August 30, 2019

Savannah Greatting Selected for Wolters Kluwer Emerging Leaders Program

Savannah L. Greatting, CPA, Supervisor + Tax Services at Anders, was selected for the 2019 Wolters Kluwer Emerging Leaders Program.

As a supervisor in the Tax Services Group, Greatting works with individuals on their tax and estate planning. A member of the Anders Family Wealth and Estate Planning Services Group, she enjoys helping families minimize their tax burden today and suggesting tax planning strategies to look towards their financial future. Greatting plays an active role in the firm’s Young Professionals Group and has served as the Chair and Secretary of the Steering Committee. She has also presented on and written about the effects of the Tax Cuts and Jobs Act on individuals.

In its 7th year, the Wolters Kluwer Emerging Leaders Program allows accounting firms from all over the country to nominate a young professional who displays key attributes including technical competency, exceptional communication skills, strong client service behavior, forward thinking abilities, reliability, trustworthiness, community activism and mentorship.

2019 Emerging Leaders are invited to the CCH Connections User Conference in Aurora, Colorado on October 23. Participants will go through an education program designed to help them grow in their career and further develop skills needed to become a leader in their firm and community.

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August 29, 2019

Update to the Qualified Improvement Property (QIP) Recovery Period

Since the Tax Cuts and Jobs Act combined leasehold categories into one definition of Qualified Improvement Property (QIP), there has been anticipation for further updates. In the spring of 2019, a bill was introduced into Congress called the Restoring Investment and Improvements Act (RIIA). This bill marks the first step of the Congressional technical correction to revise the depreciation period of QIP from 39 to 15 years. Unfortunately, since the introduction of this bill, there has not been any further action by Congress.

Background on QIP

Beginning 1/1/2018 the Tax Cuts and Jobs Act simplified and consolidated the various leasehold categories to one “Qualified Improvement Property” (QIP). Since then, QIP has been further simplified to apply to interior common areas of nonresidential buildings if the improvement is placed in service after the building was first placed in service. It can also be owner-occupied and will not be subject to the three-year rule.

Due to a legislative omission, QIP was not added to the list of property with a 15-year depreciation period and is not eligible for bonus depreciation.

What’s Next for QIP?

For the RIIA bill to become law it still must be passed by the Senate, House and then signed by the President. The corrective legislation would correct treatment of QIP property with a 15-year depreciation period rather than a 39-year depreciation period and be eligible for bonus depreciation. Lessees and building owners who improve qualifying business property will reap federal tax benefits of shorter depreciable lives and increase bonus depreciation deductions. If approved, the provisions would be retroactive as intended by the Tax Cuts and Jobs Act.

Contact an Anders advisor to discuss questions about your specific situation, or learn more about the Anders Real Estate and Construction Groups.

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August 28, 2019

Anders Embraces STLMade; Encourages Individuals and Organizations to Start, Standout and Stay

Anders is proud to be STLMade and anxious to share the collective benefits of this region-wide collaborative movement with staff, clients and colleagues.

STL Made is an opportunity for communities, organizations, governmental entities, businesses and individuals to embrace one brand, one message, one commitment on behalf of St. Louis. At Anders, our Mission is “to be a catalyst for those striving to achieve their highest potential,” so on Wednesday, August 28, we are kicking off our commitment to STLMade, which showcases the highest potential of the greater St. Louis metropolitan area to the world, and perhaps most importantly, to the people who live, work and play here every day.

By now, you’ve probably had a glimpse of STLMade at major events, on ads at MetroLink, online, and at movie theaters, festivals and conferences. The campaign is also prominent on social media platforms, including Facebook, Twitter, and Instagram, as well as by using the hashtag #STLMade.

Started by the Regional Business Council, St. Louis Regional Chamber of Commerce and Civic Progress and led by Lee Broughton of the Broughton Brand Company, #STLMade is “a celebration of a region that insists on moving forward by bringing people and ideas together in bold ways that makes this a place where you can start something, you can get the support to stand out, and you can stay and make St. Louis yours.”

