December, 2015 | RKL LLP
Posted on: December 23rd, 2015

2016 Payroll and 2015 1099 Info Guides

With the end of the year fast approaching, we have compiled some payroll and other tax-related information to help you plan for 2016. Here are a couple of items to note:

  • There will be additional federal unemployment due for the following credit reduction states: CA, CT, OH and VI. This added tax is reported on the 2015 Form 940.

We have also included for your convenience a summary of the 1099 reporting requirements for 2015 and an easy-to-use worksheet for preparing your 1099s. Your RKL team is always happy to help you with these filings. Please don’t hesitate to contact us with any questions.

2016 Payroll Requirements

Updates and rate guide

Quick reference guide

2015 1099 Requirements

Filing requirements and guide

1099 worksheet

Posted on: December 22nd, 2015

Congress Passes Permanent & Temporary Tax Relief Provisions – PATH Act

tax highlightedIn what is becoming a sort of holiday tradition, Congress passed a massive piece of legislation on December 18th that includes numerous tax provisions – the “Protecting Americans from Tax Hikes (PATH) Act of 2015.” A key component of this legislation is the so-called “extender” provisions, which renew many tax deductions, credits and incentives that had expired last year. However, this package is more extensive and comprehensive than in prior years and includes both permanent and temporary tax relief provisions.

Some highlights of the legislation include:

Business Extenders

  • Research and Experimentation Credit now permanently extended. In addition, beginning in 2016 eligible small businesses ($50 million or less in gross receipts) may claim the credit against alternative minimum tax (AMT) liability, and the credit can be utilized by certain small businesses against the employer’s payroll tax (i.e., FICA) liability.
  • Section 179 expensing limits increase. The increased Section 179 expensing limit and phase-out threshold ($500,000 and $2 million, respectively) are permanently extended. Both of these figures will be indexed for inflation beginning in 2016. Also permanently extended are the expensing rules for computer software and qualified real property. Additionally, the $250,000 cap relating to qualified real property is eliminated beginning in 2016.
  • Bonus depreciation extended. Bonus depreciation is extended for five years (through 2019) subject to the following phase-out schedule: 50% bonus depreciation applies in 2015, 2016, & 2017; 40% bonus depreciation in 2018; and 30% bonus depreciation in 2019. The legislation continues to allow taxpayers to elect to accelerate the use of AMT credits in lieu of bonus depreciation in 2015. It also modifies the AMT rules beginning in 2016 by increasing the amount of unused AMT credits that may be claimed in lieu of bonus depreciation, and modifies the bonus depreciation rules to include qualified improvement property.

Other permanent business extenders include:

  • Fifteen-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements.
  • Exclusion of 100 percent of gain on certain small business stock.
  • Reduction in S-corporation recognition period for built-in gains tax.

Other temporary business extenders (through 2019) include:

  • New markets tax credit.
  • Work opportunity tax credit.

Individual Extenders

Permanently Extended:

  • Tax-free treatment of distributions from individual retirement plans by individuals age 70 ½ and older for charitable purposes. 
  • Deduction of state and local sales taxes in lieu of deduction of state and local income taxes.
  • Enhanced child tax credit and earned income tax credit.
  • Deduction for certain expenses of elementary and secondary school teachers.
  • Parity for exclusion from income for employer-provided mass transit and parking benefits.
  • Charitable deduction for contributions of food inventory.
  • Basis adjustment to stock of S corporations making charitable contributions of property.
  • Enhanced American opportunity tax credit.

Extended Through 2016:

  • Exclusion from gross income of discharge of qualified principal residence indebtedness.
  • Treatment of mortgage insurance premiums as qualified residence interest.
  • Above-the-line deduction for qualified tuition and related expenses.

This update includes some of the highlights of this expansive legislation. Please contact your RKL tax advisor to discuss any questions or to review the implications for your specific tax situation.

