October 31, 2017

Simplified Accounting Standards Ease Accounting and Reporting for Private Companies

Complying with financial accounting and reporting standards set by the Financial Accounting Standards Board (FASB) can be a burden to private companies. To ease some of the difficulties businesses face, the FASB has issued Accounting Standards Updates (ASUs). These standards aim to simply financial accounting and reporting under the U.S. Generally Accepted Accounting Principles (GAAP) without sacrificing quality of the financial statements.

In order to be eligible to implement the simplified accounting standards, private companies must meet the FASB’s definition of a “private business entity”. If an organization determines they are eligible, they must evaluate the applicability and short and long term advantages and disadvantages of implementation before electing the standard. This is a critical step to avoid unnecessary accounting complications in the future.

The following four accounting alternatives are optional for private companies and may be implemented at any time as long as the criteria in the standards are met.

  1. Leasing Arrangements in Variable Interest Entities (ASU No. 2014-07)
    A company may elect not to apply the variable interest entity guidance to a leasing arrangement between two commonly controlled entities if the leasing arrangement is the primary relationship between the entities. This alternative would not result in consolidation that would otherwise be required.
  2. Goodwill (ASU No. 2014-02)
    A company may elect to amortize Goodwill over a period of 10 years. This alternative also changes the requirements for impairment testing, allowing for impairment to be tested only after a triggering event and tested on a company-wide basis.
  3. Hedge Accounting (ASU No. 2014-03)
    A company may elect simplified hedge accounting for receivable-variable, pay-fixed interest rate swaps on a swap-by-swap basis. This approach allows a swap to be valued at its settlement value and allows a company to assume no ineffectiveness in the cash flow hedging relationship.
  4. Business Combinations (ASU No. 2014-18)
    A company may elect to include intangible assets created during business combinations in goodwill instead of separately identified assets. Companies can then adopt the simplified accounting standard for goodwill, noted above.

Implementing these standards can save a significant amount of time and resources in financial accounting and reporting. They may also provide more relevant information to the end users of financial statements. For help evaluating the standards and determining whether they are right for your business, contact an Anders advisor.

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October 27, 2017

SAFE Investments: Simplifying Startup Fundraising

Capital funding remains one of the biggest reasons startups can struggle early on. How and where to raise money is something many entrepreneurs will always have to deal with. A new type of fundraising opportunity may help ease these struggles: the SAFE investment vehicle. A Simple Agreement for Future Equity (SAFE) is a newer, more creative way companies are trying to raise money.

What is a SAFE investment?

A SAFE is an investment vehicle created by the Y Combinator in an attempt to simplify early stage funding and reduce the costs associated with the funding round. SAFEs are intended to work similarly to and essentially replace convertible notes, with a few key differences.

SAFE vs. convertible note

SAFE investments maintain the flexibility of a convertible note, yet address some of their complex issues. Similar to convertible notes, investors fund the company and receive a SAFE agreement versus upfront equity. The SAFE entitles them to future shares of the company if and when a triggering event occurs. The common triggering events are the company raising equity capital, an acquisition or an IPO.

While this type of agreement is similar to a convertible debt agreement in the ultimate conversion of non-equity investment to an equity investment, a SAFE is not a debt instrument. It does not accrue interest and there is no expiration or maturity date, so this cuts down on some of the legal and accounting costs dealing with such items.

Smaller document, less cost

SAFE investments have some elements of convertible debt and some of a warrant. In contrast, a SAFE agreement is often accomplished in only a five or six page legal document, while convertible debt agreements and warrants can bring with them complicated and robust legal paperwork. As founders can attest, more paperwork equals more cost. In early funding rounds, the high cost of these more traditional funding vehicles can be prohibitive.

Pros and cons for investors

The simplicity of SAFEs and the associated costs savings are making them more and more popular with startup companies in the fundraising circuit, but some investors are still skeptical of the agreements. Many investors argue a SAFE does not offer much investor protection. For example, if a triggering event never occurs, the investor will never receive equity.

Also, since they are not debt instruments, the investor is not protected if the company does not have a triggering event or in the unfortunate event the company does not make it. Under a convertible debt agreement, the investor is at least set to receive interest payments over time, or accrued interest to be paid at maturity or as part of the equity conversion. They will also receive repayment of the loan if note maturity occurs before the triggering event.

While some investors are skeptical of SAFEs, the limited stipulations, feasibility and a chance to help a startup from the beginning are the reasons these investments can still be attractive to investors. Some companies are enticing investors to invest with a SAFE with favorable terms for the equity conversion, such as valuation caps as well as discounts. More and more investors are seeing SAFEs as a cost-effective way for startups to raise their early funding rounds and investors to ultimately end up with equity at a nice discount.

There is no doubt that SAFEs will continue to increase in popularity in the early stage funding world. Be on the lookout for the next blog post in our series on SAFE investments highlighting the accounting and tax implications of these investments. If you have any questions on SAFEs or would like to discuss them for your startup, please contact an Anders startup advisor.

