President Trump Signs SECURE Act – Affects Retirement

President Trump signed the SECURE Act on December 20, 2019, as part of the federal government’s spending bill, and it will affect most retirement savers, as well as employers who offer retirement plans to their employees.

The SECURE Act legislation — which stands for “Setting Every Community Up for Retirement Enhancement” — puts into place numerous provisions intended to strengthen retirement security across the country. The Act includes a significant number of changes for both individuals with qualified retirement accounts, as well as employers who currently offer retirement plans to their employees.

Key provisions of the SECURE Act include:

Stretch IRAs eliminated – all funds from an inherited IRA generally must now be distributed to non-spouse beneficiaries within ten years of the owner’s death, with some exceptions for specified circumstances. Beneficiaries may no longer stretch inherited IRAs out over their expected lifetime.
Allows penalty-free withdrawals from qualified plans for the birth or adoption of a child.
Required minimum distributions (RMDs) must now begin at age 72, not at 70½.
No age restrictions on IRA contributions for taxpayers who continue to work into their 70s and have earned income.
401(k) eligibility for part-time employees who have worked at least 500 hours per year for at least three consecutive years and have attained age 21 by the end of the three years.
Allows expansion of access to multi-employer plans, allowing unrelated businesses to provide defined contribution plans at lower costs.
Section 529 plan distributions may now be used for costs associated with registered apprenticeships, and up to $10,000 of qualified student loan repayments (principal or interest).

Contact your Yeo & Yeo professional with questions about how these changes may impact your personal retirement and your business.

New Budget Bill Extends Many Expiring Tax Provisions

Congress passed the Taxpayer Certainty and Disaster Relief Act of 2019 as part of the Further Consolidated Appropriations Act on December 19, 2019, and on December 20, President Trump signed the bill into law.

The Act contains disaster relief provisions, repeals some of the tax provisions of the Affordable Care Act, and increases funding for the Internal Revenue Service. The Disaster Relief Act extends more than 30 expired tax provisions through 2020.

Key provisions extended through 2020 include:

Mortgage debt forgiveness on a principal residence in certain situations
The ability to deduct mortgage insurance premiums as an itemized deduction
Medical deduction for qualified expenses exceeding 7.5% of adjusted gross income (versus 10%)
Tuition and fees deduction as an “above-the-line” deduction
Work Opportunity Tax Credit (WOTC) for employers hiring from certain targeted pools of employees
Family and Medical Leave credit for employers meeting certain criteria and offering such benefits
Plug-in vehicle credit for certain qualifying vehicles

Provisions that were not included in the Act:

Reinstatement of unreimbursed employee expenses being deductible as an itemized deduction
Increase in the $10,000 cap on state and local tax deductions allowed as itemized deductions

Contact your Yeo & Yeo tax professional with questions about how these changes may impact your specific tax situation.

Yeo & Yeo is pleased to provide 2020 Tax Planning Calendars and other helpful tax planning resources.

What are the due dates for next year’s tax filings? When are the various tax payments due?

The 2020 Tax Calendar for Business and the 2020 Tax Calendar for Individuals and Trusts are valuable tools to help you plan for the deadlines.

What can you do now to save tax dollars?

Yeo & Yeo’s 2019 Year-end Tax Planning Checklist of action items may help you or your business save tax dollars. Please review the checklist and contact us soon if you would like help with deciding which tax-saving moves to make.

For more extensive information, visit Yeo & Yeo’s Tax Guide Online.

Yeo & Yeo honors employees for longevity, proudly recognizing 11 associates across the firm’s companies for milestone anniversaries at the firm’s annual holiday celebration held at Horizons Conference Center in Saginaw.

The following professionals were honored for 25 years of service.

Fred Miller, Vice President, Yeo & Yeo Technology, assists with the administration of YYTECH, works with clients as an Account Manager to support their technology goals, and works with the Business Applications team to implement solutions to meet clients’ business needs. He is a Boy Scout leader.

