December 28, 2017

Tax Reform: Elimination of 2% Floor Itemized Deductions

Historically, taxpayers have been afforded the opportunity to include various expenses, in excess of 2 percent of their adjusted gross income (AGI), in the calculation of itemized deductions on their individual income tax returns.

Starting on January 1, 2018 and running through December 31, 2026, individuals will no longer have the ability to deduct the excess expenses listed below as itemized deductions on their 1040s.

Deductible expenses subject to the 2% floor includes:

  • Unreimbursed employee business expenses such as:
    • Expenses for uniforms and special clothing
    • Work-related education expenses to maintain or improve skills required for the position or to meet the demands of the employer
    • Job-hunting expenses for a position in the same trade or business
    • Dues (Including Union) and Subscriptions
    • Educator Expenses above $250
    • These expenses also include unreimbursed travel and mileage, as well as the home office deduction.
  • Expenses related to the production of income, including Investment Fees
  • Tax preparation and accounting fees
  • Certain nonbusiness related legal fees
  • Safe Deposit Box Fees

Despite the revocation of legal and accounting fees as itemized deductions, taxpayers will still be able to deduct such fees elsewhere on their individual return if they pertain to a specific trade or business that they conduct within the tax year.

TAX PLANNING OPPORTUNITY

Since these will be eliminated starting January 1, 2018, taxpayers that utilize the itemized deduction should pay any applicable expenses that have been assessed before the end of 2017. These deductions are not allowed for AMT purposes, so please consult your tax advisor to determine how you may be impacted specifically.

Contact an Anders advisor with questions on how tax reform will affect you or your business. Read more on tax reform for businesses and individuals.

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December 28, 2017

Tax Reform: State & Local Tax Deduction Changes

Under the new tax reform which was signed into law on December 22, 2017, the itemized deduction for state and local taxes will be limited to $10,000 in 2018 going forward. In 2017 and earlier, taxpayers were allowed to deduct Real Estate Taxes, Personal Property Taxes, and the higher of their sales tax paid or their state and local income taxes paid, with no limit. This cap, along with other changes to itemized deductions, will lower the amount of taxpayers eligible to claim itemized deductions. The limit on the deduction will have a greater effect on taxpayers in states with higher income tax rates, as well as those individuals who pay a significant amount in state and local taxes or have large real estate taxes. Real Estate & Personal Property Taxes paid for the purpose of trade or business will still be fully deductible.

Contact an Anders advisor with questions on how tax reform will affect your specific tax situation. Visit our Tax Reform Resource Center for videos, blog posts and resources on how tax reform will impact you, your family and your business.

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December 26, 2017

Rental Property Income Tax: Why Active or Material Participation Matters

Owning rental real estate can be a great supplemental source of income in addition to a normal day job. What is most commonly misunderstood about this type of investment is how an individual can treat the income and or losses for tax purposes.

Determining your level of involvement is key to the tax treatment of the income/losses that the real estate generates. Real estate, by definition, is a passive investment, but depending on your level of participation you may be able to treat the rental as active or be classified as a “real estate professional” for tax purposes. This allows you to deduct losses the activity generates, or avoid the net investment income tax if the activity generates income. Certain actions and tests are necessary to be eligible. Let’s review the participation rules.

Real Estate Professionals

Real estate professionals are individuals who perform more than 50% of their personal services and spend more than 750 hours during the year in real property trades or businesses in which they materially participate. This status allows irrevocable grouping elections that may be beneficial for taxpayers to group all of their real estate activities to achieve non-passive treatment.

Material Participation

Material participation in the activity of a trade or business generally means non-passive treatment. Many individuals can meet the participation requirements by satisfying one of seven tests determined by the IRS. The tests are mainly based on an individual’s involvement and hours spent participating with the activity during the year. Always consult your CPA if your level of participation in your rentals changes.

