The CPA Desk

A Thought Leader Production by PKFTexas

Sales Vs. Income Tax Deductions

The break allowing taxpayers to take an itemized deduction for state and local sales taxes in lieu of state and local income taxes was made “permanent” a little over a year ago. This break can be valuable to those residing in states with no or low-income taxes or who purchase major items, such as a car or boat.

Your 2016 tax return

How do you determine whether you can save more by deducting sales tax on your 2016 return? Compare your potential deduction for state and local income tax to your potential deduction for state and local sales tax.

Don’t worry — you don’t have to have receipts documenting all of the sales tax you actually paid during the year to take full advantage of the deduction. Your deduction can be determined by using an IRS sales tax calculator that will base the deduction on your income and the sales tax rates in your locale plus the tax you actually paid on certain major purchases (for which you will need substantiation).

2017 and beyond

If you’re considering making a large purchase in 2017, you shouldn’t necessarily count on the sales tax deduction being available on your 2017 return. When the PATH Act made the break “permanent” in late 2015, that just meant that there’s no scheduled expiration date for it. Congress could pass legislation to eliminate the break (or reduce its benefit) at any time.

Recent Republican proposals have included the elimination of many itemized deductions, and the new President has proposed putting a cap on itemized deductions. Which proposals will make it into tax legislation in 2017 and when various provisions will be signed into law and go into effect is still uncertain.

Questions about the sales tax deduction or other breaks that might help you save taxes on your 2016 tax return? Or about the impact of possible tax law changes on your 2017 tax planning? Contact us — we can help you maximize your 2016 savings and effectively plan for 2017.

Economic Development in Katy, Texas

Russ:  This is the PKF Texas Entrepreneur’s Playbook.  I’m Russ Capper, this week’s guest host, and I’m here once again with Rick Ellis, Vice President of the Katy Area Economic Development Council.  Welcome back to the Playbook Rick.

Rick:  Glad to be here again, thanks for having me.

Russ:  You bet, you bet.  Tell us about what kind of economic development is happening today in Katy, TX.

Rick:  Well real estate is huge; things are still booming land is abundant.  If you look at the intersection of I10 and 99 there’s a number of land opportunities available, especially north of I10; a lot of activity going on there.

Russ:  Okay, so you mentioned the intersection of 99 and 10, what a massive intersection; that might end up being the center of the county at some time.

Rick:  You know I was actually thinking that and I drive 99.  And I remember when 99 from 290 to I10 was open and you’re just in the middle of nowhere.  You’re thinking what is going to happen with all this land?

Russ:  And you’re saying there’s development going on right now.

Rick:  You’re starting to see it.  You’re seeing residential, you’re seeing industrial, you’re seeing office; you’re seeing a lot going on out there.

Russ:  Okay. I mean when you answer the question what’s going on there is it multiple industries and is it mostly taking place north of 10?

Rick:  Mostly north of 10; U of H and U of H Victoria are going to share 46 acres and build 2 facilities, they’re going to bring 300 jobs to the region and eventually ultimately be able to service 8,000 students between those 2 campuses.  That’s very exciting.

Russ:  My goodness, it would be really cool to be able to go to high school there and then go to college right there in Katy too.

Rick:  Right there, yeah, and Victoria as well.

Russ:  That’s right.  All right Rick, I really appreciate you sharing an update about Katy with us once again.

Rick:  Thanks so much.

Russ:  You bet.  And that wraps up my discussion with Rick Ellis, the Vice President of Katy Area Economic Development Center.  And this is the PKF Texas Entrepreneur’s Playbook.

Help Prevent Tax Identity Theft by Filing Early

If you’re like many Americans, you might not start thinking about filing your tax return until close to this year’s April 18 deadline. You might even want to file for an extension so you don’t have to send your return to the IRS until October 16.

But there’s another date you should keep in mind: January 23. That’s the date the IRS will begin accepting 2016 returns, and filing as close to that date as possible could protect you from tax identity theft.

Why early filing helps

In an increasingly 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.

