Often overlooked, TPR can offer significant savings for business owners

The IRS issued the Tangible Property Regulations (TPR) in 2013 and many taxpayers overlooked or didn’t pay much attention to them. Now businesses are catching up, realizing TPR offers significant savings if used properly. The regulations provide taxpayer-friendly rules to immediately deduct certain costs versus capitalizing and depreciating.

“These regulations cover a wide variety of topics, such as materials and supplies, repairs and maintenance, capital expenditures and amounts paid for the acquisition of tangible property,” says Dennis Murphy Jr., CPA, CCA, a senior manager at Skoda Minotti. “It’s important to be familiar with these regulations and the recent updates as we’ve seen them affect most companies we work with — large and small, public and private, even individual owners of rental properties.”

Smart Business spoke with Murphy about TPR and what business owners should know.

What has changed with TPR that business owners should know about?   

TPR allows taxpayers to immediately deduct the payments made for tangible property under a certain monetary threshold, called the de minimis safe harbor. The IRS deduction limit was $500 when TPR first debuted, but for the tax years beginning January 2016, the limit has increased to $2,500 for those taxpayers without a financial statement audit.

The de minimis safe harbor is an election and must be made each year on your tax return. It is applied per item, so if you buy 150 computers at $2,000 each, you can deduct each computer.

Although the IRS safe harbor covers items up to $2,500 in value without a financial statement audit, companies must set their own threshold through a written capitalization policy.

Public companies may take a hit on earnings per share, so they might want to keep their capitalization lower than the safe harbor amounts. Another reason to keep this low would be to meet certain bank covenants or various ratios that must be reported, if applicable.

The dollar threshold for taxpayers that have an audit performed remains at $5,000, which has been unchanged since 2013.

What is the importance of cost segregation and why is it especially important for those that own a building?

Cost segregation studies, performed by a certified engineer, benefit taxpayers that own their own buildings. A cost segregation study breaks down the building into multiple structural components to understand their individual values, which is important under TPR. On new construction or new purchases, the study breaks components into asset classes. Depending on the asset class, the depreciation life could be shorter than the typical 39 year life for a commercial building.  This shortens the tax life, which means tax savings and increased cash flow. When constructing a new building, look to see if cost segregation makes sense. In most cases it does, especially for buildings that cost more than $500,000.

There can be tax savings on buildings purchased years ago since there’s some catching up on depreciation. Cost segregations aren’t inherited when a building is purchased. They’re based on the purchase price, so a new one will be needed.

How can an adviser help with tangible property regulations?

These regulations affect nearly every business in some way. Unless you own a small business — assets less than $10 million and average annual gross receipts for the last three years less than $10 million — companies are required to file Form 3115 with their tax return to be in compliance.

Tax advisers can help taxpayers stay compliant with TPR and take advantage of all available savings. The regulations are complex and can be cumbersome to follow, but they offer significant benefits so they shouldn’t be overlooked.

Insights Accounting & Consulting is brought to you by Skoda Minotti

What accelerated filing dates mean for employers in 2017

As the year winds down and business owners focus on year-end tax planning, it’s time to mark the new deadlines on your 2017 calendars.

“With some deadlines moving up, it will catch people off guard,” says Michelle Mahle, office managing partner of tax services at BDO USA, LLP.

In fact, Mahle herself recently realized the full implementations of these accelerated filing deadlines, and she’s concerned that employers will be scrambling.

“A best practice for saving on your taxes is knowing, by year end, what to expect so you can plan for it, she says. “However, business owners are certainly going to have less time to react to things, with some of these deadlines.”

Smart Business spoke with Mahle about tax due date changes and year-end tax planning practices.

What key due dates have been moved up?

There is a new filing deadline for both Form W-2 and Form 1099-MISC with amounts reported in Box 7. Previously, these forms were due to recipients by Jan. 31, but weren’t due to the Social Security Administration (SSA) until Feb. 28. If you e-filed with the IRS, you had until March 31.

