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COVID-19 UPDATES FROM MARSHALL JONES

March 23, 2020 by Julie Lakric


In these uncertain times, we want to offer you the assurance that Marshall Jones is working at maximum capacity to service all of your audit, tax and bookkeeping needs, and is actively monitoring legislation at the Federal and State level that could impact you and your businesses.

We urge you to continue to consult with us prior to taking action based on news reports which are sometimes incomplete.  This blog will be updated with only the most impactful and official news and legislation, relevant to you.

While there have been many reports and rumors on tax relief, stimulus packages, and the like, only one major piece of legislation has been signed so far, though more are expected in the coming weeks.  Below is a synopsis of the major provisions in this legislation, with a simple description of how they may affect you and your business.

I. Congress – CARES Act

On March 27, 2020, the “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act” was
signed into law, in part to provide a variety of funding streams for economic relief and stimulus to those
economically impacted by the COVID-19 pandemic. We have highlighted some of the more relevant and
impactful parts of this new law below.

Title I – Keeping American Workers Paid and Employed Act

Paycheck Protection Program

  • Paycheck Protection Loans, guaranteed by the SBA, available to businesses and 501(c)(3) nonprofits with fewer than 500 employees.  This includes sole proprietorships, independent contractors, and self-employed individuals.
    • Maximum loan will be 2.5 times the average monthly payments of the following items for the 1-year period before the date the loan is made plus total amounts due under other certain SBA loans:
      1. Salary, wage, commission, or similar compensation
      2. Payment of cash tip or equivalent
      3. Payment for vacation, parental, family, medical, or sick leave
      4. Allowance for dismissal or separation
      5. Payment required for the provisions of group health care benefits, including insurance premiums
      6. Payment of any retirement benefits
      7. Payment of State and local tax assessed on the compensation of employees
    • Loan funds may be used for:
      • Payroll costs defined above
      • Other group health care benefits paid
      • Payments of interest on any mortgage obligation (excluding prepaid interest)
      • Rent
      • Utilities
      • Interest on other debt obligations
    • Borrower Requirements
      • Good faith certification by the borrower.
    • Deferral of Repayment
      • Lenders must defer payment of principal and interest to between 6 months and 1 year.
      • There will be no prepayment penalty.

Loan Forgiveness

Borrowers are eligible for forgiveness of loans equal to the sum of the following costs incurred and payments made from February 15, 2020 through June 30, 2020

  • Payroll costs defined above
  • Payment of interest on mortgage obligations (excluding prepaid interest)
  • Rent
  • Utilities

Forgivable amount calculated above may be reduced by the following:

  • Pro-rata reduction of full-time equivalent employees
  • Pro-rata reduction of total salary or wages
  • Rehires are taken into consideration for this calculation
  • Documentation required to apply for forgiveness include:
    • Payroll tax filings
    • state income, payroll, and unemployment insurance filings
    • Documents verifying payments on covered payments such as cancelled checks and receipts
    • Certification of proper use of funds
  • Lender has 60 days to approve forgiveness
  • Forgiven amounts will not be taxable

Learn more about the New Clarity Around Preparing for PPP Loan Forgiveness and the updated PPP Act passed by Congress on June 3, 2020.

Emergency EIDL Grants

  • From January 31, 2020, through December 31, 2020, businesses and nonprofits are eligible for another type of loan through the SBA.
    • $10,000 advanced may be received 3 days after SBA receives application.
      • Funds are to be used for providing paid sick leave to employees
      • Maintaining payroll to retain employees.
      • Meeting increased costs to obtain materials unavailable from original source.
      • Making rent or mortgage payments.
      • Repaying obligations that cannot be met due to revenue losses.
    • This advance does not have to be repaid even if the loan is denied.

If you are interested in applying for any of the available loans, please let us know.  We are happy to assist you in the application and loan forgiveness process, or help to answer other questions you may have about the available SBA loans.

Title II – Assistance for American Workers, Families, and Businesses

Rebates and Other Individual Provisions

  • Individuals unable to work due to COVID-19 for a period of up to 39 weeks from January 27, 2020, through December 31, 2020, are eligible for relief in amounts based upon State calculations.
    • Most individuals will receive an advanced tax credit refund of $1,200 ($2,400 in the case of eligible individuals filing a joint return), plus $500 for each qualifying child.
    • This credit will be phased out by 5% of the amount of adjusted gross income of your 2019 or 2018 tax return that exceeds the following:
      • $150,000 for joint filers
      • $112,500 for head of household filers
      • $75,000 for other tax payers

Other Individual Tax Provisions

  • Required Minimum Distributions from Qualified Retirement Plans are waived for 2020.
    • 10% penalty for early retirement plan withdrawal is waived for distributions up to $100,000 for qualified individuals affected by the virus.
      • Cash Charitable contributions during 2020 which are normally limited to 60% of Adjusted Gross Income are not subject to that limitation.
      • Taxpayers who do not itemize are eligible for a $300 cash charitable contribution deduction in arriving at Adjusted Gross Income.
      • Employer provided payments up to $5,250 per employee for student loan repayments are not includable in taxable income for any payments made before 1/1/2021.
      • Net Operating Loss deductions (NOL) previously limited to offsetting 80% of taxable income are allowed to fully offset taxable income in tax years beginning after 2017.
      • NOLs arising in a tax year beginning AFTER 12/31/2018 is eligible to be carried back to each of the FIVE preceding tax years.
      • The limit on Excess Business Losses has been lifted for tax years 2018, 2019 and 2020.  The Excess Business Loss limitation restricted Trade or Business Losses to Trade or Business income plus $250,000 ($500,000 if Married Filing Jointly).

Other Business Tax Provisions

  • The payment of the employer portion of payroll taxes (FICA and Medicare) can be deferred until 12/31/2021 for 50% of such taxes and 12/31/2022 for the remaining 50%.
    • The 30% limitation on the deductibility of business interest expense has been increased to 50% for tax years beginning in 2019 and 2020.
      • A technical correction designates Qualified Improvement Property as 15-year property, thus qualifying for 100% Bonus First Year Depreciation deduction effective retroactively for all property placed in service after 12/31/2017.
      • Corporations with Corporate Minimum Tax Credits, can claim 100% of those AMT credits in 2019.

Please know that these tax changes are often complex and face certain restrictions.  Please consult your Marshall Jones advisors for specifics as to how these changes may affect you.

Congress Public Law 116-136

Paycheck Protection Program

Treasury – CARES Act


I. IRS – RELIEF FOR TAXPAYERS AFFECTED BY ONGOING CORONAVIRUS DISEASE 2019 PANDEMIC: NOTICE 2020-18

Filing and Payment Relief

  • The 2019 income tax filing and payment deadlines for all taxpayers who file and pay their Federal income taxes on April 15, 2020, are automatically extended until July 15, 2020.
  • There will be no interest accruing from April 16th through July 15th and no penalties for filings or payments due April 15th that are completed by July 15th.
  • This relief applies to all individual returns, trusts, and corporations.
  • This relief is automatic, taxpayers do NOT need to file any additional forms or call the IRS to qualify.
  • Estimated tax payments for quarter one of 2020 that are due on April 15, 2020 are also automatically extended until July 15, 2020.
  • Individual and business taxpayers who need additional time to file beyond the July 15 deadline can request a filing extension until September 15 or October 15 based on prior law.

Marshall Jones is closely monitoring all new regulations from the IRS and are prepared to help businesses navigate the impacts and ensure proper compliance. 

If you are due a refund, please send your information in as soon as it is complete so we can get your refund into your hands!

Official IRS Publication

IRS Filing and Payment Deadline FAQs


II. GEORGIA DEPARTMENT OF REVENUE – GEORGIA CORONAVIRUS TAX RELIEF INFORMATION

  • The Georgia Department of Revenue is automatically extending the 2019 income tax filing and payment deadline to July 15, 2020
  • Vehicle registrations that expire between March 16, 2020 and May 14, 2020 are also being extended through May 15, 2020
  • Press release and FAQs on tax relief can be found at the link below

Georgia Tax Relief

AICPA GUIDE TO STATE FILING RELIEF


III. CONGRESS – CORONAVIRUS PREPAREDNESS AND RESPONSE SUPPLEMENTAL APPROPRIATIONS ACT, 2020: PUBLIC LAW NO: 116-123

The U.S. Small Business Administration is offering designated states and territories low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19). Upon a request received from a state’s or territory’s Governor, SBA will issue under its own authority, as provided by the Coronavirus Preparedness and Response Supplemental Appropriations Act that was recently signed by the President, an Economic Injury Disaster Loan declaration.

On March 18, 2020, Governor Brian P. Kemp announced that Georgia has received an official statewide disaster declaration from the U.S. Small Business Administration (SBA). This declaration will provide assistance in the form of SBA Economic Injury Disaster Loans to impacted small businesses in all 159 counties in Georgia

GEORGIA SBA PRESS RELEASE

CONGRESS BILL 116-123

SBA DISASTER ASSISTANCE


IV. CONGRESS – FAMILIES FIRST CORONAVIRUS RESPONSE ACT: PUBLIC LAW NO: 116-127

Emergency Family and Medical Leave Expansion Act and Emergency Paid Sick Leave Act

  • The current employee threshold for FMLA coverage changed from only covering employers with 50 or more employees to instead covering those employers with fewer than 500 employees.
  • It also lowers the eligibility requirement such that any employee who has worked for the employer for at least 30 days prior to the designated leave may be eligible to receive paid family and medical leave. 
  • It requires qualifying employers to provide two weeks of paid sick leave to employees affected by coronavirus (for a number of hours determined by an employee’s full- or part-time status) 
  • Emergency sick leave is limited to:
    • $511 per day/$5,110 in the aggregate for employees that are in quarantine or seeking a diagnosis for coronavirus; 
    • $200 per day/$2,000 in the aggregate to care for a quarantined family member or to provide childcare.
  • It provides employees the right to take up to 12 weeks of job-protected leave if the employee or a family member is in quarantine or if a child’s school or place of care is closed due to the coronavirus; 
  • It requires employers to provide no less than 2/3rd of the employee’s usual pay up to $200 per day, $10,000 in total; 
  • The 12 weeks of job-protected leave can apply AFTER employees take the provided two weeks of emergency paid sick leave. 

