning shouldn’t be just a year-end activity.

Certainty vs. uncertainty

Last year, planning early was a challenge because it was uncertain whether tax reform legislation would be signed into law, when it would go into effect and what it would include. This year, the TCJA tax reform legislation is in place, with most of the provisions affecting individuals in effect for 2018–2025. And additional major tax law changes aren’t expected in 2018. So there’s no need to hold off on tax planning.

But while there’s more certainty about the tax law that will be in effect this year and next, there’s still much uncertainty on exactly what the impact of the TCJA changes will be on each taxpayer. The new law generally reduces individual tax rates, and it expands some tax breaks. However, it reduces or eliminates many other breaks.

The total impact of these changes is what will ultimately determine which tax strategies will make sense for you this year, such as the best way to time income and expenses. You may need to deviate from strategies that worked for you in previous years and implement some new strategies.

Getting started sooner will help ensure you don’t take actions that you think will save taxes but that actually will be costly under the new tax regime. It will also allow you to take full advantage of new tax-saving opportunities.

Now and throughout the year

To get started on your 2018 tax planning, contact us. We can help you determine how the TCJA affects you and what strategies you should implement now and throughout the year to minimize your tax liability.

A review of significant TCJA provisions affecting small businesses

Posted by Admin Posted on May 01 2018

Now that small businesses and their owners have filed their 2017 income tax returns (or filed for an extension), it’s a good time to review some of the provisions of the Tax Cuts and Jobs Act (TCJA) that may significantly impact their taxes for 2018 and beyond. Generally, the changes apply to tax years beginning after December 31, 2017, and are permanent, unless otherwise noted.

Corporate taxation

* Replacement of graduated corporate rates ranging from 15% to 35% with a flat corporate rate of 21%
* Replacement of the flat personal service corporation (PSC) rate of 35% with a flat rate of 21%
* Repeal of the 20% corporate alternative minimum tax (AMT)

Pass-through taxation

* Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37% — through 2025
* New 20% qualified business income deduction for owners — through 2025
* Changes to many other tax breaks for individuals — generally through 2025

New or expanded tax breaks

* Doubling of bonus depreciation to 100% and expansion of qualified assets to include used assets — effective for assets acquired and placed in service after September 27, 2017, and before January 1, 2023
* Doubling of the Section 179 expensing limit to $1 million and an increase of the expensing phaseout threshold to $2.5 million (these amounts will be indexed for inflation after 2018)
* New tax credit for employer-paid family and medical leave — through 2019

Reduced or eliminated tax breaks

* New disallowance of deductions for net interest expense in excess of 30% of the business’s adjusted taxable income (exceptions apply)
* New limits on net operating loss (NOL) deductions
* Elimination of the Section 199 deduction, also commonly referred to as the domestic production activities deduction or manufacturers’ deduction — effective for tax years beginning after December 31, 2017, for noncorporate taxpayers and for tax years beginning after December 31, 2018, for C corporation taxpayers
* New rule limiting like-kind exchanges to real property that is not held primarily for sale (generally no more like-kind exchanges for personal property)
* New limitations on excessive employee compensation
* New limitations on deductions for certain employee fringe
benefits, such as entertainment and, in certain circumstances, meals and transportation

Don’t wait to start 2018 tax planning

This is only a sampling of some of the most significant TCJA changes that will affect small businesses and their owners beginning this year, and additional rules and limits apply. The combined impact of these changes should inform which tax strategies you and your business implement in 2018, such as how to time income and expenses to your tax advantage. The sooner you begin the tax planning process, the more tax-saving opportunities will be open to you. So don’t wait to start; contact us today.

Manage health benefits costs with a multipronged approach

Posted by Admin Posted on Apr 25 2018

Many companies offer health care benefits to help ensure employee wellness and compete for better job candidates. And the Affordable Care Act has been using both carrots and sticks (depending on employer size) to encourage businesses to offer health coverage.

If you sponsor a health care plan, you know this is no small investment. It may seem next to impossible to control rising plan costs, which are subject to a variety of factors beyond your control. But the truth is, all business owners can control at least a portion of their health care expenses. The trick is taking a multipronged approach — here are some ideas:

Interact with employees to find the best fit. The ideal size and shape of your plan depends on the needs of your workforce. Rather than relying exclusively on vendor-provided materials, actively manage communications with employees regarding health care costs and other topics. Determine which benefits are truly valued and which ones aren’t.

Use metrics. Business owners can apply analytics to just about everything these days, including health care coverage. Measure the financial impacts of gaps between benefits offered and those employees actually use. Then appropriately adjust plan design to close these costly gaps.

Engage an outside consultant. Secure independent (that is, non-vendor-generated) return-on-investment analyses of your existing benefits package, as well as prospective initiatives. This will entail some expense, but an expert external perspective could help you save money in the long run.

Audit medical claims payments and pharmacy benefits management services. Mistakes happen — and fraud is always a possibility. By regularly re-evaluating claims and pharmacy services, you can identify whether you’re losing money to inaccuracies or even wrongdoing.

Renegotiate pharmacy benefits contracts. As the old saying goes, “Everything is negotiable.” The next time your pharmacy benefits contract comes up for renewal, see whether the vendor will do better. In addition, look around the marketplace for other providers and see if one of them can make a more economical offer.

There’s no silver bullet for lowering the expense of health care benefits. To manage these costs, you must understand the specifics of your plan as well as the economic factors that drive expenses up and down. Please contact our firm for assistance and additional information.

Tax document retention guidelines for small businesses

Posted by Admin Posted on Apr 23 2018

You may have breathed a sigh of relief after filing your 2017 income tax return (or requesting an extension). But if your office is strewn with reams of paper consisting of years’ worth of tax returns, receipts, canceled checks and other financial records (or your computer desktop is filled with a multitude of digital tax-related files), you probably want to get rid of what you can. Follow these retention guidelines as you clean up.

General rules

Retain records that support items shown on your tax return at least until the statute of limitations runs out — generally three years from the due date of the return or the date you filed, whichever is later. That means you can now potentially throw out records for the 2014 tax year if you filed the return for that year by the regular filing deadline. But some records should be kept longer.

For example, there’s no statute of limitations if you fail to file a tax return or file a fraudulent one. So you’ll generally want to keep copies of your returns themselves permanently, so you can show that you did file a legitimate return.

Also bear in mind that, if you understate your adjusted gross income by more than 25%, the statute of limitations period is six years.

Some specifics for businesses

Records substantiating costs and deductions associated with business property are necessary to determine the basis and any gain or loss when the property is sold. According to IRS guidelines, you should keep these for as long as you own the property, plus seven years.

The IRS recommends keeping employee records for three years after an employee has been terminated. In addition, you should maintain records that support employee earnings for at least four years. (This timeframe generally will cover varying state and federal requirements.) Also keep employment tax records for four years from the date the tax was due or the date it was paid, whichever is longer.

For travel and transportation expenses supported by mileage logs and other receipts, keep supporting documents for the three-year statute of limitations period.

Regulations for sales tax returns vary by state. Check the rules for the states where you file sales tax returns. Retention periods typically range from three to six years.

When in doubt, don’t throw it out

It’s easy to accumulate a mountain of paperwork (physical or digital) from years of filing tax returns. If you’re unsure whether you should retain a document, a good rule of thumb is to hold on to it for at least six years or, for property-related records, at least seven years after you dispose of the property. But, again, you should keep tax returns themselves permanently, and other rules or guidelines might apply in certain situations. Please contact us with any questions.

Taking it to the streets: 7 marketing strategies to consider

Posted by Admin Posted on Apr 19 2018

With such intense focus on digital marketing these days, business owners can overlook the fact that there are actual, physical places to interact with the buying public. Now that spring is here and summer is on the way, it’s a good time to rediscover the possibilities of “street marketing.” Here are seven strategies to consider:

1. Set up a booth at an outdoor festival or public event. Give out product samples or brochures to inform potential customers about your company. You might also hand out small souvenirs, such as key chains, pens or magnets with your contact info.

2. Dispatch employees into a crowd or neighborhood. Have staff members walk around outdoor events or busy areas with samples or brochures. Just be sure to train them to be friendly and nonconfrontational. If appropriate, employees might wear distinctive clothing or even costumes or sandwich boards to draw attention.

3. Leave brochures at local businesses. While employees are walking the streets, they may encounter other businesses, such as hair salons and fitness centers, that allow visitors to leave marketing brochures. Some let you leave such information for free, but others may charge a nominal fee. Instruct employees to ask first.

4. Post fliers. Institutions such as libraries, universities and apartment buildings often have bulletin boards where businesses can post information about services or events. Take advantage of such venues.

5. Host a reception or social event. Street marketing doesn’t have to happen on the street. You can become the event by sponsoring a gathering at a restaurant or similar venue. Socializing tends to put current customers and prospects in an approachable mood and gives you a chance to talk up your latest products or services.

6. Hold information sessions on topics of expertise. In a less social but more informative sense, you can position yourself as an expert on a given topic to market your business. For example, a home alarm system company could host a crime-prevention seminar. You might display product or service information at the session but not make a sales pitch.

7. Attend small business seminars or chamber of commerce meetings. If yours is a B2B company, these gatherings can be a great way to subtly publicize your services to other local businesses. Even if you sell directly to the public, you may be able to pick up some sales leads or at least get a better feel for your local economy.

There’s no denying the sea change in marketing over the past decade or two. Digital approaches are now dominant. But augmenting your online activities with some good old-fashioned legwork can help boost your success. For further information and ideas about growing your business, please contact our firm.

Individual tax calendar: Important deadlines for the remainder of 2018

Posted by Admin Posted on Apr 17 2018

While April 15 (April 17 this year) is the main tax deadline on most individual taxpayers’ minds, there are others through the rest of the year that you also need to be aware of. To help you make sure you don’t miss any important 2018 deadlines, here’s a look at when some key tax-related forms, payments and other actions are due. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you.

Please review the calendar and let us know if you have any questions about the deadlines or would like assistance in meeting them.

June 15

  • File a 2017 individual income tax return (Form 1040) or file for a four-month extension (Form 4868), and pay any tax and interest due, if you live outside the United States.
  • Pay the second installment of 2018 estimated taxes, if not paying income tax through withholding (Form 1040-ES).

September 17

  • Pay the third installment of 2018 estimated taxes, if not paying income tax through withholding (Form 1040-ES).

October 1

  • If you’re the trustee of a trust or the executor of an estate, file an income tax return for the 2017 calendar year (Form 1041) and pay any tax, interest and penalties due, if an automatic five-and-a-half month extension was filed.

October 15

  • File a 2017 income tax return (Form 1040, Form 1040A or Form 1040EZ) and pay any tax, interest and penalties due, if an automatic six-month extension was filed (or if an automatic four-month extension was filed by a taxpayer living outside the United States).
  • Make contributions for 2017 to certain retirement plans or establish a SEP for 2017, if an automatic six-month extension was filed.
  • File a 2017 gift tax return (Form 709) and pay any tax, interest and penalties due, if an automatic six-month extension was filed.

December 31

  • Make 2018 contributions to certain employer-sponsored retirement plans.
  • Make 2018 annual exclusion gifts (up to $15,000 per recipient).
  • Incur various expenses that potentially can be claimed as itemized deductions on your 2018 tax return. Examples include charitable donations, medical expenses and property tax payments.

But remember that some types of expenses that were deductible on 2017 returns won’t be deductible on 2018 returns under the Tax Cuts and Jobs Act, such as unreimbursed work-related expenses, certain professional fees, and investment expenses. In addition, some deductions will be subject to new limits. Finally, with the nearly doubled standard deduction, you may no longer benefit from itemizing deductions.

TCJA changes to employee benefits tax breaks: 4 negatives and a positive

Posted by Admin Posted on Apr 16 2018

The Tax Cuts and Jobs Act (TCJA) includes many changes that affect tax breaks for employee benefits. Among the changes are four negatives and one positive that will impact not only employees but also the businesses providing the benefits.

4 breaks curtailed

Beginning with the 2018 tax year, the TCJA reduces or eliminates tax breaks in the following areas:

1. Transportation benefits. The TCJA eliminates business deductions for the cost of providing qualified employee transportation fringe benefits, such as parking allowances, mass transit passes and van pooling. (These benefits are still tax-free to recipient employees.) It also disallows business deductions for the cost of providing commuting transportation to an employee (such as hiring a car service), unless the transportation is necessary for the employee’s safety. And it suspends through 2025 the tax-free benefit of up to $20 a month for bicycle commuting.

2. On-premises meals. The TCJA reduces to 50% a business’s deduction for providing certain meals to employees on the business premises, such as when employees work late or if served in a company cafeteria. (The deduction is scheduled for elimination in 2025.) For employees, the value of these benefits continues to be tax-free.

3. Moving expense reimbursements. The TCJA suspends through 2025 the exclusion from employees’ taxable income of a business’s reimbursements of employees’ qualified moving expenses. However, businesses generally will still be able to deduct such reimbursements.

4. Achievement awards. The TCJA eliminates the business tax deduction and corresponding employee tax exclusion for employee achievement awards that are provided in the form of cash, gift coupons or certificates, vacations, meals, lodging, tickets to sporting or theater events, securities and “other similar items.” However, the tax breaks are still available for gift certificates that allow the recipient to select tangible property from a limited range of items preselected by the employer. The deduction/exclusion limits remain at up to $400 of the value of achievement awards for length of service or safety and $1,600 for awards under a written nondiscriminatory achievement plan.

1 new break

For 2018 and 2019, the TCJA creates a tax credit for wages paid to qualifying employees on family and medical leave. To qualify, a business must offer at least two weeks of annual paid family and medical leave, as described by the Family and Medical Leave Act (FMLA), to qualified employees. The paid leave must provide at least 50% of the employee’s wages. Leave required by state or local law or that was already part of the business’s employee benefits program generally doesn’t qualify.

The credit equals a minimum of 12.5% of the amount of wages paid during a leave period. The credit is increased gradually for payments above 50% of wages paid and tops out at 25%. No double-dipping: Employers can’t also deduct wages claimed for the credit.

More rules, limits and changes

Keep in mind that additional rules and limits apply to these breaks, and that the TCJA makes additional changes affecting employee benefits. Contact us for more details.

Haven’t filed your 2017 income tax return yet? Beware of these pitfalls

Posted by Admin Posted on Apr 11 2018

The federal income tax filing deadline is slightly later than usual this year — April 17 — but it’s now nearly upon us. So, if you haven’t filed your individual return yet, you may be thinking about an extension. Or you may just be concerned about meeting the deadline in the eyes of the IRS. Whatever you do, don’t get tripped up by one of these potential pitfalls.

Filing for an extension

Filing for an extension allows you to delay filing your return until the applicable extension deadline, which for 2017 individual tax returns is October 15, 2018.

While filing for an extension can provide relief from April 17 deadline stress and avoid failure-to-file penalties, there are some possible pitfalls:

  • For married taxpayers filing jointly, the phaseout range is specific to each spouse based on whether he or she is a participant in an employer-sponsored plan:
  • If you expect to owe tax, to avoid potential interest and penalties you still must (with a few exceptions) pay any tax due by April 17.
  • If you expect a refund, remember that you’re simply extending the amount of time your money is in the government’s pockets rather than your own. (If you’re owed a refund and file late, you won’t be charged a failure-to-file penalty. However, filing for an extension may still be a good idea.)

 

Meeting the April 17 deadline

The IRS considers a paper return that’s due April 17 to be timely filed if it’s postmarked by midnight. Sounds straightforward, but here’s a potential pitfall: Let’s say you mail your return with a payment on April 17, but the envelope gets lost. You don’t figure this out until a couple of months later when you notice that the check still hasn’t cleared. You then refile and send a new check. Despite your efforts to timely file and pay, you can still be hit with both failure-to-file and failure-to-pay penalties.

To avoid this risk, use certified or registered mail or one of the private delivery services designated by the IRS to comply with the timely filing rule, such as:

  • DHL Express 9:00, Express 10:30, Express 12:00 or Express Envelope,
  • FedEx First Overnight, Priority Overnight, Standard Overnight or 2Day, or
  • UPS Next Day Air Early A.M., Next Day Air, Next Day Air Saver, 2nd Day Air A.M. or 2nd Day Air.

 

Beware: If you use an unauthorized delivery service, your return isn’t “filed” until the IRS receives it. See IRS.gov for a complete list of authorized services.

Avoiding interest and penalties

Despite the potential pitfalls, filing for an extension can be tax-smart if you’re missing critical documents or you face unexpected life events that prevent you from devoting sufficient time to your return right now. We can help you estimate whether you owe tax and how much you should pay by April 17. Please contact us if you need help or have questions about avoiding interest and penalties.

A net operating loss on your 2017 tax return isn’t all bad news

Posted by Admin Posted on Apr 10 2018

Tax-advantaged retirement plans like IRAs allow your money to grow tax-deferred — or, in the case of Roth accounts, tax-free. The deadline for 2017 contributions is April 17, 2018. Deductible contributions will lower your 2017 tax bill, but even nondeductible contributions can be beneficial.

When a company’s deductible expenses exceed its income, generally a net operating loss (NOL) occurs. If when filing your 2017 income tax return you found that your business had an NOL, there is an upside: tax benefits. But beware — the Tax Cuts and Jobs Act (TCJA) makes some significant changes to the tax treatment of NOLs.

Pre-TCJA law

Under pre-TCJA law, when a business incurs an NOL, the loss can be carried back up to two years, and then any remaining amount can be carried forward up to 20 years. The carryback can generate an immediate tax refund, boosting cash flow.

The business can, however, elect instead to carry the entire loss forward. If cash flow is strong, this may be more beneficial, such as if the business’s income increases substantially, pushing it into a higher tax bracket — or if tax rates increase. In both scenarios, the carryforward can save more taxes than the carryback because deductions are more powerful when higher tax rates apply.

But the TCJA has established a flat 21% tax rate for C corporation taxpayers beginning with the 2018 tax year, and the rate has no expiration date. So C corporations don’t have to worry about being pushed into a higher tax bracket unless Congress changes the corporate rates again.

Also keep in mind that the rules are more complex for pass-through entities, such as partnerships, S corporations and limited liability companies (if they elected partnership tax treatment). Each owner’s allocable share of the entity’s loss is passed through to the owners and reported on their personal returns. The tax benefit depends on each owner’s particular tax situation.

The TCJA changes

The changes the TCJA made to the tax treatment of NOLs generally aren’t favorable to taxpayers:

  • For NOLs arising in tax years ending after December 31, 2017, a qualifying NOL can’t be carried back at all. This may be especially detrimental to start-up businesses, which tend to generate NOLs in their early years and can greatly benefit from the cash-flow boost of a carried-back NOL. (On the plus side, the TCJA allows NOLs to be carried forward indefinitely, as opposed to the previous 20-year limit.
  • For NOLs arising in tax years beginning after December 31, 2017, an NOL carryforward generally can’t be used to shelter more than 80% of taxable income in the carryforward year. (Under prior law, generally up to 100% could be sheltered.)

 

The differences between the effective dates for these changes may have been a mistake, and a technical correction might be made by Congress. Also be aware that, in the case of pass-through entities, owners’ tax benefits from the entity’s net loss might be further limited under the TCJA’s new “excess business loss” rules.

Complicated rules get more complicated

NOLs can provide valuable tax benefits. The rules, however, have always been complicated, and the TCJA has complicated them further. Please contact us if you’d like more information on the NOL rules and how you can maximize the tax benefit of an NOL.

3 ways to supercharge your supervisors

Posted by Admin Posted on Apr 04 2018

The attitudes and behaviors of your people managers play a critical role in your company’s success. When your managers are putting forth their best effort, the more likely it is that you’ll, in turn, get the best performances out of the rest of your employees. Here are three ways to supercharge your supervisors:

1. Transform them into teachers. Today’s people managers must be more than team leaders — they must also be teachers. Attentive managers look for situations that will help subordinates learn how to work smarter and more efficiently.

Typically, learning occurs most readily when rewards are applied as close to the intended behavior’s occurrence as possible. Thus, train managers to look for moments when employees are being successful and to immediately recognize those efforts. Managers should praise them in the presence of others and regularly. Low-cost rewards such as the occasional free lunch or gift card can also be highly motivational.

2. Turbo-boost their reaction times. Be sure people managers address problems right away. The operative word there is “address,” and its meaning may vary depending on the nature of the trouble.

For minor difficulties, just leaving a friendly voice mail or carefully worded email may do the trick. But for more serious conflicts or dilemmas, a thorough investigation is important, followed by face-to-face meetings documented in writing. In either case, it’s imperative not to let problems fester.

3. Turn off their micromanagement switch. While people managers need to keep an eye out for good and bad behavior, they shouldn’t micromanage. Those who perch atop employees’ shoulders, checking every detail of their work, are as bad for a business as rude customer service or defective products.

Why? Because the more people managers micromanage, the more they communicate the wrong message — that they don’t believe employees can get the job done. Micromanaging not only lowers morale, but also hinders efficiency, as the manager is basically spending valuable time doing the employee’s job rather than his or her own.

In the day-to-day grind of keeping a business running, people managers can understandably get worn down. If yours need a lift, consider reinforcing the points above in training sessions or during performance evaluations. For further information and other ideas, contact us.

You still have time to make 2017 IRA contributions

Posted by Admin Posted on Apr 03 2018

Tax-advantaged retirement plans like IRAs allow your money to grow tax-deferred — or, in the case of Roth accounts, tax-free. The deadline for 2017 contributions is April 17, 2018. Deductible contributions will lower your 2017 tax bill, but even nondeductible contributions can be beneficial.

Don’t lose the opportunity

The 2017 limit for total contributions to all IRAs generally is $5,500 ($6,500 if you were age 50 or older on December 31, 2017). But any unused limit can’t be carried forward to make larger contributions in future years.

This means that, once the contribution deadline has passed, the tax-advantaged savings opportunity is lost forever. So to maximize your potential for tax-deferred or tax-free savings, it’s a good idea to use up as much of your annual limit as possible.

3 types of contributions

If you haven’t already maxed out your 2017 IRA contribution limit, consider making one of these types of contributions by April 17:

1. Deductible traditional. With traditional IRAs, account growth is tax-deferred and distributions are subject to income tax. If you and your spouse don’t participate in an employer-sponsored plan such as a 401(k), the contribution is fully deductible on your 2017 tax return. If you or your spouse does participate in an employer-sponsored plan, your deduction is subject to a modified adjusted gross income (MAGI) phaseout:

  • For married taxpayers filing jointly, the phaseout range is specific to each spouse based on whether he or she is a participant in an employer-sponsored plan:
    • For a spouse who participates: $99,000–$119,000.
    • For a spouse who doesn’t participate: $186,000–$196,000.
  • For single and head-of-household taxpayers participating in an employer-sponsored plan: $62,000–$72,000.

Taxpayers with MAGIs within the applicable range can deduct a partial contribution; those with MAGIs exceeding the applicable range can’t deduct any IRA contribution.

2. SRoth. With Roth IRAs, contributions aren’t deductible, but qualified distributions — including growth — are tax-free. Your ability to contribute, however, is subject to a MAGI-based phaseout:

  • For married taxpayers filing jointly: $186,000–$196,000.
  • For single and head-of-household taxpayers: $118,000–$133,000.

You can make a partial contribution if your MAGI falls within the applicable range, but no contribution if it exceeds the top of the range.

3. Nondeductible traditional. If your income is too high for you to fully benefit from a deductible traditional or a Roth contribution, you may benefit from a nondeductible contribution to a traditional IRA. The account can still grow tax-deferred, and when you take qualified distributions you’ll be taxed only on the growth.

Alternatively, shortly after contributing, you may be able to convert the account to a Roth IRA with minimal tax liability.

Maximize your tax-advantaged savings

Traditional and Roth IRAs provide a powerful way to save for retirement on a tax-advantaged basis. Contact us to learn more about making 2017 contributions and making the most of IRAs in 2018 and beyond.

Should you file Form SS-8 to ask the IRS to determine a worker’s status?

Posted by Admin Posted on Apr 02 2018

Classifying workers as independent contractors — rather than employees — can save businesses money and provide other benefits. But the IRS is on the lookout for businesses that do this improperly to avoid taxes and employee benefit obligations.

To find out how the IRS will classify a particular worker, businesses can file optional IRS Form SS-8, “Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.” However, the IRS has a history of reflexively classifying workers as employees, and filing this form may alert the IRS that your business has classification issues — and even inadvertently trigger an employment tax audit.

Contractor vs. employee status

A business enjoys several advantages when it classifies a worker as an independent contractor rather than as an employee. For example, it isn’t required to pay payroll taxes, withhold taxes, pay benefits or comply with most wage and hour laws.

On the downside, if the IRS determines that you’ve improperly classified employees as independent contractors, you can be subject to significant back taxes, interest and penalties. That’s why filing IRS Form SS-8 for an up-front determination may sound appealing.

But because of the risks involved, instead of filing the form, it can be better to simply properly treat independent contractors so they meet the tax code rules. Among other things, this generally includes not controlling how the worker performs his or her duties, ensuring you’re not the worker’s only client, providing Form 1099 and, overall, not treating the worker like an employee.

Be prepared for workers filing the form

Workers seeking determination of their status can also file Form SS-8. Disgruntled independent contractors may do so because they feel entitled to health, retirement and other employee benefits and want to eliminate self-employment tax liabilities.

After a worker files Form SS-8, the IRS sends a letter to the business. It identifies the worker and includes a blank Form SS-8. The business is asked to complete and return it to the IRS, which will render a classification decision. But the Form SS-8 determination process doesn’t constitute an official IRS audit.

Passing IRS muster

If your business properly classifies workers as independent contractors, don’t panic if a worker files a Form SS-8. Contact us before replying to the IRS. With a proper response, you may be able to continue to classify the worker as a contractor. We also can assist you in setting up independent contractor relationships that can pass muster with the IRS.

Could your next business loan get “ratio’d”?

Posted by Admin Posted on Mar 29 2018

We live and work in an era of big data. Banks are active participants, keeping a keen eye on metrics that help them accurately estimate risk of default.

As you look for a loan, try to find out how each bank will evaluate your default probability. Many do so using spreadsheets that track multiple financial ratios. When one of these key ratios goes askew, a red flag goes up on their end — and the loan may be denied.

Common metrics

To avoid getting “ratio’d” in this manner, business owners should familiarize themselves with some of the more common metrics that banks use to gauge creditworthiness.

For example, banks will compare cash and receivables to current liabilities. If this ratio starts slipping, you’ll likely need to push accounts receivable so money comes in more quickly or better manage inventory to keep cash flow moving. Other examples of financial benchmarks include:

  • Gross margin [(revenue – cost of sales) / revenue],
  • Current ratio (current assets / current liabilities),
  • Total asset turnover ratio (annual revenue / total assets), and
  • Interest coverage ratio (earnings before interest and taxes / interest expense).

 

Some banks may also calculate company- or industry-specific performance metrics. For instance, a warehouse might report daily shipments or inventory turnover, not just total asset turnover. Meanwhile, a retailer might provide sales graphs that highlight product mixes, sales rep performance, daily units sold and variances over the same week’s sales from the previous year.

Other methods

Bear in mind that not every bank uses ratios to evaluate performance, or they may combine ratio analysis with other benchmarking tools. Some use community-based scoring, by which a selected group of finance professionals rate and review companies based on their payment histories. Others use proprietary commercial-scoring models that use creditor reports to develop credit scores for businesses.

Preventing disappointment

When a strategic initiative fails to launch because your business can’t obtain financing, it can be crushing. To prevent such disappointment, have your financials in order and target as many common ratios as possible. Please contact our firm for help evaluating your performance and determining where you may need to improve to obtain a loan.

Can you claim your elderly parent as a dependent on your tax return?

Posted by Admin Posted on Mar 27 2018

Perhaps. It depends on several factors, such as your parent’s income and how much financial support you provided. If you qualify for the adult-dependent exemption on your 2017 income tax return, you can deduct up to $4,050 per qualifying adult dependent. However, for 2018, under the Tax Cuts and Jobs Act, the dependency exemption is eliminated.

Income and support

For you to qualify for the adult-dependent exemption, in most cases your parent must have less gross income for the tax year than the exemption amount. (Exceptions may apply if your parent is permanently and totally disabled.) Generally Social Security is excluded, but payments from dividends, interest and retirement plans are included.

In addition, you must have contributed more than 50% of your parent’s financial support. If you shared caregiving duties with a sibling and your combined support exceeded 50%, the exemption can be claimed even though no one individually provided more than 50%. However, only one of you can claim the exemption.

Keep in mind that, even though Social Security payments can usually be excluded from the adult dependent’s income, they can still affect your ability to qualify. Why? If your parent is using Social Security money to pay for medicine or other expenses, you may find that you aren’t meeting the 50% test.

Housing

Don’t forget about your home. If your parent lived with you, the amount of support you claim under the 50% test can include the fair market rental value of part of your residence.

If the parent lived elsewhere — in his or her own residence or in an assisted-living facility or nursing home — any amount of financial support you contributed to that housing expense counts toward the 50% test.

Other savings opportunities

Sometimes caregivers fall just short of qualifying for the exemption. Should this happen, you may still be able to claim an itemized deduction for the medical expenses that you pay for the parent. To receive a tax benefit on your 2017 (or 2018) return, you must itemize deductions and the combined medical expenses paid for you, your dependents and your parent for the year must exceed 7.5% of your adjusted gross income.

The adult-dependent exemption is just one tax break that you may be able to employ to ease the financial burden of caring for an elderly parent. For 2018 through 2025, while the exemption is suspended, you might be eligible for a $500 “family” tax credit for your adult dependent. We’d be happy to provide additional information. Contact us to learn more.

2018 Q2 tax calendar: Key deadlines for businesses and other employers

Posted by Admin Posted on Mar 26 2018

Here are some of the key tax-related deadlines affecting businesses and other employers during the second quarter of 2018. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

April 2

  • Electronically file 2017 Form 1096, Form 1098, Form 1099 (except if an earlier deadline applies) and Form W-2G.

April 17

  • If a calendar-year C corporation, file a 2017 income tax return (Form 1120) or file for an automatic six-month extension (Form 7004), and pay any tax due. If the return isn’t extended, this is also the last day to make 2017 contributions to pension and profit-sharing plans.
  • If a calendar-year C corporation, pay the first installment of 2018 estimated income taxes.

April 30

  • Report income tax withholding and FICA taxes for first quarter 2018 (Form 941), and pay any tax due. (See exception below under “May 10.”)

May 10

  • Report income tax withholding and FICA taxes for first quarter 2018 (Form 941), if you deposited on time and in full all of the associated taxes due.

June 15

  • If a calendar-year C corporation, pay the second installment of 2018 estimated income taxes.

Home vs. away: The company retreat conundrum

Posted by Admin Posted on Mar 21 2018

When a business decides to hold a retreat for its employees, the first question to be answered usually isn’t “What’s our agenda?” or “Whom should we invite as a guest speaker?” Rather, the first item on the table is, “Where should we have it?”

Many employees, and some business owners, might assume a company retreat, by definition, must take place off-site. But this isn’t necessarily so. Holding an on-site retreat is an option — and a markedly cost-effective one at that. Then again, it may also recall the old adage: You get what you pay for.

Staying put

There are several ways that staying put can better keep out-of-pocket expenses in check. The most obvious is that you won’t need to rent one or more meeting rooms. Perhaps even more important, no one at your company will need to spend valuable time and energy calling around to various hotels, gathering information and negotiating costs.

You’ll also likely spend less on food and beverages. A local restaurant can probably cater in the food for a nominal sum, and you could buy beverages in bulk. Furthermore, you’ll have no concerns or expenses associated with transporting employees to the retreat location (as long as your employees all work on site).

Problem is, employees tend to view on-site retreats as just another day at the office, making it hard to turn on creative juices and accomplish goals. They’re constantly tempted to run back to their desks to check their emails and voice mails. Worse yet, they may consider their employer a little too cost-conscious, if you catch our drift.

Heading out

Generally, people are better able to focus on a retreat agenda at off-site locations. They’re in a new, “special” environment that has no visual cues triggering their workday routines. So, even though you’ll incur additional costs, you may get a better return on investment.

During the planning process, remember that everything is negotiable. Hotels and facilities that host company retreats need and want your business. Get several quotes and compare prices and services. You’ll have more leverage if you avoid scheduling your retreat during a time of year when local venues tend to be busy.

Because hotels earn bigger margins on food, beverages and meeting setup fees, many will provide complimentary or discounted rooms for guest speakers and out-of-town employees. Also, try to negotiate a set food and beverage price for the entire retreat, rather than a per-person or per-event rate.

In addition, don’t be shy about asking for discounts. For example, if the facility requires an advance deposit and the balance at the end of the retreat rather than giving you 30 days to pay, request a prompt-pay discount.

Thinking it through

Not every company can afford to fly their staff to Aruba and hold beachside brainstorming sessions replete with tropical beverages. But crowding everyone into the break room and expecting mind-blowing strategic ideas to flow forth probably isn’t realistic, either. Find a suitable and productive point somewhere in between. Let us know if we can help with further information or more ideas.

Home-related tax breaks are valuable on 2017 returns, will be less so for 2018

Posted by Admin Posted on Mar 21 2018

Home ownership is a key element of the American dream for many, and the U.S. tax code includes many tax breaks that help support this dream. If you own a home, you may be eligible for several valuable breaks when you file your 2017 return. But under the Tax Cuts and Jobs Act, your home-related breaks may not be as valuable when you file your 2018 return next year.

2017 vs. 2018

Here’s a look at various home-related tax breaks for 2017 vs. 2018:

Property tax deduction. For 2017, property tax is generally fully deductible — unless you’re subject to the alternative minimum tax (AMT). For 2018, your total deduction for all state and local taxes, including both property taxes and either income taxes or sales taxes, is capped at $10,000.

Mortgage interest deduction. For 2017, you generally can deduct interest on up to a combined total of $1 million of mortgage debt incurred to purchase, build or improve your principal residence and a second residence. However, for 2018, if the mortgage debt was incurred on or after December 15, 2017, the debt limit generally is $750,000.

Home equity debt interest deduction. For 2017, interest on home equity debt used for any purpose (debt limit of $100,000) may be deductible. (If home equity debt isn’t used for home improvements, the interest isn’t deductible for AMT purposes). For 2018, the TCJA suspends the home equity interest deduction. But the IRS has clarified that such interest generally still will be deductible if used for home improvements.

Mortgage insurance premium deduction. This break expired December 31, 2017, but Congress might extend it.

Home office deduction. For 2017, if your home office use meets certain tests, you may be able to deduct associated expenses or use a simplified method for claiming the deduction. Employees claim this as a miscellaneous itemized deduction, which means there will be tax savings only to the extent that the home office deduction plus other miscellaneous itemized deductions exceeds 2% of adjusted gross income. The self-employed can deduct home office expenses from self-employment income. For 2018, miscellaneous itemized deductions subject to the 2% floor are suspended, so only the self-employed can deduct home office expenses.

Home sale gain exclusion. When you sell your principal residence, you can exclude up to $250,000 ($500,000 for married couples filing jointly) of gain if you meet certain tests. Changes to this break had been proposed, but they weren’t included in the final TCJA that was signed into law.

Debt forgiveness exclusion. This break for homeowners who received debt forgiveness in a foreclosure, short sale or mortgage workout for a principal residence expired December 31, 2017, but Congress might extend it.

Additional rules and limits apply to these breaks. To learn more, contact us. We can help you determine which home-related breaks you’re eligible to claim on your 2017 return and how your 2018 tax situation may be affected by the TCJA.

Defer tax with a Section 1031 exchange, but new limits apply this year

Posted by Admin Posted on Mar 19 2018

Normally when appreciated business assets such as real estate are sold, tax is owed on the appreciation. But there’s a way to defer this tax: a Section 1031 “like kind” exchange. However, the Tax Cuts and Jobs Act (TCJA) reduces the types of property eligible for this favorable tax treatment.

What is a like-kind exchange?

Section 1031 of the Internal Revenue Code allows you to defer gains on real or personal property used in a business or held for investment if, instead of selling it, you exchange it solely for property of a “like kind.” Thus, the tax benefit of an exchange is that you defer tax and, thereby, have use of the tax savings until you sell the replacement property.

This technique is especially flexible for real estate, because virtually any type of real estate will be considered to be of a like kind, as long as it’s business or investment property. For example, you can exchange a warehouse for an office building, or an apartment complex for a strip mall.

Deferred and reverse exchanges

Although a like-kind exchange may sound quick and easy, it’s relatively rare for two owners to simply swap properties. You’ll likely have to execute a “deferred” exchange, in which you engage a qualified intermediary (QI) for assistance.

When you sell your property (the relinquished property), the net proceeds go directly to the QI, who then uses them to buy replacement property. To qualify for tax-deferred exchange treatment, you generally must identify replacement property within 45 days after you transfer the relinquished property and complete the purchase within 180 days after the initial transfer.

An alternate approach is a “reverse” exchange. Here, an exchange accommodation titleholder (EAT) acquires title to the replacement property before you sell the relinquished property. You can defer capital gains by identifying one or more properties to exchange within 45 days after the EAT receives the replacement property and, typically, completing the transaction within 180 days.

Changes under the TCJA

There had been some concern that tax reform would include the elimination of like-kind exchanges. The good news is that the TCJA still generally allows tax-deferred like-kind exchanges of business and investment real estate.

But there’s also some bad news: For 2018 and beyond, the TCJA eliminates tax-deferred like-kind exchange treatment for exchanges of personal property. However, prior-law rules that allow like-kind exchanges of personal property still apply if one leg of an exchange was completed by December 31, 2017, but one leg remained open on that date. Keep in mind that exchanged personal property must be of the same asset or product class.

Complex rules

The rules for like-kind exchanges are complex, so these arrangements present some risks. If, say, you exchange the wrong kind of property or acquire cash or other non-like-kind property in a deal, you may still end up incurring a sizable tax hit. If you’re exploring a like-kind exchange, contact us. We can help you ensure you’re in compliance with the rules.

Building a sales prospect pipeline for your business

Posted by Admin Posted on Mar 14 2018

An old business adage says, “Sales is a numbers game.” In other words, the more potential buyers you face, the better your chances of making sales. This isn’t completely true, of course; success also depends on execution.

Nonetheless, when a company builds a pipeline to funnel prospects to its sales team, it will increase the opportunities for these staff members to strike and close deals. Here are some ways to undertake construction.

Do your research

First, establish a profile of the organizations that are the best candidates for your products or services. Criteria should include:

  • Location,
  • Number of employees,
  • Sales volume,
  • Industry, and
  • Specific needs.

Next, think lead generation. The two best sources for generating leads are companywide marketing activities and individual salesperson initiatives, both of which create name recognition and educate prospects on the benefits of your products or services. Although you may find one method works better for you than the other, try not to be too dependent on either.

3 ways to reach out

Once you identify prospects, your sales team has got to reach out. Here are three ways to consider:

  1. Cold calls. Every salesperson has done traditional cold calling — assembling a list of prospects that fit into your established customer profile and then calling or visiting them. Cold calling requires many attempts, and the percentage of interested parties tends to be small. Encourage your sales staff to personalize their message to each prospect so the calls don’t have a “canned” feel.
  2. Researched cold calling. Select a subset of the most desirable candidates from your prospect list and do deeper research into these organizations to discover some need that your product or service would satisfy. Work with your sales team to write customized letters to the appropriate decision makers, highlighting your company’s skills in meeting their needs. If possible, quote an existing customer and quantify the benefits. The letter should come from the sales rep and state that he or she will be following up with a phone call. Often, after sending such a letter, getting in the door is a little easier.
  3. Referrals. Research potential referral sources just as you study up on sales prospects themselves. Your goal is to develop and maintain a referral network of satisfied customers and other professionals who interact with your prospects. When you get referrals, be sure to send thank-you notes to the sources and keep them informed of your progress.

Go with the flow

Does your business regularly find itself hitting dry spells in which sales prospects seem to evaporate into thin air? If so, it may be because you lack a solid pipeline to keep the identities of those potential buyers flowing in. Contact us for further ideas and information.

Casualty losses can provide a 2017 deduction, but rules tighten for 2018

Posted by Admin Posted on Mar 13 2018

If you suffered damage to your home or personal property last year, you may be able to deduct these “casualty” losses on your 2017 federal income tax return. For 2018 through 2025, however, the Tax Cuts and Jobs Act suspends this deduction except for losses due to an event officially declared a disaster by the President.

What is a casualty? It’s a sudden, unexpected or unusual event, such as a natural disaster (hurricane, tornado, flood, earthquake, etc.), fire, accident, theft or vandalism. A casualty loss doesn’t include losses from normal wear and tear or progressive deterioration from age or termite damage.

Here are some things you should know about deducting casualty losses on your 2017 return:

When to deduct. Generally, you must deduct a casualty loss on your return for the year it occurred. However, if you have a loss from a federally declared disaster area, you may have the option to deduct the loss on an amended return for the immediately preceding tax year.

Amount of loss. Your loss is generally the lesser of 1) your adjusted basis in the property before the casualty (typically, the amount you paid for it), or 2) the decrease in fair market value of the property as a result of the casualty. This amount must be reduced by any insurance or other reimbursement you received or expect to receive. (If the property was insured, you must have filed a timely claim for reimbursement of your loss.)

$100 rule. After you’ve figured your casualty loss on personal-use property, you must reduce that loss by $100. This reduction applies to each casualty loss event during the year. It doesn’t matter how many pieces of property are involved in an event.

10% rule. You must reduce the total of all your casualty losses on personal-use property for the year by 10% of your adjusted gross income (AGI). In other words, you can deduct these losses only to the extent they exceed 10% of your AGI.

Note that special relief has been provided to certain victims of Hurricanes Harvey, Irma and Maria and California wildfires that affects some of these rules. For details on this relief or other questions about casualty losses, please contact us.

Make sure repairs to tangible property were actually repairs before you deduct the cost

Posted by Admin Posted on Mar 12 2018

Repairs to tangible property, such as buildings, machinery, equipment or vehicles, can provide businesses a valuable current tax deduction — as long as the so-called repairs weren’t actually “improvements.” The costs of incidental repairs and maintenance can be immediately expensed and deducted on the current year’s income tax return. But costs incurred to improve tangible property must be depreciated over a period of years.

So the size of your 2017 deduction depends on whether the expense was a repair or an improvement.

Betterment, restoration or adaptation

In general, a cost that results in an improvement to a building structure or any of its building systems (for example, the plumbing or electrical system) or to other tangible property must be depreciated. An improvement occurs if there was a betterment, restoration or adaptation of the unit of property.