For the 2016 tax year, both the recipient copies and submission to the SSA/IRS of these forms are due by Jan. 31 — for paper and e-file. The IRS has also eliminated all automatic 30-day extensions of time to file Form W-2 for the tax year 2016. This change consolidates what typically was prepared and submitted over a three-month period of time into 30 days.

With W-2s and 1099s, businesses should already have the information upfront. In reality, many employers are still collecting employer identification numbers or current addresses at the 11th hour. If employers expect to get these filed on time, they need to gather the necessary information much sooner, by year-end.

The focus on getting everything in and filed by Jan. 31 is probably because there’s such rampant tax identity fraud. The government is trying to pin down the information reporting to make sure it has everything in its system correctly, so that the IRS is in a better position to deal with that.

In addition, businesses that file partnership tax returns (Form 1065) will have less time in 2017. Businesses filing Form 1065 for the tax year ending Dec. 31, 2016 now have a due date of March 15, 2017, as opposed to April 15. However, they can still file for an extension, which remains Sept. 15, 2017.

Essentially the due dates for partnership tax returns (Form 1065) and C Corporation tax returns have swapped. It is intended to help individuals involved in pass-through entities receive the information they need to prepare their individual returns in a more timely fashion.

The due date for foreign bank reporting has moved up two months. Taxpayers required to file a FinCEN 114, Report of Foreign Bank and Financial Account (aka FBAR) for 2016 will have a due date of April 15, 2017, as opposed to June 30. Filers may still obtain an automatic six-month extension to file until Oct. 15.

Finally, with health insurance, the Form 1095 (proof of insurance coverage) filing deadline has moved up to Jan. 31, so employees will get this at the same time they get their W-2. Other health care forms, including Forms 1094B and 1095A-B-C will be due Feb. 28, or March 31 if filed electronically.

What actions should employers be taking in the final quarter to make their upcoming filing smoother?

Based on the accelerated filing deadlines, business owners need to be informed and prepared. They must start gathering information now for vendors and verifying employee addresses and Social Security numbers. This will ensure they have what is needed to file their information reporting timely. Penalties for late and/or incomplete filings can add up quickly.

Knowing that the 2016 partnership tax return is due 30 days earlier will require business owners to send information to their tax preparers much sooner than they are accustomed to doing. Reviewing fixed asset additions and disposals in the last quarter could accelerate the year-end closing.

Additionally, if an audited or reviewed statement is required for the business, having the assurance team come in and do testing that is permitted before year end can be beneficial all around.

Insights Accounting & Consulting is brought to you by BDO USA, LLP

Medicare coverage and what you need to know before enrollment

There are many misconceptions surrounding Medicare coverage, specifically regarding the coverage it provides and the costs those insured by Medicare are responsible for. This can greatly affect the ability of Medicare-eligible individuals to make the best decision regarding their health care coverage.

“Many people do not realize that original Medicare does not have a maximum limit on out-of-pocket spending,” says Charris Nelson, a Medicare specialist at Skoda Minotti. “In order for an individual insured through Medicare to have a cap on his or her out-of-pocket expenses, that person needs another strategy. And that strategy needs to be examined closely to avoid costly mistakes.”

Smart Business spoke with Nelson about what consumers should know about Medicare coverage ahead of an enrollment period.

Considering that Medicare may not cover all costs and services a person needs, what options are available to someone with Medicare coverage that will help them cover the gaps?

There are a number of ways to get coverage to fill gaps in original Medicare or get assistance with Medicare costs. While individual circumstances dictate a person’s options, available to them may be employer coverage, retiree insurance, Veteran’s Administration Benefits or Medicaid. Traditionally though, it’s through supplemental insurance provided by private health insurance companies in the form of Medigap, Medicare Advantage Plans and stand-alone Medicare Part D drug coverage.

There are many options — benefits, provider networks, and premiums vary between insurance companies offering them. Each individual’s circumstance is unique, so a thorough comparison of your options is necessary to determine which is most suitable.

When is the annual enrollment period and what should those who intend to enroll understand before doing so?

