Work Opportunity Tax Credit extended through 2020

If you’re a business owner, be aware that a recent tax law extended a credit for hiring individuals from one or more targeted groups. Employers can qualify for a valuable tax credit known as the Work Opportunity Tax Credit (WOTC).

The WOTC was set to expire on December 31, 2019. But a new law passed late last year extends it through December 31, 2020.

Generally, an employer is eligible for the credit for qualified wages paid to qualified members of these targeted groups: 1) members of families receiving assistance under the Temporary Assistance for Needy Families program, 2) veterans, 3) ex-felons, 4) designated community residents, 5) vocational rehabilitation referrals, 6) summer youth employees, 7) members of families in the Supplemental Nutritional Assistance Program, 8) qualified Supplemental Security Income recipients, 9) long-term family assistance recipients and 10) long-term unemployed individuals.

Several requirements

For each employee, there’s a minimum requirement that the employee has completed at least 120 hours of service for the employer. The credit isn’t available for certain employees who are related to the employer or work more than 50% of the time outside of a trade or business of the employer (for example, a maid working in the employer’s home). Additionally, the credit generally isn’t available for employees who’ve previously worked for the employer.

There are different rules and credit amounts for certain employees. The maximum credit available for the first-year wages is $2,400 for each employee, $4,000 for long-term family assistance recipients, and $4,800, $5,600 or $9,600 for certain veterans. Additionally, for long-term family assistance recipients, there’s a 50% credit for up to $10,000 of second-year wages, resulting in a total maximum credit, over two years, of $9,000.

For summer youth employees, the wages must be paid for services performed during any 90-day period between May 1 and September 15. The maximum WOTC credit available for summer youth employees is $1,200 per employee.

Here are a few other rules:

• No deduction is allowed for the portion of wages equal to the amount of the WOTC determined for the tax year;

• Other employment-related credits are generally reduced with respect to an employee for whom a WOTC is allowed; and

• The credit is subject to the overall limits on the amount of business credits that can be taken in any tax year, but a 1-year carryback and 20-year carryforward of unused business credits is allowed.

Make sure you qualify

Because of these rules, there may be circumstances when the employer might elect not to have the WOTC apply. There are some additional rules that, in limited circumstances, prohibit the credit or require an allocation of it. Contact us with questions or for more information about your situation.

© 2020

Give your 401(k) plan a checkup at least once a year

In many industries, offering a 401(k) plan is a competitive necessity. If you don’t offer one and a competitor does, it could mean the difference in a job candidate’s decision to accept their offer over yours. It could even send employees heading for the door.

Assuming you do offer a 401(k), the challenge then becomes plan maintenance and compliance. Just as you presumably visit your doctor annually for a checkup, you should review the administrative processes and fiduciary procedures associated with your plan at least once a year. Let’s look at some important areas of consideration:

Investments. Study your plan’s investment choices to determine whether the selections available to participants are appropriate. Does the lineup offer options along the risk-and-return spectrum for all ages of participants? Are any pre-mixed funds, which are based on age or expected retirement date, appropriate for your employee population?

If the plan includes a default investment for participants who have failed to direct investment contributions, check the option to ensure that it continues to be appropriate. If your company plan doesn’t have a written investment policy in place or doesn’t use an independent outside consultant to assist in selecting and monitoring investments, consider incorporating these into your investment procedures.

Fees. 401(k) plan fees often come under criticism in the media and can aggravate employees who follow their accounts closely. Calculate the amount of current participant fees associated with your plan’s investments and benchmark them against industry standards.

Investment managers. Have you documented in writing the processes your plan has in place for the selection and monitoring of investment managers? If not, doing so in consultation with an attorney is highly advisable. If you have, reread the documents to ensure they’re still accurate and comprehensive.

Administrator. Solicit and monitor participant feedback on the administrator so that you know about grumblings before they grow into heated complaints. Further, put criteria in place to assess the plan administrator’s performance on an ongoing basis and to benchmark performance against industry standards.

Compliance. Are your plan’s administrative procedures in compliance with current regulations? If you intend your plan to be a participant-directed individual account plan, are all the provisions of ERISA Section 404(c) being followed? Have there been any major changes to 401(k) regulations over the last year? These are just a few critical questions to ask and answer.

A 401(k) is usually among the most valued benefits a business can offer its employees, but you’ve got to keep a close and constant eye on its details. We’d be happy to help you assess the costs and other financial details of your company’s plan.

© 2020

How business owners may be able to reduce tax by using an S corporation

Do you conduct your business as a sole proprietorship or as a wholly owned limited liability company (LLC)? If so, you’re subject to both income tax and self-employment tax. There may be a way to cut your tax bill by using an S corporation.

Self-employment tax basics

The self-employment tax is imposed on 92.35% of self-employment income at a 12.4% rate for Social Security up to a certain maximum ($137,700 for 2020) and at a 2.9% rate for Medicare. No maximum tax limit applies to the Medicare tax. An additional 0.9% Medicare tax is imposed on income exceeding $250,000 for married couples ($125,000 for married persons filing separately) and $200,000 in all other cases.

Similarly, if you conduct your business as a partnership in which you’re a general partner, in addition to income tax you are subject to the self-employment tax on your distributive share of the partnership’s income. On the other hand, if you conduct your business as an S corporation, you’ll be subject to income tax, but not self-employment tax, on your share of the S corporation’s income.

An S corporation isn’t subject to tax at the corporate level. Instead, the corporation’s items of income, gain, loss and deduction are passed through to the shareholders. However, the income passed through to the shareholder isn’t treated as self-employment income. Thus, by using an S corporation, you may be able to avoid self-employment income tax.

