Update on the 3% Refund – Tentative Guidance Issued with More Updates Coming Soon

Yeo & Yeo, along with Michigan School Business Officials, the 1022 Committee, and various representatives of the State of Michigan met again regarding the 3% refunds last Friday. Many questions arose on reporting and issuance that we will answer to assist school districts with completing employee distributions and tax reporting. A few issues still need to be resolved, but we were able to get guidance to some key questions.

We still recommend that school districts wait for the written guidance that will be sent once finalized, but we have summarized several items below that will help districts plan and issue their distributions correctly.

Note: We receive new guidance on this daily. As meetings occur between the Office of Retirement Services (ORS), the 1022 Committee, MSBO, etc., certain guidance may change. We will send updates as we receive them and adjust the items below accordingly.

Frequently Asked Questions:

When will I receive the funds and how will I get the payment?

The payment is planned to be pushed out on January 22. It will be a separate deposit from the monthly State Aid amount.

What is the initial journal entry?

Once the money is received, initial accounting should be straightforward. Below is an example journal entry for the initial payment.

Debit – Cash
Credit – Liability

(It is recommended that the cash be placed in a non-interest bearing account.)

Will there be impact on revenue and expenditure accounts?

Revenue – No impact.

Expenditure – Maybe, depending on the treatment of the 3% refund. If the amount being received for previous wages (3% refund) was not initially taxed for FICA, districts will have an expenditure for FICA in the current year. The 1022 Committee is looking into a recommendation as to account number and allocation of this expenditure, taking into account the effect of other reporting and calculations, such as COE or indirect cost rates, etc.

Can we cut a check through Accounts Payable or does it have to go through payroll and be reported on a W-2?

For the majority of districts, the answer is no. However, if your district included the 3% refund in federal and state wages and included it for FICA wages then yes, you would return the payment through an Accounts Payable check with no follow-up in reporting (no 1099s or W-2s necessary for the wages piece).

Should we try to obtain a new W-4?

We recommend using the most current W-4 on file.

What should we do with the interest and how do we need to report it?

The interest will need to be paid out to each individual in addition to the 3% refund. As for the reporting, currently we do not see any reporting that will need to be done by the districts. Many issues have arisen in relation to the interest – at the most basic level, whose responsibility is the reporting in the first place? However, none of the interest payments to individuals are anticipated to be more than the $600 limit for either a 1099-Misc. or a 1099-Int (*limit for non-financial institutions). Therefore, the reporting of the funds should not be a requirement for your district.

Will there be W-2 reporting?

For the majority of districts, yes. If the district excluded the 3% refund for federal and state wages and included or excluded for FICA wages, then it must be reported on the W-2. It will depend on the district’s treatment of FICA as to what box (1, 3, and/or 5) on the W-2 the 3% refund will need to be reported in.

The FICA rate has changed since 2011, which one should we use?

We recommend using the current rate.

What should I tell my Board and my employees as to a timeline?

This is an individual district decision; however, we feel April 30, or 60 to 90 days past receipt, would be a good target. It is likely that most districts will first issue current employee checks, and then work on distributing the deceased and/or former employee payments next. A few items to consider that may affect your individual timeline are: # of employees who are no longer active, changes in district software, etc.

Is the 3% refund subject to retirement?

No, it is a refund of wages and has already been subject to retirement.

Do the one-year Unclaimed Property laws for payroll checks apply and when does the timeline start?

Yes, if you are unable to find contact information for a former employee, the unclaimed property rules do apply. The start of the one-year mark is from the date of last activity or when the funds are available to be issued to the individual.

Below are the links to other resources:

Yeo & Yeo will send updates as we receive them.

For further information see our article, FICA 3% Healthcare Contribution Refunds – Guidance for Distribution will be Forthcoming.

The IRS has just announced that it will begin accepting 2017 income tax returns on January 29. You may be more concerned about the April 17 filing deadline, or even the extended deadline of October 15 (if you file for an extension by April 17). After all, why go through the hassle of filing your return earlier than you have to?

But it can be a good idea to file as close to January 29 as possible: Doing so helps protect you from tax identity theft.

All-too-common scam

Here’s why early filing helps: In an all-too-common scam, thieves use victims’ personal information to file fraudulent tax returns electronically and claim bogus refunds. This is usually done early in the tax filing season. When the real taxpayers file, they’re notified that they’re attempting to file duplicate returns.

A victim typically discovers the fraud after he or she files a tax return and is informed by the IRS that the return has been rejected because one with the same Social Security number has already been filed for the same tax year. The IRS then must determine who the legitimate taxpayer is.

Tax identity theft can cause major headaches to straighten out and significantly delay legitimate refunds. But if you file first, it will be the tax return filed by a potential thief that will be rejected — not yours.

The IRS is working with the tax industry and states to improve safeguards to protect taxpayers from tax identity theft. But filing early may be your best defense.

W-2s and 1099s

Of course, in order to file your tax return, you’ll need to have your W-2s and 1099s. So another key date to be aware of is January 31 — the deadline for employers to issue 2017 Form W-2 to employees and, generally, for businesses to issue Form 1099 to recipients of any 2017 interest, dividend or reportable miscellaneous income payments.

If you don’t receive a W-2 or 1099, first contact the entity that should have issued it. If by mid-February you still haven’t received it, you can contact the IRS for help.

Earlier refunds

Of course, if you’ll be getting a refund, another good thing about filing early is that you’ll get your refund sooner. The IRS expects over 90% of refunds to be issued within 21 days.

E-filing and requesting a direct deposit refund generally will result in a quicker refund and also can be more secure. If you have questions about tax identity theft or would like help filing your 2017 return early, please contact us.

Although the drop of the corporate tax rate from a top rate of 35% to a flat rate of 21% may be one of the most talked about provisions of the Tax Cuts and Jobs Act (TCJA), C corporations aren’t the only type of entity significantly benefiting from the new law. Owners of noncorporate “pass-through” entities may see some major — albeit temporary — relief in the form of a new deduction for a portion of qualified business income (QBI).

A 20% deduction

For tax years beginning after December 31, 2017, and before January 1, 2026, the new deduction is available to individuals, estates and trusts that own interests in pass-through business entities. Such entities include sole proprietorships, partnerships, S corporations and, typically, limited liability companies (LLCs). The deduction generally equals 20% of QBI, subject to restrictions that can apply if taxable income exceeds the applicable threshold — $157,500 or, if married filing jointly, $315,000.

QBI is generally defined as the net amount of qualified items of income, gain, deduction and loss from any qualified business of the noncorporate owner. For this purpose, qualified items are income, gain, deduction and loss that are effectively connected with the conduct of a U.S. business. QBI doesn’t include certain investment items, reasonable compensation paid to an owner for services rendered to the business or any guaranteed payments to a partner or LLC member treated as a partner for services rendered to the partnership or LLC.