Rebecca Millsap, Managing Principal, Yeo & Yeo CPAs – Flint, leads the firm’s Estate & Trust Group and is a member of the Tax Services Group. Her areas of expertise include tax and business consulting, and assisting small businesses with financial reporting and strategic planning. Becky is the treasurer of the Rotary Club of Flint and serves on the Finance Council and Building Committee of Holy Family Catholic Church in Grand Blanc.

The following professional was honored for 20 years of service.

Traci Cook, CPC, CPMA^®, Billing and Coding Consultant and Account Manager, Yeo & Yeo Medical Billing & Consulting, performs billing and coding reviews for physicians’ offices and advises them on how to maximize their reimbursement. She also provides training for billing and coding staff. She oversees the billing process for several accounts.

The following professionals were honored for 15 years of service.

Matt Dubay, Senior Systems Engineer, Yeo & Yeo Technology, provides support for YYTECH’s external clients. He implements and troubleshoots computer server environments such as Microsoft and VMware.

Chloe Eggleston, Receptionist, Yeo & Yeo CPAs – Saginaw, is the Ambassador of First Impressions, responsible for welcoming clients and visitors, and maintaining security and telecommunications. For 17 years she has been an advisor and board member for Young Champions, an organization that encourages young people to serve others.

Gus Hendrickson, Account Executive, Yeo & Yeo Technology, consults with businesses to help them achieve their objectives through the use of technology. Gus is engaged with organizations that make a positive impact on kids such as the CAN Council, READ Association, United Way, youth sports and scouting.

Jacob Sopczynski, CPA, Principal, Yeo & Yeo CPAs – Flint, provides audits for governmental entities, school districts and nonprofit organizations, as well as strategic tax planning for businesses and individuals. He is a member of the firm’s Manufacturing Services Group. He also serves clients as a consultant and specialist in the application of data extraction techniques. He is treasurer of the International Academy of Flint.

Eric J. Sowatsky, CPA, CGMA, NSSA^®, Principal, Yeo & Yeo CPAs – Saginaw, Eric leads the firm’s Agribusiness Services Group and the Saginaw tax department. At Bethlehem Lutheran Church & School, he is treasurer, finance committee chairman and a member of the athletics committee, and he sings in the church’s Boar’s Head Christmas Festival.

The following professionals were honored for 10 years of service.

Michael Evrard, CPA, Senior Manager, Yeo & Yeo CPAs – Kalamazoo, primarily works on audit engagements for nonprofit organizations and school districts, in addition to serving on the firm’s Audit Services Group and the Nonprofit Services Group.

Dan Featherston, Sales Support Specialist, Yeo & Yeo Technology, works with multiple YYTECH Account Executives to prepare quotes, proposals and other documentation. He researches new devices, including servers and computers, to find the appropriate device for each client.

Jesse Marenger, CPA, Senior Manager, Yeo & Yeo CPAs – Saginaw, is the Retirement Plan Audit Services Group Leader, specializing in auditing 401(k), 403(b), employee stock ownership, defined benefit pension, and health & welfare plans.

Consider how many capital asset purchases your municipality makes each year. The capital assets purchased and disposed of include everything from water and sewer system lines to copiers used in daily operations. Many governmental entities face the challenge of properly accounting for these purchases and sales. It is imperative to track and report them to the finance department to ensure that the capital asset balances presented in the government entity’s annual financial report are accurate and represent the actual capital assets the entity has in its possession. There are a number of common capital asset reporting issues encountered by municipalities.

It may be difficult for the finance department to report the capital asset balances accurately. Two common hurdles that a governmental entity may encounter are:

The capital asset listing contains assets that the governmental entity no longer possesses.
The capital asset listing is missing key information required to physically identify the asset.

Each of these hurdles is addressed below in more detail, with recommendations for overcoming them.

