April 26, 2018

Tax Reform for Individuals: Mortgage and Home Equity Loan Interest Changes

With the passage of the Tax Cuts and Jobs Act, there are new limits on the amount of mortgage interest homeowners can deduct for primary and secondary residences. Below are the previous limitations, the new limitations, and impacts homeowners should be aware of.

Previous Law

Previously, taxpayers could deduct mortgage interest on loans of up to $1 million of acquisition indebtedness secured by a qualified residence ($500,000 if married filing separately).  Acquisition indebtedness includes debt that is incurred in buying, constructing or substantially improving the taxpayer’s primary or secondary residence. The prior law also allowed taxpayers to deduct interest paid on home equity loans up to $100,000 ($50,000 if married filing separately).  The home equity debt could not exceed the fair market value of the home less the acquisition debt.

New Law

Mortgage Interest

The new tax law limits the mortgage interest deduction for taxpayers who itemize through 2025.   The new limits cap mortgage interest deductions at $750,000 of acquisition indebtedness ($375,000 if married filing separately).  Mortgage interest pertaining to second residences will still be allowed as a deduction, but will also subject to the new limitation.

Taxpayers who purchased their home or refinanced before December 15, 2017, will be grandfathered into the old law and are allowed to keep the previous $1 million limitation, while homes purchased after that deadline will be required to use the new $750,000 limitation.

Starting January 1, 2026, the $750,000 limitation will revert back to the $1 million limitation for all taxpayers, regardless of when the home was purchased.

Home Equity Loan Interest

There was some uncertainty on how the IRS intended to treat interest paid on home equity loans, and on February 21, 2018, the IRS released IR 2018-32 advising taxpayers that in many cases they can continue to deduct interest paid on home equity loans, home equity line of credit (HELOC) or second mortgage, regardless of how the loan is labeled.

The notice indicates that interest on a home equity loan used to build an addition to an existing home is typically deductible, while interest on the same loan used to pay personal living expenses, such as credit card debts, is not. As under prior law, the loan must be secured by a qualified residence, such as the taxpayer’s main home or second home, and not exceed the cost of the home, among other requirements.

The $750,000 deduction limits apply to the combined amount of mortgage and home equity loans used to buy, build or improve the taxpayer’s main home and second home. Home equity debt is no longer capped at $100,000 for deduction purposes.

Impact on Individuals

For individuals whose homes are valued at less than $750,000 or were purchased before December 15, 2017, the new limits will not affect your mortgage interest deduction. If you have bought or are considering buying a home or second residence over $750,000, you will be limited on the amount of mortgage interest you can deduct.  The amount that will be limited depends on the fair market value of the qualified residence. Homeowners can refinance mortgage debts that existed before December 15, 2017 up to $1 million and still deduct the interest, as long as the new loan does not exceed the amount refinanced.

Contact an Anders advisor with questions on how these tax law changes will affect you.

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April 24, 2018

How Technology is Changing Your Company’s Accounting Functions

Advancing technology is changing the way businesses operate and handle accounting processes. The ability to access accounting software in the cloud, anywhere and anytime, makes accessing your company’s financial data easier than ever. Below are even more benefits of transitioning from traditional accounting methods to new technology.

Financials at Your Fingertips

With cloud-based accounting software internet access is all you need to perform most accounting transactions. Submitting employee expenses for reimbursement is as easy as taking a picture of receipts and uploading through an app. Below are a few processes that can be easily accomplished from your computer or smartphone:

  • Entering and paying bills with online bill pay
  • Sending invoices
  • Receiving payments
  • Accessing financial statements
  • Viewing accounting reports
  • Submitting expense reports

Increased Accuracy, Efficiency and Simplicity

Along with being easily accessible, online accounting makes tasks simple, efficient, and more accurate than being done by hand. Software has the capabilities to catch mistakes, such as a bank error for withdrawing a different amount than a check states. Below are a few specific examples of how technology makes processes simpler and more efficient.