For 2017 Medicare coverage, the annual enrollment period is Oct. 15, 2016, to Dec. 7, 2016.

During the annual enrollment a person can make changes to his or her Medicare coverage. It is important to stay up-to-date and carefully review the information made available by your health plan provider since it will outline changes for the upcoming year. When annual enrollment is underway, you can make the necessary changes to reflect your current health coverage needs. This may be the only opportunity during the year to do so.

What can be changed during the annual enrollment period?   

Enrollment opportunities are contingent on election periods, most common being the annual enrollment period. During this time, eligible individuals are making changes to their existing plans. This can be done by joining a new Medicare Advantage Plan or by joining a new stand-alone prescription drug plan. You can also switch to Original Medicare with or without a stand-alone drug plan from a Medicare Advantage Plan during this time. There are many combinations for people to consider and it can get confusing, which is why it’s a good idea to consult with an adviser.

What can an adviser offer in terms of assistance during Medicare enrollment periods?

Approaching a Medicare decision, and comparing and exploring options, is complicated and can be overwhelming. Those approaching eligibility, or who are on Medicare, are inundated with mailings of plan options from each insurance carrier. Consulting a specialist who will take the time to explain how Medicare works — Part A, B, C, D and Medigap plans — so there is a clear understanding before enrollment is crucial. These choices are complex and their ramifications can be long lasting. Working with an experienced professional who is knowledgeable about Medicare plans can save a great deal of time and money.

Too often beneficiaries rely on information and feedback they receive from another enrollee to make their decisions. Your needs differ from that of a co-worker, neighbor, relative or spouse. This is why it is important to know your options and seek advice in order to become well-informed.

Insights Accounting & Consulting is brought to you by Skoda Minotti

Minimize the risks of not properly managing your company’s benefit plan

A lack of compliance in your company’s retirement plan is easy to prevent with the right amount of planning. Plus, once you get everything set up with the right structure, it’s not time consuming or burdensome. The key is being proactive upfront, before you face unexpected pitfalls.

This isn’t a responsibility you can avoid, either. Even if you bring in others to help bear the burden — hire a co-fiduciary and co-trustee, usually an investment adviser, Employee Retirement Income Security Act (ERISA) attorney or CPA — a plan sponsor never fully gives up the fiduciary role, and the risks that come with that.

“If you feel overwhelmed or are unsure of where to find help, especially when you’re also dealing with other rules and regulations that are being put upon your organization, you’re not alone,” says Kimberly Flett, managing director of Compensation and Benefits at BDO USA, LLP. “Some employers get frustrated, saying, ‘This is too much work, too much cost to worry about, I just won’t have a retirement plan.’”

But there are ways to set up a structure to run the plan successfully.

Smart Business spoke with Flett about how to minimize your retirement plan risks.

What risks are associated with not properly managing your retirement plan?

The No. 1 risk is a lack of education. Your employees aren’t sure what to do, so the management is hit and miss and your organization makes knee jerk reactions to changes. This can lead to operational and compliance errors, where the plan doesn’t follow its plan documents and related requirements. You might miss enrollments. If there’s disconnect between your payroll company and your staff, you may not be withholding the right amounts or fulfilling a participant’s requests for deferral election changes in a timely manner. You may also be at risk for distribution errors.

If these pitfalls occur, you and your company run the risk that the plan will be funded incorrectly and distributions will be missed. This can trigger an audit and draw penalties from the IRS and the Department of Labor (DOL). You run the risk of losing your tax-qualified status. You run the risk of an employee suing because he or she feels the plan has been mismanaged. You run the risk of employee fraud.

What’s the best way to oversee a plan?

The employers that are the most successful at managing their retirement plans have identified the right internal team to monitor the plan. That team may include the CFO, the benefits coordinator and HR director, acting like a board of directors for your plan. Generally referred to as the 401(k) committee, this group should meet at least annually or semiannually and follow a timeline for the year’s tasks.

That committee then works in conjunction with an outside group, which might consist of your third-party administrator, ERISA attorney, CPA and investment adviser. These advisers can assist with plan operations, such as compliance and regulatory changes — basically telling you what you don’t know.

