Posts Tagged ‘liz belcher’

New Tax Law Brings Changes to 529 Plans

By Liz Belcher, CPA
Manager, Tax Services
lbelcher@sponselcpagroup.com

The new tax law signed by the president at the end of last year included some significant changes to 529 plans that taxpayers need to know.

As most are aware, a 529 plan distribution is tax-free if it is used to pay for “qualified higher education expenses” of the beneficiary. Before the recent tax legislation was passed, tuition for elementary or secondary schools was not considered a “qualified higher education expense” for 529 plan distribution purposes.

Federal 529 Plan Changes

The new tax law provides that qualified higher education expenses now include expenses for tuition in connection with an elementary or secondary public, private or religious school (i.e. K-12 tuition). Thus, tax-free distributions from 529 plans can now be received by beneficiaries who pay these expenses, effective for distributions from 529 plans after 2017.

It’s important to be aware that there is a limit to how much of a distribution can be taken from a 529 plan for elementary and secondary tuition expenses. The amount of cash distributions from all 529 plans per single beneficiary during any tax year can’t, when combined, include more than $10,000 for elementary school and secondary school tuition incurred during the tax year.

Indiana 529 Plan Changes

In addition to the federal tax law, Indiana also made changes to its 529 plan program that taxpayers need to keep in mind, especially those claiming an Indiana tax credit for 529 plan contributions.

In May 2018, Indiana amended its code to create a tax credit for those saving tuition expenses in connection with enrollment or attendance at an elementary or secondary public, private or religious school located in Indiana (K-12 tuition).

For the tax year beginning January 1, 2018, Indiana taxpayers may receive a 10% state income tax credit against their adjusted gross income tax liability. This credit cannot exceed $500 for contributions to an account that will be used to pay for Indiana K-12 tuition. When combined with the state income tax credit taken for qualified higher education expenses (i.e. post-secondary expenses), the maximum annual income tax credit cannot exceed $1,000.

Effective January 1, 2019, the income tax credit for contributions made to an account being used to pay Indiana K-12 tuition increases to 20% — up to a maximum of $1,000 when combined with any Indiana income tax credit taken for qualified higher education expenses. Also at the time a contribution is made to an Account, the contributor must designate whether the contribution is made for (I) Qualified Expenses that are not Indiana K-12 Tuition; or (II) Indiana K-12 Tuition. Likewise, at the time of withdrawal from an account, the account owner must designate whether the withdrawal will be used for (I) Qualified Expenses that are not Indiana K-12 Tuition; or (II) Indiana K-12 Tuition. It’s important for taxpayers to understand the Indiana rules for which a credit is claimed as a non-qualified distribution will result in the repayment of a previously claimed Indiana credit.

If you have any questions about how the new 529 plan changes will impact you, please call Liz Belcher at (317) 613-7846 or e-mail lbelcher@sponselcpagroup.com.

The Deep Dive: New Favorable Depreciation Provisions

Liz BelcherBy Liz Belcher, CPA
Manager, Tax Services

Each Thursday for the next few weeks, Sponsel CPA Group will present The Deep Dive, a closer look at individual aspects of the new tax law and how they might affect you or your business. 

The Tax Cuts and Jobs Act (TCJA) has made a number of favorable changes in the availability of expensing allowances for depreciable property. These include increasing the IRC Section 179 expensing limit; expanding bonus depreciation to include both new and used property; and allowing for 100% write off for the year the qualified property is placed in service.

More Favorable Bonus Depreciation Provisions

Under prior law, taxpayers were able to claim a 50% first-year bonus depreciation deduction for qualified new assets. In addition, used property did not previously qualify for bonus depreciation.

Under TCJA, bonus depreciation has been significantly improved. For qualified property placed in service after September 27, 2017 and before January 1, 2023, the first-year bonus depreciation percentage is increased to 100%. In addition, the 100% deduction is allowed for both new and used qualifying property. In later years, the bonus depreciation is scheduled to be reduced as follows:

  • 80% for property placed in service in 2023;
  • 60% for property placed in service in 2024;
  • 40% for property placed in service in 2025;
  • 20% for property placed in service in 2026;

Enhancement of Section 179 Deduction

When 100% bonus depreciation is not available, the Section 179 deduction can provide similar benefits. Permitted expensing, which allows a taxpayer to immediately deduct the cost of qualifying property, is increased to a maximum deduction of $1 million for property placed in service after 2017, and the phase-out threshold is increased to $2.5 million. For later tax years, both the $1 million and the $2.5 million amounts will be indexed for inflation.