Bank Reconciliations – Automatically adds deposits and withdrawals instead of totaling by hand. Reconciliation reports make it easy to see outstanding checks and give a more accurate bank balance

1099 Tracking – Ability to run Form 1099 reports for vendors showing the total amount spent and the amount you need to file for a particular vendor

E-Payments – Online payments significantly reduces the time a vendor waits to receive payment, eliminates writing checks, and is cost-efficient

Sending Invoices and Receiving Payments – Create and send an invoice via email to customers all in one location. Invoices can be paid online and recorded automatically through accounting software

Recording Bank/Credit Card Transactions – All transactions automatically flow into your software. Once a vendor has been processed once, it remembers how it was coded and automatically populates needed information

Streamlined Integration for Easy Automation

The ability for platforms to integrate eliminates the need to enter data in multiple locations. Accounting software can link to bill pay and payroll software to easily automate and streamline processes. Recorded bills in a bill pay software can automatically pull necessary information into your accounting software. Payroll platforms can automatically record payroll entries, checks and tax payments and even create W-2s for you, making filling out forms by hand and mailing payroll tax payments a thing of the past.

The benefits of cloud-based accounting are increasing with advancing technology. To find out how your business can increase financial accuracy and streamline your financials, contact an Anders advisor or learn more about Anders Outsourced Accounting Services.

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April 17, 2018

The Right and Wrong Way to Allocate Wages for R&D Credits

When applying for research and development (R&D) tax credits, submitting the amount of qualified employee wages is a basic requirement to determine the amount of credit. This is typically calculated by multiplying the amount of employee wages by the ratio of time spent performing qualified services to the employee’s total time spent in all services for the tax year.

The IRS outlines in Section 41 that an applicant may use “another method of allocation that the taxpayer can demonstrate to be more appropriate”. One taxpayer used an alternative method that was rejected by the IRS Office of Chief Counsel.

Taxpayer’s Method

The taxpayer’s method of arriving at in-house qualified research expenses involved the overlay of several estimates to separate the amount of wages performed by employees for qualified and nonqualified services. They used two steps:

  • Step 1 – The controller estimated the total liability for wages incurred for the performance of qualified services by identifying employees that he believed performed qualifying services and the fraction of time performed by each.
  • Step 2 – The controller then multiplied the estimate calculated under step 1 by a fraction, claimed to accommodate any time spent on activities that may have resembled the performance of qualified services but that did not involve qualified research.

The Chief Counsel noted that the underlying methodology in the first step of the taxpayer’s approach may be appropriate, but not the second step. Instead of actual time spent, they used random samples of projects that varied both in terms of costs and qualified research expenses (QREs).

IRS’ View

The IRS ruled that the taxpayer did not track and could not determine what portion of an employee’s time was spent performing qualified services on a specific project. Instead, they estimated how much time each employee spent performing qualified services. To adjust for the lack of tracking, the taxpayer analyzed a random sample of projects employees worked on to determine whether an employee performed qualified services during some part of the project.

The taxpayer’s conclusion about the portion representing QREs was based on an analysis of a portion of its projects that involved qualified research. This did not account for costs of the projects varying, and simply because a certain portion of projects involved qualified research did not mean that the same portion of expenses were QREs.

How to Get Approved

While using an alternate allocation measure may save time and be convenient, the best way to ensure approval for R&D credits is to follow the measures outlined by the IRS in Section 41. Learn more about the R&D tax credit or contact an Anders advisor to find out if your project can benefit.

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April 17, 2018

Robert Minkler, Jr. Answers Tax Questions on Big 550 KTRS Radio Segment

Anders Managing Partner Robert J. Minkler Jr., CPA/CGMA was featured on The Guy Phillips Show on Big 550 KTRS radio on April 16. In the segment, Robert discusses the effects of extending tax returns, IRS funding decreases, and answers the burning question: can Guy deduct his dry cleaning?

Click to listen or download the 550 KTRS recording.

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April 13, 2018

Hoops for Hope Raises $15,075 for Angels’ Arms

The 31st annual Hoops for Hope tournament drew in a record-breaking 733 brackets to support the 2018 Anders Charity of Choice, Angels’ Arms. Staff at Angels’ Arms joined Anders for a celebration lunch where a check for $15,075 was presented to Angels’ Arms.