The QBI deduction isn’t allowed in calculating the owner’s adjusted gross income (AGI), but it reduces taxable income. In effect, it’s treated the same as an allowable itemized deduction.

The limitations

For pass-through entities other than sole proprietorships, the QBI deduction generally can’t exceed the greater of the owner’s share of:

50% of the amount of W-2 wages paid to employees by the qualified business during the tax year, or
The sum of 25% of W-2 wages plus 2.5% of the cost of qualified property.

Qualified property is the depreciable tangible property (including real estate) owned by a qualified business as of year end and used by the business at any point during the tax year for the production of qualified business income.

Another restriction is that the QBI deduction generally isn’t available for income from specified service businesses. Examples include businesses that involve investment-type services and most professional practices (other than engineering and architecture).

The W-2 wage limitation and the service business limitation don’t apply as long as your taxable income is under the applicable threshold. In that case, you should qualify for the full 20% QBI deduction.

Careful planning required

Additional rules and limits apply to the QBI deduction, and careful planning will be necessary to gain maximum benefit. Please contact us for more details.

The recently passed tax reform bill, commonly referred to as the “Tax Cuts and Jobs Act” (TCJA), is the most expansive federal tax legislation since 1986. It includes a multitude of provisions that will have a major impact on businesses.

Here’s a look at some of the most significant changes. They generally apply to tax years beginning after December 31, 2017, except where noted.

Replacement of graduated corporate tax rates ranging from 15% to 35% with a flat corporate rate of 21%
Repeal of the 20% corporate alternative minimum tax (AMT)
New 20% qualified business income deduction for owners of flow-through entities (such as partnerships, limited liability companies and S corporations) and sole proprietorships — through 2025
Doubling of bonus depreciation to 100% and expansion of qualified assets to include used assets — effective for assets acquired and placed in service after September 27, 2017, and before January 1, 2023
Doubling of the Section 179 expensing limit to $1 million and an increase of the expensing phaseout threshold to $2.5 million
Other enhancements to depreciation-related deductions
New disallowance of deductions for net interest expense in excess of 30% of the business’s adjusted taxable income (exceptions apply)
New limits on net operating loss (NOL) deductions
Elimination of the Section 199 deduction, also commonly referred to as the domestic production activities deduction or manufacturers’ deduction — effective for tax years beginning after December 31, 2017, for noncorporate taxpayers and for tax years beginning after December 31, 2018, for C corporation taxpayers
New rule limiting like-kind exchanges to real property that is not held primarily for sale
New tax credit for employer-paid family and medical leave — through 2019
New limitations on excessive employee compensation
New limitations on deductions for employee fringe benefits, such as entertainment and, in certain circumstances, meals and transportation

Keep in mind that additional rules and limits apply to what we’ve covered here, and there are other TCJA provisions that may affect your business. Contact us for more details and to discuss what your business needs to do in light of these changes.

On December 20, Congress completed passage 100c of the largest federal tax reform law in more than 30 years. Commonly called the “Tax Cuts and Jobs Act” (TCJA), the new law means substantial changes for individual taxpayers.

The following is a brief overview of some of the most significant provisions. Except where noted, these changes are effective for tax years beginning after December 31, 2017, and before January 1, 2026.

Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37%
Near doubling of the standard deduction to $24,000 (married couples filing jointly), $18,000 (heads of households), and $12,000 (singles and married couples filing separately)
Elimination of personal exemptions
Doubling of the child tax credit to $2,000 and other modifications intended to help more taxpayers benefit from the credit
Elimination of the individual mandate under the Affordable Care Act requiring taxpayers not covered by a qualifying health plan to pay a penalty — effective for months beginning after December 31, 2018, and permanent
Reduction of the adjusted gross income (AGI) threshold for the medical expense deduction to 7.5% for regular and AMT purposes — for 2017 and 2018
New $10,000 limit on the deduction for state and local taxes (on a combined basis for property and income taxes; $5,000 for separate filers)
Reduction of the mortgage debt limit for the home mortgage interest deduction to $750,000 ($375,000 for separate filers), with certain exceptions
Elimination of the deduction for interest on home equity debt
Elimination of the personal casualty and theft loss deduction (with an exception for federally declared disasters)
Elimination of miscellaneous itemized deductions subject to the 2% floor (such as certain investment expenses, professional fees and unreimbursed employee business expenses)
Elimination of the AGI-based reduction of certain itemized deductions
Elimination of the moving expense deduction (with an exception for members of the military in certain circumstances)
Expansion of tax-free Section 529 plan distributions to include those used to pay qualifying elementary and secondary school expenses, up to $10,000 per student per tax year — permanent
AMT exemption increase, to $109,400 for joint filers, $70,300 for singles and heads of households, and $54,700 for separate filers
Doubling of the gift and estate tax exemptions, to $10 million (expected to be $11.2 million for 2018 with inflation indexing)

Be aware that additional rules and limits apply. Also, there are many more changes in the TCJA that will impact individuals. If you have questions or would like to discuss how you might be affected, please contact us.

The Tax Cuts and Jobs Act (TCJA) enhances some tax breaks for businesses while reducing or eliminating others. One break it enhances — temporarily — is bonus depreciation. While most TCJA provisions go into effect for the 2018 tax year, you might be able to benefit from the bonus depreciation enhancements when you file your 2017 tax return.

Pre-TCJA bonus depreciation

Under pre-TCJA law, for qualified new assets that your business placed in service in 2017, you can claim a 50% first-year bonus depreciation deduction. Used assets don’t qualify. This tax break is available for the cost of new computer systems, purchased software, vehicles, machinery, equipment, office furniture, etc.

In addition, 50% bonus depreciation can be claimed for qualified improvement property, which means any qualified improvement to the interior portion of a nonresidential building if the improvement is placed in service after the date the building is placed in service. But qualified improvement costs don’t include expenditures for the enlargement of a building, an elevator or escalator, or the internal structural framework of a building.

TCJA expansion

The TCJA significantly expands bonus depreciation: For qualified property placed in service between September 28, 2017, and December 31, 2022 (or by December 31, 2023, for certain property with longer production periods), the first-year bonus depreciation percentage increases to 100%. In addition, the 100% deduction is allowed for not just new but also used qualifying property.

The new law also allows 100% bonus depreciation for qualified film, television and live theatrical productions placed in service on or after September 28, 2017. Productions are considered placed in service at the time of the initial release, broadcast or live commercial performance.

Beginning in 2023, bonus depreciation is scheduled to be reduced 20 percentage points each year. So, for example, it would be 80% for property placed in service in 2023, 60% in 2024, etc., until it would be fully eliminated in 2027.

For certain property with longer production periods, the reductions are delayed by one year. For example, 80% bonus depreciation would apply to long-production-period property placed in service in 2024.

Bonus depreciation is only one of the business tax breaks that have changed under the TCJA. Contact us for more information on this and other changes that will impact your business.

