February 28, 2019

Tax Reform: Excess Business Losses

Pass-through business owners historically were able to deduct excess business losses, allowing them to reinvest that money into their businesses. The Tax Cuts and Jobs Act (TCJA) has made significant changes to the treatment of excess business losses that could negatively affect taxpayers. Below we cover what has changed and how business owners will be impacted.

Previous Law

Under the previous law, only passive losses and excess farm losses were limited. Non-passive losses from a trade or business were not limited.

New Law

Under the new tax law, all passive and non-passive activities are subject to the limitations under the excess business loss law. Passive losses must first apply the limitations under IRC Sec 461 prior to the excess business loss limitation. Any business losses, passive or non-passive, in excess of the threshold will be disallowed and carried forward indefinitely as a NOL in subsequent years. The threshold is determined by deductions exceeding income in excess of $250,000, or $500,000 for a married filing joint filer. The excess business loss is not applicable to C corporations.

Example

Let’s assume the following facts to illustrate the impact of the excess business loss limitation. A single taxpayer generates gross income from his business in the amount of $325,000. His deductions from the business total $600,000 netting his activity to a $275,000 overall loss. The taxpayer has an excess business loss in the amount of $25,000, which is the $275,000 overall loss reduced by the $250,000 threshold. The $25,000 loss is treated as part of his net operating loss carryforward to be used in future years and will be subject to the 80% of taxable income limitation.

Impact on Individuals

This change in conjunction with the NOL rule changes, could have a hugely negative impact on taxpayers. If a taxpayer were to have an abnormally bad business year, while still maintaining large investment income, they could still owe a significant amount of tax, rather than investing that money used to pay the tax into their business.

In addition, NOL’s are only allowed to offset 80% of taxable income, so these losses may be limited in future years as well, based on the subsequent year earnings.

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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February 27, 2019

The End of the One and Done Age Limit for the NBA

The NBA recently submitted a formal proposal to its Player’s Association to lower the draft eligibility age from 19 to 18. This move to end the “one and done” era, requiring that players spend at least one season in college or overseas, will require both the league and player’s association to amend their current Collective Bargaining Agreement (CBA).

Although the league’s current CBA does not end until the end of the 2023-2024 season, the league is proposing this amendment would take effect for the 2022 draft class.

History of One and Done

The NBA’s current minimum age requirement of 19 was instituted in 2006, with the last draft featuring high school graduates being 2005.  Since the “one and done” era began in ’06, players that have played only one season in college and then declared for the draft have dominated the top draft picks chosen. A nearly 10 year stretch of such players being chosen #1 overall begin in 2010, with the top 10 picks each year in these drafts also being populated by these players.

The NBA’s commissioner actually raised the issue of adjusting the minimum age for draft eligible players back in the summer of 2017. His focus then was to argue for raising it to age 20, but to allow players to come out of high school and enter directly into the NBA’s developmental league (G League) until they could officially join the NBA ranks.

This past spring, however, the NCAA’s Commission on College Basketball recommended that players be allowed to declare for the NBA draft coming out of high school at age 18, with the option to play in college if they went undrafted.  The commission, chaired by former Secretary of State, Condoleeza Rice, found that the “one and done rules have played a significant role in corrupting and destabilizing college basketball and the restricting the freedom of choice for players.”

We will see how this change plays out and whether we see better basketball because of it in either the NBA or NCAA. Learn more about the Anders Sports, Arts & Entertainment Group to see how we help athletes plan for their financial future.

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February 26, 2019

Tax Reform: Self-Rental Under a Triple Net Lease and the QBI Deduction

In some cases, business owners may want to rent property to their business through a self-rental. Before the Tax Cuts and Jobs Act (TCJA), this was typically done through a triple net lease. In a triple net lease, the tenant pays for building maintenance, insurance and property taxes in addition to rent. These types of agreements have various benefits to the landlord and tenants from a planning and tax perspective and are commonly seen in the commercial real estate industry.

New Law

Qualified Business Income Deduction

The TCJA added a new 20% deduction for noncorporate taxpayers for qualified business income (QBI). QBI is the net amount of items of income, gain, deduction and loss with respect to a trade or business. A qualified trade or business is any trade or business, other than a specified service trade or business or the business of performing services as an employee. There was concern a triple net lease arrangement would prevent a lessor from the 20% deduction because the lessor’s business would not be considered a trade or business.