Active Participation

Active participation is a lower standard of involvement than material participation and is more commonly used among individuals. This level of participation allows a special passive loss rule for rental activities. You may be able to deduct up to $25,000 in passive losses from your rental real estate each year against non-passive income. Generally, the $25,000 special allowance is reduced by 50% when AGI exceeds $100,000 and to zero when AGI reaches $150,000. To qualify, the following rules apply:

    • You must own at least 10% of the rental and have substantial involvement in managing the rental
    • You cannot be a limited partner
    • The amount of loss eligible for the $25,000 allowance is determined by netting income and losses from all of the rental real estate activities in which you actively participate

No matter what business activity you invest in, it’s important to be able to document your level of participation in each activity to accurately support your tax position. The application of these rules and elections are generally dependent on each individual’s specific tax scenario and should be addressed with a tax professional. For additional guidance and planning, please contact an Anders advisor.

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December 22, 2017

College Football Bowl Games: To Play or Not To Play?

Opposing NFL defenses haven’t been the only ones noticing the impact of Leonard Fournette and Christian McCaffrey this year. The rookie NFL running backs are also having an impact on this year’s college football bowl games and the upcoming 2018 NFL Draft. Fournette and McCaffrey’s decision to skip their teams’ bowl games last December and not risk injury that would hurt their draft status has stirred up quite the debate again this year. Have their decisions created a precedent for future draft prospects?

Before Fournette and McCaffrey, the last time college football bowl participation came into hot debate was when Willis McGahee suffered a knee injury in the 2003 Fiesta Bowl National Championship. Before the injury, the former Miami standout was considered a lock to be a Top-5 draft pick in the upcoming draft.  After the injury, McGahee slid to the 23rd pick. The number 1 pick in the draft, Carson Palmer, went on to sign his rookie contract worth about $49 million. Terrance Newman, the 5th pick in the draft, signed his contract for $33 million. McGahee’s contract was for $15.5 million – meaning the injury likely cost him at least $20 million.

Fournette, the former LSU star, chose to sit out his team’s Citrus Bowl game last year after dealing with injuries all year and missing 5 games. McCaffrey, the former Stanford stud, chose to sit out the Sun Bowl after also dealing with injuries for the majority of the year and missing one game. Both were projected to be top first round picks in the upcoming draft and decided the risks of injury greatly outweighed the rewards of playing. Neither’s team was playing in the College Football Playoff or a premiere bowl game. If they were, would this have changed their decisions? Will we see a premiere player for a team in the College Football Playoff choose to skip it one day? Fournette and McCaffrey, the 4th and 8th picks in the 2017 NFL Draft, signed contracts for roughly $45 million and $28 million, respectively. Had they suffered a McGahee-like injury and slid to the 23rd pick of the draft, their contracts would have dipped to around $16.5 million – a significant loss.

Draft prospects have long taken out insurance policies to protect them from the risk of these career-altering injuries. McGahee took out a $2.5 million insurance policy before the National Championship that would’ve paid out if he were to never play football again. Fortunately, he was able to recover from the injury and play again but never to the same level. Former Michigan tight end Jake Butt suffered an injury in his team’s 2016 bowl game and slid from a projected 2nd or 3rd round pick before injury to the 5th round after injury. Luckily for him, he was able to collect over $500,000 on a loss-of-value insurance policy. Did this fully compensate him for the money he lost in his rookie contract? Have Fournette and McCaffrey taken the next step in not playing in the bowl games at all?

It’s hard to argue against the decisions being made by athletes like Fournette and McCaffrey when looking at the financial numbers. Sure, there are the arguments of a player’s loyalty to a team or school, desire to play, and willingness to compete, but it’s hard to fault college football players who are about to be professional athletes for looking out for their own future financial interest—especially when their own colleges and universities along with NCAA are profiting significantly from them. It appears Fournette and McCaffrey have started a precedent and will leave a lasting impact at the collegiate level beyond just their play on the field. The only question that remains: who will be the next high-profile star to skip a bowl game?

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December 20, 2017

MIPS 2018: Virtual Groups for Solo or Small Practices

Medicare’s final rule provides a new opportunity for solo practitioners and small groups to join together and report as a virtual group.  For small groups interested, the deadline to elect a virtual group is December 31, 2017 for the upcoming 2018 performance period.

What is a Virtual Group?