Jeffrey N. Horst, CPA, MSTContributed by Jeffrey N. Horst, CPA, MST, Partner in RKL’s Tax Services Group and the firm’s tax functional leader. Jeff specializes in comprehensive tax planning and compliance services for businesses and their owners. He works with clients in a variety of industries including Real Estate Development and Construction and Manufacturing and Distribution.

 

 

Working Capital blog disclaimer

Posted on: December 17th, 2015

What Social Security Claiming Changes Mean for You

Financial Advisor Talking To Senior Couple Congress unexpectedly eliminated two Social Security claiming strategies as part of the Bipartisan Budget Act of 2015. This action makes retirement planning a little more complicated for people who expected to use these strategies to boost retirement income.

The provision of the budget called “Closure of Unintended Loopholes” primarily addresses two Social Security claiming strategies that have become increasingly popular over the last several years. These strategies, known as “file and suspend” and “restricted application for a spousal benefit,” have often been used to increase cumulative Social Security for married couples.

File and Suspend

Under the old rules, individuals who had reached full retirement age could file for retired worker benefits in order to allow a spouse or dependent child to file for a spousal or dependent benefit. The individual could then suspend the retired worker benefit in order to accrue delayed retirement credits and further claim an increased benefit at a later date, up to age 70.

Under the new rules, effective for requests submitted on or after April 30, 2016, the worker can file and suspend and accrue those delayed retirement credits, but no one can collect benefits on the worker’s earnings record during the suspension period. This change effectively ends the “file and suspend” strategy for couples and families. The new rules also mean that a worker can no longer request a lump-sum payment in lieu of receiving delayed retirement credits.

Restricted Application for a Spousal Benefit

Under the old rules, a married individual who had reached full retirement age could file a “restricted application for a spousal benefit” after the other spouse had filed for retired worker benefits. This allowed the individual to collect spousal benefits while delaying filing for his or her own benefit, in order to accrue delayed retirement credits.

Under the new rules, an individual born in 1954 or later who files a benefit application will be deemed to have filed for both worker and spousal benefits, and will receive whichever benefit is higher.

Still Time Left to Use These Strategies

A limited window still exists to take advantage of these two claiming strategies. If you are currently at least age 66 or will be by April 30, 2016, you may be able to use the “file and suspend strategy” to allow your eligible spouse or dependent children to file for benefits, while also increasing your future benefit. To file a restricted application and claim only spousal benefits at age 66, you must be at least age 62 by the end of December 2015. At the time you file, your spouse must have already claimed Social Security retirement benefits.

Social Security Planning Opportunities

The age when you begin receiving Social Security benefits can significantly affect your retirement income and the income available to your survivors. Determining when to file for benefits is one of the biggest financial decisions you’ll need to make as you approach retirement. There’s no “one size fits all” answer – it is an individual decision that must be based on many factors, including other sources of retirement income, plans to continue working and your income tax situation. Married couples need to plan together, taking into account the benefits to which you are each entitled. Although some claiming options are being eliminated, plenty of planning opportunities remain. It’s important to take the time to consider all opportunities and make an informed decision about when to file for Social Security. Contact your financial planning professional to develop a Social Security plan that adheres with your long-term financial goals.

Thomas D. Reardon, CFP®Contributed by Thomas D. Reardon, CFP®, of RKL Wealth ManagementTom works with individual clients and their team of professionals to develop and monitor their investment and financial planning goals. He assists with research and analysis of investment options, financial plan development and design of diversified investment strategies.

 

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Posted on: December 15th, 2015

Local Investment Advisory Firms Adopt RKL Brand Identity

Kuntz Lesher Capital and Sterling Financial Advisors unite under new RKL Wealth Management name

PRESS RELEASE

LANCASTER, PA (December 11, 2015) – Two investment advisory subsidiaries wholly owned by Reinsel Kuntz Lesher LLP (RKL), are rebranding under the RKL name effective January 1, 2016. Kuntz Lesher Capital LLP, based in Lancaster, and Sterling Financial Advisors LLC, based in Reading, will be conducting business as RKL Wealth Management LLC.

