2018 Q4 Tax Calendar: Key Deadlines For Businesses And Other Employers

Here are some of the key tax-related deadlines affecting businesses and other employers during the fourth quarter of 2018. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

October 15

If a calendar-year C corporation that filed an automatic six-month extension:

File a 2017 income tax return (Form 1120) and pay any tax, interest and penalties due.
Make contributions for 2017 to certain employer-sponsored retirement plans.

October 31

Report income tax withholding and FICA taxes for third quarter 2018 (Form 941) and pay any tax due. (See exception below under “November 13.”)

November 13

Report income tax withholding and FICA taxes for third quarter 2018 (Form 941), if you deposited on time and in full all of the associated taxes due.

December 17

If a calendar-year C corporation, pay the fourth installment of 2018 estimated income taxes.

The sweeping changes made by the 2017 Tax Cuts and Jobs Act impacts nearly all taxpayers. Nonprofit organizations are also affected by the legislation. Here’s how:

Changes the computation of unrelated business taxable income (UBTI) if an organization has more than one unrelated trade or business
Increases UBTI by the amount of certain fringe expenses for which a deduction is disallowed
Imposes a 21% excise tax on compensation over $1 million for the five highest paid employees
Imposes a 1.4% excise tax on net investment income of certain educational institutions
Modifies the rules for charitable contributions:

Repeals the special rule in Code Sec. 170(l) that provides a charitable deduction for the amount paid for the right to purchase tickets for athletic events;
Repeals the Code Sec. 170(f)(8)(D), effectively ensuring that donee organizations will not be allowed or required to report details of donations of $250 or more
Increases the 50% limitation under Code Sec. 170(b) for cash contributions to public charities and certain private foundations to 60%;
Suspends the overall limitation on itemized deductions

Let’s take a closer look:

UBTI

Sec. 13702 of the Act amends Code Sec. 512(a). Previously, the gross receipts from any unrelated trade or business regularly conducted were netted together to determine UBTI. If, for example, an organization conducts unrelated business A for a profit, and the organization also conducts unrelated business B and gross income less cost of goods sold is a loss, the previous rules allowed the organization to net the activity from A and B. The income from A would be reduced by the loss from B in calculating UBTI. The new rules do not allow the two trades or businesses to net. The income from A will be reported and the loss from B will create a net operating loss to carry forward and only be applied to future UBTI generated by B. The specific deduction of $1,000 in computing UBTI is maintained, but is not included in determining the separate UBTI calculation of each unrelated trade or business.

This new rule applies to tax years beginning after December 31, 2017. Any net operating loss from tax years beginning before January 1, 2018, can be carried forward and applied to any income in subsequent years, regardless of which trade or business created it.

Organizations must carefully consider if their activities constitute more than one unrelated trade or business and report accordingly going forward. It is likely that the overall tax burden will increase for exempt organizations, as gains from one unrelated trade or business can no longer be offset by the losses from another unrelated trade or business. Organizations should give careful consideration to restructuring or moving activities to taxable subsidiaries and consider all the possible implications.

In addition, UBTI is changed by Sec. 13703 of the Act. Previously, organizations could provide employees with transportation fringe benefits and on-premises gyms and other athletic facilities. Employees did not have to include those amounts in their taxable income and there was no tax effect for nonprofits (for-profit entities could deduct these expenses from their taxable income). Under the new provision, the amounts paid for such benefits will be included in unrelated business taxable income, effective for amounts paid or incurred after December 31, 2017. For-profit entities will no longer be able to deduct these costs. The effect is that for-profit entities and nonprofit organizations will be treated the same, both paying tax on these transportation fringe benefits and on-premises gyms and other athletic facilities provided to their employees.

With the overall reduction of the corporate tax rate to 21%, exempt organizations who already pay tax on UBTI could benefit from the lower tax rate.

Excise Tax

Sec. 13602 of the Act adds Code Sec. 4960. Currently, taxable employers face deduction limits regarding excess compensation. Until now, exempt organizations have not had comparable rules. The new provision subjects tax-exempt organizations to a 21% excise tax on the sum of:

1)the remuneration paid (other than any excess parachute payment) by an applicable tax-exempt organization for the taxable year with respect to employment of any covered employee in excess of $1 million, plus

2)any excess parachute payment paid by such an organization to any covered employee.

Remuneration is treated as paid when there is no substantial risk of forfeiture. It includes any remuneration paid by a related entity, but does not include amounts paid to a licensed medical professional (including a veterinarian) for the performance of medical or veterinary services.

An excess parachute payment is the excess amount of any parachute payment over the portion of the base amount. A parachute payment is any compensation paid to or for a covered employee if the payment is contingent on their separation from employment and the aggregate present value equals or exceeds three times the base amount. The base amount is the annualized includible compensation for the most recent five taxable years ending before the date of separation (see Section 280G(b)(3)).

An applicable tax-exempt organization includes an organization exempt under Section 501(a), an exempt farmers’ cooperative, a federal, state or local governmental entity with income excludable under Section 115, or a Section 527 political organization.

A covered employee includes the five highest compensated employees (including former employees) for the taxable year, or a covered employee for any previous taxable year beginning after December 31, 2016.

