Hawkins Ash CPAs https://hawkinsashcpas.com Part of your business. Part of your life. Mon, 18 Feb 2019 21:19:53 +0000 en-US hourly 1 Financial Institution Update: May 2018 https://hawkinsashcpas.com/financial-institution-update-may-2018-2/ Mon, 18 Feb 2019 19:24:46 +0000 https://hawkinsashcpas.com/?p=7191 Headlines in the Financial Institution Update for May 2018 include: Accounting for Fees Paid in a Cloud Computing Arrangement FinCEN Creates Exception to Beneficial Ownership Rule Is a PTO Contribution Arrangement Right for Your Business? Tax News Briefing – Unrelated Business Income Tax (UBTI) Updates View & sign up for the newsletter here >>

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Headlines in the Financial Institution Update for May 2018 include:

  • Accounting for Fees Paid in a Cloud Computing Arrangement
  • FinCEN Creates Exception to Beneficial Ownership Rule
  • Is a PTO Contribution Arrangement Right for Your Business?
  • Tax News Briefing – Unrelated Business Income Tax (UBTI) Updates

View & sign up for the newsletter here >>

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Podcast: Pre-Tax Deductions for Employees https://hawkinsashcpas.com/podcast-pre-tax-deductions-for-employees/ Mon, 18 Feb 2019 17:57:55 +0000 https://hawkinsashcpas.com/?p=7184 When a young person gets a job for the first time, it amazes them how much comes off in taxes. They make $10 per hour and work 20 hours per week. They expect to get a $200 paycheck, but instead they only get $150 after taxes. Today, I want to talk about payroll taxes and […]

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When a young person gets a job for the first time, it amazes them how much comes off in taxes. They make $10 per hour and work 20 hours per week. They expect to get a $200 paycheck, but instead they only get $150 after taxes. Today, I want to talk about payroll taxes and how taking advantage of your employer’s benefits can reduce the tax.

SCRIPT

So, just as a base, I want to talk about the four main taxes. And that’s Social Security, Medicare, Federal withholding, and State withholding.

Now, Social Security is basically 6.2% of your wages gets taxed for social security. You pay that amount, your employer pays that amount. – up to $132,900 for 2019. For Medicare it’s about 1.45%. So between the two, you might hear that 7.65% is what your FICA taxes are and that’s made up of Social Security and Medicare. Then of course there’s your Federal and State withholding.

You know Terry, I know you obviously get a payroll, so what kind of other items do you see on your payroll check that maybe we should talk about?

– So I know that health, dental, and vision insurance could be one of them.

Yeah! And that’s a good one because even though you’re paying those premiums for health, dental, and vision, you actually get those pre-taxed. And pre-taxed means that you don’t pay social security, you don’t pay for Medicare, you don’t pay federal or state taxes. So it’s almost like the government is subsidizing your health insurance, even though it comes from your employer.

– Okay, how about retirement plans, like a 401k?

Yeah, we’ve talked about this in a lot of different episodes that it’s a good idea to put money into retirement plans. So, if you have a retirement plan and you put money into it off of your check, what you’re saving is the federal and the state taxes. Now you still pay social security and Medicare on that, and the reason being is that when you take it out later on when you retire, you only pay federal and state taxes on that. You don’t pay social security and Medicare because you’ve already paid it.

– What about an HSA or a Health Savings Account?

Health savings accounts are very similar to Health and Dental. So, every dollar you have withheld from your check for your Health Savings Account, you save all four taxes. You save the FICA, so the social security and Medicare, you save federal and state taxes. So once again it’s almost like the federal government is subsidizing you.

– Do you have to use that money though for health only expenses?
You do. So the caveat is, in order to get that tax-free, when you take it out of your HSA, it has to be used for medical expenses. There is a thing though, where after you retire, after 59 and a half, you can actually take it out and treat it like and IRA and you’re going to pay federal and state taxes on that. Still not FICA and Medicare, but you’re going to pay federal and state taxes at that time.

– Or if you use it for a health situation, you’re not paying that.

Correct. Right, if you take it out for a health emergency or something like that or a health bill, then you’re not paying any of those taxes.

– So your health insurance bills can come out of your HSA?

That is correct.

– What about a cafeteria plan?