Another important date

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 2016 W-2s to employees and, generally, for businesses to issue 1099s to recipients of any 2016 interest, dividend or reportable miscellaneous income payments.

Delays for some refunds

The IRS reminded taxpayers claiming the earned income tax credit or the additional child tax credit to expect a longer wait for their refunds. A law passed in 2015 requires the IRS to hold refunds on tax returns claiming these credits until at least February 15.

An additional benefit

Let us know if you have questions about tax identity theft or would like help filing your 2016 return early. If you’ll be getting a refund, an added bonus of filing early is that you’ll be able to enjoy your refund sooner.

Three Pieces of Critical Audit Advice for Businesses

Jen:  This is the PKF Texas Entrepreneur’s Playbook.  I’m Jen Lemanski, this week’s guest host, and I’m back with Chip Schweiger, one of the audit directors here at our firm.  Welcome back to the Playbook Chip.

Chip:  Thanks, it’s good to be here Jen.

Jen:  Now as an audit director you’re often giving advice to clients who may be facing some tough stuff in their business, what advice do you give them?

Chip:  Great question, especially in these times that we’re in right now.  I tell our clients three things; one, look at your cash on a daily basis.  Whether your business is going up or down or sideways, it’s important to know where your cash is every day; so cash, as they say, is really king.  Secondly, make sure that you open up the lines of communication and dialog between your vendors and your customers.  Sometimes when people stop talking with each other, other folks start to wonder what’s going on.  And three, probably most importantly, make sure that you’re talking with and updating your lenders and investors on a regular basis.  That way everyone understands where the business is going.

Jen:  Sounds great, thanks for sharing that with us.  We really appreciate it.

Chip:  Absolutely.

Jen:  This has been another Thought Leader Production brought to you by the PKF Texas Entrepreneur’s Playbook.  Tune in next week for another chapter.

Five Resolutions Every Tax Professional Should Make

In a recent Forbes article, Tony Nitti, Forbes Contributor, lays out five 2017 New Year’s resolutions for every tax pro. In this humorous and easy-to-read list, tax professionals, as well as their clients will find timely & relevant resolutions that ensure you are on your game in 2017 and, better yet, they don’t require a gym membership….

Here is a summary of what Nitti laid out in his list:

  1. Learn the Trump Tax Plan. Significant tax reform is more likely for 2017 than the past several years. With the new President’s strong desire to change the tax law, and a Republican-controlled House and Senate, change is very likely. You can read the PKF Texas Post-Election Tax Policy Update here for more information.
  2. Be Able to Explain the Difference Between Static and Dynamic Scoring. New tax plans are scored two different ways. Statically and Dynamically. Knowing the two types of scores and what they are used to analyze is critical in advising your clients on questions they have.
  3. Understand the Tax Consequences of Entity Conversions. With impending changes to the tax law, clients may look to you for advice on how to classify their business in order to gain the greatest tax benefit. Knowing the types of entities, what tax benefits they each have, and the laws that come with changing business structure will position you as a valued advisor to clients exploring their options.
  4. Learn the Ins-and-Outs of Section 1202. In relation to the above resolution, understanding Section 1202 can greatly help your clients who operate as C Corporations. Section 1202 says that if you sell qualified small business stock that you’ve held for five years, you can exclude 100% of the gain. Check out our blog on qualified small business stock here.
  5. Understand How to Compute and Minimize S Corporation Built-in Gains. Despite the simplicity that comes with being taxed as an S Corporation, entities electing to be taxed this way are often deterred by the built-in gains tax. Until recently, gains of a newly-electing S Corporation had to be tracked for ten years. That time period has been shortened to five years, which might make this option more viable and attractive to clients. Be sure to fully understand how these rules work and how to best advise your clients during this decision-making process.

To read the entire article, click here, and for any questions regarding new and impending changes to the tax law, please contact us.

