November 3, 2020

Blues Captain Leaves for Sin City: How State Income Taxes Played a Role in Alex Pietrangelo’s Departure

On January 3, 2019, no one could have predicted that the then St. Louis Blues captain, Alex Pietrangelo, would be hoisting the Stanley Cup at the end of the 2019 season. In early January 2019, the Blues were in last place in the NHL, but the team turned their season around with the help of the song “Gloria”. A little over a year later, Blues fans could not imagine Alex Pietrangelo wearing anything but a Blue Note as he headed towards unrestricted free agency. But in October 2020, the former Blues captain inked a seven-year, $61.6 million contract with the Vegas Golden Knights.

NHL Salary Cap Takes a Hit

It is presumed that one of the major sticking points in the Blues negotiation with Pietrangelo was the amount of signing bonuses included in any potential contract. The ongoing pandemic has limited the cash flow of many businesses throughout the world, and the NHL is not immune to that reality. Before the pandemic hit, the NHL salary cap was anticipated to increase substantially for the upcoming season, but the league decided to keep the salary cap flat for the foreseeable future. The flat salary cap put the Blues in a bind when it came to fitting Pietrangelo in under the salary cap for the upcoming season, which further complicated negotiations. In his deal with Vegas, he will receive $35 million of signing bonuses throughout the life of the seven-year contract, which likely has major tax benefits for the former Blue.

State Income Tax Comes into Play

Nevada is one of nine states that does not have any state income tax. Athletes’ are generally subject to a “jock tax” in states and cities in which they work.  The athletes’ salaries are commonly apportioned to various states and cities using the “duty days” method. This jock tax is levied by states and cities on athletes who play or practice while in town. Assuming Pietrangelo becomes a Nevada resident rather than remaining a Missouri resident, the structure of his contract provides major tax benefits. This means that half of Pietrangelo’s games will be allocated to Nevada, a no income tax state. In addition, signing bonuses are exempt from the Duty Day calculation provided certain criteria are met. Instead, signing bonuses are allocated to an athlete’s resident state. In this case, all of the $35 million in signing bonuses will be allocated to Nevada and not be subject to state income taxes. If he had remained a Missouri resident and signed a similar contact with the Blues, Pietrangelo’s signing bonus would result in Missouri state income taxes of roughly $1.9 million.

For professional athletes, tax compliance and planning can be an issue when it comes to filing in the proper tax authorities. The Anders Sports, Arts and Entertainment Group has the knowledge to help athletes with tax compliance and planning. Contact an Anders advisor below to learn more.

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October 29, 2020

Year-End Tax Planning for 2020: RMD Changes, Tax Law Proposals and Strategies to Consider

Being nimble has seemed like a requirement for all of 2020. We have needed to be nimble with our businesses, as we pivot product or service lines to deal with the COVID pandemic. We have needed to be nimble as Congress enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act relief efforts and additional guidance, requirements and implementation. It comes as no surprise that year-end tax planning will also require us to be nimble during our current economic and political environment. While our planning will evolve going into 2021, below we dig into things you can do now and year-end tax planning strategies to consider.

Take Advantage of Changes to Required Minimum Distributions

There have been two big changes to required minimum distributions (RMD) over the past 12 months. The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law on December 20, 2019. One aspect of the bill pushed back the age at which retirement plan participants need to take their RMDs, from 70½ to 72 years of age. This extra year-and-a-half can change the landscape of which source of income to support your lifestyle, as well as, potentially providing additional opportunities for ROTH conversions.

The second big change came with the CARES Act, which was signed into law on March 27th, 2020. One piece of this bill suspended the requirement of RMDs for the 2020 calendar year. This is a great opportunity to allow the qualified retirement account to continue to grow tax deferred.