Yeo & Yeo CPAs & Business Consultants is pleased to jointly release the results of the second annual 2018 Leading Edge Alliance (LEA Global) National Manufacturing Outlook Survey.

The survey report contains the expectations and opinions of 450 manufacturing executives, especially those from the Midwest, who produce a wide variety of products including machining/industrial, automotive/transportation, construction, food and beverage, and other products.

Results from the survey include:

81% of manufacturers expect their revenue to grow in 2018; only 3% expect their revenue to decrease.
Manufacturers are more optimistic about the regional/local economy and the national economy than the global economy.
The top priority for 70% of manufacturers in 2018 is growing sales. Almost three-fourths of manufacturers expect to increase sales through organic growth within the U.S., while 44% expect to grow by developing new products or services.
More than half (55%) of manufacturers indicated that labor will be the greatest barrier to growth. Strategies to attract and retain talent will include increasing compensation packages and conducting internal training and apprenticeships.
Most manufacturers expect to invest 1%-5% of revenue in R&D during 2018.
Cybersecurity, by far, is the top technology focus for manufacturers. Beyond cybersecurity, almost 50% of manufacturers are also prioritizing predictive business analytics/big data and erp solution.
More manufacturers are exploring mergers/sales and acquisitions in 2018.

The good news is that manufacturers have a positive outlook about their own performance and that of the industry and economy as a whole in 2018. However, some hurdles may become more significant. Increased hiring will result in increased wage costs, technology development will not slow in the coming year, and tax reform will bring the need for different tax planning.

Manufacturing owners and managers should have ongoing conversations with all of their advisors, including their accounting and tax provider, about how to overcome these challenges and achieve their business goals.

“We understand the challenges facing the manufacturing industry, and we are committed to helping companies improve their operations and achieve growth. Especially now – when manufacturers need to find the best strategy to take advantage of tax reform – having a team of industry-experienced advisors providing manufacturers insight and answers is critically important,” says Yeo & Yeo Principal and Manufacturing Services Group leader Amy Buben.

Read the entire survey report, 2018 National Manufacturing Outlook and Insights – Planning for Potential and Seizing Opportunity, for in-depth information about the challenges the respondents face, the key strategies that the best-run manufacturers believe will be most effective, and the outlook for 2018.

On December 20, 2017, the Michigan Supreme Court ordered refunds, upholding a Court of Appeals ruling that a 2010 Michigan law violated contract clauses of the state and federal constitutions by involuntarily reducing pay for teachers and other school employees by 3% to fund retiree healthcare benefits.

The Office of Retirement Services (ORS) will release the detail of the amount your district will receive from the State. The detailed lists will contain the amount of payment, the amount of interest, the most recent address of the individual the refund is being issued to, and the social security number. The payment is expected to be made in a separate payment on the same day that districts receive their State Aid payment.

For more information, see the ORS FAQ.

The 1022 Committee is working with the Michigan School Business Officials, the Michigan Department of Education and the ORS to issue streamlined guidance for all districts. Yeo & Yeo is a member of the 1022 Committee and has been actively involved throughout the process. As of now, we recommend that once your district receives the payment, you should wait to issue payments to employees and/or former employees until the guidance is issued. We realize that you may be getting pressure from employees to make the payments, but it will be best if all school districts wait for the guidance and are consistent with the payouts and reporting. We anticipate that we will send an update on the guidance next week, with the actual written guidance coming out in 15 to 30 days.

Please contact your Yeo & Yeo representative with any specific questions.

Read our updated blog with tentative guidance on the FICA 3% Healthcare Contribution Refund.

Yeo & Yeo CPAs & Business Consultants is pleased to announce that Tara Stensrud, CPA, NSSA^®, has been promoted to the position of principal.

Thomas E. Hollerback, president, and CEO, says, “Tara has shown tremendous development and continues to do outstanding work. We are proud to recognize her for her leadership and commitment to serving our valued clients. She has excelled in making meaningful connections with her clients and helps them succeed. We are pleased to welcome Tara to the principal/ownership group.”

Stensrud recently transferred from the firm’s Alma office to the Midland office. She has 11 years of public accounting experience and specializes in business consulting, financial reporting and tax issues, with a strong emphasis on the manufacturing and agriculture sectors. She also provides tax planning and preparation services for individuals and small and midsize businesses, and assists businesses in administering employee stock ownership (ESOP) plans. Stensrud is a member of the firm’s Manufacturing Services Group and Tax Services Group. She is an active member of the Michigan Manufacturers Association and the Central Michigan Manufacturers Association.

Stensrud is an Advanced Certified QuickBooks ProAdvisor, consulting with businesses using QuickBooks software, and a National Social Security Advisor, counseling clients on the most advantageous way to claim Social Security benefits. She holds a Bachelor of Business Administration from Central Michigan University and is a Leadership Gratiot alumni.

David R. Youngstrom, CPA, and Michael A. Georges, CPA, have been elected to the Yeo & Yeo CPAs & Business Consultants board of directors effective January 1, 2018, announced Thomas E. Hollerback, president and CEO. They will serve for a two-year term.

David R. Youngstrom, CPA, principal, is the firm’s Assurance Service Line leader. He is responsible for all audits performed throughout Michigan, and provides audit services for school districts, government entities, and for-profit businesses. He is a frequent presenter on audit topics at statewide conferences and also provides various consulting services. He is a member of the firm’s Government Services Group, the Education Services Group, and the Quality Assurance Committee. He has 22 years of public accounting experience.

In the community, Youngstrom is treasurer of Freeland Community School District and immediate past chair of the board of the United Way of Saginaw County, and serves on the board of directors of the Saginaw Valley State University Alumni Association. He is based in the firm’s Saginaw office.

Michael A. Georges, CPA, principal in the Ann Arbor office, joined Yeo & Yeo in 2014 and has 35 years of public accounting experience. He leads the firm’s Nonprofit Services Group. His areas of expertise include audit services for nonprofit organizations, government entities and school districts, as well as tax planning and preparation for individuals, small and medium-size businesses, and nonprofit organizations. He is a member of the Michigan School Business Officials and the Southern Wayne County Chamber of Commerce.

In the community, Georges serves as a board member for the Grosse Ile Education Foundation, and for the Child’s Hope Child Abuse Prevention Council of Out-Wayne County.

Congress is enacting the biggest tax reform law in 30 years, one that will make fundamental changes in the way you, your family and your business calculate your federal income tax bill, and the amount of federal tax to be paid. Since most of the changes will go into effect next year, there is still a narrow window of time before year-end to soften or avoid the impact of crackdowns and to best position yourself for the tax breaks that may be heading your way.

Here’s a quick rundown of last-minute moves you should think about making.

Lower tax rates are coming. The Tax Cuts and Jobs Act will reduce tax rates for many taxpayers, effective for the 2018 tax year. Additionally, many businesses, including those operated as pass-throughs, such as partnerships, may see their tax bills cut.

