December, 2017 | RKL LLP
Posted on: December 21st, 2017

New Tax Law: Top-Level Impacts for Businesses and Individuals

New Tax Law: Top-Level Impacts for Businesses and IndividualsThe U.S. tax landscape will undergo significant changes, with the sweeping overhaul bill on its way to the president’s desk for signature. At RKL, our tax team has been monitoring this tax overhaul push through its various forms and stages. The new law is sizeable and complex, so we’ve assembled a quick primer on some high-level takeaways for business and individual taxpayers.

An important point about this bill is that some of its provisions are temporary, while others are permanent. Without additional legislative action, some of the tax breaks and benefits in this bill will expire in the future.

Key Individual Provisions

Reduced Tax Rates

The new law temporarily adjusts the individual income tax rates. Previously, the rates were 10, 15, 25, 28, 33, 35 and 39.6 percent. Starting in 2018, the rates will be 10, 12, 22, 24, 32, 35 and 37 percent. These rates will return to previous 2017 levels after 2025. The IRS recently announced that it will issue updated guidance next month on withholding under the new law (Notice 1036).

AMT Retained, Exemption Temporarily Increased

While the individual alternative minimum tax (AMT) remains in the new tax law, there are some alterations, including a temporary increase through 2025 of the exemption amount to $109,400 for joint filers and $70,300 for all others (excluding estates and trusts). The exemption phase-out level is also raised to subject income of $1 million and above (joint filers) and $500,000 (all other filers) to AMT. These amounts will be adjusted annually for inflation.

Standard Deduction Doubled

The law nearly doubles the standard deduction. For married taxpayers filing jointly, the standard deduction rises to $24,000; for head-of-household filers, it increases to $18,000; and for individual filers, the amount jumps to $12,000.

The standard deduction increase is intended to offset another component of the law – the elimination or reduction of many tax credits and deductions. Many taxpayers who previously itemized deductions may now fall under the standard deduction threshold.

Numerous Deductions and Credits Changed

As with the new tax rates, all changes made to individual tax credits and deductions are temporary and generally expire after 2025.

Starting in 2018, the mortgage interest deduction is reduced to mortgages of up to $750,000, from a previous $1 million level. Second home mortgage interest is still deductible, within the limit listed above, but deductions of home equity loan interest are now disallowed.

The combined deductibility of state and local income taxes, sales tax in lieu of income taxes and real estate taxes is capped at $10,000, starting in 2018. The law also disallows a 2017 deduction for the prepayment of state and local taxes attributable to taxable income earned in 2018 and beyond.

Miscellaneous itemized deductions, including professional service fees, are repealed under the tax bill. The deduction for medical expenses, however, remains and is temporarily lowered for tax years 2017 and 2018 to a threshold of 7.5 percent of adjusted gross income.

Under the new law, alimony payments are no longer deductible, nor must the recipient report such payments as income.

Child Tax Credit Doubled, Eligibility Expanded

The law temporarily doubles the child tax credit from $1,000 to $2,000 per child, with up to $1,400 of the total amount refundable. The adjusted gross income (AGI) phase-out thresholds are also raised, starting at $400,000 AGI for joint filers and $200,000 AGI for the rest. An additional $500 nonrefundable credit for dependents other than children was also introduced in the new law.

Estate, Gift Tax Exemption Doubled

While previous iterations of the tax legislation proposed a full repeal of the estate tax, the bill signed into law instead doubles the exclusion amounts for estate and gift taxes, effective January 1, 2018. This doubled exclusion sunsets after January 1, 2026.

The maximum federal estate tax is 40 percent for tax year 2017 remains in place moving forward. The estate and gift exclusion amount for married couples, however, increases from $10.98 million in 2017 to $22 million in 2018. In future years, the $22 million joint exclusion will be adjusted annually for inflation.

Individual Mandate Repealed

The tax law repeals the individual shared responsibility requirement of the Affordable Care Act by reducing penalties assessed after 2018 to $0. The IRS recently cautioned that returns submitted for tax year 2017 that do not report full-year coverage, report a shared responsibility payment or claim a coverage exemption will be rejected as incomplete and inaccurate.

Key Business Provisions

Corporate tax rate reduced, excluded from AMT

The tax law permanently reduces the corporate tax rate from 35 to 21 percent, and also excludes corporations from AMT.

Asset Purchase Tax Benefits Expanded

Under the new law, bonus depreciation doubles from 50 to 100 percent for property purchased between September 27, 2017, and January 1, 2023 (or January 1, 2024, for a small category of property). After that date, at 20 percent phase-down takes effect. Also, bonus depreciation amount is now permitted for the purchase of used property, in addition to new property.