Small Employer Exception

  • The Department of Labor has the authority to exempt small businesses with fewer than 50 employees from compliance when “imposition of [the paid sick leave requirements] would jeopardize the viability of the business as a going concern.” The guidance for how to apply for exemption will be released by DOL at a later time.
  • Business closures or shutdowns are not covered reasons requiring paid sick leave.

Marshall Jones is closely monitoring all new regulations from the IRS and are prepared to help businesses navigate the impacts and ensure proper compliance. 

For now, our recommendation is to maintain detailed documentation of the time spent by employees for virus testing, medical care, school closures, and relevant information of affected family members, while also protecting the privacy of your employees. We suggest that employers develop an internal mechanism via intranet, separate email, or a time–keeping system to track the time employees are absent for reasons related to coronavirus, including a coronavirus diagnosis, recommended or required self-quarantine, care for a quarantines or ill family member, and/or care for a child who is ill or whose school or place of care is closed due to coronavirus.

Tax Credits For Paid Sick And Paid Family and Medical Leave

Paid Sick Leave Credit

  • For an employee who is unable to work because of Coronavirus quarantine or self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis, eligible employers (those with fewer than 500 employees) may receive a refundable sick leave credit for sick leave at the employee’s regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days.
  • For an employee who is caring for someone with Coronavirus, or is caring for a child because the child’s school or child care facility is closed, or the child care provider is unavailable due to the Coronavirus, eligible employers may claim a credit for two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

Child Care Leave Credit

  • In addition to the sick leave credit, for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to the Coronavirus, eligible employers may receive a refundable child care leave credit. This credit is equal to two-thirds of the employee’s regular pay, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave can be counted towards the child care leave credit. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

The expansion of required paid sick leave is designed to be completely reimbursable to the employer through immediate tax credits to payroll taxes

Each of these tax credits has complex qualifications, guidelines and reporting requirements The expansion of required paid sick leave is designed to be completely reimbursable to the employer through immediate tax credits to payroll taxes that could change rapidly and dramatically as the coronavirus outbreak continues.  We will keep you updated as we learn more and ask that you contact us with specific questions.  

116TH CONGRESS BILL 116-127


V. GEORGIA DEPARTMENT OF LABOR – EMERGENCY RULES ADOPTED 03-19-20

The Georgia Department of Labor (GDOL) has adopted an emergency Rule 300-2-4-0.5 Partial Claims, effective March 16, 2020. The rule mandates all Georgia employers to file partial claims online on behalf of their employees for any week during which an employee (full-time/part-time) works less than full-time due to a partial or total company shutdown caused by the COVID-19 public health emergency. Any employer found to be in violation of this rule will be required to reimburse GDOL for the full amount of unemployment insurance benefits paid to the employee.

Filing partial claims results in your employees receiving unemployment insurance (UI) benefit payments faster, usually within 48 hours for claims filed electronically.

Employees for whom you file a partial claim are NOT required to report to a Georgia Department of Labor career center, register for employment services, or look for other work.

On March 19th, the following additional emergency measures were adopted,

… in the determination of the Commissioner, the account of an employer may not be charged for certain benefits paid for unemployment due to the COVID-19 public health emergency, including benefits paid on partial claims filed online.

The Georgia Department of Labor has links to many help FAQs for employees and employers alike to assist with complying with the rule change.  Please follow this link to access this information.

GEORGIA DOL COVID 19 INFORMATION

GEORGIA DOL EMERGENCY RULES


Is your business in need of virtual accounting services? Contact Marshall Jones online or by phone (404) 231-2001 for more information

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Why Your Company Can Benefit from Outsourcing Your Accounting Department

March 2, 2020 by Julie Lakric

In 2020 businesses look to technology to perform or aid performance in every department. Video conference calls replace meetings, instant messaging replaces having to interrupt someone by walking to their office and more and more companies are going paperless with the utilizing cloud-based technology. 

As technology changes a large part of how businesses operate, the advantages of outsourcing accounting and financial management become more compelling. Outsourcing these functions allow a business to spend more time on their core business operations, customer service, business development and other activities that directly impact a company’s growth.

Below we will discuss the top 5 reasons you should outsource your companies accounting in 2020.

1. Avoid Having a Full Accounting Department on the Payroll

One of the biggest things to consider when outsourcing your accounting department is the savings you will have. When you outsource your accounting needs, you no longer have the overhead of that department on your books. That saves your company from paying the salary and benefits that the department would be using. 

2. You Can Be As Involved as You Want 

When you outsource your accounting department, you have a team working for you. At Marshall Jones, we work with you to determine how we can best suit your needs. We can send reports weekly, monthly, or quarterly and are always available to call, video conference, email and, of course, meet in person.

3. Financial Consultation by a Team of Professionals 

Outsourcing your accounting will only add to your company’s financial knowledge. Instead of a static group working on your financials, you can have a dynamic team that values keeping up with the industry best practices. Marshall Jones works with a wide variety of companies and industries, allowing us to understand and consult on strategic business decisions.

4. Dedicated CPAs Who Are Up To Date on the Latest Tax Laws

Do not worry about keeping up with the ever-changing tax laws. Hire a team that with the expertise to not only file your taxes for you, but help you plan and prepare during the year and work with you to find deductions you may not know you qualify for. Outsourcing guarantees that you are keeping up with the latest financial practices and tax laws while eliminating many manual processes that are inefficient.

5. Have All of Your Financials at the Touch of a Button

With the cloud-based technology used today, your financials are only a click away even when your tax team is across town in Atlanta and Alpharetta. With the advances in communication technology and the ability to share files, records and documents in seconds, outsourcing your accounting makes a lot of sense.

Are you a business in Atlanta or Alpharetta, Georgia looking for the best way to improve your financials in 2020? Contact the Certified Public Accountants and Advisors of Marshall Jones today to discuss all of your business’ needs.

birds' eye view of a group of people sitting around a table with a laptop and a calculator

8 Steps to Effective Project Management

February 4, 2020 by Julie Lakric

Whether you’re trying to launch a fresh product or break ground on new construction, making progress requires concentrated effort. Project management is the process of harnessing and organizing that effort to turn a concept into reality.

The project management process can involve many different phases depending on the complexity of the goal, including planning, organizing, scheduling, and executing the work involved. With a thorough project management plan, a daunting task becomes a series of simple, actionable steps that allow you to meet deadlines, stay on budget and achieve incredible things.

In today’s world of complex, multiphase tasks that encompass a large scope, good project management is essential. However, even smaller project goals can see substantial benefits from developing a plan for their achievement. If you’re interested in harnessing the power of planning to benefit your company, here are some essential project management tips for creating action plans that work for you. 

Project Management Steps for Success

Depending on the scope of the work, some of these steps may be combined or even expanded into sub-steps to accommodate your specific needs for project success. Nevertheless, approaching any goal with this process in mind will give you a strong foundation from which to determine your ideal phases of project management.

1. Define the Project

Every accomplishment begins with a concept. The first step in making it a reality is refining it so you have a clear objective. Think about your short- and long-term goals and how this project may impact other aspects of your business. When you know what you want to do or build, you can begin planning how you’re going to make it happen.

2. Determine Who Needs to Be Involved

Identifying the relevant stakeholders is one of the most critical phases of project management. This group will obviously include parties like business owners, sponsors, and shareholders, but it is also important to remember that everyone touched by the project has a stake in it, including consumers.

With all key parties identified, ensure their needs are met and secure the necessary approvals before moving forward.

3. Define the Steps Needed and Determine Who Will Work on Each

When evaluating the parties involved in the project management process, be sure to account for all the work that will be necessary to bring your plan to fruition. Will you be able to complete the project in-house? Will you need to hire contractors or buy new tools? These considerations have a significant impact on your budget and timeline, so they should always take place early in the planning process.

4. Set Goals and Determine What Qualifies as a Successful Outcome

Once you have a clear vision and you know what your stakeholders expect, the project management process becomes more concrete. Write out your project objectives and how you expect it to benefit everyone involved.

5. Identify a Timeline and Create a Schedule

An essential aspect of developing a functional timeline is accounting for how the steps of your project might overlap. Are any of your processes prerequisites for others? You’ll want to ensure your schedule is arranged to accommodate any interconnecting project demands.

In addition to creating a final deadline for the project, be sure to include realistic, achievable milestones that will occur along the way. These may include progress markers and deadlines for individual components. Keeping your project management steps manageable and actionable will keep the project moving and ensure the continued motivation of your team.

6. Assess Risks and Resources Needed

Every project involves some risk. When you take the time to consider what might go wrong in the course of execution, you can design contingency plans to keep the project on track. Similarly, you’ll want to be sure you have everything you need on hand to complete the project before it begins, preferably with a little extra to spare in case of unexpected issues.

7. Perform the Tasks

With your plan in place, your team ready, and your resources secure, it’s time to break ground. In this phase, your job as a project manager is to keep everything moving, ensuring open communication and proactively addressing issues so the project can continue to advance toward the finish line.

8. Test the Outcome and Determine Success 

The final step of the project management process is perhaps the most rewarding. Review the work that was accomplished and evaluate its success in light of the original goal and any circumstances that emerged during completion.

Very few projects are ever finished precisely as expected, but by following these project management tips, you can design a detailed and agile plan that keeps work moving and brings your vision to life in the end.

Sharpen Your Focus With Financial Management From Marshall Jones

When you are running a company or startup in Atlanta, your focus should be on the project at hand. Let Marshall Jones handle the accounting side of your business. Contact one of our Certified Public Accountants and Advisors today!

Preparing for an Audit? Here’s What You Need to Know

January 7, 2020 by Julie Lakric

Auditing is common and necessary for businesses. Understanding the process and the options available to you can make audits simple. Calculated, accurate auditing can improve your business so you can operate more efficiently in the future. 

