BWK Summer Newsletter

Here’s a brief glance at what you’ll find in the Summer issue of our newsletter

Early retirement
How to make this dream a reality

Many people dream of retiring early so they can pursue activities other than work. But making this dream a reality requires careful planning and diligent saving during the years leading up to the anticipated retirement date. This article offers suggestions to meet that goal, including building up retirement savings accounts by contributing the maximum amount allowed by law each year and making other proactive financial moves.

Professional services and the new pass-through deduction: Does your firm qualify?

The recently enacted Tax Cuts and Jobs Act (TCJA) added Section 199A to the tax code, providing a new 20% deduction for owners of “pass-through entities.” The new tax break is available from 2018 to 2025. This article is an introduction to the deduction and guidance on determining which firms qualify. A sidebar provides the definition for a “specified service business.”

Charitable IRA rollover eases tax pain of RMDs

One downside of a traditional IRA is that, once seniors reach age 70½, they must begin taking required minimum distributions (RMDs) — and pay taxes on them — whether they need the money or not. But a qualified charitable distribution (QCD), also known as a “charitable IRA rollover,” lets people avoid taxes on up to $100,000 in RMDs. This article highlights the advantages of QCDs over ordinary donations and explains their requirements.
 

Eyeing a merger or acquisition

Corporations and private equity firms expect a step-up in merger and acquisition activity in 2018 — both in the number and size of those transactions — according to media reports. This article examines the potential benefits and drawbacks of mergers, and offers suggestions for reducing risks.
and, of course, our regular feature:

Client Spotlight – this quarter featuring Cybertrol Engineering.

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Maximize your business’s 2017 tax savings

MANAGEMENT & TAX CONCEPTS

Here’s a brief glance at what you’ll find in the Winter issue

Maximize your business’s 2017 tax savings
Claim all the breaks you’re entitled to when filing your return

Even after 2017 draws to a close, there are still moves business owners can make to save on 2017 taxes. One is to be sure to claim all the tax deductions and tax credits they’re allowed to make. This article highlights some of these areas, including fixed asset purchases, domestic production activities, the research tax credit and the Work Opportunity tax credit. A sidebar briefly discusses how employers might be able to lower their 2017 tax bill by making deductible contributions to employee 401(k), SEP or profit-sharing plan accounts.

Be prepared to put your business on the market tomorrow

In order to have the freedom to make major life changes expediently, business owners should take steps now to be ready to put their business up for sale. This article highlights the sales team, what buyers will examine, and a business’s financial and organizational appeal.

What you should know about making estimated tax payments

Some taxpayers may be required to pay income tax via estimated tax payments. This article explains the types of individuals who may need to pay their taxes this way and the process of calculating estimated tax payments.

Do you need to file a gift tax return?

Individuals who made gifts during 2017 might have to file Form 709 — a gift tax return — when filing their federal income tax returns. This article explains in which situations Form 709 must be filed. It also discusses the handling of hard-to-value assets.

We’ve moved!!

A few pictures of our new offices are included. Stop in and see it in person.

http://bwkaccounting.com/wp-content/uploads/2018/02/BWK2018_1Newsletter.pdf

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Meals, Entertainment, and Mileage – Oh My!

You’ve no doubt got questions about the effects of the recently passed tax act, and its effects on your business.  Here are a few highlights that will affect the majority of our clients:

Mileage Reimbursement

Beginning 1/1/18, the standard mileage rates for cars, vans, pickups, and panel trucks will be 54.5 cents per mile for business miles, 18 cents per mile for medical or moving purposes, and 14 cents per mile for charitable purposes.

Employee Business Expenses

Effective 1/1/18, unreimbursed employee business expenses are no longer deductible.  Now would be a good time to review your reimbursement policy to be sure it is an accountable plan according to IRS standards.

Meals and Entertainment

The new act imposes stricter limits on the deductibility of meals and entertainment expenses.  Below is a table showing the changes from 2017 to 2018 tax years.

