February 25, 2020

Top 8 Changes to the Missouri Historic Preservation Tax Credit Program

The Missouri Department of Economic Development (DED) enacted a variety of new rules and guidelines for Historic Preservation Tax Credits. Real estate developers looking to utilize historic tax credits need to be aware of these regulations before applying. The following highlights eight of the most notable new and expanded provisions of the Missouri Historic Preservation Tax Credit Program as of March 31, 2019.

  1. Application Cycles: Two application cycles will occur each year. Applications will be accepted in April and October.
  2. Project Financing: All applications receiving preliminary approval on or after July 1, 2019, must submit evidence of project financing.
  3. IOI Definition: The definition of Identity of Interest or Related Party (IOI) has been expanded. The expanded definition revolves around relationships with stockholders of participating entities. Added care must be taken in evaluating such relationships.
  4. Non-QRE and QRE Listings: Listings of Non-Qualified Rehabilitation Expenditures (Non-QREs) and Qualified Rehabilitation Expenditures (QREs) have been expanded.
  5. Phased Project Costs: Phased Projects, as defined by the DED, must submit an audit for each phase, regardless of each project phase’s cost.
  6. Soft Costs: Accrued “Soft Costs” of a project, such as developer fees, legal fees, and contractor profit, can be considered for eligibility only if a related agreement or contract on the prescribed DED form has been submitted at initial application, and approved by DED. Such agreements or contracts must provide for payment within five years of project completion for developer fees, and within six months for all other Soft Costs.
  7. Cost Caps: New cost caps have been established for developer fees and contractor profit. Developer fees are now capped at 12% of eligible costs, less excluded items, and contractor profit is limited to 6% of eligible costs. These limits had been 20% and 10%, respectively, under prior rules. In addition, contractor overhead, including general requirements, is now limited to a combined 4% of eligible costs.
  8. Additional Credits: If, after audit review by DED, eligible QREs are greater than the amount approved under the preliminary application, additional credits can be applied for.

The above points are among the key provisions of the Missouri Historic Preservation Tax Credit Program. With regular changes to the program, learn how to maximize the value of Historic Preservation Tax Credits. For more information on utilizing historic tax credits, contact an Anders advisor.

All Insights

February 18, 2020

9 Warning Signs You’re a Hub-and-Spoke Business Owner

If you were to draw a picture that visually represents your role in your business, what would it look like? Are you at the top of a traditional Christmas-tree-like organizational chart, or are you stuck in the middle of your business, like a hub in a bicycle wheel?

Pitfalls of Being the Hub in Your Business

A hub-and-spoke model is only as strong as the hub. The moment the hub is overwhelmed, the entire system fails. Acquirers generally avoid hub-and-spoke managed businesses because they understand the dangers of buying a company too dependent on the owner. Below we describe nine warning signs of being a hub-and-spoke owner and some suggestions for pulling out of the middle of your business.

1. You sign all of the checks

Most business owners sign the checks, but what happens if you’re away for a couple of days and an important supplier needs to be paid? Consider giving an employee signing authority for checks up to an amount you’re comfortable with, and consider changing the mailing address on your bank statements so they are mailed to a P.O. Box, not the office. That way, you can review all signed checks and make sure the privilege isn’t being abused.

2. Your cell phone minutes are heavily weighted to employees

If your employees constantly need your assistance, it will show up in your cell phone activity because staff will be calling you to coach them through problems. Ask yourself if you’re hiring too many junior employees. Sometimes people with a couple of years of industry experience will be a lot more self-sufficient and only slightly more expensive than the greenhorns.

3. Your revenue is flat when compared to last year’s

Flat revenue from one year to the next can be a sign you are a hub in a hub-and-spoke model. Like forcing water through a hose, you have only so much capacity. No matter how efficient you are, every business dependent on its owner reaches capacity at some point. Consider narrowing your product and service line by eliminating technically complex offers that require your personal involvement, and instead focus on selling fewer things to more people.

4. Your vacations are spent working

If you spend your vacations dispatching orders or answering emails from your cell phone, it’s time to cut the tether. Start by taking one day off and seeing how your company does without you. Build systems for failure points. Work up to a point where you can take a few weeks off without affecting your business.