Importance of Audit Preparation 

Preparation is key, especially when meeting financial reporting obligations during an audit. 

Auditing serves as proof that your business meets legal requirements. Doing the work in advance shows that your business prioritizes accounting and follows relevant guidelines. 

Audit preparation also has many secondary benefits. For instance, auditing unveils fraud quickly, mitigating harm. Auditing also encourages diligent recordkeeping so that your business is more aware and in better control of its financial situation.

Ultimately, auditing is an important process, and an audit prep checklist ensures it runs smoothly. 

The Different Types of Government Audits

The first step when preparing for a company audit is to identify and understand which type of audit you are dealing with. There are 14 main types of audits, each one serving a unique purpose. Once you do this, you can then take the necessary steps to prepare for the audit and incorporate the results into your daily operations.

1. External Audit

External audits are performed by external auditors who have no stake in your company. They are ideal for businesses of any size that want to get a clear look at their company and its processes without bias. An external, expert opinion is often one of the best resources for difficult issues your company may struggle with, like finance or tax compliance. Additionally, external audits lend your business more credibility with financial stakeholders.

As you prepare for an external audit, take the time to designate someone to be the liaison between your company and the external auditor. A single point of contact will help both you and the auditor stay organized. This person will be responsible for compiling reports and communicating with the auditor about questions, findings and more. 

2. Internal Audit

An internal audit is an audit your company handles itself, checking that each branch of the company is following the proper procedures and internal policies. The goal of an internal audit is to strengthen the organization and identify areas for improvement. To prepare for an internal audit, sit down with all areas of management and compile a thorough list of focal points. Your internal audit may prioritize elements such as risk management, compliance, accounting processes, financial reporting and operational processes.

3. Forensic Audit

A forensic audit is usually required at the request of the court, and its findings are used during legal proceedings to investigate fraud or misappropriation. To stay on top of a forensic audit, make sure your company keeps detailed records of all financial transactions, including dated receipts. Detailing a clear picture of your financial transactions before a forensic audit will help you prove your compliance and prepare your defense from all angles. 

4. Statutory Audit

Statutory audits are a legally required review of a company’s finances and financial procedures. A statutory audit can occur on a federal, state or local level. Because there are differences between local standards and national standards, do not use the results of a statutory audit as your primary source of information about your company’s standings. As you prepare for a statutory audit, make sure you submit all required documentation requested by the initiator on time to avoid delay.

5. Financial Audit

A financial audit is conducted by external auditors and carefully analyzes your company’s financial statements, processes and position. Because financial audits are typically an annual audit, make sure you close out your company’s fiscal year before proceeding. This way, you get an accurate report of your company’s data.

6. Tax Audit

Tax audits are conducted by the IRS and are one of the most recognized types of government audits. Your company could experience a tax audit for several reasons, including non-compliance, or it could just be a scheduled event by the IRS. To adequately prepare for a tax audit, make sure you know the scope and purpose of the audit. If you know why your company is being audited, you can prepare your answers and have the appropriate financial information ready before the proceedings begin.

7. Information System Audit 

An Information System audit is also known as an IT audit. This type of audit is an investigation into your company’s IT infrastructure, operations and related policies. 

For a productive audit experience, create a list of all relevant systems and the controls currently in place. 

The checklist of systems should include the applications, services, software and programs your company uses to collect, store and analyze financial information, as well as the information needed to access them. 

The controls are the processes your organization uses to verify and protect the information within those systems. You should also compile a list of all known IT gaps, so your IT auditor has a place to start and focus their efforts. 

8. Compliance Audit

A compliance audit ensures your business is compliant with a given set of standards or regulations. Compliance audits are essential, as they keep your company running smoothly and according to all laws. To avoid surprises, conduct your own internal compliance audit before the real thing so you can identify and address weak spots ahead of time. At the very least, you can learn something new to help your business run better. 

9. Value for Money Audit

A Value for Money audit is typically used by non-profit organizations when a traditional for-profit analysis of an organization’s finances cannot be made. The purpose of this classification of audit is to analyze your organization’s financial effectiveness and determine whether your designated funds are correctly utilized. 

Before a Value for Money audit, make sure you have a clear understanding of your organization’s money in and money out, as well as the value of all goods and services purchased. Creating a cumulative cash flow statement over time will help you gauge your standing as you start the audit.

10. Review Financial Statements

A review of financial statements is less expensive than a full audit and smaller in scope. A review of financial statements is useful for analyzing financial information and checking for accountability, accuracy and legality. Many organizations and businesses use a review of financial statements when they do not have financial experts on staff as a way to stay on top of their financial proceedings.

Because a financial review is smaller in scope than a full audit, it does offer less assurance. For this reason, make sure you check with all lenders or financial investors with a stake in your organization before electing to have a review of financial statements, as some may require full audits instead.

11. Agreed Upon Procedures (AUP)

An Agreed Upon Procedure (AUP) is when a company hires an external auditor to audit a specific part of their business. Companies may initiate AUPs if a part of their organizational structure is not performing up to standards or as a way to identify where they should allocate time or funds. Once you receive the results of an AUP, it is up to you to make sense of the findings and apply them to your practice. To do so, you may need to consult an outside expert. Keep this potential cost in mind as you plan and budget your AUP. 

12. Integrated Audit

An integrated audit combines an external financial audit with an internal audit of your company’s operations. It is a way to identify discrepancies before between financial reporting and financial statements. Integrated audits take a closer look at how each branch of your company interplays with one another. To prepare for an integrated audit, make sure each department of your company’s management is aware of the audit so they can help implement internal changes, and provide the external auditor with all necessary information.

13. Special Audit

A special audit looks at one specific area of a company’s operation. It may be initiated by an outside agency, like the government, or from inside the company. To get the most out of a special audit, make sure all management has a clear understanding of the purpose and goal of a special audit. This will help your staff feel at ease and will give everyone a clear direction once the results of the special audit are returned to you. 

14. Operational Audit

Companies initiate operational audits to get a fresh perspective on their company’s processes and structure. Operational audits are excellent for identifying weaknesses and strengths, as well as introducing new ideas to help your company thrive. Before conducting an operational audit, determine the scope of the review and create a list of goals. For the most productive audit experience, work with your auditor to identify the areas of concern you want the audit to focus on.

Simplifying Audit Preparation for Your Business Through Documentation

Preparing for any type of audit is easiest through an active process. You can take steps throughout the fiscal year to prepare for an audit, whether it’s sudden or planned. One effective way to practice perpetual preparation is through documentation. 

Financial documentation is the act of keeping and organizing records about your business’s transactions. The types of documents to compile include financial statements, expense reports, revenue reports and payment schedules detailing outstanding balances. By documenting this information as an ongoing process, your business will be ready to navigate an audit at any time and protect against fraud. 

Establishing documentation policies makes ongoing documentation manageable. Your business can stay ahead by closing all records monthly according to specific instructions. It also helps to notify an auditor of any significant transactions or changes. Timely communication helps the auditors prepare while showing your business does its best to keep accurate books.

Let Marshall Jones Help Your Company Prepare for an Audit

Let Marshall Jones Help Your Company Prepare for an Audit

At Marshall Jones, our certified public accountants and advisors perform audits according to auditing standards generally accepted in the United States and standards that apply to financial audits in government auditing standards. We use a risk-based audit approach to comply with all standards and objectives. Contact us today for your audit needs.

a person cutting a piece of paper with scissors that says tax

Tax Tips For 2019 Year-End Tax Planning in Georgia

December 24, 2019 by Julie Lakric

To ensure that you don’t have any surprises when filing your taxes it is important to meet with your Atlanta CPA when tax planning for your 2019 taxes. One of the most important reasons is to gain a better understanding of the new tax law.

Tax Tip #1: Ensure You are Continually Recalculating your Estimated Payments Throughout the Year

The tax brackets and laws around AMT have changed. It is important to make annualized calculations throughout the year to determine your quarterly payments. The last payment is due on January 15, 2020 and it is a very important deadline to avoid any underpayment penalties. If your 2018 adjusted gross income exceeded $150,000 ($75,000 for married filing separately), your 2019 estimated tax payments or withholding must equal at least 110% of your prior year tax liability, instead of the 100% required for other taxpayers. 

Fringe benefits are also table such as imputed income from group term life insurance or the use of your employer’s automobile for personal purposes. This could be additional compensation on your total tax liability and is your responsibility, not your employers.

Plan these appropriately as an overpayment is an interest-free loan to the government and while you will get the money back, the interim time could be used to make the money work for you. 

Tax Tip #2: Consider The Implications and Strategies for Your Passive Income

The laws around net investment income tax (NIIT) have also changed. Net investment tax includes interest, dividends, annuities, royalties, rent, and income from a trade or business that is considered passive activities. This is important to discuss with your CPA during your 2019 year-end tax planning as this additional tax could have an effect on your estimated payments. 

You may also want to consider grouping your trade or businesses if you own a business through an S-corporation or partnership. If you are thinking about selling your passive assets be sure to discuss the use of certain suspended losses which can reduce other income or gain under the general income rule.

Tax Tip #3: When Tax Planning for Individuals, Take Advantage of State Tax Credits

The 2017 tax law imposed a $10,000 limit on the deductibility of state and local income taxes. Many states created tax credit programs to provide you with federal charitable contribution deductions while simultaneously providing a tax credit against state income taxes. In June 2019, the IRS released Notice 2019-12 which provides a safe harbor to individuals who itemize deductions to treat, in certain circumstances, payments that are or will be disallowed as charitable contribution deductions under the final regulations laws state or local taxes for federal income tax purposes. It’s important to keep records to provide the amount of the contributions you make during the year. 

Tax Tip #4: Family Matters in Year-End Tax Planning

Taking advantage of the “kiddie tax” was always a very popular tax planning strategy. However, these rules changed beginning in 2018. Kiddie tax was widely used to transfer property to dependents in order to have the income taxes at a much lower rate. As of 2018, the law subjects the child to be taxed at the trust income rates (which are very similar to the individual tax rates). There are still positives to taking advantage of this, including defer income or possibly to have the child file their own return. It may also be feasible to transfer income-producing property to your children when they are no longer subject to kiddie tax rules since they will still likely have a lower tax rate.

