The US Treasury has set up a very helpful website which talks specifically about the Paycheck Protection Program which is an SBA loan program available to small businesses.
The Small Business Administration has released updated information regarding the Paycheck Protection Program. This is a loan program that can be used by small businesses to help retain employees during the COVID-19 crisis.
There are some important income tax changes as they relate to your 2019 income tax returns and estimated tax payments normally due on April 15th.
View the Families First Coronavirus Respose Act to learn about paid sick leave, small business protection, good faith compliance efforts, payroll tax credits, payments available, and more.
We hope you consider attending one of Bauman’s upcoming webinars:
2019 Individual Tax Update
December 10, 2019 at 11:30 AM – 12:00 PM
Please join us for a 30 minute webinar as we explore year-end planning opportunities for your individual tax situation.
2019 Business Tax Update
December 11, 2019 at 11:30 AM – 12:00 PM
Please join us for a 30 minute refresher course on the tax laws and year-end planning opportunities for your business. Topics include: Tax Law Reminders – QBI & Depreciation, Sales Tax – Wayfair, Payroll Issues, Business Expenses- Meals & Entertainment.
If you’re unable to attend live, webinars will be archived to our website in the near future.
See registration links below:
People of the Chippewa Valley have spoken through Volume One’s Reader Poll and we are honored to be named to the Best Of list for the third year in a row. Our hope at Bauman Associates is that our team will continue to be a place where future generations feel welcome and are invited to help our community thrive. As our business and community evolve, our commitment to quality remains the same.
Bauman Associates, Ltd. has been serving the Chippewa Valley for more than 70 years. We also have an office in Hudson and remote workers from the Green Bay and LaCrosse areas. Besides offering excellent advice and helping individuals and other businesses reach their financial goals, we go beyond the numbers with our commitment to giving back.
Our Tax Team thanks you for voting them Number 1 Tax Service in Chippewa Valley – we look forward to another great year with our friends and clients.
Students, don’t miss out on a free Dinner with Bauman!
Contrary to popular belief, there IS such a thing as a FREE dinner! Join accounting professionals from Bauman Associates on Thursday, May 2nd for pizza, door prizes and a unique opportunity to find out what it is like to work in a public accounting firm. Students will also learn about the employment opportunities Bauman Associates offers and network with leaders in the field. This event will take place at UW-Eau Claire in Davies Center, Dulany Inn (Room 122) from 4:00 – 6:30 pm. Space is limited and applications are due May 1st, so submit yours today. We look forward to seeing you there!
Keeping up with the complex credit landscape can be difficult for organizations with limited resources. The Tax Cuts and Jobs Act (TCJA) adds another level of complexity to tax planning. In this article, we have outlined how the TCJA will impact key tax provisions and tax minimizing strategies.
Alternative Minimum Tax
Alternative minimum tax (AMT) should be considered before you and/or your accountant begin to time income and deductions. AMT is a separate tax system that limits some deductions and disallows others, such as state and local income tax deductions, property tax deductions, and other miscellaneous itemized deductions that are subject to the 2% of AGI. Deductions include investment advisory fees and non-reimbursable employee business expenses.
The purpose of the AMT is to ensure those who receive a lot of tax breaks are still paying some level of federal income taxes. The AMT, originally intended to target high-income households, became problematic once it began affecting more and more taxpayers. Failing to account for inflation, the AMT began to impact middle-income households as wages increased.
To ensure that the AMT functions properly, the Tax Cuts and Jobs Act:
- Increases the AMT exemption amounts
- Raises the phaseout thresholds for these exemptions
- Permanently indexes the exemptions for inflation going forward
Under the Tax Cuts and Jobs Act, fewer taxpayers will be affected by the alternative minimum tax. Speak with your tax professional regarding the changes made to the AMT exemption amounts.
Timing Income and Expenses
Timing is everything when it comes to income and expenses. Smart timing will reduce your tax liability, while poor timing can unnecessarily increase it.
If you don’t expect to be subject to AMT in the current or following year, consider income deferment. Deferring income and increasing deductible expenses for the current year is typically a good idea because it will postpone tax. If you expect to be in a higher tax bracket, or if tax rates are expected to increase, the opposite approach rings true.