It comes down to planning, review, communication and education.

One way to improve employee education and communication is holding an annual town hall for the employees, where you explain what management is doing to administer the retirement plan and outside advisers are on hand to answer questions.

How do you foresee the new DOL fiduciary rule playing a part in 2017?

This DOL rule provides a higher legal standard for investment advisers. Their recommended funds must be in the best interest of their clients, which may not have been the case in the past. This will make it easier for employers to make sure the plan helps employees invest wisely and prudently.

What else do employers need to know?

It’s critical to disclose the existence of all plans to all of your advisers — whether that’s a retirement plan, employee stock ownership plan, 403(b), simple plan, health and welfare plan or non-qualified plan — because these plans interact with each other.

In addition, don’t forget to consider benefit plans when your company goes through a merger, acquisition, sale, shutdown or ownership structure change or redesign. The whole structure can be impacted if, for example, a new owner owns other companies. These changes must be looked at on a broad scope by experts.

Insights Accounting & Consulting is brought to you by BDO USA, LLP

Redefine what your customer is buying and create market differentiation

At some point in its lifecycle, every company eventually faces the pricing and margin pressure that results from increased competition. This is often a good opportunity to look at both your marketing strategy and value proposition and develop a more targeted message to present to your customers.

Smart Business spoke with Chris Meshginpoosh, Director at Kreischer Miller, about techniques companies can use to differentiate offerings, drive growth and increase profitability.

Why do companies struggle so much trying to find ways to differentiate?
In mature industries, factors that customers consider when making buying decisions are widely known. Companies tend to benchmark their offerings against their competitors, considering those widely-known factors. The result of this is that, over time, companies in an industry tend to all look the same. When you focus myopically on the same factors, it can be very challenging to drive real differentiation.

How do you break that cycle?
In “Blue Ocean Strategy,” W. Chan Kim and Renée Mauborgne introduced a framework that can help companies create uncontested space in the market. One of the first steps in the process is to try to redefine what the customer is buying.

For example, in the real estate industry, it would be easy to assume that most homebuyers are simply looking for help identifying and closing on the purchase of a house. However, the purchase of real estate is often only a small part of one of the most stressful life events: moving. Reframing the customer need in this manner might reveal opportunities to develop an offering that stands out from the crowd.

Once you identify a customer need, how do you make sure your offering is unique?
You need to step back and identify the common factors that customers and buyers always consider when making buying decisions. Once you have assembled that list, start thinking about factors you could completely eliminate.

For example, in our industry, most of our competitors provide audit services to both publicly and privately-held companies. We completely eliminated one factor – auditing publicly-traded companies – which immediately impacted every facet of our business, including the services we offer, the people we hire, the training we provide and our overall cost structure. As a result, we look much different to the market we serve.

Is eliminating factors the end of the process?
Not at all. Next, think about the reframed customer need that was identified in the first step. With that need in mind, try to identify factors that none of your competitors are currently offering. Going back to the real estate example, what if your customers were looking for assistance taking the stress out of finding, buying and moving into a new home?

When put in this larger context, it becomes clear that customers could benefit from assistance with not only identification and closing on a real estate transaction, but also title insurance, financing and relocation services. A client of ours did this and built one of the largest real estate brokerages in the country.

Once you have identified factors to eliminate or add, what are the next steps?
The final step is to consider what other factors you could reduce or raise. For example, if all of your competitors are stressing a factor such as a wide range of products, one option might be to reduce the scope of your offerings.

Narrowing your focus might allow you to go deeper into an important category, as well as reduce costs throughout your supply chain. Many internet retailers have been wildly successful executing strategies like this.

Do you have any final words of advice?
The marketplace is always changing, so these principles should be part of a company’s ongoing strategic planning process. By systematically challenging your team to reframe customer needs and your offerings, you can find uncontested markets, and drive both growth and profitability. ●

Insights Accounting & Consulting is brought to you by Kresicher Miller

Budgeting, forecasting for a business and how it impacts personal finances

The personal lives of business owners, especially those with smaller companies, are intertwined with their business as long as it’s in existence. It’s a means of support for family expenses and their lifestyle. Good budgeting and forecasting for business owners and their companies are critical to achieving the goals of each.