Planning considerations:

  • Have you previously had large withholdings on your RMDs to cover your federal and state tax liabilities? Don’t forget to consider making quarterly estimated tax payments if you choose not to take your RMD in 2020.
  • Are you still planning on taking a distribution? Consider utilizing a qualified charitable deduction (QCD) to fund your charitable intentions. The distribution will not be included in income, but no additional charitable deduction is available. Typically, this strategy is still more tax advantageous.
  • Will your tax bracket significantly decrease without your normal RMD? Consider a partial ROTH IRA conversion to utilize the lower tax brackets. Additional details discussed below.

Be Aware of Proposed Tax Changes

Tax laws are always evolving at their own pace. In the current political environment, differences in tax policy are on the forefront of everyone’s mind. While it is completely uncertain when, or even if, tax law changes could be implemented, here are some current proposals on the horizon and strategies to keep in mind going into the end of the year.

  • Proposal of increasing the top individual tax rate back to 39.6% and the top corporate tax rate to 28%. The normal “defer income, accelerate expenses” may not be the best strategy depending on how everything plays out.
  • Proposal on increasing net long-term capital gains tax rate on individuals making over $1 million. The current top tax rate is 23.8% when considering the net investment income tax. The top rate under this proposal could be as high as 43.4%. Careful consideration should be taken when planning for the sale of securities and recognition of capital gains.
  • Proposal to change itemized deductions. This would likely eliminate the current $10,000 limit on state and local taxes, however, would also reinstate the limitation on itemized deductions for higher-income taxpayers. This would likely limit deductions to 28% for upper income individuals. Specific scenarios should be analyzed to determine if there is a better tax benefit under current law or proposed law when considering the timing of year-end charitable giving and fourth quarter state estimated tax payments. Many factors will come into play.
  • Proposal to change current gift and estate taxes. There are many different scenarios which could ultimately transpire: The estate tax exemption could be lowered from the current $11.58 million, to pre-Tax Cuts and Jobs Act of $5.5 million, or even lower.  There is also talk about raising the top estate tax rate from 40% to 45%, as well as the possibility of eliminating the step-up in basis to the beneficiary on inherited assets.  The time is now to re-visit estate plans and consider utilizing lifetime gift tax exemptions. 

Don’t Forget Traditional Year-End Strategies

While each individual scenario warrants specific recommendations and guidance, here are some traditional items to keep in mind before 2021.

  • Qualified Business Income (QBI), also known as the “20% Business Deduction”, is a large tax planning strategy. In order to optimize the QBI deductions, careful considerations need to take place to determine year-end bonuses or if considering accelerating or deferring income/expenses.
  • Consider contributing to 529 college savings plan. Some states may allow a deduction for contributions made in this calendar year. Missouri, for example, allows up to $8,000 per taxpayer to be contributed and deducted on their return. 
  • Consider ROTH IRA conversions to utilize lower tax brackets. Whether due to COVID, RMD suspension, or if you are just entering retirement, some individuals may find themselves in a unique situation of being in a lower than usual tax bracket. This is a prime opportunity to convert some of your traditional retirement account to a ROTH retirement account. Pay a little extra tax today but will have tax-free growth going forward.  
  • Revaluate payroll deductions. Before the last paycheck of the year, see if you should make any adjustments to your pre-tax benefits. Have you contributed enough to your retirement to maximize your company’s match? Also, if you are over 50, you are eligible for an additional $6,000 catch-up contribution. Have you maximized your health savings account (HSA)? If you are over 55, you are eligible for an additional $1,000 catch-up contribution.

While I’m sure many of us are ready to put 2020 behind us, there is still time to put some of these tax planning strategies in place before the end of the year. Contact an Anders advisor below to further discuss your tax planning options, or visit our COVID-19 Resource Center for more CARES Act considerations.

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October 13, 2020

How the Presidential Election Could Impact Your Taxes

As election season comes to a head, taxpayers across the country are wondering how their families and businesses could be impacted by the results. Both candidates have proposed their own versions and iterations of the tax law if the election works in their favor. Below we discuss the main provisions that would impact individuals and businesses and the points of each proposal.

Impacts on Individuals

Below are the major tax impacts on taxpayers based on each candidate’s proposal.

Impacts on Businesses

Below are the major tax impacts on businesses based on each candidate’s proposal.