Disposal of assets

Capital asset listings for governmental entities are typically very large and contain assets from many years ago that are likely still in use, such as buildings or land. However, it is common for a capital asset listing to contain assets that may have been disposed of long ago, which were unidentified. This is partially because many governmental entities focus heavily on the capital assets that are being purchased each year as they require approvals and additional documentation that flows directly through the finance department. Also, disposal of capital assets does not always result in the governmental entity receiving proceeds; therefore, individual departments may dispose of capital assets (due to obsolescence, malfunction, etc.) without notifying the finance department.

To help mitigate the risk that disposed capital assets will not be removed from the listing, capital asset policies should be in place that include capitalization thresholds for each major capital asset category as well as detailed capital asset purchase and disposal procedures. Further, strong communication of these policies by the finance department to all other departments of the governmental entity is key to ensure that they are aware of the requirements and are adequately tracking their purchases and disposals throughout the year and reporting this information to the finance department.

Asset identification

Since most capital asset listings for governmental entities were set up many years ago, governmental entities may be challenged to know which description corresponds to which asset. Typically, this happens because the description is too vague. For example, a governmental entity purchases a truck for public works and labels it on the capital asset listing as “Truck.” While this description states what the asset being added to the listing is, it does not contain any other specific information such as a model number, vehicle identification number (VIN), etc. The description should contain enough detailed information so that any person in the governmental entity could physically verify that the asset exists from the information contained in the listing.

A best practice that could be incorporated into a governmental entity’s capital asset policies would be to require a serial number for the asset (such as a VIN), the fiscal year it was added to the listing, or some additional piece of information that would assist in identification. Assigning each purchase a unique capital asset number and tagging the actual asset is also encouraged as it provides another layer of identification.

By establishing clear policies and procedures related to the purchase and disposition of capital assets and communicating them to individual departments, the governmental entity will have a more accurate capital asset listing. Individual departments should be encouraged to review their capital asset listings periodically to help identify items that need to be removed. For federally purchased assets, Uniform Guidance requirements should be considered in the policies and procedures to ensure compliance with all grant requirements.

A purchasing card (p-card) program can be a flexible and timesaving tool in the school district’s purchasing process. This specialized credit card allows authorized school district employees to purchase certain goods and services through any merchant that accepts such payments, including those purchases through the internet. The program can greatly streamline the purchasing process and possibly provide valuable rebates. It can reduce the administrative burden and costs related to check writing, provide faster payment to vendors, and reduce the paperwork typically associated with the traditional procurement process. To run an effective card purchasing program, the school district must establish appropriate policies and procedures from the onset.

Policy and Guidelines

The school district should create a board-approved policy outlining the basic governance of the p-card program. At a minimum, the policy should contain the following elements:

Issuance procedures – Include who is responsible for the issuance and monitoring of the credit card(s) and the groups of employees who are eligible to receive a card. Also, document that an employee is to return the card upon the termination of employment. A cardholder agreement should be obtained upon issuance of a p-card to a district employee. The agreement should include the elements of the policy and guidelines noted below and establish that the card is to be used for school business expenditures only. This agreement must be signed by the employee and maintained throughout the program.
Documentation – A detailed receipt of goods or services purchased, which includes an itemized list of costs, the date of purchase, and the purpose of the purchase must be provided for each transaction.
Payment – Include who will be an appropriate approver of payment and how that payment will be made.
Misuse and/or Unauthorized Use – Violations of the policy will include disciplinary action.

In addition to the above policy, the school district should establish more specific administrative guidelines related to the program. These guidelines should include the following:

Transaction limits – Establish both the formal credit card limits, as well as internal purchase thresholds. These limits should be appropriate to their position and likely spending. These limits should be reviewed annually.
Eligible goods and services – This will vary based on the needs and comfort of your school district. Typical allowable transactions include travel (conference registrations, hotels, transportation, meal expenses) and small supply purchases. Employees should be conscious of the school district’s tax-exempt status and provide the proper forms to the merchant to ensure no such tax is paid.
Lack of documentation – Consequences should be established for lack of documentation. Typically, reimbursement from the employee must be made, or a payroll reduction will be enforced.
Reconciliation – A standard reconciliation form should be established by the school district to ensure consistency among cardholders. Employees should be responsible for reconciling their account statements and providing appropriate documentation. Timelines should be established to ensure the timely payment of the balance.
The school district must maintain appropriate controls, following their purchasing policy, to ensure the success of the p-card program. They should provide ongoing training for both cardholders and supervisor and the above guidelines should be modified as the needs of the program change.

