Hawkins Ash CPAs https://hawkinsashcpas.com Part of your business. Part of your life. Thu, 16 Aug 2018 16:59:50 +0000 en-US hourly 1 Podcast: Depreciation https://hawkinsashcpas.com/podcast-depreciation/ Tue, 14 Aug 2018 20:53:40 +0000 https://hawkinsashcpas.com/?p=6419 If you own a small business or rental property, you are certainly aware of the concept of Depreciation. For those that are not, depreciation is a way to write off an asset used in a business that has a useful life of greater than one year. It could be a piece of equipment (i.e. computer), […]

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If you own a small business or rental property, you are certainly aware of the concept of Depreciation. For those that are not, depreciation is a way to write off an asset used in a business that has a useful life of greater than one year. It could be a piece of equipment (i.e. computer), real estate (i.e. rental building), etc. The general rules state that if an asset is going to last longer than a year, then that asset has to be written off over its useful life of sometimes 3, 5, or 7 years (longer for other assets). Click to the orange circle below to listen in.

 

Script

This week we will be focusing on equipment and things that are on the shorter life scale. We will talk about vehicles and real estate in future weeks.

Some examples:

Three-year property – computer software and over the road semi-trucks

Five-year property – office equipment and computers

Seven-year property – manufacturing equipment and office furniture

That being said, even though you have to write it off over its useful life, the IRS does give us a lot of nice ways to be able to depreciate those assets over a shorter length of time. These provisions are called Bonus Depreciation and Code Section 179 Direct Write-off’s.

The TAX CUTS AND JOBS ACT OF 2017 added some additional flexibility when depreciating or writing off assets.

HOW DID IT DO THAT AND WHAT ARE THESE FLEXIBILITIES THAT YOU ARE TALKING ABOUT?

Between now and December 31, 2022, the tax reform act gives us a chance to include bonus depreciation of 100% to write off an asset immediately in the year that you purchased it as long as their useful lives are 15 years or less.

Bonus depreciation has been around for a while, but the difference this time is that it can be used on new or USED equipment.

By taking bonus depreciation, a company can actually either substantially reduce their profits or take that profit and reduce it into a loss that can be carried forward or used to offset other income on their return.

Another thing that it does is increases the amount of the Section 179 that can be taken, and it increases it to $1,000,000. So basically, a company can write off $1,000,000 of assets in one year assuming that they have enough taxable income. Unlike Bonus Depreciation, section 179 can only be used to get income down to zero. It cannot be used to reduce the income and produce a loss.

Deciding which option to use (including maybe using neither option), will depend on a number of factors, including how the choice will affect the State return since some states do not conform with the federal rules.

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Hardship Distributions: What’s New? https://hawkinsashcpas.com/hardship-distributions-whats-new/ Tue, 07 Aug 2018 19:01:20 +0000 http://hawkinsashcpas.com/?p=5856 In February 2018, Congress passed the Bipartisan Budget Act (the “Act”). A key provision of this new legislation relaxes certain restrictions on hardship withdrawal rules from 401(k) and 403(b) plans. Under current 401k and similar defined contribution plan regulations, plan participants are limited to taking hardship withdrawals from their elective deferral account balance and are […]

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In February 2018, Congress passed the Bipartisan Budget Act (the “Act”). A key provision of this new legislation relaxes certain restrictions on hardship withdrawal rules from 401(k) and 403(b) plans.

Under current 401k and similar defined contribution plan regulations, plan participants are limited to taking hardship withdrawals from their elective deferral account balance and are prohibited from making elective deferral contributions to the plan for at least six months following the hardship distribution. In addition, a plan participant is normally required to take available loans under the plan (if allowed) prior to taking a hardship withdrawal.

Key Changes Under the Act

Six Month Suspension Period Eliminated
The Act directs the Department of the Treasury to amend current 401(k) and 403(b) regulations to remove the six month suspension period on employee deferrals to a plan after a hardship distribution.

Available Sources of Funds
The Act expands the types of sources of contributions that are eligible for hardship withdrawals to include: qualified nonelective contributions (QNECs), qualified matching contributions (QMACs), safe harbor plan contributions, and earnings on all of these accounts – including earnings on participant elective contributions. (This change only applies to 401(k) plans but there is an expectation that the IRS will also extend it to 403(b) plans.)

Elimination of Loan Requirement
The Act removes the requirement for participants to take any available loans under the plan before taking a hardship distribution. (This change only applies to 401(k) plans but there is an expectation that the IRS will also extend it to 403(b) plans.)