Alimony rules have also hanged. If you are paying alimony, carefully review your situation with your CPA to ensure that you achieve the most desirable tax consequences. It may make sense to modify the agreements to recharacterize payments. Payment of alimony will be more expensive because payments will be made from after-tax rather than pre-tax dollars.

2020 Tax Planning? Marshall Jones’ Certified Public Accountants and Advisors can Help

Overall, having a trusted relationship with your tax advisor will help you to deal with these situations ahead of time. There are a variety of strategies that can be personally tailored to your situation. The Certified Public Accountants and Advisors at Marshall Jones are dedicated Tax professionals and can help you understand and plan for financial success in 2020. Contact Marshall Jones today using our online form or call us at (404) 321-2001.

a man in a suit holding a piece of paper that says "What's your plan for retirement?"

Are you prepared financially for retirement?

May 28, 2019 by Julie Lakric

Recent surveys suggest that about 44 percent of American workers who are saving in a workplace retirement plan feel confident they will retire comfortably. However, generation by generation, the numbers show that many individuals are way behind when it comes to reaching their savings goals.

A new survey from Natixis Investment Managers finds that 44 percent of American workers who participate in a 401(k) or other workplace retirement plan feel secure about their retirement, as long as they watch their spending .Another survey which found that more than half of adults are either somewhat more confident (30 percent) or much more confident (27 percent) about their ability to save for retirement than they were three years ago. 75% of Americans are rejecting financial help and that can spell disaster

Baby boomers

The oldest baby boomers are in their early 70s and possibly well into retirement by now. The youngest boomers are around age 55 with only a few years left to save. However, for most boomers, their savings aren’t ready for retirement; the median account balance for baby boomers is just $152,000.

That may sound like a lot of money, but the average person age 65 and up spends around $46,000 per year, according to the Bureau of Labor Statistics. At that rate, that $152,000 would barely last three years.

According to the Transamerica survey, most boomers realize their current savings won’t cut it – nearly 70% say they expect to work past age 65 or possibly not retire at all. However, only a quarter of them said they had a backup plan in case they were forced to retire earlier than they had anticipated.

How much should the average baby boomer have saved, then? It depends on how much you expect to spend each year, but you can estimate your retirement number by using the rule of 25. It’s based on the 4% rule, which states that you can withdraw 4% of your savings the first year of retirement, then adjust that number each subsequent year to account for inflation. The rule of 25 essentially allows you to work backward to figure out your total savings based on how much you expect to spend in the first year of retirement.

For example, say you expect to spend $46,000 in your first year of retirement. Multiply that by 25, and you get $1.15 million. (You can check your work by taking 4% of $1.15 million, which comes out to $46,000). Keep in mind that Social Security benefits will play a part here, too. If you expect to receive, say, $15,000 per year in benefits, that’s only $31,000 you’ll need to save on your own. Multiply that by 25, and your adjusted retirement number is $775,000

Gen Xers

Generation X-ers still have a few years left before retirement – but it’s approaching quickly. Individuals in this generation only have around an estimated median of $66,000 saved for retirement. With the youngest Gen X-ers in their early 40s, that’s a concerning number.

People this age also seem to be aware that they’re struggling. Only 14% say they’re “very confident” they’ll be able to retire comfortably, and nearly a third have taken a loan or withdrawal from their retirement account.

So how much work would it take for the average Generation X-er to get back on track? If you’re on the older side of the spectrum (about 54) with only $66,000 saved, you’ll need to dramatically take your savings to the next level. Even if you save $2,000 per month earning a 7% annual return, you’d only have around $500,000 saved by age 65. For those who are around age 40 with $66,000 saved, stashing away $800 per month will get you to savings of about $1 million by age 65.

Millennials

The median estimated amount in millennials’ retirement accounts is $23,000, which isn’t surprising considering they have a lot of time left to save for retirement. However, given their young age, millennials are very much engaged in the topic of retirement. More than half (53%) say they expect their primary source of income in retirement to be their personal savings (as opposed to a pension or Social Security benefits), and 72% say they’re interested in learning more about how to achieve their retirement goals.

Whether that $23,000 now will amount to enough savings in the future, though, largely depends on how much you’re saving and how long you have until retirement.

Millennials are classified as those born between 1979 and 2000, which is a huge range. If you’re a 40-year-old millennial with only $23,000 saved, you may need to supercharge your savings earlier rather than later. For example, if you want, say, $800,000 saved by age 65, you’d need to save roughly $900 per month for the next 25 years to reach that goal, assuming you’re earning a 7% annual rate of return on your investments.

What’s holding workers back ?

Ideally, each generation should be much farther toward their retirement savings goals — particularly because they have access to retirement plans provided by their employers.

But other financial concerns get in the way. The biggest one: daily living expenses, which was cited by 65 percent of respondents. Then there’s generational debt, with 43 percent; housing costs, 43 percent; and health-care costs, 32 percent. Surveys show that 22 percent of workers admitted to taking a lump sum distribution from their retirement funds without moving the money to another plan. It’s not all bleak when it comes to retirement. There will be other sources of income, such as Social Security or the proceeds you may see if you decide to sell your home. Workers would be wise to understand the benefits that contributing to a workplace plan can bring. That includes the potential savings from lowering your taxable income, the extra money you may receive from employer matches, and the potential to save more once you’re 50 and older through catch-up contributions.

What to do if you’re off track?

Even if your numbers align with the median amount people in your generation have saved, that doesn’t necessarily mean you’re saving enough. If you’re falling short, the best thing you can do is set a goal for yourself and make some lifestyle changes so you can save more.

First, figure out your retirement number so you have something to shoot for. Play around with a retirement calculator to see how much you should have saved by retirement and how much you’ll need to save each month to get there.

Once you have a monthly savings goal, take a good look at your budget to see where you can make cuts. These cuts don’t have to be drastic – saving a couple of hundred dollars by cooking at home more often or riding your bike to work rather than driving to save on gas can make a big difference. If you’re seriously behind, though, you may need to make some dramatic changes, possibly by downsizing your home or moving to a less expensive neighborhood.

Regardless of how you choose to save money, the best thing you can do if you’re behind on your saving is to realize you need to make a change and then create an action plan. By making an effort to get back on track, you’re already well on your way to achieving your retirement goal.

Tax Scams Continue!

April 8, 2019 by Julie Lakric

During this period when annual income tax returns are being prepared, there are a number of cons and scams that everyone should be aware of.

Taxpayers, businesses and tax pros need to be alert for a continuing “tricky and clever” surge of fake emails, text messages, websites and social media attempts to steal personal information. Watch out for emails and other scams posing as the IRS, promising a big refund or personally threatening people. Don’t open attachments or click on links in emails

Phone scams are another popular scam. Generally this involves aggressive criminals posing as IRS agents to steal money or personal information via phone scams or “vishing” (voice phishing). Beginning early in the filing season, the IRS generally sees an upswing in scam phone calls (often robo-calls) threatening arrest, deportation or license revocation if the victim doesn’t pay a bogus tax bill. These con artists may have some of the taxpayer’s information, including their address, the last four digits of their Social Security number or other details.

Despite what the IRS terms “a steep drop in tax-related identity theft in recent years,” they continue to caution that scams remains serious. Tax-related ID theft occurs when someone uses a stolen Social Security number or ITIN to file a fraudulent return claiming a refund – and thieves constantly strive to find a scheme that works. Once their ruse begins to fail as taxpayers become aware of their ploys, they change tactics. Business filers should be aware that cybercriminals also file fraudulent 1120S using stolen business identities.

Another common thing scam artists use are flyers, advertisements, phony storefronts or word-of-mouth to attract victims promising overly large refunds – using such tools as fictitious rebates, benefits or tax credits – and they frequently prey on older Americans and low-income taxpayers and those who don’t have a filing requirement.

The best advice we can give is, “tax filer beware”. If it seems to good to be true, it probably is. The IRS will not make any phone calls or email you in order to collect money. Contact a tax professional before proceeding with anything related to income taxes that is out of the ordinary.

a red stamp that says IRS Audit on it

Why did I get audited by the IRS?

April 1, 2019 by Julie Lakric

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Most of us are aware that certain income tax issues are more likely to give rise to an IRS audit than others, so what are they? It is not common knowledge that the IRS can audit you for any reason, but there are commonalities that we typically see.

It becomes much more probable with high income earners that also have a Schedule C which is a supplemental schedule to your form 1040. Schedule C reports income and expenses from a sole proprietorship and single member Limited Liability Companies. Special scrutiny is also given to cash-intensive businesses and people with freelance service gigs through the sharing community (think of Uber, Rover, Grubhub). If the numbers are outside of what is considered normal, the computers will pick it up.

Everything on returns is compared to averages, any outliers will be targeted. Large losses on both individual and business returns will be flagged. If you’re a going concern and have enormous losses they want to know how you’re supporting yourself or how you plan to stay in business.

Speaking of averages, the IRS knows what the average charitable donation is for folks at your income level. So, if your charitable deductions are disproportionately large compared with your income, it raises a red flag. Don’t forget to get an appraisal for donations of valuable property or if you fail to file Form 8283 for noncash donations over $500 you become an even bigger target. And if you’ve donated a conservation or façade easement to a charity, chances are good that you’ll hear from the IRS. Be sure to keep all your supporting documents, including receipts for cash and property contributions made during the year.

Missing information is another high trigger item. The IRS matches every third-party reporting item to your return. This includes interest income, dividend income, gambling winnings, independent contractor income as well as W-2 income. These are all issued to the IRS so if you fail to include those figures on your return, you will be recognized.

The IRS also targets independent contractors as a way to determine if they’re really contractors or if they’re actually employees. Worker misclassification is an important issue for the IRS and various state taxing authorities because of the perception that many employers are not properly classifying their workers. By avoiding labeling their workers as employees, employers can avoid paying payroll taxes, minimum wages, overtime, health and retirement benefits, and paid leave.