This provision will have a significant impact on covered organizations with highly compensated individuals. Such organizations need to assess the total compensation for their executives and closely monitor the amount and timing of compensation payments. It’s important to note that once an employee is a covered employee, they remain a covered employee. And, even if a covered employee’s compensation does not exceed $1 million, excise tax would apply to the excess parachute payment for such an employee. Impacted organizations will want to keep a close eye on additional details sure to develop.

Sec. 13701 of the Act adds Section 4968. Previously, the excise tax imposed by Code Sec. 4940 on the net investment income of private foundations did not apply to public charities, including colleges and universities that may have had substantial investment income. Going forward, certain private colleges and universities will be subject to a 1.4% excise tax on their net investment income. Institutions subject to the excise tax include 1)those with more than 500 daily average full-time students in the preceding taxable year and 2) those with an aggregate fair market value of assets (other than those assets which are used directly in carrying out the institution’s exempt purpose) of more than $500,000 per student at the end of the preceding tax year. In addition, assets and net investment income of related organizations would be treated as assets and net investment income of the institution. The new provision applies to taxable years beginning after December 31, 2017.

Charitable contributions

Sec. 13704 of the Act changes Code Sec. 170(l). Previously, individuals could deduct 80% of the amounts paid to colleges and universities which includes the right to purchase tickets for seating at an athletic event in an athletic stadium of such an institution. The changes disallow the deduction for the portion paid in exchange for the seating rights, effective for contributions made in taxable years beginning after December 31, 2017.

Sec. 13705 of the Act changes Code Sec. 170(f)(8). This section disallows a deduction for any contribution of $250 or more unless it is substantiated by a contemporaneous written acknowledgment. Previously this did not apply to a contribution if the donee organization filed a return which included the required information. This change ensures that there is no possibility of regulations that would allow or require charities to report details of donations of $250 or more.

Sec. 11023 of the Act changes Code Sec. 170(b)(1). Individuals may deduct charitable contributions limited to 50%, 30% or 20% of their adjusted gross income. The deduction class depends on the donee organization’s classification and the type of property. The new regulations increase the 50% limitation to 60% for cash contributions to public charities and certain private foundations. Amounts exceeding 60% of adjusted gross income can be carried forward for five years. This change may provide an incentive to donors to make significant gifts after December 31, 2017, and before January 1, 2026. This may help exempt organizations that are nervous about how the higher standard deduction for individuals will affect charitable giving in the future. Because the standard deduction is nearly doubled, fewer taxpayers will itemize and be able to see a tax benefit from charitable donations.

Indirectly affecting charitable contributions, Sec. 11046 of the Act suspends Code Sec. 68 for taxable years beginning after December 31, 2017, and before January 1, 2026. Previously, this section limited the overall itemized deductions for higher-income taxpayers. This may provide some taxpayers an incentive to donate larger amounts to exempt organizations.

Conclusion

Several changes included in the 2017 Tax Cuts and Jobs Act will directly impact nonprofits, and several will have an indirect impact. Changes to the calculation of UBTI include disallowing organizations to net profits and losses from more than one unrelated trade or business, as well as increasing UBTI by the amount of certain fringe expenses. Excise tax changes include imposing a 21% excise tax on compensation over $1 million for the five highest paid employees and imposing a 1.4% excise tax on net investment income of certain educational institutions.

The far-reaching tax law changes also impact charitable contributions by repealing the special rule that provides a charitable deduction for the amount paid for the right to purchase tickets for athletic events; ensuring that donee organizations will not be allowed or required to report details of donations of $250 or more; increasing the 50% limitation for cash contributions to public charities and certain private foundations to 60%; suspension of overall limitation on itemized deductions; and increasing the standard deduction.

Some of these changes will be easy for organizations to quantify but, for others, only time will tell. Exempt organizations should consult with their tax professional to determine exactly how their particular situation will be impacted and what actions they should take to mitigate their tax consequences. Organizations may also need to explore new ways to garner contributions from individual taxpayers. It’s imperative that exempt organizations keep up to date on additional regulations that are likely to result from these tax law changes.

To avoid interest and penalties, you must make sufficient federal income tax payments long before your April filing deadline through withholding, estimated tax payments, or a combination of the two. The third 2018 estimated tax payment deadline for individuals is September 17.

If you don’t have an employer withholding tax from your pay, you likely need to make estimated tax payments. But even if you do have withholding, you might need to pay estimated tax. It can be necessary if you have more than a nominal amount of income from sources such as self-employment, interest, dividends, alimony, rent, prizes, awards or the sales of assets.

A two-prong test

Generally, you must pay estimated tax for 2018 if both of these statements apply:

You expect to owe at least $1,000 in tax after subtracting tax withholding and credits, and
You expect withholding and credits to be less than the smaller of 90% of your tax for 2018 or 100% of the tax on your 2017 return — 110% if your 2017 adjusted gross income was more than $150,000 ($75,000 for married couples filing separately).

If you’re a sole proprietor, partner or S corporation shareholder, you generally have to make estimated tax payments if you expect to owe $1,000 or more in tax when you file your return.

Quarterly payments

Estimated tax payments are spaced through the year into four periods or due dates. Generally, the due dates are April 15, June 15 and September 15 of the tax year and January 15 of the next year, unless the date falls on a weekend or holiday (hence the September 17 deadline this year).

Estimated tax is calculated by factoring in expected gross income, taxable income, deductions and credits for the year. The easiest way to pay estimated tax is electronically through the Electronic Federal Tax Payment System. You can also pay estimated tax by check or money order using the Estimated Tax Payment Voucher or by credit or debit card.