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October 24, 2017

How to Maximize the Benefits of Your Health Savings Account

A Health Savings Account (HSA) provides an avenue to save and invest money for current and future qualified medical expenses (QMEs). Once you decide that an HSA is the best choice for you, learn why and how to incorporate it into your retirement planning strategy.

Why invest with an HSA?

Money contributed to an HSA is tax-free and distributions for QMEs are also tax-free. Once your HSA account balance reaches a certain amount, you may have the option to invest funds over that amount. That amount is determined by each custodian, typically $2,000, but could be higher or lower. If you choose to invest the funds in your HSA, future earnings from your investment are also tax-free as long as distributions are used towards QMEs.

Spend less on health expenses

HSAs provide a huge benefit over other retirement plans such as a 401(k). The annual contributions to an HSA account are much lower than the amount you can contribute to a 401(k). This allows you to invest your HSA in low-cost assets to help gain greater profits and spend even less out-of-pocket health care expenses.

Avoid capital gains tax

By contributing and investing the maximum amount in your HSA, you not only avoid federal and state income tax, but any future earnings from your investment are exempt from capital gains tax as long as funds are used for QMEs. If your income is greater than $200,000 for single or head of household filers and $250,000 for married filers you will save an additional 3.8% from the net investment income tax on your earnings as part of the Affordable Care Act.

Withdraw funds at age 65 without penalty

After you reach the age of 65 you can withdraw funds from your HSA account for non-qualified expenses without incurring the 20% penalty. You would be subject to income tax on the distribution just like distributions from an IRA or another qualified retirement plan.

Self-directed HSA

With the influx of HSA providers and advancements in technology, many HSA providers are now offering self-directed HSAs. This allows you to invest in an array of low-cost assets that could potentially bring larger returns. Besides investing in the securities market, you could invest in other markets such as private equities, real estate, or even consumer loan listings.

When you consider potential investment earnings you should start to think of your HSA as another retirement account. Contact an Anders advisor to learn more on how you can maximize your HSA.

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October 20, 2017

Cloud Technology for Small Businesses
Recorded Webinar

Moving technology to the cloud can provide many benefits for businesses of all sizes. In this recorded webinar, Solutions Architect Julia A. Deien, MCTS provides real-life examples of how small to medium size offices can benefit from using the cloud to expand beyond traditional IT practices.

Please complete the form below to view the recorded webinar.

Learn more about our Managed IT and Cloud Services.

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October 17, 2017

How Smaller Construction Projects Can Reduce Tax Liability with a Mini Cost Segregation Study

Cost segregation studies can significantly reduce federal and state tax liability for construction projects by accelerating the timing of depreciation deductions. While a full blown cost segregation study may not be worth the price tag for smaller construction projects, there is another option these projects can take advantage of.

Mini Cost Segregation Studies for Smaller Projects

Building, renovating or remodeling a portion of a building includes costs that are not considered repairs or maintenance, and must be capitalized and depreciated. The cost of these projects are typically in the tens or hundreds of thousands of dollars, and would not necessarily warrant an in depth cost segregation study.

In those cases, instead of throwing up your hands and giving into the traditional 39 year straight-line depreciation method, we can help perform a “mini” cost segregation study.

Information Needed for a Mini Cost Segregation Study

How do we go about doing this?  We would ask for information such as:

  • A contractor’s detailed application for payment, commonly called the schedule of values
  • Contractor’s change orders
  • Owner’s incurred costs such as architecture and engineering fees, and any other cost detail required to be capitalized
  • A complete set of plans and copies of the specifications is also helpful

How Mini Cost Segregation Studies Work

After analyzing the costs and details available, we would classify assets that are easily identifiable into the proper class lives.  For example, we can identify if certain property can be depreciated over 5 or 7 years and break out those expenditures of the total project cost.  Depreciable land improvements can also be determined.

Our analysis would conclude with a total capitalized cost breakdown between proper asset lives for your project. The invoices, schedule of values and other information used in our evaluation would become part of your depreciation records.

Cost segregation studies help lower the current tax liability of what is often your largest asset through the acceleration of the tax depreciation deduction. Contact an Anders advisor to learn how your real estate or construction investments can benefit from a qualified cost segregation study.

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October 12, 2017

Anders Women’s Initiative Receives LEA EDGE Award

The Anders Women’s Initiative was honored with the 2017 Leading Edge Alliance (LEA) EDGE Award for Outstanding Women’s Leadership Program. This new award, given at the LEA North American Conference in Denver, honors the most creative and productive women’s leadership programs.

Anders won the award for revamping the firm’s Women’s Initiative to focus on improving the quality of advice women entrepreneurs in the community receive. The initiative was recognized for the ability to pull resources from other LEA firms to position Anders as the go-to firm for women-owned businesses and entrepreneurs.

Anders is an affiliate of the Leading Edge Alliance (LEA), the second largest global accounting network in the world. LEA brings together more than 1,600 experienced partners and 23,500 staff members from 450 firms around the globe. This is the ninth EDGE Award for Anders, including awards for the Innovative Firm of the Year, Young Professionals Program and Outstanding Marketing Initiative.

