The CPA Desk

A Thought Leader Production by PKFTexas

Christmas Came Early for Some Fiscal Year Taxpayers

As we are all aware, the most comprehensive tax reform in over 30 years was signed into law December 22, 2017. Most of the new tax provisions are “effective” for taxable years beginning after December 31, 2017. Tax professionals are still awaiting guidance on how many of these provisions’ will actually be applied.

Arguably one of the biggest revisions resulting from the new tax bill was the reduction in the corporate tax rate to a flat 21%. This new law, as with most of the new provisions, per the new bill’s language is effective for taxable years beginning after December 31, 2017. How this law applies to fiscal year taxpayers, however, was unclear or unaddressed.

The new law, however, does not change IRC Section 15 which calls for the use of a “blended rate” for tax years in which there is a rate change. This calculation is performed by dividing the year end taxable income into two components; a pre rate change component and post rate change component based on a pro rata portion of the number of days in each period. Each component percentage is then multiplied by the total taxable income for the full fiscal year multiplied by the rate for that period. The components are added together to determine the taxpayer’s total tax liability for the full tax year.

What does this mean? Fiscal year taxpayers with tax years ending in 2018 will see a decrease in estimated tax payments and their overall tax liability for the 2017 tax filing! Consult your tax advisor for questions and further guidance.

What to Know About the SEC’s Revenue Recognition Rules

Jen:  This is the PKF Texas Entrepreneur’s Playbook.  I’m Jen Lemanski, this week’s guest host, and I’m here today with Ryan Istre, an audit director and a member of the PKF Texas SEC team.  Ryan, welcome back to the Playbook.

Ryan:  Thanks for having me here Jen.

Jen:  So I know there’s new revenue recognition rules coming, what are the SEC’s views on this for registrants?

Ryan:  That’s a very good question Jen.  The new revenue recognition rules – or ASC 606 – are going to be effective for most registrants beginning January 1st of 2018.

Jen:  So this year?

Ryan:  This year, that’s correct.  What this is intended to do is bring into congruence the SEC’s rules with the new revenue recognition standards.  Some of the topics that are being discussed are the potentially outdated Regulation SX rules.  Other topics which may be of a little more importance are the effect of what happens with retrospective application of these new pronouncements when there are predecessor financial statements followed alongside successive financial statements.
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Who Benefits from Working with JVSA?

Russ: The is the PKF Texas Entrepreneur’s Playbook. I’m Russ Capper, this week’s guest host and I’m here with Kirsten Strieck, a shareholder and Director of Operations & Client Services at Joint Venture Strategic Advisors. Welcome to the Playbook, Kirsten.

Kirsten: Thank you for having me.

Russ: You bet. So, you talk about this company a lot as JVSA, right?

Kirsten: That’s right.

Russ: Ok, tell us about JVSA.
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TCJA temporarily lowers medical expense deduction threshold

With rising health care costs, claiming whatever tax breaks related to health care that you can is more important than ever. But there’s a threshold for deducting medical expenses that may be hard to meet. Fortunately, the Tax Cuts and Jobs Act (TCJA) has temporarily reduced the threshold.

What expenses are eligible?

Medical expenses may be deductible if they’re “qualified.” Qualified medical expenses involve the costs of diagnosis, cure, mitigation, treatment or prevention of disease, and the costs for treatments affecting any part or function of the body. Examples include payments to physicians, dentists and other medical practitioners, as well as equipment, supplies, diagnostic devices and prescription drugs.

Mileage driven for health-care-related purposes is also deductible at a rate of 17 cents per mile for 2017 and 18 cents per mile for 2018. Health insurance and long-term care insurance premiums can also qualify, with certain limits.

Expenses reimbursed by insurance or paid with funds from a tax-advantaged account such as a Health Savings Account or Flexible Spending Account can’t be deducted. Likewise, health insurance premiums aren’t deductible if they’re taken out of your paycheck pretax.
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What to Know About Staff Accounting Bulletin (SAB) 118

Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, this week’s host, and I’m here with Chip Schweiger, and audit director and a member of the PKF Texas SEC team. Chip welcome back to the Playbook.

