October 30, 2018

Fiscal-year Corporations Subject to Blended Tax Rates Following Tax Reform

The new 21% corporate tax rate allows C corporations to pay federal taxes at a significantly lower tax rate than the 35% top rate in prior years. While the new tax rate took effect beginning in 2018, this new benefit is delayed for C corporations with a fiscal-year end. If the company’s tax year begins on or before the effective date of 12/31/17, they will not be able to take full advantage of this tax reduction in the first year.

Calculating Blended Rates for Fiscal-Year Corporations

Fiscal-year corporations will be facing what the IRS calls a “blended rate” for 2018.  This rate will be calculated by applying both the 2017 and new 2018 rates to taxable income for the entire year. The company will then multiply each calculated tax by the percentage of their fiscal year that each tax rate applies. They will then add the two tax amounts together to determine their total tax for the year. Below is an example:

Company X has $20 Million in taxable income and a September 30, 2018 fiscal year end. Company X should first calculate their tax based on their 2017 rates (20 million x .35= 7 million). This 7 million should then be multiplied by the percentage of days applicable out of their fiscal year (92/365 x 7 million= approximately 1.76 million).  They should then calculate their tax using the new flat rate of 21% (20 million x .21= 4.2 million). This 4.2 million should be multiplied by the percentage of their fiscal year that the new rate applies (273/365 x 4.2 million= approximately $3.14 million).  These totals should be added to arrive at Company X’s total tax of $4.9 million.  Company X’s blended rate would be the total tax of $4.9 million divided by taxable income of $20 million to arrive at 24.5%.

Impact on C Corps

This blended rate calculation will result in fiscal-year corporations receiving some of the benefit of the lower tax rate in this first year. For all future years they will be taxed at the flat 21%.

It’s important to note for this blended rate year, deductions will be more beneficial since the tax rate is higher. That being said, these corporations may want to accelerate deductions into the current year.

Contact an Anders advisor with any questions on how these changes may impact your business, or learn more about tax reform changes in our Tax Reform Resource Center.

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October 26, 2018

The Missouri Innovation Center Offers Financial and Business Resources to Startups

A mid-Missouri tech incubator is offering up to $50,000 to help startup companies with well-defined plans to create an initial product and/or launch their product or service. In 2016, The Missouri Innovation Center (MIC) created the Accelerator fund, and they have since helped fund more than 15 startups. The recipients of this fund will not only be provided with an initial boost in revenue but will also receive additional amenities, such as optional facilities, shared equipment, and free mentoring services with experienced entrepreneurs and incubator staff. While the fund does not require companies to relocate to Columbia, the Accelerator fund prefers companies that are located in Missouri or companies willing to relocate to Missouri.

About the Mid-MO Tech Incubator

At the Mid-MO Tech Incubator, they team up with startups to create a complete business model and investment strategy. Upon receiving the investment capital and business coaching, companies will be required to enter into a convertible note agreement or equity purchase agreement with the Accelerator Fund. Teams that achieve their milestones and gain traction are eligible for follow-on funding, up to a total investment of $100,000.

About the Missouri Innovation Center

The Missouri Innovation Center (MIC) was founded with a focus on providing support for high growth business ventures that improve human life and sustainability. The MIC is also focused on creating more quality jobs in our region, improve the local economy, and develop technologies that are capable of improving the quality of human life. The non-profit desires to do this through their mentoring, securing financial support, and providing necessary resources for conducting successful and focused research and development.

The MIC has helped 25+ startups achieve greater success through their various programs. One of many success stories is the company AdSwapper, a data protection app that empowers mobile users to gain control over the data they provide advertisers and get paid for it.  The company received its first investment from MIC Accelerator Fund in October of 2016. With this support, the company was able to solidify its team, build the product, and officially launch AdSwapper in July of 2017. Just months later, AdSwapper secured follow-on funding from the Accelerator Fund as a winner of the first Missouri Tech Challenge. Already they have over 60,000 user installations and have filtered over 150,000,000 ads.

Selection Process

Once an application is submitted online through the website, the application is reviewed by MIC staff for a preliminary assessment which will typically happen within one month after submission. Then bi-annually in the fall and spring, top candidates are selected to move through the diligence process. This process involves a thorough analysis of the company, value proposition team, and business strategy. With the Accelerator fund receiving new applications constantly, they urge businesses to not disclose any proprietary information as it is not possible to sign an NDA with everyone who applies. MIC urges startups to “Get us excited about your business or product without giving away the recipe for your secret sauce.”

If you are interested in applying for funding, visit the Missouri Innovation Center website and choose “submit application”. For more information about other funding sources for your startup, contact an Anders startup advisor.