Learn more about the Anders Women’s Initiative.

 

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October 10, 2017

Disaster Tax Relief Act Provides Assistance for Hurricane Victims

Targeted tax relief is on the way for victims of Hurricane Harvey, Irma and Maria. On September 29, President Trump signed the Disaster Tax Relief and Airport and Airway Extension Act of 2017. While tax deadline extensions were already granted for hurricane victims, the Disaster Tax Relief Act offers more extensive relief options for affected taxpayers.

Summary of Disaster Tax Relief

The Disaster Tax Relief and Airport and Airway Extension Act includes many extensive tax relief measures. Below are the main points for hurricane victims:

  • Removes the current requirement that uncompensated personal casualty losses exceed 10% of adjusted gross income to qualify for the deduction
  • Eliminates the current requirement that taxpayers must itemize deductions to access tax relief
  • Provides an exception to the 10% early retirement plan withdrawal penalty for qualified hurricane relief distributions
  • Allows for the re-contribution of retirement plan withdrawals for home purchases canceled due to eligible disasters
  • Provides flexibility for loans from retirement plans for qualified hurricane relief
  • Temporarily suspends limitations on charitable contribution deductions associated with qualified hurricane relief made before December 31, 2017
  • Provides a tax credit for 40% of wages, up to $6,000 per employee, paid by a disaster-affected employer to each employee from a core disaster area
  • Allows taxpayers to use earned income from 2016 to determine the Earned Income Tax Credit and Child Tax Credit for the 2017 tax year

Qualifying for Tax Relief

For Hurricane Harvey, a “qualified individual” is one whose principal residence on Aug. 23, 2017 was located either in the Hurricane Harvey disaster zone or in the Hurricane Harvey disaster area, and the individual was evacuated from their residence by reason of Hurricane Harvey. Similar definitions apply for Hurricane Irma, using a Sept. 4, 2017 date, and Hurricane Maria, using a Sept. 16, 2017 date.

Read The Disaster Tax Relief and Airport and Airway Extension Act of 2017 for more information, or contact an Anders advisor to learn how you may benefit from the tax relief.

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October 3, 2017

GOP Releases 2017 Tax Reform Framework

The long-awaited tax reform outline has been released by Republican lawmakers. Their goal is to cut tax rates for individuals and businesses as well as encourage businesses to be competitive and simplify the Internal Revenue Code.

Individual Tax Reform

Individual tax reform would be fairly extensive and is outlined below:

  • Only Three Tax Brackets: 12%, 25%, and 35%. Currently, there are 7 Tax Brackets ranging from 10% to 39.6%. There is also language in the tax-writing to allow a fourth higher tax bracket
  • Repeal the Alternative Minimum Tax
  • Repeal the Estate Tax and the Generation-Skipping Transfer Tax
  • Pass-through income will be taxed at a maximum rate of 25%
  • Increase the Standard Deduction to $12,000 for individuals, and $24,000 for married filing jointly
  • Eliminate most itemized deductions, including state and local tax deductions
  • Increase the Child Tax Credit and provide a $500 credit for non-child dependents

Corporate Tax Reform

The outline for businesses includes the reduction and elimination of taxes and deductions including:

  • End to taxation on US companies’ worldwide income and move to a territorial system
  • One-time tax on accumulated offshore earnings
  • Limit deductibility of interest
  • Eliminate deductions, yet to be defined, but retain the research and low-income housing credits
  • Expense 100% of depreciable assets (except buildings) for 5 years

Congress is hoping to turn the framework into legislation to be passed by the end of the year.  However, we should expect a lot of debate and changes to the framework if it is to pass.  Anders will continue to monitor and keep you updated. Contact an Anders advisor to discuss how these changes could affect you or your business.

Co-written by Mike Evans, CPA and Abby Donnellan, CPA.

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October 2, 2017

Josh Snyder Named to Small Business Monthly’s Best Accountants List

Anders tax supervisor Joshua L. Snyder, CPA has been named to St. Louis Small Business Monthly’s Best Accountants list. Each month, St. Louis Small Business Monthly (SBM) asks readers to help identify the best in the area in a particular industry as part of the SBM Best in Business Awards. The SBM Best Accountants list features 27 local accountants voted the best in St. Louis.

Josh Snyder, CPA - St Louis CPA FirmAbout Josh
Within his years at Anders, Josh has experienced a wide variety of tax and family wealth planning and compliance-related engagements. As a supervisor in the Anders Tax Services Group, Josh actively works in the firm’s Startup and Sports, Arts & Entertainment groups. Josh particularly enjoys working on tax planning opportunities for both individual and business clients, especially in the initial years of startup companies. Josh is active in the Missouri Society of Certified Public Accountants (MOCPA) Missouri Society of Certified Public Accountants (MOCPA), serving as Community Outreach Task Force Chair Elect and a Professional Outreach Committee Member.

Read the full list of Best Accountants in the October 2017 edition of St. Louis Small Business Monthly.

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