Telling Our Region’s Story

As St. Louisans, we can be our own worst enemies. Other Midwestern cities have done a better job telling their narratives, attracting and keeping talent. We are quick to note all the things that aren’t going right, and the STLMade campaign acknowledges that we are far from perfect and have pieces to fix.  But we also need to be positive about the good things that are happening in our region: $8 billion in real estate investments from the Arch to Washington University; recent commitments by Bayer and Bunge; the opportunity to become both the geospatial and ag-tech centers of the US; growth and record infrastructure improvements in Southwestern Illinois; a burgeoning startup community, not to mention a Stanley Cup trophy-winning hockey team, first place baseball team and a new MLS team. These are just a few of the good things happening in our region and certainly cause for excitement enthusiasm and energy.

The goal of STLMade is to tell these stories and others, from the largest organization to the smallest, from the most successful to the most unique. STLMade wants to surprise, inspire and encourage people to know more about their home, neighbors and the communities that make-up the metropolitan area, and to be proud of being from St. Louis.

The STLMade Launch

First introduced on PI Day in March at Venture Café and then to HR professionals at some of St. Louis largest firms, now is the time for middle-market companies like Anders to embrace being an integral part of this campaign.

For Anders, that means starting with our staff and then working with our clients add colleagues to celebrate their role in this renaissance. For example, Anders started in 1965 with two people and today employs more than 200 partners and staff from Missouri and Illinois. We are just one of the many firms who started in St. Louis, have stood out here, had success and have committed to staying.

Whether you are part of an organization with a long history in the greater metropolitan area or one just starting out, a long-time resident or someone who just moved here, you, too are an important part of the STLMade story.

Why STLMade? Why Not.

For years, we have had many mixed messages, now with one clear voice and one narrative, STLMade is working to bring in and retain talent and resources to our area, encourage people to build businesses here, move the region forward and make it grow stronger through economic development. Just think of what could happen if we all became messengers of this campaign, emphasizing what is good and not getting stuck in what is not.

Sarah Arnosky from Arch to Park and Leah Wilson from the Broughton Agency shared all the reasons Why STLMade with Anders partner and staff and now we are going to be part of this new narrative by sharing it both internally and externally.

If you want to know more about why you should be STLMade, too, visit TheSTL.com, the digital hub of the movement that shares what St. Louis has to offer, and how people, businesses and institutions are affecting change in order to create more opportunities for all.

Once you have had the opportunity to review and if you want to know more, please contact your Anders advisor or me. We are excited to talk to you about being STLMade. Imagine what we can accomplish together.

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August 27, 2019

Are Physicians Exempt from Sales and Use Tax in Missouri and Illinois?

Many physicians are aware that the medical services they provide are typically exempt from sales tax. However, the physician may still be required to pay sales or use tax in his or her medical practice. The liability depends on the suppliers they are using, if they are reselling to patients, and the state in which they’re practicing.

Physicians making purchases from out-of-state or online suppliers that do not collect sales tax may be responsible to accrue and remit the use tax. They may also be required to remit sales tax if they resell items to consumers.

What if My Practice is in Illinois?

In Illinois, the state sales and use tax rate is 6.25% (plus local tax) on general sales, while items such as food, drugs, medicine and medical appliances are taxed at a special reduced rate of 1%. Illinois physicians are required to accrue and remit use taxes on purchases they use in the performance of their services when purchased from out-of-state suppliers or other suppliers not required to collect tax in Illinois.

State Tax Example

If an Illinois physician purchases tongue depressors from a supplier who does not collect Illinois tax, the physician should self-assess and remit the use tax to the government. The tongue depressors are supplies used by the physician rather than medical appliances, so they are subject to the general sales/use tax rate rather than the special 1% tax rate.

Transferring Goods to Patients

Illinois physicians may find tax laws more favorable when transferring goods to their patients. Under Illinois law, physicians do not collect sales tax on services when primarily rendering services to their patients. Yet, physicians are taxable on the sale of tangible personal property as an incident to the furnishing of professional services, such as bandages, etc. Physicians are also liable for tax when they sell goods like crutches, wheelchairs, and medical bracelets to consumers for use separate from the physician providing professional services. When such items are sold, the physicians should accrue and remit the sales tax to the government.