The IRS wants to be sure that owners of traditional IRAs and participants in 401(k)s and other workplace retirement plans are properly reporting and paying tax on distributions. Special attention is being given to payouts before age 59½, which, unless an exception applies, are subject to a 10% penalty on top of the regular income tax. An IRS sampling found that nearly 40% of individuals scrutinized made errors on their income tax returns with respect to retirement payouts, with most of the mistakes coming from taxpayers who didn’t qualify for an exception to the 10% additional tax on early distributions. So, the IRS will be looking at this issue closely. The IRS has a chart listing withdrawals taken before the age of 59½ that escape the 10% penalty, such as payouts made to cover very large medical costs, total and permanent disability of the account owner, or a series of substantially equal payments that run for five years or until age 59½, whichever is later

Filing a large claim for a refund on an amended return will almost always cause an audit. If the original return failed to include an item of income, of course you will want to correct it on an amended return. However, filing an amended return that claims credits that you didn’t claim on the first return will open up the whole return to scrutiny, so you end up being audited on other things not originally at issue.

This is particularly true where the amended return raises new issues. As an example, a return might be amended to claim R&D credits that weren’t on the original return. The IRS is likely to audit for that particular issue, but will open up the entire return for questioning

So, what do you do if you’ve been flagged for an audit? We always recommend discussing with a CPA. Some audits are extremely minor where they may just ask you to pay tax on that 1099 you forgot, and some are more serious. Always know that this is not a personal attack on you and may require some extra explanation. This is why it’s always important to keep your tax return supporting records for at least 3 years from the date you filed your original return or 2 years from the date you paid the tax (whichever is later).
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several Amazon Prime boxes stacked on top of each other

How does Amazon get away without paying taxes?

March 15, 2019 by Julie Lakric

Amazon is a company with more than $232 billion in revenue and led by the world’s richest man Jeff Bezos and the company does not pay any tax taxes.

That annoyance boiled over in New York earlier in February when Amazon, which had been offered as much as $3 billion in tax incentives to build a second headquarters in Queens, dropped the plan amid fierce opposition from local politicians and community activists.

Despite having hundreds of billions in revenue, the company only booked about $11.2 billion in profit in 2018, creating a significantly smaller base on which taxes and offsetting credits and deductions are applied. The company says it pays all required federal, state and international taxes.

Corporate tax is based on profits, not revenues, and our profits remain modest, given retail is a highly competitive, low-margin business,” Amazon said in a statement, adding that it’s continuing to invest in its operations.

Amazon gets both the benefits mostly used by technology companies — deductions for paying employees in stock — as well as the write-offs for companies that rely heavily on building physical infrastructure.

The research and development credit — designed to encourage innovation in the U.S. — also amounts to up to a $419 million tax break for Amazon. Add in hundreds of millions of losses the company still has on its books held over from years before it turned a profit, and its U.S. corporate tax liability can be whittled down to zero.

One of the biggest factors changing Amazon’s financial filings isn’t a substantive change at all. A deduction for stock-based compensation, totaling nearly $1.1 billion in 2018, is now more prominently displayed in regulatory filings thanks to an accounting rule change.

So, for those who complain about Amazon not paying any taxes, in summary:

  • Their profits are not high enough yet to offset the billions of losses incurred as a startup which are carried forward.
  • Amazon invested heavily in research and development which receives a tax break but also has great impacts on innovation in the U. S.
  • They paid their employees $1.1 billion in stock-based compensation. This has had the effect of more taxes being paid since the income to the employees was taxed at higher rates than the maximum 21% corporate tax.

In summary, Amazon has been able to eliminate any taxes due to utilizing previous losses, investing heavily in innovation, and paying huge amounts of compensation to employees. The tax laws that were affected were designed to encourage exactly this kind of behavior.

a rolled up newspaper with the word real estate on it

Positive income tax news for owners of Real Estate

February 5, 2019 by Julie Lakric

Recently announced by IRS

The new tax law now being dealt with in preparation of 2018 tax returns, had several items that needed clarification by the IRS. On January 19, 2019 the final regulations were released.

Among a host of other clarifications and interpretations, the regulations gave a much-welcomed surprise to the owners of rental real estate.

Pass through entities, which are generally LLC’s and S Corporations, that hold rental real estate, are deemed to be a “trade or business” thus qualifying for the 20% deduction of Qualified Business Income (QBI). The QBI deduction was put into law to try to establish some parity with the new 21% tax rate for C Corporations.

Here are some of the (unfortunately complicated) considerations in order to qualify:

• Interest in real property must be held for the production of rents

• Can consist of multiple properties

 • Individual or Relevant Pass-through Entities (RPE) must hold the interest directly or through a disregarded entity

 • Taxpayers must treat each property as a separate enterprise or treat all similar properties as a separate enterprise

• Commercial and residential property can’t be part of the same enterprise

• Cannot change treatment from year-to-year unless there is a significant change in circumstances 

• Real estate used as a residence by the taxpayer does not qualify

• Real estate rented or leased under a triple net lease does not qualify

• Separate books and records must be maintained to reflect income and expenses for each rental real estate enterprise

• Taxable years beginning before 2023 – 250 or more hours of rental services are performed with respect to the rental enterprise. This test can be met if a taxpayer has multiple entities and spends at least 250 or more hours on the total group, but logs must be maintained for proof!

• Taxable years beginning after 2022 – 250 or more hours of rental services in any three of the five consecutive taxable years that end with the taxable year -OR- 250 or more hours in each year for an enterprise held for less than five years

• The taxpayer maintains contemporaneous records, time reports, logs, or similar documents, regarding the following: – Hours of all services performed – A description of all services performed –

• Rental services included (for purposes of applying the 250- hour requirement): –

  • Advertising to rent or lease the real estate
  • Negotiating and executing leases
  • Verifying information contained in prospective tenant applications
  • Collection of rent –
  • Daily operation, maintenance and repair of property
  • Negotiating and executing leases
  • Verifying information contained in prospective tenant applications
  • Collection of rent –
  • Daily operation, maintenance and repair of property
  • Purchase of materials
  • Supervision of employees and independent contractors –
  • Rental services can be performed by employees, agents, and/or independent contractors of the owners

Rental services do not include:

  • Financial or investment management activities
  • Procuring property
  • Studying or reviewing financial statements or reports on operations
  • Managing or constructing long-term capital improvements
  • Time spent traveling to and from the real estate

The QBI 20% deduction is an extremely complicated provision of the new tax law, but can result in some considerable tax savings for those who qualify. Note that any qualifying trade or business qualifies. This blog just deals with the clarification that rental real estate is in fact a trade or business under this new law.

a person holding a tablet that says Update on it

The 1040 Gets A New Look

January 21, 2019 by Julie Lakric

The Internal Revenue Service has released the redesigned Form 1040, along with six related tax schedules, for next tax season after changes under the Tax Cuts and Jobs Act promised to simplify the tax preparation process.

The Republicans promised a postcard size form and the form, although bigger than a postcard, is shorter, but very deceiving. The prior form 1040, used through 2017, had 79 lines on the front and back, pages 1 and 2. What the new form has done is to push 56 of those lines onto 6 separate schedules to the form 1040.

So, for instance, Schedule 1, Additional Income and Adjustments to Income, is for taxpayers who have to report additional income, such as capital gains, unemployment compensation, prize or award money, or gambling winnings, or who have any deductions to claim, such as student loan interest deduction, educator expenses or self-employment taxes.

Schedule 2, Tax, is for those who are subject to the alternative minimum tax or need to make an excess advance premium tax credit repayment.

Schedule 3, Nonrefundable Credits, is for taxpayers who can claim a nonrefundable credit besides the child tax credit or the credit for other dependents, such as the foreign tax credit, education credits or the general business credit.

Schedule 4, Other Taxes, is for taxpayers who owe other taxes, such as self-employment tax, household employment taxes, additional tax on individual retirement accounts or other qualified retirement plans and tax-favored accounts.

Schedule 5, Other Payments and Refundable Credits, is for taxpayers who can claim a refundable credit aside from the Earned Income Tax Credit, the American Opportunity Tax Credit or the Additional Child Tax Credit. They may also have other payments, such as an amount paid with a request for an extension to file, or they want to report excess social security tax withheld.

Schedule 6, Foreign Address and Third Party Designee, is for taxpayers who have a foreign address or a third-party designee other than their paid tax preparer.

The most incredible aspect of this new approach to the complex requirements of form 1040, is the new IRS Section 199A which deals with the possible 20% deduction for “Qualified Business Income” (QBI) for taxpayers who are sole proprietors, or have ownerships in “pass-through” entities such as LLCs, and S Corporations. This extremely complex new deduction is listed on line 9 of the new 1040, and in parentheses is “see instructions”. However, as of January the IRS has not produced the instructions for  QBI or any other schedules or forms of form 1040.

See our blog posting on QBI. Since the regulations regarding this very complex code section have just been released, we will be posting blogs frequently on the most important aspects of this new tax provision.

Please call us if we can be of assistance in explaining and aspects of the new form 1040 and/or the new tax law and how it affects you. Since the IRS has not issued the final forms or instructions, we will have to wait until they do before any tax returns can be filed.

a group of professionals sitting and standing around a table smiling in a business meeting

Clarification of deductibility of food and beverage expenses under the new tax law

October 4, 2018 by Julie Lakric

The IRS on Wednesday issued guidance clarifying that taxpayers may generally continue to deduct 50% of the food and beverage expenses associated with operating their trade or business, despite changes to the meal and entertainment expense deduction under Sec. 274 made by the tax law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97 (Notice 2018-76). According to the IRS, the amendments specifically deny deductions for expenses for entertainment, amusement, or recreation, but do not address the deductibility of expenses for business meals. This omission has created a lot of confusion in the business community, which the IRS is addressing in this interim guidance. Taxpayers can rely on the guidance in the notice until the IRS issues proposed regulations.