Under the “betterment test,” you generally must depreciate amounts paid for work that is reasonably expected to materially increase the productivity, efficiency, strength, quality or output of a unit of property or that is a material addition to a unit of property.

Under the “restoration test,” you generally must depreciate amounts paid to replace a part (or combination of parts) that is a major component or a significant portion of the physical structure of a unit of property.

Under the “adaptation test,” you generally must depreciate amounts paid to adapt a unit of property to a new or different use — one that isn’t consistent with your ordinary use of the unit of property at the time you originally placed it in service.

Seeking safety

Distinguishing between repairs and improvements can be difficult, but a couple of IRS safe harbors can help:

1. Routine maintenance safe harbor. Recurring activities dedicated to keeping property in efficient operating condition can be expensed. These are activities that your business reasonably expects to perform more than once during the property’s “class life,” as defined by the IRS.

Amounts incurred for activities outside the safe harbor don’t necessarily have to be depreciated, though. These amounts are subject to analysis under the general rules for improvements.

2. Small business safe harbor. For buildings that initially cost $1 million or less, qualified small businesses may elect to deduct the lesser of $10,000 or 2% of the unadjusted basis of the property for repairs, maintenance, improvements and similar activities each year. A qualified small business is generally one with gross receipts of $10 million or less.

There is also a de minimis safe harbor as well as an exemption for materials and supplies up to a certain threshold. To learn more about these safe harbors and exemptions and other ways to maximize your tangible property deductions, contact us.

It’s time to get more creative with retirement benefits communications

Posted by Admin Posted on Feb 28 2018

Employees tend not to fully appreciate or use their retirement benefits unless their employer communicates with them about the plan clearly and regularly. But workers may miss or ignore your messaging if it all looks and “sounds” the same. That’s why you might want to consider getting more creative. Consider these ideas:

Brighter, more dynamic print materials. There’s no getting around the fact that printed materials remain a widely used method of conveying retirement plan info to participants. But if yours still look the same way they did 10 years ago, employees may file them directly into the recycle bin. Look into whether you should redesign your materials to bring them up to date.

A targeted number of well-formatted emails. You probably augment printed materials with email communications. But finding the right balance here is key. If you’re bombarding employees with too many messages, they might get in the habit of deleting them with barely a glance. Then again, too few messages means your message probably isn’t getting through. Also, like your printed materials, emails need to be well written and formatted.

Social media. Some employers have tried using their social media accounts to keep employees engaged and reminded about benefits. The effectiveness of this will depend on how active you are on social media and how many staff members follow you. It may work well if you have a younger workforce.

“Gamification.” As the name suggests, gamification involves incorporating some fun and a competitive element into benefits education — offering virtual rewards, status indicators or gift cards to successful competitors. Games can include quizzes testing employees’ understanding of their benefits or the fundamentals of retirement planning.

Robocalls. Granted, this may not be an immediately enticing option. These prerecorded calls have largely gotten a bad reputation because of their overuse for sales purposes. But, some employees may appreciate an occasional robocall as a reminder or update that they may have otherwise missed.

Making the problem of benefits communication even tougher is the fact that many companies budget little or even nothing to accomplish this important task. But, considering the cost and effort you put into choosing and maintaining your retirement benefits, effective communication is worth some investment. Let us know how we can help.

Sec. 179 expensing provides small businesses tax savings on 2017 returns — and more savings in the future

Posted by Admin Posted on Feb 27 2018

If you purchased qualifying property by December 31, 2017, you may be able to take advantage of Section 179 expensing on your 2017 tax return. You’ll also want to keep this tax break in mind in your property purchase planning, because the Tax Cuts and Jobs Act (TCJA), signed into law this past December, significantly enhances it beginning in 2018.

2017 Sec. 179 benefits

Sec. 179 expensing allows eligible taxpayers to deduct the entire cost of qualifying new or used depreciable property and most software in Year 1, subject to various limitations. For tax years that began in 2017, the maximum Sec. 179 deduction is $510,000. The maximum deduction is phased out dollar for dollar to the extent the cost of eligible property placed in service during the tax year exceeds the phaseout threshold of $2.03 million.

Qualified real property improvement costs are also eligible for Sec. 179 expensing. This real estate break applies to:

  • Certain improvements to interiors of leased nonresidential buildings,
  • Certain restaurant buildings or improvements to such buildings, and
  • Certain improvements to the interiors of retail buildings.

 

Deductions claimed for qualified real property costs count against the overall maximum for Sec. 179 expensing.

Permanent enhancements

The TCJA permanently enhances Sec. 179 expensing. Under the new law, for qualifying property placed in service in tax years beginning in 2018, the maximum Sec. 179 deduction is increased to $1 million, and the phaseout threshold is increased to $2.5 million. For later tax years, these amounts will be indexed for inflation. For purposes of determining eligibility for these higher limits, property is treated as acquired on the date on which a written binding contract for the acquisition is signed.

The new law also expands the definition of eligible property to include certain depreciable tangible personal property used predominantly to furnish lodging. The definition of qualified real property eligible for Sec. 179 expensing is also expanded to include the following improvements to nonresidential real property: roofs, HVAC equipment, fire protection and alarm systems, and security systems.

Save now and save later

Many rules apply, so please contact us to learn if you qualify for this break on your 2017 return. We’d also be happy to discuss your future purchasing plans so you can reap the maximum benefits from enhanced Sec. 179 expensing and other tax law changes under the TCJA.

5 questions to ask yourself about social media

Posted by Admin Posted on Feb 22 2018

Social media can be an inexpensive, but effective, way to market a company’s products or services. Like most businesses today, you’ve probably at least dipped your toe into its waters. Or perhaps you have a full-blown, ongoing social media strategy involving multiple sites and a variety of content.

In either case, it’s important to ask yourself — and keep asking yourself — some fundamental questions about why and how you’re using social media. Here are five to consider:

1. What differentiates your company? This question is more complex than it may appear. When striving to stand out on social media, you’ve got to separate yourself from not only your competitors, but also many other entities vying for your followers’ attention. Look closely into whether your brand “pops” and how dynamic your messages may or may not be.

2. What will your followers react to? Get to know your company’s followers. Remember, this may include current customers and prospects, as well as potential new hires and community leaders or activists. Be careful: In their efforts to get noticed, many companies have crossed the line into offensive or just plain embarrassing content.

3. What do you hope to accomplish? Your social media strategy should be no different from any other profit-building initiative. Establish clear, trackable objectives; allocate a reasonable budget; and assess regularly whether you’re succeeding or failing.

4. How often should you post? There’s no hard and fast rule for how often to post new content. Anyone who’s active on social media knows there’s a limit before you become a nuisance. Then again, posting too infrequently may inhibit you from gaining any traction in the competitive online environment. Appropriate frequency depends in part on the social media site — you should generally post much more often on Twitter than on LinkedIn, for example.

5. Who’s minding the store? Social media requires ongoing attention. In addition to creating new posts, you’ll need to continuously watch for inappropriate comments and block social media “trolls” looking to cause mischief. Make sure that someone’s stated job duties include keeping an eye on every social media account associated with your business.

The answers to these questions can help guide your company’s overall social media strategy. Remember, the social media world is constantly in flux, with new trends and sites arising all the time. You’ve got to keep an inquisitive mind. We can help your business find the right answers to building its bottom line in a variety of ways.

Tax credit for hiring from certain “target groups” can provide substantial tax savings

Posted by Admin Posted on Feb 21 2018

Many businesses hired in 2017, and more are planning to hire in 2018. If you’re among them and your hires include members of a “target group,” you may be eligible for the Work Opportunity tax credit (WOTC). If you made qualifying hires in 2017 and obtained proper certification, you can claim the WOTC on your 2017 tax return.

Whether or not you’re eligible for 2017, keep the WOTC in mind in your 2018 hiring plans. Despite its proposed elimination under the House’s version of the Tax Cuts and Jobs Act, the credit survived the final version that was signed into law in December, so it’s also available for 2018.

“Target groups,” defined

Target groups include:

  • Qualified individuals who have been unemployed for 27 weeks or more,
  • Designated community residents who live in Empowerment Zones or rural renewal counties,
  • Long-term family assistance recipients,
  • Qualified ex-felons,
  • Qualified recipients of Temporary Assistance for Needy Families (TANF),
  • Qualified veterans,
  • Summer youth employees,
  • Supplemental Nutrition Assistance Program (SNAP) recipients,
  • Supplemental Security Income benefits recipients, and
  • Vocational rehabilitation referrals for individuals who suffer from an employment handicap resulting from a physical or mental handicap.

Before you can claim the WOTC, you must obtain certification from a “designated local agency” (DLA) that the hired individual is indeed a target group member. You must submit IRS Form 8850, “Pre-Screening Notice and Certification Request for the Work Opportunity Credit,” to the DLA no later than the 28th day after the individual begins work for you. Unfortunately, this means that, if you hired someone from a target group in 2017 but didn’t obtain the certification, you can’t claim the WOTC on your 2017 return.

A potentially valuable credit

Qualifying employers can claim the WOTC as a general business credit against their income tax. The amount of the credit depends on the:

  • Target group of the individual hired,
  • Wages paid to that individual, and
  • Number of hours that individual worked during the first year of employment.

The maximum credit that can be earned for each member of a target group is generally $2,400 per employee. The credit can be as high as $9,600 for certain veterans.

Employers aren’t subject to a limit on the number of eligible individuals they can hire. In other words, if you hired 10 individuals from target groups that qualify for the $2,400 credit, your total credit would be $24,000.

Remember, credits reduce your tax bill dollar-for-dollar; they don’t just reduce the amount of income subject to tax like deductions do. So that’s $24,000 of actual tax savings.

Offset hiring costs

The WOTC can provide substantial tax savings when you hire qualified new employees, offsetting some of the cost. Contact us for more information.

Tax deduction for moving costs: 2017 vs. 2018

Posted by Admin Posted on Feb 21 2018

If you moved for work-related reasons in 2017, you might be able to deduct some of the costs on your 2017 return — even if you don’t itemize deductions. (Or, if your employer reimbursed you for moving expenses, that reimbursement might be excludable from your income.) The bad news is that, if you move in 2018, the costs likely won’t be deductible, and any employer reimbursements will probably be included in your taxable income.

Suspension for 2018–2025

The Tax Cuts and Jobs Act (TCJA), signed into law this past December, suspends the moving expense deduction for the same period as when lower individual income tax rates generally apply: 2018 through 2025. For this period it also suspends the exclusion from income of qualified employer reimbursements of moving expenses.

The TCJA does provide an exception to both suspensions for active-duty members of the Armed Forces (and their spouses and dependents) who move because of a military order that calls for a permanent change of station.

Tests for 2017

If you moved in 2017 and would like to claim a deduction on your 2017 return, the first requirement is that the move be work-related. You don’t have to be an employee; the self-employed can also be eligible for the moving expense deduction.

The second is a distance test. The new main job location must be at least 50 miles farther from your former home than your former main job location was from that home. So a work-related move from city to suburb or from town to neighboring town probably won’t qualify, even if not moving would have increased your commute significantly.

Finally, there’s a time test. You must work full time at the new job location for at least 39 weeks during the first year. If you’re self-employed, you must meet that test plus work full time for at least 78 weeks during the first 24 months at the new job location. (Certain limited exceptions apply.)

Deductible expenses

The moving expense deduction is an “above-the-line” deduction, which means it’s subtracted from your gross income to determine your adjusted gross income. It’s not an itemized deduction, so you don’t have to itemize to benefit.

Generally, you can deduct:

  • Transportation and lodging expenses for yourself and household members while moving,
  • The cost of packing and transporting your household goods and other personal property,
  • The expense of storing and insuring these items while in transit, and
  • Costs related to connecting or disconnecting utilities.

But don’t expect to deduct everything. Meal costs during move-related travel aren’t deductible • nor is any part of the purchase price of a new home or expenses incurred selling your old one. And, if your employer later reimburses you for any of the moving costs you’ve deducted, you may have to include the reimbursement as income on your tax return.

Please contact us if you have questions about whether you can deduct moving expenses on your 2017 return or about what other tax breaks won’t be available for 2018 under the TCJA.

Use benchmarking to swim with the big fish

Posted by Admin Posted on Feb 15 2018

You may keep a wary eye on your competitors, but sometimes it helps to look just a little bit deeper. Even if you’re a big fish in your pond, someone a little bigger may be swimming up just beneath you. Being successful means not just being aware of these competitors, but also knowing their approaches and results.

And that’s where benchmarking comes in. By comparing your company with the leading competition, you can identify weaknesses in your business processes, set goals to correct these problems and keep a constant eye on how your company is doing. In short, benchmarking can help your company grow more successful.

2 basic methods

The two basic benchmarking methods are:

1. Quantitative benchmarking. This compares performance results in terms of key performance indicators (formulas or ratios) in areas such as production, marketing, sales, market share and overall financials.

2. Qualitative benchmarking. Here you compare operating practices — such as production techniques, quality of products or services, training methods, and morale — without regard to results.

You can break down each of these basic methods into more specific methods, defined by how the comparisons are made. For example, internal benchmarking compares similar operations and disseminates best practices within your organization, while competitive benchmarking compares processes and methods with those of your direct competitors.

Waters, familiar and new

The specifics of any benchmarking effort will very much depend on your company’s industry, size, and product or service selection, as well as the state of your current market. Nonetheless, by watching how others navigate the currents, you can learn to swim faster and more skillfully in familiar waters. And, as your success grows, you may even identify optimal opportunities to plunge into new bodies of water.

For more information on this topic, or other profit-enhancement ideas, please contact our firm. We would welcome the opportunity to help you benchmark your way to greater success.

Families with college students may save tax on their 2017 returns with one of these breaks

Posted by Admin Posted on Feb 13 2018

Whether you had a child in college (or graduate school) last year or were a student yourself, you may be eligible for some valuable tax breaks on your 2017 return. One such break that had expired December 31, 2016, was just extended under the recently passed Bipartisan Budget Act of 2018: the tuition and fees deduction.

But a couple of tax credits are also available. Tax credits can be especially valuable because they reduce taxes dollar-for-dollar; deductions reduce only the amount of income that’s taxed.

Higher education breaks 101

While multiple higher-education breaks are available, a taxpayer isn’t allowed to claim all of them. In most cases you can take only one break per student, and, for some breaks, only one per tax return. So first you need to see which breaks you’re eligible for. Then you need to determine which one will provide the greatest benefit.

Also keep in mind that you generally can’t claim deductions or credits for expenses that were paid for with distributions from tax-advantaged accounts, such as 529 plans or Coverdell Education Savings Accounts.

Credits

Two credits are available for higher education expenses:

  1. The American Opportunity credit — up to $2,500 per year per student for qualifying expenses for the first four years of postsecondary education.
  2. The Lifetime Learning credit — up to $2,000 per tax return for postsecondary education expenses, even beyond the first four years.

But income-based phaseouts apply to these credits.

If you’re eligible for the American Opportunity credit, it will likely provide the most tax savings. If you’re not, consider claiming the Lifetime Learning credit. But first determine if the tuition and fees deduction might provide more tax savings.

Deductions

Despite the dollar-for-dollar tax savings credits offer, you might be better off deducting up to $4,000 of qualified higher education tuition and fees. Because it’s an above-the-line deduction, it reduces your adjusted gross income, which could provide additional tax benefits. But income-based limits also apply to the tuition and fees deduction.

Be aware that the tuition and fees deduction was extended only through December 31, 2017. So it won’t be available on your 2018 return unless Congress extends it again or makes it permanent.

Maximizing your savings

If you don’t qualify for breaks for your child’s higher education expenses because your income is too high, your child might. Many additional rules and limits apply to the credits and deduction, however. To learn which breaks your family might be eligible for on your 2017 tax returns — and which will provide the greatest tax savings — please contact us.

Small business owners: A SEP may give you one last 2017 tax and retirement saving opportunity

Posted by Admin Posted on Feb 12 2018

Are you a high-income small-business owner who doesn’t currently have a tax-advantaged retirement plan set up for yourself? A Simplified Employee Pension (SEP) may be just what you need, and now may be a great time to establish one. A SEP has high contribution limits and is simple to set up. Best of all, there’s still time to establish a SEP for 2017 and make contributions to it that you can deduct on your 2017 income tax return.

2018 deadlines for 2017

A SEP can be set up as late as the due date (including extensions) of your income tax return for the tax year for which the SEP is to first apply. That means you can establish a SEP for 2017 in 2018 as long as you do it before your 2017 return filing deadline. You have until the same deadline to make 2017 contributions and still claim a potentially hefty deduction on your 2017 return.

Generally, other types of retirement plans would have to have been established by December 31, 2017, in order for 2017 contributions to be made (though many of these plans do allow 2017 contributions to be made in 2018).

High contribution limits

Contributions to SEPs are discretionary. You can decide how much to contribute each year. But be aware that, if your business has employees other than yourself: 1) Contributions must be made for all eligible employees using the same percentage of compensation as for yourself, and 2) employee accounts are immediately 100% vested. The contributions go into SEP-IRAs established for each eligible employee.

For 2017, the maximum contribution that can be made to a SEP-IRA is 25% of compensation (or 20% of self-employed income net of the self-employment tax deduction) of up to $270,000, subject to a contribution cap of $54,000. (The 2018 limits are $275,000 and $55,000, respectively.)

Simple to set up

A SEP is established by completing and signing the very simple Form 5305-SEP (“Simplified Employee Pension — Individual Retirement Accounts Contribution Agreement”). Form 5305-SEP is not filed with the IRS, but it should be maintained as part of the business’s permanent tax records. A copy of Form 5305-SEP must be given to each employee covered by the SEP, along with a disclosure statement.

Additional rules and limits do apply to SEPs, but they’re generally much less onerous than those for other retirement plans. Contact us to learn more about SEPs and how they might reduce your tax bill for 2017 and beyond.

Turning employee ideas into profitable results

Posted by Admin Posted on Feb 07 2018

Many businesses train employees how to do their jobs and only their jobs. But amazing things can happen when you also teach staff members to actively involve themselves in a profitability process — that is, an ongoing, idea-generating system aimed at adding value to your company’s bottom line.

Let’s take a closer look at how to get your workforce involved in coming up with profitable ideas and then putting those concepts into action.

6 steps to implementation

Without a system to discover ideas that originate from the day-in, day-out activities of your business, you’ll likely miss opportunities to truly maximize profitability. What you want to do is put a process in place for gathering profit-generating ideas, picking out the most actionable ones and then turning those ideas into results. Here are six steps to implementing such a system:

  1. Share responsibility for profitability with your management team.
  2. Instruct managers to challenge their employees to come up with profit-building ideas.
  3. Identify the employee-proposed ideas that will most likely increase sales, maximize profit margins or control expenses.
  4. Tie each chosen idea to measurable financial goals.
  5. Name those accountable for executing each idea.
  6. Implement the ideas through a clear, patient and well-monitored process.

For the profitability process to be effective, it must be practical, logical and understandable. All employees — not just management — should be able to use it to turn ideas and opportunities into bottom-line results. As a bonus, a well-constructed process can improve business skills and enhance morale as employees learn about profit-enhancement strategies, come up with their own ideas and, in some cases, see those concepts turned into reality.

A successful business

Most employees want to not only succeed at their own jobs, but also work for a successful business. A strong profitability process can help make this happen. To learn more about this and other ways to build your company’s bottom line, contact us.

TCJA temporarily lowers medical expense deduction threshold

Posted by Admin Posted on Feb 06 2018

With rising health care costs, claiming whatever tax breaks related to health care that you can is more important than ever. But there’s a threshold for deducting medical expenses that may be hard to meet. Fortunately, the Tax Cuts and Jobs Act (TCJA) has temporarily reduced the threshold.

What expenses are eligible?

Medical expenses may be deductible if they’re “qualified.” Qualified medical expenses involve the costs of diagnosis, cure, mitigation, treatment or prevention of disease, and the costs for treatments affecting any part or function of the body. Examples include payments to physicians, dentists and other medical practitioners, as well as equipment, supplies, diagnostic devices and prescription drugs.

Mileage driven for health-care-related purposes is also deductible at a rate of 17 cents per mile for 2017 and 18 cents per mile for 2018. Health insurance and long-term care insurance premiums can also qualify, with certain limits.

Expenses reimbursed by insurance or paid with funds from a tax-advantaged account such as a Health Savings Account or Flexible Spending Account can’t be deducted. Likewise, health insurance premiums aren’t deductible if they’re taken out of your paycheck pretax.

The AGI threshold

Before 2013, you could claim an itemized deduction for qualified unreimbursed medical expenses paid for you, your spouse and your dependents, to the extent those expenses exceeded 7.5% of your adjusted gross income (AGI). AGI includes all of your taxable income items reduced by certain “above-the-line” deductions, such as those for deductible IRA contributions and student loan interest.

As part of the Affordable Care Act, a higher deduction threshold of 10% of AGI went into effect in 2014 for most taxpayers and was scheduled to go into effect in 2017 for taxpayers age 65 or older. But under the TCJA, the 7.5%-of-AGI deduction threshold now applies to all taxpayers for 2017 and 2018.

However, this lower threshold is temporary. Beginning January 1, 2019, the 10% threshold will apply to all taxpayers, including those over age 65, unless Congress takes additional action.

Consider “bunching” expenses into 2018

Because the threshold is scheduled to increase to 10% in 2019, you might benefit from accelerating deductible medical expenses into 2018, to the extent they’re within your control.

However, keep in mind that you have to itemize deductions to deduct medical expenses. Itemizing saves tax only if your total itemized deductions exceed your standard deduction. And with the TCJA’s near doubling of the standard deduction for 2018, many taxpayers who’ve typically itemized may no longer benefit from itemizing.

Contact us if you have questions about what expenses are eligible and whether you can qualify for a deduction on your 2017 tax return. We can also help you determine whether bunching medical expenses into 2018 will likely save you tax.

Claiming bonus depreciation on your 2017 tax return may be particularly beneficial

Posted by Admin Posted on Feb 05 2018

With bonus depreciation, a business can recover the costs of depreciable property more quickly by claiming additional first-year depreciation for qualified assets. The Tax Cuts and Jobs Act (TCJA), signed into law in December, enhances bonus depreciation.

Typically, taking this break is beneficial. But in certain situations, your business might save more tax long-term by skipping it. That said, claiming bonus depreciation on your 2017 tax return may be particularly beneficial.

Pre- and post-TCJA

Before TCJA, bonus depreciation was 50% and qualified property included new tangible property with a recovery period of 20 years or less (such as office furniture and equipment), off-the-shelf computer software, water utility property and qualified improvement property.

The TCJA significantly expands bonus depreciation: For qualified property placed in service between September 28, 2017, and December 31, 2022 (or by December 31, 2023, for certain property with longer production periods), the first-year bonus depreciation percentage increases to 100%. In addition, the 100% deduction is allowed for not just new but also used qualifying property.

But be aware that, under the TCJA, beginning in 2018 certain types of businesses may no longer be eligible for bonus depreciation. Examples include real estate businesses and auto dealerships, depending on the specific circumstances.

A good tax strategy • or not?

Generally, if you’re eligible for bonus depreciation and you expect to be in the same or a lower tax bracket in future years, taking bonus depreciation is likely a good tax strategy (though you should also factor in available Section 179 expensing). It will defer tax, which generally is beneficial.

On the other hand, if your business is growing and you expect to be in a higher tax bracket in the near future, you may be better off forgoing bonus depreciation. Why? Even though you’ll pay more tax this year, you’ll preserve larger depreciation deductions on the property for future years, when they may be more powerful — deductions save more tax when you’re paying a higher tax rate.

What to do on your 2017 return

The greater tax-saving power of deductions when rates are higher is why 2017 may be a particularly good year to take bonus depreciation. As you’re probably aware, the TCJA permanently replaces the graduated corporate tax rates of 15% to 35% with a flat corporate rate of 21% beginning with the 2018 tax year. It also reduces most individual rates, which benefits owners of pass-through entities such as S corporations, partnerships and, typically, limited liability companies, for tax years beginning in 2018 through 2025.

If your rate will be lower in 2018, there’s a greater likelihood that taking bonus depreciation for 2017 would save you more tax than taking all of your deduction under normal depreciation schedules over a period of years, especially if the asset meets the deadlines for 100% bonus depreciation.

If you’re unsure whether you should take bonus depreciation on your 2017 return — or you have questions about other depreciation-related breaks, such as Sec. 179 expensing — contact us.

Business interruption insurance can help some companies

Posted by Admin Posted on Feb 01 2018

Natural disasters and other calamities can affect any company at any time. Depending on the type of business and its financial stability, a few weeks or months of lost income can leave it struggling to turn a profit indefinitely — or force ownership to sell or close. One way to guard against this predicament is through the purchase of business interruption insurance.

The difference

You might say, “But wait! We already have commercial property insurance. Doesn’t that typically pay the costs of a disaster-related disruption?” Not exactly. Your policy may cover some of the individual repairs involved, but it won’t keep you operational.

Business interruption coverage allows you to relocate or temporarily close so you can make the necessary repairs. Essentially, the policy will provide the cash flow to cover revenues lost and expenses incurred while your normal operations are suspended.

2 types of coverage

Generally, business interruption insurance isn’t sold as a separate policy. Instead, it’s added to your existing property coverage. There are two basic types of coverage:

1. Named perils policies. Only specific occurrences listed in the policy are covered, such as fire, water damage and vandalism.

2. All-risk policies. All disasters are covered unless specifically excluded. Many all-risk policies exclude damage from earthquakes and floods, but such coverage can generally be added for an additional fee.

Business interruption insurance usually pays for income that’s lost while operations are suspended. It also covers continuing expenses — including salaries, related payroll costs and other amounts required to restart a business. Depending on the policy, additional expenses might include:

* Relocation to a temporary building (or permanent relocation if necessary),

* Replacement of inventory, machinery and parts,

* Overtime wages to make up for lost production time, and

* Advertising stating that your business is still operating.

Business interruption coverage that insures you against 100% of losses can be costly. Therefore, more common are policies that cover 80% of losses while the business shoulders the remaining 20%.

Pros and cons

As good as business interruption coverage may sound, your company might not need it if you operate in an area where major natural disasters are uncommon and your other business interruption risks are minimal. The decision on whether to buy warrants careful consideration.

First consult with your insurance agent about business interruption coverage options that could be added to your current property coverage. If you’re still interested, perhaps convene a meeting involving your agent, management team and other professional advisors to brainstorm worst-case scenarios and ask “what if” questions. After all, you don’t want to overinsure, but you also don’t want to underemphasize risk management.

Potential value

Proper insurance coverage is essential for every company. Let us help you run the numbers and assess the potential value of a business interruption policy.

2 tax credits just for small businesses may reduce your 2017 and 2018 tax bills

Posted by Admin Posted on Feb 01 2018

Tax credits reduce tax liability dollar-for-dollar, potentially making them more valuable than deductions, which reduce only the amount of income subject to tax. Maximizing available credits is especially important now that the Tax Cuts and Jobs Act has reduced or eliminated some tax breaks for businesses. Two still-available tax credits are especially for small businesses that provide certain employee benefits.

1. Credit for paying health care coverage premiums

The Affordable Care Act (ACA) offers a credit to certain small employers that provide employees with health coverage. Despite various congressional attempts to repeal the ACA in 2017, nearly all of its provisions remain intact, including this potentially valuable tax credit.

The maximum credit is 50% of group health coverage premiums paid by the employer, if it contributes at least 50% of the total premium or of a benchmark premium. For 2017, the full credit is available for employers with 10 or fewer full-time equivalent employees (FTEs) and average annual wages of $26,200 or less per employee. Partial credits are available on a sliding scale to businesses with fewer than 25 FTEs and average annual wages of less than $52,400.

The credit can be claimed for only two years, and they must be consecutive. (Credits claimed before 2014 don’t count, however.) If you meet the eligibility requirements but have been waiting to claim the credit until a future year when you think it might provide more savings, claiming the credit for 2017 may be a good idea. Why? It’s possible the credit will go away in the future if lawmakers in Washington continue to try to repeal or replace the ACA.

At this point, most likely any ACA repeal or replacement wouldn’t go into effect until 2019 (or possibly later). So if you claim the credit for 2017, you may also be able to claim it on your 2018 return next year (provided you again meet the eligibility requirements). That way, you could take full advantage of the credit while it’s available.

2. Credit for starting a retirement plan

Small employers (generally those with 100 or fewer employees) that create a retirement plan may be eligible for a $500 credit per year for three years. The credit is limited to 50% of qualified start-up costs.

Of course, you generally can deduct contributions you make to your employees’ accounts under the plan. And your employees enjoy the benefit of tax-advantaged retirement saving.

If you didn’t create a retirement plan in 2017, you might still have time to do so. Simplified Employee Pensions (SEPs) can be set up as late as the due date of your tax return, including extensions. If you’d like to set up a different type of plan, consider doing so for 2018 so you can potentially take advantage of the retirement plan credit (and other tax benefits) when you file your 2018 return next year.

Determining eligibility

Keep in mind that additional rules and limits apply to these tax credits. We’d be happy to help you determine whether you’re eligible for these or other credits on your 2017 return and also plan for credits you might be able to claim on your 2018 return if you take appropriate actions this year.

Light a beacon to your business with a mission statement

Posted by Admin Posted on Jan 25 2018

Every company, big or small, should have a mission statement. Why? When carefully conceived and well written, a mission statement can serve as a beacon to the world — letting everyone know what the business stands for and where it’s headed. It can build customer loyalty and mobilize people behind a common cause. And it can define the company’s collective personality, provide clear direction, and most of all, serve as a starting point for all of your marketing efforts. Here are some elements to consider when writing a mission statement:

Target audience. This starts with customers, of course. But it also includes employees, job candidates, investors, lenders and the community at large. You can focus a mission statement on a combination of these groups or just one of them.

Length. Some mission statements are only a single sentence. Others are long and complex, encompassing philosophies, objectives, plans and strategies. Generally, it’s best to come up with something in the middle that’s concise, easy to understand and actionable — again, a viewpoint from which your company will express itself and make decisions.

Tone. Establishing the correct tone involves a process of intentional word selection. If the language is too flowery and cumbersome, readers may not take a mission statement seriously. Then again, something too short may come off as vague or flippant. Use appropriate language that’s directed at the target audience and reflects your strategic plans.

Endurance. A mission statement should be able to withstand the test of time and, ultimately, have meaning in the long term. By the same token, its language should be current enough to reflect changes in the business and its competitive environment. A statement created years ago may no longer be relevant.

Distinctiveness. Every company is different — even those in the same industry. Customize your mission statement to express what’s different and distinguishing about your business.

An effective mission statement can be a great asset to an organization. Develop yours as part of an overall strategic planning process, starting with an analysis of your company’s culture, development, and prioritization of goals and objectives. Contact our firm to discuss this and other ways to enhance profitability.

Can you deduct home office expenses?

Posted by Admin Posted on Jan 23 2018

Working from home has become commonplace. But just because you have a home office space doesn’t mean you can deduct expenses associated with it. And for 2018, even fewer taxpayers will be eligible for a home office deduction.

Changes under the TCJA

For employees, home office expenses are a miscellaneous itemized deduction. For 2017, this means you’ll enjoy a tax benefit only if these expenses plus your other miscellaneous itemized expenses (such as unreimbursed work-related travel, certain professional fees and investment expenses) exceed 2% of your adjusted gross income.

For 2018 through 2025, this means that, if you’re an employee, you won’t be able to deduct any home office expenses. Why? The Tax Cuts and Jobs Act (TCJA) suspends miscellaneous itemized deductions subject to the 2% floor for this period.

If, however, you’re self-employed, you can deduct eligible home office expenses against your self-employment income. Therefore, the deduction will still be available to you for 2018 through 2025.

Other eligibility requirements

If you’re an employee, your use of your home office must be for your employer’s convenience, not just your own. If you’re self-employed, generally your home office must be your principal place of business, though there are exceptions.

Whether you’re an employee or self-employed, the space must be used regularly (not just occasionally) and exclusively for business purposes. If, for example, your home office is also a guest bedroom or your children do their homework there, you can’t deduct the expenses associated with that space.

2 deduction options

If you’re eligible, the home office deduction can be a valuable tax break. You have two options for the deduction:

1. Deduct a portion of your mortgage interest, property taxes, insurance, utilities and certain other expenses, as well as the depreciation allocable to the office space. This requires calculating, allocating and substantiating actual expenses.

2. Take the “safe harbor” deduction. Only one simple calculation is necessary: $5 × the number of square feet of the office space. The safe harbor deduction is capped at $1,500 per year, based on a maximum of 300 square feet.

More rules and limits

Be aware that we’ve covered only a few of the rules and limits here. If you think you may be eligible for the home office deduction on your 2017 return or would like to know if there’s anything additional you need to do to be eligible on your 2018 return, contact us.

Meals, entertainment and transportation may cost businesses more under the TCJA

Posted by Admin Posted on Jan 22 2018

Along with tax rate reductions and a new deduction for pass-through qualified business income, the new tax law brings the reduction or elimination of tax deductions for certain business expenses. Two expense areas where the Tax Cuts and Jobs Act (TCJA) changes the rules — and not to businesses’ benefit — are meals/entertainment and transportation. In effect, the reduced tax benefits will mean these expenses are more costly to a business’s bottom line.

Meals and entertainment

Prior to the TCJA, taxpayers generally could deduct 50% of expenses for business-related meals and entertainment. Meals provided to an employee for the convenience of the employer on the employer’s business premises were 100% deductible by the employer and tax-free to the recipient employee.

Under the new law, for amounts paid or incurred after December 31, 2017, deductions for business-related entertainment expenses are disallowed.

Meal expenses incurred while traveling on business are still 50% deductible, but the 50% limit now also applies to meals provided via an on-premises cafeteria or otherwise on the employer’s premises for the convenience of the employer. After 2025, the cost of meals provided through an on-premises cafeteria or otherwise on the employer’s premises will no longer be deductible.

Transportation

The TCJA disallows employer deductions for the cost of providing commuting transportation to an employee (such as hiring a car service), unless the transportation is necessary for the employee’s safety.

The new law also eliminates employer deductions for the cost of providing qualified employee transportation fringe benefits. Examples include parking allowances, mass transit passes and van pooling. These benefits are, however, still tax-free to recipient employees.

Transportation expenses for employee work-related travel away from home are still deductible (and tax-free to the employee), as long as they otherwise qualify for such tax treatment. (Note that, for 2018 through 2025, employees can’t deduct unreimbursed employee business expenses, such as travel expenses, as a miscellaneous itemized deduction.)

Assessing the impact

The TCJA’s changes to deductions for meals, entertainment and transportation expenses may affect your business’s budget. Depending on how much you typically spend on such expenses, you may want to consider changing some of your policies and/or benefits offerings in these areas. We’d be pleased to help you assess the impact on your business.

Big data strategies for every business

Posted by Admin Posted on Jan 17 2018

You’ve probably heard or read the term “big data” at least once in the past few years. Maybe your response was a sarcastic “big deal!” under the assumption that this high-tech concept applies only to large corporations. But this isn’t necessarily true. With so much software so widely available, companies of all sizes may be able to devise and implement big data strategies all their own.

Trends, patterns, relationships

The term “big data” generally refers to any large set of electronic information that, with the right hardware and software, can be analyzed to identify trends, patterns and relationships.

Most notably for businesses, it can help you better understand and predict customer behavior — specifically buying trends (upward and downward) and what products or services customers might be looking for. But big data can also lend insights to your HR function, helping you better understand employees and potential hires, and enabling you to fine-tune your benefits program.

Think of big data as the product recommendation function on Amazon. When buying anything via the site or app, customers are provided a list of other items they also may be interested in. These recommendations are generated through a patented software process that makes an educated guess, based on historical data, on consumer preferences. These same software tools can make predictions about aspects of your business, too — from sales to marketing return on investment, to employee retention and performance.

Specific areas

Here are a couple of specific areas where big data may help improve your company:

Sales. Many businesses still adhere to the tried-and-true sales funnel that includes the various stages of prospecting, assessment, qualification and closing. Overlaying large proprietary consumer-behavior data sets over your customer database may allow you to reach conclusions about the most effective way to close a deal with your ideal prospects.

Inventory management. If your company has been around for a while, you may think you know your inventory pretty well. But do you, really? Using big data, you may be able to better determine and predict which items tend to disappear too quickly and which ones are taking up too much space.

Planning and optimization

Big data isn’t exactly new anymore. But it continues to evolve with the widespread use of cloud computing, which allows companies of any size to securely store and analyze massive amounts of data online. Our firm can offer assistance in planning and optimizing your technology spending.

Personal exemptions and standard deductions and tax credits, oh my!

Posted by Admin Posted on Jan 16 2018

Under the Tax Cuts and Jobs Act (TCJA), individual income tax rates generally go down for 2018 through 2025. But that doesn’t necessarily mean your income tax liability will go down. The TCJA also makes a lot of changes to tax breaks for individuals, reducing or eliminating some while expanding others. The total impact of all of these changes is what will ultimately determine whether you see reduced taxes. One interrelated group of changes affecting many taxpayers are those to personal exemptions, standard deductions and the child credit.

Personal exemptions

For 2017, taxpayers can claim a personal exemption of $4,050 each for themselves, their spouses and any dependents. For families with children and/or other dependents, such as elderly parents, these exemptions can really add up.

For 2018 through 2025, the TCJA suspends personal exemptions. This will substantially increase taxable income for large families. However, enhancements to the standard deduction and child credit, combined with lower tax rates, might mitigate this increase.

Standard deduction

Taxpayers can choose to itemize certain deductions on Schedule A or take the standard deduction based on their filing status instead. Itemizing deductions when the total will be larger than the standard deduction saves tax, but it makes filing more complicated.

For 2017, the standard deductions are $6,350 for singles and separate filers, $9,350 for head of household filers, and $12,700 for married couples filing jointly.

The TCJA nearly doubles the standard deductions for 2018 to $12,000 for singles and separate filers, $18,000 for heads of households, and $24,000 for joint filers. (These amounts will be adjusted for inflation for 2019 through 2025.)

For some taxpayers, the increased standard deduction could compensate for the elimination of the exemptions, and perhaps even provide some additional tax savings. But for those with many dependents or who itemize deductions, these changes might result in a higher tax bill — depending in part on the extent to which they can benefit from enhancements to the child credit.

Child credit

Credits can be more powerful than exemptions and deductions because they reduce taxes dollar-for-dollar, rather than just reducing the amount of income subject to tax. For 2018 through 2025, the TCJA doubles the child credit to $2,000 per child under age 17.

The new law also makes the child credit available to more families than in the past. For 2018 through 2025, the credit doesn’t begin to phase out until adjusted gross income exceeds $400,000 for joint filers or $200,000 for all other filers, compared with the 2017 phaseout thresholds of $110,000 and $75,000, respectively.

The TCJA also includes, for 2018 through 2025, a $500 credit for qualifying dependents other than qualifying children.

Tip of the iceberg

Many factors will influence the impact of the TCJA on your tax liability for 2018 and beyond. And what’s discussed here is just the tip of the iceberg. For example, the TCJA also makes many changes to itemized deductions. For help assessing the impact on your tax situation, please contact us.

Your 2017 tax return may be your last chance to take the “manufacturers’ deduction”

Posted by Admin Posted on Jan 16 2018

While many provisions of the Tax Cuts and Jobs Act (TCJA) will save businesses tax, the new law also reduces or eliminates some tax breaks for businesses. One break it eliminates is the Section 199 deduction, commonly referred to as the “manufacturers’ deduction.” When it’s available, this potentially valuable tax break can be claimed by many types of businesses beyond just manufacturing companies. Under the TCJA, 2017 is the last tax year noncorporate taxpayers can take the deduction (2018 for C corporation taxpayers).

The basics

The Sec. 199 deduction, also called the “domestic production activities deduction,” is 9% of the lesser of qualified production activities income or taxable income. The deduction is also limited to 50% of W-2 wages paid by the taxpayer that are allocable to domestic production gross receipts (DPGR).

Yes, the deduction is available to traditional manufacturers. But businesses engaged in activities such as construction, engineering, architecture, computer software production and agricultural processing also may be eligible.

The deduction isn’t allowed in determining net self-employment earnings and generally can’t reduce net income below zero. But it can be used against the alternative minimum tax.

Calculating DPGR

To determine a company’s Sec. 199 deduction, its qualified production activities income must be calculated. This is the amount of DPGR exceeding the cost of goods sold and other expenses allocable to that DPGR. Most companies will need to allocate receipts between those that qualify as DPGR and those that don’t • unless less than 5% of receipts aren’t attributable to DPGR.

DPGR can come from a number of activities, including the construction of real property in the United States, as well as engineering or architectural services performed stateside to construct real property. It also can result from the lease, rental, licensing or sale of qualifying production property, such as tangible personal property (for example, machinery and office equipment), computer software, and master copies of sound recordings.

The property must have been manufactured, produced, grown or extracted in whole or “significantly” within the United States. While each situation is assessed on its merits, the IRS has said that, if the labor and overhead incurred in the United States accounted for at least 20% of the total cost of goods sold, the activity typically qualifies.

Learn more

Contact us to learn whether this potentially powerful deduction could reduce your business’s tax liability when you file your 2017 return. We can also help address any questions you may have about other business tax breaks that have been reduced or eliminated by the TCJA.

Not necessarily a luxury: Outsourcing

Posted by Admin Posted on Jan 11 2018

For many years, owners of small and midsize businesses looked at outsourcing much like some homeowners viewed hiring a cleaning person. That is, they saw it as a luxury. But no more — in today’s increasingly specialized economy, outsourcing has become a common way to cut costs and obtain expert assistance.

Why would you?

Outsourcing certain tasks that your company has been handling all along offers many benefits. Let’s begin with cost savings. Outsourcing a function effectively could save you a substantial percentage of in-house management expenses by reducing overhead, staffing and training costs. And thanks to the abundant number of independent contractors and providers of outsourced services, you may be able to bargain for competitive pricing.

Outsourcing also allows you to leave administration and support tasks to someone else, freeing up staff members to focus on your company’s core purpose. Plus, the firms that perform these functions are specialists, offering much higher service quality and greater innovations and efficiencies than you could likely muster.

Last, think about accountability — in many cases, vendors will be much more familiar with the laws, regulations and processes behind their specialties and therefore be in a better position to help ensure tasks are done in compliance with any applicable laws and regulations.

What’s the catch?

Of course, potential disadvantages exist as well. Outsourcing a business function obviously means surrendering some control of your personal management style in that area. Some business owners and executives have a tough time with this.