The intended collective impact of these new provisions is to provide help and flexibility to those participants who are facing financial challenges or difficulties and to ease the administrative burden on plan sponsors and record-keepers when hardship withdrawals occur.

The Budget Act changes are effective for plan years beginning after December 31, 2018 (for plan years ending December 31, 2019).

It is not too early for plan sponsors to consider how these changes will impact their plans and the potential updates that will be needed to their hardship withdrawal procedures, plan amendments, Summary Plan Descriptions and/or Adoption Agreements.

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QuickBooks Roundtable https://hawkinsashcpas.com/quickbooks-roundtable/ Tue, 07 Aug 2018 18:19:03 +0000 https://hawkinsashcpas.com/?p=6286 Join us for our first QuickBooks Connect Roundtable in September. During this 1.5 hour call-in session, our conversation will center around accounts receivable in QuickBooks. Debbie Denny will lead the dialogue, answering questions and providing tactical advice to topics and questions you submit during registration. Date Thursday, September 20, 2018 Time 9:00 a.m. – 10:30 […]

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Join us for our first QuickBooks Connect Roundtable in September. During this 1.5 hour call-in session, our conversation will center around accounts receivable in QuickBooks. Debbie Denny will lead the dialogue, answering questions and providing tactical advice to topics and questions you submit during registration.

Date

Thursday, September 20, 2018

Time

9:00 a.m. – 10:30 a.m.

Registration

Register by clicking this link: https://register.gotowebinar.com/register/492643174223322369

About the Moderator

Debbie Denny, Tax Manager, Advanced QuickBooks ProAdvisor

Debbie has over 18 years of experience with QuickBooks. With her knowledge, she assists clients with their initial set up of QuickBooks and is available when they have questions or when problems arise. Debbie is a manager at Hawkins Ash CPAs and oversees the firm’s QuickBooks ProAdvisors and payroll and accounting services staff in the Green Bay office.

Questions

Call: 920.337.4544

Email: info@hawkinsashcpas.com

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Tax+Business Alert: August 2018 https://hawkinsashcpas.com/taxbusiness-alert-august-2018/ Tue, 07 Aug 2018 15:04:40 +0000 https://hawkinsashcpas.com/?p=6283 Headlines in our August 2019 Tax+Business Alert newsletter include the following: Is Your Company Overpaying On Sales and Use Taxes? Podcast: Changes to the Charitable Giving Deduction IRS Encourages Certain Veterans to File Amended Returns Assessing Your Exposure to the Estate Tax and Gift Tax View the newsletter>> Subscribe here>

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Headlines in our August 2019 Tax+Business Alert newsletter include the following:

  • Is Your Company Overpaying On Sales and Use Taxes?
  • Podcast: Changes to the Charitable Giving Deduction
  • IRS Encourages Certain Veterans to File Amended Returns
  • Assessing Your Exposure to the Estate Tax and Gift Tax

View the newsletter>>

Subscribe here>

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Go Paperless with the Attach Document Feature https://hawkinsashcpas.com/go-paperless-with-the-attach-document-feature/ Mon, 06 Aug 2018 19:20:37 +0000 https://hawkinsashcpas.com/?p=6147 QuickBooks has made it easier for employees and businesses to go paperless. Electronic documents can now be stored in one area within the same place as your bill payments, deposits and invoices. Using this feature allows you to find documents more quickly by minimizing search time. This free feature can be easily be backed up […]

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QuickBooks has made it easier for employees and businesses to go paperless. Electronic documents can now be stored in one area within the same place as your bill payments, deposits and invoices. Using this feature allows you to find documents more quickly by minimizing search time. This free feature can be easily be backed up for better protection and can also reduce costs such as filing cabinets, file rooms and archiving efforts.

The paper clip icon feature, which allows you to attach documents to an email, can be used while you are paying bills in the “Enter Bills” screen, creating an invoice for your customer in the “Create Invoices” screen, recording a payment in the “Receive Payment” screen or in just about any other document or template.

This option will not be available until you enter all information, including the vendor, amount and expense account(s). You are also required to have the document you want to attach saved somewhere on your computer by way of scanning in or in your email. It doesn’t matter the type of file you will be attaching. Once all information is entered, click the “Attach File,” and a box will pop up.

If you have scanned the document and saved it to your computer, choose the “Computer” folder icon on the top of the screen and browse to the file you have saved. By double clicking on the file, it will upload to the screen as shown in the next picture. Checking the box to the left of the attachment will allow you to “Detach” the file, which will delete it. Clicking “Done” will save the attachment. The easiest way to attach the file is to use the drag and drop feature. Simply click on the file that was scanned in or e-mailed to you and drag and drop it directly into the “Drop documents from Outlook, your desktop, or folders here” box.

