January 29, 2020

Anders Releases 2019 Community Impact Report

Giving back is part of our social responsibility and corporate culture at Anders, and we proudly support local charitable, civic, community and trade organizations. The Anders Community Impact Report takes an in-depth look at our commitment, connections and involvement in the community in the past year, individually and collectively as a firm.

In 2019, Anders employees gave back to the community by:

  • Volunteering 3,024 hours

  • Sitting on 94 not-for-profit boards

  • Being active members of 176 local organizations

  • Participating in 115 charitable sponsorships

  • Donating over $24,700 to our 2019 Charity of Choice

Read more in the Anders Community Impact Report.

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January 28, 2020

Can I Transfer My Social Security Benefits to Children or Heirs?

When planning for social security distributions, a common question we hear from retirees is, can I provide a portion of my social security benefits to my child or grandchild? The answer is yes, but there are stipulations. Below are a few high-level points on this tax savings scenario and if it may be applicable for you.

Who can I transfer my social security benefits to?

Your biological, adopted child, or dependent stepchild may be eligible to receive your social security benefits if you become disabled, retire or pass away. The child must be:

  • Unmarried
  • Under the age of 18, or
  • 18-19 years of age and a full-time student in secondary school through grade 12, or
  • A child who is 18 or older and disabled with a disability that started before age 22

Grandchildren also qualify to receive a portion of social security benefits if the grandchild is a dependent and both of their parents are disabled, deceased, or you have legally adopted the grandchild.

How much can my family member receive?

If your family meets the criteria above, the qualified child is eligible for up to 50% of your full retirement age benefit or 75% for death benefits, subject to the family maximum. The benefits will stop when the child turns 18, unless the child is still in secondary school and taking a full course load. If the latter is the case, the benefits will stop when the child turns 19 or when they graduate, whichever comes first. Multiple children can claim a portion of the benefit, so you are not required to choose your favorite child!

When should they receive my social security benefits?

For a household with children, the decision of when to begin receiving social security retirement benefits is more complicated. In many cases, there are various reasons to delay filing for social security benefits depending on your situation.

If you have children at home, filing for social security early could make more sense because your children cannot collect a social security benefit until you file. If you file early, it will allow your children to also collect a portion of the benefit.

To learn more about how you could benefit from providing a portion of your social security benefit to your heirs, please contact an Anders advisor.

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January 27, 2020

VIDEO – From Then to Now: The State of South Dakota v. Wayfair

It’s been over a year since states across the country started implementing sales tax regulations. But how have businesses been impacted? The Anders State and Local Tax Services Group and Aegis Law are back with a recorded discussion on how the South Dakota v. Wayfair case has affected out of state retailers and multi-state businesses in the past year and what’s to come. The video goes into detail about how state and local tax requirements are impacting companies like yours, and other related topics including:

  • Examples of Post-Wayfair Legislation
  • Economic Nexus by State
  • How State Regulations Impact the Seller’s Journey
  • Practical Effects of Post-Wayfair Legislation
  • What Businesses Can Do

Complete the form below to download the free video recording.

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January 21, 2020

Making the Decision between Cash or Accrual Accounting for Contractors

Choosing the appropriate accounting method, cash vs. accrual, is one of the first decisions business owners should make. Contractors may use one or both methods for internal accounting and handling contracts.

Cash vs Accrual Method

Cash method

The cash method accounts for revenue only when money is received and for expenses only when the money is paid out. This method does not recognize accounts receivable or accounts payable.

Accrual method

The accrual method accounts for revenue when it is earned and expenses when they are incurred. Revenue is recorded even if the cash has not yet been received.

Contractors may use one or both tax accounting methods:

  • One overall method for reporting general company income and expenses
  • One or both methods for long-term contracts

The choice of accounting method depends on the type of contract you have, the contracts’ completion status at the end of the tax year, and average annual gross receipts.