Learn more about Qualified Improvement Property, Qualified Opportunity Zones or rules for Net Operating Leases.

Anders will be keeping up with tax impacts as a result of the presidential election and COVID-19. If you have any questions about year-end planning and how the tax proposals could impact you or your business, contact an Anders advisor below.  

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September 29, 2020

Net Operating Loss Carrybacks Offer a New Cash Flow Opportunity Under the CARES Act

The CARES Act has created many tax planning opportunities for individuals and businesses alike. One of these opportunities is the ability to carry back a net operating loss (NOL) that occurred in a taxable year beginning after December 31, 2017 and before January 1, 2021.

What is a net operating loss?

A net operating loss (NOL) occurs when a company has more allowable tax deductions than it has taxable income. NOLs reduce either past or future taxable income from loss carrybacks or carryforwards. In recent years, tax reform bills have altered the treatment of NOLs though the Tax Cuts and Jobs Act of 2017, and the more recently passed CARES Act.

What are the carryback benefits?

NOLs can now be carried back up to five years to fully offset a prior year’s taxable income resulting in a refund of income tax paid in that year. If choosing to take advantage of this opportunity, the losses must first be carried back to the earliest available year of income.

Since the loss can be carried back to years before the Tax Cuts and Jobs Act, refunds can be generated at a more favorable tax rate of up to 35%, rather than the more current 21% rate. These refunds have the potential to provide cash flow relief for many manufacturers.

How can I claim a refund for NOLs?

Depending on the year the loss incurred and date the return was filed will determine the best method to file a claim for refund. Businesses will be allowed to file Form 1139, Corporation Application for Tentative Refund, or file an amended corporate tax return. Individuals, trusts and estates can file Form 1045. If you have the option, Form 1139 will be processed faster, resulting in a quicker refund compared to filing an amended return.  Please refer to Notice 2020-26 for further filing information.

Our advisors are closely following COVID-19 relief efforts and will continue to publish insights to keep you informed about potential impacts and benefits. Visit our COVID-19 Resource Center for more resources. To discuss your situation and recovery options, contact an Anders advisor below.

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September 22, 2020

179D Tax Deduction Extended Through 2020 for Energy Efficient Building Improvements

Commercial building owners can now take advantage of the 179D tax deduction for energy efficient building upgrades through 2020. This deduction, which had been expired since the end of 2017, is for property placed in service between 1/1/2018 – 12/31/2020.  

Background on 179D

The 179D deduction helps incentivize energy efficient construction projects. This deduction was originally created as a temporary measure under the Energy Police Act of 2005 and was extended every year until it expired in 2017. A tax deduction of $1.80 per square foot that reduced the building’s total energy and power cost by 50% or more is available to owners of new or existing buildings who install the following:

  • Interior Lighting
  • Building Envelope
  • Heating/Cooling Ventilation
  • Hot Water Systems

Deductions of $0.60 per square foot are available for situations where expenditures partially qualify by meeting certain target levels or through an interim lighting rule issued by the IRS. For government-owned buildings, this deduction is transferable to the person or company responsible for the energy efficient design. Therefore, architecture and engineering firms that design government owned buildings may also claim this deduction when completing additional requirements.

New Legislation on 179D

Under the extender bill of 2019, the deduction is retroactively extended for tax years 2018, 2019 and available for 2020. Qualified buildings placed in service in 2018 and 2019 may be eligible to claim the 179D deduction.

Claiming 179D

Eligible building owners can claim the 179D deduction for up to $1.80 per square foot of the entire building for the installation of energy efficient systems into new or existing buildings. Taxpayers can now amend their 2018 tax return and apply the 179D deduction to their 2018 tax year.

The Anders Real Estate and Construction Group can help determine if your construction project would qualify for the 179D deduction as well as other tax credits and incentives. Contact an Anders advisor below to learn more.