Chip: Thanks Jen, good to be here.

Jen: So President Trump signed into law the Tax Act on December 21, 21017, it’s got a lot in it; what do SEC companies need to know that’s going to affect them?
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Tax credits just for small businesses may impact your 2017 and 2018 tax bills

Tax credits reduce tax liability dollar-for-dollar, potentially making them more valuable than deductions, which reduce only the amount of income subject to tax. Maximizing available credits is especially important now that the Tax Cuts and Jobs Act has reduced or eliminated some tax breaks for businesses. Two still-available tax credits are especially for small businesses that provide certain employee benefits.

1. Credit for paying health care coverage premiums

The Affordable Care Act (ACA) offers a credit to certain small employers that provide employees with health coverage. Despite various congressional attempts to repeal the ACA in 2017, nearly all of its provisions remain intact, including this potentially valuable tax credit.

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Can you deduct home office expenses?

Working from home has become commonplace. But just because you have a home office space doesn’t mean you can deduct expenses associated with it. And for 2018, even fewer taxpayers will be eligible for a home office deduction.

Changes under the TCJA

For employees, home office expenses are a miscellaneous itemized deduction. For 2017, this means you’ll enjoy a tax benefit only if these expenses plus your other miscellaneous itemized expenses (such as unreimbursed work-related travel, certain professional fees and investment expenses) exceed 2% of your adjusted gross income.

For 2018 through 2025, this means that, if you’re an employee, you won’t be able to deduct any home office expenses. Why? The Tax Cuts and Jobs Act (TCJA) suspends miscellaneous itemized deductions subject to the 2% floor for this period.
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Personal exemptions and standard deductions and tax credits, oh my!

Under the Tax Cuts and Jobs Act (TCJA), individual income tax rates generally go down for 2018 through 2025. But that doesn’t necessarily mean your income tax liability will go down. The TCJA also makes a lot of changes to tax breaks for individuals, reducing or eliminating some while expanding others. The total impact of all of these changes is what will ultimately determine whether you see reduced taxes. One interrelated group of changes affecting many taxpayers are those to personal exemptions, standard deductions and the child credit.

Personal exemptions

For 2017, taxpayers can claim a personal exemption of $4,050 each for themselves, their spouses and any dependents. For families with children and/or other dependents, such as elderly parents, these exemptions can really add up.

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Is Your Nonprofit Doing What It Takes to Avoid a Conflict of Interest?

Not-for-profit board officers, directors, trustees and key employees must avoid any conflict of interest because it’s their duty to do so. Any direct or indirect financial interest in a transaction or arrangement that might benefit one of these individuals personally could result in the loss of your organization’s tax-exempt status — and its reputation.

Here’s a quick checklist to gauge whether your nonprofit is doing what it takes to avoid conflicts of interest:

  • Do you have a conflict-of-interest policy in place that specifies what constitutes a conflict and lists exceptions?
  • Do you require board officers, directors, trustees, and key employees to annually pledge to disclose interests, relationships and financial holdings that could result in a conflict of interest?
  • Do they understand that they must speak up if issues arise that could pose a possible conflict?
  • Do you provide training in conflicts of interest?
  • Do you have procedures in place that outline the steps you’ll take when a possible conflict of interest arises?
  • Are individuals with possible conflicts asked to present only the facts, and then remove themselves from any discussion of the issue?
  • Do you keep minutes of the meetings where the conflict of interest is discussed, noting those members present and voting, and indicating the final decision reached?
  • Do you put projects out for bid — with identical specifications — to multiple vendors?
  • Do you supply a written contract to each vendor that details the service the company will provide, specific deliverables, cost estimates and a time frame for delivery?

If you answered “no” to any of these questions, contact us. We can help you make sure that you have an adequate conflict of interest policy in place and a full set of procedures to support it.

File Your 2017 Tax Return Early to Avoid Identity Theft

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.