New Opportunities for Contractors to Use the Cash Method

Before the Tax Cuts and Jobs Act (TCJA), only small contractors could qualify for the cash method of accounting. Large contractors were automatically disqualified. Small contractors were defined as:

  • C-corporations with a 3-year average of annual gross receipts less than $5 million
  • Partnerships with a 3-year average of annual gross receipts less than $5 million in which one of the partners is a C-corporation
  • Partnerships without C-corporation partners and S-Corporations with a 3-year average of annual gross receipts less than $10 million

The TCJA changes that took effect in 2018 increased the gross receipts ceiling for cash basis accounting to $25 million. It also redefined a small business as “a corporation or partnership with less than $25 million in gross receipts for the prior three-year period”. The increase in the gross receipts threshold from $10 million to $25 million creates an opportunity for more contractors to take advantage of the cash method.

Benefits of the Cash Method for Contractors

Below are a few advantages of using the cash method brought on by tax reform:

  • Easier administration and simplified accounting
  • Tax savings through deferred income recognition
  • Accurate portrayal of cash on hand
  • 481a adjustment to adjust from accrual to cash could potentially offset current year taxable income

Which accounting method is allowable and most appropriate for tax purposes is not a question that can be easily answered in all cases. If you would like to learn more about your options when choosing the cash or accrual accounting method, please contact an Anders advisor.

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January 20, 2020

Anders Cannabis Group Receives LEA EDGE Award for Emerging Markets

The Anders Cannabis Group was honored with the 2019 Leading Edge Alliance (LEA) EDGE Award in the Emerging Markets category. This award, given at the LEA North American Conference in Las Vegas, recognizes outstanding innovation in untapped, underserved, or emerging areas especially opportunities in high-potential markets.

In 2019, the Anders Cannabis Group was formed to help Missouri’s medical marijuana license applicants through the application process and navigating complex tax and regulatory updates. Members of the Cannabis Group stay educated on the new and evolving industry by attending conferences, networking with referral sources and researching the developing regulation and application updates. Since forming, Anders Cannabis Group clientele has expanded across the country as states continue to pass new regulations around medical and recreational marijuana.

Anders is an affiliate of the Leading Edge Alliance (LEA), one of the largest global accounting networks in the world. LEA brings together more than 1,600 experienced partners and 23,500 staff members from 450 firms around the globe. This is the 10th EDGE Award for Anders, including awards for Outstanding Women’s Leadership Program, Innovative Firm of the Year, Young Professionals Program and Outstanding Marketing Initiative.

Learn more about the Anders Cannabis Group.

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January 18, 2020

Basic Rules of Passive vs. Non-Passive Income

The net investment income (NII) tax is a 3.8% surtax on investment income that was created by the Affordable Care Act in 2013. To avoid the 3.8% surtax, your investment income must be offset with investment losses or your income has to be considered non-passive vs. passive. For income to be considered non-passive, the taxpayer must materially participate in the activity. This is determined on an annual basis; because a taxpayer qualifies in one year does not automatically qualify him or her in subsequent tax years.

7 Tests of Material Participation

Material participation occurs when a taxpayer’s involvement in the trade or business is regular, continuous, and substantial. Any work an individual performs in an activity in which he or she owns an interest generally is considered participation. However, not all participation is considered material. An individual materially participates in an activity if any one of the following tests is met:

  1. The taxpayer participates in the activity for more than 500 hours during the year,
  2. The taxpayer’s participation in the activity constitutes substantially all of the participation by all individuals (including non-owners) in the activity for the year,
  3. The taxpayers’ participation is more than 100 hours during the year, and no other individual (including non-owners) participates more hours than the taxpayer,
  4. The activity is a significant participation activity in which the taxpayer participates for more than 100 hours during the year and the taxpayer’s annual participation in all significant participation activities is more than 500 hours,
  5. The taxpayer materially participated in the activity for any five years (whether or not consecutive) during the 10 immediately preceding tax years,
  6. For a personal service activity, the taxpayer materially participated for any three tax years (whether or not consecutive) preceding the current tax year, or
  7. Based on all the facts and circumstances, the taxpayer participates on regular, continuous, and substantial basis during the year.