The change is intended to connect in name three organizations that have been strategically and operationally aligned since their beginnings. Coalescing KLC and SFA under the RKL brand will provide greater consistency between the identities of the firm’s various entities, which also include RKL eSolutions and RKL Capital Advisors.

“Uniting these two formerly separate entities under the RKL name will allow us to convey greater branding consistency across the firm’s geographic footprint,” said Edward W. Monborne, CEO of RKL.

RKL Wealth Management will offer a broad range of services including investment management, financial planning, estate planning and qualified retirement plans for businesses. In addition, the firm will continue to deliver a tax-efficient approach to all of their services through collaboration with parent company RKL. There are no management changes as a result of the rebranding.

Founded in 1999, KLC is comprised of nine professionals, including a Certified Financial Planner, a Chartered Financial Analyst and a Certified Public Accountant. In 2015, the firm earned the 73rd spot on CNBC’s “Top 100 Fee-Only Wealth Management Firms.”

Founded in 1999, SFA is also comprised of nine professionals, including three Certified Financial Planners and two Certified Public Accountants.

For more information about KLC, visit www.klcinvest.com. For more information on SFA, visit www.sterlingfn.com. For more information about RKL, visit www.rklcpa.com.

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Posted on: December 14th, 2015

1099 Reporting Requirements

Magnifying Glass and TaxAs the calendar year draws to a close there are a number of important tax-related housekeeping items that require an employer’s attention. Chief among these is Form 1099 reporting, which is required for certain payments made in the course of business or trade.

The IRS has fairly strict Form 1099 reporting requirements. Below is a brief overview of some of the important requirements of which you should be aware. For a deeper understanding of Form 1099, check out our complete guide to 1099 reporting requirements for the 2015 tax year.

Do You Have to File Form 1099?

Starting a few years ago, the IRS has included this question on business tax returns: “Did you make any payments in 2015 that would require you to file Form(s) 1099?” Answering “yes” prompts the next question: “Did the business file or will it file all required Form 1099’s?” This line of questioning is a mechanism to help the IRS assess penalties for any unfiled forms. The 1099 filing requirement is on an “entity-by-entity” basis, so a business owner with multiple entities will need to answer the questions individually for each one.

Common Requirements for 1099 Forms

The most common Form 1099s are the Form 1099-INT/1099-DIV and the Form 1099-MISC. A 1099-INT or 1099-DIV is required if you paid $10 or more of interest or dividends. Form 1099-MISC is required to be completed and filed with the IRS for any unincorporated vendor to whom you paid $600 or more for services or rent during 2015. Specific examples of reportable payments include:

  • Services for building or equipment maintenance repair such as painting or lawn care
  • Veterinarian fees
  • Prizes and awards
  • Reimbursement of overpaid mortgage interest
  • Feed mixing and machine hire
  • Fees paid by one professional to another, such as fee-splitting or referral fees
  • Transactions for the sale or exchange of real estate

Due Dates

1099s must be mailed to the recipient by February 1, 2016, and a copy should be mailed to the IRS by February 29, 2016. There is a late-filing penalty of $30, $60 or $100 per 1099 depending upon how late the filling is made. A 30-day extension can be requested via Form 8809.

Companies doing business in Pennsylvania or compensating employees for Pennsylvania-based work must also file copies of federal Form 1099-MISC with the PA Department of Revenue. These copies are due at the same time as the IRS filing deadlines.

RKL’s team of tax professionals stands ready to assist businesses with the Form 1099 reporting process. Contact your RKL advisor or one of our local offices to get started.

Natalie G. Fuhrman, CPAContributed by Natalie G. Fuhrman, CPA, Manager in RKL’s Small Business Services Group. She specializes in providing accounting services to medical and professional service organizations, as well as manufacturing and real estate entities. She is also responsible for providing tax services for business and individual clients.