Salary must be reasonable

However, be aware that the IRS requires that the S corporation pay you reasonable compensation for your services to the business. The compensation is treated as wages subject to employment tax (split evenly between the corporation and the employee), which is equivalent to the self-employment tax. If the S corporation doesn’t pay you reasonable compensation for your services, the IRS may treat a portion of the S corporation’s distributions to you as wages and impose Social Security taxes on the amount it considers wages.

There’s no simple formula regarding what is considered reasonable compensation. Presumably, reasonable compensation is the amount that unrelated employers would pay for comparable services under similar circumstances. There are many factors that should be taken into account in making this determination.

Converting from a C to an S corp

There can be complications if you convert a C corporation to an S corporation. A “built-in gains tax” may apply when appreciated assets held by the C corporation at the time of the conversion are subsequently disposed of. However, there may be ways to minimize its impact.

As explained above, an S corporation isn’t normally subject to tax, but when a C corporation converts to S corporation status, the tax law imposes a tax at the highest corporate rate (21%) on the net built-in gains of the corporation. The idea is to prevent the use of an S election to escape tax at the corporate level on the appreciation that occurred while the corporation was a C corporation. This tax is imposed when the built-in gains are recognized (in other words, when the appreciated assets are sold or otherwise disposed of) during the five-year period after the S election takes effect (referred to as the “recognition period”).

Consider all issues

Contact us if you’d like to discuss the factors involved in conducting your business as an S corporation, including the built-in gains tax and how much the business should pay you as compensation.

© 2020

Do you want to go into business for yourself?

Many people who launch small businesses start out as sole proprietors. Here are nine tax rules and considerations involved in operating as that entity.

1. You may qualify for the pass-through deduction. To the extent your business generates qualified business income, you are eligible to claim the 20% pass-through deduction, subject to limitations. The deduction is taken “below the line,” meaning it reduces taxable income, rather than being taken “above the line” against your gross income. However, you can take the deduction even if you don’t itemize deductions and instead claim the standard deduction.

2. Report income and expenses on Schedule C of Form 1040. The net income will be taxable to you regardless of whether you withdraw cash from the business. Your business expenses are deductible against gross income and not as itemized deductions. If you have losses, they will generally be deductible against your other income, subject to special rules related to hobby losses, passive activity losses and losses in activities in which you weren’t “at risk.”

3. Pay self-employment taxes. For 2020, you pay self-employment tax (Social Security and Medicare) at a 15.3% rate on your net earnings from self-employment of up to $137,700, and Medicare tax only at a 2.9% rate on the excess. An additional 0.9% Medicare tax (for a total of 3.8%) is imposed on self-employment income in excess of $250,000 for joint returns; $125,000 for married taxpayers filing separate returns; and $200,000 in all other cases. Self-employment tax is imposed in addition to income tax, but you can deduct half of your self-employment tax as an adjustment to income.

4. Make quarterly estimated tax payments. For 2019, these are due April 15, June 15, September 15 and January 15, 2021.

5. You may be able to deduct home office expenses. If you work from a home office, perform management or administrative tasks there, or store product samples or inventory at home, you may be entitled to deduct an allocable portion of some costs of maintaining your home. And if you have a home office, you may be able to deduct expenses of traveling from there to another work location.

6. You can deduct 100% of your health insurance costs as a business expense. This means your deduction for medical care insurance won’t be subject to the rule that limits medical expense deductions.

7. Keep complete records of your income and expenses. Specifically, you should carefully record your expenses in order to claim all the tax breaks to which you’re entitled. Certain expenses, such as automobile, travel, meals, and office-at-home expenses, require special attention because they’re subject to special recordkeeping rules or deductibility limits.

8. If you hire employees, you need to get a taxpayer identification number and withhold and pay employment taxes.

9. Consider establishing a qualified retirement plan. The advantage is that amounts contributed to the plan are deductible at the time of the contribution and aren’t taken into income until they’re are withdrawn. Because many qualified plans can be complex, you might consider a SEP plan, which requires less paperwork. A SIMPLE plan is also available to sole proprietors that offers tax advantages with fewer restrictions and administrative requirements. If you don’t establish a retirement plan, you may still be able to contribute to an IRA.

Seek assistance

If you want additional information regarding the tax aspects of your new business, or if you have questions about reporting or recordkeeping requirements, please contact us.

© 2020

How to make the most of your multigenerational workforce

Many of today’s businesses employ workers from across the generational spectrum. Employees may range from Baby Boomers to members of Generation X to Millennials to the newest group, Generation Z.

Managing a workforce with a wide age range requires flexibility and skill. If you’re successful, you’ll likely see higher employee morale, stronger productivity and a more positive work environment for everyone.

Generational definitions

Definitions of the generations vary slightly, but the U.S. Chamber of Commerce Foundation defines them as follows:

• Members of the Baby Boomer generation were born from 1946 to 1964,

• Members of Generation X were born from 1965 to 1979,

• Members of the Millennial generation were born from 1980 to 1999, and

• Members of Generation Z were born after 1999.

Certain stereotypes have long been associated with each generation. Baby Boomers are assumed to be grumbling curmudgeons. Gen Xers were originally consigned to being “slackers.” Millennials are often thought of as needy approval-seekers. And many presume that a Gen Zer is helpless without his or her mobile device.

But successfully managing employees across generations requires setting aside stereotypes. Don’t assume that employees fit a certain personality profile based simply on age. Instead, you or a direct supervisor should get to know each one individually to better determine what makes him or her tick.

