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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June 23, 2020

Paying Too Much in Taxes? Here are Common Expense Deductions Startups Miss

Many profitable companies, including startups, are paying more in taxes than they should solely because they are not accounting for all expenses that they are legally allowed to deduct, including home office, internet, cell phone and car expenses. Understanding how to properly record and categorize expenses, and differentiate between business and personal expenses is key to minimizing tax liability.

Record Expenses When They Occur

Keeping track of what your business spends money on is hard enough, so do not wait until the end of each month or even the end of the year to try and go back and remember what you spent and when. In the end, you will probably end up forgetting about many expenses that were incurred.

If you are unable to record the expenses right away, at a minimum, you should at least save the receipts so they can be used to help you go back and record your transactions. With online banking making it easier to access transactions, many times we can see where we purchased something, but we need the underlying receipt to give us more details on the transactions. Additionally, under audit, the IRS will ask for receipts to support the expenses you are taking. Then at the end of each month, make sure you reconcile your cash account to your bank statement to make sure there are not any discrepancies.

Categorize Expenses

Being able to categorize expenses into categories can save you time and money in the long run. If you give all the receipts that your company had over the year, and ask your CPA to prepare your taxes, it is going to take them a lot longer than if you had them categorized. Once all the expenses are sorted into different categories your CPA will review and determine if all the expenses are deductible. One thing to note: if there are expenses that you are not sure how to categorize, most accounting systems have an “Ask your accountant” account which could be used as a placeholder until you can discuss those transactions in more detail with your advisor.

Know What Expenses Can be Taken

Having an understanding as to what expenses you can take in your business is also very important. Almost all expenses that occur in a business for it to function can be used as an expense, but your CPA can determine whether these expenses are fully, partially, or completely non-deductible under current tax law. Many people understand the basic ideas of what can and what cannot be taken against their company’s income, such as advertising, employee wages and compensation, rent, repairs, legal services, supplies, taxes and more, but there are many other expenses that are overlooked each year. A few of these expenses are listed below.

Home Office

There are a few different ways to calculate your home office deduction using the simplified or regular method, but under each method there are a few things you do need to make sure you have documented in order to take a deduction:

  1. You must regularly use part of your home exclusively for conducting business and not for personal use.
  2. This area in your home must also be considered your “regular” place of business. What this means, is that you cannot have another office/workspace that you could go to in order to perform your work. If you do have a space at the office, that automatically excludes you from this deduction.

Internet/WIFI

If you have internet or WIFI in your office building, you can write off this expense. In addition, if you use your home internet for your business and for personal use, you can potentially take the percentage of internet used for business as an expense, but you do need to determine how much of that expense relates to personal use.

Cell Phones

The same rules that apply to your internet/WIFI, also apply to cell phones. If it is used exclusively for business, then all expenses can be deducted. If it is only used partially for business and the rest for personal, the percentage that is used for business purposes can be taken as an expense.

Car/Auto Expenses

Any vehicles used/purchased for business can also be deducted against your income. Similar to the home office deduction, there are two methods in order to take a vehicle deduction: the mileage and actual methods. Your CPA can review and evaluate which deduction will be best for you given your individual situation, but in order for them to determine that, you should keep track of the following information:

  1. Fuel cost
  2. Business miles driven
  3. Personal miles driven
  4. License fees
  5. Insurance
  6. Repairs
  7. Anything else that is used to keep the vehicle running for your business

Travel

When traveling for business, it is important to keep track of all expenses that you have. A wide variety of expenses during travel are deductible to a business, anywhere from how you got there, such as bus, flight or train, to what you ate, to what means of transportation you used while you were there could all potentially be deductible on the business level.

As we discussed, the key to deducting expenses is to make sure you are keeping receipts and recording transactions in a timely manner, so you do not miss anything. You want to make sure you over document and ask questions if there are any expenses you are not sure about. If you have any questions about if something qualifies as a deductible business expense, contact an Anders advisor

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April 14, 2020

IRS Defers Employment Tax Deposits and Payments Through 2020

The IRS recently released guidance on the CARES Act employment tax deposit deferral. Below are the highlights of the deferral, including eligibility, timeline and use with other incentives.

Deferral Eligibility

The CARES Act allows employers to defer deposits and payments of the employer’s portion of social security taxes. The payroll tax deferral period is from March 27, 2020 and ending December 31, 2020. This deferral is automatic and no election is required to be made.