The general plan of action to take advantage of lower tax rates next year is to defer income into next year. Some possibilities follow:

If you are about to convert a regular IRA to a Roth IRA, postpone your move until next year. That way you’ll defer income from the conversion until next year and have it taxed at lower rates.
Earlier this year, you may have already converted a regular IRA to a Roth IRA, but now you question the wisdom of that move, as the tax on the conversion will be subject to a lower tax rate next year. You can unwind the conversion to the Roth IRA by doing a recharacterization – making a trustee-to-trustee transfer from the Roth to a regular IRA. This way, the original conversion to a Roth IRA will be cancelled out. But you must complete the recharacterization before year-end. Starting next year, you will not be able to use a recharacterization to unwind a regular-IRA-to-Roth-IRA conversion.
If you run a business that renders services and operates on the cash basis, the income you earn is not taxed until your clients or patients pay. So if you hold off on billings until next year – or until so late this year that no payment will likely be received this year – you will likely succeed in deferring income until next year.
If your business is on the accrual basis, deferral of income until next year is difficult but not impossible. For example, you might, with due regard to business considerations, be able to postpone completion of a last-minute job until 2018, or defer deliveries of merchandise until next year (if doing so won’t upset your customers). Taking one or more of these steps would postpone your right to payment, and the income from the job or the merchandise, until next year. Keep in mind that the rules in this area are complex and may require a tax professional’s input.
The reduction or cancellation of debt generally results in taxable income to the debtor. So if you are planning to make a deal with creditors involving debt reduction, consider postponing action until January to defer any debt cancellation income into 2018.

Disappearing or reduced deductions, larger standard deduction. Beginning next year, the Tax Cuts and Jobs Act suspends or reduces many popular tax deductions in exchange for a larger standard deduction.Here’s what you can do about this right now:

Individuals (as opposed to businesses) will only be able to claim an itemized deduction of up to $10,000 ($5,000 for a married taxpayer filing a separate return) for the total of (1) state and local property taxes; and (2) state and local income taxes. To avoid this limitation, pay the last installment of estimated state and local taxes for 2017 no later than December 31, 2017, rather than on the 2018 due date. But don’t prepay in 2017 a state income tax bill that will be imposed next year – Congress says such a prepayment won’t be deductible in 2017. However, Congress only forbade prepayments for state income taxes, not property taxes, so a prepayment on or before December 31, 2017, of a 2018 property tax installment is apparently OK.
The itemized deduction for charitable contributions won’t be chopped. But because most other itemized deductions will be eliminated in exchange for a larger standard deduction (e.g., $24,000 for joint filers), charitable contributions after 2017 may not yield a tax benefit for many because they won’t be able to itemize deductions. If you think you will fall into this category, consider accelerating some charitable giving into 2017.
The new law temporarily boosts itemized deductions for medical expenses. For 2017 and 2018, these expenses can be claimed as itemized deductions to the extent they exceed a floor equal to 7.5% of your adjusted gross income (AGI). Before the new law, the floor was 10% of AGI, except for 2017 it was 7.5% of AGI for age-65-or-older taxpayers. But keep in mind that next year many individuals will have to claim the standard deduction because many itemized deductions have been eliminated. If you won’t be able to itemize deductions after this year but will be able to do so this year, consider accelerating “discretionary” medical expenses into this year. For example, before the end of the year, get new glasses or contacts, or see if you can squeeze in expensive dental work such as an implant.

Other year-end strategies. Here are some other last-minute moves that can save tax dollars given the new tax law:

The new law substantially increases the alternative minimum tax (AMT) exemption amount, beginning next year. There may be steps you can take now to take advantage of that increase. For example, the exercise of an incentive stock option (ISO) can result in AMT complications. So, if you hold any ISOs, it may be wise to postpone exercising them until next year. And, for various deductions, e.g., depreciation and the investment interest expense deduction, the deduction will be curtailed if you are subject to the AMT. If the higher 2018 AMT exemption means you will not be subject to the 2018 AMT, it may be worthwhile, via tax elections or postponed transactions, to push such deductions into 2018.
Like-kind exchanges are a popular way to avoid current tax on the appreciation of an asset, but after December 31, 2017, such swaps will be possible only if they involve real estate that is not held primarily for sale. So if you are considering a like-kind swap of other types of property, do so before year-end. The new law says the old, far more liberal like-kind exchange rules will continue to apply to exchanges of personal property if you either dispose of the relinquished property or acquire the replacement property on or before December 31, 2017.
For decades, businesses have been able to deduct 50% of the cost of entertainment directly related to or associated with the active conduct of a business. For example, if you take a client to a nightclub after a business meeting, you can deduct 50% of the cost if strict substantiation requirements are met. But under the new law, for amounts paid or incurred after December 31, 2017, there is no deduction for such expenses. So if you’ve been thinking of entertaining clients and business associates, do so before year-end.
Under current rules, alimony payments generally are an above-the-line deduction for the payor and included in the income of the payee. Under the new law, alimony payments are not deductible by the payor or includible in the income of the payee, generally effective for any divorce decree or separation agreement executed after 2017. So if you’re in the middle of a divorce or separation agreement, and you’ll wind up on the paying end, it would be worth your while to wrap things up before year end. On the other hand, if you’ll wind up on the receiving end, it would be worth your while to wrap things up next year.
The new law suspends the deduction for moving expenses after 2017 (except for certain members of the Armed Forces), and also suspends the tax-free reimbursement of employment-related moving expenses. So if you’re in the midst of a job-related move, try to incur your deductible moving expenses before year-end, or if the move is connected with a new job and you’re getting reimbursed by your new employer, press for a reimbursement to be made to you before year-end.
Under current law, various employee business expenses, e.g., employee home office expenses, are deductible as itemized deductions if those expenses plus certain other expenses exceed 2% of adjusted gross income. The new law suspends the deduction for employee business expenses paid after 2017. So, we should determine whether paying additional employee business expenses in 2017, that you would otherwise pay in 2018, would provide you with an additional 2017 tax benefit. Also, now would be a good time to talk to your employer about changing your compensation arrangement – for example, your employer reimbursing you for the types of employee business expenses that you have been paying yourself up to now, and lowering your salary by an amount that approximates those expenses. In most cases, such reimbursements would not be subject to tax.

Please keep in mind that we’ve described only some of the year-end moves that should be considered in light of the new tax law. If you would like more details about any aspect of how the new law may affect you, please do not hesitate to call your Yeo & Yeo tax professional.

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Early Friday evening, Congressional GOP leaders agreed upon a tax reform bill that both the House and the Senate are expected to vote on this week. If passed, the bill will go to President Trump for his signature.