Audit

Internal audits should be performed regularly, and employees must be held accountable for failure to follow the established guidelines. Audits should be strategic and include a closer look at transactions near limits (look for split transactions), with unusual vendors, or those that contain key words that could contain a prohibited purchase. Other things to watch for include, is the employee providing reconciliations on a timely basis? Were transactions properly approved? Are any purchases for personal gain?

Reporting Requirements

As part of the annual budget/transparency reporting, MCL 388.1618 of the State School Aid Act requires all public schools to provide the type, credit limit, authorized individual(s), and authorized dollar limit(s) of all credit cards maintained by the school district. This report should be updated within 30 days of any changes made to a district credit card. If you have no credit cards, you must provide a line stating such.
A purchasing card program provides numerous benefits. With the proper internal controls, the program can provide valuable time and cost savings for a school district.

A common question that arises when preparing an estate or trust return is, can capital gains be distributed to the beneficiary? Most often, the answer is no, capital gains remain in and are taxed at the trust level. In many cases, this is the correct answer. However, let’s consider three exceptions to this general rule.

For an income item to be eligible to be distributed to the beneficiary, it must be included as part of distributable net income (DNI). DNI acts as a ceiling for the amount a trust or estate can take as a distribution deduction and as a ceiling for the amount of income that the beneficiary is required to account for on their personal income tax return. So how exactly is DNI calculated? Per Section 643(a), the general formula for DNI is:

Taxable income
+ Distribution deduction
+ Personal exemption
+ Tax-exempt income
+ Capital losses
– Capital gains
– Dividends allocated to corpus
= Distributable net income

As stated above, capital gains are normally allocated to trust principal and, therefore, are taxed to the estate or trust. Trusts and estates, in general, can result in higher taxes on capital gains than if the same capital gains were taxed at the individual level. So, to help save tax dollars, following is more information about the three exceptions where capital gains can be included in DNI and distributed to the beneficiary.

Exceptions That Allow Capital Gains to Be Distributed

Reg. 1.643(a) – 3(b) has specific requirements that must be met to allocate capital gains to the beneficiaries.

Prerequisites that must be met
1) Trust agreement and local law; or
2) A reasonable and impartial exercise of discretion by the trustee

Three methods available to allocate capital gains

Method 1: Capital gains allocated to income. This method is limited unless the trust instrument or state law allocates capital gains to income, which is unlikely in most instances, or the fiduciary has broad discretion to allocate capital gains to income.

Method 2: Capital gains are allocated to corpus but treated consistently by the fiduciary on the trust’s books, records and tax returns. This method requires consistent practice in allocating capital gains to DNI. This method is most common when a trust is in its first year of existence, as no precedent has been set for how capital gains will be treated. If the fiduciary, in their discretion, allocates capital gains to DNI in the first year, this sets the precedent for treatment of capital gains in future years. If a trust has been in existence for several years and capital gains have never been allocated to DNI before, the fiduciary cannot start doing so now.

Method 3: Capital gains are allocated to corpus but are distributed to the beneficiary or utilized by the fiduciary in determining the amount to be distributed. This method does not require a consistent requirement and appears to be the most flexible.

This article provides only brief information as to when capital gains could be allocated to a trust or estate beneficiary. If you would like more information, please contact a Yeo & Yeo professional, and we will be happy to discuss your situation.

Don’t let the holiday rush keep you from taking some important steps to reduce tax liability reduce in 2019. You still have time to execute a few strategies, including:

Buying assets

Thinking about purchasing new or used heavy vehicles, heavy equipment, machinery or office equipment in the new year? Buy it and place it in service by December 31, and you can deduct 100% of the cost as bonus depreciation.

