The CPA Desk

A Thought Leader Production by PKFTexas

Enjoy Larger Deductions by Throwing a Company Picnic

Many businesses host a picnic for employees in the summer. It’s a fun activity for your staff and you may be able to take a larger deduction for the cost than you would on other meal and entertainment expenses.

Deduction limits

Generally, businesses are limited to deducting 50% of allowable meal and entertainment expenses. But certain expenses are 100% deductible, including expenses:

  • For recreational or social activities for employees, such as summer picnics and holiday parties,
  • For food and beverages furnished at the workplace primarily for employees, and
  • That are excludable from employees’ income as de minimis fringe benefits.

There is one caveat for a 100% deduction: The entire staff must be invited. Otherwise, expenses are deductible under the regular business entertainment rules.

Recordkeeping requirements

Whether you deduct 50% or 100% of allowable expenses, there are a number of requirements, including certain records you must keep to prove your expenses.

If your company has substantial meal and entertainment expenses, you can reduce your tax bill by separately accounting for and documenting expenses that are 100% deductible. If doing so would create an administrative burden, you may be able to use statistical sampling methods to estimate the portion of meal and entertainment expenses that are fully deductible.

For more information about deducting business meals and entertainment, including how to take advantage of the 100% deduction, please contact us.

14th Annual Houston CPA Society Energy Conference

Russ: This is the PKF Texas Entrepreneur’s Playbook. I am Russ Capper, this week’s guest host, and I’m here with Brian Baumler, Energy Practice Leader at PKF Texas and the Chair of the upcoming 14th Annual Houston CPA Society Energy Conference. Also with us is Casey Stewart, Chief Accounting Officer of Deep Gulf Energy Companies and Coordinating Director of the Energy Committee for the chapter. Guys, welcome to the Playbook.

Brian: Pleasure to be here Russ, thank you.

Casey: Thanks for having us.

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Tax-Friendly Ways to Help Pay for Health Care

With health care costs continuing to climb, tax-friendly ways to pay for these expenses are more attractive than ever. Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs) and Health Reimbursement Accounts (HRAs) all provide opportunities for tax-advantaged funding of health care expenses. But what’s the difference between these three accounts? Here’s an overview:

HSA. If you’re covered by a qualified high-deductible health plan (HDHP), you can contribute pretax income to an employer-sponsored HSA — or make deductible contributions to an HSA you set up yourself — up to $3,350 for self-only coverage and $6,750 for family coverage for 2016. Plus, if you’re age 55 or older, you may contribute an additional $1,000.

You own the account, which can bear interest or be invested, growing tax-deferred similar to an IRA. Withdrawals for qualified medical expenses are tax-free, and you can carry over a balance from year to year.

FSA. Regardless of whether you have an HDHP, you can redirect pretax income to an employer-sponsored FSA up to an employer-determined limit — not to exceed $2,550 in 2016. The plan pays or reimburses you for qualified medical expenses.

What you don’t use by the plan year’s end, you generally lose — though your plan might allow you to roll over up to $500 to the next year. Or it might give you a 2 1/2-month grace period to incur expenses to use up the previous year’s contribution. If you have an HSA, your FSA is limited to funding certain “permitted” expenses.

HRA. An HRA is an employer-sponsored account that reimburses you for medical expenses. Unlike an HSA, no HDHP is required. Unlike an FSA, any unused portion typically can be carried forward to the next year. And there’s no government-set limit on HRA contributions. But only your employer can contribute to an HRA; employees aren’t allowed to contribute.

Questions? We’d be happy to answer them — or discuss other ways to save taxes in relation to your health care expenses.

PKF Texas Manager Appointed to Local Board

We are pleased to announce our Manager of Entrepreneurial Advisory Services, Sam Razmandi, CPA, has been appointed to Treasurer of the Houston chapter of the American Marketing Association.

Razmandi’s responsibilities include managing the financial processing, reporting and monitoring of the chapter to ensure maintenance of budget to reach financial goals, managing the collection of funds to the Chapter and reviewing all bookkeeper entries for accuracy.

Additionally, as Treasurer, Razmandi will track the chapter’s payment of invoices and present monthly financial reports to the Board and the International Headquarters.

“PKF Texas’ continued involvement in the marketing community has been essential in positioning Houston as a leading market nationally.” says Tracie Welch-Brenton, President of the AMA Houston Board, “We are honored to have Sam as Treasurer on the AMA Houston 2016-2017 board.”

The Values That Women Leaders Bring to the Table

Karen: This is the PKF Texas Entrepreneur’s Playbook; I’m Karen Love, Host and Founder. And I’m here with Bethany Andell and Jackie Dryden, both from Savage Brands. You guys, welcome back to the Playbook.