Another issue: integration. Every provider may not mesh with your company’s culture. A bad fit may lead to communication breakdowns and other problems.

Also, in rare cases, you may risk negative publicity from a vendor’s actions. There have been many stories over the years of companies suffering PR damage because of poor working conditions or employment practices at an outsourced facility. You’ve got to research any potential vendor thoroughly to ensure its actions won’t reflect poorly on your business.

To further protect yourself, stipulate your needs carefully in the contract. Pinpoint milestones you can use to ensure deliverables produced up to that point are complete, correct, on time and within budget. And don’t hesitate to tie partial payments to these milestones and assess penalties or even reserve the right to terminate if service falls below a specified level.

Last, build in clauses giving you intellectual property rights to any software or other items a provider develops. After all, you paid for it.

Need more time?

Outsourcing may not be the right solution every time. But it could help your business find more time to flourish and grow. We can help you assess the costs, benefits and risks.

Don’t be a victim of tax identity theft: File your 2017 return early

Posted by Admin Posted on Jan 11 2018

The IRS has just announced that it will begin accepting 2017 income tax returns on January 29. You may be more concerned about the April 17 filing deadline, or even the extended deadline of October 15 (if you file for an extension by April 17). After all, why go through the hassle of filing your return earlier than you have to?

But it can be a good idea to file as close to January 29 as possible: Doing so helps protect you from tax identity theft.

All-too-common scam

Here’s why early filing helps: In an all-too-common scam, thieves use victims’ personal information to file fraudulent tax returns electronically and claim bogus refunds. This is usually done early in the tax filing season. When the real taxpayers file, they’re notified that they’re attempting to file duplicate returns.

A victim typically discovers the fraud after he or she files a tax return and is informed by the IRS that the return has been rejected because one with the same Social Security number has already been filed for the same tax year. The IRS then must determine who the legitimate taxpayer is.

Tax identity theft can cause major headaches to straighten out and significantly delay legitimate refunds. But if you file first, it will be the tax return filed by a potential thief that will be rejected — not yours.

The IRS is working with the tax industry and states to improve safeguards to protect taxpayers from tax identity theft. But filing early may be your best defense.

W-2s and 1099s

Of course, in order to file your tax return, you’ll need to have your W-2s and 1099s. So another key date to be aware of is January 31 — the deadline for employers to issue 2017 Form W-2 to employees and, generally, for businesses to issue Form 1099 to recipients of any 2017 interest, dividend or reportable miscellaneous income payments.

If you don’t receive a W-2 or 1099, first contact the entity that should have issued it. If by mid-February you still haven’t received it, you can contact the IRS for help.

Earlier refunds

Of course, if you’ll be getting a refund, another good thing about filing early is that you’ll get your refund sooner. The IRS expects over 90% of refunds to be issued within 21 days.

E-filing and requesting a direct deposit refund generally will result in a quicker refund and also can be more secure. If you have questions about tax identity theft or would like help filing your 2017 return early, please contact us.

Making the right choice about your office space

Posted by Admin Posted on Jan 05 2018

For many companies, there comes a time when owners must decide whether to renew a lease, move on to a different one or buy new (or pre-existing) space. In some cases, it’s a relatively easy decision. Maybe you’re happy where you are and feel like such a part of the local community that moving isn’t an option.

But, in other cases, a move can be an important step forward. For example, if a business is looking to cut costs, reducing office space and signing a less expensive lease can generally help the bottom line. Conversely, a growing company might decide to buy property and build new to increase its prestige and visibility. Making the right choice is critical.

Buyers beware

Buying office space is clearly a major undertaking. But owning your own building can give you flexibility and tax advantages a lease can’t offer. For instance, you can:

  • Control how to configure and use the property,
  • Sublet some of the space if you so choose, and
  • Decorate, landscape and maintain it as you wish.

You’ll also benefit from mortgage interest and depreciation deductions at tax time.

Naturally, there are risks to ownership. For one, you won’t be able to easily pick up and move on. And if you’re structured as a flow-through entity, you’ll need to decide how the owners will share the cost of buying and maintaining the building. Keep in mind that the building need not be owned in the same proportion as the business itself.

There are other matters to consider as well. You’ll have to delegate responsibility for arranging and overseeing activities such as exterior maintenance, cleaning, and paying taxes and insurance. Plus, if you decide to sublet some of your space, you’ll need to wear one more hat — that of a landlord.

Lessees look out

Of course, as you may well know from doing it for a number of years, leasing business space has its downsides, too. Perhaps you’ve dealt with a particularly unresponsive landlord or property management company. You may also have less freedom to change or rearrange space — not to mention ever-increasing rent and the loss of mortgage interest and depreciation tax deductions. If you decide to move, though, it’s easier to leave a rented office than to sell one you own.

Ultimately, it’s a question of net present values. Will the present value of the capital appreciation you ultimately gain when the property is sold be greater than the current cash flow advantage you’d likely have under a lease?

Consider your options

These are just a few of the issues to study as you consider your company’s location and office space heading into a new year. Remember, there may be tax issues not mentioned here or other factors affecting the right decision. Contact us for a full assessment of your options.

Most individual tax rates go down under the TCJA

Posted by Admin Posted on Jan 02 2018

The Tax Cuts and Jobs Act (TCJA) generally reduces individual tax rates for 2018 through 2025. It maintains seven individual income tax brackets but reduces the rates for all brackets except 10% and 35%, which remain the same.

It also makes some adjustments to the income ranges each bracket covers. For example, the 2017 top rate of 39.6% kicks in at $418,401 of taxable income for single filers and $470,701 for joint filers, but the reduced 2018 top rate of 37% takes effect at $500,001 and $600,001, respectively.

Below is a look at the 2018 brackets under the TCJA. Keep in mind that the elimination of the personal exemption, changes to the standard and many itemized deductions, and other changes under the new law could affect the amount of your income that’s subject to tax. Contact us for help assessing what your tax rate likely will be for 2018.

Single individuals

Taxable income Tax
Not over $9,525 10% of the taxable income
Over $9,525 but not over $38,700 $952.50 plus 12% of the excess over $9,525
Over $38,700 but not over $82,500 $4,453.50 plus 22% of the excess over $38,700
Over $82,500 but not over $157,500 $14,089.50 plus 24% of the excess over $82,500
Over $157,500 but not over $200,000 $32,089.50 plus 32% of the excess over $157,500
Over $200,000 but not over $500,000 $45,689.50 plus 35% of the excess over $200,000
Over $500,000 $150,689.50 plus 37% of the excess over $500,000

Heads of households

Taxable income Tax
Not over $13,600 10% of the taxable income
Over $13,600 but not over $51,800 $1,360 plus 12% of the excess over $13,600
Over $51,800 but not over $82,500 $5,944 plus 22% of the excess over $51,800
Over $82,500 but not over $157,500 $12,698 plus 24% of the excess over $82,500
Over $157,500 but not over $200,000 $30,698 plus 32% of the excess over $157,500
Over $200,000 but not over $500,000 $44,298 plus 35% of the excess over $200,000
Over $500,000 $149,298 plus 37% of the excess over $500,000

Married individuals filing joint returns and surviving spouses

Taxable income Tax
Not over $19,050 10% of the taxable income
Over $19,050 but not over $77,400 $1,905 plus 12% of the excess over $19,050
Over $77,400 but not over $165,000 $8,907 plus 22% of the excess over $77,400
Over $165,000 but not over $315,000 $28,179 plus 24% of the excess over $165,000
Over $315,000 but not over $400,000 $64,179 plus 32% of the excess over $315,000
Over $400,000 but not over $600,000 $91,379 plus 35% of the excess over $400,000
Over $600,000 $161,379 plus 37% of the excess over $600,000

Married individuals filing separate returns

Taxable income Tax
Not over $9,525 10% of the taxable income
Over $9,525 but not over $38,700 $952.50 plus 12% of the excess over $9,525
Over $38,700 but not over $82,500 $4,453.50 plus 22% of the excess over $38,700
Over $82,500 but not over $157,500 $14,089.50 plus 24% of the excess over $82,500
Over $157,500 but not over $200,000 $32,089.50 plus 32% of the excess over $157,500
Over $200,000 but not over $300,000 $45,689.50 plus 35% of the excess over $200,000
Over $300,000 $80,689.50 plus 37% of the excess over $300,000

Find time for strategic planning

Posted by Admin Posted on Dec 27 2017

As a business owner, you know that it’s easy to spend nearly every working hour on the multitude of day-to-day tasks and crises that never seem to end. It’s essential to your company’s survival, however, to find time for strategic planning.

Lost in the weeds

Business owners put off strategic planning for many reasons. New initiatives, for example, usually don’t begin to show tangible results for some time, which can prove frustrating. But perhaps the most significant hurdle is the view that strategic planning is a time-sucking luxury that takes one’s focus off of the challenges directly in front of you.

Although operational activities are obviously essential to keeping your company running, they’re not enough to keep it moving forward and evolving. Accomplishing the latter requires strategic planning. Without it, you can get lost in the weeds, working constantly yet blindly, only to look up one day to find your business teetering on the edge of a cliff — whether because of a tough new competitor, imminent product or service obsolescence, or some other development that you didn’t see coming.

Quality vs. quantity

So how much time should you and your management team devote to strategic planning? There’s no universal answer. Some experts say a CEO should spend only 50% of his or her time on daily operations, with the other half going to strategy — a breakdown that could be unrealistic for some.

The emphasis is better put on quality rather than quantity. However many hours you decide to spend on strategic planning, use that time solely for plotting the future of your company. Block off your schedule, choose a designated and private place (such as a conference room), and give it your undivided attention. Make time for strategic planning just as you would for tending to an important customer relationship.

Time well spent

Effective strategic planning calls for not only identifying the right business-growing initiatives, but also regularly re-evaluating and adjusting them as circumstances change. Thus, strategizing should be part of your weekly or monthly routine — not just a “once in a while, as is convenient” activity. You may need to delegate some of your current operational tasks to make that happen but, in the long run, it will be time well spent. Please let us know how we can help.

Tax Cuts and Jobs Act: Key provisions affecting individuals

Posted by Admin Posted on Dec 27 2017

On December 20, Congress completed passage of the largest federal tax reform law in more than 30 years. Commonly called the “Tax Cuts and Jobs Act” (TCJA), the new law means substantial changes for individual taxpayers.

The following is a brief overview of some of the most significant provisions. Except where noted, these changes are effective for tax years beginning after December 31, 2017, and before January 1, 2026.

  • Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37%
  • Near doubling of the standard deduction to $24,000 (married couples filing jointly), $18,000 (heads of households), and $12,000 (singles and married couples filing separately)
  • Elimination of personal exemptions
  • Doubling of the child tax credit to $2,000 and other modifications intended to help more taxpayers benefit from the credit
  • Elimination of the individual mandate under the Affordable Care Act requiring taxpayers not covered by a qualifying health plan to pay a penalty — effective for months beginning after December 31, 2018, and permanent
  • Reduction of the adjusted gross income (AGI) threshold for the medical expense deduction to 7.5% for regular and AMT purposes — for 2017 and 2018
  • New $10,000 limit on the deduction for state and local taxes (on a combined basis for property and income taxes; $5,000 for separate filers)
  • Reduction of the mortgage debt limit for the home mortgage interest deduction to $750,000 ($375,000 for separate filers), with certain exceptions
  • Elimination of the deduction for interest on home equity debt
  • Elimination of the personal casualty and theft loss deduction (with an exception for federally declared disasters)
  • Elimination of miscellaneous itemized deductions subject to the 2% floor (such as certain investment expenses, professional fees and unreimbursed employee business expenses)
  • Elimination of the AGI-based reduction of certain itemized deductions
  • Elimination of the moving expense deduction (with an exception for members of the military in certain circumstances)
  • Expansion of tax-free Section 529 plan distributions to include those used to pay qualifying elementary and secondary school expenses, up to $10,000 per student per tax year — permanent
  • AMT exemption increase, to $109,400 for joint filers, $70,300 for singles and heads of households, and $54,700 for separate filers
  • Doubling of the gift and estate tax exemptions, to $10 million (expected to be $11.2 million for 2018 with inflation indexing)

Be aware that additional rules and limits apply. Also, there are many more changes in the TCJA that will impact individuals. If you have questions or would like to discuss how you might be affected, please contact us.

7 steps to choosing a successor for your family business

Posted by Admin Posted on Dec 21 2017

There’s an old saying regarding family-owned businesses: “Shirtsleeves to shirtsleeves in three generations.” It means the first-generation owner started in shirtsleeves and built the company up from nothing but, by the third generation, the would-be owner is back in shirtsleeves with nothing because the business failed or was sold.

Although you can’t guarantee your company will buck this trend, you can take extra care when choosing a successor to give your family business a fighting chance. Here are seven steps to consider:

1.Make no assumptions.Many business owners assume their son or daughter wants to run the company or that a particular child is right for the role. But such an assumption can doom the company.

2. Decide which family members are viable candidates, if any. External parties such as professional advisors or an advisory board can provide invaluable input. Outsiders are more likely to be impartial and have no vested interest in your decision. They might help you realize that someone who’s not in your family is the best choice.

3. Look at skills and temperament. Once you’ve settled on a few candidates, hold private meetings with each to discuss the leadership role. Get a feel for whether anyone you’re considering may lack the skills or temperament to run the business.

4. If there are multiple candidates, give each a fair shot. This is no different from what happens in publicly held companies and larger private businesses. Allow each qualified candidate to fill a position at the company and move up the management ladder.

5. Rotate the jobs each candidate performs, if possible. Let them gain experience in many areas of the business, gradually increasing their responsibilities and setting more rigorous goals. You’ll not only groom a better leader, but also potentially create a deeper management team.

6. Clearly communicate your decision. After a reasonable period of time, pick your successor. Meet with the chosen candidate to discuss a transition time line, compensation and other important issues. Also sit down with those not selected and explain your choice. Ideally, these individuals can stay on to provide the aforementioned management depth. Some, however, may choose to leave or be better off working elsewhere. Be forewarned: This can be a difficult, emotional time for family members.

7. Work with your successor on a well-communicated transition of power. Once you’ve picked a successor, he or she effectively becomes a business partner. It’s up to the two of you to gradually shift power from one generation to the next (assuming the business is staying in the family). Don’t underestimate the human element and how much time and effort will be required to make the succession work. Let us help you meet and overcome this critical challenge.

401(k) retirement plan contribution limit increases for 2018; most other limits are stagnant

Posted by Admin Posted on Dec 19 2017

Retirement plan contribution limits are indexed for inflation, but with inflation remaining low, most of the limits remain unchanged for 2018. But one piece of good news for taxpayers who’re already maxing out their contributions is that the 401(k) limit has gone up by $500. The only other limit that has increased from the 2017 level is for contributions to defined contribution plans, which has gone up by $1,000.

Type of limit 2018 limit
Elective deferrals to 401(k), 403(b), 457(b)(2)
and 457(c)(1) plans
$18,500
Contributions to defined contribution plans $55,000
Contributions to SIMPLEs $12,500
Contributions to IRAs $5,500
Catch-up contributions to 401(k), 403(b), 457(b)(2)
and 457(c)(1) plans
$6,000
Catch-up contributions to SIMPLEs $3,000
Catch-up contributions to IRAs $1,000

If you’re not already maxing out your contributions to other plans, you still have an opportunity to save more in 2018. And if you turn age 50 in 2018, you can begin to take advantage of catch-up contributions.

Higher-income taxpayers should also be pleased that some limits on their retirement plan contributions that had been discussed as part of tax reform didn’t make it into the final legislation.

However, keep in mind that there are still additional factors that may affect how much you’re allowed to contribute (or how much your employer can contribute on your behalf). For example, income-based limits may reduce or eliminate your ability to make Roth IRA contributions or to make deductible traditional IRA contributions.

If you have questions about how much you can contribute to tax-advantaged retirement plans in 2018, check with us.

This year’s company holiday party is probably tax deductible, but next year’s may not be

Posted by Admin Posted on Dec 19 2017

Many businesses are hosting holiday parties for employees this time of year. It’s a great way to reward your staff for their hard work and have a little fun. And you can probably deduct 100% of your 2017 party’s cost as a meal and entertainment (M&E) expense. Next year may be a different story.

The 100% deduction

  • For recreational or social activities for employees, such as holiday parties and summer picnics,
  • For food and beverages furnished at the workplace primarily for employees, and
  • That are excludable from employees’ income as de minimis fringe benefits.

There is one caveat for a 100% deduction: The entire staff must be invited. Otherwise, expenses are deductible under the regular business entertainment rules.

Additional requirements

Whether you deduct 50% or 100% of allowable expenses, there are a number of requirements, including certain records you must keep to prove your expenses.

If your company has substantial meal and entertainment expenses, you can reduce your 2017 tax bill by separately accounting for and documenting expenses that are 100% deductible. If doing so would create an administrative burden, you may be able to use statistical sampling methods to estimate the portion of meal and entertainment expenses that are fully deductible.

Possible changes for 2018

It appears the M&E deduction for employee parties — along with deductions for many other M&E expenses — will be eliminated beginning in 2018 under the reconciled version of the Tax Cuts and Jobs Act. For more information about deducting business meals and entertainment, including how to take advantage of the 100% deduction when you file your 2017 return, please contact us.

Make New Year’s resolutions to improve profitability

Posted by Admin Posted on Dec 14 2017

Many people scoff at New Year’s resolutions. It’s no mystery why — these self-directed promises to visit the gym regularly or read a book a month tend to quickly fade once the unavoidable busyness of life sets in.

But, for business owners, the phrase “New Year’s resolutions” is just a different way of saying “strategic plans.” And these are nothing to scoff at. In fact, now is the perfect time to take a critical look at your company and make some earnest promises about improving profitability in 2018.

Ask tough questions

Begin by asking some tough questions. For example: How satisfied are you with the status quo of your business? Are you happy with your profitability or had you anticipated a much stronger bottom line at this point in your company’s existence? If you were to sell tomorrow, would you get a fair return based on what you’ve invested in effort and money?

If your answers to these questions leave you more dissatisfied than pleased, your New Year’s resolutions may have to be bold. This doesn’t mean you should do something rash. But there’s no harm in envisioning next year as the greatest 12 months in the history of your business and then trying to figure out how you might get there.

Rate your profitability

To assess your company’s financial status, begin by honestly gauging your current performance. Rate your profitability on a scale of 1 to 10, where adequate working capital, long-term employees and customers, consistent growth in revenues and profit, and smooth operations equal a 10.

Many business owners will apply numbers somewhere between a 5 and a 7 to these categories. If you rate your business a 6, for example, this means your company isn’t tapping into 40% of its profit-generating capacity. Consider the level of improvement you would realize by moving up just one notch — to a 7.

Identify areas for improvement

One way to discover your company’s unrealized profit enhancement opportunities is to ask your customers and employees. They know firsthand what you are good at, as well as what needs improvement.

For instance, years ago, when the American auto industry was taking its biggest hits from foreign imports, one of the Big Three manufacturers was experiencing significant customer complaints about poor paint jobs. An upper-level executive visited the paint shop in one of its factories and asked an employee about the source of the problem. The worker replied, “I thought you’d never ask,” and proceeded to explain in detail what was wrong and how to solve it.

Get ready for change

If you have a few New Year’s resolutions in mind but aren’t sure how to implement these ideas or how financially feasible they might be, please contact our firm. We can work with you to identify areas of your business ready for change and help you attain a higher level of success next year.

What you need to know about year-end charitable giving in 2017

Posted by Admin Posted on Dec 12 2017

Charitable giving can be a powerful tax-saving strategy: Donations to qualified charities are generally fully deductible, and you have complete control over when and how much you give. Here are some important considerations to keep in mind this year to ensure you receive the tax benefits you desire.

Delivery date

To be deductible on your 2017 return, a charitable donation must be made by Dec. 31, 2017. According to the IRS, a donation generally is “made” at the time of its “unconditional delivery.” But what does this mean? Is it the date you, for example, write a check or make an online gift via your credit card? Or is it the date the charity actually receives the funds — or perhaps the date of the charity’s acknowledgment of your gift?

The delivery date depends in part on what you donate and how you donate it. Here are a few examples for common donations:

Check. The date you mail it.

Credit card. The date you make the charge.

Pay-by-phone account. The date the financial institution pays the amount.

Stock certificate. The date you mail the properly endorsed stock certificate to the charity.

Qualified charity status

To be deductible, a donation also must be made to a “qualified charity” — one that’s eligible to receive tax-deductible contributions.

The IRS’s online search tool, Exempt Organizations (EO) Select Check, can help you more easily find out whether an organization is eligible to receive tax-deductible charitable contributions. You can access EO Select Check at http://apps.irs.gov/app/eos. Information about organizations eligible to receive deductible contributions is updated monthly.

Potential impact of tax reform

The charitable donation deduction isn’t among the deductions that have been proposed for elimination or reduction under tax reform. In fact, income-based limits on how much can be deducted in a particular year might be expanded, which will benefit higher-income taxpayers who make substantial charitable gifts.

However, for many taxpayers, accelerating into this year donations that they might normally give next year may make sense for a couple of tax-reform-related reasons:

  1. If your tax rate goes down for 2018, then 2017 donations will save you more tax because deductions are more powerful when rates are higher.
  2. If the standard deduction is raised significantly and many itemized deductions are eliminated or reduced, then it may not make sense for you to itemize deductions in 2018, in which case you wouldn’t benefit from charitable donation deduction next year.

Many additional rules apply to the charitable donation deduction, so please contact us if you have questions about the deductibility of a gift you’ve made or are considering making — or the potential impact of tax reform on your charitable giving plans.

Should you buy a business vehicle before year end?

Posted by Admin Posted on Dec 12 2017

One way to reduce your 2017 tax bill is to buy a business vehicle before year end. But don’t make a purchase without first looking at what your 2017 deduction would be and whether tax reform legislation could affect the tax benefit of a 2017 vs. 2018 purchase.

Your 2017 deduction

Business-related purchases of new or used vehicles may be eligible for Section 179 expensing, which allows you to immediately deduct, rather than depreciate over a period of years, some or all of the vehicle’s cost. But the size of your 2017 deduction will depend on several factors. One is the gross vehicle weight rating.

The normal Sec. 179 expensing limit generally applies to vehicles with a gross vehicle weight rating of more than 14,000 pounds. The limit for 2017 is $510,000, and the break begins to phase out dollar-for-dollar when total asset acquisitions for the tax year exceed $2.03 million.

But a $25,000 limit applies to SUVs rated at more than 6,000 pounds but no more than 14,000 pounds. Vehicles rated at 6,000 pounds or less are subject to the passenger automobile limits. For 2017, under current law, the depreciation limit is $3,160. And the amount that may be deducted under the combination of Modified Accelerated Cost Recovery System (MACRS) depreciation and Sec. 179 for the first year is limited under the luxury auto rules to $11,160.

In addition, if a vehicle is used for business and personal purposes, the associated expenses, including depreciation, must be allocated between deductible business use and nondeductible personal use. The depreciation limit is reduced if the business use is less than 100%. If the business use is 50% or less, you can’t use Sec. 179 expensing or the accelerated regular MACRS; you must use the straight-line method.

Factoring in tax reform

If tax reform legislation is signed into law and it will cause your marginal rate to go down in 2018, then purchasing a vehicle by December 31, 2017, could save you more tax than waiting until 2018. Why? Tax deductions are more powerful when rates are higher. But if your 2017 Sec. 179 expense deduction would be reduced or eliminated because of the asset acquisition phaseout, then you might be better off waiting until 2018 to buy.

Also be aware that tax reform legislation could affect the depreciation limits for passenger vehicles, even if purchased in 2017.

These are just a few factors to look at. Many additional rules and limits apply to these breaks. So if you’re considering a business vehicle purchase, contact us to discuss whether it would make more tax sense to buy this year or next.

Get smart: How AI can help your business

Posted by Admin Posted on Dec 07 2017

The artificial intelligence (AI) revolution isn’t coming — it’s here. While AI’s potential for your company might not seem immediately obvious, this technology is capable of helping businesses of all shapes and sizes “get smart.”

AI generally refers to the use of computer systems to perform tasks commonly thought to require human intelligence. Examples include image perception, voice recognition, problem solving and decision making. AI includes machine learning, an iterative process where machines improve their performance over time based on examples and structured feedback rather than explicit programming.

3 applications to consider

Businesses can use AI to improve a variety of functions. Three specific applications to consider are:

1. Sales and marketing. You might already use a customer relationship management (CRM) system, but introducing AI to it can really put the pedal to the metal. AI can go much further — and much faster — than traditional CRM.

For example, AI is able to analyze buyer behavior and consumer sentiments across a range of media, including recorded phone conversations, email, social media and reviews. AI also can, in a relative blink of the eye, process consumer and market data from a far wider range of sources than previously thought possible. And it can automate the repetitive tasks that eat up your sales or marketing team’s time.

All of this results in quicker generation of qualified leads. With AI, you can deploy your sales force and marketing resources more efficiently and effectively, reducing your cost of customer acquisition along the way.

2. Customer service. Keeping customers satisfied is the key to retaining them. But customers don’t always tell you when they’re unhappy. AI can pick up on negative signals and find correlations to behavior in customer data, empowering you to save important relationships.

You can integrate AI into your customer support function, too. By leaving tasks such as classifying tickets and routing calls to AI, you’ll reduce wait times and free up representatives to focus on customers who need the human touch.

3. Competitive intelligence. Imagine knowing your competitors’ strategies and moves almost as well as your own. AI-based competitive analysis tools will track other companies’ activities across different channels, noting pricing and product changes and subtle shifts in messaging. They can highlight competitors’ strengths and weaknesses that will help you plot your own course.

The future is now

AI isn’t a fad; it’s becoming more and more entrenched in our business and personal lives. Companies that recognize this sea change and jump on board now can save time, cut costs and develop a clear competitive edge. We can assist you in determining how technology investments like AI should fit into your overall plans for investing in your business.

7 last-minute tax-saving tips

Posted by Admin Posted on Dec 05 2017

The year is quickly drawing to a close, but there’s still time to take steps to reduce your 2017 tax liability — you just must act by December 31:

January 31

  1. Pay your 2017 property tax bill that’s due in early 2018. Make your January 1 mortgage payment.
  2. Incur deductible medical expenses (if your deductible medical expenses for the year already exceed the 10% of adjusted gross income floor).
  3. Pay tuition for academic periods that will begin in January, February or March of 2018 (if it will make you eligible for a tax credit on your 2017 return).
  4. Donate to your favorite charities.
  5. Sell investments at a loss to offset capital gains you’ve recognized this year.
  6. Ask your employer if your bonus can be deferred until January.

 

Many of these strategies could be particularly beneficial if tax reform is signed into law this year that, beginning in 2018, reduces tax rates and limits or eliminates certain deductions (such as property tax, mortgage interest and medical expense deductions — though the Senate bill would actually reduce the medical expense deduction AGI floor to 7.5% for 2017 and 2018, potentially allowing more taxpayers to qualify for the deduction in these years and to enjoy a larger deduction).

Keep in mind, however, that in certain situations these strategies might not make sense. For example, if you’ll be subject to the alternative minimum tax this year or be in a higher tax bracket next year, taking some of these steps could have undesirable results. (Even with tax reform legislation, some taxpayers might find themselves in higher brackets next year.)

If you’re unsure whether these steps are right for you, consult us before taking action.

2018 Q1 tax calendar: Key deadlines for businesses and other employers

Posted by Admin Posted on Dec 04 2017

Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2018. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

January 31

  • File 2017 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
  • Provide copies of 2017 Forms 1099-MISC, “Miscellaneous Income,” to recipients of income from your business where required.
  • File 2017 Forms 1099-MISC reporting nonemployee compensation payments in Box 7 with the IRS.
  • File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2017. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 12 to file the return.
  • File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2017. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 12 to file the return. (Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944,“Employer’s Annual Federal Tax Return.”)
  • File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2017 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 12 to file the return.

February 28

  • File 2017 Forms 1099-MISC with the IRS if 1) they’re not required to be filed earlier and 2) you’re filing paper copies. (Otherwise, the filing deadline is April 2.)

March 15

  • If a calendar-year partnership or S corporation, file or extend your 2017 tax return and pay any tax due. If the return isn’t extended, this is also the last day to make 2017 contributions to pension and profit-sharing plans.

Even if your income is high, your family may be able to benefit from the 0% long-term capital gains rate

Posted by Admin Posted on Nov 29 2017

We’re entering the giving season, and if making financial gifts to your loved ones is part of your plans — or if you’d simply like to reduce your capital gains tax — consider giving appreciated stock instead of cash this year. Doing so might allow you to eliminate all federal tax liability on the appreciation, or at least significantly reduce it.

Leveraging lower rates

Investors generally are subject to a 15% tax rate on their long-term capital gains (20% if they’re in the top ordinary income tax bracket of 39.6%). But the long-term capital gains rate is 0% for gain that would be taxed at 10% or 15% based on the taxpayer’s ordinary-income rate.

In addition, taxpayers with modified adjusted gross income (MAGI) over $200,000 per year ($250,000 for joint filers and $125,000 for married filing separately) may owe the net investment income tax (NIIT). The NIIT equals 3.8% of the lesser of your net investment income or the amount by which your MAGI exceeds the applicable threshold.

If you have loved ones in the 0% bracket, you may be able to take advantage of it by transferring appreciated assets to them. The recipients can then sell the assets at no or a low federal tax cost.

The strategy in action

Faced with a long-term capital gains tax rate of 23.8% (20% for the top tax bracket, plus the 3.8% NIIT), Rick and Sara decide to transfer some appreciated stock to their adult daughter, Maia. Just out of college and making only enough from her entry-level job to leave her with $25,000 in taxable income, Maia falls into the 15% income tax bracket. Therefore, she qualifies for the 0% long-term capital gains rate.

However, the 0% rate applies only to the extent that capital gains “fill up” the gap between Maia’s taxable income and the top end of the 15% bracket. In 2017, the 15% bracket for singles tops out at $37,950.

When Maia sells the stock her parents transferred to her, her capital gains are $20,000. Of that amount $12,950 qualifies for the 0% rate and the remaining $7,050 is taxed at 15%. Maia pays only $1,057.50 of federal tax on the sale vs. the $4,760 her parents would have owed had they sold the stock themselves.

Additional considerations

Before acting, make sure the recipients won’t be subject to the “kiddie tax.” Also consider any gift and generation-skipping transfer (GST) tax consequences.

For more information on transfer taxes, the kiddie tax or capital gains planning, please contact us. We can help you find the strategies that will best achieve your goals.

Could an FSA offer the benefits flexibility you need?

Posted by Admin Posted on Nov 17 2017

Business owners have to make tough choices when it comes to providing benefits to their employees. Many companies, especially newer or smaller ones, may understandably prioritize flexibility. No one wants to get locked into a benefits offering that’s cumbersome to administer and expensive to maintain.

Well, there’s one possibility that has the word “flexible” built right into its name: the health care Flexible Spending Account (FSA). And these arrangements certainly offer that.

No HDHP required, employee contributions allowed

You’ve probably heard about Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs). These increasingly popular benefits options allow employees to pay for qualifying health care costs with pretax dollars. But each one comes with a critical catch: You must offer HSAs in conjunction with a high-deductible health plan (HDHP), and your business can be the only contributor to an HRA.

These limitations don’t apply to FSAs. An HDHP isn’t required, and both employees and the business itself can contribute to the account. Employee contributions are made pretax directly from their compensation, and any contributions you make as an employer aren’t included in your company’s taxable income. (Note: For employees who have an HSA, their FSA would be limited to funding certain “permitted” expenses.)

Deadline drawback

So there’s that flexibility we mentioned. You can establish an FSA relatively quickly without having to commit to an HDHP, and both you and your employees can contribute. Now the drawback: FSAs are “use it or lose it” accounts. In other words, a participant generally must forfeit any unused balance remaining in his or her account after year end.

There is, however, a way to soften this downside. Employers can include in their FSAs either a grace period of up to 2½ months or a $500 carryover amount. Doing so can add even more flexibility to the FSA concept.

If you decide to establish a health care FSA, be prepared to regularly communicate with employees about it throughout the year. When funding their accounts, participants will need to carefully estimate how much money they’re likely to spend over the course of the year. And around the end of the year you’ll need to remind them that, if funds remain in their FSAs, employees will need to incur reimbursable expenses by Dec. 31 to use up those dollars (again, assuming you don’t have a grace period or carryover amount).

No easy answers

There are no easy answers when it comes to employee benefits these days. But FSAs can be a relatively simple to administer benefit that’s appealing to employees. Let us help you assess your options and make the best choice for your business.

Why you may want to accelerate your property tax payment into 2017

Posted by Admin Posted on Nov 14 2017

Accelerating deductible expenses, such as property tax on your home, into the current year typically is a good idea. Why? It will defer tax, which usually is beneficial. Prepaying property tax may be especially beneficial this year, because proposed tax legislation might reduce or eliminate the benefit of the property tax deduction beginning in 2018.

Proposed changes

The initial version of the House tax bill would cap the property tax deduction for individuals at $10,000. The initial version of the Senate tax bill would eliminate the property tax deduction for individuals altogether.

In addition, tax rates under both bills would go down for many taxpayers, making deductions less valuable. And because the standard deduction would increase significantly under both bills, some taxpayers might no longer benefit from itemizing deductions.

2017 year-end planning

You can prepay (by December 31) property taxes that relate to 2017 but that are due in 2018 and deduct the payment on your 2017 return. But you generally can’t prepay property tax that relates to 2018 and deduct the payment on your 2017 return.

Prepaying property tax will in most cases be beneficial if the property tax deduction is eliminated beginning in 2018. But even if the property tax deduction is retained, prepaying could still be beneficial. Here’s why:

  • If your property tax bill is very large, prepaying is likely a good idea in case the property tax deduction is capped beginning in 2018.
  • If you could be subject to a lower tax rate in 2018 or won’t have enough itemized deductions overall in 2018 to exceed a higher standard deduction, prepaying is also likely tax-smart because a property tax deduction next year would have less or no benefit.

However, there are a few caveats:

  • If you’re subject to the AMT in 2017, you won’t get any benefit from prepaying your property tax. And if the property tax deduction is retained for 2018, the prepayment could cost you a tax-saving opportunity next year.
  • If your income is high enough that the income-based itemized deduction reduction applies to you, the tax benefit of a prepayment may be reduced.
  • While the initial versions of both the House and Senate bills generally lower tax rates, some taxpayers might still end up being subject to higher tax rates in 2018, either because of tax law changes or simply because their income goes up next year. If you’re among them and the property tax deduction is retained, you may save more tax by holding off on paying property tax until it’s due next year.

It’s still uncertain what the final legislation will contain and whether it will be passed and signed into law this year. We can help you make the best decision based on tax law change developments and your specific situation.

Reduce your 2017 tax bill by buying business assets

Posted by Admin Posted on Nov 14 2017

Two valuable depreciation-related tax breaks can potentially reduce your 2017 taxes if you acquire and place in service qualifying assets by the end of the tax year. Tax reform could enhance these breaks, so you’ll want to keep an eye on legislative developments as you plan your asset purchases.

Section 179 expensing

Sec. 179 expensing allows businesses to deduct up to 100% of the cost of qualifying assets (new or used) in Year 1 instead of depreciating the cost over a number of years. Sec. 179 can be used for fixed assets, such as equipment, software and real property improvements.

The Sec. 179 expensing limit for 2017 is $510,000. The break begins to phase out dollar-for-dollar for 2017 when total asset acquisitions for the tax year exceed $2.03 million. Under current law, both limits are indexed for inflation annually.

Under the initial version of the House bill, the limit on Sec. 179 expensing would rise to $5 million, with the phaseout threshold increasing to $20 million. These higher amounts would be adjusted for inflation, and the definition of qualifying assets would be expanded slightly. The higher limits generally would apply for 2018 through 2022.

The initial version of the Senate bill also would increase the Sec. 179 expensing limit, but only to $1 million, and would increase the phaseout threshold, but only to $2.5 million. The higher limits would be indexed for inflation and generally apply beginning in 2018. Significantly, unlike under the House bill, the higher limits would be permanent under the Senate bill. There would also be some small differences in which assets would qualify under the Senate bill vs. the House bill.

First-year bonus depreciation

For qualified new assets (including software) that your business places in service in 2017, you can claim 50% first-year bonus depreciation. Examples of qualifying assets include computer systems, software, machinery, equipment, office furniture and qualified improvement property. Currently, bonus depreciation is scheduled to drop to 40% for 2018 and 30% for 2019 and then disappear for 2020.

The initial House bill would boost bonus depreciation to 100% for qualifying assets (which would be expanded to include certain used assets) acquired and placed in service after September 27, 2017, and before January 1, 2023 (with an additional year for certain property with a longer production period).

The initial Senate bill would allow 100% bonus depreciation for qualifying assets acquired and placed in service during the same period as under the House bill, though there would be some differences in which assets would qualify.

Year-end planning

If you’ve been thinking about buying business assets, consider doing it before year end to reduce your 2017 tax bill. If, however, you could save more taxes under tax reform legislation, for now you might want to limit your asset investments to the maximum Sec.179 expense election currently available to you, and then consider additional investments depending on what happens with tax reform. It’s still uncertain what the final legislation will contain and whether it will be passed and signed into law this year. Contact us to discuss the best strategy for your particular situation.

4 tips on making your marketing emails a blast

Posted by Admin Posted on Nov 08 2017

No business owner wants to send out spam. Even the term “email blast,” the practice of launching a flurry of targeted messages at customers and prospects, has mixed connotations these days.

Yet email remains a viable and even necessary communications channel. Here are four tips on making your marketing emails a blast (in the fun and informative sense) and keeping them out of recipients’ spam folders:

1. Craft a catchy subject line. It should be no longer than eight words and shouldn’t be in all caps. Put yourself in the customer’s place, particularly considering his or her demographic, and ask yourself whether you would open the email. Also, clearly indicate the message’s content.

Example: Office Supplies Blowout! 30% Year-End Discount

2. Write a compelling headline. The first thing readers see upon opening an email is the headline, so make it:

  • Different from the subject line,
  • Short (four or five words),
  • A larger font size than the body of the message, and
  • Persuasive.

Example: Rock Your Stockroom Now

3. Make it quick, keep it simple. Most people will read very little text and may not wait for slow-loading images. So think of each marketing email as an “elevator speech,” a quick and concise pitch for specific products or services. And keep images relatively small and easy to download.

Customers want to fulfill their needs at a reasonable price. Don’t expect them to search for answers about whether you can meet these expectations. Tell them why they should buy.

Example: Buying office supplies in bulk now will save you time and money throughout next year.

4. Close with a “call to action.” Instill a sense of urgency in readers by setting a deadline and telling them precisely what to do. Otherwise, they may interpret the email as merely informational and file it away for reference or simply delete it. Be sure to include clear, “clickable” contact info.

Example: Offer expires November 30. Call or visit our website now!

Speaking of calls to action, please contact our firm for help ensuring your marketing initiatives are cost effective.

2017 might be your last chance to hire veterans and claim a tax credit

Posted by Admin Posted on Nov 06 2017

With Veterans Day on November 11, it’s an especially good time to think about the sacrifices veterans have made for us and how we can support them. One way businesses can support veterans is to hire them. The Work Opportunity tax credit (WOTC) can help businesses do just that, but it may not be available for hires made after this year.

As released by the Ways and Means Committee of the U.S. House of Representatives on November 2, the Tax Cuts and Jobs Act would eliminate the WOTC for hires after December 31, 2017. So you may want to consider hiring qualifying veterans before year end.

The WOTC up close

You can claim the WOTC for a portion of wages paid to a new hire from a qualifying target group. Among the target groups are eligible veterans who receive benefits under the Supplemental Nutrition Assistance Program (commonly known as “food stamps”), who have a service-related disability or who have been unemployed for at least four weeks. The maximum credit depends in part on which of these factors apply:

  • Food stamp recipient or short-term unemployed (at least 4 weeks but less than 6 months): $2,400
  • Disabled: $4,800
  • Long-term unemployed (at least 6 months): $5,600
  • Disabled and long-term unemployed: $9,600

 

The amount of the credit also depends on the wages paid to the veteran and the number of hours the veteran worked during the first year of employment.

You aren’t subject to a limit on the number of eligible veterans you can hire. For example, if you hire 10 disabled long-term-unemployed veterans, the credit can be as much as $96,000.

Other considerations

Before claiming the WOTC, you generally must obtain certification from a “designated local agency” (DLA) that the hired individual is indeed a target group member. You must submit IRS Form 8850, “Pre-Screening Notice and Certification Request for the Work Opportunity Credit,” to the DLA no later than the 28th day after the individual begins work for you.

Also be aware that veterans aren’t the only target groups from which you can hire and claim the WOTC. But in many cases hiring a veteran will provided the biggest credit. Plus, research assembled by the Institute for Veterans and Military Families at Syracuse University suggests that the skills and traits of people with a successful military employment track record make for particularly good civilian employees.

Looking ahead

It’s still uncertain whether the WOTC will be repealed. The House bill likely will be revised as lawmakers negotiate on tax reform, and it’s also possible Congress will be unable to pass tax legislation this year. Under current law, the WOTC is scheduled to be available through 2019.

But if you’re looking to hire this year, hiring veterans is worth considering for both tax and nontax reasons. Contact us for more information on the WOTC or on other year-end tax planning strategies in light of possible tax law changes.

Fortifying your business with enterprise risk management

Posted by Admin Posted on Nov 02 2017

Hundreds of years ago, prosperous towns managed the various risks of foreign invaders, thieves and wild animals by fortifying their entire communities with walls and towers. Today’s business owners can take a similar approach with enterprise risk management (ERM).

Assessing threats

In short, ERM is an integrated, companywide system of identifying and planning for risk. Many larger companies have entire departments devoted to it. If your business is ready to implement an ERM program, be prepared for a lengthy building process.

This isn’t an undertaking most business owners will be able to complete themselves. You’ll need to sell your managers and employees on ERM from the top down. After you’ve gained commitment from key players, spend time assessing the risks your business may face. Typical examples include:

  • Financial perils,
  • Information technology attacks or crashes,
  • Weather-related disasters,
  • Regulatory compliance debacles, and
  • Supplier/customer relationship mishaps.

Because every business is different, you’ll likely need to add other risks distinctive to your company and industry.