Yeah, so a cafeteria plan a lot of times is used for those that don’t have the Health Savings Account. Remember – the Health Savings Account you have to have fairly high deductibles. So the cafeteria plan you don’t. But with that, it’s a use it or lose it system. So in other words if you put $1,000 into your cafeteria plan, you have to use it by the end of the year, or sometimes even a little bit after, or else it’s gone. The employer gets to keep that money, even though it came off of your check but that all comes off without paying the taxes. No social security, Medicare, federal, or state withholding. So there’s advantages and disadvantages.

– What about a short-term disability?

Yeah, the short-term disability. A lot of times that comes off without having that after tax money. And the reason being is because most of the time for short and long-term disability, you want to get those benefits and not have them taxable to you when you need them. So especially for long-term disability, you pay for that with after-tax dollars so when you get the benefit later if you need it, you don’t need to pay tax on that income.

– Okay, quickly here, what about AFLAC?

AFLAC, life insurance, those kind of things where they just kind of pay you a certain dollar amount, those are normally done with after tax dollars.

– Okay, anything else on today’s program that you want to cover, Jeff?

Yeah, I think just one last thing. There’s things called Accountable Plans, and that’s something where your employer can reimburse you for business mileage, or for meals, or for lodging. Those kind of things are reimbursed to you without any kind of tax consequences to you. The business gets a deduction, but you don’t have to pick up those business miles, meals, or lodging in your income because you’re essentially being reimbursed for them.

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Housing Authority Financial Workshop https://hawkinsashcpas.com/housing-authority-financial-workshop/ Wed, 13 Feb 2019 17:22:13 +0000 https://hawkinsashcpas.com/?p=7110 This two-day event held in La Crosse, WI, will equip your housing authority’s financial staff with the necessary knowledge to help your organization fulfill the regulation and reporting demands. The topics covered will show how to improve efficiencies and procedures and strengthen management procedures and control. Fundamental financial topics covered during the workshop will include: […]

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This two-day event held in La Crosse, WI, will equip your housing authority’s financial staff with the necessary knowledge to help your organization fulfill the regulation and reporting demands. The topics covered will show how to improve efficiencies and procedures and strengthen management procedures and control.

Fundamental financial topics covered during the workshop will include:

  • Budgeting
  • Financial Statements
  • Year-End/FDS Reporting
  • Audit
  • Voucher/VMS
  • Scoring
  • Operating Subsidy

Hawkins Ash CPAs’ Fee Accountants will be on hand to provide answers to questions you may have. You’ll also have the opportunity to network with many professionals from other housing authorities.

Dates
Tuesday, October 22, and Wednesday, October 23, 2019

Location
Radisson La Crosse | La Crosse, WI

Workshop Fees
2-Day Workshop | $400.00
Includes all topics listed above.
Includes breakfast and lunch each day and Tuesday night Mississippi River boat pizza cruise.

1-Day Workshop | $175.00
Wednesday, October 23, 2019
Includes the following topics: REAC Submission/PHAS Scoring and Voucher/ VMS.
Includes breakfast and lunch.

Registration
Registration opens in April. Please watch for an announcement.

Questions
Please contact: Michelle Kurth
608.793.7737
mkurth@hawkinsashcpas.com

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Notice 2018-99 “Parking Tax” https://hawkinsashcpas.com/notice-2018-99-parking-tax/ Mon, 11 Feb 2019 19:50:35 +0000 https://hawkinsashcpas.com/?p=7079 In December 2018, the Internal Revenue Service released Notice 2018-99 that detailed how the IRS planned to implement the part of the Tax Cuts and Jobs Act relating to “qualified parking” benefits to employees. The tax applies to employer-provided parking expenses incurred from January 1, 2018 forward. This tax could also have an effect on […]

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In December 2018, the Internal Revenue Service released Notice 2018-99 that detailed how the IRS planned to implement the part of the Tax Cuts and Jobs Act relating to “qualified parking” benefits to employees. The tax applies to employer-provided parking expenses incurred from January 1, 2018 forward. This tax could also have an effect on not-for-profits. The Notice does provide a safe harbor clause, which may exclude many not-for-profits from the tax. A not-for-profit employer is not subject to the tax if they do not have parking spots specifically reserved for employees and their parking facilities are not primarily (less than 50%) used by employees.