Sec. 274(k), which was not amended by the TCJA, does not allow a deduction for the expense of any food or beverages unless (1) the expense is not lavish or extravagant under the circumstances, and (2) the taxpayer (or an employee of the taxpayer) is present when the food or beverages are furnished. Sec. 274(n)(1), which was amended by the TCJA, generally provides that the amount allowable as a deduction for any expense for food or beverages cannot exceed 50% of the amount of the expense that otherwise would be allowable.

Under the interim guidance, taxpayers may deduct 50% of an otherwise allowable business meal expense if:

  1. The expense is an ordinary and necessary business expense under Sec. 162(a) paid or incurred during the tax year when carrying on any trade or business;
  2. The expense is not lavish or extravagant under the circumstances;
  3. The taxpayer, or an employee of the taxpayer, is present when the food or beverages are furnished;
  4. The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
  5. For food and beverages provided during or at an entertainment activity, they are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts.

The IRS will not allow the entertainment disallowance rule to be circumvented through inflating the amount charged for food and beverages.

The notice contains three examples illustrating how the IRS intends to interpret these rules. All three examples involve attending a sporting event with a business client and having food and drink while attending the game. The examples follow the AICPA’s recommendation that meal expenses be deductible when their costs are separately stated from the cost of the entertainment.

The IRS plans to issue proposed regulations and is requesting comments by Dec. 2 on the notice. It is also asking for comments on:

  • Whether further guidance is needed to clarify the interaction of Sec. 274(a)(1)(A) entertainment expenses and business meal expenses.
  • Whether the definition of entertainment in Regs. Sec. 1.274-2(b)(1)(i) should be retained and, if so, whether it should be revised.
  • Whether the objective test in Regs. Sec. 1.274-2(b)(1)(ii) should be retained and, if so, whether it should be revised.
  • Whether the IRS should provide more examples in the regulations.

Marshall Jones participates in Alpharetta Mayor’s Corporate Challenge

August 24, 2018 by Julie Lakric

August 23, 2018 the team at Marshall Jones participated in the Alpharetta Mayor’s Corporate Challenge 5k 2018. The Alpharetta Mayor’s Corporate Challenge raises over $100,000 each year to fund service projects in the area and around the world. A large amount of our team resides in Alpharetta and we loved being able to support the community plus improve our health! Charlie even won a medal for placing 2nd in his age group!

Greg Logan and daughter Lorelei participated in the Kids Fun Run together

Greg Logan and Anna Gusalova still smiling after running!

Charlie Jones and his prized medal!

a woman pointing at a graph on a piece of paper

The Most Talked About Provision of the TCJA

August 20, 2018 by Julie Lakric

For business owners or individuals who have investments in businesses, the most talked about provision of the new tax law is IRC Section 199 (a)

Since the new law gives C corporations a flat rate of 21%, Congress felt the need to give a tax break to other businesses that are commonly known as “pass through entities”. S Corporations, LLC’s, LLP’s, partnerships, etc.

So, Section 199 (a) was created to accommodate this. It’s very complicated. What it basically says is that an entity’s  “Qualified Business Income (QBI)” MAY qualify for a 20% deduction. But there are tons of exceptions, limitations, and complications.

For instance: Specified Service Businesses (doctors, accountants, consultants, and many more) are limited in their QBI calculations to $415,000 (married filing jointly. MFJ). So a doctor who has QBI of $414,999, can get a 20% deduction of that number, or $82,999 deduction from taxable income. If the same doctor had QBI of 415,001, he/she would get no deduction.

The IRS has just (July 2018) released “proposed” regulations which try to clarify many of the complications. For instance. Does the income from a rental property qualify as QBI? The IRS’s answer is “it depends”. Can you aggregate QBI income from multiple entities that you have interests in? “It depends”.

We will be issuing a series of blog articles dealing with the most common of the items that are affecting most individuals and businesses. Please call us if you have any specific questions. There are planning opportunities for 2018 that can have a large effect of those who come under 199 (a).

a gold coin with the letter b on it

Breaking news on cryptocurrency

August 5, 2018 by Julie Lakric

The introduction of a cryptocurrency ETF (Exchange Traded fund) could catalyze an influx of institutional capital and open a new channel for investment in the sector. On June 26, 2018, the SEC received an application from Cboe Futures Exchange to launch the world’s first Bitcoin ETF

One of the first to launch Bitcoin futures, CBOE (Chicago Board Options Exchange) Global Markets has partnered with Van Eyck Investment and SolidX to introduce a Bitcoin ETF to global markets.

On June 26, the SEC received an application by CBOE to offer clients the buying and selling of SolidX shares, which are currently valued at approximately 25 bitcoin. If approved, accredited investors will be able to trade a Bitcoin ETF in the form of baskets of 5 SolidX shares (100 bitcoin) on the CBOE exchange.

This is one of the biggest news items since the advent of the Bitcoin several years ago. What this basically means is that an investor will be able to invest in cryptos by investing in the stock market through ETFs, and not buy cryptos individually.

Note that the most significant item regarding Bitcoin was the invention of the Blockchain, the technology that allows cryptos and many, many other things to be transferred totally secured over the Internet. This is why the large banks, accounting firms, brokerage firms and real estate companies are investing heavily in this technology. For instance, Etherum, the second largest crypto, has nothing at all to do with currency. It’s a platform for companies to build “smart contract” applications.

an abstract image of glowing cubes on a dark teal background

Gaining Understanding of the Blockchain

August 3, 2018 by Julie Lakric

We should think of the Blockchain as another class of thing like the Internet – a comprehensive information technology with tiered technical levels and multiple classes of applications for any form of asset registry, inventory, and exchange, including every area of finance, economics, and money; hard assets (physical property, homes, cars); and intangible assets (votes, ideas, reputation, intention, health data, information, etc.). But the blockchain concept is even more; it is a new organizing paradigm for the discovery, valuation, and transfer of all quants data (discrete units) of anything, and potentially for the coordination of all human activity at a much larger scale than has ever been possible before. This technology has a built-in ‘robustness’ as it stores blocks of information that are identical across its network and can be controlled by any single entity and has no single points of failure. The days of hearing large corporations make public statements  about data breach are long gone. Blockchain technology is the platform that was invented to allow Bitcoin and other cryptocurrencies to function. Bitcoin was invented in 2008 and since then has not had one significant disruption.  This will also lead to the idea of decentralization. Blockchain technology is managed by a network, not one central authority. Stock market trades will become simultaneous and will basically eliminate the need of record keeping.

So, how does this pertain to you? The Blockchain does not need to be necessarily understood for it to provide use in your life. Before using the internet did you actually understand how it works? Probably not, but you used it. Think about the amount of money spent on money transfers. In 2015 the World Bank estimates over $430 billion was sent via money transfer. With the Blockchain this would basically eliminate the middleman. While it may seem foreign now it  will soon become a large part of everyday life.

 

stacks of silver coins with the numbers 2018 on top

Tax Reform: Effects on Financial Planning

July 20, 2018 by Julie Lakric

The recently passed tax reform bill has received a considerable amount of press, and for good reason. As the most comprehensive tax reform in over 30 years, the new tax laws will impact every individual & business in America. Its impact also extends to the way we approach financial planning for our clients.

Estate Planning

The most significant change in regards to estate planning is the doubling of the Estate & Gift Tax Exemption. Beginning in 2018, this means that individuals will be able to claim exemptions up to $11.2 million, and $22.4 million for couples. For many high net worth individuals, this could simplify estate planning, as only amounts over the exemption limits will be subject to Federal tax. This provision is set to expire at the end of 2025, at which time the exemption amounts will revert to their pre-2018 levels, with inflation adjustments.

Charitable Giving

For those who are charitably inclined, the doubling of the standard deduction means that giving levels may need to be increased in order to receive a tax benefit. For a married couple, if itemized deductions are under the new standard deduction amount of $24,000, there will be no tax benefit to itemizing. For individuals, this limit will be $12,000. In order to maximize the tax benefits, donors may want to consider the use of a Donor Advised Fund. A Donor Advised Fund allows taxpayers to contribute an amount of their choosing to the fund and take a tax deduction for the full amount in the year the contribution is made. They may then choose to direct gifts from the Donor Advised Fund to specific charities over an extended time frame.

The annual gift tax exclusion has also been increased to $15,000 per person for 2018, meaning that couples can gift up to $30,000 per year without incurring any tax, and without using any of their lifetime exemption amount. Single taxpayers can gift up to $15,000 per person.

IRA Recharacterizations

Under the new tax bill, the ability to recharacterize a Roth conversion is eliminated. Previously, taxpayers had up until the tax filing deadline plus extensions to recharacterize any amount converted from a Traditional IRA to a Roth IRA, if the account had fallen in value, or if the amount converted results in a higher tax than originally anticipated. Under the new laws, this will no longer be allowed. This is one of the few permanent changes within the bill. Note that this change only applies to the recharacterization of Roth conversions; contributions to either Traditional IRAs or Roth IRAs are still able to be recharacterized.

For planning purposes, this means that individuals wishing to convert need to be certain of their ability and willingness to pay the taxes. It will also likely lead to more conservative recommendations regarding the amount to convert in a given year. As always, a potential Roth conversion should be discussed with a tax professional prior to implementing.

Distributions from 529 Plans

Distributions from 529 Plans of up to $10,000 per year, per individual used for the cost of K-12 expenses will now be considered qualified and therefore will be non-taxable. Funds may be used for students enrolled in public, private or religious school. Post-secondary education expenses remain qualified.

While many of the changes within the tax reform bill are temporary and will revert back after 2025, some changes are permanent, including the increase in standard deduction, the elimination of the personal exemptions, the elimination of the ability to recharacterize Roth IRA conversions, and the changes regarding the use of 529 Plan funds.

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Effect of new taw law on economy.

July 14, 2018 by Julie Lakric

New tax law having positive effect on economy

According to the Wall Street Journal, July 13, 2018. The effect of the new tax law can be seen in June government statistics. According to the U. S. Treasury, tax revenues fell 7% in June compared to June 2017. Corporations and Individuals are lowering their tax payments and withholdings due to the lower rates. Even though revenues fell, the budget deficit narrowed to $74.86 billion from June 2017 because of a 9% drop in government outlays.