Bethany: Thank you.

Jackie: Thanks.

Karen: You know we’ve had great dsicussions about the new book that you co-authored called Get Your Head Out of Your Bottom Line. Now when we were having some fun conversations following our interviews we talked about interestingly 2 women wrote this book and I’d like for you to just talk about that a little bit more.

Bethany: Sure. We talked before too about just culturally the timing of just companies leading with purpose and that you’ve got the baby boomers looking behind for the positive wake and you’re got Millennials coming in looking for a sense of purpose, but there’s also something else happening which is more women in the workplace and more women in leadership roles. And it’s fascinating to us because with that comes a different sense of values that is being introduced in the workforce; not good or bad but you’ve got masculine values if you think of competition, strength, assertiveness as kind of typical dominant values that have been in the business place with this blend now of feminine values which are supportive relationship orientation, supportiveness, those sorts of things. And so if you start to marry those two a conversation around purpose and how you relate to all these different people in a win/win fashion it starts to make a lot of sense.

Karen: Fantastic. Jackie, is that the thinking that you’re going out with the verbiage about the book?

Jackie: Yes and I would layer on to that that Savage has been around for 40 years and was founded by Bethany’s mother, Paula Savage – so yes Virginia, there is a Savage – and she was the Founder of all of this and was always a trailblazer; was always thinking what’s next? Where’s the conversation going? How do we get out in front? So then this is just kind of a nice legacy move that we are continuing in the tradition of what has always been a part of Savage to say where’s the conversation going and why not for women to have that conversation?

Karen: I love it, it really gives us even more of a seat at the table and thank you guys for thinking of this and putting it together and to Bethany’s mom for coming up with the idea. So we’ll have to have you back to talk more about this because this is fascinating.

Both: We would love to, thank you.

Karen: This has been another Thought Leader Production brought to you by the PKF Texas Entrepreneur’s Playbook.

PKF Texas Director on NYC Family Wealth Alliance Panel

PKF Texas Tax Practice Leader and Director, Del Walker, is a confirmed panelist for the 2016 Family Wealth Alliance regional event on July, 14, 2016 in New York City.

Del will take part in the panel discussion Client Development: Lead Generation and Lead Conversation where attendees will learn from him and other panelists Gemma Leddy, PKF O’Connor Davies and John Jennings, St. Louis Trust Company.

PKF Texas has partnered with the Family Wealth Alliance in the past for multiple events including the Houston based Gulf Coast Regional Family Forum, which took place in March of this year. For more information on July’s event, click here.

Millennials More Likely to Live at Home

A shift in demographics has led to a larger number of millennials living with their parents. A survey conducted by The Pew Research Center found that for the first time on record, the most common living arrangement for young adults is living back at home with 32% of millennials following this trend.

This change comes from a drop in the percentage of young adults settling down romantically before age 35. What used to be the most common living arrangement, 62% in 1960, is now only followed by 31% of millennials. This percentage differs between men and women, with 35% of men living with parents in 2014 and 29% of women.

Employment status and wages earned are a likely cause of young adults living with parents. This is especially true in men, as they are more likely to live at home if unemployed and the percent of men with jobs has fallen to 71% from 84% in 1960. In relation, earnings have decreased steadily since 1970, increasing the amount of young men living with their parents. For women, wages have typically grown since 1960, suggesting economic factors are not the reason for the rise of young females living at home. It is suggested that perhaps the rise in young females living at home is correlated to the rise in young men living at home. Another large factor is educational background. Young adults without a Bachelor’s Degree are most likely to live with parents at 36%, with only 19% of young adults with a Bachelor’s Degree living at home. Among the black and Hispanic communities, 2014 showed record highs for living at home with parents at 36%.

This socioeconomic shift comes with a lot of factors. College graduates are experiencing record levels of student debt and cost of housing has increased exponentially. Most notably, the age in which young adults marry has steadily risen for decades, with many foregoing marriage altogether. The reason this demographic takes the reigns is due to the fact that the percent of young adults living with their parents is higher than the percent living with a spouse or romantic partner for the first time on record.

How does this all play into the ongoing conversation about millennials and their way of life? Are millennials completely different than Gen X and Baby Boomers or are all of these factors intertwined in such a way that affects millennials more than it ever affected those who came before them?

The original research and article by the Pew Research Center can be found here.

Tax Benefits of Traveling for Business and Pleasure

Are you thinking about turning a business trip into a family vacation this summer? This can be a great way to fund a portion of your vacation costs. But if you’re not careful, you could lose the tax benefits of business travel.