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October 23, 2018

Tax Reform: Qualified Opportunity Zone Incentives for Low Income Communities

With the passage of the Tax Cuts and Jobs Act, there is a new section on Qualified Opportunity Zones, a tax incentive that encourages investments in low-income communities. Below are the details on the new tax incentive including what it is, how to utilize it and the benefits of making these investments.

What is a Qualified Opportunity Zone?

A Qualified Opportunity Zone is an area designated by the state in a low-income community.

To be considered a low-income community, the area has to abide by the following:

  1. The poverty rate is at least 20%, OR
  2. If not located in a metropolitan area, the median family income for the community must not exceed 80% of the statewide median family income, OR
  3. If located in a metropolitan area, the median family income for the community must not exceed 80% of the greater of the statewide median family income or the metropolitan area median family income

Even if the area within a state doesn’t meet the above guidelines for low-income communities, it can still qualify as a Qualified Opportunity Zone if the following apply:

  1. It is contiguous, or adjoining, to a low-income community that’s designated as a Qualified Opportunity Zone, AND
  2. The median family income doesn’t exceed 125% of the median family income of the low-income community in which the area is contiguous to

No more than 5% of areas designated in a state can qualify through the contiguous community test.

Incentives of Investing in Qualified Opportunity Zones

Defer Tax on Capital Gains

Qualified Opportunity Zones provide benefits as investment instruments. Investors can defer tax on capital gains by investing the proceeds from the sale into a Qualified Opportunity Fund within 180 days from the date of disposition. Qualified Opportunity Funds are used to invest in Qualified Opportunity Zones and must hold at least 90% of its assets in Qualified Opportunity Zones.

Step-up in Basis

If a taxpayer holds their interest in the Qualified Opportunity Funds for specified periods of time, they receive a step-up in basis on that investment. If held for at least 5 years, they receive an increase in basis equal to 10% of the deferred capital gain invested in the fund. If the taxpayer holds the investment for another 2 years for a total of 7 years with investments in the fund, they receive an additional 5% increase of the deferred capital gain held in the fund.

If by December 31, 2026 the deferred capital gain is still held in the investment fund and no tax has been paid on that gain, then they are required to recognize the gain on that date and pay taxes. This applies regardless of if they’re going to continue to hold that deferred capital gain in the investment or not. Just because the tax is being paid on that date doesn’t mean that they can’t continue to hold their investment in the fund.

If the taxpayer continues to hold their investment in the fund and holds it for an additional 10 years, then they will receive a step up in basis equal to the fair market value of the interest and will not be taxed on any appreciation in the interest.

Please contact an Anders advisor with any questions regarding Qualified Opportunity Zone investments and how these changes can benefit you.

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October 19, 2018

Using QuickBooks to Assist in 1099 Preparation

Preparing multiple Form 1099s for year-end is a time-consuming task for your company’s payroll department. To speed up and simplify the process, QuickBooks® has a 1099 Wizard* feature that can save your staff and CPA time and money.

QuickBooks 1099 Wizard

After a little bit of setup, the QuickBooks 1099 Wizard tool can greatly decrease the amount of time it takes to identify 1099 vendors and amounts paid to them.  If a 1099 is to be issued for a particular vendor; double click on the vendor to access the setup screen, click on the Tax Settings tab to check the box for “1099 Vendor”, and enter the vendor’s tax ID. This can also be accessed under the Vendor Tab, then “1099 Wizard”. QuickBooks will also separate amounts paid by cash or check from amounts paid by credit card, as payments made by credit card are already reported using Form 1099-K provided by the vendor’s credit card processing company.

The best way to obtain vendor information, such as entity type and tax ID, is to request the vendor fill out a W-9 Form.  Instead of frantically trying to track down vendors and the forms at year-end, it would be beneficial to get the W-9 filled out by the vendors at the time of service.  Many vendors already have this form filled out and will send you a copy.  If not, blank W-9 Forms can be found on the IRS website.

Even though QuickBooks has these helpful tools, the rules for filing 1099s can be very confusing and the penalty for not filing can be huge; it is best to consult with a tax advisor to avoid any hassles that come from not filing properly. Keep in mind, the deadline to file 1099s is January 31. Contact an Anders advisor with any questions.

*Please note:  For QuickBooks Online, the 1099 Wizard feature is only available with the Plus version

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October 16, 2018

Tax Reform for Individuals: Kiddie Tax Changes

If you have a savings account, CD or other investment account in your child’s name, this is considered unearned income for your child. This type of net unearned income is subject to a “kiddie tax”, which prevent parents and grandparents from shifting investments to their children for a lower tax rate. The Tax Cuts and Jobs Act made changes to the kiddie tax rate structure that parents should be aware of.

What is the kiddie tax?

The kiddie tax is a tax code provision that taxes the unearned income of a child under the age of 19 and of children who are full time students under age 24 at a special rate. Unearned income includes capital gains, dividends and interest.