                              

 

2017 Tax Year

2018 Tax Year

 

 

 

Entertaining   Clients

Meals – 50% deductible Meals – 50% deductible
Event tickets, 50% deductible Zero – There is no longer a deduction for entertainment   expenses
Office Holiday   Party

 

100% Deductible 100% Deductible
Employee Travel   Meals

 

50% Deductible 50% Deductible
Meals Provided   for Convenience of Employer 100% Deductible – within certain guidelines 50% Deductible – currently scheduled to become   nondeductible after 2025 without additional legislation

 

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Tax Alert

                                             TAX ALERT

The following is a summary of key provisions in the new tax bill the president just signed:

Key business provisions in the final bill:

- Permanently reduces the 35% C corporation income tax rate to 21%, effective January 1, 2018.

-Individuals will be allowed a deduction equal to 20% of qualified business income from pass-through entities and sole proprietorships. The deduction will phase out for service providers other than Engineers and Architects whose taxable income exceeds $315,000 for married filing joint taxpayers ($157,500 for individuals).    The definition of service providers generally includes Accountants, Attorneys, Health care Providers, Consultants and Financial Advisors.

- Repeals the domestic production activities deduction (DPAD) under Internal Revenue Code (IRC) Section 199, which provided a 9% deduction on qualified production income, effective for tax years beginning after 2017.

- Repeals the corporate alternative minimum tax (AMT), effective for tax years beginning after 2017.

- Limits deductions for net interest expense for larger companies to 30% of adjusted earnings before interest, depreciation and amortization through 2021.

- IRC Section 179 expensing will be increased to $1 million for “qualified property” (i.e., tangible personal property used in a trade or business) placed in service in tax years beginning after 2017, with a phase-out beginning at $2.5 million; additionally, the term “qualified property” will be expanded to include certain depreciable personal property used to furnish lodging, and improvements to nonresidential real property (such as roofs, heating, and property protection systems).

- Allows businesses to expense 100% of the cost of certain new and used “qualified property” (bonus depreciation) placed in service after September 27, 2017, and before 2023, and gradually phases down the increased expensing starting in 2023 by 20 percentage points for each of five following years.

- Limits the net operating loss (NOL) deduction to 80% of taxable income, eliminates NOL carrybacks for most taxpayers and allows indefinite carryforwards for losses arising in tax years beginning after 2017.

- Limits the nonrecognition of gain in like-kind exchanges to those involving certain real property only, thereby repealing rules allowing deferral of gain on like-kind-exchanges of business personal property and investment property, effective for exchanges completed after 2017.

-Limitation on the deduction for entertainment expenses.  All Meal expenses are now limited to 50%, including meals provide for the convenience of the employer, which used to be 100% deductible.

-No deduction for sexual harassment settlements if connected to a non-disclosure provision.

-No changes to the R&D and other business tax credits.

Key provisions in the final bill affecting individuals, all of which generally will be effective for tax years beginning after 2017 and will expire at the end of 2025 (unless otherwise noted), include:

-Modifies the current seven income tax brackets for individual taxpayers to rates of 10%, 12%, 22%, 24%, 32%, 35% and 37%.

-Personal exemption deduction goes away; the standard deduction goes up to $24,000 for married filing joint taxpayers, $18,000 for head of household and $12,000 for single taxpayers.

- Increases the “exemption amounts” for the individual AMT, including significant increases in the amounts at which the exemption phases out.

- Limits deductibility of interest on new home mortgages (signed December 15, 2017 or later)  of $750,000 or more. Eliminates the ability to deduct interest on home equity lines of credit.

- Limits the itemized deduction for state taxes to $10,000 for the aggregate amount of property tax and income tax (or sales taxes).  Disallows the deduction for prepaying 2018 state taxes in 2017.

- Doubles the child tax credit to $2,000 generally with up to $1,400 of the credit refundable.

- Retains the estate tax but doubles the exemption to approximately $11 million.

- Extends the medical expense deduction floor of 7.5% of adjusted gross income (AGI) in 2017 and 2018, and expenses that exceed 10% of AGI thereafter.