“A lot goes in to budgeting and forecasting, but when the business fiscal year ends, it’s a brand new ball game. Questions need to be answered before it begins,” says Michael Van Himbergen, CFP®, a financial advisor at Skoda Minotti, and ProEquities, Inc.

“Review your financial situation and the financial situation of your business annually to make sure any obstacles — anticipated or otherwise — are handled before the end of the year so they don’t become roadblocks.”

Smart Business spoke with Van Himbergen about what to include in annual financial reviews and why they’re important.

What are the major considerations business owners should make as they budget and forecast?

Every goal needs a timeline, whether short- or long-term. Consider inflationary factors — the longer the timeline to achieve the goal, the greater the impact of inflation — and establish a target rate of return for each goal.

Make sure you’re paying yourself first out of business revenue. Calculate that as an expense and build it into the budget every year.

Establish a retirement plan for yourself and your employees if you haven’t already. There are a number of factors that determine what type of plan is best to implement, such as the number of employees, their average age, employer and/or employee contributions, to name a few.

If you want to cover college expenses for your children, the longer you wait the more it costs. Families need to save $500 to $600 per month per child from the time their child is born to get them through four years of an in-state public university. However, take care of yourself first to make sure you’re on track for retirement before funding a child’s education. Children will have their entire productive lives to pay back student loans. You can always help out down the road.

Also, don’t forget to plan for weddings, big vacations and any other major purchases, accordingly. And it’s always prudent to have three to six months of monthly living expenses to cover an emergency.

How frequently should business owners review their business and personal finances?

Every year. Is your plan doing what it’s supposed to? Review the company 401(k) with employees. Is participation low? If so, determine the reason they’re not participating and educate employees on the benefits of the plan.

Always review income projections. A cash flow analysis will show you whether income is stable or fluctuating.

Review personal investments at least annually unless there are significant changes that would affect longer-term planning. If that’s the case, talk to your financial adviser/accountant to determine how that life-altering event could affect your long-term financial goals.

What, generally, are some ways to adjust to the new financial realities that follow a life-changing event?

Changing jobs, death or disability, death or disability of a partner or a key employee, having children, getting married or divorced are common life-changing events. When these events happen, it’s important to determine how they impact your financial plan. Any of these can affect cost of living, the level and type of insurance protection that’s prudent, and how much money is available to save and spend. Regardless of what’s happened, it’s important to stick to a financial plan and make adjustments as needed, rather than stop saving altogether.

Unexpected aside, define your goals to determine the level of risk that’s prudent given your situation and the goal you’re trying to obtain. Review your circumstances at least annually with your financial adviser, both in terms of what’s going on in your life and in your finances, and you should have no trouble achieving your goals.

Advisory Services offered through Investment Advisors, a division of ProEquities, Inc., a Registered Investment Advisor. Securities offered through ProEquities, Inc., a Registered Broker-Dealer, Member, FINRA & SIPC. Skoda Minotti is independent of ProEquities, Inc.

Insights Accounting & Consulting is brought to you by Skoda Minotti

Cloud accounting is stirring up the business world; don’t get left behind

Cloud accounting is not only getting bigger and better, there’s been a change in perception with accounting firms and business owners, says Deborah Defer, managing director of Business Services and Outsourcing at BDO USA, LLP.

People in the U.S., particularly in the accounting profession, have recognized the inevitable technology change with the benefits that cloud-based accounting solutions bring. They are starting to understand it’s so much more transparent and efficient that it’s worth making the change.

“Embrace the change. You can kick and scream all you want, but it’s coming,” Defer says. “Don’t wait, because you’ll be sorry. You can’t imagine how many clients tell me ‘I wish I had done this two years ago. Why didn’t I do this before?’”

Smart Business spoke with Defer about what business owners need to know about cloud-based accounting.