Keeping Your R&D Credit

June 29, 2018 by Julie Lakric

Business owners are often surprised to learn they may be able to claim the Research & Development tax credit.

The credit was originally created as way to encourage American companies to conduct R&D activities domestically. While initially thought to apply to large companies with formal R&D departments, “smaller businesses” in a wide range of industries, such as manufacturing, engineering, software development, architecture, pharmaceuticals, aerospace and defense, metal foundries, chemical companies and others, have discovered they can also claim the benefit. However, it’s important to be aware of best practices when claiming the credit, especially in areas where issues commonly arise, such as a lack of supporting documentation. Mistakes in documenting qualified research can result in missed opportunities and create problems should the company be selected for an IRS audit.

Common Documentation Mistakes

  • Lack of supporting documentation: R&D tax credit studies are at their weakest when they lack contemporaneous supporting documentation. Studies are often performed after the tax year is closed out. Some studies simply comprise a report that summarizes the findings and a brief description, if any, of the qualifying business component. One of the objectives of an R&D tax credit study should be to answer a common question under audit: Why does this business component qualify? In order to properly address this question, it’s important to take a fluid approach to documentation. No two taxpayers are the same. No two projects are the same. As such, taxpayers may need to be creative in the identification of documents that show how projects meet the qualification criteria with specific emphasis on the presence of uncertainty and experimentation. Information such as project records, lab notes, design drawings, photos of the design/build and testing trials, prototypes and patent applications are needed to corroborate customary R&D expenses. Having access to this information is especially helpful in the event of an IRS audit.
  • Informal documentation process: If a company is considering claiming the R&D tax credit for a project, it would be useful to implement a formal documentation process before beginning. Because many companies don’t understand who should be documenting, what they should be documenting and when the process should be occurring, it’s often left as a task to complete at year-end. When this happens, a single person is often assigned the task of poring over hundreds of documents to find proof of qualifying expenses. The result is that expenses are often missed, and the potential credit value is diminished. To overcome this, a best practice would be to implement a process that collects relevant information on an ongoing basis, while the R&D activities are occurring. The more thorough the process, the greater the likelihood that qualifying expenses will be captured and used appropriately when claiming the credit.
  • Lack of clarity: A common issue in the documentation process is that it’s unclear how the various expenses, personnel or other items relate to the R&D project. Remember that an IRS agent will not be familiar with your business, product or research process. Because they will be the primary judge of whether an expense qualifies toward the R&D credit, it’s essential to ensure the relationship between the expense and qualifying activity is clear. Avoid incomplete or inadequate descriptions, general statements that sound canned, and documentation that is not clearly related to the project. The more you rely on an IRS auditor to figure out how your documentation supports expenses, the greater the risk of exposure.

Charlie Jones featured on Atlanta’s ‘Shrimp Tank’

March 27, 2018 by Julie Lakric

Last week, our company was invited to be on the national broadcast The Shrimp Tank which is produced here in Atlanta, GA. We had a great time on the show and gave lots of tidbits and nuggets to all of the listeners on how to become a better business owner.

To that end, we wanted to share the post show wrap up video that was shot on site and say thanks to all of you for allowing us to work with you. None of this could be possible without having the best clients on the planet!

If you want to hear a download of the full broadcast, please go to www.shrimptankpodcast.com. They have the entire show on the website and some fascinating articles to read as well.

Thanks again for all of your support for our company.

close-up of a man and a woman putting their wedding rings on a wooden table

Changes we expect to see with divorce

March 23, 2018 by Julie Lakric

Divorce is stressful enough, but the new tax bill may ramp up the complications and anxieties for couples who are calling it quits.

Divorce experts are predicting a confusing, turbulent year, thanks to the tax plan’s reversal on who pays taxes on alimony. For more than 70 years, the tax law allowed the higher-earning spouse to deduct the alimony they paid to their exes, while the “receiving” spouse was taxed at a 15% rate.

But the new Tax Cuts and Jobs Act reverses that long-standing arrangement. Starting in 2019, the higher-income spouse will lose the alimony deduction and must pay federal taxes on it, while the receiving spouse won’t have to pay taxes. The new tax bill affects divorce agreements signed after Dec. 31, 2018, while divorces settled before that will be grandfathered in under the old tax bill.

Those dynamics may result in a tense year of negotiations for couples who are splitting apart as higher-earning spouses likely push for a settlement in 2018, allowing them to lock in a tax deduction. Lower-earning spouses may want to delay the settlement until 2019, believing the new tax law will benefit them, he said.

Where to start

Given the complicated mix of emotion and finances in divorce, it can be helpful to rely on a team of experts, including a divorce attorney, a divorce coach and a financial analyst with expertise in divorce. The analyst can help spouses understand how the tax bill will affect their settlement.

A detailed financial analysis can help put things in perspective, including how the new tax code will affect spouses. Examining a post-divorce forecast of your cash flow — and how the tax law will affect it — will clarify whether it’s possible to maintain your current home or where you might need to cut back, for instance.

Take a step back

A spouse who wants to argue for lower alimony payments based on the new tax code may want to examine how much their fight will cost in legal fees. The typical hourly rate for a divorce attorney is $350, although it can be as high as $1,000 an hour in big cities.

How it affects happily married couples

Married couples with prenuptial agreements should also pay attention to the new alimony taxation. That’s because most of those prenups likely include alimony provisions based on the prior tax law.

Those prenups probably have to change. If you are happily married, this probably isn’t even on your radar. But they’ll have a big ‘uh-oh’ moment if they go through divorce and have this in their prenup.

New Georgia tax legislation will benefit all Georgia taxpayers

March 9, 2018 by Julie Lakric

 

Governor Nathan Deal signed major income tax changes in response to the federal Tax Cuts and Job Act of 2017 (“TCJA”), on March 2, 2018.

The major components of the legislation are as follows:

  1. The top individual and business tax rates have been reduced to a maximum rate of 5.75%
  2. The standard deduction for individuals has been increased to $ 6,000 for married filing jointly taxpayers, and other increases for other classes of taxpayers
  3. Conforming the Georgia code to the newly enacted federal tax law changes

 

There are more specific details concerning the legislation, but the above three major changes cover the basics. For information on how these changes will affect your individual situation, please give us a call.

Hiring new employees with the 2018 Tax Act

February 26, 2018 by Julie Lakric

When you hire a new employee, they must fill out a W-4 form telling you, their employer, how they want their federal withholdings. Single, married. Number of withholding allowances.

The Internal Revenue Service has issued a notice providing guidance for employees and employers on what to do with the Form W-4 under the new Tax Cuts and Jobs Act. They have extended. the effective period of Forms W-4 furnished to claim exemption from income tax withholding) for 2017 until Feb. 28, 2018 and temporarily allows employees to claim exemption from withholding for 2018 by using the 2017 Form W-4. Note that “withholding allowances” was used both for dependents and other things. Since there is no longer a deduction for dependents, it may be necessary for ALL employees to file new W-4 forms. We will stay on top of this and notify you on a future blog when this becomes clear.

The new IRS notice also suspends a requirement that employees must give their employers new W-4 forms within 10 days of a change of status resulting in fewer withholding allowances The new guidance also specifies that the optional withholding rate on supplemental wage payments is 22 percent for taxable years 2018 through 2025.

In addition, it says that, for 2018, withholding on annuities or similar periodic payments where no withholding certificate is in effect is based on treating the payee as a married individual who is claiming three withholding allowances.

The new tax law that Congress passed has led to confusion among many employers and employees since it eliminates many longstanding provisions of the tax code, including personal exemptions. Earlier this month, the IRS updated the withholding tables, and promised further guidance would be on the way. It also promised an online tax withholding calculator would be posted on its website where employees could double check their withholding to make sure it’s correct.

street view of a house with a long driveway and trees surrounding the yard

2017 Tax Reform: IRS clarifies interest on home equity loans

February 22, 2018 by Julie Lakric

 

2017 Tax Reform: IRS clarifies interest on home equity loans. Often still deductible

In an Information Release, IRS has announced that in many cases, taxpayers can continue to deduct interest paid on home equity loans under the recently enacted Tax Cuts and Jobs Act (PL 115-97, 12/22/2017).

Background. Taxpayers may deduct interest on mortgage debt that is “acquisition debt”. Acquisition debt means debt that is:

  1. Secured by the taxpayer’s principal home and/or a second home, and
  2. Incurred in acquiring, constructing, or substantially improving the home.

This rule hasn’t been changed by the Tax Cuts and Jobs Act.

Under pre-Tax Cuts and Jobs Act law, the maximum amount that was treated as acquisition debt for the purpose of deducting interest was $1 million ($500,000 for marrieds filing separately). This meant that a taxpayer could deduct interest on no more than $1 million of acquisition debt. Taxpayers could also deduct interest on “home equity debt”. “Home equity debt”, as specially defined for purposes of the mortgage interest deduction, meant debt that:

  1. Was secured by the taxpayer’s home, and
  2. Wasn’t “acquisition indebtedness” (that is, wasn’t incurred to acquire, construct, or substantially improve the home).

Thus, the rule had allowed deduction of interest on home equity debt and enabled taxpayers to deduct interest on debt that wasn’t incurred to acquire, construct, or substantially improve a home—i.e., on debt that could be used for any purpose. As with acquisition debt, the pre-Tax Cuts and Jobs Act rules limited the maximum amount of “home equity debt” on which interest could be deducted; here, the limit was the lesser of $100,000 ($50,000 for a married taxpayer filing separately), or the taxpayer’s equity in the home.