What if My Practice is in Missouri?

The state general sales and use tax rate in Missouri is 4.225% (plus local tax). Sales and use tax laws in Missouri are similar to Illinois laws. Under Missouri law, physicians providing services typically are not subject to tax on their services. However, tax should be self-assessed and remitted on items used in the performance of their services on purchases made from out-of-state suppliers or other suppliers not required to collect Missouri tax.

Comparable to Illinois, tangible personal property used or consumed in the physician’s practice is subject to tax when the goods are purchased. These goods could include items like diagnostic equipment, surgical tools, medical instruments, and supplies used to provide care to patients.

State Tax Example

For example, a Missouri physician would be required to pay tax when purchasing tongue depressors for use in his or her medical practice. If the vendor did not charge sales tax, the physician should self-assess and remit the use tax to the government

Transferring Goods to Patients

In Missouri, goods purchased by the physician that are not used or consumed in the medical practice are subject to sales tax when the physician resells the goods. In contrast to Illinois, wheelchairs and ambulatory aides, like crutches, are exempt from Missouri tax. As a result, a physician’s sale of a wheelchair would not be taxable in Missouri, though it could be taxable in Illinois.

In additional to ambulatory aids and wheelchairs, other items are also exempt from Missouri tax. For instance, sales, repairs, and rentals of durable medical equipment, prosthetic and orthopedic devices are exempt from Missouri tax. Additionally, insulin, medical oxygen, hearing aids and hearing aid supplies, hospital beds, home respiratory equipment, and all drugs legally required to be dispensed by a licensed pharmacist with a lawful prescription are all exempt from Missouri sales tax.

What are the Consequences of Not Paying These Taxes?

Failing to accrue tax and properly filing sales or use tax returns can result in a variety of potential issues. Individuals and businesses making purchases from suppliers not required to collect state sales tax have the potential to be audited if use taxes are not accrued and remitted on the purchases. Audits could lead to penalties and interest on unpaid taxes.

In Illinois, the statute of limitations to assess a tax deficiency is three years from the time a return is filed. However, the statute increases to six years if a return is never filed. In Missouri, the statute of limitations is three years after the return was filed or was required to be filed. However, if a fraudulent return was filed or a return was never filed, Missouri has no statute of limitations to assess a tax deficiency. As a result, an individual or business could owe several years of tax, interest, and penalties if sales or use tax returns have never been filed.

Sales and use tax can be perplexing, and the consequences of failing to accrue taxes due and file the tax returns can be substantial. The Anders State and Local Tax Services Group is here to help. Contact an Anders advisor to learn more about filing sales and use tax returns.

Tax associate Claire E. Rogers was a contributor to this post. 

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August 20, 2019

How to Retain Clients When Transitioning Your Business

Have you ever received a “Dear John” letter abruptly ending a relationship? It probably felt sudden, impersonal and maybe even unexpected. Unfortunately, some business owners send the same type of cold correspondence to their clients when transitioning their company. This type of approach can affect the relationship and ultimately cost the business money.

Why the Approach Matters

I recently received a letter in the mail from my dentist, who has been my provider for over seven years. I knew he was getting up in age and was eventually going to retire, but I was still shocked by the generic letter that immediately came after my last visit. Addressed to “All My Valued Patients,” it made me truly wonder how valuable I was to his practice. Don’t get me wrong, he wasn’t getting rich off my routine cleanings, but to not tell me himself only a few days before while I was sitting in his office?

Keeping an Eye on Customer Satisfaction

The letter stated that my dentist had sold his business to another practitioner, who I don’t know and am not willing to blindly follow. Since the practice will most likely lose my business because of how the transition was handled, I started thinking about how they could have handled the situation better.

I reached out to one of my colleagues who specializes in selling and merging dental practices and his insight shocked me. He told me that a typical transaction between retiring or merging practices loses 30-40% of their patients when a transaction occurs. After doing further research, I found out that typical “rules of thumb” for dental practice valuations were 60-70% of annual sales, which falls in line with what my colleague told me. Can the sales price get better? What about a valuation of 100% of sales? How could we increase the value of the practice?