Developing the program

Recognizing risks is only the first phase. To truly address threats under your ERM program, you’ll need to clarify what your company’s appetite and capacity for each risk is, and develop a cohesive philosophy and plan for how they should be handled. Say you’re about to release a new product. The program would need to address risks such as:

  • Potential liability,
  • Protecting intellectual property,
  • Shortage of raw materials,
  • Lack of manufacturing capacity, and
  • Safety regulation compliance.

Again, the key to success in the planning stage is conducting a detailed risk analysis of your business. Gather as much information as possible from each department and employee.

Depending on your company’s size, engage workers in brainstorming sessions and workshops to help you analyze how specific events could alter your company’s landscape. You may also want to designate an “ERM champion” in each department who will develop and administer the program.

Ambitious undertaking

Yes, just as medieval soldiers looked out from their battlements across field and forest to spot incoming dangers, you and your employees must maintain a constant gaze for developing risks. An ERM program, while an ambitious undertaking, can provide the structure for doing so. We can assist you in managing risks to your business in a financially sound manner.

The ins and outs of tax on “income investments”

Posted by Admin Posted on Oct 31 2017

Many investors, especially more risk-averse ones, hold much of their portfolios in “income investments” — those that pay interest or dividends, with less emphasis on growth in value. But all income investments aren’t alike when it comes to taxes. So it’s important to be aware of the different tax treatments when managing your income investments.

Varying tax treatment

The tax treatment of investment income varies partly based on whether the income is in the form of dividends or interest. Qualified dividends are taxed at your favorable long-term capital gains tax rate (currently 0%, 15% or 20%, depending on your tax bracket) rather than at your 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 dividends might be more attractive tax-wise than interest-paying income investments, such as CDs and 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 interest 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.

One of many factors

Keep in mind that tax reform legislation could affect the tax considerations for income investments. For example, if your ordinary rate goes down under tax reform, there could be less of a difference between the tax rate you’d pay on qualified vs. nonqualified dividends.

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.

Research credit can offset a small business’s payroll taxes

Posted by Admin Posted on Oct 30 2017

Does your small business engage in qualified research activities? If so, you may be eligible for a research tax credit that you can use to offset your federal payroll tax bill.

This relatively new privilege allows the research credit to benefit small businesses that may not generate enough taxable income to use the credit to offset their federal income tax bills, such as those that are still in the unprofitable start-up phase where they owe little or no federal income tax.

QSB status

Under the Protecting Americans from Tax Hikes Act of 2015, a qualified small business (QSB) can elect to use up to $250,000 of its research credit to reduce the Social Security tax portion of its federal payroll tax bills. Under the old rules, businesses could use the credit to offset only their federal income tax bills. However, many small businesses owe little or no federal income tax, especially small start-ups that tend to incur significant research expenses.

For the purposes of the research credit, a QSB is generally defined as a business with:

  • Gross receipts of less than $5 million for the current tax year, and
  • No gross receipts for any taxable year preceding the five-taxable-year period ending with the current tax year.

The allowable payroll tax reduction credit can’t exceed the employer portion of the Social Security tax liability imposed for any calendar quarter. Any excess credit can be carried forward to the next calendar quarter, subject to the Social Security tax limitation for that quarter.

Research activities that qualify

To be eligible for the research credit, a business must have engaged in “qualified” research activities. To be considered “qualified,” activities must meet the following four-factor test:

  1. The purpose must be to create new (or improve existing) functionality, performance, reliability or quality of a product, process, technique, invention, formula or computer software that will be sold or used in your trade or business.
  2. There must be an intention to eliminate uncertainty.
  3. There must be a process of experimentation. In other words, there must be a trial-and-error process.
  4. The process of experimentation must fundamentally rely on principles of physical or biological science, engineering or computer science.

Expenses that qualify for the credit include wages for time spent engaging in supporting, supervising or performing qualified research, supplies consumed in the process of experimentation, and 65% of any contracted outside research expenses.

Complex rules

The ability to use the research credit to reduce payroll tax is a welcome change for eligible small businesses, but the rules are complex and we’ve only touched on the basics here. We can help you determine whether you qualify and, if you do, assist you with making the election for your business and filing payroll tax returns to take advantage of the new privilege.

Retirement savings opportunity for the self-employed

Posted by Admin Posted on Oct 24 2017

Did you know that if you’re self-employed you may be able to set up a retirement plan that allows you to contribute much more than you can contribute to an IRA or even an employer-sponsored 401(k)? There’s still time to set up such a plan for 2017, and it generally isn’t hard to do. So whether you’re a “full-time” independent contractor or you’re employed but earn some self-employment income on the side, consider setting up one of the following types of retirement plans this year.

Profit-sharing plan

This is a defined contribution plan that allows discretionary employer contributions and flexibility in plan design. (As a self-employed person, you’re both the employer and the employee.) You can make deductible 2017 contributions as late as the due date of your 2017 tax return, including extensions — provided your plan exists on Dec. 31, 2017.

For 2017, the maximum contribution is 25% of your net earnings from self-employment, up to a $54,000 contribution. If you include a 401(k) arrangement in the plan, you might be able to contribute a higher percentage of your income. If you include such an arrangement and are age 50 or older, you may be able to contribute as much as $60,000.

Simplified Employee Pension (SEP)

This is a defined contribution plan that provides benefits similar to those of a profit-sharing plan. But you can establish a SEP in 2018 and still make deductible 2017 contributions as late as the due date of your 2017 income tax return, including extensions. In addition, a SEP is easy to administer. For 2017, the maximum SEP contribution is 25% of your net earnings from self-employment, up to a $54,000 contribution.

Defined benefit plan

This plan sets a future pension benefit and then actuarially calculates the contributions needed to attain that benefit. The maximum annual benefit for 2017 is generally $215,000 or 100% of average earned income for the highest three consecutive years, if less.

Because it’s actuarially driven, the contribution needed to attain the projected future annual benefit may exceed the maximum contributions allowed by other plans, depending on your age and the desired benefit. You can make deductible 2017 defined benefit plan contributions until your return due date, provided your plan exists on Dec. 31, 2017.

More to think about

Additional rules and limits apply to these plans, and other types of plans are available. Also, keep in mind that things get more complicated — and more expensive — if you have employees. Why? Generally, they must be allowed to participate in the plan, provided they meet the qualification requirements. To learn more about retirement plans for the self-employed, contact us.

How to maximize deductions for business real estate

Posted by Admin Posted on Oct 23 2017

Currently, a valuable income tax deduction related to real estate is for depreciation, but the depreciation period for such property is long and land itself isn’t depreciable. Whether real estate is occupied by your business or rented out, here’s how you can maximize your deductions.

Segregate personal property from buildings

Generally, buildings and improvements to them must be depreciated over 39 years (27.5 years for residential rental real estate and certain other types of buildings or improvements). But personal property, such as furniture and equipment, generally can be depreciated over much shorter periods. Plus, for the tax year such assets are acquired and put into service, they may qualify for 50% bonus depreciation or Section 179 expensing (up to $510,000 for 2017, subject to a phaseout if total asset acquisitions for the tax year exceed $2.03 million).

If you can identify and document the items that are personal property, the depreciation deductions for those items generally can be taken more quickly. In some cases, items you’d expect to be considered parts of the building actually can qualify as personal property. For example, depending on the circumstances, lighting, wall and floor coverings, and even plumbing and electrical systems, may qualify.

Carve out improvements from land

As noted above, the cost of land isn’t depreciable. But the cost of improvements to land is depreciable. Separating out land improvement costs from the land itself by identifying and documenting those improvements can provide depreciation deductions. Common examples include landscaping, roads, and, in some cases, grading and clearing.

Convert land into a deductible asset

Because land isn’t depreciable, you may want to consider real estate investment alternatives that don’t involve traditional ownership. Such options can allow you to enjoy tax deductions for land costs that provide a similar tax benefit to depreciation deductions. For example, you can lease land long-term. Rent you pay under such a “ground lease” is deductible.

Another option is to purchase an “estate-for-years,” under which you own the land for a set period and an unrelated party owns the interest in the land that begins when your estate-for-years ends. You can deduct the cost of the estate-for-years over its duration.

More limits and considerations

There are additional limits and considerations involved in these strategies. Also keep in mind that tax reform legislation could affect these techniques. For example, immediate deductions could become more widely available for many costs that currently must be depreciated. If you’d like to learn more about saving income taxes with business real estate, please contact us.

Valuation often affects succession plans in hard-to-see ways

Posted by Admin Posted on Oct 18 2017

Any business owner developing a succession plan should rightfully assume that regular business valuations are a must. When envisioning the valuation process, you’re likely to focus on its end result: a reasonable, defensible value estimate of your business as of a certain date. But lurking beneath this number is a variety of often hard-to-see issues.

Estate tax liability

One sometimes blurry issue is the valuation implications of whether you intend to transfer the business to the next generation during your lifetime, at your death or upon your spouse’s death. If, for example, you decide to bequeath the company to your spouse, no estate tax will be due upon your death because of the marital deduction (as long as your spouse is a U.S. citizen). But estate tax may be due on your spouse’s death, depending on the business’s value and estate tax laws at the time.

Speaking of which, President Trump and congressional Republicans have called for an estate tax repeal under the “Unified Framework for Fixing Our Broken Tax Code” issued in late September. But there’s no guarantee such a provision will pass and, even if it does, the repeal might be only temporary.

So an owner may be tempted to minimize the company’s value to reduce the future estate tax liability on the spouse’s death. But be aware that businesses that appear to have been undervalued in an effort to minimize taxes will raise a red flag with the IRS.

Inactive heirs and retirement

Bear in mind, too, that your heirs may have different views of the business’s proper value. This is particularly true of “inactive heirs” — those who won’t inherit the business and whose share, therefore, may need to be “equalized” with other assets, such as insurance proceeds or real estate. Your appraiser will need to clearly understand the valuation’s purpose and your estate plan.

When (or if) you plan to retire is another major issue to be resolved. If you want your children to take over, but you need to free up cash for retirement, you may be able to sell shares to successors. Several methods (such as using trusts) can provide tax advantages as well as help the children fund a business purchase.

Abundant complexities

Obtaining a valuation in relation to your succession plan involves much more than establishing a sale price, transitioning ownership (or selling the company), and sauntering off to retirement. The details are many and potential conflicts abundant. Let us help you anticipate and manage these complexities to ensure a smooth succession.

2 ACA taxes that may apply to your exec comp

Posted by Admin Posted on Oct 17 2017

If you’re an executive or other key employee, you might be rewarded for your contributions to your company’s success with compensation such as restricted stock, stock options or nonqualified deferred compensation (NQDC). Tax planning for these forms of “exec comp,” however, is generally more complicated than for salaries, bonuses and traditional employee benefits.

And planning gets even more complicated if you could potentially be subject to two taxes under the Affordable Care Act (ACA): 1) the additional 0.9% Medicare tax, and 2) the net investment income tax (NIIT). These taxes apply when certain income exceeds the applicable threshold: $250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for other taxpayers.

Additional Medicare tax

The following types of exec comp could be subject to the additional 0.9% Medicare tax if your earned income exceeds the applicable threshold:

  • Fair market value (FMV) of restricted stock once the stock is no longer subject to risk of forfeiture or it’s sold,
  • FMV of restricted stock when it’s awarded if you make a Section 83(b) election,
  • Bargain element of nonqualified stock options when exercised, and
  • Nonqualified deferred compensation once the services have been performed and there’s no longer a substantial risk of forfeiture.

NIIT

The following types of gains from stock acquired through exec comp will be included in net investment income and could be subject to the 3.8% NIIT if your modified adjusted gross income (MAGI) exceeds the applicable threshold:

  • Gain on the sale of restricted stock if you’ve made the Sec. 83(b) election, and
  • Gain on the sale of stock from an incentive stock option exercise if you meet the holding requirements.

Keep in mind that the additional Medicare tax and the NIIT could possibly be eliminated under tax reform or ACA-related legislation. If you’re concerned about how your exec comp will be taxed, please contact us. We can help you assess the potential tax impact and implement strategies to reduce it.

Which tax-advantaged health account should be part of your benefits package?

Posted by Admin Posted on Oct 16 2017

On October 12, an executive order was signed that, among other things, seeks to expand Health Reimbursement Arrangements (HRAs). HRAs are just one type of tax-advantaged account you can provide your employees to help fund their health care expenses. Also available are Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). Which one should you include in your benefits package? Here’s a look at the similarities and differences:

HRA. An HRA is an employer-sponsored account that reimburses employees for medical expenses. Contributions are excluded from taxable income and there’s no government-set limit on their annual amount. But only you as the employer can contribute to an HRA; employees aren’t allowed to contribute.

Also, the Affordable Care Act puts some limits on how HRAs can be offered. The October 12 executive order directs the Secretaries of the Treasury, Labor, and Health and Human Services to consider proposing regs or revising guidance to “increase the usability of HRAs,” expand the ability of employers to offer HRAs to their employees, and “allow HRAs to be used in conjunction with nongroup coverage.”

HSA. If you provide employees a qualified high-deductible health plan (HDHP), you can also sponsor HSAs for them. Pretax contributions can be made by both you and the employee. The 2017 contribution limits (employer and employee combined) are $3,400 for self-only coverage and $6,750 for family coverage. The 2018 limits are $3,450 and $6,900, respectively. Plus, for employees age 55 or older, an additional $1,000 can be contributed.

The employee owns the account, which can bear interest or be invested, growing tax-deferred similar to an IRA. Withdrawals for qualified medical expenses are tax-free, and employees can carry over a balance from year to year.

FSA. Regardless of whether you provide an HDHP, you can sponsor FSAs that allow employees to redirect pretax income up to a limit you set (not to exceed $2,600 in 2017 and expected to remain the same for 2018). You, as the employer, can make additional contributions, generally either by matching employer contributions up to 100% or by contributing up to $500. The plan pays or reimburses employees for qualified medical expenses.

What employees don’t use by the plan year’s end, they generally lose — though you can choose to have your plan allow employees to roll over up to $500 to the next year or give them a 2 1/2-month grace period to incur expenses to use up the previous year’s contribution. If employees have an HSA, their FSA must be limited to funding certain “permitted” expenses.

If you’d like to offer your employees a tax-advantaged way to fund health care costs but are unsure which type of account is best for your business and your employees, please contact us. We can provide the additional details you need to make a sound decision.

4 ways to get (and keep) your business data in order

Posted by Admin Posted on Oct 11 2017

With so much data flying around these days, it’s easy for a company of any size to get overwhelmed. If something important falls through the cracks, say a contract renewal or outstanding bill, your financial standing and reputation could suffer. Here are four ways to get — and keep — your business data in order:

1. Simplify, simplify, simplify. Look at your data in broad categories and see whether and how you can simplify things. Sometimes refiling documents under basic designations such as “vendors,” “leases” and “employee contracts” can help you get better perspective on your information. In other cases, you may need to realign your network or file storage to more closely follow how your company operates today.

2. Implement a data storage policy. A formal effort toward getting organized can help you target what’s wrong and determine what to do about it. In creating this policy, spell out which information you must back up, how much money you’ll spend on this effort, how often backups must occur and where you’ll store backups.

3. Reconsider the cloud. Web-based data storage, now commonly known as “the cloud,” has been around for years. It allows you to store files and even access software on a secure remote server. Your company may already use the cloud to some extent. If so, review how you’re using the cloud, whether your security measures are adequate, and if now might be a good time to renegotiate with your vendor or find a new one.

4. Don’t forget about email. Much of your company’s precious data may not be in files or spreadsheets but in emails. Although it’s been around for decades, this medium has grown in significance recently as email continues to play a starring role in many legal proceedings. If you haven’t already, establish an email retention policy to specify everyone’s responsibilities when it comes to creating, organizing and deleting (or not deleting) emails.

Virtually every company operating today depends on data, big and small, to compete in its marketplace and achieve profitability. Please contact us regarding cost-effective ways to store, organize and deploy your company’s mission-critical information.

Don’t ignore the Oct. 16 extended filing deadline just because you can’t pay your tax bill

Posted by Admin Posted on Oct 10 2017

The extended deadline for filing 2016 individual federal income tax returns is October 16. If you extended your return and know you owe tax but can’t pay the bill, you may be wondering what to do next.

File by October 16

First and foremost, file your return by October 16. Filing by the extended deadline will allow you to avoid the 5%-per-month failure-to-file penalty.

The only cost for failing to pay what you owe is an interest charge. Because an extension of time to file isn’t an extension of time to pay, generally the interest will begin to accrue after the April 18 filing deadline even if you filed for an extension. If you still can’t pay when you file by the extended October 16 due date, interest will continue to accrue until you pay the tax.

Consider your payment options

So when must you pay the balance due? As soon as possible, if you want to halt the IRS interest charges. Here are a few options:

Pay with a credit card. You can pay your federal tax bill with American Express, Discover, MasterCard or Visa. But before pursuing this option, ask about the one-time fee your credit card company will charge (which might be deductible) and the interest rate.

Take out a loan. If you can borrow at a reasonable rate, this may be a good option.

Arrange an IRS installment agreement. You can request permission from the IRS to pay off your bill in installments. Approval of your installment payment request is automatic if you:

  • Owe $10,000 or less (not counting interest or penalties),
  • Propose a repayment period of 36 months or less,
  • Haven’t entered into an earlier installment agreement within the preceding five years, and
  • Have filed returns and paid taxes for the preceding five tax years.

 

As long as you have an unpaid balance, you’ll be charged interest. But this may be at a much lower rate than what you’d pay on a credit card or could arrange with a commercial lender.

Be aware that, when you enter into an installment agreement, you must pledge to stay current on your future taxes.

Act soon

Filing a 2016 federal income tax return is important even if you can’t pay the tax due right now. If you need assistance or would like more information, please contact us.

Thorough due diligence can protect your acquisition from fraud

Posted by Admin Posted on Oct 09 2017

In today’s rough-and-tumble world of mergers and acquisitions (M&As), buyers need to get to know business sellers and their executives, test their representations about asset condition and financial performance, and screen for common fraud schemes. Here’s why.

Whose side are they on?

Without adequate M&A due diligence, unwary buyers could fall victim to false representations by sellers that never pan out after the deal closes. Or they may inherit a hornet’s nest of white collar crime and embezzlement by employees.

Even if a company has internal controls in place, owners and executives can override them. These individuals have access to financial statements, and may have incentives — such as to receive bonuses for exceeding certain growth targets — to falsify them.

So it’s essential to perform background checks on your acquisition target’s owners and C-suite executives. A thorough check can uncover past involvement in criminal embezzlement, theft, forgery and other types of fraud, as well as involvement in civil litigation. It could also reveal falsified items on their resumés and other pertinent personal claims.

How “creative” is the business?

Financial statements should also be scoured for misstatements. Some owners may use “creative” accounting techniques to artificially inflate a company’s value. They might, for example:

  • Prebook revenues,
  • Leave stale receivables on the books,
  • Record phantom inventory,
  • Defer expense recognition, or
  • Lend money to major customers so they can make large purchases that will inflate sales numbers.

Owners might also hide liabilities, falsify transactions with related parties, overvalue receivables and securities, and overstate inventories to boost the selling price.

Tip of the iceberg

Unfortunately, this is just the tip of the iceberg when it comes to fraud schemes that could diminish the value of your acquisition. In addition to performing financial and legal due diligence, be sure to tour your target’s facilities and interview management for insight into the company’s culture. For help conducting due diligence, please contact us.

Accelerate your retirement savings with a cash balance plan

Posted by Admin Posted on Oct 09 2017

Business owners may not be able to set aside as much as they’d like in tax-advantaged retirement plans. Typically, they’re older and more highly compensated than their employees, but restrictions on contributions to 401(k) and profit-sharing plans can hamper retirement-planning efforts. One solution may be a cash balance plan.

Defined benefit plan with a twist

The two most popular qualified retirement plans — 401(k) and profit-sharing plans — are defined contribution plans. These plans specify the amount that goes into an employee’s retirement account today, typically a percentage of compensation or a specific dollar amount.

In contrast, a cash balance plan is a defined benefit plan, which specifies the amount a participant will receive in retirement. But unlike traditional defined benefit plans, such as pensions, cash balance plans express those benefits in the form of a 401(k)-style account balance, rather than a formula tied to years of service and salary history.

The plan allocates annual “pay credits” and “interest credits” to hypothetical employee accounts. This allows participants to earn benefits more uniformly over their careers, and provides a clearer picture of benefits than a traditional pension plan.

Greater savings for owners

A cash balance plan offers significant advantages for business owners — particularly those who are behind on their retirement saving and whose employees are younger and lower-paid. In 2017, the IRS limits employer contributions and employee deferrals to defined contribution plans to $54,000 ($60,000 for employees age 50 or older). And nondiscrimination rules, which prevent a plan from unfairly favoring highly compensated employees (HCEs), can reduce an owner’s contributions even further.

But cash balance plans aren’t bound by these limits. Instead, as defined benefit plans, they’re subject to a cap on annual benefit payouts in retirement (currently, $215,000), and the nondiscrimination rules require that only benefits for HCEs and non-HCEs be comparable.

Contributions may be as high as necessary to fund those benefits. Therefore, a company may make sizable contributions on behalf of owner/employees approaching retirement (often as much as three or four times defined contribution limits), and relatively smaller contributions on behalf of younger, lower-paid employees.

There are some potential risks. The most notable one is that, unlike with profit-sharing plans, you can’t reduce or suspend contributions during difficult years. So, before implementing a cash balance plan, it’s critical to ensure that your company’s cash flow will be steady enough to meet its funding obligations.

Right for you?

Although cash balance plans can be more expensive than defined contribution plans, they’re a great way to turbocharge your retirement savings. We can help you decide whether one might be right for you.

Critical connection: How costs impact pricing

Posted by Admin Posted on Oct 04 2017

As we head toward year end, your company may be reviewing its business strategy for 2017 or devising plans for 2018. As you do so, be sure to give some attention to the prices you’re asking for your existing products and services, as well as those you plan to launch in the near future.

The cost of production is a logical starting point. After all, if your prices don’t exceed costs over the long run, your business will fail. This critical connection demands regular re-evaluation.v

Reconsider everything

One simple way to assess costs is to apply a desired “markup” percentage to your expected costs. For example, if it costs $1 to produce a widget and you want to achieve a 10% return, your selling price should be $1.10.

Of course, you’ve got to factor more than just direct materials and labor into the equation. You should consider all of the costs of producing, marketing and distributing your products, including overhead expenses. Some indirect costs, such as sales commissions and shipping, vary based on the number of units you sell. But most are fixed in the current accounting period, including rent, research and development, depreciation, insurance, and selling and administrative salaries.

“Product costing” refers to the process of spreading these variable and fixed costs over the units you expect to sell. The trick to getting this allocation right is to accurately predict demand.

Deliberate over demand

Changing demand is an important factor to consider. Incurring higher costs in the short term may be worth it if you reasonably believe that rising customer demand will eventually enable you to cover expenses and turn a profit. In other words, rising demand can reduce per-unit costs and increase margin.

Determining the number of units people will buy is generally easier when you’re:

  • Re-evaluating the prices of existing products that have a predictable sales history, or
  • Setting the price for a new product that’s similar to your existing products.

Forecasting demand for a new product that’s a lot different from your current product line can be extremely challenging — especially if there’s nothing like it in the marketplace. But if you don’t factor customer and market considerations into your pricing decisions, you could be missing out on money-making opportunities.

Check your wiring

Like an electrical outlet and plug, the connection between costs and pricing can grow loose over time and sometimes short out completely. Don’t risk operating in the dark. Our firm can help you make pricing decisions that balance ambitiousness and reason.

“Bunching” medical expenses will be a tax-smart strategy for many in 2017

Posted by Admin Posted on Oct 03 2017

Various limits apply to most tax deductions, and one type of limit is a “floor,” which means expenses are deductible only if they exceed that floor (typically a specific percentage of your income). One example is the medical expense deduction.

Because it can be difficult to exceed the floor, a common strategy is to “bunch” deductible medical expenses into a particular year where possible. If tax reform legislation is signed into law, it might be especially beneficial to bunch deductible medical expenses into 2017.

The deduction

Medical expenses that aren’t reimbursable by insurance or paid through a tax-advantaged account (such as a Health Savings Account or Flexible Spending Account) may be deductible — but only to the extent that they exceed 10% of your adjusted gross income. The 10% floor applies for both regular tax and alternative minimum tax (AMT) purposes.

Beginning in 2017, even taxpayers age 65 and older are subject to the 10% floor. Previously, they generally enjoyed a 7.5% floor, except for AMT purposes, where they were also subject to the 10% floor.

Benefits of bunching

By bunching nonurgent medical procedures and other controllable expenses into alternating years, you may increase your ability to exceed the applicable floor. Controllable expenses might include prescription drugs, eyeglasses and contact lenses, hearing aids, dental work, and elective surgery.

Normally, if it’s looking like you’re close to exceeding the floor in the current year, it’s tax-smart to consider accelerating controllable expenses into the current year. But if you’re far from exceeding the floor, the traditional strategy is, to the extent possible (without harming your or your family’s health), to put off medical expenses until the next year, in case you have enough expenses in that year to exceed the floor.

However, in 2017, sticking to these traditional strategies might not make sense.

Possible elimination?

The nine-page “Unified Framework for Fixing Our Broken Tax Code” that President Trump and congressional Republicans released on September 27 proposes a variety of tax law changes. Among other things, the framework calls for increasing the standard deduction and eliminating “most” itemized deductions. While the framework doesn’t specifically mention the medical expense deduction, the only itemized deductions that it specifically states would be retained are those for home mortgage interest and charitable contributions.

If an elimination of the medical expense deduction were to go into effect in 2018, there could be a significant incentive for individuals to bunch deductible medical expenses into 2017. Even if you’re not close to exceeding the floor now, it could be beneficial to see if you can accelerate enough qualifying expense into 2017 to do so.

Keep in mind that tax reform legislation must be drafted, passed by the House and Senate and signed by the President. It’s still uncertain exactly what will be included in any legislation, whether it will be passed and signed into law this year, and, if it is, when its provisions would go into effect. For more information on how to bunch deductions, exactly what expenses are deductible, or other ways tax reform legislation could affect your 2017 year-end tax planning, please contact us.

Bridging the divide with a mezzanine loan

Posted by Admin Posted on Sept 27 2017

In their efforts to grow and succeed, many companies eventually reach the edge of a precipice. Across the divide lies a big step forward — perhaps the acquisition of a competitor or the purchase of a new property — but, financially, there’s no way across. The money is just not there.

One way to bridge that divide is with a mezzanine loan. These instruments (also known as junior liens and second liens) can bridge financing shortfalls — so long as you meet certain qualifications and can accept possible risks.

Debt/equity hybrid

Mezzanine financing works by layering a junior loan on top of a senior (or primary) loan. It combines aspects of senior secured debt from a bank and equity obtained from direct investors. Sources of mezzanine financing can include private equity groups, mutual funds, insurance companies and buyout firms.

Unlike bank loans, mezzanine debt typically is unsecured by the borrower’s assets or has liens subordinate to other lenders. So the cost of obtaining financing is higher than that of a senior loan.

However, the cost generally is lower than what’s required to acquire funding purely from equity investment. Yet most mezzanine instruments do enable the lender to participate in the borrowing company’s success — or failure. Generally, the lower your interest rate, the more equity you must offer. Importantly, mezzanine debt may even convert to equity if the borrower doesn’t repay it on time.

Advantages and drawbacks

The primary advantage of mezzanine financing is that it can provide capital when you can’t obtain it elsewhere or can’t qualify for the amount you’re looking for. This is why it’s often referred to as a “bridge” to undertaking ambitious objectives such as a business acquisition or desirable piece of commercial property. But mezzanine loans aren’t necessarily an option of last resort. Many companies prefer the flexibility of these loans when it comes to negotiating terms.

Naturally, mezzanine loans have drawbacks to consider. In addition to having higher interest rates, mezzanine financing has a few other potential disadvantages. Loan covenants can be restrictive. And though some lenders are relatively hands-off, they may retain the right to a significant say in company operations — particularly if you don’t repay the loan in a timely manner.

Mezzanine financing can also make an M&A deal more complicated. It introduces an extra interested party to the negotiation table and can make an already tricky deal that much harder.

Best financing decisions

If your company qualifies for mezzanine financing, it might help you close a deal that you otherwise couldn’t. But there are other options to consider. We can help you make the best financing decisions.

Investors: Beware of the wash sale rule

Posted by Admin Posted on Sept 26 2017

A tried-and-true tax-saving strategy for investors is to sell assets at a loss to offset gains that have been realized during the year. So if you’ve cashed in some big gains this year, consider looking for unrealized losses in your portfolio and selling those investments before year end to offset your gains. This can reduce your 2017 tax liability.

But what if you expect an investment that would produce a loss if sold now to not only recover but thrive in the future? Or perhaps you simply want to minimize the impact on your asset allocation. You might think you can simply sell the investment at a loss and then immediately buy it back. Not so fast: You need to beware of the wash sale rule.

The rule up close

The wash sale rule prevents you from taking a loss on a security if you buy a substantially identical security (or an option to buy such a security) within 30 days before or after you sell the security that created the loss. You can recognize the loss only when you sell the replacement security.

Keep in mind that the rule applies even if you repurchase the security in a tax-advantaged retirement account, such as a traditional or Roth IRA.

Achieving your goals

Fortunately, there are ways to avoid the wash sale rule and still achieve your goals:

  • Sell the security and immediately buy shares of a security of a different company in the same industry or shares in a mutual fund that holds securities much like the ones you sold.
  • Sell the security and wait 31 days to repurchase the same security.
  • Before selling the security, purchase additional shares of that security equal to the number you want to sell at a loss. Then wait 31 days to sell the original portion.

 

If you have a bond that would generate a loss if sold, you can do a bond swap, where you sell a bond, take a loss and then immediately buy another bond of similar quality and duration from a different issuer. Generally, the wash sale rule doesn’t apply because the bonds aren’t considered substantially identical. Thus, you can achieve a tax loss with virtually no change in economic position.

For more ideas on saving taxes on your investments, please contact us.

2 ways spouse-owned businesses can reduce their self-employment tax bill

Posted by Admin Posted on Sept 26 2017

If you own a profitable, unincorporated business with your spouse, you probably find the high self-employment (SE) tax bills burdensome. An unincorporated business in which both spouses are active is typically treated by the IRS as a partnership owned 50/50 by the spouses. (For simplicity, when we refer to “partnerships,” we’ll include in our definition limited liability companies that are treated as partnerships for federal tax purposes.)

For 2017, that means you’ll each pay the maximum 15.3% SE tax rate on the first $127,200 of your respective shares of net SE income from the business. Those bills can mount up if your business is profitable. To illustrate: Suppose your business generates $250,000 of net SE income in 2017. Each of you will owe $19,125 ($125,000 × 15.3%), for a combined total of $38,250.

Fortunately, there are ways spouse-owned businesses can lower their combined SE tax hit. Here are two.

1. Establish that you don’t have a spouse-owned partnership

While the IRS creates the impression that involvement by both spouses in an unincorporated business automatically creates a partnership for federal tax purposes, in many cases, it will have a tough time making the argument — especially when:

  • The spouses have no discernible partnership agreement, and
  • The business hasn’t been represented as a partnership to third parties, such as banks and customers.

 

If you can establish that your business is a sole proprietorship (or a single-member LLC treated as a sole proprietorship for tax purposes), only the spouse who is considered the proprietor owes SE tax.

Let’s assume the same facts as in the previous example, except that your business is a sole proprietorship operated by one spouse. Now you have to calculate SE tax for only that spouse. For 2017, the SE tax bill is $23,023 [($127,200 × 15.3%) + ($122,800 × 2.9%)]. That’s much less than the combined SE tax bill from the first example ($38,250).

 

2. Establish that you don’t have a 50/50 spouse-owned partnership

Even if you do have a spouse-owned partnership, it’s not a given that it’s a 50/50 one. Your business might more properly be characterized as owned, say, 80% by one spouse and 20% by the other spouse, because one spouse does much more work than the other.

Let’s assume the same facts as in the first example, except that your business is an 80/20 spouse-owned partnership. In this scenario, the 80% spouse has net SE income of $200,000, and the 20% spouse has net SE income of $50,000. For 2017, the SE tax bill for the 80% spouse is $21,573 [($127,200 × 15.3%) + ($72,800 × 2.9%)], and the SE tax bill for the 20% spouse is $7,650 ($50,000 × 15.3%). The combined total SE tax bill is only $29,223 ($21,573 + $7,650).

More-complicated strategies are also available. Contact us to learn more about how you can reduce your spouse-owned business’s SE taxes.

Don’t let “founder’s syndrome” impede your succession plan

Posted by Admin Posted on Sept 21 2017

Are you the founder of your company? If so, congratulations — you’ve created something truly amazing! And it’s more than understandable that you’d want to protect your legacy: the company you created.

But, as time goes on, it becomes increasingly important that you give serious thought to a succession plan. When this topic comes up, many business owners show signs of suffering from an all-too-common affliction.

The symptoms

In the nonprofit sphere, they call it “founder’s syndrome.” The term refers to a set of “symptoms” indicating that an organization’s founder maintains a disproportionate amount of power and influence over operations. Although founder’s syndrome is usually associated with not-for-profits, it can give business owners much to think about as well. Common symptoms include:

  • Continually making important decision without input from others,
  • Recruiting or promoting employees who will act primarily out of loyalty to the founder,
  • Failing to mentor others in leadership matters, and
  • Being unwilling to begin creating a succession plan.

 

It’s worth noting that a founder’s reluctance to loosen his or her grip isn’t necessarily because of a power-hungry need to control. Many founders simply fear that the organization — whether nonprofit or business — would falter without their intensive oversight.

 

Treatment plan

The good news is that founder’s syndrome is treatable. The first step is to address whether you yourself are either at risk for the affliction or already suffering from it. Doing so can be uncomfortable, but it’s critical. Here are some advisable actions:

Form a succession plan. This is a vital measure toward preserving the longevity of any company. If you’d prefer not involve anyone in your business just yet, consider a professional advisor or consultant.

Prepare for the transition, no matter how far away. Remember that a succession plan doesn’t necessarily spell out the end of your involvement in the company. It’s simply a transformation of role. Your vast knowledge and experience needs to be documented so the business can continue to benefit from it.

Ask for help. Your management team may need to step up its accountability as the succession plan becomes more fully formed. Managers must educate themselves about the organization in any areas where they’re lacking.

In addition to transferring leadership responsibilities, there’s the issue of transferring your ownership interests, which is also complex and requires careful planning.

Blood, sweat and tears

You’ve no doubt invested the proverbial blood, sweat and tears into launching your business and overseeing its growth. But planning for the next generation of leadership is, in its own way, just as important as the company itself. Let us help you develop a succession plan that will help ensure the long-term well-being of your business.

Why you should boost your 401(k) contribution rate between now and year end

Posted by Admin Posted on Sept 19 2017

One important step to both reducing taxes and saving for retirement is to contribute to a tax-advantaged retirement plan. If your employer offers a 401(k) plan, contributing to that is likely your best first step.

If you’re not already contributing the maximum allowed, consider increasing your contribution rate between now and year end. Because of tax-deferred compounding (tax-free in the case of Roth accounts), boosting contributions sooner rather than later can have a significant impact on the size of your nest egg at retirement.

Traditional 401(k)

A traditional 401(k) offers many benefits:

  • Contributions are pretax, reducing your modified adjusted gross income (MAGI), which can also help you reduce or avoid exposure to the 3.8% net investment income tax.
  • Plan assets can grow tax-deferred — meaning you pay no income tax until you take distributions.
  • Your employer may match some or all of your contributions pretax.

For 2017, you can contribute up to $18,000. So if your current contribution rate will leave you short of the limit, try to increase your contribution rate through the end of the year to get as close to that limit as you can afford. Keep in mind that your paycheck will be reduced by less than the dollar amount of the contribution, because the contributions are pre-tax so income tax isn’t withheld.

If you’ll be age 50 or older by December 31, you can also make “catch-up” contributions (up to $6,000 for 2017). So if you didn’t contribute much when you were younger, this may allow you to partially make up for lost time. Even if you did make significant contributions before age 50, catch-up contributions can still be beneficial, allowing you to further leverage the power of tax-deferred compounding

Roth 401(k)

Employers can include a Roth option in their 401(k) plans. If your plan offers this, you can designate some or all of your contribution as Roth contributions. While such contributions don’t reduce your current MAGI, qualified distributions will be tax-free.

Roth 401(k) contributions may be especially beneficial for higher-income earners, because they don’t have the option to contribute to a Roth IRA. On the other hand, if you expect your tax rate to be lower in retirement, you may be better off sticking with traditional 401(k) contributions.

Finally, keep in mind that any employer matches to Roth 401(k) contributions will be pretax and go into your traditional 401(k) account.

How much and which type

Have questions about how much to contribute or the best mix between traditional and Roth contributions? Contact us. We’d be pleased to discuss the tax and retirement-saving considerations with you.

How profitable are your customers?

Posted by Admin Posted on Sept 13 2017

“We love our customers!” Every business owner says it. But all customers aren’t created equal, and it’s in your strategic interest to know which customers are really strengthening your bottom line and by how much.

Sorting out the data

If your business systems track individual customer purchases, and your accounting system has good cost accounting or decision support capabilities, determining individual customer profitability will be simple. If you have cost data for individual products, but not at the customer level, you can manually “marry” product-specific purchase history with the cost data to determine individual customer value.

For example, if a customer purchased 10 units of Product 1 and five units of Product 2 last year, and Product 1 had a margin of $100 and Product 2 had a margin of $500, the total margin generated by the customer would be $3,500. Be sure to include data from enough years to even out normal fluctuations in purchases.

Don’t maintain cost data? No worries; you can sort the good from the bad by reviewing customer purchase volume and average sale price. Often, such data can be supplemented by general knowledge of the relative profitability of different products. Be sure that sales are net of any returns.

Incorporating indirect costs

High marketing, handling, service or billing costs for individual customers or segments of customers can have a significant effect on their profitability even if they purchase high-margin products. If you use activity-based costing, your company will already have this information allocated accurately.

If you don’t track individual customers, you can still generalize this analysis to customer segments or products. For instance, if a group of customers is served by the same distributor, you can estimate the resources used to support that channel and their associated costs. Or, you can have individual departments track employees’ time by customer or product for a specific period.

Knowing their value

There’s nothing wrong with loving your customers. But it’s even more important to know them and how much value they’re contributing to your profitability from operating period to operating period. Contact us for help breaking down the numbers.

2017 Q4 tax calendar: Key deadlines for businesses and other employers

Posted by Admin Posted on Sept 11 2017

Here are some of the key tax-related deadlines affecting businesses and other employers during the fourth quarter of 2017. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

October 16

If a calendar-year C corporation that filed an automatic six-month extension:

  • File a 2016 income tax return (Form 1120) and pay any tax, interest and penalties due.
  • Make contributions for 2016 to certain employer-sponsored retirement plans.

October 31

  • Report income tax withholding and FICA taxes for third quarter 2017 (Form 941) and pay any tax due. (See exception below.)

November 13

  • Report income tax withholding and FICA taxes for third quarter 2017 (Form 941), if you deposited on time and in full all of the associated taxes due.

December 15

  • If a calendar-year C corporation, pay the fourth installment of 2017 estimated income taxes.

5 ways to dance through digital disruption

Posted by Admin Posted on Sept 06 2017

You’ve probably heard the term and wondered whether it could happen to your company. Maybe it already has. We’re referring to “digital disruption” — when new technologies and business models affect the value proposition of existing goods and services.

Perhaps the most notorious recent example of this is the rise of ride-sharing companies such as Uber and Lyft, which have turned the taxi industry on its ear. But it’s hardly a fait accompli that a business will fall flat on its face because of digital disruption. You may be able to dance right through it with the right digital transformation strategy. Here are five steps to consider:

1. Focus on customers. Businesses often view the world through the filters of marketing, sales and maximized revenues. Instead of thinking about business success, target the customer experience.

2. Make analytics your friend. Develop a strategy to access, analyze and use that data. Tap the brains of analysts who can think outside the box of departmental silos in order to combine all types of data, including point of sale, sensors and machines, logs and social streams. Then use that big data to innovate.

3. Unify operations. Best-practice organizations assess digital requirements from across the business and then set objectives. Most organizations have multiple teams and departments involved in digital transformation. It’s crucial to ensure that all of your business is aligned and operating toward the digital goals you’ve defined.

4. Think visually. Data visualization is the ability to see various data in a variety of formats such as charts, graphs or other representations. Infographics often play a role in visualization. If your company has a hard time understanding how data can be used to drive digital transformation, consult an advisor who can help you leverage this critical information.

5. Be nimble. By the time a project is completed, the market and customer requirements have often changed. To avoid this problem, develop digital agility that will let your business embrace operational changes as a matter of routine by using digital technologies. Digital agility is rooted in the concept of learn, launch, relearn and relaunch.

Digital disruption — and transformation, for that matter — are very much the new normal. We can help you crunch the numbers and target the trends that enable you to waltz around trouble and boogie your way to continued success.

Tax planning critical when buying a business

Posted by Admin Posted on Sept 05 2017

If you acquire a company, your to-do list will be long, which means you can’t devote all of your time to the deal’s potential tax implications. However, if you neglect tax issues during the negotiation process, the negative consequences can be serious. To improve the odds of a successful acquisition, it’s important to devote resources to tax planning before your deal closes.

Complacency can be costly

During deal negotiations, you and the seller should discuss such issues as whether and how much each party can deduct their transaction costs and how much in local, state and federal tax obligations the parties will owe upon signing the deal. Often, deal structures (such as asset sales) that typically benefit buyers have negative tax consequences for sellers and vice versa. So it’s common for the parties to wrangle over taxes at this stage.

Just because you seem to have successfully resolved tax issues at the negotiation stage doesn’t mean you can become complacent. With adequate planning, you can spare your company from costly tax-related surprises after the transaction closes and you begin to integrate the acquired business. Tax management during integration can also help your company capture synergies more quickly and efficiently.

You may, for example, have based your purchase price on the assumption that you’ll achieve a certain percentage of cost reductions via postmerger synergies. However, if your taxation projections are flawed or you fail to follow through on earlier tax assumptions, you may not realize such synergies.

Merging accounting functions

One of the most important tax-related tasks is the integration of your seller’s and your own company’s accounting departments. There’s no time to waste: You generally must file federal and state income tax returns — either as a combined entity or as two separate sets — after the first full quarter following your transaction’s close. You also must account for any short-term tax obligations arising from your acquisition.