Best practices

Here are just a couple best practices for managing diverse generations:

Recognize and respect value differences. Misunderstandings and conflicts often arise because of value differences between managers and employees of different generations. For example, many older supervisors expect employees to do “whatever it takes” to get the job done, including working long hours. However, some younger employees place a high value on maintaining a healthy work-life balance.

Be sure everyone is on the same page about these expectations. This doesn’t mean younger employees shouldn’t have to work hard. The key is to find the right balance so that work is accomplished satisfactorily and on time, and employees feel like their values are being respected.

Maximize each generation’s strengths. Different generations tend to bring their own strengths to the workplace. For instance, older employees likely have valuable industry experience and important historical business insights to share. Meanwhile, younger employees — especially Generation Z — have grown up with high-powered mobile technology and social media.

Consider initiatives such as company retreats and mentoring programs in which employees from diverse generations can work together and share their knowledge, experiences and strengths. Encourage them to communicate openly and honestly and to be willing to learn from, rather than compete with, one another.

A competitive advantage

Having a multigenerational workforce can be a competitive advantage. Your competitors may not have the hard-fought experience of your older workers nor the fresh energy and ideas of your younger ones. Our firm can help you develop cost-effective strategies for hiring, retaining and maximizing the productivity of employees.

© 2020

Getting help with a business interruption insurance claim

To guard against natural disasters and other calamities, many companies buy business interruption insurance. These policies provide cash flow to cover revenues lost and expenses incurred while normal operations are limited or suspended.

But buying coverage is one thing — making a claim and receiving the funds is quite another. Depending on the scope of your loss, the insurer may enlist its own specialists to audit and reduce your claim. Fortunately, you can enlist a CPA to help you prepare a claim, quantify business interruption losses and anticipate your insurer’s challenges.

Major roles

There are two major roles your accountant can play in managing the claims process:

1. Point person. He or she can be the primary contact with the insurer, dealing with the typical onslaught of document requests. This leaves you free to run your business and bring it back up to speed.

Your CPA can also keep the claims process on track by informing the insurer about your actions and dealing with requests to inspect the damaged property. It’s possible that your accountant may already have an established relationship with the insurer and knows how its claims department works.

2. Damage estimator. Most policies define losses based on the earnings a company would have made if the interruption hadn’t occurred. To project lost profits, a CPA can analyze, identify and segregate revenues and expenses. The insurer will cover only losses that are directly attributable to the damage, as opposed to macroeconomic or other external causes, such as an economic downturn.

Detailed documentation

Most insurers require you to provide detailed documentation on the steps you took to mitigate losses during the business interruption period, which is the time it took your company to resume normal operations. The steps may involve shutting down all or part of the business or moving to a temporary location. The interruption period is critical and one of the determining factors the insurer will use when examining the total amount of your company’s claim.

Your CPA can review your documentation and, in particular, calculate or double-check any financial information provided to ensure accuracy. It’s also a good idea to work with an attorney who can aid in the legal interpretation of your policy.

A well-crafted claim

Filing a well-crafted business interruption claim can speed processing time and ease the resolution of any disputes that may arise with your insurance company. As a result, you’ll be more likely to receive much-needed cash-flow relief while getting your business back up and running after a disaster. We’d be happy to provide the services mentioned here as well as any other support necessary to pursuing a claim.

© 2020

Do your employees receive tips? You may be eligible for a tax credit

Are you an employer who owns a business where tipping is customary for providing food and beverages? You may qualify for a tax credit involving the Social Security and Medicare (FICA) taxes that you pay on your employees’ tip income.

How the credit works

The FICA credit applies with respect to tips that your employees receive from customers in connection with the provision of food or beverages, regardless of whether the food or beverages are for consumption on or off the premises. Although these tips are paid by customers, they’re treated for FICA tax purposes as if you paid them to your employees. Your employees are required to report their tips to you. You must withhold and remit the employee’s share of FICA taxes, and you must also pay the employer’s share of those taxes.

You claim the credit as part of the general business credit. It’s equal to the employer’s share of FICA taxes paid on tip income in excess of what’s needed to bring your employee’s wages up to $5.15 per hour. In other words, no credit is available to the extent the tip income just brings the employee up to the $5.15 per hour level, calculated monthly. If you pay each employee at least $5.15 an hour (excluding tips), you don’t have to be concerned with this calculation.

Note: A 2007 tax law froze the per-hour amount at $5.15, which was the amount of the federal minimum wage at that time. The minimum wage is now $7.25 per hour but the amount for credit computation purposes remains $5.15.

How it works

Example: A waiter works at your restaurant. He’s paid $2 an hour plus tips. During the month, he works 160 hours for $320 and receives $2,000 in cash tips which he reports to you.

The waiter’s $2 an hour rate is below the $5.15 rate by $3.15 an hour. Thus, for the 160 hours worked, he or she is below the $5.15 rate by $504 (160 times $3.15). For the waiter, therefore, the first $504 of tip income just brings him up to the minimum rate. The rest of the tip income is $1,496 ($2,000 minus $504). The waiter’s employer pays FICA taxes at the rate of 7.65% for him. Therefore, the employer’s credit is $114.44 for the month: $1,496 times 7.65%.

While the employer’s share of FICA taxes is generally deductible, the FICA taxes paid with respect to tip income used to determine the credit can’t be deducted, because that would amount to a double benefit. However, you can elect not to take the credit, in which case you can claim the deduction.

Get the credit you’re due

If your business pays FICA taxes on tip income paid to your employees, the tip tax credit may be valuable to you. Other rules may apply. Contact us if you have any questions.