-Repeal of 2% miscellaneous expense, investment fee  and unreimbursed employee business expense deductions.

- Individual mandate penalty for health care coverage repealed for years beginning in 2019.

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Highlights of the new tax reform law

The new tax reform law, commonly called the “Tax Cuts and Jobs Act” (TCJA), is the biggest federal tax law overhaul in 31 years, and it has both good and bad news for taxpayers.

Below are highlights of some of the most significant changes affecting individual and business taxpayers. Except where noted, these changes are effective for tax years beginning after December 31, 2017.

Individuals

  • Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37% — through 2025
  • Near doubling of the standard deduction to $24,000 (married couples filing jointly), $18,000 (heads of households), and $12,000 (singles and married couples filing separately) — through 2025
  • Elimination of personal exemptions — through 2025
  • Doubling of the child tax credit to $2,000 and other modifications intended to help more taxpayers benefit from the credit — through 2025
  • Elimination of the individual mandate under the Affordable Care Act requiring taxpayers not covered by a qualifying health plan to pay a penalty — effective for months beginning after December 31, 2018
  • Reduction of the adjusted gross income (AGI) threshold for the medical expense deduction to 7.5% for regular and AMT purposes — for 2017 and 2018
  • New $10,000 limit on the deduction for state and local taxes (on a combined basis for property and income taxes; $5,000 for separate filers) — through 2025
  • Reduction of the mortgage debt limit for the home mortgage interest deduction to $750,000 ($375,000 for separate filers), with certain exceptions — through 2025
  • Elimination of the deduction for interest on home equity debt — through 2025
  • Elimination of the personal casualty and theft loss deduction (with an exception for federally declared disasters) — through 2025
  • Elimination of miscellaneous itemized deductions subject to the 2% floor (such as certain investment expenses, professional fees and unreimbursed employee business expenses) — through 2025
  • Elimination of the AGI-based reduction of certain itemized deductions — through 2025
  • Elimination of the moving expense deduction (with an exception for members of the military in certain circumstances) — through 2025
  • Expansion of tax-free Section 529 plan distributions to include those used to pay qualifying elementary and secondary school expenses, up to $10,000 per student per tax year
  • AMT exemption increase, to $109,400 for joint filers, $70,300 for singles and heads of households, and $54,700 for separate filers — through 2025
  • Doubling of the gift and estate tax exemptions, to $10 million (expected to be $11.2 million for 2018 with inflation indexing) — through 2025

Businesses

  • Replacement of graduated corporate tax rates ranging from 15% to 35% with a flat corporate rate of 21%
  • Repeal of the 20% corporate AMT
  • New 20% qualified business income deduction for owners of flow-through entities (such as partnerships, limited liability companies and S corporations) and sole proprietorships — through 2025
  • Doubling of bonus depreciation to 100% and expansion of qualified assets to include used assets — effective for assets acquired and placed in service after September 27, 2017, and before January 1, 2023
  • Doubling of the Section 179 expensing limit to $1 million and an increase of the expensing phaseout threshold to $2.5 million
  • Other enhancements to depreciation-related deductions
  • New disallowance of deductions for net interest expense in excess of 30% of the business’s adjusted taxable income (exceptions apply)
  • New limits on net operating loss (NOL) deductions
  • Elimination of the Section 199 deduction, also commonly referred to as the domestic production activities deduction or manufacturers’ deduction — effective for tax years beginning after December 31, 2017, for noncorporate taxpayers and for tax years beginning after December 31, 2018, for C corporation taxpayers
  • New rule limiting like-kind exchanges to real property that is not held primarily for sale
  • New tax credit for employer-paid family and medical leave — through 2019
  • New limitations on excessive employee compensation
  • New limitations on deductions for employee fringe benefits, such as entertainment and, in certain circumstances, meals and transportation

More to consider

This is just a brief overview of some of the most significant TCJA provisions. There are additional rules and limits that apply, and the law includes many additional provisions. Contact your tax advisor to learn more about how these and other tax law changes will affect you in 2018 and beyond.