How much has cloud accounting grown?

It continues to grow. As a good example, in BDO’s Business Services and Outsourcing advisory group, four years ago, we had a few clients who used QuickBooks™ Online. Today, it’s several hundred.

The products are also advancing rapidly. Everyone, from small startups to big corporations, is investing hundreds of thousands of dollars into improving the technology. For example, a hybrid product, which is partly used in the cloud and partly on your own hardware, can often be a bridge for learning how to work in the cloud comfortably. It can allow you to keep certain feature sets that you aren’t prepared to give up.

What’s the biggest benefit to switching?

As business owners start utilizing the systems, they realize they can get hours of their day back. You have access any time, anywhere to real-time data. For example, if a business owner uses QuickBooks™ Online and turns on an external add-on, he or she can get key performance indicators instantaneously.

How do you make an accurate business decision looking at a financial statement that’s weeks or months old? Cloud-based accounting can help you manage your cash flow much easier. You’ll know what is your outstanding accounts receivable, what is your inventory turnover, etc. You can see today, right now, your cash flow and know where you’ll be a week from now.

Cloud accounting also can be used for a variety of areas, from a sales representative that is tracking expense reports, to time entry and GPS that tracks miles.

And while low cost can be a factor, it’s usually not the highest priority.

Is security still a concern?

It’s always going to come up. But you need to realize that your accounting solution may be more secure on an Amazon server that has been thoroughly vetted and reviewed, than a desktop where somebody can walk off with your laptop or hack into your personal computer.

How can business owners get the most out of their cloud accounting solutions?

Find an adviser, first and foremost. You should align yourself with an experienced adviser — someone with a track record that can recommend and help you build out your end-solutions.

There are thousands of different applications out there. Business owners do not have the time to vet five or six different point-of-sale systems. They don’t have time to figure out what expense report is the best. They don’t have time to figure out which system holds hands with another system.

Even after you chose a product and have gone through the initial training, that adviser can be helpful. You could need to set up specialty reporting or maneuver in the system, as time goes by.

When you implement cloud accounting, you will have to spend some time preparing a timeline and game plan. You have to make sure your employees are trained to utilize the third-party applications that complement the system, prior to operation. You may decide to run the new program simultaneously next to the old system during a transition period; others just switch over. However you do it, you can work with your advisers to ensure it goes as smoothly as possible, and that your history, your comparative financial statements, is still accessible.

Insights Accounting & Consulting is brought to you by BDO USA, LLP

Would you buy your company if it was for sale?

Many private company owners lose sight of the importance of the returns their business generates based on the capital they employ and the risks that they take.

The chief reason for this is that the business becomes a “lifestyle business.” Its principal purpose is now to support the owner’s lifestyle rather than to function as an important asset that is growing in value. This lifestyle view can come at a significant cost to an owner in terms of lost business value. When you view your business as an outside investor would, it can create more value over time.

“Taking this perspective requires the owner to change the way they organize and view the business, and the way they measure how the business is performing,” says Mario O. Vicari, CPA, a Director at Kreischer Miller. “This all takes discipline and effort. However, given that the business is the largest personal asset for many owners, the effort is worth it.”

Smart Business spoke with Vicari about the value of taking an outsider’s view of your business.

How do you evaluate your company with the perspective of an outsider?

To take an outside investor’s view of your company, start by asking yourself the following question: If your company was for sale, would you be willing to buy it based on its current state of performance? And how much would you be willing to pay?

Asking yourself this rhetorical question will give you a more objective view of how your business is performing and what changes are needed to boost its performance and create more value for the owners. In answering this question, it’s helpful to understand how third-party buyers evaluate private companies.

These investors have a singular focus on returning as much capital back to their investors as soon as possible. So every decision they make is based on whether the business will generate an increase on their return on invested capital. While there are some limitations to this approach if you focus too much on short-term results, taking this ‘investor’s view’ can be very instructive when applied in the proper context.

What are the key areas to focus on in order to take an outside investor’s view of your company?