Medicare defines a virtual group as a combination of two or more Taxpayer Identification Numbers (TINs), representing solo practitioners and groups of ten or fewer clinicians who come together “virtually”, regardless of specialty or location, to participate in MIPS for a performance period. Each TIN joining has at least one Merit-based Incentive Payment System (MIPS) eligible clinician. A solo practitioner or group can only participate in one virtual group per performance period, but there are no limits to the number of entities that form a virtual group.

Why Virtual Groups?

The addition of virtual groups in year two of MIPS extends some benefits to those practitioners who are included in the program but may not have the same technology and staff resources to be competitive. Achieving a high score in relation to others means receiving an incentive as opposed to a negative payment adjustment. Medicare provided assumptions in MACRA 2015 that noted solo and small groups were more likely to receive negative payment adjustments, while larger groups were more likely to receive positive payment adjustments. By allowing virtual groups, the thought is to give some benefits to the smaller classes.

How Does My Practice Qualify as a Virtual Group?

Because the groups are otherwise independent of each other, notification must be provided to Medicare before the December 31, 2017 deadline of the virtual group’s formation. Interested practitioners should review the full details and qualifications of the program. Medicare has assigned Quality Payment Program Technical Assistance organizations by state if practitioners need additional resources. Requirements include the following:

  • Formal written agreement between all members
  • Virtual group representative chosen who will submit the election via email to CMS at MIPS_VirtualGroups@cms.hhs.gov
  • Provide TIN and NPI associations for the group
  • CMS reviews the virtual group’s low-volume threshold by reviewing its claims. It also verifies group eligibility for the number of practitioner NPIs associated with the small group’s Taxpayer Identification Number. A TIN with the ten or fewer practitioners accepted into the virtual group by CMS will remain in the virtual group for the performance period even if the group’s size changes during that time

For help navigating the Quality Payment Program or forming a Virtual Group, contact the Anders Health Care Group.

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December 19, 2017

QuickBooks Online vs. Desktop: Determining What Your Startup Needs

Starting a company is one of the most exhilarating and frightening things a person can do in their lifetime. Picking accounting software for the company can be just as frightening. QuickBooks® is widely known as one of the best accounting software for small businesses, but there are many different versions of QuickBooks. Let’s explore the pros and cons of QuickBooks Desktop and QuickBooks Online to determine the best fit for your startup.

QuickBooks Desktop

The Desktop version is a software program that needs to be installed on a home or office computer. The most popular version starts at $300, and is typically paid up front. Clients of Anders receive a 50% discount for the program. The software does not require an internet connection to function, but it can only be accessed from the computer it was installed on unless you upload it to the “Cloud”.  There is no limit on the number of different company files you can set up while using the Desktop version. A product-based company might find Desktop more appropriate due to the multiple inventory tracking options, batch invoicing and customizable features. Desktop also includes more freedom to customize your software to be industry-specific such as Manufacturing & Wholesale, Professional Services, Retail, and Nonprofit.

A disadvantage of Desktop is having to pay extra for support services from Inuit. The basic Pro version does not include support, but it’s included if you upgrade to the Premier or Enterprise version. They also recommend updating the Desktop version about every three years if your company uses the payroll function. Another disadvantage comes with sending company information to another person. For example, if Desktop files are sent to external accountants, any changes they need to make must be sent back via adjusting journal entries or in an “accountant’s copy” that must be imported into your file. Another disadvantage is that Intuit has stopped offering QuickBooks for Macs, and many speculate the Desktop version will become obsolete all together over the next few years. However, the QB Desktop is still very popular with larger companies. These are a few reasons some businesses prefer using QuickBooks Online.

QuickBooks Online (QBO)

The QuickBooks Online version allows entrepreneurs to access their books from any device with an internet connection. The most popular version costs $26.95 per month, per company file, totaling about $323 per year for one company, and must be paid every year. However, just like the Desktop version, clients of Anders receive a 50% discount on the Online subscription as well.