A Better Way to Communicate Your Transition

What if your business could guarantee that a vast majority of your customers will stay after a transition? Communication can help create a smooth and seamless transition in the eyes of the customer. Keeping the customer satisfied will encourage them to stay with the practice and increase the value of the business.

How can you better communicate a transition to keep your customers satisfied? First, start preparing early. Knowing that an owner is going to transition within a certain period of time, start communicating to your customers 12-18 months down the road. Make a soft introduction to either the next generation, key employees or the new acquirer at an appropriate point in time.

Consider having a transition period where you work beside the new owner, or owners, to create a new comfort level with your clients. This show customers that the level of service and care will not waiver with a change in ownership.

Taking a few small steps can add more value to your client relationships and ensure upwards of 40% of clients don’t walk out the door on day one following a transition. Contact an Anders advisor to find out how our Business Transition Planning Services Group can help your company implement approaches to retain clients and add value.

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August 15, 2019

The Supreme Court Case That Will Impact Your Estate and Trust Planning

As states have become increasingly aggressive to generate tax revenue, the US Supreme Court issued a unanimous decision limiting at least some state taxation for trusts. On June 21, 2019, the Supreme Court held that North Carolina’s law authorizing taxation of any trust income that “is for the benefit of” a North Carolina resident is unconstitutional by violating the Due Process Clause. The ruling from North Carolina Department of Revenue v. Kimberley Rice Kaestner 1992 Family Trust is a narrow ruling but can still impact estate and trust planning.

About the Kaestner Case

In the Kaestner case, the beneficiary of the trust had no right to distributions and did not receive any distributions during the tax years involved. The beneficiary was also not guaranteed to ever receive the income or principal from the trust. Instead, distributions were to be made in the trustee’s “absolute discretion.” However, North Carolina argued that the beneficiary’s mere presence in the state was enough nexus to tax the income of the trust.

Other than the beneficiary’s residence, the Kaestner trust did not have any other presence in North Carolina. The trust was formed in New York by a New York resident. The trustee of the trust was also a New York resident. The trustee had “infrequent” contact with the beneficiary and no meetings regarding the trust were conducted in North Carolina. The trust did not have a physical presence, make direct investments, or hold real property in North Carolina. Still, North Carolina assessed more than $1.3 million in income tax from 2005-2008.

The Supreme Court held that the presence of in-state beneficiaries alone does not empower a State to tax trust income that has not been distributed to the beneficiaries where the beneficiaries have no right to demand that income and are uncertain to receive it.

What You Can Do

Because of this ruling, taxpayers may want to file amended returns or protective claims for refunds as soon as possible in North Carolina for trusts that fit the Kaestner fact pattern. Trusts timely filing a Notice of Contingent Event will have until December 21, 2019, six months after the ruling date, to file an amended return. Trusts that have not filed a notice will be subject to the general statute of limitations. Talk to your tax advisor for guidance around your personal situation.

The Kaestner ruling will not impact every trust directly; however, it brings up concepts that should be considered in the broader scale of state fiduciary income taxes. States have several bases for taxing trusts including the residency of the grantor, trustees and beneficiaries and locations of trust assets and administration. Some states only look at one of these factors to determine filing requirements while others look at a combination of factors.  As a result, trusts with several trustees and beneficiaries living in different states may have to review the statutes and instructions for multiple states. It’s important to consider all of these factors when determining which state returns are necessary and monitor state statutes to see if states make any changes as a result of the Kaestner ruling.

Although the Kaestner case brings a little relief from states’ ability to tax trusts, by issuing such a narrow ruling, many avenues still exist which allow states to assess tax. Careful consideration of all the factors will help make sure trusts are filing in the appropriate states. The Anders Family Wealth and Estate Planning Services Group can help determine if and how you will be impacted by the ruling. Contact an Anders advisor to discuss your situation.

