The CPA Desk

A Thought Leader Production by PKFTexas

Important Updates on the New Overtime Rules

Recently on the CPA Desk, we shared with you a series of the PKF Texas – Entrepreneur’s Playbook episodes that featured our friend Wilka Toppins of Toppins Law firm. She shared the upcoming changes in overtime rules put in place by the Department of Labor. The changes centered around raising the maximum salary needed to be eligible for overtime compensation from $23,000 annually to $47,476 annually. Basically, these rules said that if you make less than $47,476 a year you would be eligible for overtime pay. Originally set to go into effect on December 1, 2016, these rules are blocked for the time being.

Blocked? How?

Judge Honorary Amos Mazzant, Eastern District of Texas, entered a nationwide injunction that blocks the Dept. of Labor from implementing the new rules. After a series of lawsuits surrounding this topic, he determined the Dept. of Labor had no authority to determine salaries.

So, what now?

It is currently unknown whether the Dept. of Labor will appeal or not, so the change is on hold. There are no current action points for employers. You can find more information on these changes at the Society for Human Resource Management here.

 

Buy Business Assets to Benefit Your 2016 Tax Bill

In order to take advantage of two important depreciation tax breaks for business assets, you must place the assets in service by the end of the tax year. So you still have time to act for 2016.

Section 179 deduction

The Sec. 179 deduction is valuable because it allows businesses to deduct as depreciation up to 100% of the cost of qualifying assets in year 1 instead of depreciating the cost over a number of years. Sec. 179 can be used for fixed assets, such as equipment, software and leasehold improvements. Beginning in 2016, air conditioning and heating units were added to the list.

The maximum Sec. 179 deduction for 2016 is $500,000. The deduction begins to phase out dollar-for-dollar for 2016 when total asset acquisitions for the tax year exceed $2,010,000.

Real property improvements used to be ineligible. However, an exception that began in 2010 was made permanent for tax years beginning in 2016. Under the exception, you can claim a Sec. 179 deduction of up to $500,000 for certain qualified real property improvement costs.

Note: You can use Sec. 179 to buy an eligible heavy SUV for business use, but the rules are different from buying other assets. Heavy SUVs are subject to a $25,000 deduction limitation.

First-year bonus depreciation

For qualified new assets (including software) that your business places in service in 2016, you can claim 50% first-year bonus depreciation. (Used assets don’t qualify.) This break is available when buying computer systems, software, machinery, equipment, and office furniture.

Additionally, 50% bonus depreciation can be claimed for qualified improvement property, which means any eligible improvement to the interior of a nonresidential building if the improvement is made after the date the building was first placed in service. However, certain improvements aren’t eligible, such as enlarging a building and installing an elevator or escalator.

Contemplate what your business needs now

If you’ve been thinking about buying business assets, consider doing it before year end. This article explains only some of the rules involved with the Sec. 179 and bonus depreciation tax breaks. Contact us for ideas on how you can maximize your depreciation deductions.

Carl Lewis Discusses Technology

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.

Accelerating Your Property Tax Deduction to Reduce Your 2016 Tax Bill

Smart timing of deductible expenses can reduce your tax liability, and poor timing can unnecessarily increase it. When you don’t expect to be subject to the alternative minimum tax (AMT) in the current year, accelerating deductible expenses into the current year typically is a good idea. Why? Because it will defer tax, which usually is beneficial. One deductible expense you may be able to control is your property tax payment.

You can prepay (by December 31) property taxes that relate to 2016 but that are due in 2017, and deduct the payment on your return for this year. But you generally can’t prepay property taxes that relate to 2017 and deduct the payment on this year’s return.

Should you or shouldn’t you?

As noted earlier, accelerating deductible expenses like property tax payments generally is beneficial. Prepaying your property tax may be especially beneficial if tax rates go down for 2017, which could happen based on the outcome of the November election. Deductions save more tax when tax rates are higher.