The tax law also raises the cap on depreciation write-offs for business-use vehicles (now including passenger automobiles) purchased after December 31, 2017. The new cap schedule is: $10,000 (up from $3,160) for the first year a vehicle is used; $16,000 (up from $5,100) for the second year; $9,600 for the third year (up from $3,050); and $5,760 (up from $1,875) for each remaining year until all costs are fully recovered.

The Section 179 expensing limitations under the new law are $1 million (dollar) and $2.5 million (investment).

Favorable Treatment for Pass-Through Businesses

Generally taxed at the top individual rate, owners of so-called “pass-through” entities – partnerships, S corporations, most LLC’s, and sole proprietorships – are permitted to deduct 20 percent of qualified income, subject to variety of qualifications and limitations.

Small Business Expansion

The definition of “small business” has been expanded to include many companies with average annual gross receipts of less than $25 million, allowing these taxpayers to take advantage of several favorable tax accounting rules previously only available to taxpayers with under $10 million of gross receipts. 

One-Time Repatriation Tax

In addition to systemic changes to the taxation of multinational companies, the new law imposes a one-time reduced tax on overseas-held earnings and profits: 15.5 percent for cash and 8 percent for illiquid assets.

In addition to these top-level impacts, the new tax law alters a number of other tax policies, deductions and strategies. Over the coming weeks and months, RKL will drill down into the changes and assess the impact to various industries and segments of the business community, so be sure to sign up for our monthly e-news, follow us on LinkedIn and stay tuned to rklcpa.com.

As always, contact your RKL tax advisor or one of our local offices with any questions.

Robert M. Gratalo, CPA, MST, partner and leader of RKL’s Tax Services GroupContributed by Robert M. Gratalo, CPA, MST. Rob is a Partner and Leader of RKL’s Tax Services Group. He serves as business and tax advisors for a wide range of clients, with a focus on the manufacturing, distribution, construction and real estate development industries. Rob specializes in the taxation of privately held businesses and their owners, and he often consults on the tax impact of transactions like business sales, mergers or acquisitions.

 

 

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Posted on: December 19th, 2017

Year-End Tax Strategy: Pay Fourth Quarter Estimated State and Local Taxes Now to Lock in 2017 Deduction

Year-End Tax Strategy: Pay 4th Quarter Estimated State & Local Taxes Now to Lock in 2017 DeductionTax reform legislation is on track for passage before the end of this year, significantly transforming the U.S. tax code. One of the key aspects of the current legislation is capping the state and local income tax, sales tax in lieu of income tax and real estate tax deduction at $10,000 for 2018.

For individual taxpayers that make quarterly estimated payments of these taxes throughout the year, we highlight an opportunity to potentially lock in tax benefits in 2017 before 2018 changes take effect.

Due date for 2017 fourth quarter installment

The 2017 fourth quarter state and local estimated income taxes are not due until January 15, 2018. For taxpayers with more than $10,000 in combined state and local income and real estate taxes, paying the estimate in January means they would be ineligible for a combined deduction of amounts over $10,000.

In addition, any 2017 state and local tax liabilities paid with the 2017 tax returns in April could also be lost.

Benefits to paying now

Paying this installment before December ends will allow taxpayers to potentially deduct the full amount of taxes paid during the 2017 tax year. The anticipated 2017 state and local tax liabilities due in April can also be built into the fourth quarter estimate and paid before December ends.

This two-week difference in payment timing could keep a sizeable payment deductible, or change it into a fully non-deductible category, provided a taxpayer already exceeded the $10,000 threshold. Be sure to discuss any potential alternative minimum tax impact and any overall limitations on your itemized deductions with your tax advisor, as accelerating this deduction may not be beneficial to all.

Caution about prepaying 2018 state and local taxes

This guidance specifically focuses on the payment of 2017 fourth quarter tax estimates. The legislative language, as it stands at time of publication, disallows a deduction for the prepayment of state and local taxes due in tax years 2018 and beyond.

Ready to execute this strategy? RKL can help.

Contact your advisor or one of our local offices today to lock in this tax benefit before the end of the year.

Kevin A. Eisenhart, CPA, MBA, MST, RKL Tax PartnerContributed by Kevin A. Eisenhart, CPA, MBA, MST, Partner in RKL’s Tax Services Group. Kevin takes a strategic approach to tax planning and compliance to help his clients build value. He specializes in the taxation of corporations, S corporations and partnerships, including issues surrounding multistate taxation and consolidated return matters.

 

 

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Posted on: December 18th, 2017

RKL’s Barrett Earns Certified Exit Planning Advisor Credential

Paula K. Barrett, CPA/ABV, CVA, CGMA, Partner in RKL's Business Consulting Services GroupPRESS RELEASE

WYOMISSING, PA (December 18, 2017) – RKL LLP today announced that Paula K. Barrett, CPA/ABV, CVA, CGMA, achieved an advanced level of professional certification in business exit planning and value acceleration. Barrett, a Partner in RKL’s Business Consulting Services Group, recently earned the Certified Exit Planning Advisor (CEPA) credential from the Exit Planning Institute.