5. You spend more time negotiating than a union boss

If you find yourself constantly having to get involved in approving discount requests from your customers, you are a hub. Consider giving front-line, customer-facing employees a band within which they have your approval to negotiate. You may also want to tie salespeople’s bonuses to gross margin for sales they generate so you’re rewarding their contribution to profit, not just chasing skinny margin deals.

6. You close up every night

If you’re the only one who knows the close-up routine in your business, such as counting the cash, locking the doors, setting the alarm, then you are very much a hub. Write an employee manual of basic procedures for your business and give it to new employees on their first day on the job.

7. You know all of your customers by name

It’s good to have the pulse of your market, but knowing every single customer by first name can be a sign that you’re relying too heavily on your personal relationships being the glue that holds your business together. Consider replacing yourself as a rain maker by hiring a sales team, and as inefficient as it seems, have a trusted employee shadow you when you meet customers so over time your customers get used to dealing with someone else.

8. You get the tickets

Suppliers wooing you by sending you free tickets to sports events can be a sign that they see you as the key decision maker in your business for their offering. If you are the key contact for any of your suppliers, you will find yourself in the hub of your business when it comes time to negotiate terms. Consider appointing one of your trusted employees as the key contact for a major supplier and give that employee spending authority up to a limit you’re comfortable with.

9. You’re constantly Cc’ed on emails

Employees, customers and suppliers constantly cc’ing you on e-mails can be a sign that they are looking for your tacit approval or that you have not made clear when you want to be involved in their work. Start by asking your employees to stop using the cc line in an e-mail; ask them to add you to the “to” line if you really must be made aware of something – and only if they need a specific action from you.

Getting yourself out of the day to day business processes can be tricky. The Anders Business Transition Planning Services Group can work with you on a personalized plan to help make transitioning your business easier when the time comes. Contact an Anders advisor to start the process.

All Insights

February 14, 2020

Anders Named 2020 Best Places to Work Finalist by the St. Louis Business Journal

Anders has been named one of the 2020 Best Places to Work in the Large Employer Category by the St. Louis Business Journal. Every year, more than 200 nominations are submitted for the Best Places to Work list and only 75 made the cut in 2020.

The Best Places to Work finalist list is determined by an employee survey administered by Quantum Workplace. St. Louis companies and their employees completed the survey, which used its own algorithm to measure communication, management structure, benefits, teamwork and several other factors at each firm. The companies were grouped by size and ranked to determine the most employee-friendly workplaces in St. Louis.

The March 13 edition of the St. Louis Business Journal will showcase the winners in each category. View the full list of 2020 Best Places to Work Finalists. 

All Insights

February 11, 2020

Overcoming Obstacles for Utilizing the QBI Deduction

As we enter year three of the qualified business income (QBI) era, if you have not yet taken steps to maximize your deduction under this tax law – the time is now. Over the past two years, we have seen unique situations and challenges of being able to take the QBI deduction due to wage limitation and guaranteed payment restrictions. Below we dive into how to calculate the QBI deduction and ways to overcome barriers to taking advantage of the deduction.

Calculating QBI

As a reminder, the QBI deduction is equal to 20% of earned income for sole proprietorships, S Corporations and partnerships.  For 2020, this general rule applies to single filers with taxable income below $163,300 and married taxpayers with taxable income below $326,600.

When taxable income exceeds these thresholds, the QBI deduction is limited to the lesser of:

  • 20% of taxable income less net capital gains, or

The greater of:

  • 50% of the taxpayer’s allocable portion of W-2 wages deducted by the business, or
  • 25% of the taxpayer’s allocable portion of wages deducted by the business plus 5% of the taxpayer’s allocable portion of unadjusted basis of the business’s income-producing property.

There are additional limits for specified service trades or businesses (SSTBs) that operate in the following areas: healthcare, law, accounting, actuarial science, performing arts, athletics, consulting, financial services and brokerage services. The QBI deduction for these SSTBs phases out for single taxpayers when taxable income is between $163,300 – $213,300 and for married taxpayers when taxable income is between $326,000 – $426,000.