In order to determine if the tax applies, the Organization should follow these steps:

  1. Determine the number of total parking spaces available that they own or lease
  2. Identify spaces that are specifically reserved for employee use
  3. Calculate the number of spaces typically occupied by employees
  4. Identify parking expenses identified in the Notice

The calculation is based on a ratio of (reserved spaces over total spaces) x total parking expenses + (remaining employee spaces over total spaces less reserved spaces times) x total parking expenses. The total qualifying expenses will be reported on a Form 990-T (Unrelated Business Tax Return) and may be subject to a 21% corporate tax.

While, we believe that most not-for-profits will fall within the safe harbor clause and not subject to this tax it is still important for the not-for-profits to go through the exercise above. If you would like to discuss how this tax may impact your organization, please contact your Hawkins Ash CPAs representative.

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Client Feature and Executive Director Q&A: CP https://hawkinsashcpas.com/client-feature-and-executive-director-qa-cp/ Mon, 11 Feb 2019 19:44:23 +0000 https://hawkinsashcpas.com/?p=7054 CP is an independent, non-profit organization that provides advanced solutions for clients with physical, sensory, and communication conditions. They are truly a leader in their field, as their professionals have been providing services for over 60 years in Northeast Wisconsin. Every year CP’s staff help more than 2,100 people of all ages and abilities reach […]

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CP is an independent, non-profit organization that provides advanced solutions for clients with physical, sensory, and communication conditions. They are truly a leader in their field, as their professionals have been providing services for over 60 years in Northeast Wisconsin. Every year CP’s staff help more than 2,100 people of all ages and abilities reach their personal development goals.

Since the expansion added 21,500 sq. ft. to its facility in Green Bay, CP now has the ability to expand services to more clients. Its Adult Day Services program will grow to serve 30 more people per day, its CP Early Education & Care will increase by 16 children per day, and its Therapy Services will be able to add 31 people per month. CP Therapy Services has gained two new treatment rooms and two large therapy gyms, and CP early Education & Care gained an additional classroom. CP’s administrative staff moved into the new addition, allowing their previous space to be utilized as flexible program space for Adult Day Services, a new lounge, and locker room space for the Aquatic Center.

Upon completion, CP celebrated with the community during their CP Block Party, offering free children’s activities, food trucks, and building tours.

“Our clients, families and staff have been patiently waiting for the project to be done,” said Jon Syndergaard, Executive Director for CP. “It has been a long 16 months, but when you see the space we’ve gained, and you know it will allow us to better serve our clients, it makes it worth the wait.”

Jon grew up in Shawano, Wisconsin. He first attended Valparaiso University and graduated from UW-Green Bay with degrees in Political Science and Public Administration. Following graduation, he spent ten years as a City Administrator in three Wisconsin communities. Returning to northeast Wisconsin, Jon spent 18 years as the President/CEO of Integrated Community Solutions in Green Bay. Five years ago, he assumed his current role as the Executive Director of CP.

We had asked Jon some questions and gained valuable insight about being an Executive Director for a nonprofit organization:

What are some things you know now that you wish you knew when you first started as a nonprofit leader?

Working with limited resources is a real challenge. That is a common thread with most nonprofits. At the same time that attribute develops creativity and an entrepreneurial spirit. There is great satisfaction in doing more with less. Mission driven teams are special people.

What has been your biggest source of pride as Executive Director?

As the Executive Director of two substantial nonprofits, I have had the opportunity to help lead significant growth and expansion; both programmatic and physical. In one of the cases in particular, the growth was a public/private partnership that was perceived as cutting edge at the time. It was both rewarding and fun. We’ve recently completed a 7.5 million dollar expansion/renovation at CP, creating a facility that is cutting edge. I take great pride in that.

What are the dominant challenges that you see nonprofit organizations facing and what do you think would be viable solutions?

There is keen competition for scarce resources in the nonprofit arena. Those nonprofits that diversify and successfully acquire new revenue streams will be the ones that remain vibrant and sustainable in the future.

How do you see the organization changing in the next two years, and how do you see yourself creating that change?

