How the Tax Cuts and Jobs Act Could Affect Your Business

As of December 20, 2017, the new tax laws were officially signed into law, ushering in a variety of cuts and changes for individuals and businesses alike. While there has been much talk around how the new laws will impact individual taxpayers and families of all income levels, it is also vital to consider how small businesses, startups and corporations will be affected.

Individual taxpayers will see a decrease in their income tax rate, a reduction of itemized deductions, a doubling of the standard deduction, and changes to elder care, child and business taxes. The Alternative Minimum Tax will remain for individuals and corporations alike, but the affected income bracket has been raised: $70,300 for single filers and $109,400 for joint filers.

So the question remains, will businesses stand to reap tax benefits for the new code? Undoubtedly. The real unknown is what businesses will do with the benefits they may reap.

What tax deductions can businesses expect then? A main provision of the plan is the lowering of the corporate tax rate from 35% to 21% in 2018, as well as lowering the income tax at almost every level for now. Corporations will be able to deduct state and local taxes, and estate tax exemptions will double, assisting the 1% who pay estate taxes while providing roughly 17 billion in taxes. For small business owners, they will be able to deduct the cost of depreciable assets in a single year rather than amortizing them over several years, which will hopefully stimulate investment and growth.

Under our current tax system, multinational taxpayers are taxed on any income earned overseas when those profits are brought back to the United States. But, the new system will not tax foreign profit. The intent here is to motivate those business owners to bring that money back overseas, reinvesting it in the US economy rather than allowing it sit overseas and aid another nation’s economy.

The new code is operating under a supply-side economics theory, which strives to invigorate economic growth across the nation for both consumers and businesses. The objective is to provide various tax deductions, placing more money in consumer’s wallets and ideally stimulate spending. The combination of lower taxes and a swell in spending on products and services is designed to allow employers to strengthen their workforce and create more jobs.

If business owners do reap benefits from the changes, any increased income or an improvement in sales should be viewed as an opportunity to develop, diversify and enhance their businesses, which would support the greater American economy and our nation.

Tax Deductions You May Be Unaware Of

We are deep in the throws of tax season, and although many of you have already filed, it certainly never hurts to become more aware of possible deductions. And it goes without saying that we all love saving money or getting a larger return. Below are some unusual deductions that taxpayers often don’t consider or simply don’t even know exist.

  • Letting a friend crash on your couch – Did you know that you could have been claiming your college buddy who’s been sleeping on your couch for the last 5 months as a dependent? That is if said friend is earning less than $4,050 and you have been providing significant financial support. Similarly, children supporting their retired, elderly parents may claim them as dependents, even if they don’t live in the same home.
  • Putting in a poolUnfortunately, you cannot deduct this item simply because you like to cool off in the summertime and it cost you a lot of cash. However, if you have significant health issues, such as obesity or heart disease, and your doctor has recommended swimming as a beneficial form of regular exercise, putting a pool in your backyard may qualify as a deductible medical expense.
  • Sending your kids to campThis credit is only available to working parents. If both spouses work, and you send your child or children to either a summer day camp, a mini winter camp or even a daycare program over winter break, you may be able to receive a credit between $1000-$2000, depending on the number of children. Unfortunately though, overnight camps do not qualify under this credit.
  • Losing money in VegasFor those who gamble with some regularity, you know you must report your winnings and pay the subsequent taxes. However, reporting your losses as well can offset the amount of taxes charged on your winnings. One thing to keep in mind though is that you can only claim in losses the amount you made in winnings, no more.
  • Taking a courseDid you take a design or business course in the last year to expand your knowledge or further develop yourself in your career? Anyone who took a course that enhanced their knowledge to boost job prospects and paid tuition or enrollment fees, or purchased books or supplies, can claim the Lifetime Learning Credit. The max amount one can receive is $2000, and the credit phases out altogether once your income reaches a certain level.
  • Searching for a jobPaying fees to a job agency, hiring a career coach, or traveling to long-distance interviews can all be deducted if they amount to less than 2 percent of your adjusted gross income. However, buying a new suit or a nice pair of shoes for an interview do not qualify as deductible expenses.
  • Driving for workWhile your commute to work does not count as a deduction, most of the driving done during your work day, such as driving to a meeting or even to Office Max, can be deducted as work-related up to 54 cents per mile. Miles must be tracked exactly and documented properly to receive any deduction though.