Key provisions of the bill are as follows:

Individual provisions

Seven marginal tax brackets are retained, with lower rates. The rates will be 0%, 10%, 12%, 22%, 24%, 32%, 35% and 37%.
The standard deduction is nearly doubled to $24,000 for married couples, and $12,000 for single filers.
Allows taxpayers to deduct a maximum of $10,000 of combined real estate taxes and state and local income taxes. Previous proposals completely eliminated the state and local income tax deduction.
The Child Tax Credit is expanded from $1,000 to $2,000, with up to $1,400 being refundable. Phase-out of the credit begins at $400,000 for married couples.
The Child and Dependent Care Credit, as well as the Adoption Tax Credit, have been preserved.
Mortgage interest deduction – no change for taxpayers with existing mortgages; however, for new mortgages interest will only be deductible on up to $750,000 of mortgage indebtedness.
The medical deduction is retained and expanded for 2018 and 2019, allowing deductions of medical expenses in excess of 7.5% of adjusted gross income, before increasing to 10% in 2020.
Retains the ability to deduct charitable contributions.
Eliminates the Affordable Care Act’s individual mandate to have health insurance or pay a tax penalty.
Expands use of 529 accounts to allow qualified distributions for elementary, secondary and college education.
Retains the alternative minimum tax, but significantly increases the exemption level.
Retains the estate tax, but doubles the exemption level to nearly $11 million per individual.

Business provisions

Lowers the corporate tax rate to 21%, effective January 1, 2018 (down from 35%).
Creates a 20% tax deduction for pass-through businesses (S Corporations, LLCs, partnerships, and sole proprietors) on the first $315,000 of business profits, excluding certain industries, such as personal service businesses.
Allows businesses to immediately expense the cost of new and used equipment purchased through December 31, 2022, phasing out beginning January 1, 2023, through December 31, 2027, and significantly increases Section 179 expensing of qualified property.
Eliminates the corporate alternative minimum tax.
Retains provisions such as the ability to deduct business interest expense, the research and development tax credit, and the tax-preferred status of private-activity bonds.

Numerous other provisions affect substantially all tax filers. Please consult your Yeo & Yeo tax advisor with any questions you may have on this bill.

As cold weather approaches, contractors everywhere are trying to finish as much work as possible before winter. Once it becomes too cold or snowy, some will retreat indoors and wait until spring. However, construction professionals should consider doing several things during the down time to stay ahead with their business.

1.Attend trade shows and conferences – Throughout the first quarter of the year, there are opportunities to attend conferences throughout the country. The conferences shed light on new laws and best practices within the industry, and offer fresh ideas to incorporate into your own business. There are also opportunities to be an exhibitor at most local trade shows, which is an easy way to get name exposure for potential clients who otherwise may not know about your business.
2.Network – Making solid connections is something every builder should do year-round. However, during the down time, there is no excuse of having too much work to do, so going to association meetings or mixers is a great way to meet new people. This is a time to showcase your expertise in your field, and attending these events can be a valuable tool in building relationships with colleagues (such as potential subcontractors to work with), industry professionals (such as a board member of an association) or potential new clients.
3.Learn from last year – Taking time to review the numbers from the prior year and identify ways to grow or improve processes is key to long-term success of your company. Forecasting for the next year and implementing a budget are ways to effectively manage cash flow. One of the biggest struggles contractors face is cash flow during the slower times of the year. Having a budget and being smart and precise with expenditures will allow your company to maintain momentum into the down times. Whether it be purchasing materials for jobs ahead of time, paying down debt earlier in the year, or restructuring the bidding process, identifying these options early and having a plan will ensure the health of your company.

For help in preparing a budget or a forecast for future years, or assistance in identifying which construction industry associations make the most sense to join, contact me or a member of Yeo & Yeo’s Construction Services Group.

Are you considering implementing a bonus plan for your employees? The first thing you should do when structuring a bonus plan is to decide why you’re creating the plan in the first place.

To share the company’s profits with employees?
To reward employees for company and/or individual success?
To boost employee morale and retention?
As a response to your competitors who are offering bonuses to their employees?

The answers to these questions will help you determine the structure of your bonus plan. Ideally, the bonus plan will motivate employees to focus their efforts and energy on activities that will help achieve specific company goals. Bonuses tied directly to profits are also referred to as profit-sharing plans, which provide you with maximum flexibility: If profits suffer during the year, the company payout is lower (if anything). Keep in mind, however, that this can have a negative effect on employee morale if employees believe that the work they did had little if any direct impact on profitability (or lack thereof).

One way to avoid this problem is to structure your bonus plan around the achievement of specific individual goals by each employee. This gives employees more control over whether they will receive a bonus, and how much. Or, you can structure the plan around the achievement of specific goals by departments or teams, over which employees may feel like they have more direct control.

Structuring the plan

Consider the following five things when structuring any type of employee bonus plan:

1. Put it in writing. Document the details of the bonus plan and make sure the plan and structure is clearly communicated to all employees.

2. Tie the bonus to measurable performance standards. Financial rewards should be contingent upon the achievement of specific and measurable standards. Preferably, employees should be able to exert some degree of influence on these standards.

3. Encourage employees to help meet annual company goals. As noted above, bonus plans can be structured to provide employees with financial incentives to help meet specific company goals, whether financial or otherwise. These are usually annual goals that are measured at the end of the year.

4. Make the bonus large enough to be a strong incentive. A one-time $100 bonus isn’t going to be a very strong incentive for most employees. One benchmark is to give employees the opportunity to earn up to 10 percent of their regular wage or salary in additional bonus.

5. Use the plan to create employee loyalty to your company. Ideally your bonus plan will encourage key employees to stay with your company for the long term. Non-qualified deferred compensation plans, stock options and phantom stock plans are specific types of executive bonus plans often used to accomplish this goal.

One of the biggest benefits of bonus plans is that they can encourage your employees to think and act like business owners, not just employees. Giving employees the opportunity to reap financial rewards based on their individual or team’s performance can help prompt them to work harder and make better decisions that are in the long-term best interests of your company.

By this time, all Non-Profit Organizations (NPOs) have heard that the upcoming new standards under ASU 2016-14 will change the financial statement presentation for all NPOs starting with fiscal year ends December 31, 2018. One of the most significant changes that will affect almost all NPOs is the new presentation of net assets. While the name and presentation of the net assets will change on the financials, how the restrictions are tracked and followed will not change. Don’t think that what you have known in the past is going away!

Currently there are three types of net assets:

1. Permanently restricted – amounts designated by donors to be held in perpetuity,

2. Temporarily restricted net assets – amounts designated by donors that are restricted based on purpose (example: to build a new playground) or time (example: a $50,000 pledge to be paid over five years), and

3. Unrestricted net assets – all other amounts, some of which may be designated for a specific purpose by the board.

The new standards will essentially combine the permanently and temporarily restricted categories into one new category, “with donor restrictions” and all other amounts will be considered “without donor restrictions.” It is important to know that while the financial statement presentation will be modified, the different types of restrictions will still remain and they must continue to be tracked individually.