Self-rentals and the QBI Deduction

Although triple-net leases were not changed under the TCJA, there was confusion prior to the release of the QBI proposed regulations as to whether or not a self-rental utilizing a triple net lease would rise to the level of a trade or business for the purpose of the QBI deduction. The recently issued proposed regulations on 199A QBI deduction have provided additional guidance on what activities may be defined as a trade or business. In particular, the proposed regulations define “self-rentals” as a trade or business, and therefore qualifies for the deduction if the self-rental is being leased through a passthrough business that is under “common control”.

Common control is necessary to combine rentals with other business activities and is defined when the same person or group, directly or indirectly own 50% or more of each trade or business.

For example, let’s say you own 100% of both a manufacturing S-Corporation, and an office building that you hold in a Single Member, LLC. The office building is leased by the S-Corporation under a triple-net lease. Since the office is being leased under common control and the manufacturing company carries on a trade or business, the triple net lease activity is eligible for a section 199A deduction.

Impact on the Commercial Real Estate Industry

Self-rentals under common ownership can provide a substantial QBI deduction. Taxpayers should review their self-rental ownerships to determine if common ownership applies or if ownership can be restructured to obtain common ownership.

The Anders Real Estate Group can help you navigate self-rental situations. Contact an Anders advisor with questions on how the new tax law will affect you. Visit our Tax Reform Resource Center for information regarding the resources on how the tax reform will impact you, your family and your business, videos and blog posts on numerous changes under the TCJA.

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February 26, 2019

Donna Erbs Honored with Women of Influence Award

Donna M. Erbs, Chief Marketing Officer at Anders, was honored with the Corporate Women of Influence Award by RISE Collaborative Workspace. RISE hosted the inaugural Women of Influence Awards on February 26, recognizing five influential women in St. Louis. Winners were named in five categories: Small Business, Community Leader, Start-up, Corporate and Nonprofit.

Learn more about Donna Erbs or RISE Collaborative Workspace.

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February 25, 2019

How to Make the Most of Career Fairs and Networking as a College Student

During your years as an undergrad student, you will encounter several career fairs and other networking opportunities. The problem is that no one ever taught you how to prepare for, or what to do at these events. Your professors and your parents tell you to “build a network” and “explore career options,” but what does that really look like? From what to wear to what to say, below are tips and tricks for making the most of career fairs and/or networking events as a college student.

Preparing for the event:

Researching the companies

Don’t worry, it’s not another research paper. Doing research on the companies that will be attending the event is the best preparation you can do and it takes five minutes. Your school should provide a list of the companies attending and checking out each company’s website for information on who they are and what they do can help you narrow down which tables you want to start with and spend the most time at. You can jot down some notes of important information about each company to keep with you at the event so you aren’t going to each table completely empty-handed. This can also help you tailor your 30-second pitch for each company.

Developing your 30-second pitch

You may have heard of the ‘30-second pitch’ in one of your career classes. This is basically how you introduce yourself as an emerging professional to potential employers. First, you cover the basics: your name, what year you are in school, and your major. Next, you want to be able to articulate what you are specifically interested in or skilled at pertaining to your major. Lastly, if you have any relevant experience, you should elaborate on that.

Example: “Hi, my name is [first and last name], and I am graduating in [graduation month and year], with a degree in [degree name]. Last year, I interned for a [company type or position title], for [amount of time]. I enjoy [skills you learned and enjoyed].

Having these few sentences prepared is a great way to make a solid first impression- and make sure to have several copies of your up-to-date resume to leave on the tables.

Dressing professionally

Move aside sweatpants, it’s time to make room in your closet for professional attire. Slacks, knee-length skirts, suit jackets, button-up shirts, and conservative blouses are just some of the staple items you will have to start keeping on hand for recruiting and networking events.

Pro tip: invest in a travel steamer. Having one will save your life when it comes to your professional attire. Wearing wrinkled clothing is the best way to make a bad impression. You only have one opportunity to make a first impression, make it a good one.

Don’t forget the shoes. A pair of nice shoes is one of the more expensive things on the must-have list. Try looking at the outfits you have and figure out what color shoe goes with the majority of them before investing in a pair.

Deciding on hair, makeup and jewelry

Make sure your hair is clean, brushed, and neat. If you have long hair, you may want to consider clipping some of it back or sporting a neat low bun or ponytail so that you are not tempted to play with it while you are speaking to potential employers.

If you don’t usually wear makeup, don’t feel pressured to do so! You want to make sure you feel natural and comfortable. If you are a person who does wear makeup often, just keep in mind that this is a career fair, not a Friday night out, so stick with a neutral color palette.