In general, these seven tests are used for determining material participation for any business activity in which a taxpayer is involved. If one or more of the tests are passed, the activity is non-passive and the 3.8% surtax does not apply. However, exceptions to this general rule apply to working interests in oil or gas activities, to limited partnership interests, and to grouping activities. For additional guidance and planning, please contact an Anders advisor below.

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January 15, 2020

Chad Gall and Tom Helm, Jr. Named Principals at Anders

Chad R. Gall, CPA/CGMA, TEP, AEP and Thomas S. Helm, Jr., CPA, MBA have been promoted to principals at Anders, effective January 1, 2020.

About Chad Gall

Chad started his career at Anders in 2001, working his way through the ranks in the Tax Services Group. As a vital member of the firm’s Family Wealth and Estate Planning Services Group, Chad lends his expertise to business owners and families on Roth IRA conversions, retirement planning, estate and trust planning and multi-state tax planning. He also works with employee benefit plans. In addition to his individual tax experience, his knowledge of Caseware software helps guide accounting and audit services throughout the firm.

Chad is a Certified Public Accountant and a Chartered Global Management Accountant. He is also a Registered Trust and Estate Practitioner and an Accredited Estate Planner, both great assets to his clients. Chad holds a B.S. in Accountancy from Southern Illinois University in Edwardsville. Named a Top Estate Planning Professional by the St. Louis Small Business Monthly in 2018, Chad stays actively involved in professional organizations. He currently serves as a board member for the Estate Planning Council of St. Louis, an organizing committee member in the Society of Trust and Estate Practitioners and a member of the International Foundation of Employee Benefit Plans. He is also a member of the firm’s Rainmaker Academy.

About Tom Helm, Jr.

Tom joined the Audit and Advisory Services Group at Anders in 2005. He has 15 years of experience performing and leading financial statement audits. Tom has worked on client audits in a broad range of industries, including manufacturing, hospitality and not-for-profit organizations. He also performs SOC 1 and SOC 2 audits to help companies get a handle on the internal controls and cybersecurity of their service providers.

Tom is a Certified Public Accountant and holds an MBA and B.S. in Accountancy from Missouri State University. In the community, Tom is on the golf tournament committee for the National Tooling & Machining Association and has served as the treasurer and on the finance committee for the Grace Hill Settlement House. Tom is also a member of the firm’s business development Rainmaker Academy.

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January 14, 2020

How Portability Can be a Valuable Estate Planning Tax Strategy

Good news came for taxpayers with large estates when the Tax Cuts and Jobs Act (TCJA) was passed. The TCJA doubled the estate and gift tax lifetime exemption, from $5.49 million per taxpayer to $11.18 million per taxpayer. For 2019, the exemption has been adjusted for inflation to $11.4 million per taxpayer, and $22.8 million per married couple. On top of this generous amount, the IRS also allows for portability of the exemption between spouses – an important consideration in estate planning.

What is the lifetime exemption?

The lifetime exemption refers to the amount the IRS allows you to exclude from your gross estate when calculating your estate tax. This exemption means that should spouses both pass away in 2019, they have the potential ability to pass on $22.8 million to their heirs tax-free. However, this amount can be reduced by gifts given from your estate during your lifetime. For example, gifts given to any one person over $15,000, applicable for the tax year 2019, will reduce the exemption by the amount over $15,000, whereas the payment of medical, dental, or tuition expenses will not reduce your exemption.

Where does portability come into play?