Previous Law

If the child’s interest, dividends, and other unearned income total more than $2,100 under old tax law, the excess income over the $2,100 threshold was taxed at the parent’s higher tax rate.

New Law

The Tax Cuts and Jobs Act revised the “kiddie tax” rate structure, but left who the kiddie tax rules apply to unchanged. Under both old and new law, the first $1,050 of a child’s unearned income is tax-free, and the next $1,050 is taxed at 10%. Under the new tax law starting January 2018 and extending through 2026, the amount above $2,100 is subject to the same ordinary and capital gains rates of estates and trusts. Under the new law the child’s tax will no longer be affected by their parents’ tax situation.

The new rates that now apply to kiddie tax are as follows:

Income Tax Rates

  • Up to $1,050 0%
  • $1,051 to $2,550 10%
  • $2,551 – $9,150 24%
  • $9,151 – $12,500 35%
  • $12,501 and above 37%

Capital Gains Rates

  • Up to $2,600 0%
  • $2,601 – $12,700 15%
  • $12,701 and above 20%

Impact on Individuals

Applying the new tax law to kiddie tax rules with the estate and trust tax rates will likely produce a higher tax bill since the income and capital gains ranges under the estate and trust tax schedule are more condensed than the rates for individuals. This increase that will take affect starting in the 2018 tax year could be considerable for some taxpayers. For example, the top 37% income tax rate applies to married joint filers at $600,000, while the top 37% rate applies to estates, trusts, and now kiddie tax at $12,500.

In addition, there is an added 3.8% federal net investment income (NII) tax that applies to taxpayers, estates and trusts, and kiddie tax rules. This additional NII tax is imposed separately on each child on the lesser of NII or modified adjusted gross income in excess of $200,000 for single taxpayers.

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

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October 10, 2018

Erin Prest Featured on PBS Special on Future Planning with the New Tax Law

Erin E. Prest, CPA, Principal + Tax Services at Anders, spoke on a tax planning panel on the PBS Nine Network Special, How the New Tax Law Affects Your Future Planning. The program, which first aired October 3, looks at how the Tax Cuts and Jobs Act will impact individual tax and estate planning with actionable tactics individuals can consider to lower their tax liability. Erin discusses strategies for tax-advantaged charitable giving and retirement planning.

Watch the Nine Network Special on How the New Tax Law Affects Your Future Planning.

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October 9, 2018

Congress Proposes the Online Sales Simplicity and Small Business Relief Act of 2018 Following South Dakota v. Wayfair

South Dakota v. Wayfair (“Wayfair”) has made sales tax collection on remote sellers a widely discussed topic. Although the case has been decided, many are still waiting to see what actions each individual state will take on the collection of sales tax under Wayfair. Some states have already enacted economic nexus laws, and many more will follow. States may even try to retroactively tax remote sellers. The proposed Online Sales Simplicity and Small Business Relief Act of 2018 is currently being debated in Congress, and would halt retroactive sales tax collection.

Proposed Legislation – The Online Sales Simplicity and Small Business Relief Act of 2018

The Online Sales Simplicity and Small Business Relief Act of 2018 would put a ban on retroactive taxation of remote sellers. The proposed legislation would make it illegal for states to impose a sales tax collection duty on a remote seller for any sale that occurred prior to June 21, 2018. In addition, there would be a phase-in of compliance obligations. Under the Act, states would only be able to impose a sales tax collection duty on sales that occur after January 1, 2019.

The Act also includes a “Small Business Remote Seller Exemption”.  To qualify as a small business remote seller, the seller would have no more than $10,000,000 in gross annual receipts in the United States during the preceding calendar year. Under the exemption, states would not be able to impose sales tax on any person other than the purchaser, if the sale is made on or after June 21, 2018, and before the date that is 30 days after states develop and Congress approves an interstate compact governing the imposition of tax collection duties on remote sellers.

As referenced above, Congress requests states to develop an interstate compact for the collection of sales tax by remote sellers. The interstate compact would identify a clearly defined minimum substantial nexus, simplify standards for state registration, collection, remittance, auditing, and other compliance processes to reduce any undue burden on interstate commerce.

Possible Implications of the Act

It is believed that the Online Sales Simplicity and Small Business Relief Act of 2018 will be difficult to pass as it is currently presented. If the Act does pass, states will not be allowed to impose tax collection duties on remote sellers on a retroactive basis. The ban on retroactive sales tax collection would save online retailers from having to pay uncollected taxes while providing time and opportunity for retailers to comply with the applicable state statutes that have stemmed from the Wayfair case. To discuss how the South Dakota v. Wayfair case and new state and local tax regulations will impact you, contact an Anders advisor.