Whatever the reason for timing your income and deductions, here are some income items you may be able to control:
- Consulting or other self-employment income
- U.S. Treasury bill income
- Retirement plan distributions (to the extent they won’t be subject to early withdrawal penalties)
Followed by potentially controllable expenses:
- State and local income taxes
- Property taxes
- Mortgage interest
- Margin interest
- Charitable contributions
Good deeds in the form of cash or in-kind items can reap great tax benefits. While the new tax reform does not eliminate charitable deductions, it does limit the tax incentive for charitable contributions. The new plan increases the standard deduction and reduces the tax bracket, meaning fewer people will itemize their deductions.
There are several giving strategies to consider, including:
- Bunching. Taxpayers whose itemized deductions fall short of the standard deduction should consider bunching their charitable contributions every other year. This idea works out very well for donors, allowing those who fall below the deduction threshold to exceed it every other or every third year.
- Donor-Advised Funds (DAF). The itemized donor gives an initial, larger gift to a donor-advised fund and receives the allowed tax deduction. The contribution grows tax-free and serves as a charitable fund from which the taxpayer can recommend gifts to charity in subsequent years.
- Charitable Gifts. Under the new tax law, donors can still take an income tax deduction on the full fair market value of appreciated assets that have been gifted to charity.
- IRAs. Taxpayers 70.5 years of age and older can request a distribution of up to $100,000 per year directly from their IRAs to charity. This gift would help satisfy the annual required minimum distributions from the IRA and be removed from the donor’s taxable income.
Before making a large donation to the charity of your choosing, discuss options with your tax professional.
The Tax Reform and Jobs Act changed the AGI threshold for medical expenses from 10% to 7.5% for 2017 and 2018 for all taxpayers.
If medical expenses were not paid through tax-advantaged accounts or were reimbursable by insurance and exceed 7.5% of your AGI, you can deduct the excess amount. Eligible expenses may include:
- Health insurance premiums
- Long-term care insurance premiums (limits apply)
- Medical and dental services
- Prescription drugs
You may be able to save tax by contributing to one of these accounts:
- HSA – You can contribute pretax income to an employer-sponsored Health Savings Account — or make deductible contributions to a personal HSA. For 2018, contributions are $3,450 for self-only coverage and $6,900 for family coverage. As a bonus, if you’re age 55 or older, you may contribute an additional $1,000. Like an IRA, HSAs can bear interest or be invested, growing tax-deferred. Balances can be carried over from year to year, and withdrawals for qualified medical expenses are tax-free.
- FSA – An employer-sponsored Flexible Spending Account can be used to redirect pretax income. The plan pays or reimburses you for qualified medical expenses, not to exceed $2,650 in 2018. The balance that remains at the end of the year you lose, unless your plan allows you to roll the balance over (up to $500).
Sales Tax Deduction
The state and local tax deduction, or SALT, now has a cap. While it remains in place for those who itemize their taxes, it now has a $10,000 limit. This is a significant change as filers could previously deduct an unlimited amount for state and local property taxes, plus income or sales taxes.
As a self-employed taxpayer, you may benefit from other above-the-line deductions. You can deduct 100% of health insurance costs for yourself, your spouse, and your dependents, up to your net self-employment income. You can also deduct retirement plan contributions and, if you’re eligible, an HSA.
Estimated Payments and Withholdings
You can become subject to penalties if you don’t pay enough tax through estimated tax payments and withholding. Here are some strategies to help avoid underpayment penalties:
- Know the minimum payment rules
- Use the annualized income installment method
- Estimate your tax liability and increase withholdings
Now is also a great time for organizations to re-evaluate their annual budgets to improve profit margins and consolidate spending. One strategy worth exploring is new or revised tax credits to help offset the amount owed to federal and state governments and take advantage of any county or city localized tax credits. Capturing 2018 credits, as well as retroactive 2017 tax credit opportunities, can help your organization reduce its liability, lower its tax rate, and improve the bottom line.
For example, the employer tax credit, which was created by the TCJA, is available to employers who offer paid family and medical leave to their employees who earned $72,000 or less in 2017 or 2018. To qualify, employers must have a written policy that
- covers all workers employed for a year or more,
- provides at least two weeks of annual paid family and medical leave for each full-time qualified employee and offers a proportionate amount of leave for part-time qualified employees, and
- pays at least 50 percent of the employee’s wages during the leave.
Whether you are an individual taxpayer or a small business owner, understanding your tax credit eligibility is important.
If you have questions about these or other tax saving tips, please contact one of our professionals to schedule your year-end planning meeting.
Changes to Fringe Benefits, Entertainment Expenses
The tax reform legislation that Congress signed into law on December 22, 2017, was the largest change to the tax system in over 3 decades. The new tax code contains many provisions that will affect individual, estate, and corporate taxpayers. One of those changes, the elimination of a business-related deduction used for entertainment, amusement or recreation expenses, will make it costlier for business owners to entertain clients.