Reasonable and necessary

Generally, if the primary purpose of your trip is business, expenses directly attributable to business will be deductible (or excludable from your taxable income if your employer is paying the expenses or reimbursing you through an accountable plan). Reasonable and necessary travel expenses generally include:

  • Air, taxi and rail fares,
  • Baggage handling,
  • Car use or rental,
  • Lodging,
  • Meals, and
  • Tips.

Expenses associated with taking extra days for sightseeing, relaxation or other personal activities generally aren’t deductible. Nor is the cost of your spouse or children traveling with you.

Business vs. pleasure

How do you determine if your trip is “primarily” for business? One factor is the number of days spent on business vs. pleasure. But some days that you might think are “pleasure” days might actually be “business” days for tax purposes. “Standby days,” for example, may be considered business days, even if you’re not engaged in business-related activities. You also may be able to deduct certain expenses on personal days if tacking the days onto your trip reduces the overall cost.

During your trip it’s critical to carefully document your business vs. personal expenses. Also keep in mind that special limitations apply to foreign travel, luxury water travel and certain convention expenses.

Maximize your tax savings

For more information on how to maximize your tax savings when combining business travel with a vacation, please contact us. In some cases you may be able to deduct expenses that you might not think would be deductible.

Discussing Technology and Success with Carl Lewis

Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, this week’s guest host and I’m back again with Carl Lewis, Olympic Medalist, University of Houston alum and entrepreneur. Welcome back to the Playbook Carl.

Carl: Great to be with you Jen.

Jen: Thanks. Now we’ve talked a little bit – you’ve touched a little bit on Winning Dimensions Sports and you guys are technology with athletes and that kind of thing, how does that all play in to developing an athlete of the future?

Carl: Well it’s really interesting; people ask me all the time what’s different now? And I tell them the tablets. You know, everyone says he have all these machines and everything but in reality it’s just a cell phone and tablet because you have access to high speed video and training tools and models and that’s why with Winning Dimensions we’re really excited to have that opportunity. But it’s no different than anything in business; either you have to find ways to integrate new media, new business, what’s going on with you or you’re going to be left behind. See, a lot of the young kids say gosh, you don’t know about that stuff or anything and I’m like dude, what’s a Commodore 64? And they’re like what are you talking about? End of discussion; I was a guinea pig for cell phones okay, so I understand how important it is.

I had one in my car in ’83 so I understand how important that is and how it gets integrated into every fabric of our lives and if you’re not able to integrate that into what you’re doing and utilize it in a great way you’re going to be left behind.

Jen: That’s perfect. So it’s really using the tools and using the technology tools to make you a better person, a better business owner, a better athlete.

Carl: Exactly, but the great thing about it is that it doesn’t change the basics. Because all of a sudden you’re not going to have a new angle to run faster, it’s just an easier way and access to see that angle and to apply that angle.

Jen: Perfect, that sounds great. Thanks so much for being here again.

Carl: Great, thank you; good seeing you again.

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

The Tax Benefits of a Volatile Stock Market

This year’s stock market volatility can be unnerving, but if you have a traditional IRA, this volatility may provide a valuable opportunity: It can allow you to convert your traditional IRA to a Roth IRA at a lower tax cost.

Traditional IRAs

Contributions to a traditional IRA may be deductible, depending on your modified adjusted gross income (MAGI) and whether you participate in a qualified retirement plan, such as a 401(k). Funds in the account can grow tax-deferred.

On the downside, you generally must pay income tax on withdrawals, and, with only a few exceptions, you’ll face a penalty if you withdraw funds before age 59½ — and an even larger penalty if you don’t take your required minimum distributions (RMDs) after age 70½.

Roth IRAs

Roth IRA contributions, on the other hand, are never deductible. But withdrawals — including earnings — are tax-free as long as you’re age 59½ or older and the account has been open at least five years. In addition, you’re allowed to withdraw contributions at any time tax- and penalty-free.

There are also estate planning advantages to a Roth IRA. No RMD rules apply, so you can leave funds growing tax-free for as long as you wish. Then distributions to whoever inherits your Roth IRA will be income-tax-free as well.

The ability to contribute to a Roth IRA, however, is subject to limits based on your MAGI. Fortunately, anyone is eligible to convert a traditional IRA to a Roth. The catch? You’ll have to pay income tax on the amount you convert.

Saving tax

This is where the “benefit” of stock market volatility comes in. If your traditional IRA has lost value, converting to a Roth now rather than later will minimize your tax hit. Plus, you’ll avoid tax on future appreciation when the market stabilizes.

Of course, there are more ins and outs of IRAs that need to be considered before executing a Roth IRA conversion. If your interest is piqued, discuss with us whether a conversion is right for you.