Although “qualified improvement property” (QIP) — generally, interior improvements to nonresidential real property — doesn’t qualify for bonus depreciation, it’s eligible for Sec. 179 immediate expensing. And QIP now includes roofs, HVAC, fire protection systems, alarm systems and security systems placed in service after the building was placed in service.

You can deduct as much as $1.02 million for QIP and other qualified assets placed in service before January 1, not to exceed your amount of taxable income from business activity. Once you place in service more than $2.55 million in qualifying property, the Sec. 179 deduction begins phasing out on a dollar-for-dollar basis. Additional limitations may apply.

Making the most of retirement plans

If you don’t already have a retirement plan, you still have time to establish a new plan, such as a SEP IRA, 401(k) or profit-sharing plans (the deadline for setting up a SIMPLE IRA to make contributions for 2019 tax purposes was October 1, unless your business started after that date). If your circumstances, such as your number of employees, have changed significantly, you also should consider starting a new plan before January 1.

Although retirement plans generally must be started before year-end, you usually can deduct any contributions you make for yourself and your employees until the due date of your tax return. You also might qualify for a tax credit to offset the costs of starting a plan.

Timing deductions and income

If your business operates on a cash basis, you can significantly affect your amount of taxable income by accelerating your deductions into 2019 and deferring income into 2020 (assuming you expect to be taxed at the same or a lower rate next year).

For example, you could put recurring expenses normally paid early in the year on your credit card before January 1 — that way, you can claim the deduction for 2019 even though you don’t pay the credit card bill until 2020. In certain circumstances, you also can prepay some expenses, such as rent or insurance and claim them in 2019.

As for income, wait until close to year-end to send out invoices to customers with reliable payment histories. Accrual-basis businesses can take a similar approach, holding off on the delivery of goods and services until next year.

Proceed with caution

Bear in mind that some of these tactics could adversely impact other factors affecting your tax liability, such as the qualified business income deduction. Contact us to make the most of your tax planning opportunities.

January 29-30, 2020

The 2020 Form W-4, Employee’s Withholding Certificate, is very different from previous versions. The Internal Revenue Service (IRS) revised the form to comply with the income tax withholding requirements within the federal tax law changes that took effect in 2018. We are glad to share the new 2020 form W-4 for your employees.

The IRS is not requiring all employees to complete the revised form. However, certain employees will be required to use the new form, including those hired in 2020 and anyone who makes withholding changes during 2020.

We are pleased to share several documents to assist you and your employees:

A sample notice to send to your employees that announces the new form and encourages them to perform a “paycheck checkup.”
The 2020 Form W-4 — What is Your Situation? includes answers to frequently asked questions to help employees complete the form depending on their circumstances.
The 2020 Form W-4 with instructions. The 2020 withholding tables work with both the new form and prior-year forms.

Remember that you should not give tax advice to employees, but rather direct them to the IRS estimator or their tax professional for help.

When it comes to divorce, there are many areas where an expert witness can assist the trier of fact in determining the value of marital property. In instances where a business is involved, the valuation expert is retained to provide an independent opinion to substantiate the value of the business. An expert witness in divorce engagements may also help determine spousal support as well as forensic analysis in the search for hidden assets.

When there is a business interest involved, the valuation process is similar to valuations performed for other purposes, with one notable exception. The State of Michigan recognizes the concept of holder’s interest in determining the applicability of discounts to the value of the business interest.

Under the fair market value standard, value is determined based on a hypothetical seller and a hypothetical buyer, both having reasonable knowledge of the relevant facts underlying the business.

In the divorce context, the underlying rationale is that the owner will continue to operate the business and that there is no hypothetical buyer and seller of the business interest. Therefore, there would be no discounts applied to the overall value for lack of control or a lack of marketability as there is under the fair market value standard. This is generally the case where the ownership interest being valued has control (over 50% interest).

It is important to keep in mind that the holder’s interest standard is specific to Michigan case law and may be different in another state that follows other court precedents.