Wage Limitation Restrictions

In our experience, many small businesses are having their QBI deduction reduced or eliminated due to the 50% of wages limitation. This is most common for sole proprietorships or partnerships with little or no employees.  A simple example illustrates the issue clearly:

  • A married taxpayer with business income from a sole proprietorship or partnership with taxable income of $500,000 (all from a qualified business) and no allocable W-2 wages would receive a $0 QBI deduction.
  • That same taxpayer, taxed as an S Corporation, with the same level of taxable income split between $250,000 of wages (paid to themselves) and $250,000 of K-1 income would be entitled to a $50,000 QBI deduction ($250,000 x 20%).

In this situation, the QBI deduction for a taxpayer in the 35% federal tax bracket would provide $17,500 of tax benefit.  Assuming $250,000 is a reasonable level of compensation for this taxpayer, additional benefits of being tax as an S corporation in this situation include $9,500 of payroll and Medicare surcharge tax savings. To achieve similar tax savings for your business in 2020, you would need to make an election to be taxed as an S Corporation prior to the March 15, 2020 due date.

Guaranteed Payments

Another QBI hang-up for many partnerships is that guaranteed payments paid to partners are not considered to be allocable wages for QBI purposes.  Additionally, guaranteed payments paid to a partner do not qualify as QBI for that partner. If your partnership is making guaranteed payments, a few simple tweaks to your partnership agreement and partner compensation structure can avoid this trap and result in a windfall of tax savings.

Please contact an Anders advisor to discuss these and other strategies to maximize your QBI deduction and minimize your tax burden.

All Insights

February 7, 2020

Choosing the Best Independent Auditor for Your Company

With constant reports of fraud in the news, companies are increasingly turning to independent auditors for additional assurance about their financial statements and internal control procedures, even though there is no external requirement for such assurance. Banks and investors are also requiring more companies to be audited. With these concerns and requirements, how do you evaluate and choose a potential auditor?

1) Auditor Independence

The first hurdle would be to examine the auditor’s independence. The auditor is required to be independent under guidelines established by the AICPA, in order for them to be objective and have professional skepticism.

2) Auditor Experience

Next, the company should evaluate the experience and special skills of the audit team and their experience in the company’s industry. Without industry-specific experience, auditors will not understand nuances of the company, regulations, and specific accounting requirements. Without these, the auditor may not be able to provide a quality audit or make beneficial recommendations to the company. During conversations with a potential auditor, the company should expect the auditor to ask questions specific to the industry and its environment to display their knowledge of the industry.

3) Auditor Resources

Finally, the company can consider the resources made available to the auditor, such as professional and membership organizations. Professional and membership organizations grant the auditor access to specialized expertise and information.

In order to avoid working with an inexperienced auditor, the company should obtain several bids for the audit, check professional references, and research the auditor firm’s reputation within the industry. If you’re interested in learning about the audit process at Anders, view our Audit and Assurance services or submit an RFP.

All Insights

February 4, 2020

2020 Payroll Tax and Withholdings Update

In 2020, there are several updates to various payroll tax withholding limits, including Social Security tax and 401(k) elective deferrals. For employees, minimum wage is increasing in Missouri and Illinois. Below we highlight any payroll tax and withholding updates or consistencies for 2020 that employers and employees should be aware of.

Social Security Tax Withholding

For 2020, the Social Security tax wage base for employees will increase to $137,700. The Social Security tax rate for employees and employers remains unchanged at 6.2%. The combined Social Security and Medicare tax rate for employees and employers remains unchanged at 7.65%. Medicare tax will also apply to all wages in excess of $137,700 and will be imposed at a rate of 1.45% for both employees and employers.

The earnings base for self-employment tax will increase to $137,700 with an effective rate of 15.3%. Medicare tax will also apply to all self-employment income in excess of $137,700 at an effective rate of 2.9%. No self-employment tax is payable if annual net earnings are less than $400.

Additional Medicare Tax Withholding

All wages currently subject to Medicare tax are subject to an additional 0.9% Medicare tax withholding when wages exceed $200,000. There is no employer share of additional Medicare tax.

Federal Unemployment Tax (FUTA)

For 2020, the maximum taxable wage base remains unchanged at the first $7,000 of wages. The tax rate will remain at 6% with the credit for payment of state unemployment tax remaining at 5.4%. This results in the effective rate remaining at 0.6%.