If you have scanned the document and saved it to your computer, choose the “Computer” folder icon on the top of the screen and browse to the file you have saved. By double clicking on the file, it will upload to the screen as shown in the next picture. Checking the box to the left of the attachment will allow you to “Detach” the file, which will delete it. Clicking “Done” will save the attachment. The easiest way to attach the file is to use the drag and drop feature. Simply click on the file that was scanned in or e-mailed to you and drag and drop it directly into the “Drop documents from Outlook, your desktop, or folders here” box.

You are always able to add another document or detach a document, and by using this feature you will be able to achieve a paperless environment, while reducing costs associated with making copies and sending paper documents in your daily procedures.

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Write Off Bad Debt in QuickBooks Online https://hawkinsashcpas.com/write-off-bad-debt-in-quickbooks-online/ Mon, 30 Jul 2018 19:19:59 +0000 https://hawkinsashcpas.com/?p=6144 Unfortunately, there may be a time when a customer does not pay you for your services and you need to write off their outstanding invoice. The following information will help you write off the bad debt. If you don’t already have a Bad Debt expense account set up, here’s how to create one: Click on […]

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Unfortunately, there may be a time when a customer does not pay you for your services and you need to write off their outstanding invoice. The following information will help you write off the bad debt.

If you don’t already have a Bad Debt expense account set up, here’s how to create one:

  • Click on the Gear icon and select Chart of Accounts.
  • Click on New.
  • Select Expenses as the Account Type and type in Bad Debt in the Name field and choose Bad Debts as the Detail Type.

You will need to create a credit memo to apply the outstanding invoice.

  • Click on the Plus icon and select Credit Memo underneath the Customers column.
  • Select the customer
  • Use the current date for the Credit Memo Date. Note: credit memos should not be dated with prior year’s date as it will affect past financials and filed tax returns.
  • Select the Bad Debt item. If you do not already have a Bad Debt item set up, click on Add New and Service for the type. Type Bad Debt in the Name field and select the Bad Debt expense account for the Income account. Click Save and close. You can type in Bad Debt and a descriptive reason in the Description field.
    Enter in the amount of the outstanding invoice as the amount of the credit memo.
    Click on the Sales menu on the left-hand side and then the Customers menu at the top. Find the customer, and you will notice that QuickBooks automatically applied the credit memo to the invoice.

Article written by: Pai Kong, QuickBooks Online Certified ProAdvisor

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Financial Institution Update: July 2018 https://hawkinsashcpas.com/financial-institution-update-july-2018/ Fri, 27 Jul 2018 14:21:54 +0000 https://hawkinsashcpas.com/?p=6142 View our latest Financial Institution Update publication. Headlines of this edition include: Revenue Recognition Standard for Financial Institutions Tax Reform Podcast Current Expected Credit Losses (CECL) – The Migration Analysis Method Excise Tax on Executive Compensation Click here to view>>>

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View our latest Financial Institution Update publication. Headlines of this edition include:

  • Revenue Recognition Standard for Financial Institutions
  • Tax Reform Podcast
  • Current Expected Credit Losses (CECL) – The Migration Analysis Method
  • Excise Tax on Executive Compensation

Click here to view>>>

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Podcast: Pass-Through Business Deduction for Qualified Business Income https://hawkinsashcpas.com/podcast-pass-through-business-deduction-for-qualified-business-income/ Fri, 27 Jul 2018 13:55:33 +0000 https://hawkinsashcpas.com/?p=6140 This is one of the largest and most complex parts of the TAX CUTS AND JOBS ACT OF 2017. It introduces the concept of QUALIFIED BUSINESS INCOME and the deduction that pass-through entities get for it that will effectively allow for certain businesses to be taxed at only 80% of their income, rather than 100%. […]

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This is one of the largest and most complex parts of the TAX CUTS AND JOBS ACT OF 2017. It introduces the concept of QUALIFIED BUSINESS INCOME and the deduction that pass-through entities get for it that will effectively allow for certain businesses to be taxed at only 80% of their income, rather than 100%.

Click the orange circle below to listen in!

Script

Let me give you a little bit of background. A pass-through entity is any kind of business where the income actually flows on to your individual return and you get taxed at your rates. This would include S-Corporations, Partnerships, LLC’s, and maybe a Schedule C and some farms. Those are what pass-through entities are. What they try to do with this law is they took the C-Corporation rate, which was reduced from the maximum 35% down to a flat 21%, and they wanted to give that same benefit to individuals who have their business income actually taxed on their return, because C-Corporations pay their own tax.