Another area where Michigan varies from other states is the concept of personal goodwill. Personal goodwill (especially when valuing a professional practice), focuses on intangible assets that cannot be separated from the owner.

Examples include but are not limited to:

Reputation of the owner
Years of experience
Owner’s work habits
Business name (tied to the owner)

In the case of personal goodwill in Michigan, prior court precedent has determined that personal goodwill cannot be separately distinguished from that of the practice or enterprise. However, other states do allow for the separation of personal goodwill from that of the company.

Business valuation and litigation support in the divorce context can be challenging. It’s important to call on professionals in this area who can assist the trier of fact in determining how to equitably split the marital assets, especially where the complexities of a business are involved. Yeo & Yeo’s Business Valuation and Litigation services group can help ensure that you receive the consideration you deserve.

Yeo & Yeo CPAs & Business Consultants is pleased to announce that Zaher Basha, CPA, CMAA, was recently honored with the most prestigious award bestowed by the firm, the Spirit of Yeo award. The Spirit of Yeo award recognizes an individual within the firm who exemplifies the attributes of the organization’s mission and core values.

“Zaher is an exceptionally strong leader,” said President & CEO Thomas Hollerback. “He is an effective mentor for other professionals in the firm, always showing an interest in what they want in their careers and helping them take the proper steps to achieve their goals. He has been instrumental in training and developing staff in the firm’s Auburn Hills office.”

Yeo & Yeo Honors Zaher Basha

Basha is a manager in the Auburn Hills office and serves in the tax service line, specializing in tax planning. He is also a member of the firm’s Healthcare Services Group and the Business Valuation and Litigation Support Services Group. He is a Certified Merger and Acquisition Advisor.

Basha received multiple nominations for the Spirit of Yeo award. One of his nominators said, “Zaher was an integral part of the software conversion team this year that spearheaded the firm’s largest improvement and investment in technology ever. He is a thought leader and wants to continuously ensure we stay on the leading edge of technology and how we will deliver services to our clients in the future.” Another nominator said, “Zaher is intrinsically motivated to do the highest level of work for the firm and holds himself personally and professionally to an extremely high standard.” Another nominator said, “He is a caring person who is always willing to help, no matter how busy he is, with patience and a smile.”

Basha is a member of the Michigan Association of Certified Public Accountants’ Healthcare Task Force, the Auburn Hills Chamber of Commerce and the Troy Chamber of Commerce. In the community, he serves as treasurer of the Foundation for Justice & Development and the Syrian American Rescue Network. He also volunteers for Women for Humanity and The Syria Institute and participates in Making Strides Against Cancer walks annually.

2019 marked the sixth year of the award with Yeo & Yeo employees submitting 41 nominations.

The Payroll Solutions Group would like to make you aware of important payroll updates that will affect you and your employees next year.

2020 payroll changes
Items to consider before December 31, 2019

The State of Michigan minimum wage will increase to $9.65 per hour. Also, we will send an eAlert about the new Form W-4 and post a summary of the new requirements on our website in the coming days to keep you informed.

Need guidance on closing 2019, preparing for 2020 payroll or meeting payroll deadlines? Contact the payroll professionals at Yeo & Yeo.

Download 2020 Payroll Planning Brief

As we all know, medical services and prescription drugs are expensive. You may list a medical expense deduction on your tax return but the rules make it difficult for many people to qualify. However, with proper planning, you may be able to time discretionary medical expenses to your advantage for tax purposes.

The basic rules

For 2019, the medical expense deduction can only be claimed to the extent your unreimbursed costs exceed 10% of your adjusted gross income (AGI). You also must itemize deductions on your return.

If your total itemized deductions for 2019 will exceed your standard deduction, moving or “bunching” nonurgent medical procedures and other controllable expenses into 2019 may allow you to exceed the 10% floor and benefit from the medical expense deduction. Controllable expenses include refilling prescription drugs, buying eyeglasses and contact lenses, going to the dentist and getting elective surgery.