The Katy Perspective with Rick Ellis, Vice President of the Katy Area EDC

Russ: This is the PKF Texas Entrepreneur’s Playbook. I’m Russ Capper, this week’s guest host, and I’m here with Rick Ellis, Vice President of the Katy Area Economic Development Counsel. Welcome to the Playbook, Rick.

Rick: Thanks for having me. Glad to be here.

Russ: You bet. So, tell us about the economy. Do you know much about the economy in Katy?

Rick: I pretty much know what’s going on out in Katy, and you may know, an economic development organization like ours, we work with local companies who need or want to expand their operations. We also work with out of state and international companies who are looking to place facilities in our greater region. As far as the economy goes, we feel the economic climate in Houston, it’s recovered a bit. The direness that was going on is pretty much over. We’re seeing growth in our industry even though the oil and gas obviously took a hit. Oil is back up, rig count’s back up, growth across the region is happening. We’re seeing a lot of diversification of the industry, which is great. Kind of getting away from that oil and gas a bit. We’re seeing companies who are taking advantage of the sublease properties that are available in the energy corridor office buildings.

We’re also seeing new companies sprouting up; engineering, consulting, things like that, that are a direct reflection of what happened in the oil and gas industry. People who were laid off were starting new businesses, so we’re seeing that as well. Just, diversification across the economy. Our biggest employers outside of oil and gas are things like Katy ISD, which is huge, Academy, Igloo, Methodist West, Katy Mills Mall; things like that. Those are the organizations that are really doing great.

Russ: Ok. So, you mentioned even the energy corridor, you know, which is West Houston, but it kind of bumps up into Katy. I guess you get some spillover from that too, right?

Rick: It really does bump over. The area that we service, the Katy area EDC services is the boundaries of Katy ISD schools, which is 181 square miles; bigger than the city of Pittsburg. So, it does go from far West Katy in, and encompasses the energy corridor.

Russ: Well Rick I really appreciate you sharing the Katy perspective with us today.

Rick: Glad to.

Russ: You bet. And that wraps up my discussion with Rick Ellis, the Vice President of the Katy Area Economic Development Counsel. And this has been another Thought Leader Production, brought to you by PKF Texas Entrepreneur’s Playbook.

Use Quadrants to Improve Your Time Management Skills

Byron: Hi, my name’s Byron Hebert and this is another quick Tool Time update brought to you by The Entrepreneur’s Playbook and your friends at PKF Texas. What I want to talk to you about today is time and the most precious resource you have. We all have the same amount of time, but how we use that time is critical So, Steven Covey came up with the four quadrants of time management and you can see on this upper axis we’ve got “Urgent” and “Not Urgent” and over here we have “Important” and “Not Important”. So, in quadrant one is items that are urgent and important. That is the necessity quadrant.

That’s where we spend most of our time. That’s urgent things that come up that we have to do – deadlines and things like that. This quadrant here where is “Not Important” but “Urgent” is the quadrant of deception. This is time where we spend a lot of time but really, we feel like things are urgent but they’re really not that important – things like some phone calls, emails, things like that. Over herein this quadrant where the quadrant of “Not Important” and “Not Urgent” is the waste. We spend a lot of time – waste a lot of times sometimes on things that we – that are really not urgent or not important. Now, this quadrant is the quadrant of quality – “Not Urgent” but “Important”. This is where we think of things like strategy, training, family time.

This is where we want to focus a little bit more time. Keep out of the quadrant of deception, the quadrant of waste and look to spend more time in the quality of quadrant. Now, how do you do that? This is a good time of year to reassess the things that you do every day. Think of the 80/20 rule. 20 percent of the things you do add 80 percent of the value to your company, so focus on those areas. Think of the other 80 percent. What are you doing that doesn’t add value to your company or to your life? And of those things, you want to try to eliminate it. You either get rid of them, or delegate them to somebody else. So, again, you want to stay out of these quadrants, focus more on this quadrant – quadrant of quality – to improve your life and improve your company. Thank you. This is Byron Hebert. This has been another quick Tool Time update brought to you by your friends at PKF Texas and The Entrepreneur’s Playbook.