CP will continue to grow and seek new opportunities. Our brand is strong, as is the demand for our services. My role is to continue to help develop the strategy and vision for future success and hire and coach the right leaders to make that happen.

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New Revenue Recognition Standard https://hawkinsashcpas.com/new-revenue-recognition-standard/ Mon, 11 Feb 2019 18:28:15 +0000 https://hawkinsashcpas.com/?p=7047 In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-19, Revenue from Contracts with Customers (“the standard”). The standard is effective for annual reporting periods beginning after December 15, 2018. This means January 1, 2019 for calendar year ends. For a nonprofit with a June 30th year end, the standard will be […]

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In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-19, Revenue from Contracts with Customers (“the standard”). The standard is effective for annual reporting periods beginning after December 15, 2018. This means January 1, 2019 for calendar year ends. For a nonprofit with a June 30th year end, the standard will be effective July 1, 2019.

The goal of the new revenue recognition model is improved comparability of revenue recognition across all industries and between entities. The core principle of the standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will not affect contributions and investment income.

Effect on Grants and Contracts

After the issuance of the standard, concerns were raised regarding characterizing grants and similar contracts with government agencies and others as reciprocal transactions (exchanges) or nonreciprocal transactions (contributions) and distinguishing between conditions and restrictions for nonreciprocal transactions. To improve and clarify the standard, FASB issued ASU 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made (“the ASU”). The ASU clarifies how an entity determines whether a resource provider (ex: private foundation, government agency) is participating in an exchange transaction by evaluating if the resource provider is receiving commensurate value in return for the resources transferred. The following clarifications were also made:

  • A resource provider is not synonymous with the general public. Indirect benefit received by the public as a result of the assets transferred is not equivalent to commensurate value received by the resource provider.
  • Execution of a resource provider’s mission or the positive sentiment from acting as a donor would not constitute commensurate value received by a resource provider for purposes of determining whether a transfer of assets is a contribution or an exchange.

Examples of an exchange of commensurate value include when the goods or services provided directly benefit the resource provider or are for its own use and the resource provider obtains proprietary rights or other privileges (ex: patents, copyrights, or advance and exclusive knowledge of research outcomes).

If it is determined that no commensurate value was received by the resource provider, the Organization should then determine if a conditional contribution exists. If either of the following are true, this indicates a conditional contribution:

  • Have conditions been placed on the resources provided?
  • Is there a barrier that the Organization must overcome to be entitled to the resources or does a right of return or release of assets promised exist should the NFP fail to overcome the barrier?

This determination is important because of the difference in financial reporting for conditional vs. unconditional contributions. Conditional contributions are not recognized until the conditions have been substantially met or explicitly waived by the donor. If assets are transferred before then a liability is recognized. Unconditional contributions are recognized immediately and classified as net assets with or without donor restrictions. Thus, after determining the presence of conditions, the existence of donor-imposed restrictions, if any, is the final key point to consider.

The impact on each nonprofit organization will differ depending on various factors such as the transaction, its complexity, and the industry in which the entity operates. There is a possibility that the standard may not result in any changes in regards to the amount and timing of revenue recognition for your organization. However, it is important that you look now at your revenue streams to determine if changes are necessary.

What You Should Do to Prepare

To determine if any changes in regards to revenue recognition need to be made, it is important to be proactive and begin analyzing the overall effect of this standard on your organization.

1. Read the standard and consider attending related training courses.

2. Assign someone within your organization to become an expert and lead your staff in implementing the standard.

3. Compile a list of all revenue streams of your organization. Examples include: Memberships, sponsorships, grants, investment income, contributions, retail sales, educational services fees, tuition, fee for service.

4. Determine whether the revenue stream is within the scope of the standard. If identified as being included within the scope of the standard, apply the five-step approach outlined in the standard. For more information regarding this five-step approach, please see our Revenue Recognition Standard Guide for Not-for-Profit Organizations located at https://hawkinsashcpas.com/not-for-profit-revenue-recognition-standard/

5. If after the five-step approach it is determined that a change in revenue reporting is needed, consider the materiality of the amounts. Small amounts may not have a material impact on the financial statements and may not require an adjustment.