Established in 2007, the CEPA program is the most widely endorsed exit planning designation in the world. To earn the CEPA credential, Barrett completed a comprehensive curriculum of individual study, hands-on instruction and a proctored examination, specifically designed for business advisors to privately held companies.

One of the region’s most skilled and highly credentialed business consultants and valuation experts, Barrett has three decades of experience assisting closely held companies and their owners with exit strategy formulation, ownership interest transfers, business valuations and succession plan development.

Barrett holds the Chartered Global Management Accountant designation and an Accreditation in Business Valuation from the American Institute of Certified Public Accountants. She also belongs to the National Association of Certified Valuation Analysts. She resides in Maidencreek Township, Pennsylvania with her husband.

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Posted on: December 14th, 2017

RKL Delivers Economic and Financial Update to 500 Regional Business Leaders

Nearly 500 business owners, financial executives and accounting professionals gained the updates and insights to prepare for a successful new year at RKL’s annual Tax and A&A Update.

Held December 12 at the Lancaster County Convention Center, the 2017 installment of the region’s most anticipated CPE event provided attendees with valued continuing professional education credits and networking opportunities with RKL advisors and leaders from a wide range of business types, sizes and industries.

The full-day agenda kicked off with an economic update from Anirban Basu, Chairman and CEO of Sage Policy Group Inc., who shared insights into the global, national and regional economies and facilitated an always entertaining understanding of critical aspects of the economy, such as the performance of financial, labor and real estate markets.

RKL tax advisors then offered attendees the most up-to-date information on federal tax legislation, from both the business and individual perspective, and highlighted planning opportunities for the year ahead. On a state level, key tax rates, credits and incentives were discussed, as well as initiatives undertaken by the PA Department of Revenue. The afternoon session focused on accounting updates, including strategies to manage banking relationships in a complex environment and an overview of recently issued and currently proposed accounting standards and how they could impact businesses and organizations.

To show appreciation for the strong support of its clients and friends, RKL held a variety of trivia and prize drawings throughout the day, featuring prizes ranging from local retail gift cards to an Apple Watch to a vacation voucher, just in time for the holidays. After a productive day of education, attendees enjoyed a cocktail hour to conclude the event on a festive note.

RKL team members and guests mingled during the breakfast networking session.

Guests register for the full-day of continuing professional education opportunities.

Two guests ready to take on a day of valued CPE credits.

Attendees listen as RKL CEO Ed Monborne kicks off the day’s agenda with welcome remarks.

RKL Tax Partners Jeff Horst and Jonathan Clark apprised guests of the latest business tax proposals.

Stephanie Kane, RKL Tax Manager, educates the audience on new state tax credit opportunities.

RKL Tax Principal Ruthann Woll delivers an update on individual tax provisions and potential federal reform.

Audit Manager Andrew Kehl explains the impact of new accounting standards on nonprofit organizations.

Jim Pruzinsky, Partner in RKL’s Audit Services Group, walks the audience through current and proposed accounting standards.

Posted on: December 13th, 2017

How to Avoid Gift Card Fraud This Holiday Season

How to Avoid Gift Card Fraud This Holiday SeasonAmericans spent $46 billion on gift cards throughout 2016, according to market research firm Packaged Facts. While gift givers and receivers value the convenience and flexibility of gift cards, they have also been targeted by fraudsters over recent years. Gift card fraud is far less pervasive and damaging than credit card fraud, but it can present headaches for both consumers and retailers. It is important for those buying and selling gift cards to understand the risk of fraud and take precautions to protect their investments this holiday season and beyond.

Common types of gift card fraud

Most fraudsters use one of two methods to commit gift card fraud: hacking into accounts associated with gift cards or stealing gift cards or gift card numbers from a retailer.

  • Hacking into accounts associated with gift cards: As online registration for gift card balance tracking and reloading becomes more common among retailers, it has also opened opportunities for hackers to exploit weaknesses in the system. In 2015, Starbucks experienced a hack of its mobile app that allowed fraudsters to drain bank accounts attached to the gift card auto-load feature. Conversely, fraudsters are also using gift cards to drain value in other hacked accounts, like credit card rewards. In these cases, hackers gain access to a consumer’s credit card rewards or points and redeem them for gift cards, which they can then convert into cash via online services or physical kiosks that offer over 50 percent of gift card face value.
  • Theft of gift cards: Another method of gift card fraud is physical theft. Particularly during the holidays, retailers might position stacks of gift cards throughout the store for convenient shopping. Thieves will often steal a stack of these cards in order to write down the identifying information (card number, PIN, security code) or unlock the information using a magnetic strip reader. Once the information is exposed, they will return the cards to the store and then use software that allows them to keep track of card activation and balance in order to drain the card value before the consumer can use it.