To ensure the two departments integrate quickly and are ready to prepare the required tax documents, decide well in advance of closing which accounting personnel you’ll retain. If you and your seller use different tax processing software or follow different accounting methods, choose between them as soon as feasible. Understand that, if your acquisition has been using a different accounting method, you’ll need to revise the company’s previous tax filings to align them with your own accounting system.

The tax consequences of M&A decisions may be costly and could haunt your company for years. We can help you ensure you plan properly and minimize any potentially negative tax consequences.

Find the right path forward with KPIs

Posted by Admin Posted on Aug 30 2017

From the baseball field to the boardroom, statistical analysis has changed various industries nationwide. With proper preparation and guidance, business owners can have at their fingertips a wealth of stats-based insight into how their companies are performing — far beyond the bottom line on an income statement.

The metrics in question are commonly referred to as key performance indicators (KPIs). These formula-based measurements reveal the trends underlying a company’s operations. And seeing those trends can help you find the right path forward and give you fair warning when you’re headed in the wrong direction.

Getting started

A good place to start is with some of the KPIs that apply to most businesses. For example, take current ratio (current assets / current liabilities). It can help you determine your capacity to meet your short-term liabilities with cash and other relatively liquid assets.

Another KPI to regularly calculate is working capital turnover ratio (revenue / average working capital). Many companies struggle with temperamental cash flows that can wax and wane based on buying trends or seasonal fluctuations. This ratio shows the amount of revenue supported by each dollar of net working capital used.

Debt is also an issue for many businesses. You can monitor your debt-to-equity (total debt / net worth) ratio to measure your degree of leverage. The higher the ratio, the greater the risk that creditors are assuming and the tougher it may be to obtain financing.

Choosing wisely

There are many other KPIs we could discuss. The exact ones you should look at depend on the size of your company and the nature of its work. Please contact our firm for help choosing the right KPIs and calculating them accurately.

The ABCs of the tax deduction for educator expenses

Posted by Admin Posted on Aug 30 2017

At back-to-school time, much of the focus is on the students returning to the classroom — and on their parents buying them school supplies, backpacks, clothes, etc., for the new school year. But let’s not forget about the teachers. It’s common for teachers to pay for some classroom supplies out of pocket, and the tax code provides a special break that makes it a little easier for these educators to deduct some of their expenses.

The miscellaneous itemized deductionstrong>

Generally, your employee expenses are deductible if they’re unreimbursed by your employer and ordinary and necessary to your business of being an employee. An expense is ordinary if it is common and accepted in your business. An expense is necessary if it is appropriate and helpful to your business.

These expenses must be claimed as a miscellaneous itemized deduction and are subject to a 2% of adjusted gross income (AGI) floor. This means you’ll enjoy a tax benefit only if all your deductions subject to the floor, combined, exceed 2% of your AGI. For many taxpayers, including teachers, this can be a difficult threshold to meet.

The educator expense deductionstrong>

Congress created the educator expense deduction to allow more teachers and other educators to receive a tax benefit from some of their unreimbursed out-of-pocket classroom expenses. The break was made permanent under the Protecting Americans from Tax Hikes (PATH) Act of 2015. Since 2016, the deduction has been annually indexed for inflation (though because of low inflation it hasn’t increased yet) and has included professional development expenses.

Qualifying elementary and secondary school teachers and other eligible educators (such as counselors and principals) can deduct up to $250 of qualified expenses. (If you’re married filing jointly and both you and your spouse are educators, you can deduct up to $500 of unreimbursed expenses — but not more than $250 each.)

Qualified expenses include amounts paid or incurred during the tax year for books, supplies, computer equipment (including related software and services), other equipment and supplementary materials that you use in the classroom. For courses in health and physical education, the costs for supplies are qualified expenses only if related to athletics.

An added benefitstrong>

The educator expense deduction is an “above-the-line” deduction, which means you don’t have to itemize and it reduces your AGI, which has an added benefit: Because AGI-based limits affect a variety of tax breaks (such as the previously mentioned miscellaneous itemized deductions), lowering your AGI might help you maximize your tax breaks overall.

Contact us for more details about the educator expense deduction or tax breaks available for other work-related expenses.

Larger deduction might be available to businesses providing meals to their employees

Posted by Admin Posted on Aug 29 2017

When businesses provide meals to their employees, generally their deduction is limited to 50%. But there are exceptions. One is if the meal qualifies as a de minimis fringe benefit under the Internal Revenue Code.

A recent U.S. Tax Court ruling could ultimately mean that more employer-provided meals will be 100% deductible under this exception. The court found that the Boston Bruins hockey team’s pregame meals to players and personnel at out-of-town hotels qualified as a de minimis fringe benefit.

Qualifying requirements

For meals to qualify as a de minimis fringe benefit, generally they must be occasional and have so little value that accounting for them would be unreasonable or administratively impracticable. But meals provided at an employer-operated eating facility for employees can also qualify.

For meals at an employer-operated facility, one requirement is that they be provided in a nondiscriminatory manner: Access to the eating facility must be available “on substantially the same terms to each member of a group of employees, which is defined under a reasonable classification set up by the employer that doesn’t discriminate in favor of highly compensated employees.”

Assuming that definition is met, employee meals generally constitute a de minimis fringe benefit if the following conditions also are met:

  1. The eating facility is owned or leased by the employer.
  2. The facility is operated by the employer.
  3. The facility is located on or near the business premises of the employer.
  4. The meals furnished at the facility are provided during, or immediately before or after, the employee’s workday.

The meals generally also must be furnished for the convenience of the employer rather than primarily as a form of additional compensation.

On the road

What’s significant about the Bruins case is that the meals were provided at hotels while the team was on the road. The Tax Court determined that the Bruins met all of the de minimis tests related to an employer-operated facility for their away-game team meals. The court’s reasoning included the following:

  • Pregame meals were made available to all Bruins traveling hockey employees (highly compensated, non-highly compensated, players and nonplayers) on substantially the same terms.
  • The Bruins agreements with the hotels were substantively leases.
  • Away-city hotels were part of the Bruins’ business premises, because staying at out-of-town hotels was necessary for the teams to prepare for games, maintain a successful hockey operation and navigate the rigors of an NHL-mandated schedule.
  • For every breakfast and lunch, traveling hockey employees were required to be present in the meal rooms.
  • The meals were furnished for the convenience of the Bruins.

If your business provides meals under similar circumstances, it’s possible you might also be eligible for a 100% deduction. But be aware that the facts of this case are specific and restrictive. Also the IRS could appeal, and an appeals court could rule differently.

Questions about deducting meals you’re providing to employees? Contact us.

Ensuring a peaceful succession with a buy-sell agreement

Posted by Admin Posted on Aug 25 2017

A buy-sell agreement is a critical component of succession planning for many businesses. It sets the terms and conditions under which an owner’s business interest can be sold to another owner (or owners) should an unexpected tragedy or turn of events occurs. It also establishes the method for determining the price of the interest.

This may sound cut and dried. And a properly conceived, well-written buy-sell agreement should be — it is, after all, a legal document. But there’s a human side to these arrangements as well. And it’s one that you shouldn’t underestimate.

Turmoil and conflicts

A business owner’s unexpected death or disability can lead to turmoil and potential conflicts between the surviving owners and the deceased or disabled owner’s family members. Such disorder has the potential of disrupting normal business operations and can result in instability for employees, customers, creditors, investors and other stakeholders.

A buy-sell agreement ensures that an owner’s heirs are fairly compensated for the deceased owner’s business ownership interest based on a predetermined method. The other owners, meanwhile, don’t have to worry about the deceased’s spouse (or other family members) becoming unwilling (and unknowledgeable) co-owners. And employees will benefit from less workplace stress and disruption than would otherwise be caused if an owner dies or becomes disabled.

Spousal matters

Indeed, among the worst potential succession-planning scenarios is when a deceased or disabled owner’s spouse becomes an unwilling participant in the business. Without a properly structured buy-sell agreement in place, the spouse could be thrown into this situation — even if he or she knows little about the business and doesn’t want to actively participate in running it.

There’s also the less tragic, though still difficult, possibility of divorce. When a business owner and his or her spouse decide to end their marriage, the ramifications on the business can be enormous. A buy-sell helps clarify everyone’s rights and holdings.

Great benefits

Ownership successions are rarely easy — even under the best of circumstances. These transitions can go much more peacefully with a sound buy-sell agreement in place. Please contact us for help with the tax and financial aspects of drawing one up.

Yes, you can undo a Roth IRA conversion

Posted by Admin Posted on Aug 22 2017

Converting a traditional IRA to a Roth IRA can provide tax-free growth and the ability to withdraw funds tax-free in retirement. But what if you convert a traditional IRA — subject to income taxes on all earnings and deductible contributions — and then discover that you would have been better off if you hadn’t converted it? Fortunately, it’s possible to undo a Roth IRA conversion, using a “recharacterization.”

Reasons to recharacterize

There are several possible reasons to undo a Roth IRA conversion. For example:

  • You lack sufficient liquid funds to pay the tax liability.
  • The conversion combined with your other income has pushed you into a higher tax bracket.
  • You expect your tax rate to go down either in the near future or in retirement.
  • The value of your account has declined since the conversion, which means you would owe taxes partially on money you no longer have.

Generally, when you convert to a Roth IRA, if you extend your tax return, you have until October 15 of the following year to undo it. (For 2016 returns, the extended deadline is October 16 because the 15th falls on a weekend in 2017.)

In some cases it can make sense to undo a Roth IRA conversion and then redo it. If you want to redo the conversion, you must wait until the later of 1) the first day of the year following the year of the original conversion, or 2) the 31st day after the recharacterization.

Keep in mind that, if you reversed a conversion because your IRA’s value declined, there’s a risk that your investments will bounce back during the waiting period. This could cause you to reconvert at a higher tax cost.

Recharacterization in action

Nick had a traditional IRA with a balance of $100,000. In 2016, he converted it to a Roth IRA, which, combined with his other income for the year, put him in the 33% tax bracket. So normally he’d have owed $33,000 in federal income taxes on the conversion in April 2017. However, Nick extended his return and, by September 2017, the value of his account drops to $80,000.

On October 1, Nick recharacterizes the account as a traditional IRA and files his return to exclude the $100,000 in income. On November 1, he reconverts the traditional IRA, whose value remains at $80,000, to a Roth IRA. He’ll report that amount on his 2017 tax return. This time, he’ll owe $26,400 — deferred for a year and resulting in a tax savings of $6,600. If the $20,000 difference in income keeps him in the 28% tax bracket or tax reform legislation is signed into law that reduces rates retroactively to January 1, 2017, he could save even more.

If you convert a traditional IRA to a Roth IRA, monitor your financial situation. If the advantages of the conversion diminish, we can help you assess your options.

Could captive insurance reduce health care costs and save your business taxes?

Posted by Admin Posted on Aug 22 2017

If your business offers health insurance benefits to employees, there’s a good chance you’ve seen a climb in premium costs in recent years — perhaps a dramatic one. To meet the challenge of rising costs, some employers are opting for a creative alternative to traditional health insurance known as “captive insurance.” A captive insurance company generally is wholly owned and controlled by the employer. So it’s essentially like forming your own insurance company. And it provides tax advantages, too.

Benefits abound

Potential benefits of forming a captive insurance company include:

  • Stabilized or lower premiums,
  • More control over claims,
  • Lower administrative costs, and
  • Access to certain types of coverage that are unavailable or too expensive on the commercial health insurance market.

You can customize your coverage package and charge premiums that more accurately reflect your business’s true loss exposure.

Another big benefit is that you can participate in the captive’s underwriting profits and investment income. When you pay commercial health insurance premiums, a big chunk of your payment goes toward the insurer’s underwriting profit. But when you form a captive, you retain this profit through the captive.

Also, your business can enjoy investment and cash flow benefits by investing premiums yourself instead of paying them to a commercial insurer.

Tax impact

A captive insurance company may also save you tax dollars. For example, premiums paid to a captive are tax-deductible and the captive can deduct most of its loss reserves. To qualify for federal income tax purposes, a captive must meet several criteria. These include properly priced premiums based on actuarial and underwriting considerations and a sufficient level of risk distribution as determined by the IRS.

Recent U.S. Tax Court rulings have determined that risk distribution exists if there’s a large enough pool of unrelated risks — or, in other words, if risk is spread over a sufficient number of employees. This is true regardless of how many entities are involved.

Additional tax benefits may be available if your captive qualifies as a “microcaptive” (a captive with $2.2 million or less in premiums that meets certain additional tests): You may elect to exclude premiums from income and pay taxes only on net investment income. Be aware, however, that you’ll lose certain deductions with this election.

Also keep in mind that there are some potential drawbacks to forming a captive insurance company. Contact us to learn more about the tax treatment and other pros and cons of captive insurance. We can help you determine whether this alternative may be right for your business.

Back-to-school marketing ideas for savvy business owners

Posted by Admin Posted on Aug 16 2017

August is back-to-school time across the country. Whether the school buses are already rumbling down your block, or will be soon, the start of the school year brings marketing opportunities for savvy business owners. Here are some examples of ways companies can promote themselves.

An education break

A creative agency posts on social media a vibrant photographic slideshow of employees and their children on the first day of school. It gives the parents an opportunity to show off their kids — and creates a buzz on the agency’s Facebook page.

The brag book’s innovative design also demonstrates the agency’s creative skills in a fun, personal way. And it helps attract talent by showcasing the company’s fun, family-friendly atmosphere.

Promos for parents

In August, many parents are in the midst of desperately trying to complete checklists of required school supply purchases. To help them cope, a home remodeling / landscape business offers free school supplies with every estimate completed during the month.

Customers receive colorful bags containing relatively inexpensive items such as pencils, pens, pads of paper and glue sticks all stamped with the company’s logo. And even though every estimate won’t result in a new job, completing more estimates helps create an uptick in fall projects.

Freebies for students

During the first week of school, a suburban burger joint offers students a free milkshake with the purchase of a burger. Kids love milkshakes and, because the freebie is associated with a purchase, the business preserves its profitability.

Meanwhile, the promotion brings entire families into the restaurant — widening the customer base and adding revenue. The campaign creates goodwill in the community by nurturing students’ enthusiasm for the beginning of the school year, too.

Determine what’s right for you

Obviously, these examples are industry-specific. But we hope you find them informative and inspirational. Our firm can help you leverage smart marketing moves to strengthen profitability and add long-term value to your business.

How to determine if you need to worry about estate taxes

Posted by Admin Posted on Aug 16 2017

Among the taxes that are being considered for repeal as part of tax reform legislation is the estate tax. This tax applies to transfers of wealth at death, hence why it’s commonly referred to as the “death tax.” Its sibling, the gift tax — also being considered for repeal — applies to transfers during life. Yet most taxpayers won’t face these taxes even if the taxes remain in place.

Exclusions and exemptions

For 2017, the lifetime gift and estate tax exemption is $5.49 million per taxpayer. (The exemption is annually indexed for inflation.) If your estate doesn’t exceed your available exemption at your death, then no federal estate tax will be due.

Any gift tax exemption you use during life does reduce the amount of estate tax exemption available at your death. But every gift you make won’t use up part of your lifetime exemption. For example:

  • Gifts to your U.S. citizen spouse are tax-free under the marital deduction. (So are transfers at death — that is, bequests.)
  • Gifts and bequests to qualified charities aren’t subject to gift and estate taxes.
  • Payments of another person’s health care or tuition expenses aren’t subject to gift tax if paid directly to the provider.
  • Each year you can make gifts up to the annual exclusion amount ($14,000 per recipient for 2017) tax-free without using up any of your lifetime exemption.

What’s your estate tax exposure?

Here’s a simplified way to project your estate tax exposure. Take the value of your estate, net of any debts. Also subtract any assets that will pass to charity on your death.

Then, if you’re married and your spouse is a U.S. citizen, subtract any assets you’ll pass to him or her. (But keep in mind that there could be estate tax exposure on your surviving spouse’s death, depending on the size of his or her estate.) The net number represents your taxable estate.

You can then apply the exemption amount you expect to have available at death. Remember, any gift tax exemption amount you use during your life must be subtracted. But if your spouse predeceases you, then his or her unused estate tax exemption, if any, may be added to yours (provided the applicable requirements are met).

If your taxable estate is equal to or less than your available estate tax exemption, no federal estate tax will be due at your death. But if your taxable estate exceeds this amount, the excess will be subject to federal estate tax.

Be aware that many states impose estate tax at a lower threshold than the federal government does. So you could have state estate tax exposure even if you don’t need to worry about federal estate tax.

If you’re not sure whether you’re at risk for the estate tax or if you’d like to learn about gift and estate planning strategies to reduce your potential liability, please contact us. We also can keep you up to date on any estate tax law changes.

Put your audit in reverse to save sales and use tax

Posted by Admin Posted on Aug 14 2017

It’s a safe bet that state tax authorities will let you know if you haven’t paid enough sales and use taxes, but what are the odds that you’ll be notified if you’ve paid too much? The chances are slim — so slim that many businesses use reverse audits to find overpayments so they can seek refunds.

Take all of your exemptions

In most states, businesses are exempt from sales tax on equipment used in manufacturing or recycling, and many states don’t require them to pay taxes on the utilities and chemicals used in these processes, either. In some states, custom software, computers and peripherals are exempt if they’re used for research and development projects.

This is just a sampling of sales and use tax exemptions that might be available. Unless you’re diligent about claiming exemptions, you may be missing out on some to which you’re entitled.

Many businesses have sales and use tax compliance systems to guard against paying too much, but if you haven’t reviewed yours recently, it may not be functioning properly. Employee turnover, business expansion or downsizing, and simple mistakes all can take their toll.

Look back and broadly

The audit should extend across your business, going back as far as the statute of limitations on state tax reviews. If your state auditors can review all records for the four years preceding the audit, for example, your reverse audit should encompass the same timeframe.

What types of payments should be reviewed? You may have made overpayments on components of manufactured products as well as on the equipment you use to make the products. Other areas where overpayments may occur, depending on state laws, include:

  • Pollution control equipment and supplies,
  • Safety equipment,
  • Warehouse equipment,
  • Software licenses,
  • Maintenance fees,
  • Protective clothing, and
  • Service transactions.

 

When considering whether you may have overpaid taxes in these and other areas, a clear understanding of your operations is key. If, for example, you want to ensure you’re receiving maximum benefit from industrial processing exemptions, you must know where your manufacturing process begins and ends.

 

Save now and later

Reverse audits can be time consuming and complicated, but a little pain can bring significant gain. Use your reverse audit not only to reap tax refund rewards now but also to update your compliance systems to help ensure you don’t overpay taxes in the future.

Rules and regulations surrounding state sales and use tax refunds are complicated. We can help you understand them and ensure your refund claims are properly prepared before you submit them.

Rev up retirement offerings with an NQDC plan

Posted by Admin Posted on Aug 11 2017

Many business owners and executives would like to save more money for retirement than they’re allowed to sock away in their 401(k) plan. For 2017, the annual elective deferral contribution limit for a 401(k) is just $18,000, or $24,000 if you’re 50 years of age or older.

This represents a significantly lower percentage of the typical owner-employee’s or executive’s salary than the percentage of the average employee’s salary. Therefore, it can be difficult for these highly compensated employees to save enough money to maintain their current lifestyle in retirement. That’s where a nonqualified deferred compensation (NQDC) plan comes in.

Future compensation

NQDC plans enable owner-employees, executives and other highly paid key employees to significantly boost their retirement savings without running afoul of the nondiscrimination rules under the Employee Retirement Income Security Act of 1974 (ERISA). These rules apply to qualified plans, such as 401(k)s, and prevent highly compensated employees from benefiting disproportionately in comparison to rank-and-file employees.

NQDC plans are essentially agreements that the business will pay out at some future time, such as at retirement, compensation that participants earn now. Not only do such plans not have to comply with ERISA nondiscrimination rules, but they aren’t subject to the IRS contribution limits and distribution rules that apply to qualified retirement plans. So businesses can tailor benefit amounts, payment terms and conditions to the participants’ specific needs.

Various types

There are several types of NQDC plans. Among the most common are:

  • Excess benefit plans,
  • Wraparound 401(k) plans,
  • Supplemental executive retirement plans (SERPs),
  • Section 162 executive bonus plans, and
  • Salary-reduction plans.

The key to an NQDC plan: Because the promised compensation hasn’t been transferred to the participants, it’s not yet counted as earned income — and therefore it isn’t currently taxed. This allows the compensation to grow tax-deferred.

Further details

Naturally, there are challenges to consider. NQDC plans are subject to strict rules under Internal Revenue Code Sections 409A and 451, and plan loans generally aren’t allowed. But attracting and retaining top executive talent is a business imperative, and an NQDC plan can help you win the talent race with a powerful benefits package. Please contact our firm for further details.

Will Congress revive expired tax breaks?

Posted by Admin Posted on Aug 08 2017

Most of the talk about possible tax legislation this year has focused on either wide-sweeping tax reform or taxes that are part of the Affordable Care Act. But there are a few other potential tax developments for individuals to keep an eye on.

Back in December of 2015, Congress passed the PATH Act, which made a multitude of tax breaks permanent. However, there were a few valuable breaks for individuals that it extended only through 2016. The question now is whether Congress will extend them for 2017.

An education break

One break the PATH Act extended through 2016 was the above-the-line deduction for qualified tuition and related expenses for higher education. The deduction was capped at $4,000 for taxpayers whose adjusted gross income (AGI) didn’t exceed $65,000 ($130,000 for joint filers) or, for those beyond those amounts, $2,000 for taxpayers whose AGI didn’t exceed $80,000 ($160,000 for joint filers).

You couldn’t take the American Opportunity credit, its cousin the Lifetime Learning credit and the tuition deduction in the same year for the same student. If you were eligible for all three breaks, the American Opportunity credit would typically be the most valuable in terms of tax savings.

But in some situations, the AGI reduction from the tuition deduction might prove more beneficial than taking the Lifetime Learning credit. For example, a lower AGI might help avoid having other tax breaks reduced or eliminated due to AGI-based phaseouts.

Mortgage-related tax breaks

Under the PATH Act, through 2016 you could treat qualified mortgage insurance premiums as interest for purposes of the mortgage interest deduction. The deduction phased out for taxpayers with AGI of $100,000 to $110,000.

The PATH Act likewise extended through 2016 the exclusion from gross income for mortgage loan forgiveness. It also modified the exclusion to apply to mortgage forgiveness that occurs in 2017 as long as it’s granted pursuant to a written agreement entered into in 2016. So even if this break isn’t extended, you might still be able to benefit from it on your 2017 income tax return.

Act now

Please check back with us for the latest information. In the meantime, keep in mind that, if you qualify and you haven’t filed your 2016 income tax return yet, you can take advantage of these breaks on that tax return. The deadline for individual extended returns is October 16, 2017.

Material participation key to deducting LLC and LLP losses

Posted by Admin Posted on Aug 07 2017

If your business is a limited liability company (LLC) or a limited liability partnership (LLP), you know that these structures offer liability protection and flexibility as well as tax advantages. But they once also had a significant tax disadvantage: The IRS used to treat all LLC and LLP owners as limited partners for purposes of the passive activity loss (PAL) rules, which can result in negative tax consequences. Fortunately, these days LLC and LLP owners can be treated as general partners, which means they can meet any one of seven “material participation” tests to avoid passive treatment.

The PAL rules

The PAL rules prohibit taxpayers from offsetting losses from passive business activities (such as limited partnerships or rental properties) against nonpassive income (such as wages, interest, dividends and capital gains). Disallowed losses may be carried forward to future years and deducted from passive income or recovered when the passive business interest is sold.

There are two types of passive activities: 1) trade or business activities in which you don’t materially participate during the year, and 2) rental activities, even if you do materially participate (unless you qualify as a “real estate professional” for federal tax purposes).

The 7 tests

Material participation in this context means participation on a “regular, continuous and substantial” basis. Unless you’re a limited partner, you’re deemed to materially participate in a business activity if you meet just one of seven tests:

  1. You participate in the activity at least 500 hours during the year.
  2. Your participation constitutes substantially all of the participation for the year by anyone, including nonowners.
  3. You participate more than 100 hours and as much or more than any other person.
  4. The activity is a “significant participation activity” — that is, you participate more than 100 hours — but you participate less than one or more other people yet your participation in all of your significant participation activities for the year totals more than 500 hours.
  5. You materially participated in the activity for any five of the preceding 10 tax years.
  6. The activity is a personal service activity in which you materially participated in any three previous tax years.
  7. Regardless of the number of hours, based on all the facts and circumstances, you participate in the activity on a regular, continuous and substantial basis.

The rules are more restrictive for limited partners, who can establish material participation only by satisfying tests 1, 5 or 6.

In many cases, meeting one of the material participation tests will require diligently tracking every hour spent on your activities associated with that business. Questions about the material participation tests? Contact us.

4 tough questions to ask before expanding to a new location

Posted by Admin Posted on Aug 02 2017

Is business going so well that you’re thinking about adding another location? If this is the case, congratulations! But before you start planning the ribbon-cutting ceremony, take a step back and ask yourself some tough questions about whether a new location will grow your company — or stretch it too thin. Here are four to get you started:

1. What’s driving your interest in another location? It’s important to articulate specifically how the new location will help your business move toward its long-term goals. Expanding simply because the time seems right isn’t a compelling enough reason to take on the risk.

2. How solidly is your current location performing? Your time and attention will be diverted while you get the second location up and running. Yet you’ll need to maintain the revenue your first location is generating — especially until the second one is earning enough to support itself. So your original operation needs to be able to operate well with minimal management guidance.

3. How strong is the location you’re considering? Just as you presumably did with your first location, ensure the surrounding market is strong enough to support your company. The setting should complement your business, not pose potentially insurmountable challenges.

Also consider proximity to competitors. In some cases, such as a cluster of restaurants in a small downtown, proximity can help. The area becomes known as a destination for those seeking a night out. But too many competitors could leave you fighting with multiple other businesses for the same small group of customers.

4. Can you expand in other ways that are less costly and risky? You might be able to boost sales by adding inventory or extending hours at your current location. Another option is to revamp your website or mobile app to encourage more online sales.

Investments such as these would likely require a fraction of the dollars needed to open another physical location. Then again, a successful new site could mean a substantial inflow of revenue and additional market visibility. Let us help you crunch the numbers that will lead you to the right decision.

A refresher on the ACA’s tax penalty on individuals without health insurance

Posted by Admin Posted on Aug 01 2017

Now that Affordable Care Act (ACA) repeal and replacement efforts appear to have collapsed, at least for the time being, it’s a good time for a refresher on the tax penalty the ACA imposes on individuals who fail to have “minimum essential” health insurance coverage for any month of the year. This requirement is commonly called the “individual mandate.”

Penalty exemptions

Before we review how the penalty is calculated, let’s take a quick look at exceptions to the penalty. Taxpayers may be exempt if they fit into one of these categories for 2017:

  • Their household income is below the federal income tax return filing threshold.
  • They lack access to affordable minimum essential coverage.
  • They suffered a hardship in obtaining coverage.
  • They have only a short-term coverage gap.
  • They qualify for an exception on religious grounds or have coverage through a health care sharing ministry.
  • They’re not a U.S. citizen or national.
  • They’re incarcerated.
  • They’re a member of a Native American tribe.

Calculating the tax

So how much can the penalty cost? That’s a tricky question. If you owe the penalty, the tentative amount equals the greater of the following two prongs:

1. The applicable percentage of your household income above the applicable federal income tax return filing threshold, or
2. The applicable dollar amount times the number of uninsured individuals in your household, limited to 300% of the applicable dollar amount.

In terms of the percentage-of-income prong of the penalty, the applicable percentage of income is 2.5% for 2017.

In terms of the dollar-amount prong of the penalty, the applicable dollar amount for each uninsured household member is $695 for 2017. For a household member who’s under age 18, the applicable dollar amounts are cut by 50%, to $347.50. The maximum penalty under this prong for 2017 is $2,085 (300% of $695).

The final penalty amount per person can’t exceed the national average cost of “bronze coverage” (the cheapest category of ACA-compliant coverage) for your household. The important thing to know is that a high-income person or household could owe more than 300% of the applicable dollar amount but not more than the cost of bronze coverage.

If you have minimum essential coverage for only part of the year, the final penalty is calculated on a monthly basis using prorated annual figures.

Also be aware that the extent to which the penalty will continue to be enforced isn’t certain. The IRS has been accepting 2016 tax returns even if a taxpayer hasn’t completed the line indicating health coverage status. That said, the ACA is still the law, so compliance is highly recommended. For more information about this and other ACA-imposed taxes, contact us.

6 ways to control your unemployment tax costs

Posted by Admin Posted on July 31 2017

Unemployment tax rates for employers vary from state to state. Your unemployment tax bill may be influenced by the number of former employees who’ve filed unemployment claims with the state, your current number of employees and your business’s age. Typically, the more claims made against a business, the higher the unemployment tax bill.

Here are six ways to control your unemployment tax costs:

  1. Buy down your unemployment tax rate if your state permits it. Some states allow employers to annually buy down their rate. If you’re eligible, this could save you substantial dollars in unemployment taxes.

  2. Hire new staff conservatively. Remember, your unemployment payments are based partly on the number of employees who file unemployment claims. You don’t want to hire employees to fill a need now, only to have to lay them off if business slows. A temporary staffing agency can help you meet short-term needs without permanently adding staff, so you can avoid layoffs. This is also a good way to try out a candidate.

  3. Assess candidates before hiring them. Often it’s worth a small financial investment to have job candidates undergo prehiring assessments to see if they’re the right match for your business and the position available. Hiring carefully will increase the likelihood that new employees will work out.

  4. Train for success. Many unemployment insurance claimants are awarded benefits despite employer assertions that the employee failed to perform adequately. Often this is because the hearing officer concluded the employer hadn’t provided the employee with enough training to succeed in the position.

  5. Handle terminations thoughtfully. If you must terminate an employee, consider giving him or her severance as well as offering outplacement benefits. Severance pay may reduce or delay the start of unemployment insurance benefits. Effective outplacement services may hasten the end of unemployment insurance benefits, because the claimant has found a new job.

  6. Leverage an acquisition. If you’ve recently acquired another company, it may have a lower established tax rate that you can use instead of the tax rate that’s been set for your existing business. You also may be able to request the transfer of the previous company’s unemployment reserve fund balance.

If you have questions about unemployment taxes and how you can reduce them, contact our firm. We’d be pleased to help.

Listening to your customers by tracking lost sales

Posted by Admin Posted on July 26 2017

Sorry, we don’t carry that item.” Or perhaps, “No, that’s not part of our service package.” How many times a year do your salespeople utter these words or ones like them? The specific number is critical because, if you don’t know it, you could be losing out on profit potential.

Although you have to focus on your strengths and not get too far afield, your customers may be crying out for a new product or service. And among the best ways to hear them is to track lost sales data and decipher the message.

3 steps to success

A successful lost sales tracking effort generally involves three steps:

1. Get the data. Ask your sales associates to log every customer request and to question customers further to get at the heart of what they need. Train sales associates to record information such as the date of request, item requested and the reason the item was unavailable.

2. Crunch the numbers. Calculate how much you could sell if you had the new items in stock or offered the additional service. Naturally, you’ll need to bear in mind that meeting customer demand might involve spending money on equipment or personnel to expand your product or service line. Key data points to examine include:

  • Estimated potential purchases,
  • Potential sales losses, and
  • Estimated gross profit losses.

Develop a report that lays out this and other information, so you can see it in black and white.

3. Talk about it. Run a lost sales report monthly and discuss the results with your management team. Seek to establish consensus on where your best strategic opportunities lie. Sometimes you’ll want to be patient and let trends develop before acting. Other times, you might want to strike early to seize an underdeveloped market.

A better grip

Lost sales are lost opportunities. By getting a better grip on your customers’ needs, you can build a stronger bottom line. Please contact us for help creating and maintaining a lost sales tracking system that best suits your company’s distinctive needs.

3 midyear tax planning strategies for individuals

Posted by Admin Posted on July 26 2017

In the quest to reduce your tax bill, year end planning can only go so far. Tax-saving strategies take time to implement, so review your options now. Here are three strategies that can be more effective if you begin executing them midyear:

1. Consider your bracket

The top income tax rate is 39.6% for taxpayers with taxable income over $418,400 (singles), $444,550 (heads of households) and $470,700 (married filing jointly; half that amount for married filing separately). If you expect this year’s income to be near the threshold, consider strategies for reducing your taxable income and staying out of the top bracket. For example, you could take steps to defer income and accelerate deductible expenses. (This strategy can save tax even if you’re not at risk for the 39.6% bracket or you can’t avoid the bracket.)

You could also shift income to family members in lower tax brackets by giving them income-producing assets. This strategy won’t work, however, if the recipient is subject to the “kiddie tax.” Generally, this tax applies the parents’ marginal rate to unearned income (including investment income) received by a dependent child under the age of 19 (24 for full-time students) in excess of a specified threshold ($2,100 for 2017).

2. Look at investment income

This year, the capital gains rate for taxpayers in the top bracket is 20%. If you’ve realized, or expect to realize, significant capital gains, consider selling some depreciated investments to generate losses you can use to offset those gains. It may be possible to repurchase those investments, so long as you wait at least 31 days to avoid the “wash sale” rule.

Depending on what happens with health care and tax reform legislation, you also may need to plan for the 3.8% net investment income tax (NIIT). Under the Affordable Care Act, this tax can affect taxpayers with modified adjusted gross income (MAGI) over $200,000 ($250,000 for joint filers). The NIIT applies to net investment income for the year or the excess of MAGI over the threshold, whichever is less. So, if the NIIT remains in effect (check back with us for the latest information), you may be able to lower your tax liability by reducing your MAGI, reducing net investment income or both.

3. Plan for medical expenses

The threshold for deducting medical expenses is 10% of AGI. You can deduct only expenses that exceed that floor. (The threshold could be affected by health care legislation. Again, check back with us for the latest information.)

Deductible expenses may include health insurance premiums (if not deducted from your wages pretax); long-term care insurance premiums (age-based limits apply); medical and dental services and prescription drugs (if not reimbursable by insurance or paid through a tax-advantaged account); and mileage driven for health care purposes (17 cents per mile driven in 2017). You may be able to control the timing of some of these expenses so you can bunch them into every other year and exceed the applicable floor.

These are just a few ideas for slashing your 2017 tax bill. To benefit from midyear tax planning, consult us now. If you wait until the end of the year, it may be too late to execute the strategies that would save you the most tax.

ESOPs offer businesses tax and other benefits

Posted by Admin Posted on July 25 2017

With an employee stock ownership plan (ESOP), employee participants take part ownership of the business through a retirement savings arrangement. Meanwhile, the business and its existing owner(s) can benefit from some potential tax breaks, an extra-motivated workforce and potentially a smoother path for succession planning.

How ESOPs work

To implement an ESOP, you establish a trust fund and either:

  • Contribute shares of stock or money to buy the stock (an “unleveraged” ESOP), or
  • Borrow funds to initially buy the stock, and then contribute cash to the plan to enable it to repay the loan (a “leveraged” ESOP).

The shares in the trust are allocated to individual employees’ accounts, often using a formula based on their respective compensation. The business has to formally adopt the plan and submit plan documents to the IRS, along with certain forms.

Tax impact

Among the biggest benefits of an ESOP is that contributions to qualified retirement plans such as ESOPs typically are tax-deductible for employers. However, employer contributions to all defined contribution plans, including ESOPs, are generally limited to 25% of covered payroll. In addition, C corporations with leveraged ESOPs can deduct contributions used to pay interest on the loan. That is, the interest isn’t counted toward the 25% limit.

Dividends paid on ESOP stock passed through to employees or used to repay an ESOP loan, so long as they’re reasonable, may be tax-deductible for C corporations. Dividends voluntarily reinvested by employees in company stock in the ESOP also are usually deductible by the business. (Employees, however, should review the tax implications of dividends.)

In another potential benefit, shareholders in some closely held C corporations can sell stock to the ESOP and defer federal income taxes on any gains from the sale, with several stipulations. One is that the ESOP must own at least 30% of the company’s stock immediately after the sale. In addition, the sellers must reinvest the proceeds (or an equivalent amount) in qualified replacement property securities of domestic operation corporations within a set period of time.

Finally, when a business owner is ready to retire or otherwise depart the company, the business can make tax-deductible contributions to the ESOP to buy out the departing owner’s shares or have the ESOP borrow money to buy the shares.

More tax considerations

There are tax benefits for employees, too. Employees don’t pay tax on stock allocated to their ESOP accounts until they receive distributions. But, as with most retirement plans, if they take a distribution before they turn 59½ (or 55, if they’ve terminated employment), they may have to pay taxes and penalties — unless they roll the proceeds into an IRA or another qualified retirement plan.

Also be aware that an ESOP’s tax impact for entity types other than C corporations varies somewhat from what we’ve discussed here. And while an ESOP offers many potential benefits, it also presents risks. For help determining whether an ESOP makes sense for your business, contact us.

Does your business have too much cash?

Posted by Admin Posted on July 20 2017

From the time a business opens its doors, the owner is told “cash is king.” It may seem to follow that having a very large amount of cash could never be a bad thing. But, the truth is, a company that’s hoarding excessive cash may be doing itself more harm than good.

Liquidity overload

What’s the harm in stockpiling cash? Granted, an extra cushion helps weather downturns or fund unexpected repairs and maintenance. But cash has a carrying cost — the difference between the return companies earn on their cash and the price they pay to obtain cash.

For instance, checking accounts often earn no interest, and savings accounts typically generate returns below 2% and in many cases well below 1%. Most cash hoarders simultaneously carry debt on their balance sheets, such as equipment loans, mortgages and credit lines. Borrowers are paying higher interest rates on loans than they’re earning from their bank accounts. This spread represents the carrying cost of cash.

A variety of possibilities

What opportunities might you be missing out on by neglecting to reinvest a cash surplus to earn a higher return? There are a variety of possibilities. You could:

Acquire a competitor (or its assets). You may be in a position to profit from a competitor’s failure. When expanding via acquisition, formal due diligence is key to avoiding impulsive, unsustainable projects.

Invest in marketable securities. As mentioned, cash accounts provide nominal return. More aggressive businesses might consider mutual funds or diversified stock and bond portfolios. A financial planner can help you choose securities. Some companies also use surplus cash to repurchase stock — especially when minority shareholders routinely challenge the owner’s decisions.

Repay debt. This reduces the carrying cost of cash reserves. And lenders look favorably upon borrowers who reduce their debt-to-equity ratios.

Optimal cash balance

Taking a conservative approach to saving up cash isn’t necessarily wrong. But every company has an optimal cash balance that will help safeguard cash flow while allocating dollars for smart spending. Our firm can assist you in identifying and maintaining this mission-critical amount.

Nonqualified stock options demand tax planning attention

Posted by Admin Posted on July 18 2017

Your compensation may take several forms, including salary, fringe benefits and bonuses. If you work for a corporation, you might also receive stock-based compensation, such as stock options. These come in two varieties: nonqualified (NQSOs) and incentive (ISOs). With both NQSOs and ISOs, if the stock appreciates beyond your exercise price, you can buy shares at a price below what they’re trading for.

The tax consequences of these types of compensation can be complex. So smart tax planning is critical. Let’s take a closer look at the tax treatment of NQSOs, and how it differs from that of the perhaps better known ISOs.

Compensation income

NQSOs create compensation income — taxed at ordinary-income rates — on the “bargain element” (the difference between the stock’s fair market value and the exercise price) when exercised. This is regardless of whether the stock is held or sold immediately.

ISOs, on the other hand, generally don’t create compensation income taxed at ordinary rates unless you sell the stock from the exercise without holding it for more than a year, in a “disqualified disposition.” If the stock from an ISO exercise is held more than one year, then generally your lower long-term capital gains tax rate applies when you sell the stock.

Also, NQSO exercises don’t create an alternative minimum tax (AMT) preference item that can trigger AMT liability. ISO exercises can trigger AMT unless the stock is sold in a disqualified disposition (though it’s possible the AMT could be repealed under tax reform legislation).

More tax consequences to consider

When you exercise NQSOs, you may need to make estimated tax payments or increase withholding to fully cover the tax. Otherwise you might face underpayment penalties.

Also keep in mind that an exercise could trigger or increase exposure to top tax rates, the additional 0.9% Medicare tax and the 3.8% net investment income tax (NIIT). These two taxes might be repealed or reduced as part of Affordable Care Act repeal and replace legislation or tax reform legislation, possibly retroactive to January 1 of this year. But that’s still uncertain.

Have tax questions about NQSOs or other stock-based compensation? Let us know — we’d be happy to answer them.

3 midyear tax planning strategies for business

Posted by Admin Posted on July 17 2017

Tax reform has been a major topic of discussion in Washington, but it’s still unclear exactly what such legislation will include and whether it will be signed into law this year. However, the last major tax legislation that was signed into law — back in December of 2015 — still has a significant impact on tax planning for businesses. Let’s look at three midyear tax strategies inspired by the Protecting Americans from Tax Hikes (PATH) Act:

1. Buy equipment.The PATH Act preserved both the generous limits for the Section 179 expensing election and the availability of bonus depreciation. These breaks generally apply to qualified fixed assets, including equipment or machinery, placed in service during the year. For 2017, the maximum Sec. 179 deduction is $510,000, subject to a $2,030,000 phaseout threshold. Without the PATH Act, the 2017 limits would have been $25,000 and $200,000, respectively. Higher limits are now permanent and subject to inflation indexing.

Additionally, for 2017, your business may be able to claim 50% bonus depreciation for qualified costs in excess of what you expense under Sec. 179. Bonus depreciation is scheduled to be reduced to 40% in 2018 and 30% in 2019 before it’s set to expire on December 31, 2019.

2. Ramp up research. After years of uncertainty, the PATH Act made the research credit permanent. For qualified research expenses, the credit is generally equal to 20% of expenses over a base amount that’s essentially determined using a historical average of research expenses as a percentage of revenues. There’s also an alternative computation for companies that haven’t increased their research expenses substantially over their historical base amounts.

In addition, a small business with $50 million or less in gross receipts may claim the credit against its alternative minimum tax (AMT) liability. And, a start-up company with less than $5 million in gross receipts may claim the credit against up to $250,000 in employer Federal Insurance Contributions Act (FICA) taxes.

3. Hire workers from “target groups.” Your business may claim the Work Opportunity credit for hiring a worker from one of several “target groups,” such as food stamp recipients and certain veterans. The PATH Act extended the credit through 2019. It also added a new target group: long-term unemployment recipients.

Generally, the maximum Work Opportunity credit is $2,400 per worker. But it’s higher for workers from certain target groups, such as disabled veterans.