 

 

Working Capital blog disclaimer

Posted on: December 10th, 2015

RKL Annual Seminar Offers Economic Insight, Tax and A&A Updates

Close to 500 tax and accounting professionals, financial executives and business leaders from across Central and Eastern Pennsylvania received timely economic insights and the latest tax, audit and accounting updates at RKL’s annual Tax and A&A seminar earlier this week.

Held at the Lancaster County Convention Center on Tuesday, December 8, the full-day educational event was not only a chance for professionals to obtain much-needed continuing education credits, but also offered an opportunity for networking and engagement with a wide swath of RKL clients.

The agenda featured sessions from RKL experts in the areas of federal and state taxation, audit and accounting, estate planning, business risk management and health care reform. Anirban Basu, Chairman and CEO of Sage Policy Group, Inc., presented an entertaining, insightful update on the performance of the global, national and regional economy.

To keep attendees engaged and energized throughout the day, CPA-turned-corporate-comedian John Garrett emceed the event and conducted a wide range of trivia and prize drawings. Winners took home prizes including gift cards to local dining and retail establishments, an Apple Watch, a drone quadricopter and a vacation voucher.

Well-equipped with the latest industry updates and insights to prepare for 2016, guests concluded the day with a relaxing cocktail hour to share some holiday cheer and network with fellow financial executives and RKL service providers. RKL extends its thanks to all attendees and presenters who helped make the 2015 edition of this much-anticipated and best-in-class annual event a huge success!

CPE attendees

A cheerful group of attendees ready for CPE!

 

Pre-seminar networking

Attendees mingle and network before the start of the seminar.

 

PA state tax update

RKL’s State and Local Tax Practice Leader Jason Skrinak provides an update on the state of Pennsylvania taxation.

 

Estate Tax Update

Laurie Peer, RKL Tax Partner, provides an update on the latest estate planning and gift tax options.

 

Economic update

Anirban Basu of the Sage Policy Group, Inc., gives an update on the state of the economy during his presentation.

 

Internal control presentation

Bethany Novis, RKL Business Consulting Partner, and Marcia Hoffacker, the firm’s Business Risk Services Practice Leader, explain to attendees the importance of building a strong internal control foundation.

 

Audit standards update

RKL Business Consulting Principal Gretchen Naso and Jim Pruzinsky, Audit and Accounting Partner and Functional Leader, conclude the day with a session on audit standard updates.

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Posted on: December 9th, 2015

The Tax Impact of Providing Fringe Benefits to Partners and S Corp Shareholders

tax highlightedMost business owners know what a fringe benefit is, but some may not realize the differences in taxability when these benefits are provided to employees, partners or S corporation shareholders.

Fringe benefits, which are essentially a form of pay for the performance of services, are taxable and must be included in the recipient’s pay as income unless specifically excluded by law. There is a long list of fringe benefits that are exempt from income if they are provided to employees; however, these same benefits become taxable if provided to partners or 2% S corporation shareholders.

A 2% S corporation shareholder is someone who directly or indirectly owns at any time during the year more than 2% of the corporation’s stock or stock with more than 2% of the voting power. A 2% shareholder is treated the same as a partner for most benefits. A less than 2% shareholder is considered an employee for fringe benefit purposes.

A partner is considered by the IRS to be self-employed and is not considered an employee for fringe benefits unless specifically included in the definition of employee for a particular benefit.