Keep your jewelry simple as well, and remember that some companies have stricter jewelry policies, so less is more. If you have visible piercings, taking them out is a good idea because you don’t know what is acceptable at each company. Avoid any distracting bracelets or necklaces because you want your personality and skills to be the thing recruiters remember about you.

Attending the event:

Start early and attend often

You may be thinking, “I’m just a freshman. I don’t need to go to recruiting or networking events yet.” But, making connections before it’s crunch time can be the best thing for your career. When it comes time to apply for an internship or your first full-time position after graduation, you will be thankful that you have a relationship with recruiters and managers at several companies. The more you attend career fairs, the more the companies will start to recognize your name and face, which is the quickest way for your resume to get to the top of the review stack.

Keep in mind that your school is not the only place to network. Look online for recruiting and networking events around your city. For example, the St. Louis Business Journal holds several networking events for women in business throughout the year.

Questions to ask recruiters

The questions you ask at these events are to show your interest in the company and/or to learn about opportunities they may have for you. Here are some general questions that you can have ready:

  1. Will you be hiring interns this spring/summer? – If so, how many and in what areas?
  2. How often do interns transition to full-time employment?
  3. Ask about your specific field at the company – What does the [field name], team look like here? How many people make up the [field name] staff?
  4. What is on the horizon for the company in the next few years?
  5. What do you feel makes your company different?

After the event:

Thank you notes go a long way. Not only do they show that you are appreciative of the recruiter’s time, but it also helps them remember your name. While you’re at a company’s booth, ask for a business card of the person you spoke to, or at least write down their full name. This way you can either send a hand-written note, email, or you can request to connect with them on LinkedIn. Adding recruiters on LinkedIn is a great way for them to keep up with where you are in school, and for you to know when they are hiring.

Your thank you note will be more meaningful and help you stand out if you mention a specific topic that the recruiter spoke with you about. For instance, if you talked about the culture of the company in detail, mention that in your note so that the recruiter may remember who they are receiving the note from.

Here is an example of what to say in a thank you note:

Dear [recruiter’s name],

Thank you for taking the time to attend the [university name] career fair and to speak with me about your company. I was very impressed with the details you gave me about the company’s culture and how employees relate to one another. I will be on the lookout for future opportunities at [company name]!

Thank you,

[your name]

If you are connecting on LinkedIn, make sure to send a message with your connection request:

Hi [recruiter’s name],

We spoke at the [university name] career fair and I would like to stay connected so I don’t miss any future opportunities at your company. I appreciate you taking the time to speak with me about [conversation topic]. Thank you!

These tips and tricks will help you make the most of any career fair or recruiting event, and you are sure to be a memorable student. So, prepare, attend, and leave a great impression to kick start your career!

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February 25, 2019

Microsoft is Ending Support for Common Products – Is Your Company Prepared?

Within the next two years, Microsoft will be retiring several commonly used products through their End of Life (EOL) initiative, including Windows 7, Windows Server 2008, SQL Server 2008, and Office 2010 programs. Using these products after they reach EOL could cause security risks for businesses. To best prepare your company for this mass extinction of support, it is important to educate yourself about what EOL entails and then develop a plan to protect your business.

What is EOL?

When a Microsoft product reaches the point in its lifecycle where it is no longer covered by Mainstream or Extended Support, then it is at EOL. After its EOL date, the product will no longer receive security patches, bug fixes or technical support. This will leave the product, and consequently your IT environment, vulnerable to new cyber threats and technical issues. Lack of patching may also lead to compliance issues. It’s important to have a plan of action if you currently run on these EOL versions.

How do I develop an EOL Plan of Action?

Step One: Perform an audit of Microsoft products

Review your Microsoft products and take note of those that are reaching EOL. Below is a full list of EOL products and services for 2019 and 2020.

Operating Systems (OS)

  • Windows 7 – January 14, 2020
  • Windows Server 2008 – January 14, 2020
  • Windows Server 2008 R2 – January 14, 2020

Microsoft Products & Services

  • Microsoft SQL Server 2008 – July 9,2019
  • Microsoft SQL Server 2008 R2 – July 9, 2019
  • Exchange Server 2010 – January 14, 2020
  • Office 2010 desktop – October 13, 2020
  • SharePoint Server 2010 – October 13, 2020
  • Project Server 2010 – October 13, 2020

During your Microsoft products audit, you should also be on the lookout for other products still in service that are already past their EOL dates. You can search for a product’s lifecycle and determine if it has reached EOL.