© 2017

TaxLawChanges2017

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IRS Standard Deductions for Tax Year 2014

The IRS has announced inflation adjusted tax brackets and standard deduction amounts for tax year 2014, effective 1 January, 2015. These are the numbers that you will have to use to prepare your 2014 tax returns in 2015.

Standard deductions for 2014

The standard deductions are now $6,200 for single taxpayers and married taxpayers who file separately. It has increased by hundred dollars from 2013. For married couples filing jointly, the standard deduction is $12,400, and $ 9,100 for the heads of households.

Itemized deductions

The limitation for all itemized deductions that are claimed on individual tax returns for the year 2014 starts with $254,200 for single taxpayers and $305,050 for married couples who file jointly. The limitations were supposed to be eliminated in 2010, but were extended till 2012. They were then brought back in 2013, indexed for inflation.

Personal exemptions

In 2014, the personal exception amount is $3,950. The personal exemptions phase off completely for individual taxpayers at $376,700 and for married couples filing jointly at $427,550.

Earned Income Tax credit

The maximum EIT amount for the year 2014 is $3,304 for married couples filing jointly and who have one child. The amount is $5,460 if you have two children; $6,143 if you have three or more children. You also get an earned income tax credit of $496 if you do not have any children.

Alternative Minimum Tax exemptions

The AMT exemption is $52,800 for individual taxpayers. For married couples filing jointly, the amount is $82,100. The AMT is permanently adjusted for inflation.

Adoption credit

The credit that is allowed for adopting a child with special needs is at $13,190. The amount of credit that is allowed for other types of adoptions include expenses up to $13,190.

Child tax credit

For the tax year 2014, $3,000 is the amount of credit that may be refundable as Child tax credit.

Kiddie tax

The amount of money that a child can take home without attracting federal income tax is $1,000.

Hope scholarship credit

For the tax year 2014, $2,500 is the maximum amount of Hope scholarship credit. You can claim 100% of qualified expenses including tuition up to $2,000 plus 25% of expenses above $2,000 but less than $4,000.

Individual retirement account contributions

IRA contributions can be deducted up to $5,500 for the tax year 2014.

Flexible spending accounts (FSA)

Employee contributions up to $2,500 to employer-sponsored healthcare FSAs are deductible.

Federal gift tax inclusion

You can deduct gifts of up to $ 14,000 for 2014.

Federal estate tax exemption

For those who die in 2014, and estate value of up to $5,340,000 is exempt.

If you want more information on deductions and tax brackets, you can find them at the revenue procedure update that the IRS has posted. Consider using the services of a qualified accountant to file your paperwork accurately and to save the maximum amount in taxes.

 

 

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Smart Exit Strategies for Businesses

An “exit strategy” is defined as a method by which a business owner intends to exit or get out of the business. It is a strategy to cash out the investment made so far.

Often, people wonder why they would want to exit a business which they started after undergoing so much trouble. But the thing is, it makes sense for entrepreneurs to chart out a clear exit strategy precisely because they love the whole idea of starting a business from scratch and growing it. Once the business reaches a stage where it runs on its own, it would no longer challenge you. That is the best time to cash out.

Also, venture capitalists and other investors will want to collect their return. Exiting the business is a way for them to cash out.

The following are the most common exit strategies that businesses use:

Initial Public Offering (IPO)

While this route is not suitable for all businesses, Initial Public Offering can be a viable exit strategy for some. By issuing an IPO, you take the company public. Before the Internet bubble, this used to be the most preferred exit strategy. But now the IPO rate has reduced and shareholders have also become increasingly demanding. Start-ups can still use IPO as an ex-it strategy, but only after due consideration.

Merger and acquisition

You can exit your business by merging it with a similar company or selling it to a bigger one. This type of exit can be a win-win situation for all concerned, especially when the firms can save resources by merging and have complementary skills. For a big company, buying out a well-established small company is the quickest and most efficient way to growing the revenue and increasing their market share. If you’re a small business who is doing exceedingly well, merger and acquisition can be a viable exit strategy.