Previously, if an entertainment or meal expense was related to or associated with the active conduct of a trade or business, it was deductible up to 50 percent. Under the new tax code, these expenses are now considered the cost of doing business. In the chart below, we have highlighted the major changes.
|Activity||2017 Old Rules||2018 New Rules|
|Qualified client meal expenses||50% deductible||50% deductible|
|Qualified employee meal expenses||50% deductible||50% deductible|
|Meals provided for employer convenience (incl water, coffee and snacks at the office for employees)||100% deductible||50% deductible (not deductible after 2025)|
|Client entertainment expenses
Qualified charitable events
50% deductible at face value of ticket
|No deduction for entertainment expenses|
|Office holiday parties||100% deductible||100% deductible|
The elimination of this deduction will impact business owners who are accustomed to treating clients to golf outings or providing clients with tickets to sporting events or concerts. Businesses will have to re-evaluate their entertainment expenses related to their trade or business, as these items are no longer 50 percent deductible.
In consideration of the elimination of this deduction, we recommend creating separate accounts for meals and entertainment expenses. Educating employees to separate their expenses will be vital as business meals will remain 50 percent deductible until 2025.
The IRS recently issued guidance regarding the business expense deduction for meals and entertainment expenses:
Taxpayers may continue to deduct 50 percent of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant or similar business contact.
Furthermore, food and beverages that are provided during entertainment events will not be considered entertainment if purchased separately from the event.
The Department of the Treasury and the IRS expect to publish proposed regulations clarifying when business meal expenses are deductible and what constitutes entertainment. Until the proposed regulations are effective, taxpayers can rely on guidance in Notice 2018-76.
Entertainment expenses are notoriously targeted by auditors. Considering the law change, we anticipate these expenses to be a heightened area of concern during an audit. The professionals at Bauman Associates can help ensure you are in compliance, call us today at (715) 834-2001.
On June 21, 2018, The U.S. Supreme Court issued its highly anticipated decision in the South Dakota v. Wayfair case. The verdict, declaring that states can impose sales tax nexus without requiring a seller’s physical presence in the state, will have serious implications for all sellers, not just online retailers.
The decision overturns the Supreme Court precedent in Quill Corp. v. Dakota which required retailers to have a physical presence in a state before a state could require the seller to collect sales taxes from in-state customers.
The court’s decision sides with states like South Dakota, that were ultimately missing out on billions of dollars in income by not collecting sales tax from online retailers who lacked a physical presence in their state. According to the U.S. Government Accountability Office, state and local governments could have gained up to $13 billion in 2017 if states were given authority to require sales tax collection from all remote sellers.
In 1992, North Dakota attempted to require Quill Corporation, a retailer with no physical presence in North Dakota, to collect and pay sales tax for doing business in the state. Having done business through mail orders and by phone, Quill was able to successfully argue that they should not be required to pay taxes in a state in which they had no physical presence. The courts agreed, and thus the physical presence standard was born.
Since then, states have enacted a variety of nexus provisions to counteract the loss of revenue by out of state businesses that do not collect sales tax for the state. These types of provisions, which require remote sellers to collect tax or provide information about in-state customers, are known as remote seller nexus. This chart maps out the states that have passed legislation.
In the 1990’s, no one could have anticipated how predominate online sales and e-commerce would become. What was once a fraction of interstate sales had become a $450 billion industry. Supreme Court Justice Anthony Kennedy displayed willingness to revisit the Quill case, recognizing the decision had become dated. South Dakota identified the window of opportunity to re-challenge the 1992 Quill verdict. In a 5-4 ruling, the Supreme Court overturned Quill’s physical presence standard in Dakota v. Wayfair.
Who Will This Impact?
It is important to note that all sellers, not just online retailers, will be impacted by the overturn of the physical presence standard. This ruling will result in increased complexities for consumers, brick-and-mortar retailers, online retailers, accountants, and the technology companies that develop accounting software.
If your business sells products or services in multiple states, this ruling should warrant your attention. It will be imperative to be proactive; start by determining what the impact will be and plan accordingly.
While states aren’t required to collect tax from out of state retailers, many states are expected to follow South Dakota’s path since these standards were reviewed by the Court for the Wayfair decision. Some states have passed economic nexus standards that are already in effect or will take effect within the next year.
If you would like to evaluate the impact this new law may have on your business, please contact Bauman Associates today by calling (715) 834-2001.