 

If you have any questions about these potential income tax deductions, please contact me at pmcallister@MKRcpas.com.

State Sends 150K Incorrect Letters To Taxpayers

About 150,000 residents in the State of Indiana have received a letter from the Department of Revenue saying that they owed more on their taxes, but the state is admitting that many of those who received the letters don’t owe anything.

If you think that you received this letter by mistake, the letter begins with:

“After a review of past tax filings, we believe you may be under-reporting taxable income for the State of Indiana…”

The Department of Revenue for the State of Indiana has said that the letters were sent to individuals and businesses that were flagged, but their results weren’t fully reviewed.

If you think you have received one of these letters, please contact our office today.

To read more on this story, click here.

Health Care Reform: Financial Impact 2013 and Beyond

As the third year of the Patient Protection and Affordable Care Act (PPACA) approaches, employers need to be aware of additional fees that will be assessed on insurers and plan administrators of self-insured plans beginning in 2013. In addition, reporting health care costs to the government begins.

The new fees will increase the cost of providing group health plans for employees. They include:

  • Fees to fund research on patient-centered outcomes
  • Transitional reinsurance fees
  • Pay or play penalties
  • Cadillac tax

Fees to fund research on patient-centered outcomes
Health care reform created the Patient-Centered Outcomes Research Institute (PCORI), which is charged with promoting research to evaluate and compare the health outcomes and clinical effectiveness, risks, and benefits of medical treatments, services, procedures, and drugs. PCORI is to be funded in part by fees assessed on health insurers and sponsors of self-insured group health plans. This fee is commonly referred to as the “comparative effectiveness fee” or “PCORI fee.” The PCORI fee will be assessed at $1.00 times the average number of covered lives (employees and dependents) for the first plan or policy year ending on or after October 1, 2012. Employer plan sponsors must choose a method for calculating the average number of covered lives for their required annual fees by December 31, 2012, for calendar year plans.

Transitional reinsurance fees
The transitional reinsurance program will require health insurance issuers, as well as certain plan administrators on behalf of self-insured group health plans, to make contributions to a transitional reinsurance program for the three-year period beginning January 1, 2014. This fee is likely to result in additional costs for employer plan sponsors and – depending on whether the plan at issue is self-administered – certain additional reporting obligations.

Pay or play penalties
In 2014, large employers with fifty or more full-time equivalent employees could be subject to two potential penalties: the No Coverage Penalty and the Unaffordable Coverage Penalty. The No Insurance Penalty subjects certain employers to a $2,000 per full-time employee penalty (excluding the first thirty full-time employees) under specific conditions. The Unaffordable Coverage Penalty applies if an employer offers its full-time employees the opportunity to enroll in coverage under an employer plan that either is unaffordable (relative to an employee’s household income) or does not provide minimum value. This penalty is $3,000 for every full-time employee who receives a subsidy for coverage in a state exchange.

In some cases, the total cost of these penalties may be less than the total cost of providing coverage. CliftonLarsonAllen’s Health Insurance and Penalty Calculator provides information about the impact of reform on individual companies.

Cadillac tax
Starting in 2018, insurers of employer-sponsored plans or companies that self-insure their own plans will be subject to an excise tax if their premiums are in excess of $10,200 for individual coverage and $27,500 for family coverage. Roughly 60 percent of large employers believe their plans would trigger the tax unless they take action to avoid it, according to a 2011 survey by Mercer, a human resources consulting firm. Although the tax is to be imposed on insurers, the effects are likely to trickle down to consumers.

Many health care reform provisions will impact the cost to provide health care coverage for employees. Employers should be aware of the additional fees and reporting requirements and work with their benefits consultants to determine the financial impact of health care on their businesses. Plan sponsors should have already verified that they have the systems in place to determine and report the aggregate cost of applicable employer-sponsored coverage for 2012 on employees’ Forms W-2.