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September 3, 2020

Using Form 990 to Market Your Not-for-Profit

While tax-exempt not-for-profit organizations don’t typically have federal tax liability, most are still responsible for filing an annual information return with the IRS. The IRS Form 990 is a public document that includes information about the organization’s mission, programs and financials. Not-for-profits can and should make their 990 work as a marketing tool to appeal to donors, grant makers and volunteers.

Why Your 990 Matters Beyond Taxes

Form 990 is publicly disclosed, so anyone can see it. You can use it as a marketing tool to educate readers about your cause and enhance your fundraising efforts. Many potential donors and volunteers will look at the 990 and use it to help decide whether to support an organization.

Who Looks at 990s Besides the IRS

Anyone can access and evaluate 990s, including:

  • Donors – They want to know their money will be put to good use, if it will make a large impact or go towards excessive overhead costs
  • Grant makers – Use 990s to learn more about your organization and programs and if it fits their criteria
  • Lenders – Need a snapshot of your operations and financial health
  • Potential board members – Looking to see if your mission and programs are something they believe deeply in and aligns with their values and priorities
  • Volunteers – Want information to confirm that your organization is something they want to dedicate their time to
  • Media – Could possibly examine it or post web links when writing about your organization

Let Program Service Descriptions Speak for You

The number one way to convey your organization’s message in the 990 is to create meaningful, detailed program service descriptions. Address what exactly your organization does and how you help. Be very specific and explain your programs as if the reader is not familiar with your organization at all. You can include statistics, such as how many people you served during the year, collective volunteer hours, or anything else that readers might find impressive. Avoid using technical terminology or jargon that a layperson wouldn’t understand.

The 990 is a very long form, so most readers might not make it half way through. Since these program descriptions are on page two of the 990, they probably won’t be missed, so it’s important to have the right information.

Below are a few more tips to make the most of your Form 990:

  • Update mission statement if necessary
  • Review your governance policies and adopt them if not already in place
  • Pay attention to the accurate allocation of expenses between program service, management & general and fundraising
  • Avoid unrelated business income. Some common traps include advertising income, rental income, public use of facilities

If your organization is required to complete a Form 990, it’s important to make sure this document is a good representation of your not-for-profit, as it could be the decision maker for funders and volunteers. Contact an Anders advisor below to learn how you can make the most of your 990, or learn more about how Anders serves not-for-profits.

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September 1, 2020

Christine M. Berzinas

September 1, 2020

How a CARES Act Correction to Qualified Improvement Property Can Increase Cash Flow for Bars and Restaurants

After the Tax Cuts and Jobs Act (TCJA) of 2017 brought some unintended consequences to the tax treatment of qualified improvement property, a long-awaited change has come that could provide an immediate cash flow opportunity for restaurants, bars and the hospitality industry as a whole. Businesses that have made any qualified improvements such as ceilings, installation of drywall, interior doors, electrical or plumbing during the last two years can benefit from a technical correction made by the Coronavirus Aid, Relief and Economic Security (CARES) Act.

While the pandemic has had a particularly difficult effect on those in the restaurant and hospitality industry, this new tax savings opportunity could go a long way in helping those within the industry recoup some of the income lost during this time.

Bonus Depreciation Eligibility

Before COVID-19, many restaurants, breweries and bars made improvements to their nonresidential buildings during the last couple of years, such as updating a lobby, kitchen, or distillery. Whether these improvements were remodels, new signage or drive thru windows, these large expenditures were most likely then met with a much higher tax liability than anticipated for 2018 and 2019. The CARES Act provided a technical correction that most have been waiting for since the end of 2017. The CARES Act treats Qualified Improvement Property (QIP) as 15-year property, resulting in taxpayers being eligible to take 100% bonus depreciation on QIP rather than the previously stated depreciation over 39 years. This change is retroactive to January 2018.

Taking Advantage of the New QIP Rules and Retroactive Benefits

It’s important for restaurants and all businesses who have yet to file their 2019 return to re-evaluate all potential QIP for this tax saving opportunity.