Prior to 2010, any amount of the lifetime exemption that went unused by an estate was simply lost. A large component of estate planning involved married couples trying to split the ownership of the estate’s assets as evenly as possible. For example, say the lifetime exemption is $3 million and a married couple had an $8 million estate. The wife passed away first with only $2 million of those assets in her name. Her assets would be sheltered by her lifetime exemption, however she would lose the exemption amount that went unused. When her husband passes with $6 million in assets, he would only be able to shield $3 million of his assets and the rest would be subject to the estate tax. If the couple were to both own about 50% of the assets, the potential to waste any unused exemption amount would have been greatly reduced.

However, when the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 passed, it allowed for portability. This term refers to the ability to transfer that unused portion to the surviving spouse, referred to as the deceased spouse’s unused exemption (DSUE). This transfer is accomplished by completing the election on the Form 706 Estate Tax Return and can be completed without regard to the legal ownership of each spouse.

Calculating the DSUE is simple. The DSUE will be equal to the unused amount from the year the spouse passed away, based on the inflation-adjusted exemption from that year. When the surviving spouse passes, their exemption will be the DSUE plus the exemption for that spouse in the year of their death.

Are there any caveats to the DSUE?

Form 706

To use the DSUE, the estate must timely file an Estate Tax Return when the first spouse passes away, and the “portability” election must also be properly completed. These steps could be easily overlooked, since an Estate Tax Return does not necessarily have to be filed if the estate is below the exemption amount.

Second Marriages

The IRS has imposed a “last deceased spouse rule”, meaning that if a taxpayer had a DSUE and then subsequently remarries, they forfeit the first DSUE in the event their second spouse passes away. There are some tax planning strategies that can be used to protect the first DSUE. One potential tactic is to use up the DSUE through gift giving by using it as a shield for gifts given over the annual limit of $15,000. The DSUE will be reduced before it becomes unusable and the taxpayer will not have to pay taxes on these gifts. Portability agreements can also be written into a marital agreement.

What are some considerations for taxpayers in their estate planning?

Married couples should first consider what the expected value of their estate will be over the lifetime and if they expect their estate to be subject to estate taxes.

Taxpayers should also be aware that currently, the $11.8 million exemption amount is set to expire in 2026. There has been concern that there could be adverse effects to an estate who gave gifts in years when this exemption was in place, but the taxpayer passes away after the expiration date and the exemption amount drops. The IRS has consequently included a rule stating that an estate will essentially be allowed to determine its tax based on the $11.8 million exemption amount, rather than the exemption in place at the time of death.

It’s important to work with a trusted advisor on developing your estate plan. The Anders Family Wealth and Estate Planning Services Group can help ensure you and your family are preparing for the future. Contact an Anders advisor to learn more.

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January 13, 2020

Anders Selects the Partners for Pets as 2020 Charity of Choice

Anders partners and staff have selected Partners for Pets as the firm’s 2020 Charity of Choice. Now in its 15th year, the Charity of Choice program combines fundraising activities and volunteer efforts to support one local charity each year. Charities are submitted by members of the firm, and all members of the firm, from interns to partners, have the opportunity to vote for their choice at the firm’s meeting each January. In 2019, Anders raised more than $24,000 for the Saint Louis Crisis Nursery.

Elena Graber, an accountant in the Anders Outsourced Accounting Services Group, volunteers and fosters animals for Partners for Pets and nominated the organization for our 2020 Charity of Choice. Partners for Pets regularly visits animal control facilities and rescues animals that have used up their time, need medical care, and/or are too fragile for shelter life.

While activities such as Pick Me Up Carts, busy season games and volunteer activities are held throughout the year, the first major Anders fundraising event will be the annual “Hoops for Hope” NCAA basketball pool, which draws participation from clients, colleagues, referral sources and friends of the firm from all over the country.

In addition to Partners for Pets, other beneficiaries of the Anders Charity of Choice program have included the Saint Louis Crisis Nursery, Angels’ Arms, Shriners Hospitals for Children – St. Louis, Stray Rescue of St. Louis, Friends of Kids with Cancer, Basket of Hope, Young Friends of Habitat for Humanity, Nurses for Newborns, Girls on the Run, Lafayette Industries, KidSmart, Re-Building Together and Kids Under Twenty-One (KUTO). Anders has raised over $330,000 in the past 15 years.