Confirming withholding

If you determine you don’t need to make estimated tax payments for 2018, it’s a good idea to confirm that the appropriate amount is being withheld from your paycheck. To reflect changes under the Tax Cuts and Jobs Act (TCJA), the IRS updated the tables that indicate how much employers should withhold from their employees’ pay, generally reducing the amount withheld.

The new tables might cause some taxpayers to not have enough withheld to pay their ultimate tax liabilities under the TCJA. The IRS has updated its withholding calculator (available at irs.gov) to assist taxpayers in reviewing their situations.

Avoiding penalties

Keep in mind that, if you underpaid estimated taxes in earlier quarters, you generally can’t avoid penalties by making larger estimated payments in later quarters. But if you also have withholding, you may be able to avoid penalties by having the estimated tax shortfall withheld.

To learn more about estimated tax and withholding — and for help determining how much tax you should be paying during the year — contact us.

Thursday, September 20, 2018
11:30 AM – 12:30 PM EST

Webinar has passed, visit our Events page for future Tax Reform webinars.

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The Tax Cuts & Jobs Act included sweeping changes for closely-held businesses, regardless of structure. This webinar will discuss changes and strategies related to depreciation, accounting methods, the meals and entertainment deduction, and a discussion on whether your current structure still makes sense. In this webinar we will review:

Corporate tax rate change
New depreciation rules
Accounting method considerations
Changes to meals and entertainment deduction
Strategies related to corporate entity structure

Join Yeo & Yeo’s David Jewell, CPA, and Tammy Moncrief, CPA as they provide a comprehensive overview of the business tax changes under tax reform.

PRESENTERS:

David Jewell, CPA, Principal
Leader, Tax Services Group
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Tammy Moncrief, CPA, Principal
Tax Services Group
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Yeo & Yeo CPAs & Business Consultants, has been named one of Metropolitan Detroit’s Best and Brightest Companies to Work For by the Michigan Business & Professional Association for the seventh consecutive year.

“This recognition represents the dedication of our employees and a work environment we are proud of. I am happy to know our employees are engaged and enriched by the work they do,” said Thomas O’Sullivan, managing principal of the Ann Arbor office.

The annual competition is a program of the Michigan Business & Professional Association (MBPA) and recognizes organizations that display a commitment to excellence in their human resource practices and employee enrichment. Companies in counties as far north as Midland, Bay and Saginaw, as far west as Clinton, Ingham and Jackson, and those in the entire Thumb and Metropolitan Detroit regions were eligible to participate. A total of 153 winners were chosen from among 438 applicants.

Yeo & Yeo and the other winning companies will be honored at MBPA’s annual awards program and human resources symposium on September 21 at the Detroit Marriott at the Renaissance Center.

If your small business doesn’t offer its employees a retirement plan, you may want to consider a SIMPLE IRA. Offering a retirement plan can provide your business with valuable tax deductions and help you attract and retain employees. For a variety of reasons, a SIMPLE IRA can be a particularly appealing option for small businesses. The deadline for setting one up for this year is October 1, 2018.

The basics

SIMPLE stands for “savings incentive match plan for employees.” As the name implies, these plans are simple to set up and administer. Unlike 401(k) plans, SIMPLE IRAs don’t require annual filings or discrimination testing.

SIMPLE IRAs are available to businesses with 100 or fewer employees. Employers must contribute and employees have the option to contribute. The contributions are pretax, and accounts can grow tax-deferred like a traditional IRA or 401(k) plan, with distributions taxed when taken in retirement.

As the employer, you can choose from two contribution options:

Make a “nonelective” contribution equal to 2% of compensation for all eligible employees. You must make the contribution regardless of whether the employee contributes. This applies to compensation up to the annual limit of $275,000 for 2018 (annually adjusted for inflation).
Match employee contributions up to 3% of compensation. Here, you contribute only if the employee contributes. This isn’t subject to the annual compensation limit.

Employees are immediately 100% vested in all SIMPLE IRA contributions.

Employee contribution limits

Any employee who has compensation of at least $5,000 in any prior two years, and is reasonably expected to earn $5,000 in the current year, can elect to have a percentage of compensation put into a SIMPLE IRA.

SIMPLE IRAs offer greater income deferral opportunities than ordinary IRAs, but lower limits than 401(k)s. An employee may contribute up to $12,500 to a SIMPLE IRA in 2018. Employees age 50 or older can also make a catch-up contribution of up to $3,000. This compares to $5,500 and $1,000, respectively, for ordinary IRAs, and to $18,500 and $6,000 for 401(k)s. (Some or all of these limits may increase for 2019 under annual cost-of-living adjustments.)

You’ve got options

A SIMPLE IRA might be a good choice for your small business, but it isn’t the only option. The more-complex 401(k) plan we’ve already mentioned is one alternative. Some others are a Simplified Employee Pension (SEP) and a defined-benefit pension plan. These two plans don’t allow employee contributions and have other pluses and minuses. Contact us to learn more about a SIMPLE IRA or to hear about other retirement plan alternatives for your business.

When teachers are setting up their classrooms for the new school year, it’s common for them to pay for a portion of their classroom supplies out of pocket. A special tax break allows these educators to deduct some of their expenses. This educator expense deduction is especially important now due to some changes under the Tax Cuts and Jobs Act (TCJA).