© 2020

Numerous tax limits affecting businesses have increased for 2020

An array of tax-related limits that affect businesses are annually indexed for inflation, and many have increased for 2020. Here are some that may be important to you and your business.

Social Security tax

The amount of employees’ earnings that are subject to Social Security tax is capped for 2020 at $137,700 (up from $132,900 for 2019).

Deductions

• Section 179 expensing:

  • Limit: $1.04 million (up from $1.02 million for 2019)

  • Phaseout: $2.59 million (up from $2.55 million)

• Income-based phase-out for certain limits on the Sec. 199A qualified business income deduction begins at:

  • Married filing jointly: $326,600 (up from $321,400)

  • Married filing separately: $163,300 (up from $160,725)

  • Other filers: $163,300 (up from $160,700)

Retirement plans

• Employee contributions to 401(k) plans: $19,500 (up from $19,000)

• Catch-up contributions to 401(k) plans: $6,500 (up from $6,000)

• Employee contributions to SIMPLEs: $13,500 (up from $13,000)

• Catch-up contributions to SIMPLEs: $3,000 (no change)

• Combined employer/employee contributions to defined contribution plans (not including catch-ups): $57,000 (up from $56,000)

• Maximum compensation used to determine contributions: $285,000 (up from $280,000)

• Annual benefit for defined benefit plans: $230,000 (up from $225,000)

• Compensation defining a highly compensated employee: $130,000 (up from $125,000)

• Compensation defining a “key” employee: $185,000 (up from $180,000)

Other employee benefits

• Qualified transportation fringe-benefits employee income exclusion: $270 per month (up from $265)

• Health Savings Account contributions:

  • Individual coverage: $3,550 (up from $3,500)

  • Family coverage: $7,100 (up from $7,000)

  • Catch-up contribution: $1,000 (no change)

• Flexible Spending Account contributions:

  • Health care: $2,750 (up from $2,700)

  • Dependent care: $5,000 (no change)

These are only some of the tax limits that may affect your business and additional rules may apply. If you have questions, please contact us.

© 2019

3 best practices for achieving organic sales growth

Most business owners would probably agree that, when it comes to sales, there’s always room for improvement. To this end, every company should strive for organic sales growth — that is, increases from existing operations unrelated to a merger or acquisition.

That’s not to say a merger or acquisition is necessarily a bad idea, but you can’t rely on major moves like this to regularly boost your numbers. Let’s look at three best practices for achieving organic sales growth.

1. Attentive customer service

Premier customer service is more than just a smile and a handshake. Are your employees really hearing clients’ problems and concerns? Do their solutions not only fix the issue but also, whenever possible, exceed the customers’ expectations?

The ability to conduct productive dialogues with your customers is a key to growing sales. Maintaining a positive, ongoing conversation starts with resolving any negative (or potentially negative) issues that arise as quickly as possible under strictly followed protocols. It also includes simply checking in with customers regularly to see what they may need.

2. Smart marketing

Do you often find yourself wondering why all your marketing channels aren’t generating new leads for your business? Most likely, it’s because some of those channels are no longer connecting with customers and prospects.

Therefore, you might want to step back and reassess the nature and strengths of your company. If you work directly with the buying public, you may want to cast as wide a net as possible. But if you sell to a specific industry or certain types of customers, you may be able to grow sales organically by focusing on professional networking groups, social organizations and trade associations.

3. Great employees

Ultimately, people are what make or break a company. Even the best idea can fail if employees aren’t fully prepared and committed to designing, producing, marketing and selling that product or service. Of course, as you well know, employing talented, industrious staff requires much more than simply getting them to show up for work.

First, you must train employees well. This means they need to know both: 1) how to do their jobs, and 2) how to help grow sales. You might ask: Does every worker really contribute to sales? In a sense, yes, because quality work — from entry-level office staff to executives in corner offices — drives sales.

Second, once an employee is trained, he or she must be periodically retrained. Happy workers are more productive and more likely to preach the excellence of your company’s products or services to friends and family. Sales may occur as a result.

The right moves

These best practices are, obviously, general in nature. The specific moves you need to make to boost your business’s sales numbers will depend on your size, industry, market and focus. Our firm can help you identify optimal strategies for organic sales growth and measure the results.

© 2020

What can AI do for my business?

You’ve no doubt read articles or heard stories about how artificial intelligence (AI) is bringing sweeping change to a wide variety of industries. But it’s one thing to learn about how this remarkable technology is changing someone else’s company and quite another to apply it to your own. Here’s a primer on what AI might be able to do for your business.

3 technology types

AI generally refers to using computers to perform complex tasks usually thought to require human intelligence — such as image perception, voice recognition, decision making and problem solving. Three primary types of technologies fall under the AI umbrella:

1. Machine learning. This involves an iterative process whereby machines improve their performance in a specific task over time with little or no programming or human intervention. It can, for example, improve your forecasting models for determining which products or services will be in high demand with customers.

2. Natural language processing (NLP). This uses algorithms to analyze unstructured human language in documents, emails, texts, conversation or otherwise. Language translation apps are among the most common and dramatic examples of NLP. Communicating with business partners, customers and prospects in other countries — or simply people whose first languages are other than English — has become much easier as this type of software has improved.

3. Robotic process automation (RPA). Using rules and structured inputs, RPA automates time-consuming repetitive manual tasks that don’t require decision making. For instance, an RPA system can collect data from vendor invoices, enter it into a company’s accounting system, and generate an email confirming receipt and requesting additional information if needed. This functionality can help you better time vendor payments to optimize cash flow.