One last thing to keep in mind is that, in terms of tax breaks, “permanent” only means that there’s no scheduled expiration date. Congress could still pass legislation that changes or eliminates “permanent” breaks. But it’s unlikely any of the breaks discussed here would be eliminated or reduced for 2017. To keep up to date on tax law changes and get a jump start on your 2017 tax planning, contact us.

Make sure your company is prepared for any disaster

Posted by Admin Posted on July 11 2017

What could stop your company from operating for a day, a month or a year? A flood or fire? Perhaps a key supplier shuts down temporarily or permanently. Or maybe a hacker or technical problem crashes your website or you suddenly lose power. Whatever the potential cause might be, every business needs a disaster recovery plan.

Distinctive threats

Get started by brainstorming as many scenarios as possible that could devastate your business. The operative word there is “your.” Every company faces distinctive threats related to its size, location(s), and products or services.

There are some constants to consider, however. Seek out alternative suppliers who could fill in for your current ones if necessary. Moreover, identify a strong IT consulting firm with disaster recovery capabilities and have them a phone call away.

The right voice

Another critical factor during and after a crisis is communication, both internal and external. You and most of your management team will need to concentrate on restoring operations, so appoint one manager or other employee with the necessary skills to keep stakeholders abreast of your recovery progress. These parties include:

  • Staff members and their families,
  • Customers,
  • Suppliers,
  • Banks and other financial stakeholders, and
  • Local authorities and community leaders (as appropriate).

He or she should be prepared to spread the word through channels such as your company’s voice mail, email, website, and even traditional and social media.

Fresh eyes

Whatever you do, don’t expect to create a disaster recovery plan and then toss it on a shelf. Revisit the plan at least annually, looking for shortcomings.

You’ll also want to keep your plan fresh in the minds of your employees. Be sure that everyone — including new hires — knows exactly what to do by holding regular meetings on the subject or even conducting an occasional surprise drill. And be prepared to coordinate with fire, police and government officials who might be able to offer assistance during a catastrophe.

Thoughts and concepts

These are just a few thoughts and concepts to consider when designing, implementing and updating your company’s disaster recovery plan. Our firm can help you identify both risks and cost-effective ways to safeguard your employees and assets.

All fringe benefits aren’t created equal for tax purposes

Posted by Admin Posted on July 10 2017

According to IRS Publication 5137, Fringe Benefit Guide, a fringe benefit is “a form of pay (including property, services, cash or cash equivalent), in addition to stated pay, for the performance of services.” But the tax treatment of a fringe benefit can vary dramatically based on the type of benefit.

Generally, the IRS takes one of four tax approaches to fringe benefits:

1. Taxable/includable. The value of benefits in this category are taxable because they must be included in employees’ gross income as wages and reported on Form W-2. They’re usually also subject to federal income tax withholding, Social Security tax (unless the employee has already reached the current year Social Security wage base limit) and Medicare tax. Typical examples include cash bonuses and the personal use of a company vehicle.

2. Nontaxable/excludable. Benefits in this category are considered nontaxable because you may exclude them from employees’ wages under a specific section of the Internal Revenue Code. Examples include:

  • Working-condition fringe benefits, which are expenses that, if employees had paid for the item themselves, could have been deducted on their personal tax returns (such as subscriptions to business periodicals or websites and some types of on-the-job training),
  • De minimis fringe benefits, which include any employer-provided property or service that has a value so small that accounting for it is “unreasonable or administratively impracticable” (such as occasional coffee, doughnuts or soft drinks and permission to make occasional local telephone calls),
  • Properly documented work-related travel expenses (such as transportation and lodging),
  • Up to $50,000 in group term-life insurance, as long as the policy meets certain IRS requirements, and
  • Employer-paid health care premiums under a qualifying plan.

3. Partially taxable. In some cases, the value of a fringe benefit will be excluded under an IRC section up to a certain dollar limit with the remainder taxable. A public transportation subsidy under Section 132 is one example.

4. Tax-deferred. This designation applies to fringe benefits that aren’t taxable when received but that will be subject to tax later. A common example is employer contributions to a defined contribution plan, such as a 401(k) plan.

Are you applying the proper tax treatment to each fringe benefit you provide? If not, you could face unexpected tax liabilities or other undesirable consequences. Please contact us with any questions you have about the proper tax treatment of a particular benefit you currently offer or are considering offering.

Fine-tuning your company’s compensation strategy

Posted by Admin Posted on July 06 2017

As a business evolves, so must its compensation strategy. Hopefully, your company is growing — perhaps adding employees or promoting staff members who are key to your success. But other things can spur the need to fine-tune your compensation strategy as well, such as economic changes or the rise of an intense competitor. A goal for many businesses is to provide equitable compensation.

Do your research

One aspect of equitable compensation is external equity; in other words, making sure compensation is in alignment with industry or regional norms. The U.S. Department of Labor and Bureau of Labor Statistics have a wealth of comparable data on their Web sites (dol.gov and stats.bls.gov, respectively). You might also consult with a professional recruiting firm, some of which offer free or low-cost compensation data.

Granted, job roles within smaller companies make it difficult to directly compare position responsibilities in the market and get reliable salary comparison data. A company’s degree of competitiveness and ability to pay what the market bears can also be challenging.

Yet, to achieve and maintain external equity, you must consider the going market rate. Especially in a business where employees believe they can receive better pay for doing the same job elsewhere, workers have little incentive to remain with an employer — therefore, you must be concerned with external equity.

Pinpoint a range

From both a marketplace perspective and an internal company viewpoint, it’s important to group together jobs of similar value. This also gets at the concept of internal equity, which essentially means that employees feel they’re being paid fairly in terms of the value of their work as well as compared to what others in the company who have equivalent responsibilities are paid.

Once you’ve grouped jobs together, develop competitive salaries around the market rates for those positions. A typical salary range consists of a minimum, a maximum and a midpoint (or control point).

The minimum is the lowest competitive rate for jobs within that range and normally applies to less experienced staff. The maximum represents the highest competitive rate for jobs in a given range. This is typically a premium rate for “star” employees and industry veterans.

The midpoint represents the competitive market rate for fully performing workers in jobs assigned to that range. Think of it as a guideline for slotting various positions and individuals in appropriate salary ranges.

Find the right approach

These are just a few concepts involved with establishing the right approach to compensation. Please contact us for help with your company’s specific needs.

Summer is a good time to start your 2017 tax planning and organize your tax records

Posted by Admin Posted on July 05 2017

You may be tempted to forget all about taxes during summertime, when “the livin’ is easy,” as the Gershwin song goes. But if you start your tax planning now, you may avoid an unpleasant tax surprise when you file next year. Summer is also a good time to set up a storage system for your tax records. Here are some tips:

Take action when life changes occur. Some life events (such as marriage, divorce, or the birth of a child) can change the amount of tax you owe. When they happen, you may need to change the amount of tax withheld from your pay. To do that, file a new Form W-4 with your employer. If you make estimated payments, those may need to be changed as well.

Keep records accessible but safe. Put your 2016 tax return and supporting records together in a place where you can easily find them if you need them, such as if you’re ever audited by the IRS. You also may need a copy of your tax return if you apply for a home loan or financial aid. Although accessibility is important, so is safety.

A good storage medium for hard copies of important personal documents like tax returns is a fire-, water- and impact-resistant security cabinet or safe. You may want to maintain a duplicate set of records in another location, such as a bank safety deposit box. You can also store copies of records electronically. Simply scan your documents and save them to an external storage device (which you can keep in your home safe or bank safety deposit box). If opting for a cloud-based backup system, choose your provider carefully to ensure its security measures are as stringent as possible.

Stay organized. Make tax time easier by putting records you’ll need when you file in the same place during the year. That way you won’t have to search for misplaced records next February or March. Some examples include substantiation of charitable donations, receipts from work-related travel not reimbursed by your employer, and documentation of medical expenses not reimbursable by insurance or paid through a tax-advantaged account.

For more information on summertime tax planning or organizing your tax-related information, contact us.

Keep real estate separate from your business’s corporate assets to save tax

Posted by Admin Posted on July 05 2017

It’s common for a business to own not only typical business assets, such as equipment, inventory and furnishings, but also the building where the business operates — and possibly other real estate as well. There can, however, be negative consequences when a business’s real estate is included in its general corporate assets. By holding real estate in a separate entity, owners can save tax and enjoy other benefits, too.

Capturing tax savings

Many businesses operate as C corporations so they can buy and hold real estate just as they do equipment, inventory and other assets. The expenses of owning the property are treated as ordinary expenses on the company’s income statement. However, if the real estate is sold, any profit is subject to double taxation: first at the corporate level and then at the owner’s individual level when a distribution is made. As a result, putting real estate in a C corporation can be a costly mistake.

If the real estate is held instead by the business owner(s) or in a pass-through entity, such as a limited liability company (LLC) or limited partnership, and then leased to the corporation, the profit on a sale of the property is taxed only once — at the individual level.

LLC: The entity of choice

The most straightforward and seemingly least expensive way for an owner to maximize the tax benefits is to buy the real estate outright. However, this could transfer liabilities related to the property (such as for injuries suffered on the property) directly to the owner, putting other assets — including the business — at risk. In essence, it would negate part of the rationale for organizing the business as a corporation in the first place.

So, it’s generally best to put real estate in its own limited liability entity. The LLC is most often the vehicle of choice for this. Limited partnerships can accomplish the same ends if there are multiple owners, but the disadvantage is that you’ll incur more expense by having to set up two entities: the partnership itself and typically a corporation to serve as the general partner.

We can help you create a plan of ownership for real estate that best suits your situation.

Why business owners should regularly upgrade their accounting software

Posted by Admin Posted on June 28 2017

Many business owners buy accounting software and, even if the installation goes well, eventually grow frustrated when they don’t get the return on investment they’d expected. There’s a simple reason for this: Stuff changes.

Technological improvements are occurring at a breakneck speed. So yesterday’s cutting-edge system can quickly become today’s sluggishly performing albatross. And this isn’t the only reason to regularly upgrade your accounting software. Here are two more to consider.

1. Cleaning up

You’ve probably heard that old tech adage, “garbage in, garbage out.” The “garbage” referred to is bad data. If inaccurate or garbled information goes into your system, the reports coming out of it will be flawed. And this is a particular danger as software ages.

For example, you may be working off of inaccurate inventory counts or struggling with duplicate vendor entries. On a more serious level, your database may store information that reflects improperly closed quarters or unbalanced accounts because of data entry errors.

A regular implementation of upgraded software should uncover some or, one hopes, all of such problems. You can then clean up the bad data and adjust entries to tighten the accuracy of your accounting records and, thereby, improve your financial reporting.

2. Getting better

Neglecting to regularly upgrade or even replace your accounting software can also put you at risk of missing a major business-improvement opportunity. When implementing a new system, you’ll have the chance to enhance your accounting procedures. You may be able to, for instance, add new code groups that allow you to manage expenses much more efficiently and closely.

Other opportunities for improvement include optimizing your chart of accounts and strengthening your internal controls. Again, to obtain these benefits, you’ll need to take a slow, patient approach to the software implementation and do it often enough to prevent outdated ways of doing things from getting the better of your company.

Choosing the best

These days, every business bigger than a lemonade stand needs the best accounting software it can afford to buy. Our firm can help you set a budget and choose the product that best fits your current needs.

Claiming a federal tax deduction for moving costs

Posted by Admin Posted on June 28 2017

Summer is a popular time to move, whether it’s so the kids don’t have to change schools mid-school-year, to avoid having to move in bad weather or simply because it can be an easier time to sell a home. Unfortunately, moving can be expensive. The good news is that you might be eligible for a federal tax deduction for your moving costs.

Pass the tests

The first requirement is that the move be work-related. You don’t have to be an employee; the self-employed can also be eligible for the moving expense deduction.

The second is a distance test. The new main job location must be at least 50 miles farther from your former home than your former main job location was from that home. So a work-related move from city to suburb or from town to neighboring town probably won’t qualify, even if not moving would increase your commute significantly.

Finally, there’s a time test. You must work full time at the new job location for at least 39 weeks during the first year. If you’re self-employed, you must meet that test plus work full time for at least 78 weeks during the first 24 months at the new job location. (Certain limited exceptions apply.)

What’s deductible

So which expenses can be written off? Generally, you can deduct transportation and lodging expenses for yourself and household members while moving.

In addition, you can likely deduct the cost of packing and transporting your household goods and other personal property. And you may be able to deduct the expense of storing and insuring these items while in transit. Costs related to connecting or disconnecting utilities are usually deductible, too.

But don’t expect to write off everything. Meal costs during move-related travel aren’t deductible. Nor is any part of the purchase price of a new home or expenses incurred selling your old one. And, if your employer later reimburses you for any of the moving costs you’ve deducted, you may have to include the reimbursement as income on your tax return.

Questions about whether your moving expenses are deductible? Or what you can deduct? Contact us.

3 breaks for business charitable donations you may not know about

Posted by Admin Posted on June 28 2017

Donating to charity is more than good business citizenship; it can also save tax. Here are three lesser-known federal income tax breaks for charitable donations by businesses.

1. Food donations

Charitable write-offs for donated food (such as by restaurants and grocery stores) are normally limited to the lower of the taxpayer’s basis in the food (generally cost) or fair market value (FMV), but an enhanced deduction equals the lesser of:

  • The food’s basis plus one-half the FMV in excess of basis, or
  • Two times the basis.

To qualify, the food must be apparently wholesome at the time it’s donated. Your total charitable write-off for food donations under the enhanced deduction provision can’t exceed:

  • 15% of your net income for the year (before considering the enhanced deduction) from all sole proprietorships, S corporations and partnership businesses (including limited liability companies treated as partnerships for tax purposes) from which food donations were made, or
  • For a C corporation taxpayer, 15% of taxable income for the year (before considering the enhanced deduction).

2. Qualified conservation contributions

Qualified conservation contributions are charitable donations of real property interests, including remainder interests and easements that restrict the use of real property. For qualified C corporation farming and ranching operations, the maximum write-off for qualified conservation contributions is increased from the normal 10% of adjusted taxable income to 100% of adjusted taxable income.

Qualified conservation contributions in excess of what can be written off in the year of the donation can be carried forward for 15 years.

3. S corporation appreciated property donations

A favorable tax basis rule is available to shareholders of S corporations that make charitable donations of appreciated property. For such donations, each shareholder’s basis in the S corporation stock is reduced by only the shareholder’s pro-rata percentage of the company’s tax basis in the donated asset.

Without this provision, a shareholder’s basis reduction would equal the passed-through write-off for the donation (a larger amount than the shareholder’s pro-rata percentage of the company’s basis in the donated asset). This provision is generally beneficial to shareholders, because it leaves them with higher tax basis in their S corporation shares.

If you believe you may be eligible to claim one or more of these tax breaks, contact us. We can help you determine eligibility, prepare the required documentation and plan for charitable donations in future years.

2017 Q3 tax calendar: Key deadlines for businesses and other employers

Posted by Admin Posted on June 22 2017

Here are some of the key tax-related deadlines affecting businesses and other employers during the third quarter of 2017. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

July 31

* Report income tax withholding and FICA taxes for third quarter 2017 (Form 941), and pay any tax due. (See exception below.)

* File a 2016 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or request an extension.

August 10

* Report income tax withholding and FICA taxes for third quarter 2017 (Form 941), if you deposited on time and in full all of the associated taxes due.

September 15

* If a calendar-year C corporation, pay the third installment of 2017 estimated income taxes.

* If a calendar-year S corporation or partnership that filed an automatic six-month extension:

* File a 2016 income tax return (Form 1120S, Form 1065 or Form 1065-B) and pay any tax, interest and penalties due.

* Make contributions for 2016 to certain employer-sponsored retirement plans.

Pay attention to the details when selling investments

Posted by Admin Posted on June 13 2017

The tax consequences of the sale of an investment, as well as your net return, can be affected by a variety of factors. You’re probably focused on factors such as how much you paid for the investment vs. how much you’re selling it for, whether you held the investment long-term (more than one year) and the tax rate that will apply.

But there are additional details you should pay attention to. If you don’t, the tax consequences of a sale may be different from what you expect. Here are a few details to consider when selling an investment:

Which shares you’re selling. If you bought the same security at different times and prices and want to sell high-tax-basis shares to reduce gain or increase a loss to offset other gains, be sure to specifically identify which block of shares is being sold.

Trade date vs. settlement date. When it gets close to year end, keep in mind that the trade date, not the settlement date, of publicly traded securities determines the year in which you recognize the gain or loss.

Transaction costs. While transaction costs, such as broker fees, aren’t taxes, like taxes they can have a significant impact on your net returns, especially over time, because they also reduce the amount of money you have available to invest.

If you have questions about the potential tax impact of an investment sale you’re considering — or all of the details you should keep in mind to minimize it — please contact us.

Dot the “i’s” and cross the “t’s” on loans between your business and its owners

Posted by Admin Posted on June 12 2017

It’s common for closely held businesses to transfer money into and out of the company, often in the form of a loan. However, the IRS looks closely at such transactions: Are they truly loans, or actually compensation, distributions or contributions to equity?

Loans to owners

When an owner withdraws funds from the company, the transaction can be characterized as compensation, a distribution or a loan. Loans aren’t taxable, but compensation is and distributions may be.

If the company is a C corporation and the transaction is considered a distribution, it can trigger double taxation. If a transaction is considered compensation, it’s deductible by the corporation, so it doesn’t result in double taxation — but it will be taxable to the owner and subject to payroll taxes.

If the company is an S corporation or other pass-through entity and the transaction is considered a distribution, there’s no entity-level tax, so double taxation won’t be an issue. But distributions reduce an owner’s tax basis, which makes it harder to deduct business losses. If the transaction is considered compensation, as with a C corporation, it will be taxable to the owner and subject to payroll taxes.

Loans to the business

There are also benefits to treating transfers of money from owners to the business as loans. If such advances are treated as contributions to equity, for example, any reimbursements by the company may be taxed as distributions.

Loan payments, on the other hand, aren’t taxable, apart from the interest, which is deductible by the company. A loan may also give the owner an advantage in the event of the company’s bankruptcy, because debt obligations are paid before equity is returned.

Is it a loan or not?

To enjoy the tax advantages of a loan, it’s important to establish that a transaction is truly a loan. Simply calling a withdrawal or advance a “loan” doesn’t make it so.

Whether a transaction is a loan is a matter of intent. It’s a loan if the borrower has an unconditional intent to repay the amount received and the lender has an unconditional intent to obtain repayment. Because the IRS and the courts aren’t mind readers, it’s critical to document loans and treat them like other arm’s-length transactions. This includes:

  • Executing a promissory note,
  • Charging a commercially reasonable rate of interest — generally, no less than the applicable federal rate,
  • Establishing and following a fixed repayment schedule,
  • Securing the loan using appropriate collateral, which will also give the lender bankruptcy priority over unsecured creditors,
  • Treating the transaction as a loan in the company’s books, and
  • Ensuring that the lender makes reasonable efforts to collect in case of default.

Also, to avoid a claim that loans to owner-employees are disguised compensation, you must ensure that they receive reasonable salaries.

If you’re considering a loan to or from your business, contact us for more details on how to help ensure it will be considered a loan by the IRS.

Business owners: Put your successor in a position to succeed

Posted by Admin Posted on June 07 2017

When it comes time to transition your role as business owner to someone else, you’ll face many changes. One of them is becoming a mentor. As such, you’ll have to communicate clearly, show some patience and have a clear conception of what you want to accomplish before stepping down. Here are some tips on putting your successor in a position to succeed.

Key information

Find ways to continuously pass on your knowledge. Too often, vital business knowledge is lost when leadership or ownership changes — causing a difficult and chaotic transition for the successor. Although you can impart a great deal of expertise by mentoring your replacement, you need to do more. For instance, create procedures for you and other executives to share your wisdom.

Begin by documenting your business systems, processes and methods through a secure online employee information portal, which provides links to company databases. You also could set up a training program around core business methods and practices — workers could attend classes or complete computer-based courses. Then, you can create an annual benchmarking report of key activities and results for internal use.

New challenges

Prepare your company to adapt and grow. With customer needs and market factors continually changing, your successor will likely face challenges that are different from what you encountered.

To enable your company to adapt to an ever-changing business world, ensure your successor understands how each department works and knows the fundamentals of key areas, including customer service, marketing and accounting. One way is to have your successor work in each business area.

Outside help

Also have your successor join industry trade associations and community organizations to meet other executives and successors in diverse industries. In addition, require him or her to review and, if necessary, help update your company’s business plan.

To encourage your successor to develop relationships with key players inside and outside your company, include him or her in meetings with managers and trusted advisors, such as your accountant, lawyer, banker and insurance agent.

Fruitful future

Ideally, when you walk away from your company, your successor will feel completely comfortable and ready to guide the business into a fruitful future. Please contact our firm for more help maximizing the effectiveness of your succession plan.

Coverdell ESAs: The tax-advantaged way to fund elementary and secondary school costs

Posted by Admin Posted on June 06 2017

With school letting out you might be focused on summer plans for your children (or grandchildren). But the end of the school year is also a good time to think about Coverdell Education Savings Accounts (ESAs) — especially if the children are in grade school or younger.

One major advantage of ESAs over another popular education saving tool, the Section 529 plan, is that tax-free ESA distributions aren’t limited to college expenses; they also can fund elementary and secondary school costs. That means you can use ESA funds to pay for such qualified expenses as tutoring and private school tuition.

Other benefits

Here are some other key ESA benefits:

* Although contributions aren’t deductible, plan assets can grow tax-deferred.

* You remain in control of the account — even after the child is of legal age.

* You can make rollovers to another qualifying family member.

A sibling or first cousin is a typical example of a qualifying family member, if he or she is eligible to be an ESA beneficiary (that is, under age 18 or has special needs).

Limitations

The ESA annual contribution limit is $2,000 per beneficiary. The total contributions for a particular ESA beneficiary cannot be more than $2,000 in any year, no matter how many accounts have been established or how many people are contributing.

However, the ability to contribute is phased out based on income. The phaseout range is modified adjusted gross income (MAGI) of $190,000–$220,000 for married couples filing jointly and $95,000–$110,000 for other filers. You can make a partial contribution if your MAGI falls within the applicable range, and no contribution if it exceeds the top of the range.

If there is a balance in the ESA when the beneficiary reaches age 30 (unless the beneficiary is a special needs individual), it must generally be distributed within 30 days. The portion representing earnings on the account will be taxable and subject to a 10% penalty. But these taxes can be avoided by rolling over the full balance to another ESA for a qualifying family member.

Would you like more information about ESAs or other tax-advantaged ways to fund your child’s — or grandchild’s — education expenses? Contact us!

Choosing the best way to reimburse employee travel expenses

Posted by Admin Posted on June 05 2017

If your employees incur work-related travel expenses, you can better attract and retain the best talent by reimbursing these expenses. But to secure tax-advantaged treatment for your business and your employees, it’s critical to comply with IRS rules.

Reasons to reimburse

While unreimbursed work-related travel expenses generally are deductible on a taxpayer’s individual tax return (subject to a 50% limit for meals and entertainment) as a miscellaneous itemized deduction, many employees won’t be able to benefit from the deduction. Why?

It’s likely that some of your employees don’t itemize. Even those who do may not have enough miscellaneous itemized expenses to exceed the 2% of adjusted gross income floor. And only expenses in excess of the floor can actually be deducted.

On the other hand, reimbursements can provide tax benefits to both your business and the employee. Your business can deduct the reimbursements (also subject to a 50% limit for meals and entertainment), and they’re excluded from the employee’s taxable income — provided that the expenses are legitimate business expenses and the reimbursements comply with IRS rules. Compliance can be accomplished by using either the per diem method or an accountable plan.

Per diem method

The per diem method is simple: Instead of tracking each individual’s actual expenses, you use IRS tables to determine reimbursements for lodging, meals and incidental expenses, or just for meals and incidental expenses. (If you don’t go with the per diem method for lodging, you’ll need receipts to substantiate those expenses.)

The IRS per diem tables list localities here and abroad. They reflect seasonal cost variations as well as the varying costs of the locales themselves — so London’s rates will be higher than Little Rock’s. An even simpler option is to apply the “high-low” per diem method within the continental United States to reimburse employees up to $282 a day for high-cost localities and $189 for other localities.

You must be extremely careful to pay employees no more than the appropriate per diem amount. The IRS imposes heavy penalties on businesses that routinely fail to do so.

Accountable plan

An accountable plan is a formal arrangement to advance, reimburse or provide allowances for business expenses. To qualify as “accountable,” your plan must meet the following criteria:

  • must pay expenses that would otherwise be deductible by the employee
  • Payments must be for “ordinary and necessary” business expenses
  • Employees must substantiate these expenses — including amounts, times and places — ideally at least monthly
  • Employees must return any advances or allowances they can’t substantiate within a reasonable time, typically 120 days.

If you fail to meet these conditions, the IRS will treat your plan as nonaccountable, transforming all reimbursements into wages taxable to the employee, subject to income taxes (employee) and employment taxes (employer and employee).

Whether you have questions about which reimbursement option is right for your business or the additional rules and limits that apply to each, contact us. We’d be pleased to help.

4 digital marketing tips for every business

Posted by Admin Posted on June 01 2017

You’d be hard pressed to find a company not looking to generate more leads, boost sales and improve its profit margins. Fortunately, you can take advantage of the sales and marketing opportunities offered by today’s digital technologies to do so. Here are four digital marketing tips for every business:

1. Add quality content to your website.Few things disappoint and disinterest customers like an outdated or unchanging website. Review yours regularly to ensure it doesn’t look too old and consider a noticeable redesign every few years.

As far as content goes, think variety. Helpful blog posts, articles and even whitepapers can establish your business as a knowledge leader in your industry. And don’t forget videos: They’re a great way to showcase just about anything. Beware, however, that posting amateurish-looking videos could do more harm than good. If you don’t have professional video production capabilities, you may need to hire a professional.

2. Leverage social media.If you’re not using social media tools already, focus on a couple of popular social media outlets — perhaps Facebook and Twitter — and actively post content on them. Remember, with some social media platforms, you can create posts and tweets in advance and then schedule them for release over time.

3. Interact frequently. This applies to all of your online channels, including your website, social media platforms, email and online review sites. For example, be sure to respond promptly to any queries you receive on your site or via email, and be quick to reply to questions and comments posted on your social media pages.

4. Tie it all together. It’s easy to end up with a hodgepodge of different online marketing tools that are operating independently of one another. Integrate your online marketing initiatives so they all have a similar style and tone. Doing so helps reassure customers that your business is an organized entity focused on delivering a clear message — and quality products or services.

When it comes to marketing, you don’t want to swing and miss. Our firm can help you assess the financial impact of your efforts and budget the appropriate amount to boosting visibility.

Consider the tax consequences before making an employee a partner

Posted by Admin Posted on May 30 2017

In today’s competitive environment, offering employees an equity interest in your business can be a powerful tool for attracting, retaining and motivating quality talent. If your business is organized as a partnership, however, there are some tax traps you should watch out for. Once an employee becomes a partner, you generally can no longer treat him or her as an employee for tax and benefits purposes, which has significant tax implications.

Employment taxes

Employees pay half of the Social Security and Medicare taxes on their wages, through withholdings from their paychecks. The employer pays the other half. Partners, on the other hand, are treated as being self-employed — they pay the full amount of “self-employment” taxes through quarterly estimates.

Often, when employees receive partnership interests, the partnership continues to treat them as employees for tax purposes, withholding employment taxes from their wages and paying the employer’s share. The problem with this practice is that, because a partner is responsible for the full amount of employment taxes, the partnership’s payment of a portion of those taxes will likely be treated as a guaranteed payment to the partner.

That payment would then be included in income and trigger additional employment taxes. Any employment taxes not paid by the partnership on a partner’s behalf are the partner’s responsibility.

Treating a partner as an employee can also result in overpayment of employment taxes. Suppose your partnership pays half of a partner’s employment taxes and the partner also has other self-employment activities — for example, interests in other partnerships or sole proprietorships. If those activities generate losses, the losses will offset the partner’s earnings from your partnership, reducing or even eliminating self-employment taxes.

Employee benefits

Partners and employees are treated differently for purposes of many benefit plans. For example, employees are entitled to exclude the value of certain employer-provided health, welfare and fringe benefits from income, while partners must include the value in their income (although they may be entitled to a self-employed health insurance deduction). And partners are prohibited from participating in a cafeteria plan.

Continuing to treat a partner as an employee for benefits purposes may trigger unwanted tax consequences. And it could disqualify a cafeteria plan.

Partnership alternatives

There are techniques that allow you to continue treating newly minted partners as employees for tax and benefits purposes. For example, you might create a tiered partnership structure and offer employees of a lower-tier partnership interests in an upper-tier partnership. Because these employees aren’t partners in the partnership that employs them, many of the problems discussed above will be avoided.

If your business is contemplating offering partnership interests to key employees, contact us for more information about the potential tax consequences and how to avoid any pitfalls.

Could stronger governance benefit your business?

Posted by Admin Posted on May 24 2017

Every company has at least one owner. And, in many cases, there exists leadership down through the organizational chart. But not every business has strong governance.

In a nutshell, governance is the set of rules, practices and processes by which a company is directed and controlled. Strengthening it can help ensure productivity, reduce legal risks and, when the time comes, ease ownership transitions.

Looking at business structure

Good governance starts with the initial organization (or reorganization) of a business. Corporations, for example, are required by law to have a board of directors and officers and to observe certain other formalities. So this entity type is a good place to explore the concept.

Other business structures, such as partnerships and limited liability companies (LLCs), have greater flexibility in designing their management and ownership structures. But these entities can achieve strong governance with well-designed partnership or LLC operating agreements and a centralized management structure. They might, for instance, establish management committees that exercise powers similar to those of a corporate board.

Specifying the issues

For the sake of simplicity, however, let’s focus on governance issues in the context of a corporation. In this case, the business’s articles of incorporation and bylaws lay the foundation for future governance. The organizational documents might:

  • Define and limit the authority of each executive,
  • Establish a board of directors,
  • Require board approval of certain actions,
  • Authorize the board to hire, evaluate, promote and fire executives based on merit,
  • Authorize the board to determine the compensation of top executives and to approve the terms of employment agreements, and
  • Create nonvoting classes of stock to provide equity to the owner’s family members who aren’t active in the business, but without conferring management control.

As you look over this list, consider whether and how any of these items might pertain to your company. There are, of course, other aspects to governance, such as establishing an ethics code and setting up protocols for information technology.

Knowing yourself

At the end of the day, strong governance is all about knowing your company and identifying the best ways to oversee its smooth and professional operation. Please contact our firm for help running a profitable, secure business.

Business owners: When it comes to IRS audits, be prepared

Posted by Admin Posted on May 22 2017

If you recently filed your 2016 income tax return (rather than filing for an extension) you may now be wondering whether it’s likely that your business could be audited by the IRS based on your filing. Here’s what every business owner should know about the process.

Catching the IRS’s eye

Many business audits occur randomly, but a variety of tax-return-related items are likely to raise red flags with the IRS and may lead to an audit. Here are a few examples:

  • Significant inconsistencies between previous years’ filings and your most current filing,
  • Gross profit margin or expenses markedly different from those of other businesses in your industry, and
  • Miscalculated or unusually high deductions.

 

An owner-employee salary that’s inordinately higher or lower than those in similar companies in his or her location can also catch the IRS’s eye, especially if the business is structured as a corporation.

Response measures

If you’re selected for an audit, you’ll be notified by letter. Generally, the IRS won’t make initial contact by phone. But if there’s no response to the letter, the agency may follow up with a call.

The good news is that many audits simply request that you mail in documentation to support certain deductions you’ve taken. Others may ask you to take receipts and other documents to a local IRS office. Only the most severe version, the field audit, requires meeting with one or more IRS auditors.

More good news: In no instance will the agency demand an immediate response. You’ll be informed of the discrepancies in question and given time to prepare. To do so, you’ll need to collect and organize all relevant income and expense records. If any records are missing, you’ll have to reconstruct the information as accurately as possible based on other documentation.

If the IRS selects you for an audit, our firm can help you:

  • Understand what the IRS is disputing (it’s not always crystal clear),
  • Gather the specific documents and information needed, and
  • Respond to the auditor’s inquiries in the most expedient and effective manner.

 

Don’t let an IRS audit ruin your year — be it this year, next year or whenever that letter shows up in the mail. By taking a meticulous, proactive approach to how you track, document and file your company’s tax-related information, you’ll make an audit much less painful and even decrease the chances that one happens in the first place.

It may be time for your company to create a strategic IT plan

Posted by Admin Posted on May 18 2017

Many companies take an ad hoc approach to technology. If you’re among them, it’s understandable; you probably had to automate some tasks before others, your tech needs have likely evolved over time, and technology itself is always changing.

Unfortunately, all of your different hardware and software may not communicate so well. What’s worse, lack of integration can leave you more vulnerable to security risks. For these reasons, some businesses reach a point where they decide to implement a strategic IT plan.

“Professional” requirements

The objective of a strategic IT plan is to — over a stated period — roll out consistent, integrated, and secure hardware and software. In doing so, you’ll likely eliminate many of the security dangers wrought by lack of integration, while streamlining data-processing efficiency.

To get started, define your IT objectives. Identify not only the weaknesses of your current infrastructure, but also opportunities to improve it. Employee feedback is key: Find out who’s using what and why it works for them.

From a financial perspective, estimate a reasonable return on investment that includes a payback timetable for technology expenditures. Be sure your projections factor in both:

  • Hard savings, such as eliminating redundant software or outdated processes, and
  • Soft benefits, such as being able to more quickly and accurately share data within the office as well as externally (for example, from sales calls).

 

Each year stands on its own, and there are other nuances. (Special rules for spouses may help you meet the 750-hour test.)

Working in phases

When you’re ready to implement your strategic IT plan, devise a reasonable and patient time line. Ideally, there should be no need to rush. You can take a phased approach, perhaps laying the foundation with a new server and then installing consistent, integrated applications on top of it.

A phased implementation can also help you stay within budget. You’ll need to have a good idea of how much the total project will cost. But you can still allow flexibility for making measured progress without putting your cash flow at risk.

Bringing it all together.

There’s nothing wrong or unusual about wandering the vast landscape of today’s business technology. But, at some point, every company should at least consider bringing all their bits and bytes under one roof. Please contact our firm for help managing your IT spending in a measured, strategic way.

Real estate investor vs. professional: Why it matters

Posted by Admin Posted on May 16 2017

Income and losses from investment real estate or rental property are passive by definition — unless you’re a real estate professional. Why does this matter? Passive income may be subject to the 3.8% net investment income tax (NIIT), and passive losses generally are deductible only against passive income, with the excess being carried forward.

Of course the NIIT is part of the Affordable Care Act (ACA) and might be eliminated under ACA repeal and replace legislation or tax reform legislation. But if/when such legislation will be passed and signed into law is uncertain. Even if the NIIT is eliminated, the passive loss issue will still be an important one for many taxpayers investing in real estate.

“Professional” requirements

To qualify as a real estate professional, you must annually perform:

  • More than 50% of your personal services in real property trades or businesses in which you materially participate, and
  • More than 750 hours of service in these businesses.

Each year stands on its own, and there are other nuances. (Special rules for spouses may help you meet the 750-hour test.)

Tax strategies

If you’re concerned you’ll fail either test and be subject to the 3.8% NIIT or stuck with passive losses, consider doing one of the following:

Increasing your involvement in the real estate activity. If you can pass the real estate professional tests, the activity no longer will be subject to passive activity rules.

Looking at other activities. If you have passive losses from your real estate investment, consider investing in another income-producing trade or business that will be passive to you. That way, you’ll have passive income that can absorb some or all of your passive losses.

Disposing of the activity. This generally allows you to deduct all passive losses — including any loss on disposition (subject to basis and capital loss limitations). But, again, the rules are complex.

Also be aware that the IRS frequently challenges claims of real estate professional status — and is often successful. One situation where the IRS commonly prevails is when the taxpayer didn’t keep adequate records of time spent on real estate activities.

If you’re not sure whether you qualify as a real estate professional, please contact us. We can help you make this determination and guide you on how to properly document your hours.

Hire your children to save taxes for your business and your family

Posted by Admin Posted on May 15 2017

It can be difficult in the current job market for students and recent graduates to find summer or full-time jobs. If you’re a business owner with children in this situation, you may be able to provide them with valuable experience and income while generating tax savings for both your business and your family overall.

Shifting income

By shifting some of your business earnings to a child as wages for services performed by him or her, you can turn some of your high-taxed income into tax-free or low-taxed income. For your business to deduct the wages as a business expense, the work done by the child must be legitimate and the child’s wages must be reasonable.

Here’s an example of how this works: A business owner operating as a sole proprietor is in the 39.6% tax bracket. He hires his 17-year-old son to help with office work full-time during the summer and part-time into the fall. The son earns $6,100 during the year and doesn’t have any other earnings.

The business owner saves $2,415.60 (39.6% of $6,100) in income taxes at no tax cost to his son, who can use his $6,350 standard deduction (for 2017) to completely shelter his earnings. The business owner can save an additional $2,178 in taxes if he keeps his son on the payroll longer and pays him an additional $5,500. The son can shelter the additional income from tax by making a tax-deductible contribution to his own IRA.

Family taxes will be cut even if the employee-child’s earnings exceed his or her standard deduction and IRA deduction. That’s because the unsheltered earnings will be taxed to the child beginning at a rate of 10% instead of being taxed at the parent’s higher rate.

Saving employment taxes

If your business isn’t incorporated or a partnership that includes nonparent partners, you might also save some employment tax dollars. Services performed by a child under age 18 while employed by a parent aren’t considered employment for FICA tax purposes. And a similar exemption applies for federal unemployment tax (FUTA) purposes. It exempts earnings paid to a child under age 21 while employed by his or her parent.

If you have questions about how these rules apply in your particular situation or would like to learn about other family-related tax-saving strategies, contact us.

Want to help your child (or grandchild) buy a home? Don’t wait!

Posted by Admin Posted on May 10 2017

Mortgage interest rates are still at low levels, but they likely will increase as the Fed continues to raise rates. So if you’ve been thinking about helping your child — or grandchild — buy a home, consider acting soon. There also are some favorable tax factors that will help:

0% capital gains rate. If the child is in the 10% or 15% income tax bracket, instead of giving cash to help fund a down payment, consider giving long-term appreciated assets such as stock or mutual fund shares. The child can sell the assets without incurring any federal income taxes on the gain, and you can save the taxes you’d owe if you sold the assets yourself.

As long as the assets are worth $14,000 or less (when combined with any other 2017 gifts to the child), there will be no federal gift tax consequences — thanks to the annual gift tax exclusion. Married couples can give twice that amount tax-free if they split the gift. And if you don’t mind using up some of your lifetime exemption ($5.49 million for 2017), you can give even more. Plus, there’s the possibility that the gift and estate taxes could be repealed. If that were to happen, there’d be no limit on how much you could give tax-free (for federal purposes).

Low federal interest rates. Another tax-friendly option is lending funds to the child. Now is a good time for taking this step, too. Currently, Applicable Federal Rates — the rates that can be charged on intrafamily loans without causing unwanted tax consequences — are still quite low by historical standards. But these rates have begun to rise and are also expected to continue to increase this year. So lending money to a loved one for a home purchase sooner rather than later might be a good idea.

If you choose the loan option, it’s important to put a loan agreement in writing and actually collect payment (including interest) on the loan. Otherwise the IRS could deem the loan to actually be a taxable gift. Keep in mind that you’ll have to report the interest as income. But if the interest rate is low, the tax impact should be minimal.

If you have questions about these or other tax-efficient ways to help your child or grandchild buy a home, please contact us.

Operating across state lines presents tax risks — or possibly rewards

Posted by Admin Posted on May 08 2017

It’s a smaller business world after all. With the ease and popularity of e-commerce, as well as the incredible efficiency of many supply chains, companies of all sorts are finding it easier than ever to widen their markets. Doing so has become so much more feasible that many businesses quickly find themselves crossing state lines.

But therein lies a risk: Operating in another state means possibly being subject to taxation in that state. The resulting liability can, in some cases, inhibit profitability. But sometimes it can produce tax savings.

Do you have “nexus”?

Essentially, “nexus” means a business presence in a given state that’s substantial enough to trigger that state’s tax rules and obligations.

Precisely what activates nexus in a given state depends on that state’s chosen criteria. Triggers can vary but common criteria include:

  • Employing workers in the state,
  • Owning (or, in some cases even leasing) property there,
  • Marketing your products or services in the state,
  • Maintaining a substantial amount of inventory there, and
  • Using a local telephone number.

Then again, one generally can’t say that nexus has a “hair trigger.” A minimal amount of business activity in a given state probably won’t create tax liability there. For example, an HVAC company that makes a few tech calls a year across state lines probably wouldn’t be taxed in that state. Or let’s say you ask a salesperson to travel to another state to establish relationships or gauge interest. As long as he or she doesn’t close any sales, and you have no other activity in the state, you likely won’t have nexus.

Strategic moves

If your company already operates in another state and you’re unsure of your tax liabilities there — or if you’re thinking about starting up operations in another state — consider conducting a nexus study. This is a systematic approach to identifying the out-of-state taxes to which your business activities may expose you.

Keep in mind that the results of a nexus study may not be negative. You might find that your company’s overall tax liability is lower in a neighboring state. In such cases, it may be advantageous to create nexus in that state (if you don’t already have it) by, say, setting up a small office there. If all goes well, you may be able to allocate some income to that state and lower your tax bill.

The complexity of state tax laws offers both risk and opportunity. Contact us for help ensuring your business comes out on the winning end of a move across state lines.

3 hot spots to look for your successor

Posted by Admin Posted on May 04 2017

Picking someone to lead your company after you step down is probably among the hardest aspects of retiring (or otherwise moving on). Sure, there are some business owners who have a ready-made successor waiting in the wings at a moment’s notice. But many have a few viable candidates to consider — others have too few.

When looking for a successor, for best results, keep an open mind. Don’t assume you have to pick any one person — look everywhere. Here are three hot spots to consider.

1. Your family. If yours is a family-owned business, this is a natural place to first look for a successor. Yet, because of the relationships and emotions involved, finding a successor in the family can be particularly complex. Make absolutely sure a son, daughter or other family member really wants to succeed you. But also keep in mind that desire isn’t enough. The loved one must also have the proper qualifications, as well as experience inside and, ideally, outside the company.