The old miscellaneous itemized deduction

Before 2018, employee expenses were potentially deductible if they were unreimbursed by the employer and ordinary and necessary to the “business” of being an employee. A teacher’s out-of-pocket classroom expenses could qualify.

But these expenses had to be claimed as a miscellaneous itemized deduction and were subject to a 2% of adjusted gross income (AGI) floor. This meant employees, including teachers, could enjoy a tax benefit only if they itemized deductions (rather than taking the standard deduction) and all their deductions subject to the floor, combined, exceeded 2% of their AGI.

Now, for 2018 through 2025, the TCJA has suspended miscellaneous itemized deductions subject to the 2% of AGI floor. Fortunately, qualifying educators can still deduct some of their unreimbursed out-of-pocket classroom costs under the educator expense deduction.

The above-the-line educator expense deduction

Back in 2002, Congress created the above-the-line educator expense deduction because, for many teachers, the 2% of AGI threshold for the miscellaneous itemized deduction was difficult to meet. An above-the-line deduction is one that’s subtracted from your gross income to determine your AGI.

You don’t have to itemize to claim an above-the-line deduction. This is especially significant with the TCJA’s near doubling of the standard deduction, which means fewer taxpayers will benefit from itemizing.

Qualifying elementary and secondary school teachers and other eligible educators (such as counselors and principals) can deduct up to $250 of qualified expenses. If you’re married filing jointly and both you and your spouse are educators, you can deduct up to $500 of unreimbursed expenses — but not more than $250 each.

Qualified expenses include amounts paid or incurred during the tax year for books, supplies, computer equipment (including related software and services), other equipment and supplementary materials that you use in the classroom. For courses in health and physical education, the costs of supplies are qualified expenses only if related to athletics.

Many rules, many changes

Some additional rules apply to the educator expense deduction. Contact us for more details or to discuss other tax deductions that may be available to you this year. The TCJA has made significant changes to many deductions for individuals.

The S corporation business structure offers many advantages, including limited liability for owners and no double taxation (at least at the federal level). But not all businesses are eligible • and, with the new 21% flat income tax rate that now applies to C corporations, S corps may not be quite as attractive as they once were.

Tax comparison

The primary reason for electing S status is the combination of the limited liability of a corporation and the ability to pass corporate income, losses, deductions and credits through to shareholders. In other words, S corps generally avoid double taxation of corporate income — once at the corporate level and again when distributed to the shareholder. Instead, S corp tax items pass through to the shareholders’ personal returns and the shareholders pay tax at their individual income tax rates.

But now that the C corp rate is only 21% and the top rate on qualified dividends remains at 20%, while the top individual rate is 37%, double taxation might be less of a concern. On the other hand, S corp owners may be able to take advantage of the new qualified business income (QBI) deduction, which can be equal to as much as 20% of QBI.

You have to run the numbers with your tax advisor, factoring in state taxes, too, to determine which structure will be the most tax efficient for you and your business.

S eligibility requirements

If S corp status makes tax sense for your business, you need to make sure you qualify • and stay qualified. To be eligible to elect to be an S corp or to convert to S status, your business must:

Be a domestic corporation and have only one class of stock,
Have no more than 100 shareholders, and
Have only “allowable” shareholders, including individuals, certain trusts and estates. Shareholders can’t include partnerships, corporations and nonresident alien shareholders.

In addition, certain businesses are ineligible, such as insurance companies.

Reasonable compensation

Another important consideration when electing S status is shareholder compensation. The IRS is on the lookout for S corps that pay shareholder-employees an unreasonably low salary to avoid paying Social Security and Medicare taxes and then make distributions that aren’t subject to payroll taxes.

Compensation paid to a shareholder should be reasonable considering what a nonowner would be paid for a comparable position. If a shareholder’s compensation doesn’t reflect the fair market value of the services he or she provides, the IRS may reclassify a portion of distributions as unpaid wages. The company will then owe payroll taxes, interest and penalties on the reclassified wages.

Pros and cons

S corp status isn’t the best option for every business. To ensure that you’ve considered all the pros and cons, contact us. Assessing the tax differences can be tricky — especially with the tax law changes going into effect this year.

If you gamble, be sure you understand the tax consequences. Both wins and losses can affect your income tax bill. And changes under the Tax Cuts and Jobs Act (TCJA) could also have an impact.

Wins and taxable income

You must report 100% of your gambling winnings as taxable income. The value of complimentary goodies (“comps”) provided by gambling establishments must also be included in taxable income as winnings.

Winnings are subject to your regular federal income tax rate. You might pay a lower rate on gambling winnings this year because of rate reductions under the TCJA.

Amounts you win may be reported to you on IRS Form W-2G (“Certain Gambling Winnings”). In some cases, federal income tax may be withheld, too. Anytime a Form W-2G is issued, the IRS gets a copy. So if you’ve received such a form, remember that the IRS will expect to see the winnings on your tax return.

Losses and tax deductions

You can write off gambling losses as a miscellaneous itemized deduction. While miscellaneous deductions subject to the 2% of adjusted gross income floor are not allowed for 2018 through 2025 under the TCJA, the deduction for gambling losses isn’t subject to that floor. So gambling losses are still deductible.