PKF Texas Client Spotlight: Delray Plants

PKF Texas recently sat down with one of its clients, Randy Gilde, CEO and president of Delray Plants. Located in Venus, Fla., the company may seem somewhat off the grid, but Delray Plants represents the 13th largest grower with 300 acres of production space in the United States, according to Greenhouse Grower. The company ships millions of plants to people across the country and even to Canada.

 Anthurium Field

PKF Texas: Tell us a bit about Delray Plants. What makes it unique?

Randy Gilde: We’re a national supplier to chain stores, and third generation in the Florida family business that grows high quality indoor plants. Our Christian values define our actions and behavior toward our employees and customers. This includes honesty, and fair and ethical business practices, as well as integrity; doing the right thing even when it hurts, as well as accountability, and we own our own actions.

Our people make us unique and innovation helps separate Delray Plants from other similar companies. With our scale, we grow millions of plants, and when you’re shipping millions of plants, quality is the key. Anybody can produce a plant and even a lot of plants, but do they all look good?

Today, people want trust, feel, smell and being healthy. When we put different programs together, we keep this in mind. For example, with our program, “Plants with Benefits,” we use the same plants, but when people go see them on display, they realize that plants clean the air.
PKF Texas: Your late father-in-law, Jacob “Jake” Koornneef, started Delray Plants with the philosophy, “Fewer, bigger, better.” Can you describe what this means?

Randy Gilde: Jake always believed that there would be consolidation in everything. We’ve seen that over the years, with all the mergers and acquisitions happening every day. Where 10 small nurseries used to provide plants for 500 stores, now it’s one big nursery that provides for those 500 stores. Delray was built with that in mind; we’re sized to scale to deal with big box retailers.

 

PKF Texas: Delray Plants started on 14 acres in 1968 and has grown to over 300 acres of production space, serving 33 states and even Canada. What has helped you grow, and how have industry changes affected the way you do business and the way you’ve grown?

Randy Gilde: We grew with the big box stores. The volume of plants over the years shifted from retail garden centers that used to be more than 70% of the business, to retail box stores that now does about the same amount of business.

We believe in stewardship. We share with our customers because we recycle 100 tons of cardboard every year. Also, we practice water conservation. Our drip irrigation in water practices that others don’t use set us apart. Nobody wants to hurt the environment today and our customers see that.

In addition to the big box stores, we’re on Facebook, where the consumer can see our name and website so they can see our plants. Also, Pinterest is good for us. For example, you can see a plant and you can find it right away at an online retailer.
PKF Texas: What are the biggest financial challenges and hurdles you have faced, and how do you deal with, and overcome, those?

Randy Gilde: Labor is always a challenge in this industry. To overcome that, we pay a fair competitive wage and maintain a safe, friendly work environment. Also, government programs are always a factor in business. A good example is the Affordable Health Care Act, which is an ongoing challenge.

 

PKF Texas: Tell us about your role in the organization, as well as the company’s community work.

Randy Gilde: I married into it 38 years ago and started at the bottom, working for my father-in-law. I’ve taken in every aspect of the job, and after my father-in-law passed away, my brother-in-law, Ed, and I co-led the company. We decided to become board-run and governed because large customers wanted to know our succession plan, and you must share it with them. My father-in-law’s succession plan was myself and Ed; he and I talked about it, and decided that I’d be the CEO and president. Even though I was already acting in that role, now it’s official.

Personally and corporately, we give back lots to the community. We are a Christian-based company and support AgVenture, which teaches the community about plants. We also support the 4-H Foundation, United Way and many other organizations.

 

PKF Texas: When it comes to your customers, what do you hope they take away from their Delray Plants experience?

Randy Gilde: We want to have a plant in every home in America. That may seem farfetched, but look at what Bill Gates said. He wanted a computer in every home in America, which is now the case, so what’s the difference?

When you get to see a consumer that’s buying your product, that makes you feel good. We want to make a significant contribution to our customers’ success. By doing that, it guarantees our success.