Chat boxes, data sensors

A couple of the most common on-ramps into AI for businesses are chatbots and data sensors. Chatbots are those AI-based instant messaging or voice-based systems that allow users to ask relatively simple questions and get instant answers.

Today’s customers expect to find information quickly and chatbots can provide this speed. However, it’s important to implement a system that enables users to speedily connect to a human customer service rep if their questions or issues are complex or urgent.

Data sensors generally don’t have anything to do with customers, but they can be quite valuable when it comes to your offices or facilities. AI-enhanced building systems allow for real-time monitoring and adjustment of temperature, lighting and other controls. This data can drive predictive analytics that improve decisions about the maintenance and replacement of systems, lowering energy and repair costs.

Upgrade prudently

Precisely how AI might help you run your business more efficiently and profitably depends on the size of your company and the nature of its work. You don’t want to throw dollars at an AI solution just to keep up with the competition. Then again, this technology may offer enticing ways to sharpen your competitive edge. We can help you perform a cost-benefit analysis of any technological upgrade you’re considering.

© 2020

New rules will soon require employers to annually disclose retirement income to employees

As you’ve probably heard, a new law was recently passed with a wide range of retirement plan changes for employers and individuals. One of the provisions of the SECURE Act involves a new requirement for employers that sponsor tax-favored defined contribution retirement plans that are subject to ERISA.

Specifically, the law will require that the benefit statements sent to plan participants include a lifetime income disclosure at least once during any 12-month period. The disclosure will need to illustrate the monthly payments that an employee would receive if the total account balance were used to provide lifetime income streams, including a single life annuity and a qualified joint and survivor annuity for the participant and the participant’s surviving spouse.

Background information

Under ERISA, a defined contribution plan administrator is required to provide benefit statements to participants. Depending on the situation, these statements must be provided quarterly, annually or upon written request. In 2013, the U.S. Department of Labor (DOL) issued an advance notice of proposed rulemaking providing rules that would have required benefit statements provided to defined contribution plan participants to include an estimated lifetime income stream of payments based on the participant’s account balance.

Some employers began providing this information in these statements — even though it wasn’t required.

But in the near future, employers will have to begin providing information to their employees about lifetime income streams.

Effective date

Fortunately, the effective date of the requirement has been delayed until after the DOL issues guidance. It won’t go into effect until 12 months after the DOL issues a final rule. The law also directs the DOL to develop a model disclosure.

Plan fiduciaries, plan sponsors, or others won’t have liability under ERISA solely because they provided the lifetime income stream equivalents, so long as the equivalents are derived in accordance with the assumptions and guidance and that they include the explanations contained in the model disclosure.

Stay tuned

Critics of the new rules argue the required disclosures will lead to confusion among participants and they question how employers will arrive at the income projections. For now, employers have to wait for the DOL to act. We’ll update you when that happens. Contact us if you have questions about this requirement or other provisions in the SECURE Act.

© 2019

New law helps businesses make their employees’ retirement secure

A significant law was recently passed that adds tax breaks and makes changes to employer-provided retirement plans. If your small business has a current plan for employees or if you’re thinking about adding one, you should familiarize yourself with the new rules.

The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was signed into law on December 20, 2019 as part of a larger spending bill. Here are three provisions of interest to small businesses.

1. Employers that are unrelated will be able to join together to create one retirement plan. Beginning in 2021, new rules will make it easier to create and maintain a multiple employer plan (MEP). A MEP is a single plan operated by two or more unrelated employers. In the past, there were barriers that made it difficult to setting up and running these plans. Soon, there will be increased opportunities for small employers to join together to receive better investment results, while allowing for less expensive and more efficient management services.

2. There’s an increased tax credit for small employer retirement plan startup costs. If you want to set up a retirement plan, but haven’t gotten around to it yet, new rules increase the tax credit for retirement plan start-up costs to make it more affordable for small businesses to set them up. Starting in 2020, the credit is increased by changing the calculation of the flat dollar amount limit to: The greater of $500, or the lesser of: a) $250 multiplied by the number of non-highly compensated employees of the eligible employer who are eligible to participate in the plan, or b) $5,000.

3. There’s a new small employer automatic plan enrollment tax credit. Not surprisingly, when employers automatically enroll employees in retirement plans, there is more participation and higher retirement savings. Beginning in 2020, there’s a new tax credit of up to $500 per year to employers to defray start-up costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment. This credit is on top of an existing plan start-up credit described above and is available for three years. It is also available to employers who convert an existing plan to a plan with automatic enrollment.

These are only some of the retirement plan provisions in the SECURE Act. There have also been changes to the auto enrollment safe harbor cap, nondiscrimination rules, new rules that allow certain part-timers to participate in 401(k) plans, increased penalties for failing to file retirement plan returns and more. Contact us to learn more about your situation.

© 2019

Cost management: A budget’s best friend

If your company comes up over budget year after year, you may want to consider cost management. This is a formalized, systematic review of operations and resources with the stated goal of reducing costs at every level and controlling them going forward. As part of this effort, you’ll answer questions such as:

Are we operating efficiently? Cost management can help you clearly differentiate activities that are running smoothly and staying within budget from the ones that are constantly breaking down and consuming extra dollars.

Depending on your industry, there are likely various metrics you can calculate and track to determine which aspects of your operations are inefficient. Sometimes improving efficiency is simply a matter of better scheduling. If you’re constantly missing deadlines or taking too long to fulfill customers’ needs, you’re also probably losing money playing catch-up and placating disappointed buyers.

Can we really see our supply chain? Maybe you’ve bought the same types of materials from the same vendors for many years. Are you really getting the most for your money? A cost management review can help you look for better bargains on the goods and services that make your business run.