But the TCJA’s near doubling of the standard deduction for 2018 (to $24,000 for married couples filing jointly, $18,000 for heads of households and $12,000 for singles and separate filers) means that, even if you typically itemized deductions in the past, you may no longer benefit from itemizing. Itemizing saves tax only when total itemized deductions exceed the applicable standard deduction.

Also be aware that the deduction for gambling losses is limited to your winnings for the year, and any excess losses cannot be carried forward to future years. Also, out-of-pocket expenses for transportation, meals, lodging and so forth can’t be deducted unless you qualify as a gambling professional.

And, for 2018 through 2025, the TCJA modifies the limit on gambling losses for professional gamblers so that all deductions for expenses incurred in carrying out gambling activities, not just losses, are limited to the extent of gambling winnings.

Tracking your activities

To claim a deduction for gambling losses, you must adequately document them, including:

The date and type of gambling activity.
The name and address or location of the gambling establishment.
The names of other persons (if any) present with you at the gambling establishment. (Obviously, this is not possible when the gambling occurs at a public venue such as a casino, race track, or bingo parlor.
The amount won or lost.

You can document income and losses from gambling on table games by recording the number of the table you played and keeping statements showing casino credit issued to you. For lotteries, you can use winning statements and unredeemed tickets as documentation.

Please contact us if you have questions or want more information about the tax treatment of gambling wins and losses.

Inefficiency is the downward slope that can take an organization from the top of its game to a place where employees are frustrated, unhappy, and the organizations goals are more challenging to achieve. Turning around an inefficient environment requires change. Change is often difficult, which is why inefficiency is frequently ignored. Employees are usually comfortable with the status quo, but what if employees could work in an environment where tasks were clearly defined, proper training occurred, redundancy was eliminated, excellence was applauded, and meaningful goals were achieved?

Creating such an environment requires thoughtful change. To successfully implement change, acceptance from those who will be affected is imperative. The size of your finance or accounting department will drive the number of employees who need to be involved in the details of evaluating inefficiency.

The following areas address the most common issues we see clients face when it comes to running the finance or accounting department. In fact, many of these areas are problems in other departments too, and the same core thoughts can be applied throughout your company to improve efficiency.

1. Define Your Role

Consider for a moment all of the activity that goes on in the department in a day, week, month and year. It’s overwhelming at times. Employees have likely spent years “doing more with less.” Collectively consider: What should be accomplished within the department during these time periods? What tasks are being completed that should be taken on by another department? What added value could be produced if the department took on other responsibilities? Once the core functions of the department have been determined, the details can be evaluated.

2. Document Processes

If the accounts payable clerk unexpectedly quit, would anyone know how to get vendors paid? Processes are not always documented at small to mid-size businesses, but they should be. Employees should document their processes to perform key functions. A good place to start is accounts payable, cash receipting, and payroll. The documentation should include step-by-step instructions on how to accomplish a task. Information related to the use of technology, what forms of approval are required from others, and an approximate timeline should be included. A separate employee should perform a test run of the documentation to determine if the task can be completed by simply following the written process. Employees should question their current process during this phase to determine if it could be more efficient. Questions to consider:

Can a step be automated?
Is a procedure redundant?
What road blocks are regularly faced?

3. Cross Training

Properly documenting processes also aides in the ability to cross train employees. When an employee is sick, on vacation, or leaves without notice, organizations with cross-trained employees experience lower levels of disruption because another employee can step in to temporarily handle the tasks. We recommend to identify the functions that would benefit most from a cross-trained employee, and then determine which employees to cross train. Cross-trained employees should periodically switch roles to keep the process fresh in their mind even if the need doesn’t exist.

4. Training

While considering the three areas above, organizations typically identify areas where either the department as a whole is weak, or an employee lacks training. An appropriate training plan should be developed to ensure employees are properly trained in the areas in which they are working. Training can take on many forms from external conferences, in-house seminars, one-on-one time spent with an external trainer or time spent training one another. Resources spent on proper training benefit the organization through greater employee satisfaction, fewer mistakes, and less time spent on tasks.

5. Technology

Accounting and general ledger software have more capabilities than ever before. Taking advantage of existing technology is crucial to eliminating inefficiency. Here are some questions to ask:

Has the software been properly set up to eliminate manual entry of duplicate information?
Is the chart of accounts in alignment with the recommended chart of accounts?
Is the chart of accounts unnecessarily complex?
Have the vendor and payroll data files been reviewed, and old vendors or old employees properly removed?
Does the software have the ability to do bank reconciliations and is the department utilizing this function?

Some software vendors provide user training. Consider if such training would benefit employees.

6. Communicate Expectations

Communicating concise expectations to employees up front reduces the amount of guesswork required to perform their functions. Deadlines should be clear. Work quality issues should be addressed throughout the year. Praise should be given when expectations are met or exceeded. Follow up should be done when expectations are not met, and a defined plan set forth with how expectations will be met in the future.

Conclusion

Inefficiency does not have to define an organization. Great strides can be made when the six areas defined above are addressed. Also, remember to empower employees within the organization to take ownership of eliminating inefficiency.

While the requirements governing related party transactions are nothing new, lately there has been an increased focus on the proper documentation, disclosure, and audit procedures required for these types of items.