■ Bias — Remove your biases about the business, how it works and how it is organized. Take a fresh, objective view and organize it in a way that makes sense, without getting caught up in how things have been done in the past or who does what.

■ Strategy — Invest serious time to develop and refine the company’s strategy and business model. If your strategy is wrong, your company will never achieve its full potential.

■ Goal Accountability — After your strategy is developed, establish clear goals and hold people accountable for achieving them. Create incentives for achieving important goals, as well as consequences for when goals are not reached.

■ People — Make a very honest assessment of all your people, especially those in key leadership positions. The business can only ever be as good as the people you surround yourself with. You have to be willing to make the tough decisions to ensure you have the right people in the right roles.

■ Governance — If your company doesn’t already have one, establish a board. Private company boards can fill in gaps where the company may need help. They can also instill operating discipline by holding the owners and managers accountable. And they add structure by formalizing the reporting and accountability processes of the business.

■ Financials — Increase the value you get from your financial reporting so that it becomes a strong decision-making tool. Upgrade your financial reporting requirements so there is increased visibility on what is happening in the business along with an emphasis on proper allocation of capital to achieve a hurdle rate of the returns on invested capital.

Insights Accounting & Consulting is brought to you by Kreischer Miller

Why you must invest in your business, and the tax credits that can help

The U.S. isn’t a low wage nation. We have to make things and serve people better, smarter, faster and with more skill. Therefore, business owners are always working to improve their offering for customers. What equipment or methodology will technologically put you ahead of the curve?

The good news is that a few helpful tax credits have been made permanent or extended out several years, says Floyd Trouten, tax partner at BDO USA, LLP. Now, you won’t have to wait until the end of the year to plan your investments, worrying whether or not you can get the credit.

“That’s a heck of a way to run your business, especially with long-term investments that can costs hundreds of thousands of dollars,” Trouten says.

Smart Business spoke with Trouten about long-range planning and investment, as well as tax provisions that help offset these costs.

Why do U.S. manufacturers, distributors and service providers need to invest in themselves?

The U.S. dollar is high against a lot of currency right now, so it costs more to buy our finished goods. We have to ensure that we’re more efficient — better and faster — to stay attractive. At the same time, foreign companies can sell their goods cheaper because a dollar buys more finished product in the European Union or South America.

As another example, China now faces dumping duties on coiled steel. As a result, they’ll probably send more completed parts, which won’t have duties. Before, the Chinese might ship the steel and your company would convert and sell it to the user. Now, the Chinese are going to say, ‘OK, I’ll just make the part and sell it to the direct user.’

Having state-of-the-art equipment and the ability to find niches with expanded offerings is critical in today’s market.

What do companies need to know about the R&D tax credit?

The R&D credit for growing research and development has been made permanent, after 14 separate extensions. Employers can better plan and take more risk because the government is venturing with them.

The R&D credit applies to more than just product improvements or testing. It can be used for sales, general and administrative costs, as long as it’s continual improvement.

There are two calculation methods. The simplified method requires three years of data for a 14 percent credit. The full credit is 20 percent and requires five years of data. If you’ve incurred time from your engineers, line employees and management on a new product, you can do an R&D study to ensure you’re picking up all costs, in order to maximize the credit.

Also, if you’re a small company, typically $5 million in revenue or less, you have the option to use up to $250,000 of the credit to offset what you pay in Social Security and Medicare taxes.

How has bonus depreciation and Section 179 changed?

With bonus depreciation, in the initial year of service you can write off 50 percent of an asset. The bonus now extends through 2019. Employers will get 50 percent through 2017, and then it goes down to 40 percent in 2018 and 30 percent in 2019. This is particularly useful for employers with capital-intensive equipment needs.

A subset of this, Section 179 allows a company to expense up to $500,000 in the initial service year, as long as it’s not putting in more than $2 million in fixed assets. This has been made permanent and it will adjust for inflation. Also, companies can now expense off-the-shelf software under Section 179, rather than amortize it.

So, if you buy equipment, you could get a tax deduction, whether it’s 50 percent bonus depreciation or Section 179 immediately, even though you’re still paying the bank and the asset will benefit you for years to come.