Let’s start with a simple example –Wendy owns a small business. Her net income generated from the business after paying all her expenses is about $50,000. Prior to 2018, this entire amount would be taxable to her. But, in 2018, assuming that the income is qualified business income and she is not phased out by any other income, she will only be taxed on $40,000, since $10,000 or 20% of that business income will qualify for the deduction. Being that she saves $10,000 in income for this year, 2018, if she is in the 22% tax bracket, it could be a $2,200 savings.

THAT SOUNDS LIKE AN AMAZING DEAL FOR WENDY, BUT HOW DOES SHE KNOW IF THE INCOME IS ACTUALLY “QUALIFIED BUSINESS INCOME?”

That is still the million-dollar question. Since the final regulations have not yet been issued, we think we know what we know, but these things are always subject to change. Here is what we do know:
• As long as your taxable income on your personal return (after standard deductions) is below $315,000 (MFJ) and $157,500 (Single), then most business income is going to qualify as Qualified Business Income.
• Business income includes any venture that you are an active participant in, including what they added late in the bill –the income from the rental of real estate. It has to be a business that you own and operate.
• Certain income that is not included as business income would be W-2 wages, guaranteed payments (what partners in partnerships get), investment income (interest and dividends), unemployment benefits, retirement income and Social Security. Those are non-business income items and so that income would not qualify for this deduction.

IT SOUNDS LIKE THIS RULE COULD EVEN GET MORE COMPLICATED IF YOUR TAXABLE INCOME IS OVER $315,000 IF YOU’RE MARRIED, CORRECT?

That is correct. We talked about that magic $315,000 number. If you are over that number, then this particular deduction starts to phase out. It hits hard especially for those in the healthcare field, accountants, performing artists, athletes, financial service advisors, and brokerage service providers. Once you get over that $315,000 in income, a lot of these phase out to where you can’t take the deduction at all. If you are not that type of business, then the deduction is limited to 50% of the wages you paid to your employees. If you have a rental property, the deduction is limited to 25% of your W-2 or 2.5% of the original purchase price of the real estate (subject to additional limitation). These issues are very complicated which is why I definitely suggest talking to a CPA.

CAN YOU GIVE ME AN EXAMPLE OF HOW THE PHASE-OUT WORKS OVERALL?

Let’s use the example discussed earlier where Wendy’s business had net income of $50,000, and she was able to only pay tax on $40,000 of that income. If she is in the phase-out period, her deduction is limited to 50% of her W-2 wages that she pays to her employees. Therefore, if she has one employee and she pays $10,000 to that employee, she is only going to get $5,000 as a deduction, not the full $10,000 as if she wasn’t in the phase-out period.

Congress has provided a framework on what the deduction should be, but it is up to the federal government to write the regulations. We will update the content on our website as these regulations are written.

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ESOPs Offer Businesses Tax and Other Benefits https://hawkinsashcpas.com/esops-offer-businesses-tax-and-other-benefits/ Mon, 23 Jul 2018 20:03:48 +0000 https://hawkinsashcpas.com/?p=6128 Wouldn’t it be great if your employees worked as if they owned the company? An employee stock ownership plan (ESOP) could make that a reality. Under an ESOP, employee participants take part ownership of the business through a retirement savings arrangement. Meanwhile, the business and its existing owner(s) can benefit from some tax breaks, an […]

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Wouldn’t it be great if your employees worked as if they owned the company? An employee stock ownership plan (ESOP) could make that a reality.

Under an ESOP, employee participants take part ownership of the business through a retirement savings arrangement. Meanwhile, the business and its existing owner(s) can benefit from some tax breaks, an extra-motivated workforce and potentially a smoother path for succession planning.

How ESOPs Work
To implement an ESOP, you establish a trust fund and either:

Contribute shares of stock or money to buy the stock (an “unleveraged” ESOP)
Borrow funds to initially buy the stock, and then contribute cash to the plan to enable it to repay the loan (a “leveraged” ESOP)

The shares in the trust are allocated to individual employees’ accounts, often using a formula based on their respective compensation. The business must formally adopt the plan and submit plan documents to the IRS, along with certain forms.

Tax Impact
Among the biggest benefits of an ESOP is that contributions to qualified retirement plans such as ESOPs typically are tax-deductible for employers. However, employer contributions to all defined contribution plans, including ESOPs, are generally limited to 25% of covered payroll. But C corporations with leveraged ESOPs can deduct contributions used to pay interest on the loans. That is, the interest isn’t counted toward the 25% limit.