Taxable Fringe Benefits for Partners and 2% S Corp Shareholders:

Fringe Benefit Partners 2% S Corporation Shareholder
Accident and health benefits Taxable as guaranteed payments Reported as federal wages subject to federal income tax withholding on W-2 (not subject to social security, Medicare or FUTA taxes)
Group term life insurance coverage up to $50,000 Taxable as guaranteed payments Reported in boxes 1, 3 and 5 of W-2, must pay social security and Medicare taxes, not required to withhold federal income tax or pay FUTA
Moving expenses Taxable as guaranteed payments Reported as wages to shareholder
Health Savings Account contributions Taxable as guaranteed payments Treated as distributions to the 2% shareholder
Cafeteria plans Partners may not participate 2% shareholders may not participate

Tax-Free Fringe Benefits for Partners and 2% S Corp Shareholders:

  • Qualified educational assistance programs
  • Qualified dependent care assistance programs
  • Working condition fringe benefits, such as meals provided for the convenience of the company
  • On-premises athletic facilities
  • Qualified employee discounts
  • No additional cost services

RKL has a deep bench of tax professionals who can help business owners understand these distinctions and manage taxability accordingly. Contact one of our offices today for assistance in reporting fringe benefits correctly.

Ethel A.M. Nawrocki, CPAContributed by Ethel A.M. Nawrocki, CPA, a principal in RKL’s Tax Services Group. Ethel specializes in tax, accounting and consulting services for the manufacturing, wholesale, distribution, construction and real estate rental industries.

 

 

 

Working Capital blog disclaimer

Posted on: December 7th, 2015

What Makes Your Business Valuable, Part 2: Value Drainers

Female business ownerIn part one of our blog series on business value, we identified key drivers that underpin a company’s worth. Just as certain factors drive value, the lack of them, or their inverse, can drain value from a business, and this can have an impact far beyond daily operations and short-term profitability.

Keep in mind the same threats and weaknesses that keep a business owner up at night will be scrutinized should the business ever be up for sale. Value draining traits or problems in a business will be uncovered during a potential buyer’s due diligence process, and they can decrease perceived value and ultimately, the asking price. After all, value is in the eyes of the beholder, regardless of whether the price is rational.

Factors that Decrease Business Value

Understanding what could be decreasing the value of your business will allow you to stop the bleeding and position it for long-term growth and marketability. Let’s take a closer look at some value drainers across four key areas of a business.

1. Financial:

Buyers like steady, predictable cash flows and a strong history of profitability. Companies with low levels of profitability, unsustainable earnings, low levels of working capital, heavy debt load, and flat or declining revenue and “earnings before interest, taxes, depreciation and amortization” (EBITDA) are less appealing to potential buyers. Likewise, a business with poorly maintained and presented financial information is less attractive to a potential buyer than a business with strong financial controls and clean, detailed financial information, including sales by customer and product margin data.

Buyers like value they can see, which often is the presentation of financial information without significant adjustments for extraordinary, non-recurring, personal and discretionary items.

2. Management:

While strong leadership in a business is important, too much reliance or dependence on key management can be a value drainer for businesses. Potential investors may be disenchanted by a business owner unwilling to relinquish control or customer relationships. On the other end of the spectrum, the lack of a strong management team committed to staying on post-transaction could detract from perceived value if a potential buyer does not already have a strong team in place to manage the new acquisition. The value of a business also can suffer due to mismanagement of a business’ intangible and tangible assets, such as incomplete or disorganized operations, policies and procedures; poor maintenance of infrastructure; outdated technology and fixed assets; and labor force/union issues. 

3. Supply Chain/Market:

Whereas the existence of strong vendor and customer relationships is undoubtedly a value driver, too much reliance on individual suppliers or major customers can have the opposite effect. The lack of diversification, whether it be from a product, asset class, industry, geographic, vendor or customer standpoint, is a potential value drainer. Additionally, a bleak industry outlook with limited growth potential could result in declining future cash flows, which has a direct negative impact on business value. 

4. Legal/Regulatory:

Excessive legal costs and regulatory violation penalties are drains on cash flow, and the excessive occurrence of lawsuits or regulatory violations can be red flags for a potential buyer. 

The unknowns and future risks of a business are among the largest fears of a potential buyer. Even though business owners do not have crystal balls, it is critical to review the current state of their companies for the presence of these value drainers. While some of these issues can be addressed quickly and easily, others can take several years to fix, such as a heavy dependence on the owner or a lack of a strong management team.