Taxpayers who have filed their 2018 and/or 2019 tax returns, and had placed  QIP in service, may consider amending their 2018/2019 return to treat any QIP as 15-year property and eligible for bonus depreciation. Another option to filing an amended return, taxpayers may consider filing Form 3115, Application for Change in Accounting Method, with their 2019 tax return (if not yet filed) or their 2020 tax return and claim the previously missed depreciation as a 481(a) adjustment. This change in accounting method will allow taxpayers to “catch up” all missed QIP depreciation from the beginning of 2018 to current.

Our advisors are closely following COVID-19 relief efforts and will continue to publish insights to keep you informed about potential impacts and benefits. Visit our COVID-19 Resource Center for more resources. To discuss your situation and recovery options, contact an Anders advisor below.

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August 13, 2020

Proposed Regulations Define “Real Property” for Like-Kind Exchanges

The IRS released proposed regulations defining property that can qualify for like-kind exchanges under changes imposed by the Tax Cuts and Jobs Act (TCJA). Prior to the TCJA, some exchanges of personal property, such as licenses, aircraft and equipment would qualify for a 1031 like-kind exchange. After the passing of the TCJA, only real property qualifies for exchanges. These proposed regulations offer some clarity on the definitions of property in 1031 exchanges.

Real Property for Like-Kind Exchanges

Under the proposed regulations, real property includes:

  • Land and improvements to land
  • Unsevered crops and other natural products of land
  • Water and air space superjacent to land

Land and Improvements

“Improvements to land” is a broad statement and is broken down as an inherently permanent structure and its structural components. Inherently permanent structures include buildings or other structures that are permanently affixed to real property for an indefinite period of time.

A structural component is any asset that is a constituent part of an inherently permanent structure. Structural components only qualify as real property if the taxpayer holds interest in both the component and physical space of the inherently permanent structure.

The proposed regulations list additional structural components and provide factors for determining whether components are structural components. These tests include:

  1. The manner in which the asset is affixed to the real property
  2. Whether the asset is designed to be removed or remain in place
  3. The damage that removal of the asset would cause to the item or real property
  4. Any circumstances that suggest the asset was not affixed for an indefinite period
  5. The time and expense required to move the asset
  6. Whether the component is listed during the construction of the building structure

Unsevered Crops and Natural Products

The proposed regulations state that unsevered natural products are generally real property. These products include crops, plants, timber, mines, wells and other natural products. These items are no longer considered real property when they are removed from the land.

Intangible Assets

An intangible asset is considered real property as long as the asset:

  • Gets its value from the real property
  • Is inseparable from the property
  • Does not create income other than consideration for the use or occupancy of space

An intangible asset as real property would be a license or permit that is used solely for the use or occupation of land or permanent structure and is in the nature of the lease or ownership.

If you are considering selling your property and would like to further discuss what property is qualifying under the proposed regulations, contact an Anders advisor below. Learn how Anders works with the real estate and construction industries.

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August 10, 2020

How President Trump’s Executive Order Affects Payroll Taxes for Employees

On August 8, 2020, President Trump signed an executive order to defer certain payroll tax obligations to provide additional COVID-19 relief. The order directs the Secretary of the Treasury to “use his authority to defer certain payroll tax obligations with respect to the American workers most in need”.

Details of the Payroll Tax Deferral

This payroll tax deferral applies to employee wages paid between September 1, 2020 and December 31, 2020, to those generally making less than $4,000 biweekly. The deferral applies to the withholding, deposit and payment the 6.2% employee Social Security tax, not the Medicare tax. The CARES Act did have a payroll tax deferral, but it was for the employer, NOT the employee.

What You Should Do

It’s important to note that the President is calling for a payroll tax deferral, not forgiveness, at least at this time. The Treasury is exploring avenues to eliminate the obligation to pay the taxes deferred.

We advise taxpayers to wait for more guidance and/or CARES Act 2.0 to come out before making any plans related to the effective date.

Our advisors are closely following COVID-19 relief efforts and will continue to publish insights to keep you informed about potential impacts and benefits. Visit our COVID-19 Resource Center for more resources. To discuss your situation and recovery options, contact an Anders advisor below.

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