About Hoops for Hope

Hoops for Hope, Anders’ NCAA basketball pool draws participation from Anders clients, colleagues, referral sources and friends of the firm from all over the U.S. Craig Campbell, CPA, tax partner, started the pool and remains the organizer. He is assisted by a large contingent of Anders staff who set-up the online pool, market it and count the proceeds.

The top 30 bracket winners received a prize donated by sponsors, ranging from an Apple HomePod to a weekend getaway at the Lake of the Ozarks and gift cards to local restaurants and breweries.

About the Charity of Choice Program

Each January, members of the firm vote on a Charity of Choice and work throughout the year to support the organization through Pick Me Up Carts, volunteer days, a shuffleboard tournament and other fundraising events. Hoops for Hope is the largest of those efforts. Read more about the Anders Charity of Choice program.

About Angels’ Arms

Angels’ Arms is a local organization dedicated to providing and supporting loving homes for foster children by keeping brothers and sisters together within a nurturing family until a forever home is found. In existence since 2000, Angels’ Arms has changed the lives of over 400 children, including over 100 sibling groups, by providing them with a loving home and allowing them to thrive in a happy, functional family setting. Learn more about Angels’ Arms.

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April 11, 2018

Anders Startup Client Spotlight on ProXR, LLC

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 athletic equipment startup, ProXR, LLC.

Name and company

Grady Phelan of ProXR, LLC


When did you start your business?

July 12, 2013


What inspired you to start your business?

I accidentally threw a baseball bat that nearly hit my son – I wanted to develop an improved grip for baseball bats. That discovery lead to a totally new platform for athletic grip with applications in baseball, hockey, lacrosse, field hockey, golf, squash and others.


What city are you based in?

St. Louis, MO.


What is your product or service?

Grip technology featured on ProXR baseball bats for consumers and Old Hickory baseball bats for Major Leaguers and the TORCH™ hockey knob for hockey players at all levels of play.


What sets your product or service apart from the competition?

Our products increase athletic performance by optimizing the connection between an athlete’s grip and their equipment. Baseball players gain 3 to 5 miles per hour on their exit velocity and hockey players increase their snapshot speed by roughly 15%. Additionally, the ProXR knob design reduces injury-causing compression and decreases the forces which cause thrown bats.

 

What is the best business advice you ever received?

  1. Get well funded
  2. Don’t give up. You’re closer than you think
  3. Surround yourself with people smarter than you
  4. Innovation is a threat to established companies – they don’t want you to succeed


Is there anything else you would like to share about your business?

Our products have been approved for use in MLB, NHL and the NCAA. Our bats are in the National Baseball Hall of Fame as the first angled knob bats ever used in regular season games. ProXR won the National Grand Prize for the Wells Fargo Works Competition in 2015.

Boston Red Sox hitter Hanley Ramirez tore up the first week of the season swinging an Old Hickory bat with a ProXR knob on it. He had a two-run home run and a game winning double in the 13th inning against the Marlins.


What is your favorite thing to do outside of work?

Cycle, play baseball & softball with family & friends


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

FOX Sports coverage of our bat innovation: https://youtu.be/qNOfwTGhOwQ

www.proxr.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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April 10, 2018

Internal Controls for a Growing Startup Company

When it comes to starting up a business, it is imperative to make every resource count. Two of the most valuable resources in business are time and money. A simple step to get the most out of these resources is to implement internal controls to actively monitor accounting operations.

What are internal controls?

Internal controls are a system of ‘checks and balances’ that provides reasonable assurance the accounting records are free from material error and fraud. Implementing an internal control system will identify errors and allow small businesses to save time by ensuring the process is performed correctly the first time. The system protects the company’s assets by detecting and deterring potential fraud.

Why do startups need internal controls?

Internal controls can provide a competitive edge when seeking funds from investors. Implementing a system of checks and balances shows the maturity of the company and helps hedge risk to protect your company’s reputation. Internal controls provide investors with reasonable assurance the company is achieving their financial reporting objectives.

Here are a few examples of internal controls:

  • Require all checks over a certain amount (i.e. $1,000) be signed by two authorized signers
  • Separate the personnel between who deposits the check and who records the receivable
  • Conduct a bank reconciliation every month to reconcile the difference between the book and the bank statement balance

Is my startup too small for internal controls?