In addition to hospital and doctor expenses, here are some items to take into account when determining your allowable costs:

1. Health insurance premiums. This item can total thousands of dollars a year. Even if your employer provides health coverage, you can deduct the portion of the premiums that you pay. Long-term care insurance premiums are also included as medical expenses, subject to limits based on age.

2. Transportation. The cost of getting to and from medical treatments counts as a medical expense. This includes taxi fares, public transportation, or using your own car. Car costs can be calculated at 20¢ a mile for miles driven in 2019, plus tolls and parking. Alternatively, you can deduct certain actual costs, such as gas and oil.

3. Eyeglasses, hearing aids, dental work, prescription drugs and professional fees. Deductible expenses include the cost of glasses, hearing aids, dental work, psychiatric counseling and other ongoing expenses in connection with medical needs. Purely cosmetic expenses don’t qualify. Prescription drugs (including insulin) qualify, but over-the-counter aspirin and vitamins don’t. Neither do amounts paid for treatments that are illegal under federal law (such as marijuana), even if state law permits them. The services of therapists and nurses can qualify as long as they relate to a medical condition and aren’t for general health. Amounts paid for certain long-term care services required by a chronically ill individual also qualify.

4. Smoking-cessation and weight-loss programs. Amounts paid for participating in smoking-cessation programs and for prescribed drugs designed to alleviate nicotine withdrawal are deductible. However, nonprescription nicotine gum and patches aren’t. A weight-loss program is deductible if undertaken as treatment for a disease diagnosed by a physician. Deductible expenses include fees paid to join a program and attend periodic meetings. However, the cost of food isn’t deductible.

Dependent expenses

There are some medical expense deduction costs that you pay for dependents, such as your children. Additionally, you may be able to deduct medical costs you pay for other individuals, such as an elderly parent. If you have questions about medical expense deductions, contact us.

At this time of year, many business owners ask if there’s anything they can do to save tax for the year. Under current tax law, there are two valuable depreciation-related tax breaks that may help your business reduce its 2019 tax liability. To benefit from these deductions, you must buy eligible machinery, equipment, furniture or other assets and place them into service by the end of the tax year. In other words, you can claim a full deduction for 2019 even if you acquire assets and place them in service during the last days of the year.

The Section 179 deduction

Under Section 179, you can deduct (or expense) up to 100% of the cost of qualifying assets in Year 1 instead of depreciating the cost over a number of years. For tax years beginning in 2019, the expensing limit is $1,020,000. The deduction begins to phase out on a dollar-for-dollar basis for 2019 when total asset acquisitions for the year exceed $2,550,000.

Sec. 179 expensing is generally available for most depreciable property (other than buildings) and off-the-shelf computer software. It’s also available for:

Qualified improvement property (generally, any interior improvement to a building’s interior, but not for the internal structural framework, for enlarging a building, or for elevators or escalators),
Roofs, and
HVAC, fire protection, alarm, and security systems.

The Sec. 179 deduction amount and the ceiling limit are significantly higher than they were a few years ago. In 2017, for example, the deduction limit was $510,000, and it began to phase out when total asset acquisitions for the tax year exceeded $2.03 million.

The generous dollar ceiling that applies this year means that many small and medium sized businesses that make purchases will be able to currently deduct most, if not all, of their outlays for machinery, equipment and other assets. What’s more, the fact that the deduction isn’t prorated for the time that the asset is in service during the year makes it a valuable tool for year-end tax planning.

Bonus depreciation

Businesses can claim a 100% bonus first year depreciation deduction for machinery and equipment bought new or used (with some exceptions) if purchased and placed in service this year. The 100% deduction is also permitted without any proration based on the length of time that an asset is in service during the tax year.

Business vehicles

It’s important to note that Sec. 179 expensing and bonus depreciation may also be used for business vehicles. So buying one or more vehicles before December 31 may reduce your 2019 tax liability. But, depending on the type of vehicle, additional limits may apply.