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August 13, 2019

Microsoft Teams: An All-in-One Collaboration Tool for Your Business

Microsoft recently introduced the Teams application into the Office 365 product stack as a replacement for Skype for Business. While Teams is a replacement for Skype’s meetings and messaging, Microsoft expanded the tool, adding even more capabilities to help businesses be more productive. Teams utilizes and combines the existing applications and features in Office 365 into one central hub. In the modern workplace, being able to leverage what Office 365 offers from a single application makes Teams a powerful tool for companies of all sizes.

Collaborating in Teams

Collaboration is what sets Teams apart from other tools. Departments, co-workers and even external users can all work together in one place while utilizing Team’s robust features, including:

  • Instant messaging
  • File sharing
  • Real-time file editing
  • Video calling
  • Desktop screen sharing
  • External file sharing

Securely Access and Organize Information in Teams

Teams uses OneDrive and SharePoint to organize and store files shared within the application, allowing files to be available everywhere and not limited to just your company’s internal network. This ensures everyone has the most up to date version of files and allows multiple people to work on the same document simultaneously. Creating teams and managing the members makes it easy to control permissions and protect sensitive data with minimal effort. Information and communication stays organized by keeping it right where you need it in the specified team, rather than in long email chains or temporary groups chats that make looking back and sifting through to find what you need difficult.

Since Teams lives in Office 365 it makes accessing the application and all it has to offer from anywhere as simple as signing into your Office 365 account from your computer, or even the app on your mobile device. Modern workplaces today and in the future require solutions that offer more, not only in terms of productivity, but also flexibility and collaboration. Microsoft Teams offers that and more by allowing you to access everything that is already great about Office 365 all in one place.

As a Microsoft Gold Partner, the Anders Technology Services Group can make these functionalities come to life in your company. If you are interested in learning more about Microsoft Teams and how it can help your business, contact an Anders advisor.

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August 8, 2019

Startup Fundraising 101: Funding Options

Determining how to raise capital for your startup or small business is an important decision. Besides just determining the amount of money you need to raise, there are several other factors that should be considered to determine what type of funding is best for your company. We will explore these options in our Fundraising 101 series. This first installment will cover the basic types of fundraising choice at a high level.

Types of Funding

In the early stages, most companies can get by with the help of the founder’s funds, but that only goes so far. The next move is generally called the “friends and family round” to gather financial support from some of your closest allies. After the friends and family stage, usually, there comes a time for most scaling startup companies to need bigger and more serious fundraising. So, how should a company structure its investments to attract such investors?  Debt, convertible debt, equity, crowdfunding – these are all different options for a founder to consider.

Debt Investments

The most common type of debt is a loan with a set amount of principal and interest payments.  The investor gets their return when the company makes payments on the loan. Since uncertainty with startups tends to be high, debt investments can be hard to come by. Many banks tend to avoid offering Small Business Loans to startups, and instead loan smaller amounts and can have higher interest rates. Other investors tend to not prefer debt investments since there are no voting rights or ownership in the company. However, upon liquidation, debt holders are paid in full before equity owners. Debt investment deals also tend to be cheaper and easier to structure compared to other investment instruments since they are less complex, resulting in faster turnaround time for funding.

Equity Investments

An equity investment is when the company sells a portion of its ownership; usually called capital or equity. Unlike a loan, there is no set timetable for when an investor is to be repaid.  Many investors want to see their ownership investment appreciate with the development of the company and sell back their shares after future fundraising deals, through an Initial Public Offering (IPO) or through distributions of company profits. There are endless different classes of equity investments, such as common shares and preferred shares, that each has different sets of rules and rights based on the class of equity per the ownership agreement. Usually, equity holders have voting rights as an owner of the company. There is more risk of loss with equity investments since there is no guarantee on the return of the funds. Because ownership agreements and valuations can be extremely complex, the legal fees tend to be expensive and take a longer amount of time to complete.