Are there other tax credits that might apply?

There are additional credits, but one to consider is the Work Opportunity Tax Credit (WOTC). The WOTC or other similar programs, found on federal, state and local levels, are designed to help those who face barriers to employment, such as veterans, disabled, people on government assistance, etc. There’s a lot of paperwork and detail that you need to pay attention to, but it is something to think about if you have a talent shortage, whether you’re a manufacturer or restaurateur.

Insights Accounting & Consulting is brought to you by BDO USA, LLP

Stricter ACA enforcement will require attention to costs, detail

Affordable Care Act (ACA) regulatory requirements will continue to roll out in the coming years. Accompanying these changes will be greater enforcement of those rules, leaving noncompliant employers to face significant penalties.

Smart Business spoke with Ted Ginsburg, CPA, J.D., a principal at Skoda Minotti, about what employers can expect and strategies to lower costs and avoid penalties.

What should companies keep an eye on in the coming years regarding the ACA?

There may be new regulations coming out regarding certain classes of employees and situations — for instance, defining who can be classified as a seasonal employee.

While it’s not likely to transpire until 2018, the IRS will start to assess an excise tax for failure to provide the right amount of insurance to employees. If an employer is penalized for not providing appropriate coverage to employees, employers will have two months to respond. If they don’t, the IRS will come after them.

The IRS has made clear that the 1095 series of forms will continue to be used, and that the forms will be due Jan 31, 2017. There will be no extensions, so forms must be completed and submitted on time.

What can employers do to stay compliant with the ACA while reducing the costs associated with compliance?

One option to reduce the cost of providing health insurance coverage while staying in compliance with the ACA is to become self-insured, which suits companies with 200 or more employees. Programs are being marketed that would allow smaller employers to pursue this strategy. That move could save employers 30 percent annually on the cost of health insurance.

Employers could also better estimate how much they can charge employees for insurance premiums and still meet ACA affordability guidelines. Explore various policy alternatives such as Health Savings Accounts. Examine the plan and plan design to see if cost savings can be uncovered. Take into account both the amount that the company must pay in total for the coverage as well as the amount that the employee could be forced to pay while meeting the ACA standards.

Those that had an unpleasant experience preparing 1095 forms in 2015 should be looking at ways to make the experience better. The forms are not difficult to prepare, but many employers had trouble getting the necessary data out of their payroll system to complete the process.

What can employers expect in terms of enforcement of ACA regulations?

The IRS is starting enforcement actions for failure to file or inadequate filings. And employers that fail to give employees their required 1095 form will be penalized $250 for each form that’s not sent out.

When it comes to policing employers, the IRS is looking to the 1095 series of forms for clues. The IRS can easily check if an employer has completed that filing, so penalties for noncompliance can and will be doled out. The Department of Labor (DOL) may also help with enforcement. If, for instance, a disgruntled employee files a complaint for whatever reason with the DOL, it will likely ask if a 1095 was filed on the employee’s behalf. If not, the DOL will alert the IRS.

What should employers know about the “Cadillac tax”?

Employers trigger a 40 percent excise or Cadillac tax when the actuarial value of an employee’s health coverage exceeds a certain dollar level — the tax is on the benefit above that level. It won’t be imposed until 2020.

The level of benefit that triggers the Cadillac tax is relatively low but is indexed for overall inflation. Most collectively bargained plans will be subject to it as will most employer plans. Employers, then, need to think about how they can provide less of a benefit to employees and still remain in compliance with the ACA guidelines. Employers should be proactive here. In the collective bargaining sector, some employers are reducing the offered health benefit and giving employees a pay raise in exchange for accepting a lower level of benefits.

The Cadillac tax is a major funding source for the ACA and will be used to pay for the subsidies provided through the exchanges, so the government doesn’t want to give that up.

Most employers hold their open enrollment periods during the September through November time period. Employers should work with a trusted adviser prior to that time to examine changes in program design, employee contribution levels and the preparation of the 1095 forms.

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