Step Two: Review your options & determine your plan

For each of the Microsoft products nearing EOL, there are options that will allow you to continue to secure your IT environment. Each option should be reviewed to develop the best plan for your environment. In general, your options are as follows:

  1. Upgrade to a Microsoft product with current support, which may involve purchasing new devices and licenses
  2. Migrate products to cloud services
  3. Implement a hybrid solution that utilizes both upgraded on-premise devices and cloud services

If you are unsure of how to begin your EOL Plan of Action, Anders Technology is here to help. As Microsoft Partners, we can review your IT environment and assist you with developing a plan that utilizes the most secure and cost-efficient option for your company. Contact an Anders advisor to learn more.

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February 21, 2019

CMS Creates Pathways to Success for ACOs Starting July 1, 2019

The Centers for Medicare & Medicaid Services (CMS) is taking a new direction with the Medicare Shared Savings Program, established by the Affordable Care Act. The new ruling, called Pathways to Success, is meant to encourage Medicare’s Accountable Care Organizations (ACOs) to move to performance-based risk faster and incrementally. The new ACO criteria will take effect July 1, 2019.

New Participation Tracks

The ruling restructures participation options, eliminating the one-sided shared savings-only model and the two-sided shared savings and shared losses model. A new BASIC track incrementally transitions eligible ACOs to higher levels of risk and potential reward. A second ENHANCED track provides additional tools and flexibility for ACOs taking on the highest level of risk and potential reward.

Effect on the Health Care Industry

According to CMS, 561 ACOs out of 649 total Medicare ACOs participate in the program. These ACOs served more than 10.5 million Medicare fee-for-service beneficiaries in 2018. The ruling is estimated to save the program approximately $2.9 billion over 10 years.

Learn more about the ruling on the CMS website, or learn how the Anders Health Care Group can help your organization. Contact an Anders advisor to discuss how you will be impacted.

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February 19, 2019

Tax Reform for Individuals: Roth Recharacterizations

Converting a traditional IRA to a Roth IRA may make sense for your retirement strategy depending on your tax situation. For example, you might want to pay tax on contributions in your current tax bracket if you expect to be in a higher bracket when you retire. Before tax reform, you could later decide to recharacterize back to a traditional IRA if your tax situation changed. Below we discuss the changes going forward, how it compares to the previous law and how individuals will be impacted by the change.

New Law

Under the Tax Cuts and Jobs Act (TCJA), an individual can continue to make a conversion contribution to a Roth IRA from a traditional IRA, but it can’t be undone. The new law prohibits recharacterization used to unwind a Roth conversion.

Previous Law

Under the previous tax code, you could use recharacterization as a future tax planning tool. An individual taxpayer could change their traditional IRA into a Roth IRA but if the taxpayer saw benefit to switching back to a traditional IRA, such as investment return changes, they could hit the “undo” button and reverse the decision.

Impact on Individuals

The changes don’t prohibit all forms of recharacterization. For example, an individual can make a contribution during the year to a Roth IRA and, before the individual’s tax return due date, recharacterize it as a contribution to a traditional IRA. This transfer would be considered a tax-free rollover. Since you can no longer hit the “undo” button, you will want to consult your local tax professional about the advantages or disadvantages of this decision, as it is final once you have made that decision.

Contact an Anders advisor with questions on how the new tax law will affect you.

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February 14, 2019

Tax Reform for Individuals: Standard Deduction and Personal Exemption Changes

If you’re used to itemizing deductions for expenses such as mortgage interest, state and local income tax and charitable contributions, you may be changing the way you file your tax return following the Tax Cuts and Jobs Act (TCJA). Under the new tax law, the standard deduction amount and personal exemptions have changed and will affect a large number of taxpayers. Below we discuss what has changed and how individuals will be affected when it comes to filing taxes.

Previous Law

Under the previous tax law in 2017, the inflation-adjusted standard deduction was $6,350 for single and married filing separately filers, $9,350 for heads of household, and $12,700 for joint filers and surviving spouses.

An additional deduction was given to those who are over the age of 65 or blind. The additional deduction in 2017 included $1,550 for single or heads of household and an additional $1,250 for joint filers, surviving spouses, and married filing separately filers. The standard deduction amounts were indexed annually for inflation by the Consumer Price Index for all-urban consumers (the “CPI-U”).

Before the TCJA, an individual reduced adjusted gross income (AGI) by personal exemption deductions in addition to the standard deduction or their itemized deductions. Personal exemptions were allowed for the taxpayer, spouse and any dependents. Indexed annually for inflation, in 2017 the amount for each personal exemption was $4,050.