A big problem for many businesses is lack of practical data. Without the right information, you may not be fully aware of the key details of your supply chain. There’s a term for this: supply chain visibility. When you can’t “see” everything about the vendors that service your company, you’re much more vulnerable to hidden costs and overspending.

Is technology getting the better of us? At this point, just about every business process has been automated one way or another. But are you managing this technology or is it managing you? Some companies overspend unnecessarily while others miss out on ways to better automate activities. Cost management can help you decide whether to simplify or upgrade.

For example, many businesses have historically taken an ad hoc approach to procuring technology. Different departments or individuals have obtained various software over the years. Some of this technology may still be in regular use but, in many cases, an expensive application sits dormant while the company still pays for licensing or tech support.

Conversely, a paid-for but out-of-date application could be slowing operational or supply chain efficiency. You may have to spend money to save money by getting something that’s up-to-date and fully functional.

The term “cost management” is often applied to specific projects. But you can also apply it to your business, either as an emergency step if your budget is really out of whack or as a regular activity for keeping the numbers in line. Our firm can help you conduct this review and decide what to do about the insights gained.

© 2020

5 ways to strengthen your business for the new year

The end of one year and the beginning of the next is a great opportunity for reflection and planning. You have 12 months to look back on and another 12 ahead to look forward to. Here are five ways to strengthen your business for the new year by doing a little of both:

1. Compare 2019 financial performance to budget. Did you meet the financial goals you set at the beginning of the year? If not, why? Analyze variances between budget and actual results. Then, evaluate what changes you could make to get closer to achieving your objectives in 2020. And if you did meet your goals, identify precisely what you did right and build on those strategies.

2. Create a multiyear capital budget. Look around your offices or facilities at your equipment, software and people. What investments will you need to make to grow your business? Such investments can be both tangible (new equipment and technology) and intangible (employees’ technical and soft skills).

Equipment, software, furniture, vehicles and other types of assets inevitably wear out or become obsolete. You’ll need to regularly maintain, update and replace them. Lay out a long-term plan for doing so; this way, you won’t be caught off guard by a big expense.

3. Assess the competition. Identify your biggest rivals over the past year. Discuss with your partners, managers and advisors what those competitors did to make your life so “interesting.” Also, honestly appraise the quality of what your business sells versus what competitors offer. Are you doing everything you can to meet — or, better yet, exceed — customer expectations? Devise some responsive competitive strategies for the next 12 months.

4. Review insurance coverage. It’s important to stay on top of your property, casualty and liability coverage. Property values or risks may change — or you may add new assets or retire old ones — requiring you to increase or decrease your level of coverage. A fire, natural disaster, accident or out-of-the-blue lawsuit that you’re not fully protected against could devastate your business. Look at the policies you have in place and determine whether you’re adequately protected.

5. Analyze market trends. Recognize the major events and trends in your industry over the past year. Consider areas such as economic drivers or detractors, technology, the regulatory environment and customer demographics. In what direction is your industry heading over the next five or ten years? Anticipating and quickly reacting to trends are the keys to a company’s long-term success.

These are just a few ideas for looking back and ahead to set a successful course forward. We can help you review the past year’s tax, accounting and financial strategies, and implement savvy moves toward a secure and profitable 2020 for your business.

© 2019

Wayfair revisited — It’s time to review your sales tax obligations

In its 2018 decision in South Dakota v. Wayfair, the U.S. Supreme Court upheld South Dakota’s “economic nexus” statute, expanding the power of states to collect sales tax from remote sellers. Today, nearly every state with a sales tax has enacted a similar law, so if your company does business across state lines, it’s a good idea to reexamine your sales tax obligations.

What’s nexus?

A state is constitutionally prohibited from taxing business activities unless those activities have a substantial “nexus,” or connection, with the state. Before Wayfair, simply selling to customers in a state wasn’t enough to establish nexus. The business also had to have a physical presence in the state, such as offices, retail stores, manufacturing or distribution facilities, or sales reps.

In Wayfair, the Supreme Court ruled that a business could establish nexus through economic or virtual contacts with a state, even if it didn’t have a physical presence. The Court didn’t create a bright-line test for determining whether contacts are “substantial,” but found that the thresholds established by South Dakota’s law are sufficient: Out-of-state businesses must collect and remit South Dakota sales taxes if, in the current or previous calendar year, they have 1) more than $100,000 in gross sales of products or services delivered into the state, or 2) 200 or more separate transactions for the delivery of goods or services into the state.

Nexus steps

The vast majority of states now have economic nexus laws, although the specifics vary:Many states adopted the same sales and transaction thresholds accepted in Wayfair, but a number of states apply different thresholds. And some chose not to impose transaction thresholds, which many view as unfair to smaller sellers (an example of a threshold might be 200 sales of $5 each would create nexus).

If your business makes online, telephone or mail-order sales in states where it lacks a physical presence, it’s critical to find out whether those states have economic nexus laws and determine whether your activities are sufficient to trigger them. If you have nexus with a state, you’ll need to register with the state and collect state and applicable local taxes on your taxable sales there. Even if some or all of your sales are tax-exempt, you’ll need to secure exemption certifications for each jurisdiction where you do business. Alternatively, you might decide to reduce or eliminate your activities in a state if the benefits don’t justify the compliance costs.

Need help?

Note: If you make sales through a “marketplace facilitator,” such as Amazon or Ebay, be aware that an increasing number of states have passed laws that require such providers to collect taxes on sales they facilitate for vendors using their platforms.

If you need assistance in setting up processes to collect sales tax or you have questions about your responsibilities, contact us.