Learn more about Partners for Pets.

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January 7, 2020

Selling Your Business? SBA Clarifies Change of Ownership Rules for PPP Loan Borrowers

Many businesses have received and benefitted from Paycheck Protection Program (PPP) loan funding during the pandemic. Many may also be applying for a second PPP draw under the recent passing of the Consolidated Appropriations Act, 2021. The rules for ownership changes and rules on loan forgiveness have continued to evolve. On October 2, the SBA published a Procedural Notice regarding “change of ownership” in the event that a PPP loan is still outstanding at the time of the sale of a business. It was obvious from the originally signed loan documents, that the sale of a business would be problematic while the loan was still outstanding. Borrowers and advisors have been anxiously awaiting clarification. Highlighted below are the primary areas that were defined.

How does the SBA define “change of ownership”?

The SBA defines a change of ownership in a business when one of the following occurs:

  1. At least 20% of the common stock or other ownership interest of a PPP borrower, including a publicly traded entity, is sold or otherwise transferred, whether in one or more transactions, including to an affiliate or an existing owner of the entity                                                                     
  2. The PPP borrower sells or otherwise transfers at least 50% of its assets, measured by fair market value, whether in one or more transactions
  3. The PPP borrower is merged with or into another entity

When is SBA approval required?

SBA approval is required on all sale transactions, with the exception of any of the following situations where only lender approval is necessary:

  1. The PPP loan is fully satisfied, which means the loan is either:
  2. Paid in full; or 
  3. Forgiven by the SBA (i.e., the SBA has remitted payment to the lender) and any unforgiven amounts are paid in full.
  • In a stock sale or merger:
  • A sale or transfer of less than 50% of the borrower’s common stock or other ownership; or
  • The PPP borrower completes a loan forgiveness application reflecting its use of all loan proceeds and submits it to the lender and puts in an interest-bearing escrow account controlled by the PPP lender funds equal to the outstanding balance of the PPP loan.
  • In an asset sale of 50% or more of the borrower’s assets, if the PPP borrower completes a loan forgiveness application reflecting its use of all loan proceeds and submits it to the lender and puts in an interest-bearing escrow account controlled by the PPP lender funds equal to the outstanding balance of the PPP loan.

What is the borrower required to do prior to the sale?

Prior to the closing of any change of ownership transaction, the PPP borrower must notify the lender in writing of the transaction and provide the lender with a copy of the relevant transaction documents necessary to effectuate the proposed transaction. The lender is required to submit certain documentation regarding the transaction to the SBA within five business days of the completion of the transaction.

Despite the occurrence of a change of ownership, the PPP borrower remains responsible for:

  1. Continued performance of all obligations under the PPP loan;
  2. Certifications made under the PPP loan application, including the certification of economic necessity; and
  3. Continued compliance with all other PPP loan requirements.

The PPP borrower continues to be responsible for obtaining, preparing, and retaining all required forms and documentation and providing these forms and documents to the PPP lender, servicer, or SBA upon request.

The new owners are liable for any unauthorized uses of PPP loan proceeds by the new owner.  If the new owner also had a PPP loan, the PPP loan funds must be segregated and properly allocated among the two borrowers.

Where do we go from here?

Although many questions were answered in this most recent guidance, there is much still that remains unanswered, including:

  • How can I speed up the process if pending M&A activity is imminent?
  • Who is responsible if SBA reviews a loan years later and nullifies some or all of the forgiveness?

Read the full SBA Procedural Notice. If you are contemplating buying or selling a business with outstanding PPP funds, open and upfront communication with your bank and/or advisors is critical prior to any transaction. To discuss your situation and recovery options, contact an Anders advisor below.

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