One new change for valuing net assets under ASU 2016-14 relates to underwater endowments. If a donor designates a specific amount of funds to be held in an endowment, and the market value falls below that initially pledged amount due to overspending or a less than favorable investment market, the negative “underwater” portion is to be separately disclosed in the “with donor restrictions” section as an “underwater endowment.” Previously, the amount would be netted with unrestricted net assets. Additional disclosures will be required to describe how the NPO will recover and maintain the initial donor restrictions.

When the ASU 2016-14 standards are applied to the annual financial statements beginning with year ends December 31, 2018, it is a good time for NPOs to take a fresh look at their financials and footnotes regarding net assets. The amounts that are restricted for each category must be disclosed in the footnotes or on the face of the financial statements by broad categories – temporary time restrictions, temporary purpose restrictions, or permanent time restrictions. NPOs may choose to describe the restrictions in more detail within each of the categories. Some areas of detail could be expanded to better tell the organization’s story, or some items currently may be disclosed at a level of detail that is no longer material or relevant.

Consult your Yeo & Yeo professional with any questions regarding the upcoming changes including but not limited to net asset designations under ASU 2016-14.

Currently there are three types of net assets:

1. Permanently restricted – amounts designated by donors to be held in perp solutionetuity,

3. Unrestricted net assets – all other amounts, some of which may be designated for a specific purpose by the board.

Consult your Yeo & Yeo professional with any questions regarding the upcoming changes including but not limited to net asset designations under ASU 2016-14.

Succession planning is important in any business, but it’s sometimes overlooked in family-owned operations. This is a big mistake. There are numerous former family-run companies that no longer exist due to poor or no succession plan.

The plan needs to be well thought out and discussed with everyone affected. Don’t just assume that a son or daughter will want to carry on the family business. Even if your children say they will take over, they may not have the true desire required to continue a successful operation.

The “heir to the throne” also may not have the business skills to succeed after a parent (or aunt, uncle, etc.) turns over the reins.

Another question that needs to be settled in the case of multiple potential successors (for example, more than one child): What responsibilities will each person have upon succession? It’s important that the details be worked out early, because, in the case of an unexpected death or disability, succession might occur sooner than planned.

You also need to address the involvement of the next generation. In some situations, the retiring family elder has adult grandchildren – some who may already be working in the business.

Beyond the discussion of the roles of younger family members, you will also need to outline the times for major transitions, barring unexpected illnesses or death.

You want to make sure that the future leaders of the business have the proper training. There are several different options. One is having younger family members work in several different areas of the business. Another is having aspiring family business leaders get some experience in another, non-family business to learn alternative ways of doing things.

The importance of preparing for succession can’t be overemphasized. Neither can the importance of transitioning the business in an orderly fashion.

Sometimes, as planned retirement nears, elder family members don’t want to let go. This can cause resentment on both sides. Naturally, the elder family members want to see the business they built (or took over, if already a second generation business), continue to succeed as it did under their leadership. They can be concerned that the firm won’t flourish without their direction.

At the same time, the younger family members may think they can bring the business to even greater success if the older relatives would just step aside. This is where a scheduled, gradual transition of management and leadership responsibilities from one generation to the next can help.

As they turn over the reins of the business, elder family members can be compensated through preferred stock in the corporation. They can also look to stay involved in business — if not directly — through participation in industry groups and associations.

Such actions recognize the contributions of retiring members and help them recoup their equity. Meanwhile, the new manager and active relatives can plan for the future.

And once retiring family members are no longer immersed in the daily grind of running the business, they may be interested in pursuing non-business community activities, personal hobbies, and travel that they never had time for before.

The drumbeats for tax reform are growing louder.

The Trump administration, in conjunction with the president’s hand-picked “Big Six”¹group of GOP leaders, has released a nine-page outline of tax reform proposals. Not only would the plan overhaul numerous individual provisions, it would have a major impact on corporations and pass-through business entities, including significant changes for the manufacturing sector.

Manufacturers are likely to look favorably on the tax plan’s provisions. The quarterly survey by the National Association of Manufacturers released at the end of September 2017 found that a strong majority of small and large manufacturers said the promise of tax reform will spur growth and create jobs. The survey found that 64% of manufacturers would expand, 57% would hire more workers and 52% would raise wages and benefits if the GOP proposals are passed.

Generally, the tax reform provisions don’t include any effective dates, nor is enactment assured, with or without modifications. Here is an overview of the key proposals and their expected impact.

Corporate Tax Proposals

These key changes for C corporations, including incorporated manufacturing firms, are designed to stimulate business growth:

Reduce the top corporate tax rate from 35% to 25%. Trump’s initial proposal lowered the rate to 15%.
Allow immediate “expensing” for at least five years of new investments in depreciable assets, other than buildings, purchased after September 27, 2017.
Partially limit interest deductions for C corporations (details weren’t provided).
Repeal the corporate alternative minimum tax (AMT).
Preserve the research credit (Congress would review most other business credits).
Repeal the Section 199 deduction for domestic production activities. This deduction is currently available to all business entities.

The list of corporations that might profit from these proposed changes is long. Larger corporations would benefit from a reduction in the top corporate tax rate and businesses of all sizes could use the expensing allowance.

However, partially limiting interest expense deductions will likely play a significant role in C corporations’ investing and financing decisions and affect corporations carrying significant debt. It’s unclear how Congress will handle carryforwards of any credits that are eliminated. Many manufacturing firms would miss the Section 199 deduction.

Pass-Through Tax Proposals

The tax outlook for pass-through business entities — including partnerships, S Corporations and Limited Liability Companies (LLCs) — will be very different if the new tax reform plan is approved. It proposes that:

Business income received by pass-through entities be taxed at a maximum rate of 25%. Currently, this income is taxed at ordinary income rates for individuals, which can be as high as 39.6%. It isn’t clear if personal services firms would qualify for the tax break.
The lower rate on income for pass-through entities be coordinated with tax law provisions that don’t permit wages to be treated as business profits.
Congress be required to determine the ramifications for pass-through entities and sole proprietorships of the partial limits on interest expense deductions.

This series of tax reforms could change the thinking of business owners. In theory, the shift away from the current tax format is designed to align C Corporations and pass-through entities. However, some professionals fear that this could lead to an unfair tax advantage for wealthier business owners.

With the top tax rate now set at 39.6% and a proposed maximum 35% rate, owners may have an opportunity to slash their tax bills. Restricting these changes to qualified small businesses has been discussed and could be put into effect.

International Tax Proposals

The Trump campaign pledged to bring business back from overseas. In support of that objective, the tax reform plans proposes several changes relating to manufacturing:

Impose a one-time repatriation levy on offshore profits to encourage a return of U.S. multinational corporations from so-called tax havens. However, the proposals don’t specify a rate or time period for this change.
Adopt a territorial method of international taxation that would include an exemption for dividends from foreign subsidiaries if the U.S. company owns at least 10% of the subsidiary.
Authorize a global minimum tax on foreign profits of U.S. multinational corporations. Congress would be directed to “even the playing field” between companies headquartered in the United States and those based in foreign jurisdictions.