A service-based company might prefer using QBO because of automated transactions such as billing and being able to link bank transactions faster with the software. For Desktop, there are a few extra steps to linking your bank account with the software. QBO’s remote access allows multiple users to be in the file simultaneously. Also, being able to create multiple usernames and passwords establishes a smoother transition process with accountants and bookkeepers. Support services are free with the subscription of the QBO software. The Online version is much easier to setup and allows the company to be fully operational much quicker. This version is great for startups not expecting rapid growth over the first few years of existence.

Some disadvantages to using QBO include having a monthly payment, therefore paying more over the course of the year, every year, and requires an internet connection. Some startups are wary of having their books and records available online, reasoning that they might be more prone to hacking or online viruses. Although they are constantly making improvements, QBO is not as robust as the Desktop version, yet. However, many non-accountants already find the Online version more user-friendly.

There are multiple pros and cons to using either the Desktop or Online version of QuickBooks. Startups should consider growth, number of daily transactions, number of vendors and customers and other options such as payroll and the specific industry. If you have any questions regarding QuickBooks, or would like to discuss bookkeeping software for your startup, please contact an Anders startup advisor.

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December 18, 2017

Anders Startup Client Spotlight on AGOGIE

Each month, we offer our startup clients the opportunity to share their story and showcase their business in our Startup Newsletter. This month’s featured emerging company is the wearable resistance equipment startup, AGOGIE.

Name and company

Aaron Mottern of AGOGIE

When did you start your business?

2016

What inspired you to start your business?

Working with professional athletes and watching them struggle to find ways to increase their athletic ability while training for their sport of choice.

What city are you based in?

St. Louis

What is your product or service?

Wearable Resistance Equipment

What sets your product or service apart from the competition?

It is the only product in the world that allows athletes to train in their sport of choice under full resistance, which gives them the ability to use natural movements and mechanics during training.

What is the best business advice you ever received?

Keep these 3 important people close to you: your lawyer, your accountant and your banker.

What is your favorite thing to do outside of work?

Fishing

If people want to learn more about your startup, where should they go?

agogie.com or contact Aaron at aaron@agogie.com

 

 

 

 

 

 


If you would like your startup company to be considered for an Anders Startup Client Spotlight, please complete our questionnaire.

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December 12, 2017

Prepare for the Future of Your Company with Business Transition Planning

Business owners invest their time, energy and resources into building their business into a successful enterprise. Yet, many owners find themselves not knowing how to carry out transitioning their business while maximizing the value. According to the Exit Planning Institute, 78% of business owners do not have a formal transition team. This means that the company’s future is unknown, and continuing growth is not guaranteed.

Benefits of Business Transition

Business transition planning is an ongoing process that should be prepared for long before transitioning your business. The benefits of having a successful business transition plan are continuous. Business transition planning can help:

  • Control how and when to transition your business
  • Minimize the taxes to put more money in your pocket
  • Place strategic options to choose from during any life event
  • Maximize value during good and bad economic times
  • Create peace of mind knowing your future is secure

A successful business transition plan can increase annual income and the value of the enterprise. It pushes the team to be the best-in-class business and will serve the owner as a contingency plan. Non-solicited offers do happen, so it is important to have you and your business ready to maximize value.

Transitioning the Business

When it comes time to transition the business, there are eight basic options to choose from. If there are multiple partners in the company, choosing to sell to existing partners requires a pre-determined buy-sell agreement.  This option is not available to single-owner businesses. While this may restrict selling options, selling to existing partners ensures informed buyers, a controlled process and lower costs.

Selling the company to employees through an Employee Stock Ownership Plan (ESOP) is another common option. The company uses borrowed funds to acquire shares from the owner and contributes the shares to a trust on behalf of the employees.  Shares are purchased with pre-tax dollars by the ESOP. While there are benefits, ESOPs can be complicated and expensive. It requires a securities registration exemption, and the company may be compelled to buy-back shares from departing employees.

Even if the owner plans to transition to family, there are many considerations, especially if multiple children are involved and not all want to own the business. Beginning to map out a transition strategy early can help make sure the owner is comfortable in retirement and can save families from disputes and potential costs from disruptions of the business in the future.

Deciding how to transition your business can be a tricky process. Anders has a team of Certified Exit Planning Advisors to help every step of the way with a personalized plan for your business.