6.If it is determined that a change is needed consider the impact on the following:

  • Revenue recognition processing within your accounting system
  • Financial reporting processes and internal controls
  • Technology updates or enhancements to current accounting and financial reporting
  • UBIT
  • Internal financial reporting
  • Audited financial statements
  • Forecasts and budgeting
  • Debt covenants
  • Terms in any written or oral contracts

7.Communicate any changes to the users of your financial statements and internal staff involved in the preparation of the financial statements, and provide any additional training needed.

If you have any questions regarding the new revenue recognition standard, please contact your Hawkins Ash CPAs representative.

Article written by: Brittany Leonard, CPA

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FAQs on the New Expense Reporting Requirements https://hawkinsashcpas.com/faqs-on-the-new-expense-reporting-requirements/ Fri, 08 Feb 2019 23:18:02 +0000 https://hawkinsashcpas.com/?p=7044 For years beginning after December 15, 2017, all nonprofits are required to present their expenses by both their natural and functional classifications in one location. This article, What You Need to Know About the New Expense Reporting Requirements , covers the basics of the new expense reporting requirements of FASB Accounting Standards Update 2016-14. More […]

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For years beginning after December 15, 2017, all nonprofits are required to present their expenses by both their natural and functional classifications in one location. This article, What You Need to Know About the New Expense Reporting Requirements , covers the basics of the new expense reporting requirements of FASB Accounting Standards Update 2016-14. More clarification is provided in the standard regarding the definitions of program service expenses and support service expenses (management and general [M&G] activities, fundraising activities, and membership development activities). This article provides some additional guidance and answers a few questions that might arise as nonprofit leaders are implementing these changes.

How do I determine the categories of Program and Support Activities?

The categories of Program and Support Activities will differ with each organization. Programs are the activities that result in goods and services being distributed to beneficiaries, customers, or members that fulfill the purposes or mission for which the organization exists. Some factors to consider in determining your categories are: budgetary categories, geographical areas served, classifications of individuals served, purposes of different grants, and how programs are separated for management or board oversight. If you have several small programs, these can be grouped into an “Other” category.

Support activities are commonly separated into the following categories: M&G, fundraising, and membership development. M&G expenses are costs that are not directly related to one or more program, fundraising, or membership development efforts. Specific examples are in the article on expense reporting article mentioned above. Fundraising expenses are costs incurred to solicit donations of money, services, materials, or time. Membership development activities consist of soliciting for prospective members and membership dues, member relations, and other associated activities.

Keep in mind that all nonprofit organizations are unique in their programs and what may be a major program for one organization can be a supporting activity for another organization.

What should a cost allocation plan look like?

The plan will vary a lot by organization. However, here are some guidelines:

First, the plan should be in writing and approved by the governing board. Second, it should identify which costs are to be allocated (salaries/wages, rent, utilities, etc.). Third, it should define the method for allocating those costs. An optional item is a section that defines which items should be directly allocated to a certain program or support category. Management should review the cost allocation plan annually to be sure it is still accurate.

What method of allocation should I use?

It depends on the expense. Whenever possible, costs should be directly assigned to a function. For those expenses that cannot be directly assigned to a single function, the most common methods of allocation are square footage used and employee time spent on each activity, but other methodologies may be appropriate for your organization. Square footage is often used for allocating occupancy-related costs. Salaries, benefits, and other payroll-related expenses can be allocated by determining the amount of time spent on various activities. This is done by performing a time study. Another method is based on units used. For example, your telephone bill could be allocated based on the use of each phone in the building. Consider the factors that increase or decrease a cost to help you in determining the proper methodology. The important thing is to have a reasonable basis for your methodologies.

We have a cost allocation plan for allocating indirect costs to our grants. Isn’t this the same thing?

No, it’s not. Although allocation of some costs may be similar, indirect costs will likely be split differently for grants versus support expenses for financial statements under FASB Accounting Standards Update 2016-14. For example, a portion of administration costs such as salaries, wages, and fringe benefits for the executive director, accounting staff, and other administrative staff can often be allocated to grants if they spend time on the grant. For financial reporting, these costs are usually considered M&G expenses. Therefore, your cost allocation plan for grants should be a separate document from your cost allocation plan for financial reporting.

How should we classify volunteer costs, such as volunteer meals and staff time coordinating volunteers?