Businesses should consider buying assets now that qualify for the liberalized depreciation deductions. Please contact us if you have questions about depreciation or other tax breaks.

Yeo & Yeo’s Year-end Tax Guide 2019 provides action items that may help you save tax dollars if you act before year-end.

These are just some of the steps that can be taken to save taxes. Not all actions may apply in your particular situation, but you or a family member can likely benefit from many of them.

A Yeo & Yeo tax professional can help narrow down the specific actions that you can take and tailor a tax plan for your current situation. Please review the guide and contact Yeo & Yeo CPAs at your earliest convenience so that they can help advise you on which tax-saving moves to make.

For other helpful tools, visit our Tax Center.

‘Tis the season when employers often will provide employees with “gifts” of some type. We all know the entity in town that gives all of its employees a turkey for Thanksgiving or Christmas. While this is a wonderful gesture on the part of the employer, is it compensation to the employee?

A general rule of thumb is to assume that all compensation, which includes gifts, to employees is taxable. There are exceptions to that rule, but they are the exceptions and not the general rule.

The main exception to taxable compensation is De Minimus fringe benefits. There is no set dollar threshold on these; above $100 fair value is not de minimus, but just because it is $25 or less does not automatically make it de minimus. The intent is that the value of the benefits is small (per person and at the entity level), the frequency is infrequent, and it would be an administrative burden to track. This means if the entity is tracking the items itself, such as in inventory, it is not an administrative burden and is not de minimus. However, cash or “cash equivalents” (which includes gift cards, gift certificates, etc.) are never de minimus.

This means that the Subway gift card that is given to select winners in the staff meeting each month is taxable to the employee, even if it is only $10, and should be included in their W-2. However, that Thanksgiving turkey, which is a coupon redeemable for a turkey, and only a turkey, with a value of $X or less, is not a cash equivalent. It is in essence personal property (food) and could be de minimus if the employer deems it a small benefit, the frequency is infrequent, and it would be an administrative burden to track. The Subway gift card is used in place of cash; I could use it as part of multiple different transactions and it has a set face amount that I can use. The coupon instead can only be used in one transaction and it has a maximum face amount, but if I choose a small turkey and do not utilize the entire face amount, I lose the rest. If I choose too large of a turkey that is above the face amount, I cannot simply put that face amount towards the turkey; I must pay for the entire turkey. Therefore, that coupon is not a cash equivalent.

The sweatshirt that you get for free upon joining the organization may qualify as a de minimus fringe if it otherwise meets the criteria. The fact the sweatshirt has the company logo on it does not affect the decision, as you can wear a company sweatshirt anywhere, not just at work. You must look at the value of the benefit (typically its cost to the employer), the frequency, and the administrative burden. If instead it was a hazmat suit that can be worn only at work, it would be a working condition fringe and nontaxable.

Employee achievement awards are not taxable to the employee. However, these have a very strict definition.

First, they are items of tangible personal property and not cash or cash equivalents.
Second, the award must be for either 1) a length of service or 2) a safety achievement and must be presented as part of a meaningful presentation.
Also, the nontaxable amount cannot be more than $400 for any employee.

Sometimes nonprofits provide “stipends” to people. If the payment represents compensation for research, teaching, or other services rendered, it is taxable compensation. If it is simply to offset living expenses during training or a research program, not payment for services, the stipend is not taxable.

The general rule of thumb is that all items given to employees are taxable unless they fit into an exception. If you have specific circumstances you would like to discuss, please reach out to your Yeo & Yeo professional.

A general rule of thumb is to assume that all compensation, which includes gifts, to employees is taxable. There are exceptions to that rule, but they are the exceptions and not the general rule.

Employee achievement awards are not taxable to the employee. However, these have a very strict definition.

First, they are items of tangible personal property and not cash or cash equivalents.
Second, the award must be for either 1) a length of service or 2) a safety achievement and must be presented as part of a meaningful presentation.
Also, the nontaxable amount cannot be more than $400 for any employee.