If these proposals have their desired effect, certain multinational corporations would be encouraged to shift more business operations to the United States. This would represent an historic shift in the way that companies are taxed. But the proposed guidelines leave as many questions as they provide answers, including how foreign tax credits would be used against repatriated earnings.

Individual Tax Proposals

The new tax plan features a wide variety of changes that would affect individuals, including:

Consolidating the current seven income tax brackets into three brackets of 12%, 25% and 35%. There are no details about the potential bracket thresholds. An add-on tax for the wealthiest taxpayers was discussed, but not finalized.
Increasing the standard deduction from $6,500 to $12,000 for single filers and from $13,000 to $24,000 for married couples filing jointly. All personal exemptions would be repealed.
Repealing most itemized deductions other than those for charitable contributions and mortgage interest.
Eliminating the AMT.
Condensing several tax breaks for families. Along with the repeal of dependency exemptions, the new plan features a proposed $500 credit for non-child dependents.

Again, the professionals are divided as to whether these changes would mostly benefit the low-to-middle or upper-income classes. In many cases, it makes sense for individuals to accelerate deductions into 2017, unless there are special circumstances that prevent that.

Expect Some Modifications

Although the tax reform plan has some momentum, there’s still a long way to go before it becomes law. Even if key tax reforms are enacted, some modifications can be expected.

2017

As 2017 winds down, it’s time to consider making some moves to lower your federal income tax bill and position yourself for tax savings in future years. This year, the big unknown factor is whether major tax reform proposals will be enacted.

Even if all goes according to the GOP timeline, the changes generally won’t take effect until next year at the earliest. So your 2017 return will follow the current rules. Here are five year-end moves for you to consider as Congress works on tax reform.

1. Prepay Deductible Expenditures

If you itemize deductions, accelerating deductible expenditures into this year to produce higher 2017 write-offs makes sense if you expect to be in the same or lower tax bracket next year. If you expect to be in a higher tax bracket next year, the reverse could make sense — but that situation is less likely if tax reform proposals take effect in 2018.

Tax reform considerations related to prepaid expenses. Tax rates would be lower in 2018 and beyond for most taxpayers under congressional tax reform proposals. (See “Close-Up on Federal Income Tax Rates” below.) If you turn out to be in a lower bracket next year, deductions claimed this year will be worth more than the same deductions claimed next year.

In addition, proposed tax reforms would reduce or eliminate many itemized deductions. Both the House and Senate proposals would eliminate the following itemized deductions starting in 2018:

Tax preparation fees,
Foreign property taxes,
State and local income taxes,
Unreimbursed employee business expenses, and
Most other miscellaneous items.

But there are some differences between the House and Senate proposals.

The House tax reform bill would eliminate itemized deductions for 2018 and beyond, except for 1) charitable contributions, 2) state and local property taxes (subject to a $10,000 limit), and 3) a scaled-back home mortgage interest deduction. Specifically, the home mortgage deduction would:

Be subject to a lower debt limit of only $500,000 for new loans vs. $1 million under current law, and
Allow deductions for only one residence vs. two residences under current law and eliminate the deduction for interest of up to $100,000 of home equity debt allowed under current law.

The Senate tax reform proposal also would eliminate most itemized deductions, except:

Home mortgage interest, subject to the current-law debt limit of $1 million but with no deduction allowed for interest on home equity loans,
Medical expenses, and
Personal casualty losses in federally declared disaster areas.

Plus, the property tax deductions would be completely eliminated under the Senate proposal.

The bottom line is that, under both the House and Senate proposals, increased standard deduction amounts would offset some or all of the itemized deductions lost to tax reform, depending on your specific circumstances. In any case, prepaying deductible items before the end of 2017 will generally help lower this year’s tax bill.

But watch out for the alternative minimum tax (AMT): If you’ll owe AMT for 2017, the prepayment strategy may backfire. That’s because write-offs for state and local taxes are completely disallowed under the AMT rules and so are miscellaneous itemized deductions subject to the 2%-of-AGI rule. So prepaying these expenses may do little or no tax-saving good for AMT victims.

Fortunately, there’s good news for AMT victims. Both the House and Senate tax reform proposals would eliminate the AMT for 2018 and beyond. But, of course, that won’t help for 2017.

Which bills should you consider prepaying for 2017?

Mortgage payment for January. Accelerating the mortgage payments for your primary residence and/or vacation home that are due in January 2018 will allow you to deduct 13 months of mortgage interest in 2017, unless you prepaid for January 2017, in which case you’ll have 12 months of mortgage interest deductions for your 2017 return.

State and local taxes due in early 2018. Prepaying state and local income and property taxes that would otherwise be due in early 2018 will increase your itemized deductions for 2017, thereby reducing your federal income tax bill for this year.

Medical and miscellaneous expenses. Consider prepaying expenses that are subject to deduction limits based on your adjusted gross income (AGI). For example, under current law, medical expenses are deductible only to the extent they exceed 10% of AGI. So loading up on elective procedures, dental care, prescription medicine, glasses and contacts before year end could get you over the 10%-of-AGI hurdle on this year’s return.

Likewise, under current law, miscellaneous deductions — for investment expenses, job-hunting expenses, fees for tax preparation and unreimbursed employee business expenses — count only to the extent they exceed 2% of AGI. If you can bunch these kinds of expenditures into 2017, you’ll have a chance of clearing the 2%-of-AGI hurdle this year.

2. Evaluate Charitable-Giving Options

Prepaying tax-deductible charitable donations that you would otherwise make next year can reduce your 2017 federal income tax bill. Donations charged to credit cards before year end will count as 2017 contributions, even though you won’t pay the credit card bills until early next year.

Charitable deductions claimed this year will be worth more than deductions claimed next year if your tax rate goes down next year, which is likely to happen for most taxpayers if tax reform proposals are enacted.

Your tax advisor may have other creative year-end tax planning ideas for charitably inclined taxpayers to consider. For example, if you own appreciated stock or mutual fund shares that you’ve held for more than a year, you might consider donating the assets to an IRS-approved charity, instead of donating cash. Doing so will allow you to claim an itemized charitable deduction for the full market value at the time of the donation and avoid any capital gains tax hit.

Alternatively, if you own marketable securities that have decreased in value since you bought them, consider selling them and donating the proceeds. This strategy will generally allow you to claim an itemized charitable deduction for the cash donation, as well as take the resulting tax-saving capital loss.