State Unemployment Tax (SUTA)

The taxable wage base for Missouri will decrease to $11,500 in 2020 and Illinois will change to $12,740. Each state will issue your new contribution rate, effective January 1, 2020 based on your employment history. If advantageous, Missouri permits a voluntary payment to reduce the rate as long as the payment is received by January 15, 2020.

Both states require employers, who no longer have unemployment tax liability, to formally close their unemployment accounts. Severe penalties accrue if quarterly reports are not filed and accounts are not formally closed – even if no unemployment tax liability exists.

Information Returns

Failure to file accurate and timely 1099 forms continues to carry severe penalties of $50 to $270 per 1099. The penalty for intentional disregard of filing requirements is at least $540 per information return with no maximum penalty. Accordingly, we are reminding you of the filing requirements for payments made during 2019.

Among other requirements, an entity must report on Form 1099 payments of $600 or more to non-corporate “service providers”. This includes rent, fees, commissions, prizes, awards or any other form of remuneration paid to non-employees. An example would be a consultant who is not incorporated. Payments made for legal services must be reported even if the payment is made to the attorney’s professional corporation. Any dividend or interest payment to a non-corporation of $10.00 or more must be reported to the Internal Revenue Service (IRS) and the recipient.

The 2019 Form 1099 must be given to the recipient and sent to the IRS, using either paper or electronic filing procedures, by January 31, 2020, when you are reporting non-employee compensation payments in box 7. For payments other than box 7 non-employee compensation, the due dates to the IRS are February 28, 2020, if you file on paper or March 31, 2020, if you file electronically, but the due date to the recipient remains January 31st.

Taxpayers are asked to certify the filing of Form 1099 in conjunction with filing their annual income tax returns.

Minimum Wage

The Missouri minimum wage will increase to $9.45 per hour on January 1, 2020.

The Illinois minimum wage will increase to $9.25 per hour on January 1, 2020 and $10.00 on July 1, 2020.

Employees under the age of 20 can continue to be paid $4.25 per hour during their first 90 consecutive calendar days of employment with an employer, except where a higher state or local minimum wage standard applies. Employers of “tipped employees” must comply with minimum wage laws, but can claim a tip credit against their minimum wage obligation.

Form W-4

A Form W-4 on which an employee claims exemption from withholding legally expires February 15th of the year after it is filed. Remind employees who claimed exemption from withholding on their 2019 Form W-4, the exemption expires and they will need to file a new 2020 Form W-4 on or before February 15, 2020. Form W-4 is available at https://www.irs.gov. Forms W-4 must be available for inspection by an IRS employee if requested.  Employers may receive requests from the IRS requiring submission of a copy of Form W-4 for one or more employees.

Missouri Form W-4

Form MO W-4 allows employees to claim the same allowances as on the Federal Form W-4. Employees should review the Form MO W-4 to ensure correct withholdings. The employer must send a copy of Form MO W-4 to the Department of Revenue within 20 days after any NEW employee completes the form. This information is being used to enforce the state’s child support laws. The forms are available at http://dor.mo.gov/forms/.

Unsubstantiated Business Expenses or Advances

An employee is required to substantiate expenses to an employer under an accountable plan and any amount exceeding the amount substantiated must be returned to the employer.

Unsubstantiated amounts must be reported as Form W-2 (and FICA) income. In a non-accountable plan, all expense payments to employees are treated as wages.

Tax Deposits

The IRS has two deposit schedules—monthly and semi-weekly—for determining when to deposit Social Security and Medicare taxes and withheld federal income tax. The required schedule is determined by the employer’s tax liability during a “look-back” period (July 1 to June 30 of the previous year). Employers with less than $50,000 of deposit liability during the “look- back” period are assigned a monthly schedule and will be required to make a deposit on or before the 15th of the following month.

Employers who report $50,000 or more in total employment tax liability during the “look-back” period will be designated as semi-weekly depositors. For semi-weekly depositors, the due date depends on when wages are paid. For paydays on Wednesday, Thursday, or Friday, the deposit is due on or before the following Wednesday. For paydays on Saturday, Sunday, Monday, or Tuesday, the deposit is due on or before the following Friday.