Convertible Notes

Convertible notes are a hybrid between debt and equity. Initially, the investment is treated as a debt instrument and at a specific time, the note along with the accrued interest is converted into equity ownership. Convertible notes are becoming a very popular investment vehicle because they are generally quicker and easier to execute since they do not require a valuation of the company until the debt is converted. Investors also benefit due to the promise of their initial investment and interest to be converted to equity. The date of conversion is usually set by a time frame, when an event occurs or when a specific value is met.

SAFE Agreement

A SAFE agreement can be thought of like a hybrid convertible debt and equity instrument. They are used to reduce the time and cost of early fundraising. SAFE stands for A Simple Agreement for Future Equity and is similar to a convertible note in that it is in exchange of funds for a future shares of the company when a triggering event occurs. Unlike convertible notes, there is no interest accruing and there is no maturity date. The investor in the case of a SAFE is taking on a higher amount of risk when or if the triggering event will occur and their SAFE will convert to equity. Due to the simplicity of SAFEs, the legal documents can be much easier to obtain.

Crowdfunding

Most third-party investors must be considered an accredited investor in order to purchase interests in private organizations. These investors usually have to have an overall net worth over $1 million or proof of steady annual incomes exceeding $200,000. However, in 2012 the JOBS Act allowed private companies to connect with investors who do not meet the accredited qualifications. There are several websites companies can use to raise funds online through thousands of individual users, called crowdfunding. Equity crowdfunding usually requires the publishing of reviewed or audited financial statements by a CPA firm. Some experts believe that equity crowdfunding can dilute company ownership without gaining the expertise of experienced industry investors. There are also different types of crowdfunding outside equity such as rewards-based crowdfunding and debt-based crowdfunding.

There are several different options when it comes to raising money for your business, including those listed above. The Anders Startup Group can help you fine-tune your financial forecasts to determine the right amount your company should raise and strategize for the tax consequences to you and your investors. Contact an Anders advisor with questions on raising funds for your startup business and stay tuned for our next Fundraising 101 series where we will take a deeper dive into Convertible Notes.

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August 7, 2019

Anders Rises 7 Spots on 2019 IPA Top 200 Accounting Firms List

In 2019, Anders jumped up seven spots to #106 on the Top 200 Accounting Firms list by INSIDE Public Accounting (IPA). IPA ranks the top 400 accounting firms in the U.S. by net revenues. This is IPA’s 29th annual ranking of the largest accounting firms in the nation.

In the 10th annual ranking of the IPA 200, this list picks up where the IPA 100 left off, identifying the largest firms in the country ranking from #101 to #200. For the most recent fiscal year, IPA 200 firms range in size from $19.2 million to $39 million.

INSIDE Public Accounting reports and analyzes the news, trends, strategies and politics that affect the nation’s public accounting firms, and provide information and resources to compete and operate more profitably. Download the full list of IPA Top 100, 200, 300 and 400 firms.

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August 6, 2019

Now is the Time for Commercial Real Estate Owners to Review Loan Rates

Commercial real estate owners caught a break with interest rates coming into 2019. With inflation staying under control, banks now have a larger appetite and are offering better terms and fixed rates. This causes a huge opportunity for owners to review portfolio rates before interest rates increase.

About the Anticipated Interest Rate Hike

Rates were initially expected to rise substantially in late 2018 through early 2020, but didn’t rise as expected due to inflation staying surprisingly intact, among other factors. This caused the Fed to be less aggressive with interest rate hikes and led to stagnant rates. Commercial real estate owners could forget about their loan interest rates for a while and stay status quo.

While commercial real estate owners got lucky with this situation, it’s important to take advantage of this window of opportunity before rates inevitably increase.

Opportunity for Commercial Real Estate Owners

The next several months should be a prime opportunity to take permanent measures. With banks offering better packages, some can provide 7-10 years fixed rate loans with a 20-25-year amortization on owner-occupied property. Typically, commercial loans are fixed for only 3-5 years. Investment real estate can be 5-7 years.

Now is the time for a portfolio review to determine “bankability”, and possibly opt for a longer-term structure. Look at your properties the same way a bank would, and evaluate how your banking institution is working for you. A different size or type of bank might be best for your needs.

Interested in learning more about finding the right bank and financing for your business? Contact an Anders advisor.

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