However, under the President-elect’s proposed tax plan, some taxpayers (such as certain single and head of household filers) might be subject to higher tax rates. These taxpayers may save more tax from the property tax deduction by holding off on paying their property tax until it’s due next year.

Likewise, taxpayers who expect to see a big jump in their income next year that would push them into a higher tax bracket also may benefit by not prepaying their property tax bill.

More considerations

Property tax isn’t deductible for AMT purposes. If you’re subject to the AMT this year, a prepayment may hurt you because you’ll lose the benefit of the deduction. So before prepaying your property tax, make sure you aren’t at AMT risk for 2016.

Also, don’t forget the income-based itemized deduction reduction. If your income is high enough that the reduction applies to you, the tax benefit of a prepayment will be reduced.

Not sure whether you should prepay your property tax bill or what other deductions you might be able to accelerate into 2016 (or should consider deferring to 2017)? Contact us. We can help you determine the best year-end tax planning strategies for your specific situation.

Year-End Tax Strategies for Accrual-Basis Taxpayers

The last month or so of the year offers accrual-basis taxpayers an opportunity to make some timely moves that might enable them to save money on their 2016 tax bill.

Record and recognize

The key to saving tax as an accrual-basis taxpayer is to properly record and recognize expenses that were incurred this year but won’t be paid until 2017. This will enable you to deduct those expenses on your 2016 federal tax return. Common examples of such expenses include:

  • Commissions, salaries and wages,
  • Payroll taxes,
  • Advertising,
  • Interest,
  • Utilities,
  • Insurance, and
  • Property taxes.

You can also accelerate deductions into 2016 without actually paying for the expenses in 2016 by charging them on a credit card. (This works for cash-basis taxpayers, too.) Accelerating deductible expenses into 2016 may be especially beneficial if tax rates go down for 2017, which could happen based on the outcome of the November election. Deductions save more tax when tax rates are higher.

Look at prepaid expenses

Also review all prepaid expense accounts and write off any items that have been used up before the end of the year. If you prepay insurance for a period of time beginning in 2016, you can expense the entire amount this year rather than spreading it between 2016 and 2017. Just as long as a proper method election is made. This is treated as a tax expense and thus won’t affect your internal financials.

Miscellaneous tax tips

Here are a few more year-end tax tips to consider:

  • Review your outstanding receivables and write off any receivables you can establish as uncollectible.
  • Pay interest on all shareholder loans to or from the company.
  • Update your corporate record book to record decisions and be better prepared for an audit.

Consult us for more details on how these and other year-end tax strategies may apply to your business.

Port Related Industries Create Job Growth in Houston

Karen: This is PKF Texas Entrepreneur’s Playbook, I’m Karen Love, the host and Founder. Today I’m here with Frances Castneda Dyess and she’s the President of the Houston East End Chamber of Commerce. Welcome to the Playbook Frances.

Frances: Thank you Karen for having me.

Karen: Well, you know, I’m out in the marketplace on a daily basis and I’m seeing so much activity, I am wondering how the manufacturing and distribution is being effective and I think you will have some insight for me.

Frances: Yes, and it has been changing, especially with Houston being one of the fastest growing cities in America. There’s about 1,000 people that are moving into Houston a day and because of that growth manufacturing and retailers are building new manufacturing facilities to service them and to give them new products. For example, Silver Eagle Distributing had opened a new plant in Pasadena; this new manufacturing facility has created new job growth and it’s state of the art so they’re more efficient with what they’re doing. Another example is Goya Foods; last year they opened a new manufacturing/distributing facility, it’s 350,000 square feet and they’ll be able to make 1,000 cans a minute, so it’ll be their manufacturing and distribution center. They have also created new job growth and become more efficient with state of the art programming.

Karen: Fantastic. Well that is extremely interesting and I just find it to be asking more questions about infrastructure so I’m wondering if you’ll come back and help us understand how all the growth is affecting infrastructure in the city?