Accumulated federal withholding, Social Security and Medicare taxes of $100,000 or more in one single day must be deposited the next business day, whether you are a monthly or semi-weekly schedule depositor. If you are a monthly schedule depositor and accumulate a $100,000 tax liability on any day, you become a semi-weekly schedule depositor on the next day and remain so for the rest of the calendar year and for the following calendar year.

Electronic Federal Tax Payment System (EFTPS)

Employers must make deposits electronically. If your required tax deposits are not made via EFTPS, a penalty of 10% of the taxes deposited will be incurred. The IRS has begun enforcing penalties for non-compliance. If you have not enrolled in the EFTPS program, please contact us immediately.

Social Security Benefits

You can continue to earn income while receiving full Social Security retirement benefits, provided your earnings do not exceed certain limitations. The 2020 yearly earnings ceiling for individuals who have not reached normal retirement age will increase to $18,240. Benefits of $1.00 will be lost for every $2.00 earned in excess of the ceiling.

For recipients who reach normal retirement age in 2020, the earnings limit is $48,600 until the month the individual reaches normal retirement age. Benefits of $1.00 will be lost for every $3.00 earned in excess of the ceiling. Once you reach normal retirement age, you can collect full benefits, regardless of the amount of your earnings.

Standard Mileage Rate

The standard mileage rate for 2020 will be 57.5 cents per mile for business travel. The 2020 rate for medical travel and moving costs will be 17 cents per mile. The charitable mileage rate will remain at 14 cents per mile.

Earned Income Credit

Each employer is required to notify any employee who has not had income tax withheld from wages and who has not claimed to be exempt from withholding that they may be eligible for the earned income credit. The notice must be given by hand or delivered by first class mail within a week, before or after the Form W-2 is furnished, or included with the Form W-2. The notification must contain all information described in Notice 797 from the IRS.

Pension Distribution Withholding Rules

If an employee does not elect a direct rollover (a trustee to trustee transfer), the employer must withhold federal income tax from the distribution at a 20% rate. The withholding is required even if the employee executes the rollover personally. The rules contain some exceptions to the general rule stated above. Please contact us to discuss these rules in greater detail if a pension distribution is forthcoming.

Nanny Tax Threshold

The 2020 annual earnings threshold above which an employer is required to pay FICA taxes and issue Form W-2 to domestic workers will be $2,200. Form W-2 may not be issued to a household employee below this threshold amount, however, the wages are subject to federal unemployment tax when more than $1,000 is paid to all household employees in any quarter of the year or the previous year.

Employers may have to satisfy their personal tax obligations by either increasing wage withholding or making estimated tax payments to prevent the application of underpayment penalties.

401(k) Elective Deferral Limits, SEP and SIMPLE Plan Thresholds

The limitation on 401(k) elective deferrals in 2020 will increase to $19,500. The catch-up contribution limit for employees aged 50 and over who participate in the 401(k) will increase to $6,500.

The compensation an eligible employee must have to be a SEP participant remains unchanged at $600. With a SEP IRA, an employer can contribute up to 25% of an employee’s gross annual salary or $57,000, whichever is less, in 2020; increase of a limit of $56,000 in 2019.

The maximum employee salary reduction contribution to a SIMPLE plan will increase to $13,500 in 2020. The catch-up contribution limit for individuals aged 50 and over who participate in the SIMPLE plan remains unchanged at $3,000.

New-Hire Reporting Program for Missouri and Illinois

All employers must report information about any new employee to the appropriate state agency within 20 days of their date of hire. (This is a federal regulation, and states may establish more stringent reporting requirements). The new-hire reporting regulations were enacted to help state agencies enforce child support orders.

Your new-hire reports must contain the employee’s name, address, and Social Security number as well as your company’s name, address, and federal identification number. To comply, you can file a Form W-4 or an equivalent form. In Missouri, the penalty for non-compliance is $25, or if the failure is the result of a conspiracy between the employer and the employee, the fine will be $350. In Illinois, the penalty for non-compliance is $15.

You can mail new hire reports on paper, or on magnetic media, report by fax, or file online. For personnel employed in multiple states, you may choose one state where you have employees and report all new hires in that state.

Contact an Anders advisor with any questions on how these amounts affect you.

All Insights

Keep up with Anders

Want to keep up with all the latest insights from Anders? Subscribe and receive the information that matters to you.

  • This field is for validation purposes and should be left unchanged.