One of the most common scenarios we see as auditors in small businesses is a deficiency in the separation of duties. It is a popular misconception that startups and small businesses are too small to implement internal controls. While separation of duties may seem unattainable or costly with a small staff, the system is meant to be scalable to size and provides a blueprint for growth as the company scales.

How can I implement internal controls in my startup?

A simple way to begin internal controls with a small accounting staff is to have financial transactions approved by at least one other member of management, and to reconcile the book balance to the bank statement balance monthly. This will insure members of management are aware of the accounting transactions and the balance between the book and the bank reconcile. As the company begins to grow and it becomes difficult to manage all the transactions, the business can begin to hire accounting personnel to handle billings and receipts. Staff accountants can prepare the bank reconciliation and take control of other accounting functions – certain functions should be separated, such as those who record the receivables should not be in charge of recording revenue. It is important to note that management should always conduct the final review, as they are ultimately responsible for the accounting records.

By developing a system of internal controls early on, the business will establish greater credibility and help mitigate risk in the future. If you need help on getting started, or have any additional questions, please contact an Anders advisor. We can walk you through the entire process of developing a strong set of internal controls for your startup.

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April 10, 2018

KMOX Highlights Anders for Women in the Workplace Employment Scorecard

KMOX NewsRadio 1120 highlighted Anders as one of only six companies named to the Women’s Foundation of Greater St. Louis’ Women in the Workplace Employment Scorecard. Their feature on Equal Pay Day in Missouri discusses the wage disparity in the state and recognizes organizations with positive policies in place for women.

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April 4, 2018

Saved Assisted Living Facilities $340,000 in First Year with Cost Segregation Study

By completing a cost segregation study on seven senior living facilities developed and built we saved the developer/investor $340,000 within the first year of operations.  The overall net present value of completing the cost segregation studies for these senior living facilities exceeded $2 million for all projects.

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April 3, 2018

Using Form 990 to Market Your Not-for-Profit

While tax-exempt not-for-profit organizations don’t typically have federal tax liability, most are still responsible for filing an annual information return with the IRS. The IRS Forms 990-EZ, and 990 are public documents that include information about the organization’s mission, programs and financials. Not-for-profits can and should make their 990 work as a marketing tool to appeal to donors, grant makers and volunteers.

Why Your 990 Matters Beyond Taxes

Forms 990-EZ and 990 are publicly disclosed, so anyone can see it. You can use it as a marketing tool to educate readers about your cause and enhance your fundraising efforts. Many potential donors and volunteers will look at the 990 and use it to help decide whether to support an organization.

Who Looks at 990s Besides the IRS

Anyone can access and evaluate 990s, including:

  • Donors – They want to know their money will be put to good use, if it will make a large impact or go towards excessive overhead costs
  • Grant makers – Use 990s to learn more about your organization and programs and if it fits their criteria
  • Lenders – Need a snapshot of your operations and financial health
  • Potential board members – Looking to see if your mission and programs are something they believe deeply in and aligns with their values and priorities
  • Volunteers – Want information to confirm that your organization is something they want to dedicate their time to
  • Media – Could possibly examine it or post web links when writing about your organization

Let Program Service Descriptions Speak for You

The number one way to convey your organization’s message in the 990 is to create meaningful, detailed program service descriptions. Address what exactly your organization does and how you help. Be very specific and explain your programs as if the reader is not familiar with your organization at all. You can include statistics, such as how many people you served during the year, collective volunteer hours, or anything else that readers might find impressive. Avoid using technical terminology or jargon that a layperson wouldn’t understand.

The 990 is a very long form, so most readers might not make it half way through. Since these program descriptions are on page two of the 990, they probably won’t be missed, so it’s important to have the right information. Below are a few more tips to make the most of these program service descriptions:

  • Update mission statement if necessary
  • Review your governance policies and adopt them if not already in place
  • Pay attention to the accurate allocation of expenses between program service, management & general and fundraising
  • Avoid unrelated business income. Some common traps include advertising income, rental income, public use of facilities

If your organization is required to complete a Form 990, it’s important to make sure this document is a good representation of your not-for-profit, as it could be the decision maker for funders and volunteers. Contact an Anders advisor to learn how you can make the most of your 990, or learn more about how Anders serves Not-for-Profits.

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