New Law

Under the new TCJA, effective for tax years 2018–2025, the standard deduction nearly doubled. The new standard deduction increased to $12,000 for single and married filing separately filers, $18,000 for heads of household, and $24,000 for joint filers and surviving spouses. The additional deduction for those over the age of 65 or blind remains unchanged and will continue to increase for inflation based upon the CPI-U. However, the standard deduction dollar amounts will be indexed for inflation going forward using the Chained Consumer Price Index for all-urban consumers (C-CPI-U) rather than the CPI-U.

The new tax laws of the TCJA have suspended the personal exemption deductions for the tax years 2018–2025, so there will be no deductions allowed for personal exemptions.

Impact on Individuals

Because of the new standard deduction increases, there will be less taxpayers itemizing their deductions and more choosing the standard deduction. Taxpayers can no longer claim an exemption for themselves, their spouse, and their eligible dependents. The new tax provisions, including the higher standard deduction may or may not make up for this change depending on your 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. Contact an Anders advisor with questions on how the new tax law will affect you.

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February 13, 2019

How Not-for-Profits Can Take Advantage of New Guidance on Taxable Parking Benefits by March 31, 2019

Many not-for-profits organizations have been concerned about the taxability of parking and transportation benefits as a result of the Tax Cuts and Jobs Act. Fortunately, the IRS recently issued interim guidance around the treatment of these benefits incurred after December 31, 2017. The new rules will help you determine the amount of parking expenses that are subject to unrelated business income tax (UBIT).

Reducing or Eliminating UBIT for Parking

Under a special rule, employers will have until March 31, 2019 to change their parking arrangements, potentially enabling them to reduce or eliminate potential UBIT with respect to parking fringes. And it may be possible to avoid having to file a Form 990-T, Exempt Organization Business Income Tax Return, altogether.

The IRS also announced that it will provide estimated tax penalty relief in 2018 to some tax-exempt organizations that offer these benefits and were not required to file a Form 990-T in their prior filing season.

Determining What Will be Taxed

Here are a few scenarios that will help you understand the amounts subject to the tax:

Not-for-Profit Pays a Third Party for Employee Parking Spots

If the Organization pays a third party an amount so that its employees may park at the third party’s parking lot or garage, this amount is now considered UBIT.

Not-for-Profit Owns or Leases All or a Portion of a Parking Facility

Until further guidance is issued, if the Organization owns or leases all or a portion of one or more parking facilities where its employees park, the Organization must use a reasonable method to determine what amount, if any, may be considered UBIT.  If you don’t know what reasonable method to use, the IRS has developed a 4 Step Method:

  • Step 1. Calculate the percentage of reserved employee spots – these are parking spaces exclusively reserved for your employees. So, if the total parking facility the Organizations owns or leases has 100 spaces, and 20 are reserved for your employees – this is 20/100 or 20%. Then, multiply this percentage by the Organization’s total parking expense for the parking facility. IMPORTANT NOTE: Until March 31, 2019, NPFs that have reserved employee spots may change their parking arrangements, including changing signage, access, etc., to decrease or eliminate their reserved employee spots and treat those parking spots as not reserved employee spots retroactively to January 1, 2018.
  • Step 2. Determine the primary use of remaining spots via the “primary use test”. The Organization may identify the remaining parking spots in the parking facility and determine whether their primary use is to provide parking to the general public. “Primary use” means greater than 50% of actual or estimated usage of the parking spots in the parking facility during the normal hours of the organization’s activities on a typical day. If the primary use of the remaining parking spots in the parking facility is to provide parking to the general public, then the remaining total parking expenses for the parking facility are not considered UBIT.
  • Step 3. Calculate the allowance for reserved nonemployee spots – these spots are exclusively reserved for visitors, customers, etc. This applies if the primary use of an Organization’s remaining parking spots is not to provide parking to the general public.
  • Step 4. Determine remaining use and allocable expenses. If the not-for-profit completes Steps 1-3 above and has any remaining parking expenses not specifically addressed, the organization must reasonably determine the employee use of the remaining parking spots during the normal hours of the organization’s activities on a typical day, and the related expenses allocable to employee parking spots. Methods to determine employee use of the remaining parking spots may include specifically identifying the number of employee spots based on actual or estimated usage.

For specific questions regarding your organization’s tax situation, contact an Anders advisor or learn more about the Anders Not-for-Profit Group.

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