Governmental Accounting Standards Board (GASB) Statement No. 62, paragraphs 54 through 57, provide guidance on the disclosure requirements for transactions that occur between related parties. As defined by GASB 62, paragraph 57, a related party is one that either:

Can significantly influence the management or operating policies of the transacting parties, or
Has an ownership interest in one of the transacting parties and can significantly influence the other to the extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests

A related party can be:

A school district’s related organizations, joint ventures and jointly governed organizations
Elected and appointed officials of the school district
The school district’s management
Members of the immediate families of elected or appointed officials of the school district and its management
Other parties which the school district may deal with if one party can significantly influence the management or operating policies of the other to the extent that one of the transacting parties might be prevented from fully pursuing its own separate interests

Common examples of related party transactions include:

Sales, purchases, transfers, or leases of real estate, buildings, and equipment
Services received (i.e., accounting, management, engineering, construction, and legal services)
Borrowing and lending agreements

Interactions between related parties are considered to be related party transactions even though they may not be given accounting recognition. For example, a school district may receive services from a related party without charge and not record receipt of the services.

These reporting requirements are not meant to discourage school districts from participating in related party transactions, but to promote transparency for the users of the financial statements. The school district’s footnotes should include enough details to adequately describe the situation. This includes the nature of the related party relationship, information regarding the transaction that occurred (including terms and conditions), the amount of the transaction, any outstanding balances and/or commitments, and provisions for doubtful accounts related to the outstanding balances (if applicable).

As a result of this growing focus, auditors are required to gain an increased understanding of these types of relationships. This may involve additional inquiry of management and/or board members to ensure that they are aware of related parties that may exist. Board member listings provided to the auditors should include the companies that the board members work for to also aid in this analysis. If related party transactions are identified, additional testing may need to be performed.

For more information about related party transactions and how to stay in compliance, contact Yeo & Yeo’s Education Services Group.

When you hear “The A-Team,” you may immediately think of the hit television show that aired in the 1980s or the 2010 movie with the same name but, as a business owner, have you considered who your A-Team is?

Successful business owners know their products or services. They know how to manufacture, grow or develop their products in efficient and profitable methods. Those owners also know that they can’t achieve their triumphs alone; it takes a dedicated workforce and a team of outside advisors – their A-Team.

Who should be on your A-Team?

Your A-Team should include experienced and knowledgeable accountants, attorneys, financial advisors, insurance agents and bankers. An A-Team is a squad that works together to help your business go further. It is important at any phase of your organization’s growth to ensure that your outside advisors are working together to meet your entity’s needs without additional risk or unwanted results. The one thing that any advisor least likes to do is surprise a client with an unintended consequence.

What should an A-Team do for you?

Your A-Team should work together to reduce risks while maximizing financial returns. They should make certain that your company is well-rounded with operating agreements, buy-sell agreements, liability and life insurance, retirement plans, operating lines of credit and loans in place that meet your needs. Providing valuable financial guidance while minimizing tax obligations are other needs that each company may have, for which a team approach works best. When the team works together for you and your company, they can help reduce the time required to address these types of critical issues, freeing up your time to concentrate on what will drive your company toward future success.

Within Yeo & Yeo, we have seen instances of advisors who sold our clients investments that caused additional, unexpected taxes. Or, the sale of a business that was structured well for legal purposes but, had it been allocated a little differently, could have saved the client tax dollars. Both of these examples are surprises no one likes to experience. Successful business owners work with talented advisors who understand many of the causes and effects of a company’s decisions.

Do you work with your advisors individually or do you involve each of them in a decision? Reflect on the following questions as you work with your advisors or consider hiring new ones:

Am I working with people I trust?
Are they experienced and knowledgeable?
Do they give me ideas to make my company better?
Do they help solve issues my company is facing?
Do they offer or encourage the idea of talking to each other?
Do they consider multiple scenarios and work as a team to provide the results I need?
Are they responsive?
Are they up to date on the latest laws, regulations and products?

A collaborative A-Team can help deliver exact results for your business to set you apart from the competition. Rely on your Yeo & Yeo consultant and other professionals to help you roar at your competition like Mr. T., “I pity the fool who doesn’t rely on their A-Team!”

UPDATE: The IRS has pushed the Form W-4 changes to 2020.

The IRS stated, ”Following feedback from the payroll and tax communities, the Treasury Department and the IRS will incorporate important changes into a new version of the Form W-4, Employee’s Withholding Allowance Certificate, for 2020. The 2019 version of the Form W-4 will be similar to the current 2018 version. A new draft version of the W-4 for 2019 will be available in the coming weeks.”

The proposed 2019 Form W-4 reflects major changes including the elimination of the number of allowances, and the new marital status box – Head of Household.

At this time, all current employees’ W-4 forms are still valid. However, all new employees hired after December 31, 2018, and all employees filing exempt in 2018, will need to use the new 2019 Form W-4 form beginning January 1, 2019.

The IRS is strongly encouraging, but not mandating, all employees to file a new Form W-4 for 2019.

Employees may use the IRS Withholding Calculator to help them complete the new 2019 Form W-4. https://www.irs.gov/individuals/irs-withholding-calculator

For a copy of the proposed instructions, go to https://www.irs.gov/pub/irs-dft/iw4–dft.pdf

For a copy of the proposed form, go to https://www.irs.gov/pub/irs-dft/fw4–dft.pdf

The estimated timeline for the release of the final version of the 2019 Form W-4 is November 2018.