The expense election has also been expanded to cover (1) certain depreciable tangible personal property used mostly to furnish lodging or in connection with furnishing lodging, and (2) the following improvements to nonresidential real property made after it was first placed in service: roofs; heating, ventilation and air-conditioning property; fire protection and alarm systems; security systems; and any other building improvements that aren’t elevators or escalators, don’t enlarge the building, and aren’t attributable to internal structural framework.

Depreciation of Qualified Improvement Property

Under the new law, “qualified improvement property” is depreciable using a 15-year recovery period and the straight-line method. Qualified improvement property is defined as any improvement to an interior portion of a building that is nonresidential real property placed in service after the building was first placed in service, except for any improvement for which the expenditure is attributable to (1) the enlargement of the building, (2) any elevator or escalator, or (3) the internal structural framework of the building.

The new law also eliminates the separate definitions of qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property that were in place under prior law. Most significantly, the newly defined class is eligible for both bonus depreciation and Section 179 expensing.

If you have any questions about tax reform changes, please call Liz Belcher at (317) 613-7846 or email lbelcher@sponselcpagroup.com.

Click here for detailed article on the “Pass-Through Income Deduction”

Click here for detailed article on “Changes to Fringe Benefit Rules for Employers”

Click here for summary of “Key Provisions Affecting Individual Taxpayers”

Click here for summary of “Key Provisions Affecting Business Taxpayers”

The Annual Report Card

Liz BelcherBy Liz Belcher, CPA
Manager, Tax Services

The start of a new year is a time when students generally receive a report card outlining their progress and shortcomings. As you are perusing your child’s report card, ask yourself: how often you have undertaken similar steps to hold your company accountable for its results in 2016.

January is also when our political leaders deliver a “state of” speech, letting everyone know how we’re doing as a nation or state. You might consider the idea of a report card and giving a “state of the company” speech — Your Accountability Report.

Consider a company-wide meeting, if feasible, in which the leader goes over their 2016 performance along with the vision and goals for 2017. Having this sort of transparent accountability to your employees is a critical component of obtaining their complete buy-in and support.

The Performance Report should include non-financial as well as financial results. Thus, everyone is aware of what segments of your operations are meeting performance standards and which are lagging, and it becomes much easier to focus your team’s resources to improve them.

Many private businesses tend to keep most financial information confidential, for understandable reasons. But there should at least be some key performance indicators that you are able to share with your team.  These Success factors should include data that the individual employees can impact on a daily basis. You should also stress the importance of keeping private data confidential, as a trusted stakeholder.

By showing your employees you trust them, you have a much better chance of having that trust reciprocated. When workers have a sense of ownership in a business, a feeling that their actions have a direct impact on the collective success, they tend to be happier and more loyal.

Although it’s not possible everywhere, an “open book” style of management is gaining in popularity.

Possible Key Metrics to review:

  • How well did the company do against plans, such as a budget?
  • How well did we do compared to previous years?
  • What internal or external factors influenced our financial performance?
  • Do we have a motivated workforce?
  • Were we Innovative enough?
  • Have we created a pathway to success?
  • Can we measure Employee Morale?

Here at Sponsel CPA Group, we do this twice a year. We gather everyone together and deliver an annual “Accountability Report” at the start of the year, followed by a six-month update. We lay out our accomplishments and our challenges with equal candor. We list expectations of the team and request the team’s expectation of the leaders of the firm.

By giving your employees a “report card” to measure the entire organization against, they will have the sort of buy-in that is critical at times when they are expected to go above and beyond, often making personal sacrifices in the process.

We find this is especially beneficial for younger employees. As a group, Millennials have a deep desire to feel like they are part of something greater than themselves. They want to know that the company is moving forward in a way that is consistent with their vision of their professional life.

As CPAs, we help a lot of people with their tax returns and end-of-year financial reporting. We know there are business owners who think they’re only accountable to third-party entities — banks, clients, investors, etc. We think these leaders are leaving out the most critical stakeholder to their success!

Business owners shouldn’t leave out their employees. Whether your results for 2016 were good or bad, share as much of that information as you can with your team. Knowing where you’ve been will help you build on your successes for a better 2017. Also, clearly define your vision for 2017 and make sure as the leader you also clearly develop the path to that success!

If you need help generating a report card for your organization, please call Liz Belcher at (317) 613-7846 or email lbelcher@sponselcpagroup.com.

 

Tangible Property Expensing Threshold Rising

Liz BelcherThe Internal Revenue Service (IRS) has increased the de minimis safe harbor threshold for deducting certain capital expenditures from $500 to $2,500. This move, which takes effect for tax year 2016, should greatly simplify the paperwork and recordkeeping requirements for small businesses.