© 2019

Stretch your marketing dollars further with smart strategies

If your marketing budget is limited, there may be ways to make that money go further. Smart strategies abound for small to midsize businesses. Let’s look at a few ideas for stretching your marketing dollars a bit further.

Check out the big guys

Look to larger companies for ideas on how to improve and amp up your marketing tactics. Big businesses use many different types of campaigns and sometimes their big-budget approaches can be distilled down to lower-cost alternatives. Think of it as a “competitive intelligence” effort with the emphasis more on “intelligence” than “competitive.”

Maybe you can’t develop an app with a robust rewards system like coffee giant Starbucks. But you could still come up with a loyalty reward campaign using punch cards or some other mechanism.

Think local

If your company is one that depends on local customers or clients, make sure you’re doing everything possible to target that audience. Get hyperlocal! This approach tends to be particularly well-suited to businesses that rely on foot traffic, but it can work for any company capable of leveraging the distinctive aspects of its local community.

Don’t neglect the value of location-driven advertising, such as signage on vehicles that travel locally. Increase your presence on social media apps or pages focused on local communities. You may not want to blatantly advertise there, but you could participate in discussions, answer questions, and respond quickly to complaints or misinformation.

Go guerilla

This is perhaps the most creative way to engage in low-cost marketing efforts. In short, guerilla marketing is putting your company’s brand in the public eye in an unconventional way. It doesn’t always work but, when it does, people will recognize and remember you for quite a while.

One example is using vacant space, generally in urban areas, to put up marketing “graffiti.” (Obviously we’re talking about doing so legally.) You might engage a budding art student to create an eye-catching display featuring your logo and perhaps one of your products to draw attention. There are also ways to execute digital guerilla marketing, such as creating a viral video or humorous social media account. Just be careful: such campaigns can often misfire and result in embarrassing public relations incidents. Get plenty of outside advice, including legal counsel.

Try some variety

Many businesses get so focused on one marketing approach that they miss out on many other ways to attract the attention of new customers and maintain visibility among existing ones. Remember, variety is the spice of life — and it may not be as expensive as you think. We can assist you in assessing the potential costs and likely success of any marketing effort you’re considering.

© 2019

The tax implications if your business engages in environmental cleanup

If your company faces the need to “remediate” or clean up environmental contamination, the money you spend can be deductible on your tax return as ordinary and necessary business expenses. Of course, you want to claim the maximum immediate income tax benefits possible for the expenses you incur.

These expenses may include the actual cleanup costs, as well as expenses for environmental studies, surveys and investigations, fees for consulting and environmental engineering, legal and professional fees, environmental “audit” and monitoring costs, and other expenses.

Current deductions vs. capitalized costs

Unfortunately, every type of environmental cleanup expense cannot be currently deducted. Some cleanup costs must be capitalized. But, generally, cleanup costs are currently deductible to the extent they cover:

• “Incidental repairs” (for example, encapsulating exposed asbestos insulation); or

• Cleaning up contamination that your business caused on your own property (for example, removing soil contaminated by dumping wastes from your own manufacturing processes, and replacing it with clean soil) — if you acquired that property in an uncontaminated state.

On the other hand, remediation costs generally have to be capitalized if the remediation:

• Adds significantly to the value of the cleaned-up property,

• Prolongs the useful life of the property,

• Adapts the property to a new or different use,

• Makes up for depreciation, amortization or depletion that’s been claimed for tax purposes, or

• Creates a separate capital asset that’s useful beyond the current tax year.

However, parts of these types of remediation costs may qualify for a current deduction. It depends on the facts and circumstances of your situation. For example, in one case, the IRS required a taxpayer to capitalize the costs of surveying for contamination various sites that proved to be contaminated, but allowed a current deduction for the costs of surveying the sites that proved to be uncontaminated.

Maximize the tax breaks

In addition to federal tax deductions, there may be state or local tax incentives involved in cleaning up contaminated property. The tax treatment for the expenses can be complex. If you have environmental cleanup expenses, we can help plan your efforts to maximize the deductions available.

© 2019

Special Edition: It May Not Be Not Too Late To Cut Your 2019 Taxes

Don’t let the holiday rush keep you from taking some important steps to reduce your 2019 tax liability. You still have time to execute a few strategies, including:

1. Buying assets.

Thinking about purchasing new or used heavy vehicles, heavy equipment, machinery or office equipment in the new year? Buy it and place it in service by December 31, and you can deduct 100% of the cost as bonus depreciation.

Although “qualified improvement property” (QIP) — generally, interior improvements to nonresidential real property — doesn’t qualify for bonus depreciation, it’s eligible for Sec. 179 immediate expensing. And QIP now includes roofs, HVAC, fire protection systems, alarm systems and security systems placed in service after the building was placed in service.

You can deduct as much as $1.02 million for QIP and other qualified assets placed in service before January 1, not to exceed your amount of taxable income from business activity. Once you place in service more than $2.55 million in qualifying property, the Sec. 179 deduction begins phasing out on a dollar-for-dollar basis. Additional limitations may apply.

2. Making the most of retirement plans.

If you don’t already have a retirement plan, you still have time to establish a new plan, such as a SEP IRA, 401(k) or profit-sharing plans (the deadline for setting up a SIMPLE IRA to make contributions for 2019 tax purposes was October 1, unless your business started after that date). If your circumstances, such as your number of employees, have changed significantly, you also should consider starting a new plan before January 1.

Although retirement plans generally must be started before year-end, you usually can deduct any contributions you make for yourself and your employees until the due date of your tax return. You also might qualify for a tax credit to offset the costs of starting a plan.