Under the Tax Cuts and Jobs Act, for tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the limit on acquisition debt is reduced to $750,000 ($375,000 for a married taxpayer filing separately). The $1 million, pre-Tax Cuts and Jobs Act limit applies to acquisition debt incurred before Dec. 15, 2017, and to debt arising from refinancing pre-Dec. 15, 2017 acquisition debt, to the extent the debt resulting from the refinancing does not exceed the original debt amount. (Code Sec. 163(h)(3)(F))

Under the Tax Cuts and Jobs Act, for tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, there is no longer a deduction for interest on “home equity debt”. The elimination of the deduction for interest on home equity debt applies regardless of when the home equity debt was incurred. (Code Sec. 163(h)(3)(F))

New guidance. In IR 2018-32, IRS said that despite the newly-enacted restrictions on home mortgages under the Tax Cuts and Jobs Act, taxpayers can often still deduct interest on a home equity loan, home equity line of credit (HELOC), or second mortgage, regardless of how the loan is labelled.

IRS clarified that the Tax Cuts and Jobs Act suspends the deduction for interest paid on home equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayer’s home that secures the loan.

For example, interest on a home equity loan used to build an addition to an existing home is typically deductible, while interest on the same loan used to pay personal living expenses—such as credit card debts—is not. As under pre-Tax Cuts and Jobs Act law, for the interest to be deductible, the loan must be secured by the taxpayer’s main home or second home (known as a qualified residence), not exceed the cost of the home and meet other requirements.

For anyone considering taking out a mortgage, the Tax Cuts and Jobs Act imposes a lower dollar limit on mortgages qualifying for the home mortgage interest deduction. The lower limits apply to the combined amount of loans used to buy, build or substantially improve the taxpayer’s main home and second home.

IR 2018-32, provides the following examples:

Illustration 1: In January 2018, John takes out a $500,000 mortgage to purchase a main home with a fair market value of $800,000. In February 2018, he takes out a $250,000 home equity loan to put an addition on the main home. Both loans are secured by the main home and the total does not exceed the cost of the home. Because the total amount of both loans does not exceed $750,000, all of the interest paid on the loans is deductible. However, if John used the home equity loan proceeds for personal expenses, such as paying off student loans and credit cards, then the interest on the home equity loan would not be deductible.

Illustration 2: In January 2018, Mary takes out a $500,000 mortgage to purchase a main home. The loan is secured by the main home. In February 2018, she takes out a $250,000 loan to purchase a vacation home. The loan is secured by the vacation home. Because the total amount of both mortgages does not exceed $750,000, all of the interest paid on both mortgages is deductible. However, if Mary took out a $250,000 home equity loan on the main home to purchase the vacation home, then the interest on the home equity loan would not be deductible.

Illustration 3: In January 2018, Bob takes out a $500,000 mortgage to purchase a main home. The loan is secured by the main home. In February 2018, he takes out a $500,000 loan to purchase a vacation home. The loan is secured by the vacation home. Because the total amount of both mortgages exceeds $750,000, not all of the interest paid on the mortgages is deductible. Only a percentage of the total interest paid is deductible.

Call us if you have any questions.

Pros and Cons of the New Tax Law on Real Estate Owners

February 15, 2018 by Julie Lakric

There are certain provisions of the new tax law that offer expanded tax cuts while others eliminate existing deductions.

One big plus is bonus depreciation. Under prior law, there was a 50 percent bonus depreciation for property placed in service in 2017, 40 percent for 2018, and 30 percent for 2019. Qualified property has to be new, not used.

Under the new law, there’s 100 percent bonus depreciation for property placed in service after Sept. 27, 2017, and before 2023, 80 percent for 2023, 60 percent for 2024, 40 percent for 2025 and 20 percent for 2026. The acquisition date for property purchased with a written contract is the date of the contract.

Qualified property includes property acquired by purchase. A qualified property does not include property used in a business that is not subject to the net business interest expense limitation (see below), but it does include property used in farm business. The law also adds a new category for qualified film, TV, and live theatrical production property. Taxpayers can elect a 50 percent bonus for 2017.

Section 179 expensing has also expanded to include roofs, HVAC systems, fire protection, alarm systems and security systems, with the allowable expense increased from $500,000 to $1,000,000 in 2018, and the phase-out deduction increased to $2.5 million. These rules now include tangible personal property acquired for rental properties, furniture and appliances.

 

Potential losses of prior credits include:

Interest deduction limitation: Interest is now limited to 30 percent of a business’s adjusted taxable income, with the exception of businesses with average annual gross receipts of $25 million or less. Real property businesses can opt out of the interest limitation if they elect the Alternative Depreciation System recovery period rather than MACRS (the Modified Accelerated Cost Recovery System). ADS recovery periods are 40 years for nonresidential property, 30 years for residential and 20 years for improvement property.

State and local tax and property tax deduction: The exclusion of local income and sales tax deductions is for non-corporate taxpayers. There is a $10,000 limit for deductibility of property tax which applies to individuals only.

Property placed in service: Under prior law you could deduct up to $500,000. The limit would be reduced dollar-for-dollar if $2 million in property was placed in service during year. Under the new law, you can deduct up to $1 million starting in 2018. The limit is reduced dollar-for-dollar if $2.5 million in property is placed in service during year. The new law also adds tangible property used for lodging (beds and other furniture for hotels and apartments) and an election for roofs, HVAC property, fire protection and alarm systems, and security systems for nonresidential real property placed in service after the date the real estate was first placed in service. The provisions are effective for property placed in service in 2018.

 

All things considered, the new tax law will provide significant tax savings for the majority of businesses given an overall reduction of tax rates and increased bonus and Section 179 deductions. Real estate owners should strongly consider projected revenue, tax liability and the application of accelerated depreciation to take advantage of these increased expenses on all acquisitions.

Tax Act Changes Deductibility of Mortgage Interest

February 10, 2018 by Julie Lakric

Here are the changes in the rules for deducting qualified residential interest, i.e., interest on your home mortgage, under the Tax Cuts and Jobs Act (the Act).

 

Under the pre-Act rules, you could deduct interest on up to a total of $1 million of mortgage debt used to acquire your principal residence and a second home, i.e., acquisition debt. For a married taxpayer filing separately, the limit was $500,000. You could also deduct interest on home equity debt, i.e., other debt secured by the qualifying homes. Qualifying home equity debt was limited to the lesser of $100,000 ($50,000 for a married taxpayer filing separately), or the taxpayer’s equity in the home or homes (the excess of the value of the home over the acquisition debt). The funds obtained via a home equity loan did not have to be used to acquire or improve the homes. So you could use home equity debt to pay for education, travel, health care, etc.

 

Under the Act, starting in 2018, the limit on qualifying acquisition debt is reduced to $750,000 ($375,000 for a married taxpayer filing separately). However, for acquisition debt incurred before Dec. 15, 2017, the higher pre-Act limit applies. The higher pre-Act limit also applies to debt arising from refinancing pre-Dec. 15, 2017 acquisition debt, to the extent the debt resulting from the refinancing does not exceed the original debt amount. This means you can refinance up to $1 million of pre-Dec. 15, 2017 acquisition debt in the future and not be subject to the reduced limitation.

 

And, importantly, starting in 2018, there is no longer a deduction for interest on home equity debt. This applies regardless of when the home equity debt was incurred. Accordingly, if you are considering incurring home equity debt in the future, you should take this factor into consideration. And if you currently have outstanding home equity debt, be prepared to lose the interest deduction for it, starting in 2018. (You will still be able to deduct it on your 2017 tax return, filed in 2018.)

 

Lastly, both of these changes last for eight years, through 2025. In 2026, the pre-Act rules are scheduled to come back into effect. So beginning in 2026, interest on home equity loans will be deductible again, and the limit on qualifying acquisition debt will be raised back to $1 million ($500,000 for married separate filers).

 

If you would like to discuss how these changes affect your particular situation, and any planning moves you should consider in light of them, please give us a call.

a clock with the words "entertainment taxes" on it

Will the loss of the entertainment deduction affect your business?

February 2, 2018 by Julie Lakric

Businesses—especially smaller firms—may scale back on treating clients to major league baseball games, golf outings and the like after Congress and President Donald Trump ended a tax break for such entertainment.

The tax overhaul that Trump signed Dec. 22 eliminated a 50 percent deduction for business-related expenses for “entertainment, amusement or recreation.” Suddenly, luxury boxes at stadiums and arenas—along with theater and concert tickets—will be more costly for firms that use them for clients.

Businesses that use the entertainment deduction extensively—including law, investment, accounting and lobbying firms—will have to gauge the effects on their bottom lines. Smaller businesses will be less able to absorb the cost.

The loss of the entertainment deduction is a kind of counterpoint to the Republican Congress’s sweeping tax cuts for businesses. The overhaul slashed the corporate rate to 21 percent from 35 percent. It also created a new 20 percent deduction for many partnerships, limited liability companies, sole proprietorships and other “pass-through” businesses, whose owners pay individual tax rates on the income they earn.

Each company will have to decide for itself whether the higher after-tax cost of these expenses makes good business sense.

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Taking advantage of the new tax law to reduce taxes

January 26, 2018 by Julie Lakric

 

The new tax law will affect everybody. Many individuals and companies will have opportunities to make planning decisions that could potentially reduce taxes.

Here’s an example:

For instance, let’s say you have an S Corp that has $500,000 of net income before any compensation to you, the 100% owner. Before the new tax act (Prior to tax year 2018) it would be best to pay yourself a reasonable salary and let the rest of the income flow to the bottom line. Being that both are taxable to you the salary  and the net income to you as S Corp income.

With the new tax law, the scenario will change and look more like this:

Using the example above.  You could pay yourself a reasonable $200,000 salary and let the $300,000 fall to the bottom line as net income. The new tax law states you would receive a 20% deduction on your personal tax return, or $60,000.  But wait! The House Committee reports suggest that you add back any owner compensation in computing the “Qualified Business Income” to the bottom line net income. The Senate version was silent on this. If the House version is interpreted by the IRS as the Act’s intent, the QBI would be the entire $500,000, giving you a deduction of $100,000 on your form 1040.

We will keep a close watch on this as IRS regulations and interpretations as they begin coming out, and will keep you updated. Don’t hesitate to call us anytime to discuss.