Dividends paid on ESOP stock passed through to employees or used to repay an ESOP loan may be tax-deductible for C corporations, so long as they’re reasonable. Dividends voluntarily reinvested by employees in company stock in the ESOP also are usually deductible by the business. (Employees, however, should review the tax implications of dividends.)

In another potential benefit, shareholders in some closely held C corporations can sell stock to the ESOP and defer federal income taxes on any gains from the sale, with several stipulations. One is that the ESOP must own at least 30% of the company’s stock immediately after the sale. In addition, the sellers must reinvest the proceeds (or an equivalent amount) in qualified replacement property securities of domestic operation corporations within a set period.

Finally, when a business owner is ready to retire or otherwise depart the company, the business can make tax-deductible contributions to the ESOP to buy out the departing owner’s shares or have the ESOP borrow money to buy the shares.

Risks to Consider
An ESOP’s tax impact for entity types other than C corporations varies somewhat from what we’ve discussed here. And while an ESOP offers many potential benefits, it also presents risks such as complexity of setup and administration and a strain on cash flow in some situations. For help determining whether one may make sense for your business, contact us.

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Don’t Let the Kiddie Tax Play Costly Games With You https://hawkinsashcpas.com/dont-let-the-kiddie-tax-play-costly-games-with-you/ Mon, 23 Jul 2018 19:57:26 +0000 https://hawkinsashcpas.com/?p=6126 It’s not uncommon for parents, grandparents and others to make financial gifts to minors and young adults. Perhaps you want to transfer some appreciated stock to a child or grandchild to start them on their journey toward successful wealth management. Or maybe you simply want to remove some assets from your taxable estate or shift […]

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It’s not uncommon for parents, grandparents and others to make financial gifts to minors and young adults. Perhaps you want to transfer some appreciated stock to a child or grandchild to start them on their journey toward successful wealth management. Or maybe you simply want to remove some assets from your taxable estate or shift income into a lower tax bracket. Whatever the reason, beware of the “kiddie tax.” It can play costly games with the unwary.

An Evolving Concept
Years ago, the kiddie tax applied only to those under age 14. But, more recently, the age limits were revised to children under age 19 and to full-time students under age 24 (unless the students’ earned income is more than half of their own support).

Another important, and even more recent, change to the kiddie tax occurred under the Tax Cuts and Jobs Act (TCJA). Before passage of this law, the net unearned income of a child was taxed at the parents’ tax rates if the parents’ tax rates were higher than the tax rates of the child. The remainder of a child’s taxable income — in other words, earned income from a child’s job, plus unearned income up to $2,100 (for 2018), less the child’s standard deduction — was taxed at the child’s rates. The kiddie tax applied to a child if the child:

  • Hadn’t reached the age of 19 by the close of the tax year, or the child was a full-time student under the age of 24 whose earned income was less than half of their own support, and either of the child’s parents was alive at such time
  • Had unearned income exceeding $2,100 (for 2018)
  • Didn’t file a joint return

Now, under the TCJA, for tax years beginning after December 31, 2017, the taxable income of a child attributable to earned income is taxed under the rates for single individuals, and taxable income of a child attributable to net unearned income is taxed according to the brackets applicable to trusts and estates. This rule applies to the child’s ordinary income and his or her income taxed at preferential rates. As under previous law, the kiddie tax can potentially apply until the year a child turns 24.

The Tax in Action
Let’s say you transferred to your 16-year-old some stock you’d held for several years that had appreciated $10,000. You were thinking she’d be eligible for the 0% long-term gains rate and could sell the stock with no tax liability for your family. But you’d be in for an unhappy surprise: Assuming your daughter had no other unearned income, in 2018 $7,900 of the gain would be taxed at the estate and trust capital gains rates, equal to a tax of $795.

Or let’s say you transferred the appreciated stock to your 18-year-old grandson with the plan that he could sell the stock tax-free to pay for his college tuition. He won’t end up with the entire $10,000 gain available for tuition because of the kiddie tax liability.

Fortunately, there may be ways to achieve your goals without triggering the kiddie tax. For example, if you’d like to shift income and you have adult children (older than 24) who’re no longer subject to the kiddie tax but in a lower tax bracket, consider transferring income-producing or highly appreciated assets to them.

A Risky Time
Many families wait until the end of the year to make substantial, meaningful gifts. But, given what’s at stake, now is a good time to start a methodical process to determine the best possible way to pass along your wealth. After all, with the many changes made under the TCJA, the kiddie tax might affect you in ways you weren’t expecting. The best advice is to simply run the numbers with an expert’s help. Please contact our firm for more information and some suggestions on how to achieve your financial goals.

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