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October 3, 2018

Tax Reform for Manufacturers: UNICAP Exemption Changes

More manufacturers may be exempt from the Uniform Capitalization (UNICAP) rules following tax reform. The UNICAP rules from Code Section 263A generally require that certain direct and indirect costs associated with real or tangible personal property manufactured by a business be included in inventory or capitalized.

Previous Law

Before the Tax Cuts and Jobs Act was passed in December 2017, the previous law allowed for businesses with average annual gross receipts of $10 million or less in the preceding three tax years to be exempt from UNICAP requirements as it relates to personal property acquired for resale. Note that this exemption does not extend to real property, such as buildings, or personal property that is manufactured or produced by a business.

New Law

Two key changes were passed under the new tax law effective after December 31, 2017. The first key change increased the annual gross receipts test from $10 million to $25 million. This test looks at the average annual gross receipts of the preceding three tax years. The second key change now allows for any producer or re-seller that meets the revised $25 million gross receipts test to be exempt from applying the Code Section 263A UNICAP rules. Previously, the exemption did not apply to any manufacturer or producer of real or personal property.  Both revisions are favorable changes as they expand the number of entities that qualify for the exception to UNICAP application. The exemptions from these rules that are not based on a taxpayer’s gross receipts have been retained.

Impact on Manufacturers

If you have been required to apply the UNICAP provisions in prior years but now fall under the exemption, you can apply for a change in your method of accounting. You must use Form 3115 to file this change in accounting method with the IRS. In order to prevent amounts from being omitted or duplicated due to this change, an adjustment to taxable income may need to be taken into account.

Contact an Anders advisor with any questions on how these changes may impact you, or learn more about tax reform changes in our Tax Reform Resource Center.

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October 2, 2018

Don’t Take the Bait on Phishing and Spear Phishing Cybersecurity Attacks

Second in a series of four blog posts on cybersecurity

Companies, owners and employees are under attack from two types of email schemes. Phishing is a common broad-based email scam that cybercriminals use to target a large number of unexpected users. By sending these phishing emails, cybercriminals are able to gain access to thousands of usernames and passwords every day. In a more sophisticated scheme, cybercriminals are using “spear phishing” emails, which are targeted to a specific group of people and are harder for users to detect as malicious.

The best defense to these scams is education. Consider these three things the next time you read your email:

  1. Be Careful. Be Alert. Don’t trust the email, even if you know the sender of the email.
  2. Be Private. When personal information is being requested or is included in the email, pause and ask, “why or how do they know that information?”  Many cybercriminals will do their research on social media sites to gather personal information to make the phishing attempt appear more legitimate.
  3. Take your time. Don’t react. Phishing emails often try to assert an immediate action. If the email requests you to act now, be leery of the links and/or phone numbers in that email. Take your time and verify with the sender through a phone call or check the company’s website.

Now that you know how to better identify phishing and spear phishing attempts, learn how to recognize malicious attachments and URL links. Anders Technology is here to help protect your business from cybersecurity attacks that could cost you time and money. Our team can implement a cybersecurity training program within your company to educate employees on the latest best practices to avoid a cyber attack. Contact an Anders advisor to learn more.

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October 2, 2018

Stay Ahead of Cybercriminals with a “No Safe Attachments” Email Policy

Third in a series of four blog posts on cybersecurity

Most phishing emails appear innocent. The email may contain an “invoice,” “resume” or “receipt,” and look legitimate, but think again. Cybercriminals send those emails hoping you click on the attachment and give up information that provides access to everything they need to compromise you and your business. Sometimes just by clicking on that attachment, they can install malicious software on your workstation to cause harm without you even knowing.

Don’t let the cybercriminals exploit your curiosity or fear to open that attachment. If you adopt the premise that there are NO SAFE ATTACHMENTS, and take precautions, you can stay ahead of the predators.

Malicious codes can be entered into all types of documents, including PDFs. File types that should put you on high alert are:

  • Executable files such as: .exe, .bat, .js, .jar, or .vbs. They can automatically install software onto your machine
  • Zip files such as .zip, .rar, 7-Zip files are compressed files. Some antivirus programs can’t scan the compressed files, so malicious malware can hide easily here
  • PDF and Microsoft Office files such as .pdf, .docx, .xlsx may have embedded macros or scripts inside that can contain malware

These examples are only a few of the executable file types that could cause you harm. When you encounter one of these files, take extra care to make sure that you are protected by simply scanning with your preferred anti-virus product or calling the sender to verify the email.

Now that you know how to better identify unsafe email attachments, learn how to recognize phishing and spear phishing attempts and malicious URL links. Anders Technology is here to help protect your business from cybersecurity attacks that could cost you time and money. Our team can implement a cybersecurity training program within your company to educate employees on the latest best practices to avoid a cyber attack. Contact an Anders advisor to learn more.

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