3. Timing deductions and income. 

If your business operates on a cash basis, you can significantly affect your amount of taxable income by accelerating your deductions into 2019 and deferring income into 2020 (assuming you expect to be taxed at the same or a lower rate next year).

For example, you could put recurring expenses normally paid early in the year on your credit card before January 1 — that way, you can claim the deduction for 2019 even though you don’t pay the credit card bill until 2020. In certain circumstances, you also can prepay some expenses, such as rent or insurance and claim them in 2019.

As for income, wait until close to year-end to send out invoices to customers with reliable payment histories. Accrual-basis businesses can take a similar approach, holding off on the delivery of goods and services until next year.

Proceed with caution

Bear in mind that some of these tactics could adversely impact other factors affecting your tax liability, such as the qualified business income deduction. Contact us to make the most of your tax planning opportunities.

© 2019

What’s the right device policy for your company?

Device policies pertaining to smartphones and other technology tools continue to frustrate business owners as they try to balance their needs for security and functionality against employees’ rights to privacy and freedom. At some companies, loose “bring your own device” (BYOD) policies are giving way to stricter “choose your own device” (CYOD) or “corporate-owned, personally enabled” (COPE) policies.

CYOD: Their device, your data
A CYOD policy lets employees buy a device for combined personal and work purposes from an approved list of products. Generally, the employee owns the device with the business retaining ownership of the SIM card and any proprietary data. Many employers pay for the accompanying mobile plan. Sometimes, high-performance devices are made available only to “power users,” while employees with fewer tech-related job requirements must choose from lesser models.

Under a CYOD policy, you can:
* Ensure device compatibility with your systems,

* Require security protections on the devices, and

* Conduct ongoing security monitoring.

It also makes maintenance and support easier for your IT department, because IT staff will know exactly which devices they’ll need to handle.

Some employees may be unhappy with their choice of devices, which can undermine morale and productivity. Then again, many workers appreciate the improved functionality and flexibility of owning a device that connects them to work.

COPE: All yours
If you’re looking for even greater control and security, look into a COPE policy. They’re most common at large companies or those with heavy compliance burdens.

Here, you buy and own the device, which is intended primarily for business purposes. Most policies do allow for limited personal use — such as phone calls and messaging, approved non-work-related apps and some settings customization.

COPE policies are like CYOD policies in that you can configure employees’ devices for maximum security (including blocking certain features or apps and activating remote wipe capabilities). But they go one step further by minimizing personal use and allowing you to retain possession after an employee leaves the company. Another upside: Many employees will view an employer-provided device as a valuable perk.

One downside is you’ll incur higher costs in covering both the purchase price and mobile plans, though you may be able to lessen the hit through volume discounts. In addition, employees may have concerns about their employer-provided devices inevitably containing some of their own information. “Containerization” tools can help alleviate such worries by segregating business and personal data.

A matter of priorities
The right move for your company comes down to priorities. To tighten security and control costs, a CYOD policy may be a reasonable upgrade to an existing BYOD approach. But if you need absolute security, a COPE policy could be necessary.

Bear in mind that you can always customize a policy to best suit your needs. For example, you might apply different requirements to different departments based on the type of work performed and data accessed. Our firm can help you analyze the potential costs of any device policy and make the right choice.

© 2019

Look in the mirror and identify your company culture

“Company culture” is a buzzword that’s been around for a while, but your culture may never have mattered as much as it does in today’s transparency-driven business arena. Customers, potential partners and investors, and job candidates are paying more attention to company culture when deciding whether to buy from a business or otherwise involve themselves with it.

To determine whether yours is optimal for your long-term goals, you must look in the mirror and identify what type of culture you have. University of Michigan professors Robert Quinn and Kim Cameron have developed the Organizational Culture Assessment Instrument, which defines four common types:

1. Clan. These are generally friendly environments where employees feel like family. Clan cultures emphasize teamwork, participation and consensus. Such companies often have a horizontal structure with few barriers between staff and leaders, who act as mentors. As a result, employees tend to be highly engaged and loyal. Success involves addressing client needs while caring for staff. Clan culture frequently is seen in start-ups and small companies with employees who have been there from the beginning.

2. Adhocracy. Adhocracies are dynamic, entrepreneurial and creative places where employees are encouraged to take risks, and founders are often seen as innovators. They’re committed to experimentation and encourage individual initiative and freedom — with the long-term goal of growing and acquiring new resources. Success, therefore, is defined by the availability of new products or services. Think Facebook and similar technology companies that anticipate needs and establish new standards.

3. Market. These cultures are results-driven and competitive, with an emphasis on achieving measurable goals and targets. They value reputation and success foremost. Employees are goal-oriented while leaders tend to be hard drivers, producers and rivals simultaneously. Market share and penetration are the hallmarks of success, and competitive pricing and industry domination are important. Examples include Amazon and Apple.

4. Hierarchy. Hierarchical businesses have formal, structured work environments where processes and procedures dictate what employees do. Smooth functioning is critical. Companies strive for stability and efficient execution of tasks, as well as low costs. Leaders seek to achieve maximum efficiency and consistency in their respective departments. Hierarchical culture is common in government agencies and old-school businesses such as the Ford Motor Company.

Bear in mind that most companies exhibit a mixture of the four styles, with one type dominant. If you fear your culture is inhibiting you from achieving strategic objectives, there’s good news — cultures can evolve.

Although making widespread changes won’t be easy, no business should accept a culture that’s hindering productivity or possibly even creating liability risks. We can assist you in assessing your operations and profitability to help you gain insights into the impact of your company culture.

© 2019