Keeping the business in the family

Many small business owners do not want to give up what they built after a lot of struggle. They want to ensure that their legacy lives on by keeping the business in the family. This too can be a good exit strategy if the successor is adequately groomed. Bear in mind that there may be a lot of issues in a family succession plan because of the emotions involved. You could also sell the business to a friendly individual, perhaps a friend, who has the necessary interest and skills to scale the business.

Make it a cash cow

If the business consistently generates a lot of revenue, you can use that money to pay off the investors and keep it with you to continue reaping the profits. Find someone capable to run the business for you while you use the cash to fund your next idea. You will need to pump in some money into the cash cow so it remains healthy.

Liquidate and close

This is the simplest, but often overlooked exit strategy. Simply shut down the business and liquidate. In order to make money with this strategy, the business must have enough assets to sell and profit from. For many small businesses that are dependent on a single individual to perform, liquidation could possibly be the only option.

Plan for an exit strategy when you start the business itself. Don’t wait till you’re in trouble to think about how to leave.

 

 

 

 

 

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Tax Tips For Small Businesses – What To Deduct

If you are a self-employed entrepreneur running a small business, you know how frustrating the annual tax filing process can be. There are qualified tax and accounting professionals to make your job easier, but it always helps if you have some basic tax knowledge.

Here are a few tips on how small businesses can save on taxes via appropriate deductions. Keep these in mind so you can hold onto the necessary purchase receipts.

Home-office deductions

If you work out of your home, as long as you have a distinct demarcation between your workspace and the rest of the living space, you can make legitimate deductions. Make sure that your working space is not used for any other purpose. Keep a separate computer for business use, so you can include that it in the deductions. The percentage of expenses that you can deduct is calculated by measuring the area of the workspace and dividing by the actual square footage of the house. You can calculate that percentage of mortgage, rent, taxes, maintenance, and utilities of the house, to make the deduction.

Travel deductions

If you make frequent travels for business reasons, you will be happy to know that many travel related expenses are tax deductible. You can write off hotel fees, airfare, car rental, and even laundry expenses. Food expenses are deductible only up to 50%. If you take your family with you, remember that you cannot deduct the expenses that are incurred on their behalf. Client lunches can be deducted up to 50%. Conference fees can also be deducted if it is directly applicable to and useful for the business. Fan conventions, amusement parks, or tourist attraction expenses do not qualify.

Technology deductions

Under section 179, business expenses such as computers and printers are tax deductible. Even company vehicles can be included for deduction. Depending on what the item is, the deduction can be made for just the year of purchase, or spread across several years. So don’t hesitate to buy the appropriate technological gadgets to help your business because you can include the cost of the devices in your tax deductions. You can even deduct subscriptions to websites and magazines related to the business. Just make sure that these items are used only for work and not for personal use.

It is financially prudent to keep detailed receipts for all your purchases, and this is even more important when it comes to filing taxes. It may seem like a bit of a hassle to keep the purchase receipt for every little thing, but this habit can save you a lot of trouble in case you ever get audited. The last thing that you want is the IRS to be on your back. When your finances are well organised, you have no reason to worry about whether your tax filing is appropriate.

Running a business can be expensive, but you can save a lot of money by filing your taxes completely and appropriately. Invest some time into your tax planning, and you can save a good chunk of money to put back into your business.

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Tips for female entrepreneurs to secure small business loans

Securing a loan for your small business may not be as easy as you think. Many businesses apply for loans every day, but only a few actually get the money from banks and other lenders.

The business world today is still male dominated, and female entrepreneurs may find it tough to compete with male loan applicants. A study by the California Reinvestment Coalition found that business loans that are given to small enterprises owned by women in the state have dropped by 70% since 2007. But there is no need to worry, because there are a few things that you can do to improve your chances of getting a loan.