This change applies to funds spent to acquire, produce or improve a tangible unit of property (UOP) that would normally qualify as a capital item. It affects businesses that do not maintain an applicable financial statement (AFS). The new, higher threshold applies to any such item substantiated by an invoice.

Before, small businesses would have to spread deductions of these expenditures over a period of years through annual depreciation. Now they can be deducted immediately.

IRS Commissioner John Koskinen stated the change came about as a result of comments from taxpayers and the professional tax community – evidence that your feedback can produce results. “This important step simplifies taxes for small businesses, easing the recordkeeping and paperwork burden on small business owners and their tax preparers,” he said.

The de minimis safe harbor applies to an amount paid during the tax year to acquire or produce a UOP, or acquire a material or supply, only if:

  • The taxpayer has, at the beginning of the tax year, written accounting procedures treating as an expense for non-tax purposes amounts paid for property (1) costing less than a specified dollar amount; or (2) with an economic useful life of 12 months or less;
  • The taxpayer treats the amount paid for the property as an expense on its AFS (such as a financial statement required to be filed with the Securities and Exchange Commission, or a certified audited financial statement accompanied by an independent CPA’s report and used for credit or reporting purposes) if it has one – or on its books and records if it does not – in accordance with its accounting procedures; and
  • If the taxpayer has an AFS, the amount paid for the property does not exceed $5,000 per invoice (or per item as substantiated by the invoice), or if the taxpayer does not have an AFS, does not exceed $500 per invoice (or per item as substantiated by the invoice), or other amount as identified in published IRS guidance.

The change does not affect deductible repair and maintenance costs, which businesses can still claim even if they exceed the $2,500 threshold. For taxpayers with an applicable financial statement, the de minimis or small-dollar threshold remains $5,000.

Follow this link to the IRS website for more details on the change.

If you want an analysis of how these new tangible property expensing thresholds could affect your company, please call Liz Belcher in our Tax Services department at (317) 613-7846 or email lbelcher@sponselcpagroup.com.

New Tax Deadlines for Corporations and Partnerships

Liz BelcherThe new Transportation Act signed into law by President Obama on July 31 was the object of much political wrangling. And more partisan bickering is likely on the horizon: the bill is essentially a three-month stopgap extension of the Highway Trust Fund.

What you may not be aware of is that the act includes a number of permanent key tax provisions, including revised due dates for tax returns of partnerships and C corporations. Here’s what you need to know.

Currently domestic corporations, including S corporations, file their returns by the 15th day of the third month after the end of their tax year. So corporations using a calendar year file by March 15 of the following year. Partnership returns are due the 15th day of the fourth month of the following year, or April 15 for those with a calendar year.

Because due dates for partnership and individual tax returns have been the same, individuals with partnership holdings often have to file for an extension because Schedule K-1 forms are not available in time.

Under new rules established by the Transportation Act, tax deadlines for both partnerships and S corporations will be the 15th day of the third month after the tax year, or March 15 for those with a calendar year. By having partnership returns due a month earlier, that should save some partnership holders from scrambling to file their individual returns.

Meanwhile, returns for C corporations are pushed back one month, to the 15th day of the fourth month after the tax year, or April 15 for those using the calendar year.

These changes are generally effective for returns for tax years beginning after 12/31/2015. For C corporations whose fiscal year ends June 30, a special rule will allow the change to be deferred for 10 years, i.e. the 2026 tax year.

Also beginning for 2016, the IRS is allowing for longer extensions to file certain forms under the new law. These include:

  • U.S. Return of Partnership Income (Form 1065): Extension maximum is increased from 5 months to 6.
  • Annual Return/Report of Employee Benefit Plan (Form 5500 series): Maximum extension is increased from 2½ months to 3½ months.
  • U.S. Income Tax Return for Estates and Trusts (Form 1041): Extension maximum increased from 5 to 5½ months.

Additionally, FinCEN Form 114 is used to report a financial interest in or signatory over a foreign financial account. The Form 114 currently must be received by the Department of Treasury on or before June 30th of the year immediately following the calendar year being reported. Under the new law, for returns for tax years beginning after 12/31/2015, the due date of the FinCEN Form 114 will be April 15 with a maximum six-month extension ending on October 15.

If you want an analysis of how these revised tax deadlines will affect you, please call Liz Belcher in our Tax Services department at (317) 613-7846 or email lbelcher@sponselcpagroup.com.

Popular Tags