Charitably inclined seniors (over age 70½) can also make up to $100,000 in cash donations to IRS-approved charities directly out of their IRAs. These donations — known as qualified charitable distributions (QCDs) — are tax-free. Although you can’t deduct QCDs from your tax bill, they count as withdrawals for purposes of meeting the required minimum distribution (RMD) rules that apply to your traditional IRAs after age 70½.

So, if you haven’t yet taken your 2017 RMDs, you can arrange to take tax-free QCDs before year end in place of taxable RMDs. That way you can meet your 2017 RMD obligations in a tax-free manner while also satisfying your philanthropic goals.

3. Deduct State and Local Sales Tax Instead of Income Tax

If you’ll owe little or nothing for state and local income taxes in 2017, you can choose to instead deduct state and local general sales taxes on this year’s return. You can deduct a prescribed sales tax amount from an IRS table based on where you live and other factors. However, if you’ve kept receipts that support a larger deduction, you can use that amount instead.

For example, you might want to deduct the actual sales tax amounts for major purchases, like a vehicle, motor home, boat, plane, prefabricated mobile home, or a substantial home improvement or renovation. You can also include actual state and local general sales taxes paid for a leased motor vehicle. So purchasing or leasing an item before year end could give you a bigger sales tax deduction and cut this year’s federal income tax bill.

State tax deductions affected by federal tax reform. Both the House and Senate tax reform proposals would eliminate the deduction for state and local income taxes (along with the option to deduct state and local sales taxes instead) for 2018 and beyond. So, if you don’t use this strategy in 2017, you’ll probably lose out if tax reform legislation is enacted.

4. Prepay Tuition Cost for Postsecondary Education

If you or your children qualify for either the American Opportunity or Lifetime Learning credits, consider prepaying tuition bills due in early 2018 for academic periods that begin in January through March 2018. Doing so may result in a bigger credit for higher education costs in 2017.

However, these credits are phased out for individuals with income above thresholds. Specifically:

The American Opportunity credit is gradually phased out for single individuals with modified AGI of between $80,000 and $90,000 and married joint filers with modified AGI between $160,000 and $180,000.

The Lifetime Learning credit is also gradually phased out for single individuals with modified AGI of between $56,000 and $66,000 and married joint filers with modified AGI between $112,000 and $132,000.

Tax reform considerations related to higher-education credits. The Senate tax reform proposal would leave the existing rules in place for both higher education credits. The House bill would eliminate the Lifetime Learning credit for 2018 and beyond and liberalize the American Opportunity credit to cover the first five years of undergraduate education vs. four years under the current rules.

If the Lifetime Learning credit is eliminated, no credit will be available for graduate school or other postsecondary education beyond the first five years of undergraduate study. So if you don’t take advantage of the Lifetime credit this year, you could possibly lose out.

5. Time Investment Gains and Losses for Tax Savings

Evaluate investments held in your taxable brokerage firm accounts and identify securities that have appreciated in value. For most people, the federal income tax rate on long-term capital gains is still much lower than the rate on short-term gains. If you plan on selling an investment, try to hold onto it for at least a year and a day before selling in order to qualify for the lower long-term capital gains rate.

Another tax-saving move is to consider selling securities that are currently worth less than you paid for them before year end. The resulting capital losses will offset any capital gains from earlier sales in 2017, including high-taxed short-term gains from securities that you owned for one year or less. In other words, you don’t have to worry about paying a high rate on short-term gains that you’ve successfully sheltered with capital losses.

If your capital losses exceed your capital gains, you’ll have a net capital loss for 2017. Married people who file jointly can use it to shelter up to $3,000 of this year’s high-taxed ordinary income from such sources as salaries, bonuses and self-employment income ($1,500 if you’re single or married and file separately).

Any excess net capital loss is carried over to 2018 and beyond until you use it up. So it won’t go to waste. You can use it to shelter both future short- and long-term gains.

Tax reform considerations when selling securities. These tax planning strategies will continue to be viable regardless of whether congressional tax reform legislation is enacted. Both the House and Senate proposals would retain the existing three federal income tax rates for long-term capital gains and dividends (0%, 15%, and 20%) and the existing rate brackets. So the 2018 brackets would be the same as the 2017 brackets with minor adjustments for inflation.

Act Soon

Right now, nobody is certain whether major tax changes will be enacted or when they’ll go into effect. But these strategies are worth considering regardless of whether tax reform happens. As Congress works on lower tax rates and simplifying the tax law, stay in touch with your tax advisor. He or she is monitoring tax reform developments and will help you take the most favorable path in your situation.

Close-Up on Federal Income Tax Rates

The 2017 federal income tax rates and brackets for individuals are the same as last year, adjusted slightly for inflation. Specifically, there are still seven graduated rates, ranging from 10% to 39.6%.

Under both the House and Senate tax reform proposals, individual tax rates would generally decrease for 2018 and beyond. But there are major differences between the two versions of the bill.

House Bill

For 2018 and beyond, the House proposal calls for four tax brackets, based on the levels of taxable income in 2018.

Senate Proposal

For 2018 through 2024, the Senate proposal calls for seven brackets, based on the levels of taxable income in 2018.

The Senate’s proposed tax cuts are only temporary. The proposed tax rates and brackets would return to current levels, adjusted for inflation, in 2025.

Peak production season can be a nightmare. It’s the time you need all employees to show up consistently and pull their weight. But reality is often far removed from the ideal.

If that’s the case in your plant, you need to consider some strategies to build resilience into your staffing. Here are six tips that can help ease the strain of production peaks:

Cross-train. Teach employees to perform various jobs. Cross-training not only ensures coverage when it’s needed, it boosts job satisfaction because staff members feel challenged. Have higher-level employees mentor trainees until they get up to speed.

Offer incentives. Motivate the performance you want, but don’t overuse incentives. They’re ideal for addressing short-term attendance issues. Offer something in return for perfect attendance — being at work on time every day, with no doctor’s appointments or sick days. One company that goes into mandatory overtime during peak production gives employees gift certificates for dinner and a movie for two month’s perfect attendance. And at the end of the time period, the names of all the people who had perfect attendance are entered into a drawing with the prize being a Saturday off with regular pay.

Hire temps. You can find good temporary help through staffing agencies. This strategy can be especially powerful if combined with cross-training. For example, full-time pickers who have been cross-trained can run machines or work in receiving while temps do picking. Work with two or three agencies so that you’re not dependent on just one.

Shift into overtime if necessary. Most employees welcome the extra income from overtime. On a limited basis, overtime may be no more costly than temporary labor when you factor in training expenses.

Seek referrals. Ask employees to refer friends and relatives. Some companies avoid hiring employees’ friends and relatives, even for temporary positions, but they can be a source of reliable help.

Tap academia. Technical colleges or universities are often a good source for supervisory help. If your peak production times are predictable, you can arrange to hire management or logistics students as interns to assist supervisors.

Any way you look at it, gearing up for peak production in advance saves your company money, time, hassles and missed deadlines. And those advantages go to your bottom line.

2017