2. Nonfamily employees. Keep an eye out for company “stars” who are still early in their careers, regardless of their functional or geographic area. Start developing their leadership skills as early as possible and put them to the test regularly. For example, as time goes on, continually create new projects or positions that give them responsibility for increasingly larger and more complex profit centers to see how they’ll measure up.

3. The wide, wide world. If a family member or current employee just isn’t feasible, you can always look externally. A good way to start is simply by networking with people in your industry, former employees and professional advisors. You can also try placing an ad in a newspaper or trade publication, or on an Internet job site. Don’t forget executive search firms either; they’ll help screen candidates and conduct interviews.

At the end of the day, any successor — whether family member, employee or external candidate — must have the right stuff. Please contact our firm for help setting up an effective succession plan.

Turning next year’s tax refund into cash in your pocket now

Posted by Admin Posted on May 02 2017

Each year, millions of taxpayers claim an income tax refund. To be sure, receiving a payment from the IRS for a few thousand dollars can be a pleasant influx of cash. But it means you were essentially giving the government an interest-free loan for close to a year, which isn’t the best use of your money.

Fortunately, there is a way to begin collecting your 2017 refund now: You can review the amounts you’re having withheld and/or what estimated tax payments you’re making, and adjust them to keep more money in your pocket during the year.

Reasons to modify amounts

It’s particularly important to check your withholding and/or estimated tax payments if:

  • You received an especially large 2016 refund,
  • You’ve gotten married or divorced or added a dependent,
  • You’ve purchased a home,
  • You’ve started or lost a job, or
  • Your investment income has changed significantly.

Even if you haven’t encountered any major life changes during the past year, changes in the tax law may affect withholding levels, making it worthwhile to double-check your withholding or estimated tax payments.

Making a change

You can modify your withholding at any time during the year, or even several times within a year. To do so, you simply submit a new Form W-4 to your employer. Changes typically will go into effect several weeks after the new Form W-4 is submitted. For estimated tax payments, you can make adjustments each time quarterly payments are due.

While reducing withholdings or estimated tax payments will, indeed, put more money in your pocket now, you also need to be careful that you don’t reduce them too much. If you don’t pay enough tax during the year, you could end up owing interest and penalties when you file your return, even if you pay your outstanding tax liability by the April 2018 deadline.

If you’d like help determining what your withholding or estimated tax payments should be for the rest of the year, please contact us.

Choosing between a calendar tax year and a fiscal tax year

Posted by Admin Posted on May 01 2017

Many business owners use a calendar year as their company’s tax year. It’s intuitive and aligns with most owners’ personal returns, making it about as simple as anything involving taxes can be. But for some businesses, choosing a fiscal tax year can make more sense.

What’s a fiscal tax year?

A fiscal tax year consists of 12 consecutive months that don’t begin on January 1 or end on December 31 — for example, July 1 through June 30 of the following year. The year doesn’t necessarily need to end on the last day of a month. It might end on the same day each year, such as the last Friday in March.

Flow-through entities (partnerships, S corporations and, typically, limited liability companies) using a fiscal tax year must file their return by the 15th day of the third month following the close of their fiscal year. So, if their fiscal year ends on March 31, they would need to file their return by June 15. (Fiscal-year C corporations generally must file their return by the 15th day of the fourth month following the fiscal year close.)

When a fiscal year makes sense

A key factor to consider is that if you adopt a fiscal tax year you must use the same time period in maintaining your books and reporting income and expenses. For many seasonal businesses, a fiscal year can present a more accurate picture of the company’s performance.

For example, a snowplowing business might make the bulk of its revenue between November and March. Splitting the revenue between December and January to adhere to a calendar year end would make obtaining a solid picture of performance over a single season difficult.

In addition, if many businesses within your industry use a fiscal year end and you want to compare your performance to your peers, you’ll probably achieve a more accurate comparison if you’re using the same fiscal year.

Before deciding to change your fiscal year, be aware that the IRS requires businesses that don’t keep books and have no annual accounting period, as well as most sole proprietorships, to use a calendar year.

It can make a difference

If your company decides to change its tax year, you’ll need to obtain permission from the IRS. The change also will likely create a one-time “short tax year” — a tax year that’s less than 12 months. In this case, your income tax typically will be based on annualized income and expenses. But you might be able to use a relief procedure under Section 443(b)(2) of the Internal Revenue Code to reduce your tax bill.

Although choosing a tax year may seem like a minor administrative matter, it can have an impact on how and when a company pays taxes. We can help you determine whether a calendar or fiscal year makes more sense for your business.

Enhance benefits’ perceived value with strong communication

Posted by Admin Posted on Apr 26 2017

Providing a strong package of benefits is a competitive imperative in today’s business world. Like many employers, you’ve probably worked hard to put together a solid menu of offerings to your staff. Unfortunately, many employees don’t perceive the full value of the benefits they receive.

Why is this important? An underwhelming perception of value could cause good employees to move on to “greener” pastures. It could also inhibit better job candidates from seeking employment at your company. Perhaps worst of all, if employees don’t fully value their benefits, they might not fully use them — which means you’re wasting dollars and effort on procuring and maintaining a strong package.

Targeting life stage

Among the most successful communication strategies for promoting benefits’ value is often the least commonly used. That is, target the life stage of your employees.

For example, an employee who’s just entering the workforce in his or her twenties will have a much different view of a 401(k) plan than someone nearing retirement. A younger employee will also likely view health care benefits differently. Employers who tailor their communications to the recipient’s generation can improve their success rate at getting workers to understand their benefits.

Covering all bases

There are many other strategies to consider as well. For starters, create a year-round benefits communication program that features clear, concise language and graphics. Many employers discuss benefits with their workforces only during open enrollment periods.

Also, gather feedback to determine employees’ informational needs. You may learn that you have to start communicating in multiple languages, for instance. You might also be able to identify staff members who are particularly knowledgeable about benefits. These employees could serve as word-of-mouth champions of your package who can effectively explain things to others.

Identifying sound strategies

Given the cost and effort you put into choosing, developing and offering benefits to your employees, the payoff could be much better. We can help you ensure you’re getting the most bang for your benefits buck.

Do you know the tax implications of your C corp.’s buy-sell agreement?

Posted by Admin Posted on Apr 24 2017

Private companies with more than one owner should have a buy-sell agreement to spell out how ownership shares will change hands should an owner depart. For businesses structured as C corporations, the agreements also have significant tax implications that are important to understand.

Buy-sell basics

A buy-sell agreement sets up parameters for the transfer of ownership interests following stated “triggering events,” such as an owner’s death or long-term disability, loss of license or other legal incapacitation, retirement, bankruptcy, or divorce. The agreement typically will also specify how the purchase price for the departing owner’s shares will be determined, such as by stating the valuation method to be used.

Another key issue a buy-sell agreement addresses is funding. In many cases, business owners don’t have the cash readily available to buy out a departing owner. So insurance is commonly used to fund these agreements. And this is where different types of agreements — which can lead to tax issues for C corporations — come into play.

Under a cross-purchase agreement, each owner buys life or disability insurance (or both) that covers the other owners, and the owners use the proceeds to purchase the departing owner’s shares. Under a redemption agreement, the company buys the insurance and, when an owner exits the business, buys his or her shares.

Sometimes a hybrid agreement is used that combines aspects of both approaches. It may stipulate that the company gets the first opportunity to redeem ownership shares and that, if the company is unable to buy the shares, the remaining owners are then responsible for doing so. Alternatively, the owners may have the first opportunity to buy the shares.

C corp. tax consequences

A C corp. with a redemption agreement funded by life insurance can face adverse tax consequences. First, receipt of insurance proceeds could trigger corporate alternative minimum tax. Second, the value of the remaining owners’ shares will probably rise without increasing their basis. This, in turn, could drive up their tax liability if they later sell their shares.

Heightened liability for the corporate alternative minimum tax is generally unavoidable under these circumstances. But you may be able to manage the second problem by revising your buy-sell as a cross-purchase agreement. Under this approach, owners will buy additional shares themselves — increasing their basis.

Naturally, there are downsides. If owners are required to buy a departing owner’s shares, but the company redeems the shares instead, the IRS may characterize the purchase as a taxable dividend. Your business may be able to mitigate this risk by crafting a hybrid agreement that names the corporation as a party to the transaction and allows the remaining owners to buy back the shares without requiring them to do so.

For more information on the tax ramifications of buy-sell agreements, contact us. And if your business doesn’t have a buy-sell in place yet, we can help you figure out which type of funding method will best meet your needs while minimizing any negative tax consequences.

How can you take customer service to the next level?

Posted by Admin Posted on Apr 19 2017

Just about every business intends to provide world-class customer service. And though many claim their customer service is exceptional, very few can back up that assertion. After all, once a company has established a baseline level of success in interacting with customers, it’s not easy to get to that next level of truly great service. But, fear not, there are ways to elevate your game and, ultimately, strengthen your bottom line in the process.

Start at the top

As is the case for many things in business, success starts at the top. Encourage your fellow owners (if any) and management team to regularly serve customers. Doing so cements customer relationships and communicates to employees that serving others is important and rewarding. Your involvement shows that customer service is the source of your company’s ultimate triumph.

Moving down the organizational chart, cultivate customer-service heroes. Publish articles about your customer service achievements in your company’s newsletter or post them on your website. Champion these heroes in meetings. Public praise turns ordinary employees into stars and encourages future service excellence. Just make sure to empower all employees to make customer-service decisions. Don’t talk of catering to customers unless your staff can really take the initiative to meet your customers’ needs.

Create a system

Like everyone in today’s data-driven world, customers want information. So strive to provide immediate feedback to customers with a highly visible response system. This will let customers know that their input matters and you’ll reward them for speaking up.

The size and shape of this system will depend on the size, shape and specialty of the company itself. But it should likely encompass the right combination of instant, electronic responses to customer inquires along with phone calls and, where appropriate, face-to-face interactions that reinforce how much you value their business.

Give them a thrill

Consistently great customer service can be an elusive goal. You may succeed for months at a time only to suffer setbacks. Don’t get discouraged. Our firm can help you build a profitable company that excels at thrilling your customers.

A timely postmark on your tax return may not be enough to avoid late-filing penalties

Posted by Admin Posted on Apr 11 2017

Because of a weekend and a Washington, D.C., holiday, the 2016 tax return filing deadline for individual taxpayers is Tuesday, April 18. The IRS considers a paper return that’s due April 18 to be timely filed if it’s postmarked by midnight. But dropping your return in a mailbox on the 18th may not be sufficient.

An example

Let’s say you mail your return with a payment on April 18, but the envelope gets lost. You don’t figure this out until a couple of months later when you notice that the check still hasn’t cleared.

You then refile and send a new check. Despite your efforts to timely file and pay, you’re hit with failure-to-file and failure-to-pay penalties totaling $1,500.

Avoiding penalty risk

To avoid this risk, use certified or registered mail or one of the private delivery services designated by the IRS to comply with the timely filing rule, such as:

  • DHL Express 9:00, Express 10:30, Express 12:00 or Express Envelope,
  • FedEx First Overnight, Priority Overnight, Standard Overnight or 2Day, or
  • UPS Next Day Air Early A.M., Next Day Air, Next Day Air Saver, 2nd Day Air A.M. or 2nd Day Air.

 

Beware: If you use an unauthorized delivery service, your return isn’t “filed” until the IRS receives it. See IRS.gov for a complete list of authorized services.

Another option

If you’re concerned about meeting the April 18 deadline, another option is to file for an extension. If you owe tax, you’ll still need to pay that by April 18 to avoid risk of late-payment penalties as well as interest.

If you’re owed a refund and file late, you won’t be charged a failure-to-file penalty. However, filing for an extension may still be a good idea.

We can help you determine if filing for an extension makes sense for you — and help estimate whether you owe tax and how much you should pay by April 18.

Matchmaker, matchmaker: Choosing the right lender

Posted by Admin Posted on Apr 05 2017

It’s easy to think of lenders as doing your company a favor. But business financing relationships are just that: relationships. Yes, a lender has the working capital you need to grow. But a stable, successful business represents an enormously beneficial opportunity for the lender as well. So you should be just as picky with your lender as it is with your financials.

Where to start

If you indeed have a long-standing relationship with a local bank, make that your first call. There’s no understating the importance of familiarity, good communication and an amicable rapport when negotiating terms, making payments and dealing with whatever business complications may come up.

But should your local bank not offer the size or scope of financing needed, or if you’d just like to get an idea of what else is out there, don’t hesitate to shop around. Look for a lender with multiple loan products, so you have a better chance at structuring one to your liking. And get some referrals regarding the strength of service and support.

Other alternatives

If yours is a small business, check into the availability of Small Business Administration or other government-backed loan programs. These are often designed to boost local economies, so you may be able to get favorable terms and rates.

Last, but not least, don’t limit yourself to traditional lenders. Today’s lending environment is competitive and technology driven. So businesses have a wide variety of alternatives, many of which are just a few clicks away. These include angel investors, online peer-to-peer lending networks and crowdsourcing.

Best results

Many, if not most, companies can’t grow without taking on some debt. But precisely how you go about using debt to your advantage depends largely on the lenders with which you choose to do business. Let us play matchmaker and help you find the ideal partner. We can also offer assistance in structuring and presenting your financial statements for best results.

Saving tax with home-related deductions and exclusions

Posted by Admin Posted on Apr 04 2017

Currently, home ownership comes with many tax-saving opportunities. Consider both deductions and exclusions when you’re filing your 2016 return and tax planning for 2017:

Property tax deduction. Property tax is generally fully deductible — unless you’re subject to the alternative minimum tax (AMT).

Mortgage interest deduction. You generally can deduct interest on up to a combined total of $1 million of mortgage debt incurred to purchase, build or improve your principal residence and a second residence. Points paid related to your principal residence also may be deductible.

Home equity debt interest deduction. Interest on home equity debt used for any purpose (debt limit of $100,000) may be deductible. But keep in mind that, if home equity debt isn’t used for home improvements, the interest isn’t deductible for AMT purposes.

Mortgage insurance premium deduction. This break expired December 31, 2016, but Congress might extend it.

Home office deduction. If your home office use meets certain tests, you generally can deduct a portion of your mortgage interest, property taxes, insurance, utilities and certain other expenses, and the depreciation allocable to the space. Or you may be able to use a simplified method for claiming the deduction.

Rental income exclusion. If you rent out all or a portion of your principal residence or second home for less than 15 days, you don’t have to report the income. But expenses directly associated with the rental, such as advertising and cleaning, won’t be deductible.

Home sale gain exclusion. When you sell your principal residence, you can exclude up to $250,000 ($500,000 for married couples filing jointly) of gain if you meet certain tests. Be aware that gain allocable to a period of “nonqualified” use generally isn’t excludable.

Debt forgiveness exclusion. This break for homeowners who received debt forgiveness in a foreclosure, short sale or mortgage workout for a principal residence expired December 31, 2016, but Congress might extend it.

The debt forgiveness exclusion and mortgage insurance premium deduction aren’t the only home-related breaks that might not be available in the future. There have been proposals to eliminate other breaks, such as the property tax deduction, as part of tax reform.

Whether such changes will be signed into law and, if so, when they’d go into effect is uncertain. Also keep in mind that additional rules and limits apply to these breaks. So contact us for information on the latest tax reform developments or which home-related breaks you’re eligible to claim.

A refresher on tax-related ACA provisions affecting businesses

Posted by Admin Posted on Apr 03 2017

Now that the bill to repeal and replace the Affordable Care Act (ACA) has been withdrawn and it’s uncertain whether there will be any other health care reform legislation this year, it’s a good time to review some of the tax-related ACA provisions affecting businesses:

Small employer tax credit. Qualifying small employers can claim a credit to cover a portion of the cost of premiums paid to provide health insurance to employees. The maximum credit is 50% of premiums paid by the employer, provided it contributes at least 50% of the total premium or of a benchmark premium.

Penalties for not offering complying coverage. Applicable large employers (ALEs) — those with at least 50 full-time employees (or the equivalent) — are required to offer full-time employees affordable health coverage that meets certain minimum standards. If they don’t, they can be charged a penalty if just one full-time employee receives a tax credit for purchasing his or her own coverage through a health care marketplace. This is sometimes called the “employer mandate.”

Reporting of health care costs to employees. The ACA generally requires employers who filed 250 or more W-2 forms in the preceding year to annually report to employees the value of health insurance coverage they provide. The reporting requirement is informational only; it doesn’t cause health care benefits to become taxable.

Additional 0.9% Medicare tax. This applies to:

* Wages and/or self-employment (SE) income above $200,000 for single and head of household filers, or
* Combined wages and/or SE income above $250,000 for married couples filing jointly ($125,000 for married couples filing separately).

While there is no employer portion of this tax, employers are responsible for withholding the tax once an employee’s compensation for the calendar year exceeds $200,000, regardless of the employee’s filing status or income from other sources.

Cap on health care FSA contributions. The Flexible Spending Account (FSA) cap is indexed for inflation. For 2017, the maximum annual FSA contribution by an employee is $2,600.

There’s also one significant change that hasn’t kicked in yet: Beginning in 2020, the ACA calls for health insurance companies that service the group market and administrators of employer-sponsored health plans to pay a 40% excise tax on premiums that exceed the applicable threshold, generally $10,200 for self-only coverage and $27,500 for family coverage. This is commonly referred to as the “Cadillac tax.”

The ACA remains the law, at least for now. Contact us if you have questions about how it affects your business’s tax situation.

Victims of a disaster, fire or theft may be able to claim a casualty loss deduction

Posted by Admin Posted on Apr 03 2017

If you suffered damage to your home or personal property last year, you may be able to deduct these “casualty” losses on your 2016 federal income tax return. A casualty is a sudden, unexpected or unusual event, such as a natural disaster (hurricane, tornado, flood, earthquake, etc.), fire, accident, theft or vandalism. A casualty loss doesn’t include losses from normal wear and tear or progressive deterioration from age or termite damage.

Here are some things you should know about deducting casualty losses:

When to deduct. Generally, you must deduct a casualty loss on your return for the year it occurred. However, if you have a loss from a federally declared disaster area, you may have the option to deduct the loss on an amended return for the immediately preceding tax year.

Amount of loss. Your loss is generally the lesser of 1) your adjusted basis in the property before the casualty (typically, the amount you paid for it), or 2) the decrease in fair market value of the property as a result of the casualty. This amount must be reduced by any insurance or other reimbursement you received or expect to receive. (If the property was insured, you must have filed a timely claim for reimbursement of your loss.)

$100 rule. After you’ve figured your casualty loss on personal-use property, you must reduce that loss by $100. This reduction applies to each casualty loss event during the year. It doesn’t matter how many pieces of property are involved in an event.

10% rule. You must reduce the total of all your casualty or theft losses on personal-use property for the year by 10% of your adjusted gross income (AGI). In other words, you can deduct these losses only to the extent they exceed 10% of your AGI.

Have questions about deducting casualty losses? Contact us!

Offer plan loans? Be sure to set a reasonable interest rate

Posted by Admin Posted on Mar 22 2017

Like many businesses, yours may allow retirement plan participants to take out loans from their accounts. Such loans are governed by many IRS and Department of Labor (DOL) rules and regulations. So if your company offers plan loans, your plan document must comply with current laws — including setting a “reasonable” interest rate.

Agency perspectives

Neither the IRS nor DOL provides a set percentage for plan sponsors to use. Yet both require the rate to be “reasonable.” The IRS asks if the interest rate is similar to local interest rates and to what local banks charge individuals for similar loans with similar credit and collateral. Meanwhile, DOL regulations say that an interest rate is reasonable if it’s equal to commercial lending interest rates under similar circumstances.

The DOL provides several examples of how to determine the interest rate. For example, suppose the plan loan interest rate is set at 8%, but local banks offer between 10% and 12% for similar circumstances. In this example, the loan will fail to meet the reasonable standard.

Keep in mind that the plan participant pays the interest to his or her own retirement plan account. That’s one reason why charging an interest rate that’s lower than what local banks are charging isn’t considered reasonable. The purpose of charging interest on retirement plan loans is to help prevent long-term harm to the participant’s retirement nest egg.

Ill consequences

If your plan fails to assess a reasonable interest rate, participant loans may result in a prohibited transaction. What does this mean? Prohibited transactions are certain transactions between a retirement plan and a disqualified person. Disqualified persons taking part in a prohibited transaction must pay a tax.

A prohibited transaction includes the lending of money or other extension of credit between a plan and a disqualified person. However, the laws specifically exempt plan loans from the prohibited transaction list as long as they comply with applicable rules. If your interest rate isn’t reasonable, the plan loan may lose its exempt status and become subject to the prohibited transaction tax.

Ongoing task

Ensuring you’re offering a reasonable plan loan interest rate is an ongoing task. Review your plan document and loan policy statement to determine whether the plan sets an interest rate. You may need to update the document to comply with the more recent regulations and interest rates. We can help you with this review, as well as in calculating a reasonable rate.

Who can — and who should — take the American Opportunity credit?

Posted by Admin Posted on Mar 21 2017

If you have a child in college, you may be eligible to claim the American Opportunity credit on your 2016 income tax return. If, however, your income is too high, you won’t qualify for the credit — but your child might. There’s one potential downside: If your dependent child claims the credit, you must forgo your dependency exemption for him or her. And the child can’t take the exemption.

The limits

The maximum American Opportunity credit, per student, is $2,500 per year for the first four years of postsecondary education. It equals 100% of the first $2,000 of qualified expenses, plus 25% of the next $2,000 of such expenses.

The ability to claim the American Opportunity credit begins to phase out when modified adjusted gross income (MAGI) enters the applicable phaseout range ($160,000–$180,000 for joint filers, $80,000–$90,000 for other filers). It’s completely eliminated when MAGI exceeds the top of the range.

Running the numbers

If your American Opportunity credit is partially or fully phased out, it’s a good idea to assess whether there’d be a tax benefit for the family overall if your child claimed the credit. As noted, this would come at the price of your having to forgo your dependency exemption for the child. So it’s important to run the numbers.

Dependency exemptions are also subject to a phaseout, so you might lose the benefit of your exemption regardless of whether your child claims the credit. The 2016 adjusted gross income (AGI) thresholds for the exemption phaseout are $259,400 (singles), $285,350 (heads of households), $311,300 (married filing jointly) and $155,650 (married filing separately).

If your exemption is fully phased out, there likely is no downside to your child taking the credit. If your exemption isn’t fully phased out, compare the tax savings your child would receive from the credit with the savings you’d receive from the exemption to determine which break will provide the greater overall savings for your family.

We can help you run the numbers and can provide more information about qualifying for the American Opportunity credit.

Make sure the IRS won’t consider your business to be a “hobby”

Posted by Admin Posted on Mar 21 2017

If you run a business “on the side” and derive most of your income from another source (whether from another business you own, employment or investments), you may face a peculiar risk: Under certain circumstances, this on-the-side business might not be a business at all in the eyes of the IRS. It may be a hobby.

The hobby loss rules

Generally, a taxpayer can deduct losses from profit-motivated activities, either from other income in the same tax year or by carrying the loss back to a previous tax year or forward to a future tax year. But, to ensure these pursuits are really businesses — and not mere hobbies intended primarily to offset other income — the IRS enforces what are commonly referred to as the “hobby loss” rules.

If you haven’t earned a profit from your business in three out of five consecutive years, including the current year, you’ll bear the burden of proof to show that the enterprise isn’t merely a hobby. But if this profit test can be met, the burden falls on the IRS. In either case, the agency looks at factors such as the following to determine whether the activity is a business or a hobby:

  • Do you carry on the activity in a business-like manner?
  • Does the time and effort put into the activity indicate an intention to make a profit?
  • Do you depend on income from the activity?
  • If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
  • Have you changed methods of operation to improve profitability?
  • Do you (or your advisors) have the knowledge needed to carry on the activity as a successful business?
  • Have you made a profit in similar activities in the past?
  • Does the activity make a profit in some years?
  • Do you expect to make a profit in the future from the appreciation of assets used in the activity?

Dangers of reclassification

If your enterprise is reclassified as a hobby, you can’t use a loss from the activity to offset other income. You may still write off certain expenses related to the hobby, but only to the extent of income the hobby generates. If you’re concerned about the hobby loss rules, we can help you evaluate your situation.

Getting your money’s worth out of a company retreat

Posted by Admin Posted on Mar 16 2017

Company retreats can cost enormous amounts of time and money. Are they worth it? Sometimes. Large-scale get-togethers can involve considerable out-of-pocket costs. And if the retreat is poorly planned or executed, participants’ wasted time is the biggest expense.

But a properly budgeted, planned and executed retreat can be hugely profitable, producing fresh ideas, renewed enthusiasm and heightened employee morale. Here are a few ways to get your money’s worth out of a company retreat.

Create specific objectives

First, nail down your goals and objectives. Several months ahead of time, determine and prioritize a list of the important issues you want to address. But include only the top two or three on the final agenda. Otherwise, you risk rushing through some items without adequate time for discussion and formalized action plans.

If one of the objectives is to include time for socializing, recreation or relaxation, great. Mixing fun with work keeps people energized. But if staff see the retreat as merely time away from the office to party and golf, don’t expect to complete many work-related agenda items. One successful way to mix work and pleasure is to schedule work sessions for the morning and more fun, team-building exercises later in the day.

Set limits, allow flexibility

Next, work on the budget. Determining available resources early in the planning process will help you set limits for such variable costs as location, accommodations, food, transportation, speakers and entertainment.

Instead of insisting on certain days for the retreat, select a range of possible dates. This openness helps with site selection and makes it easier to negotiate favorable hotel and travel rates. Keep your budget as flexible as possible, building in a 5% to 10% safety cushion. Always expect unforeseen, last-minute expenses.

Have fun

Company retreats are serious business in the sense that you’re sacrificing time and productivity to identify strategic goals and improve teamwork. But these events should still be fun experiences for you and your staff. We can help you establish a reasonable budget to help ensure an enjoyable, productive and cost-effective retreat.

The Section 1031 exchange: Why it’s such a great tax planning tool

Posted by Admin Posted on Mar 14 2017

Like many business owners, you might also own highly appreciated business or investment real estate. Fortunately, there’s an effective tax planning strategy at your disposal: the Section 1031 “like kind” exchange. It can help you defer capital gains tax on appreciated property indefinitely.

How it works

Section 1031 of the Internal Revenue Code allows you to defer gains on real or personal property used in a business or held for investment if, instead of selling it, you exchange it solely for property of a “like kind.” In fact, these arrangements are often referred to as “like-kind exchanges.” Thus, the tax benefit of an exchange is that you defer tax and, thereby, have use of the tax savings until you sell the replacement property.

Personal property must be of the same asset or product class. But virtually any type of real estate will qualify as long as it’s business or investment property. For example, you can exchange a warehouse for an office building, or an apartment complex for a strip mall.

Executing the deal

Although an exchange may sound quick and easy, it’s relatively rare for two owners to simply swap properties. You’ll likely have to execute a “deferred” exchange, in which you engage a qualified intermediary (QI) for assistance.

When you sell your property (the relinquished property), the net proceeds go directly to the QI, who then uses them to buy replacement property. To qualify for tax-deferred exchange treatment, you generally must identify replacement property within 45 days after you transfer the relinquished property and complete the purchase within 180 days after the initial transfer.

An alternate approach is a “reverse” exchange. Here, an exchange accommodation titleholder (EAT) acquires title to the replacement property before you sell the relinquished property. You can defer capital gains by identifying one or more properties to exchange within 45 days after the EAT receives the replacement property and, typically, completing the transaction within 180 days.

The rules for like-kind exchanges are complex, so these arrangements present some risks. If, say, you exchange the wrong kind of property or acquire cash or other non-like-kind property in a deal, you may still end up incurring a sizable tax hit. Be sure to contact us when exploring a Sec. 1031 exchange.

2016 IRA contributions — it’s not too late!

Posted by Admin Posted on Mar 14 2017

Yes, there’s still time to make 2016 contributions to your IRA. The deadline for such contributions is April 18, 2017. If the contribution is deductible, it will lower your 2016 tax bill. But even if it isn’t, making a 2016 contribution is likely a good idea.

Benefits beyond a deduction

Tax-advantaged retirement plans like IRAs allow your money to grow tax-deferred — or, in the case of Roth accounts, tax-free. But annual contributions are limited by tax law, and any unused limit can’t be carried forward to make larger contributions in future years.

This means that, once the contribution deadline has passed, the tax-advantaged savings opportunity is lost forever. So it’s a good idea to use up as much of your annual limit as possible.

Contribution options

The 2016 limit for total contributions to all IRAs generally is $5,500 ($6,500 if you were age 50 or older on December 31, 2016). If you haven’t already maxed out your 2016 limit, consider making one of these types of contributions by April 18:

1. Deductible traditional. If you and your spouse don’t participate in an employer-sponsored plan such as a 401(k) — or you do but your income doesn’t exceed certain limits — the contribution is fully deductible on your 2016 tax return. Account growth is tax-deferred; distributions are subject to income tax.

2. Roth. The contribution isn’t deductible, but qualified distributions — including growth — are tax-free. Income-based limits, however, may reduce or eliminate your ability to contribute.

3. Nondeductible traditional. If your income is too high for you to fully benefit from a deductible traditional or a Roth contribution, you may benefit from a nondeductible contribution to a traditional IRA. The account can still grow tax-deferred, and when you take qualified distributions you’ll be taxed only on the growth. Alternatively, shortly after contributing, you may be able to convert the account to a Roth IRA with minimal tax liability.

Want to know which option best fits your situation? Contact us.

When an elderly parent might qualify as your dependent

Posted by Admin Posted on Mar 09 2017

It’s not uncommon for adult children to help support their aging parents. If you’re in this position, you might qualify for the adult-dependent exemption. It allows eligible taxpayers to deduct up to $4,050 for each adult dependent claimed on their 2016 tax return.

Basic qualifications

For you to qualify for the adult-dependent exemption, in most cases your parent must have less gross income for the tax year than the exemption amount. (Exceptions may apply if your parent is permanently and totally disabled.) Generally Social Security is excluded, but payments from dividends, interest and retirement plans are included.

In addition, you must have contributed more than 50% of your parent’s financial support. If you shared caregiving duties with a sibling and your combined support exceeded 50%, the exemption can be claimed even though no one individually provided more than 50%. However, only one of you can claim the exemption.

Factors to consider

Even though Social Security payments can usually be excluded from the adult dependent’s income, they can still affect your ability to qualify. Why? If your parent is using Social Security money to pay for medicine or other expenses, you may find that you aren’t meeting the 50% test.

Don’t forget about your home. If your parent lives with you, the amount of support you claim under the 50% test can include the fair market rental value of part of your residence. If the parent lives elsewhere — in his or her own residence or in an assisted-living facility or nursing home — any amount of financial support you contribute to that housing expense counts toward the 50% test.

Easing the financial burden

Sometimes caregivers fall just short of qualifying for the exemption. Should this happen, you may still be able to claim an itemized deduction for the medical expenses that you pay for the parent. To receive a tax benefit, the combined medical expenses paid for you, your dependents and your parent must exceed 10% of your adjusted gross income.

The adult-dependent exemption is just one tax break that you may be able to employ to ease the financial burden of caring for an elderly parent. Contact us for more information on qualifying for this break or others.

Filing deadline rapidly approaching for flow-through entities

Posted by Admin Posted on Mar 09 2017

The federal income tax filing deadline for calendar-year partnerships, S corporations and limited liability companies (LLCs) treated as partnerships or S corporations for tax purposes is March 15. While this deadline is nothing new for S corporation returns, it’s earlier than previous years for partnership returns.

In addition to providing continued funding for federal transportation projects, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 changed the due dates for several types of tax and information returns, including partnership income tax returns. The revised due dates are generally effective for tax years beginning after December 31, 2015. In other words, they apply to the tax returns for 2016 that are due in 2017.

The new deadlines

The new due date for partnerships with tax years ending on December 31 to file federal income tax returns is March 15. For partnerships with fiscal year ends, tax returns are due the 15th day of the third month after the close of the tax year.

Under prior law, returns for calendar-year partnerships were due April 15. And returns for fiscal-year partnerships were due the 15th day of the fourth month after the close of the fiscal tax year.

One of the primary reasons for moving up the partnership filing deadline was to make it easier for owners to file their personal returns by the April 15 deadline (April 18 in 2017 because of a weekend and a Washington, D.C., holiday). After all, partnership (and S corporation) income flows through to the owners. The new date should allow owners to use the information contained in the partnership forms to file their personal returns.

Extension deadlines

If you haven’t filed your partnership or S corporation return yet, you may be thinking about an extension. Under the new law, the maximum extension for calendar-year partnerships is six months (until September 15). This is up from five months under prior law. So the extension deadline doesn’t change — only the length of the extension. The extension deadline for calendar-year S corporations also remains at September 15. But you must file for the extension by March 15.

Keep in mind that, to avoid potential interest and penalties, you still must (with a few exceptions) pay any tax due by the unextended deadline. There may not be any tax liability from the partnership or S corporation return. But if filing for an extension for the entity return causes you to also have to file an extension for your personal return, you need to keep this in mind related to the individual tax return April 18 deadline.

Filing for an extension can be tax-smart if you’re missing critical documents or you face unexpected life events that prevent you from devoting sufficient time to your return right now. Please contact us if you need help or have questions about the filing deadlines that apply to you or avoiding interest and penalties.

Listen and trust: The power of collaborative management

Posted by Admin Posted on Mar 08 2017

Many business owners are accustomed to running the whole show. But as your company grows, you’ll likely be better off sharing responsibility for major decisions. Whether you’ve recruited experienced managers or developed “home grown” talent, you can empower these employees by taking a more collaborative approach to management.

Not employees — team members

Successful collaboration starts with a new mindset. Stop thinking of your managers as employees and instead regard them as team members working toward the same common goals. To promote collaboration and make the best use of your human resources, clearly communicate your strategic objectives. For example, if you’ve prioritized expanding into new territories, make sure your managers aren’t still focusing on extracting new business from current sales areas.

You also must be willing to listen to your managers’ ideas — and to act on the viable ones. Relinquishing control can be hard for business owners, but keep the advantages in mind. A collaborative approach distributes the decision-making burden, so it doesn’t fall on just your shoulders. This may relieve stress and allow you to focus on areas of the company you may have neglected.

Confidence and development

Even as you move to a more collaborative management model and include employees in strategic decisions, don’t forget to recognize their individual skills and talents. You and other managers may have uncertainties about a new marketing plan, for instance, but you should trust your marketing director to carry it out with minimal oversight.

To ensure that managers know they have your confidence, conduct regular performance reviews where you note their contributions and accomplishments and explore opportunities for growth. Moreover, help them grow professionally by providing constructive, ongoing training to develop their leadership and teamwork skills.

An open mind

As you learn to trust your management team with greater responsibility, keep in mind that the process can be bumpy. In a crisis, your instinct may be to take charge and brush off your managers’ advice. But it’s critical to keep your mind open and be receptive to input from people who may one day run your company. Let our firm assist you in assessing the profitability impact of your management team.

Don’t make hunches — crunch the numbers

Posted by Admin Posted on Mar 02 2017

Some business owners make major decisions by relying on gut instinct. But investments made on a “hunch” often fall short of management’s expectations.

In the broadest sense, you’re really trying to answer a simple question: If my company buys a given asset, will the asset’s benefits be greater than its cost? The good news is that there are ways — using financial metrics — to obtain an answer.

Accounting payback

Perhaps the most common and basic way to evaluate investment decisions is with a calculation called “accounting payback.” For example, a piece of equipment that costs $100,000 and generates an additional gross margin of $25,000 per year has an accounting payback period of four years ($100,000 divided by $25,000).

But this oversimplified metric ignores a key ingredient in the decision-making process: the time value of money. And accounting payback can be harder to calculate when cash flows vary over time.

Better metrics

Discounted cash flow metrics solve these shortcomings. These are often applied by business appraisers. But they can help you evaluate investment decisions as well. Examples include:

Net present value (NPV). This measures how much value a capital investment adds to the business. To estimate NPV, a financial expert forecasts how much cash inflow and outflow an asset will generate over time. Then he or she discounts each period’s expected net cash flows to its current market value, using the company’s cost of capital or a rate commensurate with the asset’s risk. In general, assets that generate an NPV greater than zero are worth pursuing.

Internal rate of return (IRR). Here an expert estimates a single rate of return that summarizes the investment opportunity. Most companies have a predetermined “hurdle rate” that an investment must exceed to justify pursuing it. Often the hurdle rate equals the company’s overall cost of capital — but not always.

A mathematical approach

Like most companies, yours probably has limited funds and can’t pursue every investment opportunity that comes along. Using metrics improves the chances that you’ll not only make the right decisions, but that other stakeholders will buy into the move. Please contact our firm for help crunching the numbers and managing the decision-making process.

Tangible property safe harbors help maximize deductions

Posted by Admin Posted on Mar 01 2017

If last year your business made repairs to tangible property, such as buildings, machinery, equipment or vehicles, you may be eligible for a valuable deduction on your 2016 income tax return. But you must make sure they were truly “repairs,” and not actually “improvements.”

Why? Costs incurred to improve tangible property must be depreciated over a period of years. But costs incurred on incidental repairs and maintenance can be expensed and immediately deducted.

What’s an “improvement”?

In general, a cost that results in an improvement to a building structure or any of its building systems (for example, the plumbing or electrical system) or to other tangible property must be capitalized. An improvement occurs if there was a betterment, restoration or adaptation of the unit of property.

Under the “betterment test,” you generally must capitalize amounts paid for work that is reasonably expected to materially increase the productivity, efficiency, strength, quality or output of a unit of property or that is a material addition to a unit of property.

Under the “restoration test,” you generally must capitalize amounts paid to replace a part (or combination of parts) that is a major component or a significant portion of the physical structure of a unit of property.

Under the “adaptation test,” you generally must capitalize amounts paid to adapt a unit of property to a new or different use — one that isn’t consistent with your ordinary use of the unit of property at the time you originally placed it in service.

2 safe harbors

Distinguishing between repairs and improvements can be difficult, but a couple of IRS safe harbors can help:

1. Routine maintenance safe harbor. Recurring activities dedicated to keeping property in efficient operating condition can be expensed. These are activities that your business reasonably expects to perform more than once during the property’s “class life,” as defined by the IRS.

Amounts incurred for activities outside the safe harbor don’t necessarily have to be capitalized, though. These amounts are subject to analysis under the general rules for improvements.

2. Small business safe harbor. For buildings that initially cost $1 million or less, qualified small businesses may elect to deduct the lesser of $10,000 or 2% of the unadjusted basis of the property for repairs, maintenance, improvements and similar activities each year. A qualified small business is generally one with gross receipts of $10 million or less.

There is also a de minimis safe harbor as well as an exemption for materials and supplies up to a certain threshold. Contact us for details on these safe harbors and exemptions and other ways to maximize your tangible property deductions.

What can a valuation expert do for your succession plan?

Posted by Admin Posted on Feb 23 2017

Most business owners spend a lifetime building their business. And when it comes to succession, they face the difficult decision of whether to sell, dissolve or transfer the business to family members (or a nonfamily successor).

Many complicated issues are involved, including how to divvy up business interests, allocate value and tackle complex tax issues. Thus, as you put together your succession plan, include not only your financial and legal advisors, but also a qualified valuation professional.

Various value factors

When drafting a succession plan, a valuation expert can help you put a number on various factors that will affect your company’s value. Just a few examples include:

Projected cash flows. According to both the market and income valuation approaches, future earnings determine value. To the extent that a business experiences decreasing, or increasing, demand and rising (or falling) prices, expected cash flows will be affected. Historical financial statements may require adjustments to reflect changes in future expectations.

Perceived risk. Greater risk results in higher discount rates (under the income approach) and lower pricing multiples (under the market approach), which translates into lower values (and vice versa). When selecting comparables, the transaction date is an important selection criterion a valuator considers.

Expected growth. Greater expected revenue growth contributes to value. In addition, there’s a high correlation between revenue growth and earnings (and thus, cash flow) growth.

Other determinants of discounts In many cases, valuation discounts are applied to a company’s value. For example, decreased liquidity translates into higher marketability discounts, while increased liquidity reduces marketability discounts. Other factors that affect the magnitude of valuation discounts include:

  • Type of assets held,
  • Financial performance of the underlying assets,
  • Portfolio diversification,
  • Leverage,
  • Owner rights and restrictions,
  • Distribution history, and
  • Personal characteristics of the general partners or managing members.

 

Discounts vary significantly, but can reach (or exceed) 40% of the entity’s net asset value, depending on the specifics of the situation.

For best results

An accurate and timely value estimate can facilitate the succession process and prevent costly and time-consuming conflicts. Please contact our firm for more information.

Deduct all of the mileage you’re entitled to — but not more

Posted by Admin Posted on Feb 23 2017

Rather than keeping track of the actual cost of operating a vehicle, employees and self-employed taxpayers can use a standard mileage rate to compute their deduction related to using a vehicle for business. But you might also be able to deduct miles driven for other purposes, including medical, moving and charitable purposes.

What are the deduction rates?

The rates vary depending on the purpose and the year:
Business: 54 cents (2016), 53.5 cents (2017)
Medical: 19 cents (2016), 17 cents (2017)
Moving: 19 cents (2016), 17 cents (2017)
Charitable: 14 cents (2016 and 2017)

The business standard mileage rate is considerably higher than the medical, moving and charitable rates because the business rate contains a depreciation component. No depreciation is allowed for the medical, moving or charitable use of a vehicle. In addition to deductions based on the standard mileage rate, you may deduct related parking fees and tolls.

What other limits apply?

The rules surrounding the various mileage deductions are complex. Some are subject to floors and some require you to meet specific tests in order to qualify. For example, miles driven for health-care-related purposes are deductible as part of the medical expense deduction. But medical expenses generally are deductible only to the extent they exceed 10% of your adjusted gross income. (For 2016, the deduction threshold is 7.5% for qualifying seniors.)

And while miles driven related to moving can be deductible, the move must be work-related. In addition, among other requirements, the distance from your old residence to the new job must be at least 50 miles more than the distance from your old residence to your old job.

Other considerations

There are also substantiation requirements, which include tracking miles driven. And, in some cases, you might be better off deducting actual expenses rather than using the mileage rates.

So contact us to help ensure you deduct all the mileage you’re entitled to on your 2016 tax return — but not more. You don’t want to risk back taxes and penalties later. And if you drove potentially eligible miles in 2016 but can’t deduct them because you didn’t track them, start tracking your miles now so you can potentially take advantage of the deduction when you file your 2017 return next year.