It depends on what the volunteers are doing. If volunteers are assisting with administrative activities, the cost should be classified as M&G expense. If volunteers are working fundraising events, it would be considered a fundraising cost. If they are assisting with activities that carry out the organization’s mission or purpose, the cost would be considered program expense.

If you have other questions in regards to the new expense reporting requirements, please contact your Hawkins Ash CPAs representative.

Article was written by: Lora Vandevoorde, CPA

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You’ve Got Time: Small Businesses Can Still Set Up a 2018 SEP Plan https://hawkinsashcpas.com/youve-got-time-small-businesses-can-still-set-up-a-2018-sep-plan/ Wed, 06 Feb 2019 21:20:41 +0000 https://hawkinsashcpas.com/?p=7020 Are you a high-income small-business owner who doesn’t currently have a tax-advantaged retirement plan set up for yourself? A Simplified Employee Pension (SEP) plan may be just what you need, and now may be a great time to establish one. A SEP plan has high contribution limits and is simple to set up. Best of […]

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Are you a high-income small-business owner who doesn’t currently have a tax-advantaged retirement plan set up for yourself? A Simplified Employee Pension (SEP) plan may be just what you need, and now may be a great time to establish one.

A SEP plan has high contribution limits and is simple to set up. Best of all, there’s still time to establish one for 2018 and make contributions to it that you can deduct on your 2018 income tax return.

2019 Deadlines for 2018

A SEP plan can be set up as late as the due date (including extensions) of your income tax return for the tax year for which the plan is to first apply. That means you can establish a plan for 2018 in 2019 if you do it before your 2018 return filing deadline. You have until the same deadline to make 2018 contributions and still claim a potentially hefty deduction on your 2018 return.

Generally, other types of retirement plans would have to have been established by December 31, 2018, for 2018 contributions to be made (though many of these plans do allow 2018 contributions to be made in 2019).

High Contribution Limits

Contributions to SEP plans are discretionary. You can decide how much to contribute each year. But be aware that, if your business has employees other than you, 1) contributions must be made for all eligible employees using the same percentage of compensation as for you, and 2) employee accounts are immediately 100 percent vested. The contributions go into SEP-IRAs established for each eligible employee.

For 2018, the maximum contribution that can be made to a SEP-IRA is 25 percent of compensation (or 20 percent of self-employed income net of the self-employment tax deduction) of up to $275,000, subject to a contribution cap of $55,000. (The 2019 limits are $280,000 and $56,000, respectively).

Simple to Set Up

A SEP plan is established by completing and signing the very simple Form 5305-SEP (Simplified Employee Pension: Individual Retirement Accounts Contribution Agreement). Form 5305-SEP isn’t filed with the IRS, but it should be maintained as part of the business’s permanent tax records. A copy of the form must be given to each employee covered by the plan, along with a disclosure statement.

Because of their simplicity and the great flexibility you have in making contributions, SEP plans are good “starter” retirement plans for small businesses. They’re also well suited for cash-flow dependent businesses such as construction companies, restaurants and seasonal businesses that may not always have dollars ready to contribute.

Less Onerous

Additional rules and limits do apply to these plans, but they’re generally much less onerous than those for other retirement plans. Contact our firm to learn more about SEP plans and how they might reduce your tax bill for 2018 and beyond.

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Multistate Resident? Watch Out for Double Taxation https://hawkinsashcpas.com/multistate-resident-watch-out-for-double-taxation/ Wed, 06 Feb 2019 21:14:03 +0000 https://hawkinsashcpas.com/?p=7017 Contrary to popular belief, there’s nothing in the U.S. Constitution or federal law that prohibits multiple states from collecting tax on the same income. Although many states provide tax credits to prevent double taxation, those credits are sometimes unavailable. If you maintain residences in more than one state, here are some points to keep in […]

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Contrary to popular belief, there’s nothing in the U.S. Constitution or federal law that prohibits multiple states from collecting tax on the same income. Although many states provide tax credits to prevent double taxation, those credits are sometimes unavailable. If you maintain residences in more than one state, here are some points to keep in mind.

Domicile vs. Residence

Generally, if you’re “domiciled” in a state, you’re subject to that state’s income tax on your worldwide income. Your domicile isn’t necessarily where you spend most of your time. Rather, it’s the location of your “true, fixed, permanent home” or the place “to which you intend to return whenever absent.” Your domicile doesn’t change — even if you spend little or no time there — until you establish domicile elsewhere.

