The CPA Desk

A Thought Leader Production by PKFTexas

How to Detect Risk Areas in Your Business

Byron: Hi, my name is Byron Hebert, and this is a quick Tool Time Update brought to you by PKF Texas and The Entrepreneur’s Playbook. What I want to talk to you today about is FMEA, Failure Mode Effect Analysis. And the purpose of this tool is to help you detect risk areas in your processes in your business, and then maybe if you can detect where the risk areas are you can do something to reduce those risks. So let’s talk about how we would use this tool.

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Everything You Need to Know About the 2016 Houston CPA Society Energy Conference

With panels and presentations on topics ranging from an Oil & Gas outlook to accounting and SEC updates, some of the energy industry’s best and brightest as speakers and panelists will be at the 14th Annual Houston CPA Society Energy Conference. It is sure to be a day filled with insightful discussion and substantive interaction. You’ll hear from several industry leaders including the luncheon keynote speaker John Hofmeister, founder of Citizens for Affordable Energy and former President of Shell.

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Exports Fuel Houston’s Economy

The U.S. Department of Commerce estimates that for every $1 billion in U.S. manufacturing exports, 5,210 jobs are supported and for every $1 billion in U.S. service exports, 7,033 jobs are supported.

As the top exporting metropolitan region in the U.S. ($131.5 billion in 2014), Houston’s exports to the global marketplace play a significant role in the global economy. Exports create jobs, generate income, profits and tax receipts for tens of thousands of Houstonians. These include petrochemical plants, truck drivers, warehouse operators, the three Class I railroads serving Houston, freight forwarders, industrial parks, custom brokers, shipping lines, dock workers, lawyers, bankers and accounting firms.

Read the more in-depth article, which ran in the Houston Business Journal, to learn more about how exports are fueling Houston’s economy.

Tips for Tax-Smart Giving

Giving away assets during your life will help reduce the size of your taxable estate, which is beneficial if you have a large estate that could be subject to estate taxes. For 2016, the lifetime gift and estate tax exemption is $5.45 million (twice that for married couples with proper estate planning strategies in place).

Even if your estate tax isn’t large enough for estate taxes to be a concern, there are income tax consequences to consider. Plus it’s possible the estate tax exemption could be reduced or your wealth could increase significantly in the future, and estate taxes could become a concern.

That’s why, no matter your current net worth, it’s important to choose gifts wisely. Consider both estate and income tax consequences and the economic aspects of any gifts you’d like to make.

Here are three strategies for tax-smart giving:

1. To minimize estate tax, gift property with the greatest future appreciation potential. You’ll remove that future appreciation from your taxable estate.

2. To minimize your beneficiary’s income tax, gift property that hasn’t appreciated significantly while you’ve owned it. The beneficiary can sell the property at a minimal income tax cost.

3. To minimize your own income tax, don’t gift property that’s declined in value. Instead, consider selling the property so you can take the tax loss. You can then gift the sale proceeds.

For more ideas on tax-smart giving strategies, contact us.

Learning About the IC-DISC Tax Incentive

Karen: This is PKF Texas Entrepreneur’s Playbook and I’m Karen Love, I’m the host and Co-founder. So today I’m here with Frank Landreneau, one of our international tax directors, so I’d like to welcome you to the Playbook Frank.

Frank: Thank you Karen, it’s great to be here.

Karen: Thank you. Well you know we’re in Houston, international city and U.S. manufacturers and exporting, there may be some things that they need to know about that they’re not doing that you could share with us.

Frank: Right. Well one of the best kept secrets is a tax incentive that’s been around for a while but it’s gotten increased popularity over the last few years and it’s called the IC-DISC.

Karen: Wow. Okay, now that sounds very, very, very complex. So tell me about that.

Frank: It’s an acronym for Interest Charged – Domestic International Sales Corporation and it’s a tax incentive that allows tax payers to convert income at a lower tax rate.

Karen: Wow, now that sounds really complex, as I thought it was going to be.

Frank: It can be, it can be.

Karen: I would love for you to come back and do a series with us and explain how we can help companies do that at PKF Texas.

Frank: I’d love to. I’d love to talk about it in more detail.

Karen: Fantastic, look forward to having you back Frank.

Frank: Thanks Karen.

Karen: Thank you. We’ll talk more next week about the IC-DISC and for other international topics you can visit PKFTexas.com/InternationalDesk. This has been another Thought Leader production brought to you by the PKF Texas Entrepreneur’s Playbook.