How would your employees, board or even you go about reporting suspected misconduct, fraud or violations of policies and procedures? If you don’t know, then you should refer to your organization’s whistleblower policy, and if you find that your organization does not have one, now is the time to consider adopting one.

Adopting whistleblower policies are a best practice in the nonprofit community. In fact, this is another policy in our quick tip series significant enough that the IRS requires organizations to report whether or not they have implemented one in their Form 990 tax return. Adoption of these policies demonstrates to the general public and potential donors your organization’s adherence to best governance practices and responsible stewardship.

As a rule of thumb, your whistleblower policy should reflect the structure of your organization and should not be overly complex. It should address how individuals go about reporting suspected wrongdoings, including who to contact and how (this could include multiple points of contact based on the nature of the concern). It is important that the policy also describes the maximum timeframe for acknowledging reported misconduct and affirm that those who come forward in good faith will not be subject to reprisal or retaliation, but those who do not act in good faith, or knowingly make false accusations, will be subject to disciplinary actions.

Adopting a policy should not be the final step in this process. Everyone in the organization should be made aware of the policy, and at least annually the board should review and update the policy as necessary.

Check Out Our eBook on Creating Policies for Your Nonprofit

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The biggest tax bill in 30+ years has redefined the tax landscape. We are proud to offer our clients and friends an overview of some of the key changes affecting individual and business taxpayers.

Individuals: Have you reviewed how your situation will differ from 2017 to 2018 and beyond? Learn about the new tax brackets, exemptions and deductions, the Alternative Minimum Tax (ATM), the “Kiddie” tax and the effect on your estate plan.

Businesses: Be aware of the new deduction for pass-through entities, business interest deductions, bonus depreciation, the Section 179 deduction, and other business deductions and changes. Our industry-specialized CPAs and business consultants can help you review your company’s strategies to maximize opportunities through the new tax bill.

The time to plan is now.

Read Now: Biggest Tax Bill in 30+ Years Redefines Tax Landscape (PDF)

Do you have a question for a CPA? Contact Us to schedule a call or meeting to review your unique situation.

The law prohibits employers from hiring anyone who is not legally authorized to work in the country. It is up to the employer to verify that their workers are eligible to work. This happens during the hiring process when the new employee completes Form I-9. Access an updated Form I-9: https://www.uscis.gov/sites/default/files/files/form/i-9.pdf.

As a part of the government’s comprehensive effort to combat unauthorized immigration, the Immigration and Customs Enforcement (ICE) Homeland Security Investigations’ audits of Form I-9 have increased by more than 65 percent and are expected to continue to rise. Any employer can be investigated, but the industries at higher risk are construction, manufacturing, hotels and restaurants.

What to expect if audited

The process of an I-9 audit begins with the delivery of a “Notice of Inspection” (NOI) to the employer. After delivery, the employer has as little as three days to produce Form I-9s for all their employees. Employers should keep forms together in a dedicated drawer or binder, and should not save Form I-9s for longer than required. (According to federal law, the forms need to be kept for three years after the date you hire an employee or one year after the employee’s termination, whichever is later.) Additional paperwork may also be requested.

Also keep in mind:

Respond quickly to an NOI, even if it is just to ask ICE for a time extension.
Notify all employees and managers who handle I-9s.
Choose one person to correspond with ICE to avoid inconsistency in the information given.
Secure all records – ICE may view missing forms as an attempt to destroy evidence.

Once all documents have been submitted, ICE will review them and note discrepancies. If simple technical errors are found, the employer will have ten days to make corrections. Bigger discrepancies are more difficult to fix. These are things like relying on unacceptable documents for employment verification.

Penalties

Unless you are a very small company, fines can add up quickly. Generally fines range from $110 to $1,100 for every substantive violation. The range is the same for every technical violation that is not corrected within the ten-day period. Additional fines can be assessed if ICE can prove the employer knowingly hired or continued to employ unauthorized workers. ICE considers:

Whether the employer knowingly hired unauthorized workers or committed a paperwork violation
Prior offenses
The percentage of total reviewed I-9s that have violations, and
Other factors such as business size, good faith, seriousness, employment of unauthorized aliens, and history

Most common errors

Employee leaves out required information such as maiden name, address, date of birth.
Form is not filled out according to the time requirements.
Employee does not sign one of the sections.
Employee fails to check the box indicating their citizenship status or they check multiple boxes.
Employer does not enter an acceptable verification document.
Employer fails to enter the date of hire.

How to correct an I-9

Always use a different color ink.
Initial and date next to all changes.
If information is correct but in the wrong place, draw an arrow to the right place, initial and date
Attach a memo to explain the reason for the correction.
If you don’t know how to fix it, have the employee complete a new Form I-9 and attach a memo explaining the reason. Retain the old form.
If an I-9 is missing for an employee, have the employee complete a new Form I-9. When signing, use the current date – do not backdate.

How to prepare your company for an I-9 audit – steps to take now

Conduct an internal audit.