An EAP can keep your top players on the floor

Posted by Admin Posted on Feb 20 2017

A good basketball team is at its best when its top players are on the floor. Similarly, a company is the most productive, efficient and innovative when its best employees are in the right positions, doing great work.

Unfortunately, it’s not uncommon for good employees to battle personal problems, such as substance dependence, financial and legal woes, or mental health issues. These struggles can negatively affect their productivity and the working environment around them. One way employers can help is by offering a benefit called an employee assistance program (EAP).

A benefit with benefits

An EAP helps identify at-risk employees and assist them in finding the professional help they need. An employee who enrolls in the EAP may, for example, immediately be put in touch with a counselor or social worker.

According to the U.S. Department of Labor’s Office of Disability Employment Policy, EAPs have been shown to contribute to:

  • Decreased absenteeism,
  • Reduced accidents and fewer workers’ compensation claims,
  • Greater employee retention,
  • Fewer labor disputes, and
  • Significantly reduced medical costs arising from early identification and
  • treatment of individual mental health and substance abuse issues.

 

Vendors available

An EAP is, of course, not a substitute for health care insurance.

Employers don’t have to create and administer EAPs on their own. A wide variety of vendors are available. But, as is the case with any benefit, it’s important to choose a vendor carefully and make sure you get good value for your investment. Please contact our firm for assistance in assessing the costs and specific features of an EAP.

Do you need to file a 2016 gift tax return by April 18?

Posted by Admin Posted on Feb 17 2017

Last year you may have made significant gifts to your children, grandchildren or other heirs as part of your estate planning strategy. Or perhaps you just wanted to provide loved ones with some helpful financial support. Regardless of the reason for making a gift, it’s important to know under what circumstances you’re required to file a gift tax return.

Some transfers require a return even if you don’t owe tax. And sometimes it’s desirable to file a return even if it isn’t required.

When filing is required

Generally, you’ll need to file a gift tax return for 2016 if, during the tax year, you made gifts:

  • That exceeded the $14,000-per-recipient gift tax annual exclusion (other than to your U.S. citizen spouse),
  • That exceeded the $148,000 annual exclusion for gifts to a noncitizen spouse,
  • That you wish to split with your spouse to take advantage of your combined $28,000 annual exclusions,
  • To a Section 529 college savings plan for your child, grandchild or other loved one and wish to accelerate up to five years’ worth of annual exclusions ($70,000) into 2016,
  • Of future interests — such as remainder interests in a trust — regardless of the amount, or
  • Of jointly held or community property.

 

When filing isn’t required

No return is required if your gifts for the year consist solely of annual exclusion gifts, present interest gifts to a U.S. citizen spouse, qualifying educational or medical expenses paid directly to a school or health care provider, and political or charitable contributions.

If you transferred hard-to-value property, such as artwork or interests in a family-owned business, consider filing a gift tax return even if you’re not required to. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

Meeting the deadline

The gift tax return deadline is the same as the income tax filing deadline. For 2016 returns, it’s April 18, 2017 (or October 16 if you file for an extension). If you owe gift tax, the payment deadline is also April 18, regardless of whether you file for an extension.

SEPs: A powerful retroactive tax planning tool

Posted by Admin Posted on Feb 15 2017

Simplified Employee Pensions (SEPs) are sometimes regarded as the “no-brainer” first choice for high-income small-business owners who don’t currently have tax-advantaged retirement plans set up for themselves. Why? Unlike other types of retirement plans, a SEP is easy to establish and a powerful retroactive tax planning tool: The deadline for setting up a SEP is favorable and contribution limits are generous.

SEPs do have a couple of downsides if the business has employees other than the owner: 1) Contributions must be made for all eligible employees using the same percentage of compensation as for the owner, and 2) employee accounts are immediately 100% vested.

Deadline for set-up and contributions

A SEP can be established as late as the due date (including extensions) of the business’s income tax return for the tax year for which the SEP is to first apply. For example:

  • A calendar-year partnership or S corporation has until March 15, 2017, to establish a SEP for 2016 (September 15, 2017, if the return is extended).
  • A calendar-year sole proprietor or C corporation has until April 18, 2017 (October 16, 2017, if the return is extended), because of their later filing deadlines.

The deadlines for limited liability companies (LLCs) depend on the tax treatment the LLC has elected. Furthermore, the business has until these same deadlines to make 2016 contributions and still claim a potentially hefty deduction on its 2016 return.

Generally, other types of retirement plans would have to have been established by December 31, 2016, in order for 2016 contributions to be made (though many of these plans do allow 2016 contributions to be made in 2017).

Contribution amounts

Contributions to SEPs are discretionary. The business can decide what amount of contribution it will make each year. The contributions go into SEP-IRAs established for each eligible employee.

For 2016, the maximum contribution that can be made to a SEP-IRA is 25% of compensation (or 20% of self-employed income net of the self-employment tax deduction) of up to $265,000, subject to a contribution cap of $53,000. The 2017 limits are $270,000 and $54,000, respectively.

Setting up a SEP is easy

A SEP is established by completing and signing the very simple Form 5305-SEP (“Simplified Employee Pension — Individual Retirement Accounts Contribution Agreement”). Form 5305-SEP is not filed with the IRS, but it should be maintained as part of the business’s permanent tax records. A copy of Form 5305-SEP must be given to each employee covered by the SEP, along with a disclosure statement.

Of course, additional rules and limits do apply to SEPs, but they’re generally much less onerous than those for other retirement plans. If you think a SEP might be good for your business, please contact us.

Envision your advisory board before you form it

Posted by Admin Posted on Feb 12 2017

Many companies reach a point in their development where they could benefit from an advisory board. It’s all too easy in today’s complex business world to get caught up in an “echo chamber” of ideas and perspectives that only originate internally.

For many business owners, an understandable first question about the concept is: What should my advisory board look like? To find an answer, start by envisioning the ideal size and composition of your company’s board in terms of skill sets and personalities.

The guest list

First and foremost, participants in your advisory board should have skills, experience and expertise that complement your company’s in-house staff. Second, they should support your established long-term strategic goals.

Ideal board candidates can think creatively and provide constructive advice while maintaining discretion with sensitive business issues. This allows the board to honestly discuss every aspect of your operations, including:

  • Current challenges,
  • Emerging opportunities, and
  • Managerial dynamics

Selecting advisory members is similar to selecting friends and colleagues to invite to an intimate dinner party. You want a diverse mix of backgrounds, expertise and skills. For example, try to balance impulsive, assertive personalities with more thoughtful, cautious ones.

An evolving entity

Bear in mind that, as your business needs change, you may need to rotate some board members out and bring in new blood. For instance, if the company needs to upgrade to a new technology platform to minimize data breaches, board members who were invaluable when the company began — and technology perhaps played a less prominent role — may lack the experience needed to get the business through the next phase.

In addition, the size of your board may change over time. Generally, business owners should limit the number of members to three to seven people. This will help keep the board affordable and manageable, particularly in terms of effective deliberation and decision making. But it may need to grow beyond that in number if your company itself gets larger.

Innovation and competition

Sage advice and diversity of opinion can be invaluable when looking to innovate and gain a competitive edge. Please contact our firm for help assessing whether now is the time for your business to form an advisory board.

What you need to know about the tax treatment of ISOs

Posted by Admin Posted on Feb 09 2017

Incentive stock options allow you to buy company stock in the future at a fixed price equal to or greater than the stock’s fair market value on the grant date. If the stock appreciates, you can buy shares at a price below what they’re then trading for. However, complex tax rules apply to this type of compensation.

Current tax treatment

ISOs must comply with many rules but receive tax-favored treatment:

  • You owe no tax when ISOs are granted.
  • You owe no regular income tax when you exercise ISOs, but there could be alternative minimum tax (AMT) consequences.
  • If you sell the stock after holding the shares at least one year from the exercise date and two years from the grant date, you pay tax on the sale at your long-term capital gains rate. You also may owe the 3.8% net investment income tax (NIIT).
  • If you sell the stock before long-term capital gains treatment applies, a “disqualifying disposition” occurs and any gain is taxed as compensation at ordinary-income rates.

So if you were granted ISOs in 2016, there likely isn’t any impact on your 2016 income tax return. But if in 2016 you exercised ISOs or you sold stock you’d acquired via exercising ISOs, then it could affect your 2016 tax liability. And it’s important to properly report the exercise or sale on your return to avoid potential interest and penalties for underpayment of tax.

Future exercises and stock sales

If you receive ISOs in 2017 or already hold ISOs that you haven’t yet exercised, plan carefully when to exercise them. Waiting to exercise ISOs until just before the expiration date (when the stock value may be the highest, assuming the stock is appreciating) may make sense. But exercising ISOs earlier can be advantageous in some situations.

Once you’ve exercised ISOs, the question is whether to immediately sell the shares received or to hold on to them long enough to garner long-term capital gains treatment. The latter strategy often is beneficial from a tax perspective, but there’s also market risk to consider. For example, it may be better to sell the stock in a disqualifying disposition and pay the higher ordinary-income rate if it would avoid AMT on potentially disappearing appreciation.

The timing of the sale of stock acquired via an exercise could also positively or negatively affect your liability for higher ordinary-income tax rates, the top long-term capital gains rate and the NIIT.

Planning ahead

Keep in mind that the NIIT is part of the Affordable Care Act (ACA), and lawmakers in Washington are starting to take steps to repeal or replace the ACA. So the NIIT may not be a factor in the future. In addition, tax law changes are expected later this year that might include elimination of the AMT and could reduce ordinary and long-term capital gains rates for some taxpayers. When changes might go into effect and exactly what they’ll be is still uncertain.

If you’ve received ISOs, contact us. We can help you ensure you’re reporting everything properly on your 2016 return and evaluate the risks and crunch the numbers to determine the best strategy for you going forward.

PTO banks: A smart HR solution for many companies

Posted by Admin Posted on Feb 03 2017

“I’m taking a sick day!” This familiar refrain usually is uttered with just cause, but not always. What if there were no sick days? No, we’re not suggesting employees be forced to work when they’re under the weather. Rather, many businesses are adopting a different paradigm when it comes to paid time off (PTO).

Under the “PTO bank” concept, employers merge most (or all) of the traditional components of excused absences (vacation time, sick time, personal days and so on) into one simple employee-managed account, typically offering not quite as many PTO days as under a traditional PTO system. One benefit of this approach is that employers are no longer put in a position to have to judge whether leave is used appropriately. PTO banks may not work for every business, but more and more companies are finding them beneficial.

6 primary motivations

There are a number of reasons that employers are offering PTO banks. Specifically, according to a survey by the HR professional society WorldatWork, here are the six primary motivations:

1. Greater flexibility for employees. Like their employers, many employees appreciate not having to worry about distinguishing vacation time from sick time.

2. Ease of administration. Employers don’t have to deal with the complications of separating the various PTO components, which makes the HR and payroll staff’s job easier.

3. Increased cost effectiveness. More efficient administration often reduces the costs of time and resources spent dealing with employee absences and lost productivity.

4. The ability to stay competitive with other companies. Many employees and job candidates view PTO banks as a more contemporary and appealing approach to excused absences.

5. Reduced absenteeism. Interestingly, some employers have seen employees miss fewer work days once PTO banks have been established — possibly because of the greater sense of control employees have over their time.

6. Improved employee morale. Simplifying the PTO process and gaining greater command over their time off is typically viewed as a positive, empowering thing by employees.

Enticing benefits

Although these many potential benefits may seem enticing, PTO banks may not be right for every employer. For example, you may not want to disrupt your current system if it’s working well. Please contact our firm for a review of your PTO approach and how it’s affecting your financials.

2016 higher-education breaks can save your family taxes

Posted by Admin Posted on Feb 02 2017

Was a college student in your family last year? Or were you a student yourself? You may be eligible for some valuable tax breaks on your 2016 return. To max out your higher education breaks, you need to see which ones you’re eligible for and then claim the one(s) that will provide the greatest benefit. In most cases you can take only one break per student, and, for some breaks, only one per tax return.

Credits vs. deductions

Tax credits can be especially valuable because they reduce taxes dollar-for-dollar; deductions reduce only the amount of income that’s taxed. A couple of credits are available for higher education expenses:

  1. The American Opportunity credit — up to $2,500 per year per student for qualifying expenses for the first four years of postsecondary education.
  2. The Lifetime Learning credit — up to $2,000 per tax return for postsecondary education expenses, even beyond the first four years.

But income-based phaseouts apply to these credits.

If you’re eligible for the American Opportunity credit, it will likely provide the most tax savings. If you’re not, the Lifetime Learning credit isn’t necessarily the best alternative.

Despite the dollar-for-dollar tax savings credits offer, you might be better off deducting up to $4,000 of qualified higher education tuition and fees. Because it’s an above-the-line deduction, it reduces your adjusted gross income, which could provide additional tax benefits. But income-based limits also apply to the tuition and fees deduction.

Be aware that the tuition and fees deduction expired December 31, 2016. So it won’t be available on your 2017 return unless Congress extends it or makes it permanent.

How much can your family save?

Keep in mind that, if you don’t qualify for breaks for your child’s higher education expenses because your income is too high, your child might. Many additional rules and limits apply to the credits and deduction, however. To learn which breaks your family might be eligible for on your 2016 tax returns — and which will provide the greatest tax savings — please contact us.

The “manufacturers’ deduction” isn’t just for manufacturers

Posted by Admin Posted on Jan 31 2017

The Section 199 deduction is intended to encourage domestic manufacturing. In fact, it’s often referred to as the “manufacturers’ deduction.” But this potentially valuable tax break can be used by many other types of businesses besides manufacturing companies.

Sec. 199 deduction 101

The Sec. 199 deduction, also called the “domestic production activities deduction,” is 9% of the lesser of qualified production activities income or taxable income. The deduction is also limited to 50% of W-2 wages paid by the taxpayer that are allocable to domestic production gross receipts.

Yes, the deduction is available to traditional manufacturers. But businesses engaged in activities such as construction, engineering, architecture, computer software production and agricultural processing also may be eligible.

The deduction isn’t allowed in determining net self-employment earnings and generally can’t reduce net income below zero. But it can be used against the alternative minimum tax.

How income is calculated

To determine a company’s Sec. 199 deduction, its qualified production activities income must be calculated. This is the amount of domestic production gross receipts (DPGR) exceeding the cost of goods sold and other expenses allocable to that DPGR. Most companies will need to allocate receipts between those that qualify as DPGR and those that don’t — unless less than 5% of receipts aren’t attributable to DPGR.

DPGR can come from a number of activities, including the construction of real property in the United States, as well as engineering or architectural services performed stateside to construct real property. It also can result from the lease, rental, licensing or sale of qualifying production property, such as:

  • Tangible personal property (for example, machinery and office equipment),
  • Computer software, and
  • Master copies of sound recordings.

The property must have been manufactured, produced, grown or extracted in whole or “significantly” within the United States. While each situation is assessed on its merits, the IRS has said that, if the labor and overhead incurred in the United States accounted for at least 20% of the total cost of goods sold, the activity typically qualifies.

Contact us to learn whether this potentially powerful deduction could reduce your business’s tax liability when you file your 2016 return.

Is your business committed to its cost-control regimen?

Posted by Admin Posted on Jan 26 2017

At the beginning of the year, many people decide they’re going to get in the best shape of their lives. Similarly, many business owners declare that they intend to cut costs and operate at peak efficiency going forward.

But, like keeping up an exercise routine, controlling costs takes an ongoing effort. You need to not only review expenses now, but also commit yourself to doing so regularly. Here are some key points to keep in mind.

Choosing where to slim down

A good cost-control plan starts by clearly identifying manageable expenses in every business area — no exceptions. Prime candidates include:

  • Contracts for phone and data service, hardware, and software,
  • Lease agreements for office space, plant and warehouse space, and equipment,
  • Mission-critical supplies and assets (such as safety gear, tools and vehicles),
  • Maintenance contracts (for example, janitorial service),
  • Repairs and leasehold improvements, and
  • Utilities and office supplies.

Controlling expenses in these and other areas doesn’t mean one-time cost cutting, which is really just a reaction to a problem. Cost control requires foresight and strategic management.

Going the distance

Indeed, many business owners sometimes confuse cost-control programs with cost-cutting initiatives. The difference is that a cost-control plan should be a long-term solution — not just a quick-fix measure to make budget or shore up a bad quarter.

Managing expenses should be a strategic decision that starts at the top and is clearly communicated down the organizational chart. Train and encourage your managers to accurately track costs with an eye toward maximizing profitability. In turn, team leaders should work with their employees to solve the problems driving up expenses. It’s always better to be proactive than reactive.

Boosting cash flow

Controlling costs is among the best ways to maintain or increase cash flow. Tightly managed expenses free up dollars for profitable operations, prevent excessive inventory and wasteful spending, and keep cash available for business growth. Need help with your cost-control regimen? Please contact our firm.

Why 2016 may be an especially good year to take bonus depreciation

Posted by Admin Posted on Jan 25 2017

Bonus depreciation allows businesses to recover the costs of depreciable property more quickly by claiming additional first-year depreciation for qualified assets. The PATH Act, signed into law a little over a year ago, extended 50% bonus depreciation through 2017.

Claiming this break is generally beneficial, though in some cases a business might save more tax in the long run if they forgo it. However, 2016 may be an especially good year to take bonus depreciation. Keep this in mind when you’re filing your 2016 tax return.

Eligible assets

New tangible property with a recovery period of 20 years or less (such as office furniture and equipment) qualifies for bonus depreciation. So does off-the-shelf computer software, water utility property and qualified improvement property. And beginning in 2016, the qualified improvement property doesn’t have to be leased.

It isn’t enough, however, to have acquired the property in 2016. You must also have placed the property in service in 2016.

Now vs. later

If you’re eligible for bonus depreciation and you expect to be in the same or a lower tax bracket in future years, taking bonus depreciation (to the extent you’ve exhausted any Section 179 expensing available to you) is likely a good tax strategy. It will defer tax, which generally is beneficial.

But if your business is growing and you expect to be in a higher tax bracket in the near future, you may be better off forgoing bonus depreciation. Why? Even though you’ll pay more tax for 2016, you’ll preserve larger depreciation deductions on the property for future years, when they may be more powerful — deductions save more tax when you’re paying a higher tax rate.

Making a decision for 2016

The greater tax-saving power of deductions when rates are higher is why 2016 may be a particularly good year to take bonus depreciation. With both President Trump and the Republican-controlled Congress wishing to reduce tax rates, there’s a good chance that such legislation could be signed into law.

This means your tax rate could be lower for 2017 (if changes go into effect for 2017) and future years. If that happens, there’s a greater likelihood that taking bonus depreciation for 2016 would save you more tax than taking all of your deduction under normal depreciation schedules over a period of years.

Also keep in mind that, under the PATH Act, bonus depreciation is scheduled to drop to 40% for 2018, drop to 30% for 2019, and expire Dec. 31, 2019. Of course, Congress could pass legislation extending 50% bonus depreciation or making it permanent — or it could eliminate it or reduce the bonus depreciation percentage sooner.

If you’re unsure whether you should take bonus depreciation on your 2016 return — or you have questions about other depreciation-related breaks, such as Sec. 179 expensing — contact us.

Succession planning and estate planning must go hand in hand

Posted by Admin Posted on Jan 24 2017

As the saying goes, nothing lasts forever — and that goes for most companies. Then again, with the right succession plan in place, you can do your part to ensure your business continues down a path of success for at least another generation. From there, it will be your successor’s job to propel it further into perpetuity.

Some business owners make the mistake of largely ignoring succession planning under the assumption that it’s taken care of within their estate plans. Others create a succession plan but fail to adequately integrate it into their estate plan. To avoid these mistakes, it’s important to recognize the difference between succession planning and estate planning.

Similar, but different

Essentially, succession planning is the careful identification and training of those who will not only take over the day-to-day operations of your company, but also lead it forward to future growth. Your family members and other heirs will likely be affected here. But many others will be as well — including your named successor (whether or not a family member), business partners, employees, vendors and customers.

Estate planning, meanwhile, involves determining the distribution of your assets through gifting strategies, wills and other tools (such as trusts and insurance). The people affected by it are your family members and other heirs.

Because of this important distinction, it’s critical to undertake succession planning and estate planning as a joint effort. After all, who gets leadership responsibilities in the business and who gets ownership interests in the business may or may not be the same.

You must ask yourself who is best suited to run the business when you depart, and what ownership transfer plan will treat you and all of your heirs fairly or otherwise achieve your estate planning goals. This includes, among other things, knowing when you want to retire and how much income you’ll need to do it.

Success today and tomorrowstrong>

Do you have both a clear succession plan and a well-documented estate plan? And are the two compatible in every respect? To make absolutely sure you can answer “yes” to both of these questions, please contact us. Our firm can help you develop plans that will distribute your assets per your wishes while putting your company in the best position to succeed going forward.

Deduction for state and local sales tax benefits some, but not all, taxpayers

Posted by Admin Posted on Jan 18 2017

The break allowing taxpayers to take an itemized deduction for state and local sales taxes in lieu of state and local income taxes was made “permanent” a little over a year ago. This break can be valuable to those residing in states with no or low income taxes or who purchase major items, such as a car or boat.

Your 2016 tax return

How do you determine whether you can save more by deducting sales tax on your 2016 return? Compare your potential deduction for state and local income tax to your potential deduction for state and local sales tax.

Don’t worry — you don’t have to have receipts documenting all of the sales tax you actually paid during the year to take full advantage of the deduction. Your deduction can be determined by using an IRS sales tax calculator that will base the deduction on your income and the sales tax rates in your locale plus the tax you actually paid on certain major purchases (for which you will need substantiation).

2017 and beyond

If you’re considering making a large purchase in 2017, you shouldn’t necessarily count on the sales tax deduction being available on your 2017 return. When the PATH Act made the break “permanent” in late 2015, that just meant that there’s no scheduled expiration date for it. Congress could pass legislation to eliminate the break (or reduce its benefit) at any time.

Recent Republican proposals have included elimination of many itemized deductions, and the new President has proposed putting a cap on itemized deductions. Which proposals will make it into tax legislation in 2017 and when various provisions will be signed into law and go into effect is still uncertain.

Questions about the sales tax deduction or other breaks that might help you save taxes on your 2016 tax return? Or about the impact of possible tax law changes on your 2017 tax planning? Contact us — we can help you maximize your 2016 savings and effectively plan for 2017.

Identify all of your company’s retirement plan fiduciaries

Posted by Admin Posted on Jan 15 2017

Your company probably offers its employees a retirement plan. If so, can you identify all of your plan fiduciaries? From a risk management perspective, it’s critical for business owners to know who has fiduciary status — and the associated liability. Here are some common, though in some cases overlooked, plan fiduciaries:

Named fiduciaries. The Employee Retirement Income Security Act (ERISA) requires a plan to have named fiduciaries. The plan document identifies the corporate entity or individual serving as the named fiduciary. If they aren’t immediately identified, the plan document will set the requirements for naming them.

Plan trustees. These are people who have exclusive authority and discretion to manage and control the plan assets. The trustee can be subject to the direction of a named fiduciary. These plan fiduciaries have a broad scope of responsibility.

Board of directors and committee members. The individuals who choose plan trustees and administrative committee members are considered under ERISA to be fiduciaries. Typically these are the members of the corporate board of directors. The scope of their fiduciary duty focuses on how they fulfill that specific function, and not on everything that happens with the plan itself. The law also sees as fiduciaries people who exercise discretion in key decisions about plan administration, including members of the administrative committee, if such a committee exists.

Investment managers and advisors. The named fiduciary can appoint one or more investment managers for the plan’s assets. People or firms who manage plan assets are plan fiduciaries. However, individuals employed by third party service providers can fall into different fiduciary categories. The investment manager who has complete discretion over plan asset investments has the greatest fiduciary responsibility. In contrast, a corporation or individual who offers investment advice, but doesn’t actually call the shots, has a lesser fiduciary responsibility.

These are just a few examples. Anyone who exercises discretionary authority over any vital facet of plan operations may be considered a “functional fiduciary.” Please contact our firm for a review of your retirement plan and its fiduciaries.

New HRA offers small employers an attractive, tax-advantaged health care option

Posted by Admin Posted on Jan 11 2017

In December, Congress passed the 21st Century Cures Act. The long and complex bill covers a broad range of health care topics, but of particular interest to some businesses should be the Health Reimbursement Arrangement (HRA) provision. Specifically, qualified small employers can now use HRAs to reimburse employees who purchase individual insurance coverage, rather than providing employees with costly group health plans.

The need for HRA relief

Employers can use HRAs to reimburse their workers’ medical expenses, including health insurance premiums, up to a certain amount each year. The reimbursements are excludable from employees’ taxable income, and untapped amounts can be rolled over to future years. HRAs generally have been considered to be group health plans for tax purposes.

But the Affordable Care Act (ACA) prohibits group health plans from imposing annual or lifetime benefits limits and requires such plans to provide certain preventive services without any cost-sharing by employees. And according to previous IRS guidance, “standalone HRAs” — those not tied to an existing group health plan — didn’t comply with these rules, even if the HRAs were used to purchase health insurance coverage that did comply. Businesses that provided the HRAs were subject to fines of $100 per day for each affected employee.

The IRS position was troublesome for smaller businesses that struggled to pay for traditional group health plans or to administer their own self-insurance plans. The changes in the Cures Act give these employers a third option for providing one of the benefits most valued by today’s employees.

The QSEHRA

Under the Cures Act, certain small employers can maintain general purpose, standalone HRAs that aren’t “group health plans” for most purposes under the Internal Revenue Code, Employee Retirement Income Security Act and Public Health Service Act.

More specifically, the legislation allows employers that aren’t “applicable large employers” under the ACA to provide a Qualified Small Employer HRA (QSEHRA) if they don’t offer a group health plan to any of their employees. Annual benefits under a QSEHRA:

  • Can’t exceed an indexed maximum of $4,950 per year ($10,000 if family members are covered),
  • Must be employer-funded (no salary reductions), and
  • Can be used for only IRC Section 213(d) medical care.

QSEHRA benefits must be offered on the same terms to all “eligible employees” (certain individuals can be disregarded) and may be excluded from income only if the recipient has minimum essential coverage. There is a notice requirement and employees’ permitted benefits must be reported on Form W-2. If you’re interested in exploring the QSEHRA option for your business, contact us for further details.

Help prevent tax identity theft by filing early

Posted by Admin Posted on Jan 10 2017

If you’re like many Americans, you might not start thinking about filing your tax return until close to this year’s April 18 deadline. You might even want to file for an extension so you don’t have to send your return to the IRS until October 16.

But there’s another date you should keep in mind: January 23. That’s the date the IRS will begin accepting 2016 returns, and filing as close to that date as possible could protect you from tax identity theft.

Why early filing helps

In an increasingly common scam, thieves use victims’ personal information to file fraudulent tax returns electronically and claim bogus refunds. This is usually done early in the tax filing season. When the real taxpayers file, they’re notified that they’re attempting to file duplicate returns.

A victim typically discovers the fraud after he or she files a tax return and is informed by the IRS that the return has been rejected because one with the same Social Security number has already been filed for the same tax year. The IRS then must determine who the legitimate taxpayer is.

Tax identity theft can cause major headaches to straighten out and significantly delay legitimate refunds. But if you file first, it will be the tax return filed by a potential thief that will be rejected — not yours.

Another important date

Of course, in order to file your tax return, you’ll need to have your W-2s and 1099s. So another key date to be aware of is January 31 — the deadline for employers to issue 2016 W-2s to employees and, generally, for businesses to issue 1099s to recipients of any 2016 interest, dividend or reportable miscellaneous income payments.

Delays for some refunds

The IRS reminded taxpayers claiming the earned income tax credit or the additional child tax credit to expect a longer wait for their refunds. A law passed in 2015 requires the IRS to hold refunds on tax returns claiming these credits until at least February 15.

An additional benefit

Let us know if you have questions about tax identity theft or would like help filing your 2016 return early. If you’ll be getting a refund, an added bonus of filing early is that you’ll be able to enjoy your refund sooner.

4 principles of competitive intelligence

Posted by Admin Posted on Jan 05 2017

We live and work in the information age. As such, the opportunity to gather knowledge about your company’s competitors and industry as a whole has never been better. This practice — commonly known as “competitive intelligence” — can help you stay more nimble in the marketplace and avoid getting left behind as innovation surges forward.

Before you dive into competitive intelligence, however, it’s important to establish a formal policy governing your efforts. (If you’ve already gotten started, perhaps slow down and integrate a policy going forward.) Generally, a competitive intelligence policy should follow four primary principles:

1. Be authentic. When gathering information, don’t hide behind secret identities or misrepresent your affiliation. For instance, if you sign up to receive marketing e-mails from a competitor, use an official company address and, if asked, state “product or service evaluation” as the reason you’re subscribing.

2. Respect all formal agreements. In the course of gathering competitive intelligence, you or your employees may establish sources within the industry or even with a specific competitor. Be sure you don’t encourage these sources, even inadvertently, to violate any standing confidentiality or noncompete agreements.

3. Abide by all intellectual property rights and laws. As you may know, the technicalities of intellectual property law are complex. It can be easy to run afoul of the rules unintentionally. When accessing or studying another company’s products or services, proceed carefully and consult your attorney before putting any lessons learned into practice.

4. Monitor consultants closely. When it comes to competitive intelligence, the Achilles’ heel of many companies isn’t their employees but outside consultants. If you engage third parties for any purpose, be sure they know and abide by your policy.

With the Internet booming and social media thriving, there’s a wealth of information out there about your competitors. It can help you shape your strategic planning and stay in better touch with your industry. Please contact our firm for assistance in integrating competitive intelligence into your profit enhancement goals.

2017 Q1 tax calendar: Key deadlines for businesses and other employers

Posted by Admin Posted on Jan 04 2017

Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2017. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

January 31

  • File 2016 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
  • File 2016 Forms 1099-MISC, “Miscellaneous Income,” reporting nonemployee compensation payments in Box 7 with the IRS, and provide copies to recipients.
  • File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2016. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return. Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944,“Employer’s Annual Federal Tax Return.”
  • File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2016. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 10 to file the return.
  • File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2016 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return.

February 28

File 2016 Forms 1099-MISC with the IRS and provide copies to recipients. (Note that Forms 1099-MISC reporting nonemployee compensation in Box 7 must be filed by January 31, beginning with 2016 forms filed in 2017.)

March 15

If a calendar-year partnership or S corporation, file or extend your 2016 tax return. If the return isn’t extended, this is also the last day to make 2016 contributions to pension and profit-sharing plans.

Considering a spinoff? Think it through

Posted by Admin Posted on Dec 28 2016

In popular culture, the word “spinoff” usually refers to a television show whose main characters originated from an already established show. But the word applies to the business world, too. Here it describes a division or subsidiary of a company being sold off to a buyer as a separate entity.

The process is hardly simple. As a seller, you need to not only get a good price for your division or subsidiary, but also minimize any negative impact on your remaining holdings.

Driving factors

Many factors can drive a company to spin off a division. Common reasons include:

  • Seizing an opportunity in the M&A marketplace,
  • Focusing better on the core business,
  • Accessing capital for reinvestment, and
  • Operating more efficiently.

Spinoffs are usually executed more quickly than full-blown business sales, which can be appealing. Also, in consolidated industries with limited buyer pools, management may worry that a full sale would raise red flags with antitrust authorities.

Potential challenges

If it’s a standalone subsidiary being sold, the spinoff will likely be relatively easy. The unit is already legally separate from its parent and probably won’t have much overlap with its parent’s operations.

More challenging is spinning off an internal division — also known as a “carveout.” Here the seller has to determine which of its employees, clients and product lines will be included in the carved-out division. The seller also must legally extricate the division’s assets, debts and liabilities from those of the parent company.

Because a company must decide which employees, products and property belong with the selling division, battles over ownership of certain assets are possible. For example, if the carveout and a unit that’s remaining with the parent company both rely on the same exclusive intellectual property, who retains ownership postsale?

Worthy consideration

Is your company looking to streamline operations? Could it use the cash from selling a strong division? If so, a spinoff is worth considering. But you’ll need to think through the strategy thoroughly and execute the deal carefully. Please contact our firm to discuss the concept further and assess the financials involved.

Few changes to retirement plan contribution limits for 2017

Posted by Admin Posted on Dec 28 2016

Nevertheless, if you’re not already maxing out your contributions, you still have an opportunity to save more in 2017. And if you turn age 50 in 2017, you can begin to take advantage of catch-up contributions.

However, keep in mind that additional factors may affect how much you’re allowed to contribute (or how much your employer can contribute on your behalf). For example, income-based limits may reduce or eliminate your ability to make Roth IRA contributions or to make deductible traditional IRA contributions. If you have questions about how much you can contribute to tax-advantaged retirement plans in 2017, check with us.

Retirement plan contribution limits are indexed for inflation, but with inflation remaining low, most of the limits remain unchanged for 2017. The only limit that has increased from the 2016 level is for contributions to defined contribution plans, which has gone up by $1,000.

Type of limit

2017 limit

Elective deferrals to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans

$18,000

Contributions to defined contribution plans

$54,000

Contributions to SIMPLEs

$12,500

Contributions to IRAs

$5,500

Catch-up contributions to 401(k), 403(b), 457(b)(2) and 457(c)(1) plans

$6,000

Catch-up contributions to SIMPLEs

$3,000

Catch-up contributions to IRAs

$1,000

 

Build consensus before you buy business software

Posted by Admin Posted on Dec 26 2016

Business owners get to make executive decisions. It’s one of the perks of the job. But acting unilaterally when buying business software can be a risky move. Because new technology affects the entire team, the entire team (or at least key members) should have input on the choice. And while it may be impossible to please everyone, it’s possible to come close.

Management feedback

Certain kinds of new business software (or upgrades) may appear no-brainers. But you’d be surprised. Managers may see a lot of bells and whistles in a just-released product, but few useful features. You also have to consider the software’s compatibility with your company’s other applications. So begin by gathering feedback from your management team. In particular, note which features are “must haves” and which ones are “just wants.” Then work with your IT and financial departments (or advisors) to target the right software within a specific budgetary range.

Employee input

Even if your managers agree on a product, the process isn’t over. Although giving lower-level employees a say in the software selection process might seem to create more problems than it solves, they’ll be using it too. So lay the groundwork for a smooth implementation by hearing their thoughts as well. As you do so, try to assuage any fear or confusion about the prospective new software. Typically effective moves include:

  • Announcing which company system (or systems) will be affected,
  • Explaining your strategic objectives for adding or changing software, and
  • Keeping staff regularly updated on the effort’s progress.

This approach can make employees feel like they’re part of the initiative and help foster more rapid buy-in.

A smart buy

Whether shopping for the holidays or buying mission-critical business software, everyone wants to make a smart buy. Please contact our firm for help setting a budget and engaging in a procurement process that ensures you make a smart buy.

Want to save for education? Make 2016 ESA contributions by December 31

Posted by Admin Posted on Dec 21 2016

There are many ways to save for a child’s or grandchild’s education. But one has annual contribution limits, and if you don’t make a 2016 contribution by December 31, the opportunity will be lost forever. We’re talking about Coverdell Education Savings Accounts (ESAs).

Not just for college

One major advantage of ESAs over another popular education saving tool, the Section 529 plan, is that tax-free ESA distributions aren’t limited to college expenses; they also can fund elementary and secondary school costs. That means you can use ESA funds to pay for such qualified expenses as tutoring and private school tuition.

Another advantage is that you have more investment options. So ESAs are beneficial if you’d like to have direct control over how and where your contributions are invested.

Annual contribution limits

The annual contribution limit is $2,000 per beneficiary. However, the ability to contribute is phased out based on income.

The limit begins to phase out at a modified adjusted gross income (MAGI) of $190,000 for married filing jointly and $95,000 for other filers. No contribution can be made when MAGI hits $220,000 and $110,000, respectively.

Maximizing ESA savings

Because the annual contribution limit is low, if you want to maximize your ESA savings, it’s important to contribute every year in which you’re eligible. The contribution limit doesn’t carry over from year to year. In other words, if you don’t make a $2,000 contribution in 2016, you can’t add that $2,000 to the 2017 limit and make a $4,000 contribution next year.

However, because the contribution limit applies on a per beneficiary basis, before contributing make sure no one else has contributed to an ESA on behalf of the same beneficiary. If someone else has, you’ll need to reduce your contribution accordingly.

Would you like more information about ESAs or other tax-advantaged ways to fund your child’s — or grandchild’s — education expenses? Contact us!

Take stock of your inventory accounting method’s impact on your tax bill

Posted by Admin Posted on Dec 19 2016

If your business involves the production, purchase or sale of merchandise, your inventory accounting method can significantly affect your tax liability. In some cases, using the last-in, first-out (LIFO) inventory accounting method, rather than first-in, first-out (FIFO), can reduce taxable income, giving cash flow a boost. Tax savings, however, aren’t the only factor to consider.

FIFO vs. LIFOstrong

FIFO assumes that merchandise is sold in the order it was acquired or produced. Thus, the cost of goods sold is based on older — and often lower — prices. The LIFO method operates under the opposite assumption: It allocates the most recent costs to the cost of sales.

If your inventory costs generally rise over time, LIFO offers a definite tax advantage. By allocating the most recent — and, therefore, higher — costs first, it maximizes your cost of goods sold, which minimizes your taxable income. But LIFO involves more sophisticated record keeping and more complex calculations, so it’s more time-consuming and expensive than FIFO.

Other considerations

LIFO can create a problem if your inventory levels begin to decline. As higher inventory costs are used up, you’ll need to start dipping into lower-cost “layers” of inventory, triggering taxes on “phantom income” that the LIFO method previously has allowed you to defer. If you use LIFO and this phantom income becomes significant, consider switching to FIFO. It will allow you to spread out the tax on phantom income.

If you currently use FIFO and are contemplating a switch to LIFO, beware of the IRS’s LIFO conformity rule. It generally requires you to use the same inventory accounting method for tax and financial statement purposes. Switching to LIFO may reduce your tax bill, but it will also depress your earnings and reduce the value of inventories on your balance sheet, which may place you at a disadvantage in comparison to competitors that don’t use LIFO. There are various issues to address and forms to complete, so be fully informed and consult your tax advisor before making a switch.

The method you use to account for inventory can have a big impact on your tax bill and financial statements. These are only a few of the factors to consider when choosing an inventory accounting method. Contact us for help assessing which method will provide the best fit with your current financial situation

Your company’s balance sheet makes great reading this time of year

Posted by Admin Posted on Dec 15 2016

Year end is just about here. You know what that means, right? It’s a great time to settle in by a roaring fire and catch up on reading … your company’s financial statements. One chapter worth a careful perusal is the balance sheet. Therein may lie some important lessons.

3 ratios to consider

In a nutshell, a balance sheet summarizes a company’s assets, liabilities and shareholders’ equity at a specific point in time. Its objective: To provide an accurate snapshot of the financial standing of the business.

Yet a balance sheet can do so much more. There are a number of ratios you can draw from this report, which can help you lay out strategic plans for next year. Here are three to consider:

1. The ratio of current assets to current liabilities. If this ratio falls below 1, the company may struggle to pay bills coming due. Some business experts believe a current ratio of less than 2:1 is problematic. But the ideal ratio varies from industry to industry.

2. Growth in accounts receivable compared to growth in sales. If receivables are growing faster than increases in sales, your company might be building up bad debts or you could be selling to large customers under disadvantageous terms. You may even be the victim of fraud. (Note: Sales are expressed on your income statement, so you’ll need to look at that statement, as well.)

3. Growth in inventory vs. growth in sales. When inventory levels increase at a faster rate than sales, a business is producing products faster than they’re being sold. Or, in the retail industry, a company may be overbuying — an inefficient use of working capital. There can be many mitigating circumstances, however, so it’s critical to determine exactly what’s going on.

Thrilling tales

These are just a few things you can learn from your balance sheet. And we haven’t even gotten into the thrilling tales lying within your income statement and statement of cash flow — the other two parts of your financial statements. Please contact our firm for help making the most of this important information.

Why making annual exclusion gifts before year end can still be a good idea

Posted by Admin Posted on Dec 14 2016

A tried-and-true estate planning strategy is to make tax-free gifts to loved ones during life, because it reduces potential estate tax at death. There are many ways to make tax-free gifts, but one of the simplest is to take advantage of the annual gift tax exclusion with direct gifts. Even in a potentially changing estate tax environment, making annual exclusion gifts before year end can still be a good idea.

What is the annual exclusion?

The 2016 gift tax annual exclusion allows you to give up to $14,000 per recipient tax-free without using up any of your $5.45 million lifetime gift tax exemption. If you and your spouse “split” the gift, you can give $28,000 per recipient. The gifts are also generally excluded from the generation-skipping transfer tax, which typically applies to transfers to grandchildren and others more than one generation below you.

The gifted assets are removed from your taxable estate, which can be especially advantageous if you expect them to appreciate. That’s because the future appreciation can also avoid gift and estate taxes.

Making gifts in 2016

The exclusion is scheduled to remain at $14,000 ($28,000 for split gifts) in 2017. But that’s not a reason to skip making annual exclusion gifts this year. You need to use your 2016 exclusion by Dec. 31 or you’ll lose it.

The exclusion doesn’t carry from one year to the next. For example, if you don’t make an annual exclusion gift to your daughter this year, you can’t add $14,000 to your 2017 exclusion to make a $28,000 tax-free gift to her next year.

While the President-elect and Republicans in Congress have indicated that they want to repeal the estate tax, it’s uncertain exactly what tax law changes will be passed, since the Republicans don’t have a filibuster-proof majority in the Senate. Plus, in some states there’s a state-level estate tax. So if you have a large estate, making 2016 annual exclusion gifts is generally still well worth considering.

We can help you determine how to make the most of your 2016 gift tax annual exclusion.

Help prevent the year-end vacation-time scramble with a PTO contribution arrangement

Posted by Admin Posted on Dec 14 2016

Many businesses find themselves short-staffed from Thanksgiving through December 31 as employees take time off to spend with family and friends. But if you limit how many vacation days employees can roll over to the new year, you might find your workplace a ghost town as workers scramble to use, rather than lose, their time off. A paid time off (PTO) contribution arrangement may be the solution.

How it works

A PTO contribution program allows employees with unused vacation hours to elect to convert them to retirement plan contributions. If the plan has a 401(k) feature, it can treat these amounts as a pretax benefit, similar to normal employee deferrals. Alternatively, the plan can treat the amounts as employer profit sharing, converting excess PTO amounts to employer contributions.

A PTO contribution arrangement can be a better option than increasing the number of days employees can roll over. Why? Larger rollover limits can result in employees building up large balances that create a significant