Denise Patrick of Energy Markets Access Discusses Approaching International Business

Russ: This is the PKF Texas Entrepreneur’s Playbook. I’m Russ Capper, this week’s guest host, and I’m here with Denise Patrick, managing director of Energy Markets Access and lead researcher of the Profit and Peril Report. Welcome to the Playbook, Denise. Continue Reading

The 2016 Houston CPA Society Energy Conference

Join the Houston CPA Society at the 2016 Energy Conference on Tuesday, August 23 at the Hilton Americas Houston. This year’s exciting lineup of energy directed sessions includes an E&P Panel, Tax Update, Energy Valuation, update on Oil Field Services, Accounting and SEC Update, Political Outlook, M&A Update, U.S. Oil and Gas Outlook, a Rebirth of the Energy Industry panel, and more! This event is market-based, and caters to all individuals working in energy-related professional services.

The conference is organized by one of the largest groups of Energy industry dedicated CPAs in the country and is in it’s 14th year. Get all of the details and register here.

Using Sustainable Competitive Advantage to Impact Your Business

Hi, my name is Byron Hebert, and this is another quick Tool Time update by PKF Entrepreneur Playbook. What I want to talk to you today about is the sustainable competitive advantage and strategic planning.

A lot of people talk about strategic planning but they really don’t know where to start. Where you start is with your sustainable competitive advantage. What is that one thing about your company that separates you from your competition? That’s what you want to focus on. That will drive your marketing; the promise that you’re going to make to the marketplace about what your company can do.

That, in turn, will drive your operations so that you can deliver on the promise you’ve made to the marketplace. Now what drives that? That’s driven by your people, your innovation, and money.

Let me give you an example right here in town. Mattress Mack, a great entrepreneur. His sustainable competitive advantage is if you buy today he delivers tonight. Well, that is his marketing. That is the promise he makes. Everybody’s heard that. His operations have to support that. You go to his business, you buy a mattress today, he’s going to deliver it that very day. I assure you he will do that. So as soon as that purchase goes in, someone is loading that on a truck and trying to figure out the logistics of how to get to that to you by the end of the day.

So think about that, how that, that will operate in your business. Use your sustainable competitive advantage to drive your marketing, your operations, and then people, innovation, and money to drive your operations as well.

All right? Thank you. This is Byron Hebert. This has been another quick Tool Time update brought to you by PKF Texas Entrepreneur Playbook. If you’d like to learn more about the Mind Shop Tools and how we can help you in your business, please call PKF Texas.

The 2016 Greater Houston Partnership Soiree

Join the Greater Houston Partnership at Hotel Zaza on Saturday, August 27 for the 2016 Soiree. This event is an annual gala showcasing the Houston region as a center of commerce, influence, arts and culture and PKF Texas is proud to be involved every year through various leadership roles and sponsorships. Attended by more than 600 of Houston’s dignitaries, consular corps and business leaders, Soiree offers a night of entertainment, culinary delights and a world-class silent auction. Click here to register and learn more.

There are still opportunities for silent auction items to be donated. This is a great way to spotlight your company and it’s services. If you and your company are interested in donating items for the silent auction, please review and complete the following form: Soiree-Silent Auction Form

This year’s theme, Inspiring Innovation, will showcase Houston’s creativity and ingenuity in an immersive experience you won’t forget.

If you have any questions about the Soiree, contact Kristin Culwell, kculwell@houston.org. We hope you’ll be able to join the region’s local and international business, government and economic development leaders in supporting and attending this extraordinary event!

Do You Qualify for “Material Participation”?

You can only deduct losses from an S corporation, partnership or LLC if you “materially participate” in the business. If you don’t, your losses are generally “passive” and can only be used to offset income from other passive activities. Any excess passive loss is suspended and must be carried forward to future years.

Material participation is determined based on the time you spend in a business activity. For most business owners, the issue rarely arises — you probably spend more than 40 hours working on your enterprise. However, there are situations when the IRS questions participation.

Several tests

To materially participate, you must spend time on an activity on a regular, continuous and substantial basis.

You must also generally meet one of the tests for material participation. For example, a taxpayer must:

  1. Work 500 hours or more during the year in the activity,
  2. Participate in the activity for more than 100 hours during the year, with no one else working more than the taxpayer, or
  3. Materially participate in the activity for any five taxable years during the 10 tax years immediately preceding the taxable year. This can apply to a business owner in the early years of retirement.

There are other situations in which you can qualify for material participation. For example, you can qualify if the business is a personal service activity (such as medicine or law). There are also situations, such as rental businesses, where it is more difficult to claim material participation. In those trades or businesses, you must work more hours and meet additional tests.

Proving your involvement

In some cases, a taxpayer does materially participate, but can’t prove it to the IRS. That’s where good recordkeeping comes in. A good, contemporaneous diary or log can forestall an IRS challenge. Log visits to customers or vendors and trips to sites and banks, as well as time spent doing Internet research. Indicate the time spent. If you’re audited, it will generally occur several years from now. Without good records, you’ll have trouble remembering everything you did.

Passive activity losses are a complicated area of the tax code. Consult with your tax adviser for more information on your situation.