Separate I-9s from employee personnel files.
Verify all I-9s are accounted for by cross-referencing a list of current employees and recent terminations.
- Gather a list of current employees hired after November 1986.
- Add to the list any employees who terminated in the last three years.
Ensure employees who check the box in Section 1 are clearly identified.
If you discover a mistake, correct the existing form or, if there are multiple errors, you can prepare a new Form I-9.
- If you choose to correct the existing Form I-9, cross out the incorrect portions, enter the correction information, and initial and date the corrections.
- If you create a new Form I-9, retain the old form. You should also attach a short memo to both the new and old Forms I-9 stating the reason for your action.
If you discover you are missing the Form I-9 for an employee:
- Immediately provide the employee with a Form I-9.
- Allow the employee three business days to provide acceptable documents.
- Do not backdate the Form I-9.

Consider going one step further and have a labor attorney who has experience in I-9 laws and procedures review all of your I-9s.

The Social Security Administration (SSA) has begun mailing notifications to businesses and third parties who submitted 2017 W-2 forms that contained name and Social Security number (SSN) combinations that did not match the SSA records. The purpose of these notifications is to prepare employers for the 2018 W-2 filing deadline. These notifications will list various free online services available to employers through the SSA’s Business Services Online that can help ensure accuracy on the 2018 W-2 forms.

Beginning in spring 2019, the SSA will notify each employer who has at least one 2018 Form W-2 mismatch that corrections are needed. For a sample employer letter, see https://www.ssa.gov/employer/notices/EDCOR.pdf. This letter will only identify the number of mismatches, not who the employee is. It will be the responsibility of the employer to find which Form W-2 has the incorrect information and correct it by filing a Form W-2C. Penalties for not providing correct W-2 forms begin at $50 per return with a maximum of $530 per return unless there is intentional disregard, in which case there is no limitation on the amount of the penalty.

For further information, see https://www.ssa.gov/employer/notices.html.

The Michigan State Housing Development Authority (MSHDA) and the U.S. Department of Agriculture’s Office of Rural Development (RD) recently released the allowable multifamily property management fees for 2019.

MSHDA

The maximum fees allowed by MSHDA for the 2019 calendar year are as follows:

Management fee per unit – $527
Premium management fee per unit – $81

This is slightly more than a two percent increase from the 2018 maximum fees of $515 for the management fee per unit and $79 for the premium management fee per unit.

See MSHDA’s 2019 Annual Budget Guide Policy

Rural Development

RD management fees vary from state to state based on the increase of HUD’s Operating Cost Adjustment Factor.

The fees in effect for 2019 can be found in the attachments to HB 3560-2, Chapter 3.

Highlights for Michigan include an approximate four percent increase from the 2018 fee of $50 to $52 per occupied unit per month beginning in 2019.

HUD

Multifamily projects subject to the U.S. Department of Housing and Urban Development (HUD) should review the guidelines in The Management Agent Handbook for requirements in determining allowable fee amounts to be paid with project funds.

HUD management fees are typically calculated using a fee per unit, per month calculation that is converted to a percent of the total rental income of a property. Management fee agreements may be open-ended or define a set period, such as three years.

For more information, please contact your Yeo & Yeo advisor.

Converting a traditional IRA to a Roth IRA can provide tax-free growth and tax-free withdrawals in retirement. But what if you convert your traditional IRA — subject to income taxes on all earnings and deductible contributions — and then discover you would have been better off if you hadn’t converted it?

Before the Tax Cuts and Jobs Act (TCJA), you could undo a Roth IRA conversion using a “recharacterization.” Effective with 2018 conversions, the TCJA prohibits recharacterizations — permanently. But if you executed a conversion in 2017, you may still be able to undo it.

Reasons to recharacterize

Generally, if you converted to a Roth IRA in 2017, you have until October 15, 2018, to undo it and avoid the tax hit.

Here are some reasons you might want to recharacterize a 2017 Roth IRA conversion:

The conversion combined with your other income pushed you into a higher tax bracket in 2017.
Your marginal income tax rate will be lower in 2018 than it was in 2017.
The value of your account has declined since the conversion, so you owe taxes partially on money you no longer have.

If you recharacterize your 2017 conversion but would still like to convert your traditional IRA to a Roth IRA, you must wait until the 31st day after the recharacterization. If you undo a conversion because your IRA’s value declined, there’s a risk that your investments will bounce back during the waiting period, causing you to reconvert at a higher tax cost.

Recharacterization in action

Sally had a traditional IRA with a balance of $100,000 when she converted it to a Roth IRA in 2017. Her 2017 tax rate was 33%, so she owed $33,000 in federal income taxes on the conversion.

However, by August 1, 2018, the value of her account had dropped to $80,000. So Sally recharacterizes the account as a traditional IRA and amends her 2017 tax return to exclude the $100,000 in income.

On September 1, she reconverts the traditional IRA, whose value remains at $80,000, to a Roth IRA. She will report that amount when she files her 2018 tax return. The 33% rate has dropped to 32% under the TCJA. Assuming Sally is still in this bracket, this time she’ll owe $25,600 ($80,000 × 32%) — deferred for a year and resulting in a tax savings of $7,400.

(Be aware that the thresholds for the various brackets have changed for 2018, in some cases increasing but in others decreasing. This, combined with other TCJA provisions and changes in your income, could cause you to be in a higher or lower bracket in 2018.)

Know your options

If you converted a traditional IRA to a Roth IRA in 2017, it’s worthwhile to see if you could save tax by undoing the conversion. If you’re considering a Roth conversion in 2018, keep in mind that you won’t have the option to recharacterize. We can help you assess whether recharacterizing a 2017 conversion or executing a 2018 conversion makes sense for you.