The ability to defer deposit and payment of the employer’s share of social security tax applies to all employers, not just employers entitled to paid leave credits and employee retention credits. Self-employed individuals may also take part in the deferral with the same timeline and conditions.

It’s important to note that employers that received a Paycheck Protection Program (PPP) loan may not defer the deposit and payment of the employer’s share of social security tax that is otherwise due after the employer receives a decision from the lender that the loan was forgiven. Employers who have received a PPP loan that has not yet been forgiven are still eligible for the deferral.

Deposit Timeline

The deferred deposits of the employer’s share of social security tax must be deposited by the following dates to be treated as timely and avoid a penalty:

  • On December 31, 2021, 50% of the deferred amount; and
  • On December 31, 2022, the remaining amount.

Combining Incentives

This deferral can be used along with paid leave tax credits found in the Families First Coronavirus Relief Act and the employee retention credit in the CARES Act. The employer first determines the amount of the deferral of the social security taxes before taking into consideration amounts for the paid leave credit and the employee retention credit, advance payments, or any refunds with respect to these credits.

Our advisors are closely following COVID-19 relief efforts and will continue to publish insights to keep you informed about potential business impacts and benefits. Visit our COVID-19 Resource Center for more news, tools and insights you need to know in these uncertain times.

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March 20, 2020

IRS Extends Federal Tax Filing Deadline to July 15 in Response to COVID-19

The IRS has officially extended the federal income tax filing and payment deadline from April 15 to July 15, 2020 as part of relief efforts around the COVID-19 pandemic. All American taxpayers and businesses will have three additional months to file their federal income tax returns for the 2019 tax year. Taxpayers who are ready to file are encouraged to still file by April 15, especially those anticipating refunds.

The IRS strongly encourages people to file their tax returns electronically and choose direct deposit for faster refunds. Filing electronically reduces tax return errors as the tax software does the calculations, flags common errors and prompts taxpayers for missing information. More information on the filing and payment deadline extension can be found on the IRS website.

While this covers federal income tax filing, many states are following suit, including Missouri. Find out if your state has extended their filing deadlines.

Anders is here to help during these uncertain times. Contact an Anders advisor to discuss your specific tax situation or read other updates around COVID-19.

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March 10, 2020

Protect Yourself Against Tax-Related Identity Theft with a New Tool from the IRS

It’s crunch time for filing individual tax returns, which means tax-related identity theft is on the rise. Each year, more and more scammers plan to steal personal information of taxpayers to file a fraudulent return or claim a refund. The IRS is helping combat this growing problem by launching an Identity Theft Central page on their website with tips and tools to protect you and your family from identity theft this tax season.

How do I know if I’m a victim of tax-related identity theft?

You may not know you’re a victim of identity theft until you’re notified by the IRS of a possible issue with your return, but it’s important to be proactive. Here are some warning signs that someone is filing a fraudulent return on your behalf:

  • You get a letter from the IRS about a suspicious tax return that you did not file.
  • You can’t e-file your tax return because of a duplicate Social Security number.
  • You get a tax transcript in the mail that you did not request.
  • You get an IRS notice that an online account has been created in your name.
  • You get an IRS notice that your existing online account has been accessed or disabled when you took no action.
  • You get an IRS notice that you owe additional tax or refund offset, or that you have had collection actions taken against you for a year you did not file a tax return.
  • IRS records indicate you received wages or other income from an employer you didn’t work for.

How does the IRS help prevent tax-related identity theft?

The Identity Theft Central page on the IRS website is full of information, with videos and resources around protecting your personal information and how the IRS combats identity theft. The IRS provides guidance on how to take action if you are an identity theft victim and reminds taxpayers that the IRS will NEVER:

  • Initiate contact with taxpayers by email, text or social media to request personal or financial information
  • Call taxpayers with threats of lawsuits or arrests
  • Call, email or text to request taxpayers’ Identity Protection PINs

Seeing the warning signs and knowing the resources available are key to keeping you and your family safe against identity theft. Visit the Identity Theft Central page on the IRS website for more information.

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March 5, 2020

Nathan P. Stonner

March 5, 2020

Joshua L. Snyder

March 5, 2020

Christopher D. Shamel

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