Build and maintain business relationships

When you approach a bank or a small-business lender, what they want to know is that your business is poised for success. The extent of the reach that you have within your local business community is an indication of how serious you are about your business, and how well connected you are. Female business owners must be serious about building trusted relationships within their business communities. If you find it difficult to get started, look for small business support groups in your locality or mentorship programs in universities. Many people who work in these organizations also have close ties with lenders. These connections may come in handy during loan applications.

Organize your financial records

If your financial information is disorganized, it can hinder the loan application process. It is important for banks and other lenders to thoroughly verify all the information that you provide via appropriate documentation. If you do not have the necessary documents handy, it can delay the process. It may come across to lenders that you’re either not serious about maintaining financial records, or worse yet, incapable.

Explore multiple options

Don’t just apply to one bank and forget about it. Explore all the different options that are available before deciding on the final one. Spend enough time shopping around for a lender who will suit your specific needs. Remember that different banks have different rates, and different preferences for specific industries or businesses. Find one that will give you the best overall relationship, rather than just the lowest interest rate. Also don’t neglect small-business lenders who are more likely than banks to give you the money.

Lending programs for women

Some lenders offer loan programs that are specifically targeted at businesses run by female entrepreneurs. These kind of lending programs make it a little easier for your business to get the money. Apply for general loans and as well as women-oriented lending programs to improve your chances.

When you approach the lender, make sure that you know exactly what you’re going to use the proposed amount for. Vague requests for a certain sum of money and poor planning are likely to put lenders off and get your loan request rejected. Be prepared with specific information to suitably impress.

Prepare well, keep all documentation handy, explore multiple lending options, and put some collateral aside. With some effort, you will be able to find a loan for your business.

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How small businesses can adopt sustainable business practices

Sustainability is not only about adopting green business practices, but is also a measure of the organization’s social and economic performance. Small businesses can especially adopt sustainable business strategies to improve profitability, customer loyalty, and commitment from their own employees.

The AICPA and CIMA, two of the most prestigious accounting bodies in the world, have released the report on the key elements to sustainable business practices in SMEs. Here are a few key points from that report.

Sustainability is not just about the environment

Very often, the word sustainability brings to mind green power, renewable energy, water conservation, and other environmental issues. But think beyond green business practices, and figure out creative ways in which your organization can act as a good corporate citizen for the benefit of all your stakeholders. Have open discussions with everyone, including suppliers and customers, and share information freely to come up with innovative solutions to improve efficiency and reduce waste.

Figure out what sustainability means to you

Write down a clear definition which communicates to everyone what sustainability means your company. This statement must be something that anyone can refer to, adopt the right goals for sustainability, and measure results accurately.

Communicate widely and involve top management

The measure of success of any strategy depends on who owns and writes it. The senior management must be actively involved in driving the policy, and must appoint the right sustainability champions who have the ability to communicate it throughout the organization, to every level.

Don’t attempt to do everything at once

Take baby steps. Becoming sustainable is not going to be an overnight transformation. Make small changes consistently and evolve to a more sustainable business over the course of a few years.

Don’t let sustainability be just a marketing campaign

Many companies make the mistake of jumping into the sustainability bandwagon only as a marketing exercise. It is easy enough to see through this “greenwashing”, and it can create an unfavorable impression about your company in the minds of customers, suppliers, and investors. Start talking about sustainability measures only if you are fully committed to the philosophy behind it and you’re prepared to do what it takes rather than just talk about it.

Track progress

You must measure, monitor, and review the goals of sustainability in order to justify it to the top management and to fully understand the benefit that it brings to the organization. It is important to develop clear and measurable metrics, and review them on a regular basis. This will help understand whether you’re making any progress, and in the goals are realistic and achievable.

Share best practices

Remember that you’re not alone in the sustainability drive. Actively engage with other organizations and industry initiatives to achieve sustainability goals together. Share best practices with other organizations that face challenges that are similar to your own.

Invest in sustainability more in terms of time rather than capital expenditure. Done the right way, sustainable business practices can truly push your business to another level.

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