Business Transition Planning Process

Business transition planning allows the business owner to get actively educated on the process of how to transition their business. With a multi-disciplinary team of advisors working together, discussion of your personal, financial and business goals are aligned to your family’s core values. All of your business transition planning options and opportunities will be identified and you will be guided on development and implementation of the selected business transition strategy.

The Anders Business Transition Planning Team can help ensure a smooth transition and get you ready for the next step. Learn more about our Business Transition Planning Services or contact an Anders advisor to get the process started.

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December 7, 2017

Anders Named a Best Accounting Firm for Women by Accounting Today

Anders has been named to Accounting Today’s inaugural 2017 Best Accounting Firms for Women list. Accounting Today and the Best Companies Group took a deep dive into the responses from the 2017 Best Accounting Firms to Work for survey to compile a list of 15 firms. Anders is the only St. Louis firm and one of two Leading Edge Alliance (LEA) firms to be recognized on this list.

To qualify, firms had to have a minimum of 25 female employees and have a female response rate to the Best Firms to Work For employee survey that is greater than or equal to 50%. Firms were chosen based on the responses from the women who participated.

The Best Firms for Women list is published in the December 2017 edition of Accounting Today. The article entitled A whole new ball game describes the list as firms who “empower their female professionals to step up to the plate and forge their own path”.

Anders has long been committed to the advancement of women both inside the firm and in the community through the Anders Women’s Initiative, founded in 2007.

Read the Accounting Today Special Report: 2017 Best Firms for Women.

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December 5, 2017

6 Key Responsibilities for Not-for-Profit Finance Committee Members

The Finance Committee is a vital part of any not-for-profit organization, but the position often comes with some unknowns. Determining responsibilities as a Finance Committee member is necessary for securing the financial health of the organization. Members have a fiduciary duty to ensure the financial matters of the organization are in line with the mission of that organization. Below are six of the main responsibilities of Finance Committee members:

  1. Maintaining accurate and complete financial records
    The Finance Committee’s most important role is to ensure the records of the organization are accurate and complete. It’s important to review all available information and compare to prior year information, budgeted balances or other useful benchmarks. Ask questions if the data is not in line with what is expected.
  1. Preparing and presenting accurate, timely and meaningful financial statements to the board
    The board is tasked with making decisions that effect the operations of the organization, so they need the latest and best information. Relevant and accurate financials allow them to make decisions properly with more time to react. Outdated information is hard to react to, as new circumstances have already arisen, and there is a possibility it is too late to correct something that could be harmful.
  1. Helping the board understand the organization’s finances
    In addition to presenting information to the board, the board needs to be able to understand the finances of the organization. Some financial reports provide a great deal of data, and it can be helpful for the Finance Committee to highlight important information. Helping the board interpret the numbers will allow them to ask more meaningful questions. A deeper understanding of the finances helps the board plan for the future more accurately.
  1. Budgeting and anticipating financial problems
    The budget is a blueprint for the upcoming fiscal period, and sets a guide for spending in the upcoming year. The Finance Committee should receive input from all decisions makers to allow the budget to carry out the mission of the upcoming year. It’s also important that the Finance Committee anticipate costs that may not be mission related, but be necessary for operations, and plan accordingly.
  1. Safeguarding the organization’s assets
    The Finance Committee needs to ensure the assets of the organization are properly maintained. This can be done by implementing proper accounting policies and procedures, and incorporating internal controls. The internal controls procedures need to be regularly reviewed so they are working properly to safeguard assets.
  1. Complying with federal, state and other reporting requirements
    There is the potential the organization has multiple reporting requirements, and the Finance Committee is responsible for making sure all requirements are met. These requirements can affect the organization’s tax status, eligibility for grants and contributions or have other legal and financial implications.

Becoming a member of a not-for-profit Finance Committee is a great responsibility, but the most important thing is to ask questions, review everything thoroughly and don’t hesitate to ask for help to understand your role. Learn more about the Anders Not-for-Profit Group or contact an Anders advisor to find out how we can help your organization.

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