Frances: I would love to Karen, thank you.

Karen: Wonderful, I look forward to that. So for other port related topics, visit the PKF Texas Port Advisory Services page. This has been another Thought Leader production brought to you by PKF Texas Entrepreneur’s Playbook.

Post-Election Tax Policy Update

Here at the CPA Desk, we strive to bring you the latest tax and accounting news that may affect you or your business. With this in mind, we want to offer our informative and understandable Post-Election Tax Policy Update to our readers. You can access this briefing here, or on our website at www.pkftexas.com/TaxNews/.

With Election Day behind us, and a new President in front of us, many of you may have questions regarding new tax policies and potential updates. In the tax briefing you will find the following:

  • What to expect from the President-elect’s first 100 days in office
  • Individual Taxation
  • Business Taxation
  • Healthcare Related Taxes
  • International
  • Lame-Duck Tax Legislation

At PKF Texas, our professionals are thoroughly familiar with upcoming tax laws and policies, and are eager to help you understand them. If you would like to connect with one of our tax professionals to discuss this and other tax matters, please contact us.

Results of the 2016 Aggie 100

Today on the CPA Desk, we are reflecting on the annual Aggie 100 event. As the event’s official accountants, we look forward to attending each year and learning about successful Aggies in Texas and around the globe.

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A local company, Lone Star Bloom, LLC, took the top spot this year with a growth rate of 229.55 percent over the past three years. More than a third of companies ranked in the Aggie 100 are based in Houston. You can see the full list of winners here.

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Businesses ranked in the coveted list cover a wide variety of industries and are mostly headquartered in Texas. At PKF Texas, we are proud to support an event that honors the successes of fellow Aggies and our “Ag-Squad” looks forward to visiting their old stomping grounds for the event each year.

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Three Things to Do Before the New Overtime Rules Go Into Effect

Karen: This is the PKF Texas Entrepreneur’s Playbook and I’m Karen Love; I’m the Host and Founder of the show. I‘m here with Wilka Toppins and she is the Principle and Founder Lawyer of the Toppins Law Firm and we’re having her back again to talk about overtime and new laws and I would like to know based on the first two segments we did with you, it seems like there’s steps that employers or team member, employees, would need to take. Could you do an overview of what those steps would be to become compliant?

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Three Options for Retirement Savings Plans

Saving for retirement can be tough if you’re putting most of your money and time into operating a small business. However, many retirement plans aren’t difficult to set up and it’s important to start saving so you can enjoy a comfortable future.

So if you haven’t already set up a tax-advantaged plan, consider doing so this year.

Note: If you have employees, they generally must be allowed to participate in the plan, provided they meet the qualification requirements.

Here are three options:

  1. Profit-sharing plan. This is a defined contribution plan that allows discretionary employer contributions and flexibility in plan design. You can make deductible 2016 contributions as late as the due date of your 2016 tax return, including extensions — provided your plan exists on Dec. 31, 2016. For 2016, the maximum contribution is $53,000, or $59,000 if you are age 50 or older.
  2. Simplified Employee Pension (SEP). This is also a defined contribution plan that provides benefits similar to those of a profit-sharing plan. But you can establish a SEP in 2017 and still make deductible 2016 contributions as late as the due date of your 2016 income tax return, including extensions. In addition, a SEP is easy to administer. For 2016, the maximum SEP contribution is $53,000.
  3. Defined benefit plan. This plan sets a future pension benefit and then actuarially calculates the contributions needed to attain that benefit. The maximum annual benefit for 2016 is generally $210,000 or 100% of average earned income for the highest three consecutive years, if less. Because it’s actuarially driven, the contribution needed to attain the projected future annual benefit may exceed the maximum contributions allowed by other plans, depending on your age and the desired benefit. You can make deductible 2016 defined benefit plan contributions until your return due date, provided your plan exists on Dec. 31, 2016.

Contact us if you want more information about setting up the best retirement plan in you or your company’s situation.