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ABS Seeks Feedback Specific to Auditor’s Reports

An Invitation to Comment: Improving the Auditor’s Report (ITC) was released June 22 by the International Auditing and Assurance Standards Board (IAASB), seeking input on potential changes to improve the information provided in the auditor’s report on financial statements.

In response, the AICPA’s Auditing Standards Board (ASB) is asking members to complete a survey – AICPA Auditing Standards Board – Improving the Auditor’s Report – to help inform the ASB’s response to the ITC. The survey will be open through September 10, 2012, and can be accessed on the ASB website.

The ASB has stated it “recognizes that the clarified standards will become effective within the next few months, including the revised standards for auditor reporting. However, in view of the ASB’s commitment to converge its standards with those of the IAASB, the ASB is very interested in the direction the IAASB is moving related to this topic and the likelihood of changes to the standard audit opinion that the IAASB may propose.”

The proposed improvements to the auditor’s report that are included in the ITC would be “required for all entities, except for the proposed inclusion of auditor commentary which would only be required to be included by public interest entities (PIEs),” according to the ASB.

The IAASB’s ITC suggests the following changes to auditor reporting:
Additional information in the auditor’s report to highlight matters that, in the auditor’s judgment, are likely to be most important to users’ understanding of the audited financial statements or the audit, referred to as “Auditor Commentary.” This information would be required for PIEs – which includes, at a minimum, listed entities – and could be provided at the discretion of the auditor for other entities.

Auditor conclusion on the appropriateness of management’s use of the going concern assumption in preparing the financial statements and an explicit statement as to whether material uncertainties in relation to going concern have been identified.

Auditor statement as to whether any material inconsistencies between the audited financial statements and other information have been identified based on the auditor’s reading of other information, and specific identification of the information considered by the auditor.

Prominent placement of the auditor’s opinion and other entity-specific information in the auditor’s report.

Through the survey, the ASB is seeking feedback on the ITC’s questions for respondents on pages thirteen through fifteen. The survey also includes questions regarding the topics covered in the ITC to solicit US-specific feedback.

Depending on the amount of detail survey participants wish to share with the ASB, the survey should take ten to forty minutes. Before completing the survey, the ASB recommends that participants review the ITC.

Full Article: http://www.accountingweb.com/article/abs-seeks-feedback-specific-auditors-reports/219773

FASB Proposes Changes to Presentation of Reclassified Income

The Financial Accounting Standards Board (FASB) has issued for public comment a proposed Accounting Standards Update (ASU) that is intended to improve the presentation of reclassifications out of accumulated other comprehensive income. The proposed amendments balance the benefits to users of financial statements without imposing significant additional costs to preparers, according to FASB’s In Focus documents. The proposed update would apply to all public and private organizations that issue financial statements in conformity with US GAAP and that report other comprehensive income.

The ASU Comprehensive Income (Topic 220), Presentation of Items Reclassified Out of Accumulated Other Comprehensive Income, would require a tabular disclosure of the effect of items reclassified, which presents, in one place, information about the amounts reclassified and a road map to related financial disclosures. This information is currently presented throughout the financial statements under US GAAP.

Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income.

Some items of other comprehensive income that are reclassified after a reporting period, and which FASB uses in its presentation examples, include cash flow hedges, unrealized gains and losses on available-for-sale securities, and foreign currency translation adjustments. US GAAP disclosure requirements already require this information to be disclosed, the Exposure Draft (ED) of the amendments states.

The ED provides examples of tabular formats and addresses the needs of life insurers. It also refers to US GAAP requirements for defined benefit pension costs.

“Stakeholders raised concerns that certain requirements about the reclassification of items out of accumulated other comprehensive income would be costly for preparers and add unnecessary complexity to financial statements,” said FASB Chairman Leslie F. Seidman. “Based on this new feedback, the Board is proposing a revised approach that will present information about other comprehensive information in a useful way that is more cost-effective.”

No decision has been made regarding an effective date. Stakeholders are asked to provide their written comments on the proposed ASU by October 15, 2012.

Full article: http://www.accountingweb.com/article/fasb-proposes-changes-presentation-reclassified-income/219733