RKL’s experienced team of business appraisers can develop a strategic plan to minimize your company’s value drainers. We can help drive value in your business and make it more attractive on the acquisition market. Contact us today to get started.

Steven M. Frank, CPA/ABVContributed by Steven M. Frank, CPA/ABV, Manager in RKL’s Business Consulting Services Group. Steve provides business valuation, litigation support services and financial analysis to clients, along with conducting special projects including cash flow modeling and assistance with acquisitions and sales of closely-held businesses.

 

Working Capital blog disclaimer

Posted on: December 3rd, 2015

FASB Establishes Effective Date for Major Leasing Standard

FASB accounting standards updateThe FASB recently established effective dates for an upcoming Accounting Standards Update (ASU) involving leases (topic 842).

Nonpublic business entities should apply the amendments in this ASU for fiscal years beginning after December 15, 2019 (i.e. January 1, 2020, for a calendar year entity). Early application is permitted for all nonpublic business entities upon issuance of the final guidance.

The FASB expects to issue the final guidance in early 2016.

This guidance may have significant business implications on commercial entities in virtually every industry. The proposed standard is expected to require most operating leases to be reflected on the balance sheet. Please look for RKL’s information release early in 2016 upon issuance of the final standard.

Have questions about this guidance? RKL is here to help. Contact your RKL advisor or one of our local offices for details and assistance in assessing the impact of adoption.

Michael P. Jones, CPAContributed by Michael P. Jones, CPA, a manager in RKL’s Audit Services Group. Mike specializes in serving the audit and accounting needs of commercial and not-for-profit organizations.

 

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Posted on: December 1st, 2015

IRS Expands New Opportunity to Write-Off Asset Purchases

IRS officeBusinesses are now able to take an immediate tax deduction for all tangible assets they acquire which individually cost less than $2,500. This is a significant taxpayer-friendly change announced last week by the IRS. Let’s take a look at what this means for your business.

What has changed?

The change announced by the IRS is part of its regulations pertaining to capitalization and deductions for tangible assets, commonly referred to as “TARS.” The IRS has increased the so-called safe harbor threshold for capitalization from $500 to $2,500 for companies that do not have audited financial statements. The capitalization threshold for companies that do have audited financial statements remains at $5,000.

What does this mean?

This long-awaited change means businesses may immediately deduct expenditures on items substantiated by an invoice costing less than $2,500 each rather than capitalizing the asset and depreciating it over a period of years. This expanded deduction opportunity applies prior to considering whether Section 179 or Bonus Depreciation may be applicable for asset purchases that cost more than $2,500 each.

What expenditures are affected?

Examples of purchases that would fall within the de minimis safe harbor threshold include tangible business property such as:

  • Computers and office equipment
  • Furniture
  • Machinery
  • Equipment parts
  • Land improvements

It is important to note that this particular TARS provision also impacts general ledger or “book” fixed asset accounting. This means that in order to use this safe harbor election, business owners must treat the item as a current expense for their books and records.

When does this take effect?

The new $2,500 threshold kicks in on January 1, 2016. However, the IRS has communicated that they will not challenge prior year returns for which the $2,500 threshold was used, so this impacts tax returns for 2015 and those still unfiled for 2014.

What are my next steps?

Small business owners should discuss and review their book and tax capitalization policies with their tax advisor prior to closing their 2015 books. Additionally, be sure to examine any fixed asset additions for 2015 with your tax advisor.

Need more information?

RKL’s Tax Services Group has a dedicated team of professionals focused on TARS and its impact on  business owners. Contact your RKL tax advisor or one of our local offices for assistance maximizing the benefit of this change on your business’ taxes. 

Jolleen Biesecker, CPAContributed by Jolleen E. Biesecker, CPA, Manager in RKL’s Tax Services Group. Jolleen manages tax compliance and consulting engagements for business clients and their related individual owners, in addition to performing quality review for tax engagements.

 

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