Residence, on the other hand, is based on the amount of time you spend in a state. You’re a resident if you have a “permanent place of abode” in a state and spend a minimum amount of time there — for example, at least 183 days per year. Many states impose their income taxes on residents’ worldwide income even if they’re domiciled in another state.

Potential Solution

Suppose you live in State A and work in State B. Given the length of your commute, you keep an apartment in State B near your office and return to your home in State A only on weekends. State A taxes you as a domiciliary, while State B taxes you as a resident.

Neither state offers a credit for taxes paid to another state, so your income is taxed twice.
One possible solution to such double taxation is to avoid maintaining a permanent place of abode in State B. However, State B may still have the power to tax your income from the job in State B because it’s derived from a source within the state. Yet State B wouldn’t be able to tax your income from other sources, such as investments you made in State A.

Minimize Unnecessary Taxes

This example illustrates just one way double taxation can arise when you divide your time between two or more states. Our firm can research applicable state law and identify ways to minimize exposure to unnecessary taxes.

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IRS Issues Notice Making Some Parking Lot Expenses Not Deductible https://hawkinsashcpas.com/irs-issues-notice-making-some-parking-lot-expenses-not-deductible/ Tue, 05 Feb 2019 19:52:11 +0000 https://hawkinsashcpas.com/?p=7014 In December 2018, the Internal Revenue Service released Notice 2018-99 which detailed how the IRS planned on implementing the part of the Tax Cuts and Jobs Act relating to “qualified parking” benefits to employees. As the rules are currently written, there will be many parking lot expenses that may not be deductible for 2018. The […]

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In December 2018, the Internal Revenue Service released Notice 2018-99 which detailed how the IRS planned on implementing the part of the Tax Cuts and Jobs Act relating to “qualified parking” benefits to employees. As the rules are currently written, there will be many parking lot expenses that may not be deductible for 2018.

The qualified parking non-deductible expenses are based on the number of parking spots reserved or used predominately by employees compared to the amount used primarily by customers, vendors or the general public. Essentially the more parking spots that are used by your employees, the larger amount of parking lot expenses that may be not deductible.

Based on the Notice, the impact to retailers will be minimal, while the impact to commercial and manufacturers could be great. This is because most of the parking lots in a retail business are used by the customers of the business, while in a manufacturing setting, most of the parking is used by employees.

Although the Notice came out in December 2018, the effective date is for tax years beginning after December 31, 2017!

Under this notice, the following expenses could be treated as not-deductible:

  • repairs
  • maintenance
  • utility costs
  • insurance
  • property taxes
  • interest
  • snow and ice removal
  • leaf removal
  • trash removal
  • cleaning
  • landscape costs
  • security
  • rent and lease payment

One noted exception is for depreciation which is still deductible under the Notice.

The Notice also indicates that taxpayers may use any reasonable method to calculate the non-deductible portion as long as it is based on expenses. The Notice specifically says that it is not reasonable to use a fair market value calculation.

In the Notice, the IRS provided a reasonable way to perform the calculation:

  1. Determine the amount of the reserved employee spots.
  2. Determine the primary use of the remaining spots using a greater than 50% test during a normal business day.
  3. Calculate the deductible expense based on the portion of the general public spots.

The IRS has provided a retroactive change for the reserved employee parking spots. If an employer removes any reserved signage prior to March 31, 2019, the IRS will treat those as non-reserved spots retroactively to January 1, 2018.

It should also be noted that if a taxpayer leased parking spots from a third party for exclusive use by its employees, the entire amount paid for those spots is not deductible.

For non-profits, the non-deductible portion is treated as unrelated business taxable income (UBTI) and is reported on a Form 990-T.

We will continue to watch this issue and provide updates as they become available. Although the Treasury Department and the IRS have requested comments, unless the Notice is changed, taxpayers should rely on the guidance.

If you have any questions about how this Notice will impact your organization, please contact your local Hawkins Ash CPAs representative.

The post IRS Issues Notice Making Some Parking Lot Expenses Not Deductible appeared first on Hawkins Ash CPAs.

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