Gift card fraud prevention tips for consumers

This holiday season and beyond, consumers can avoid gift card fraud by adopting the following best practices.

  • Only purchase gift cards from trusted, reputable retailers both in person and online. Ideally, try to buy them directly from the store where they’ll be redeemed. Cards purchased from reseller or auction sites may be stolen or counterfeit.
  • Do not disclose personally identifying information when buying a gift card. Unlike a credit card, this information is not required, so requests for bank account number, Social Security number, date of birth or similar personal data are red flags to be avoided.
  • When purchasing a card, examine it for physical signs of tampering. Details like an exposed PIN may indicate that the card has been redeemed. Return any card that looks questionable and ask for another that is unblemished.
  • Have the cashier scan the card at the time of purchase to ensure the card is valid and has the correct balance
  • Take advantage of available online registration and activation services. Having online access to monitor the card allows consumers to detect issues or drained balances sooner.
  • Keep the receipt as proof of purchase until the card balance has been depleted. If the gift card is lost, some retailers may re-issue the card at full value with proof of purchase.

Gift card fraud prevention tips for retailers

Retailers can also reduce the risk of gift card fraud by implementing the following policies and procedures.

  • Improve in-store security by only placing blank gift cards at the register. Consider keeping them behind the counter or behind lock and key.
  • Require a PIN for the use of gift cards, instead of just the number on the front of the card.
  • Maintain gift card PINs in a separate database from gift card numbers.
  • If an online registration portal is available, limit account balance look-ups within a certain time period.

As the popularity of gift cards continues to rise during the holidays, so does the potential for their fraudulent use. Remaining vigilant against signs of tampering and securing physical and online access to cards can help consumers and retailers avoid the financial and reputational damage associated with gift card fraud.

RKL’s team of fraud consultants are available to help businesses assess prevention protocol and implement best practices to ward against a wide range of fraud threats. Contact one of our local offices today to get started.

 

Jeremy L. Witmer, CPA, CVA, CFE, Senior Consultant in RKL’s Business Consulting Services GroupContributed by Jeremy L. Witmer, CPA, CVA, CFE, Senior Consultant in RKL’s Business Consulting Services Group. He provides forensic accounting, litigation support and business valuation services to companies and organizations across a number of industries. Jeremy’s expertise includes reconstruction of financial records, employee theft investigation, damage calculations for litigation purposes, and valuation of stock for gifting, buyouts and marital settlement. 

 

 

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Posted on: December 7th, 2017

RKL to Admit Hunter Mink to Firm Partnership

RKL to Admit Hunter Mink to Firm PartnershipPRESS RELEASE

YORK, PA (December 7, 2017) – RKL LLP today announced that D. Hunter Mink, CPA, CCIFP®, will be admitted to the firm’s partnership, effective January 1, 2018.

“Hunter’s admittance to the RKL partnership is a testament to the strategic guidance he provides to clients, the role he’s played in the firm’s continued success and the positive impact he makes on our community,” said Edward W. Monborne, RKL CEO.

Currently a manager in RKL’s Audit Services Group, Mink plans and oversees audit engagements for a cross-section of the firm’s client base. He specializes in serving the consulting and assurance needs of many architecture and engineering firms throughout the Mid-Atlantic. Mink is also a key member of RKL’s Real Estate Development & Construction Industry Group, and he bolstered his industry expertise and relevance by achieving the elite Certified Construction Industry Financial Professional (CCIFP®) designation in 2015.

Since joining RKL in 2012, Mink has played a key role in the firm’s professional development, quality control and continuing education standards as a member of the firm’s Audit & Accounting Committee.

Mink is an active member and leader of several civic, community benefit and professional development organizations. Earlier this year, he was installed as Treasurer of the South Central Chapter of the Pennsylvania Institute of Certified Public Accountants (PICPA) and was named Vice President of the York East Rotary Club. Mink also serves as Board Member and Treasurer for the Farm & Natural Lands Trust of York County and sits on the Annual Campaign Cabinet for the United Way of York County.

Mink received his Bachelor of Science in Accounting from York College of Pennsylvania. A licensed Certified Public Accountant in Pennsylvania since 2007, he is a member of both the PICPA and American Institute of Certified Public Accountants (AICPA). A lifelong York County resident, Mink lives in York with his wife and their twin daughters.

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Posted on: December 5th, 2017

4 Keys to Tax-Smart Year-End Charitable Giving

4 Keys to Tax-Smart Year-End Charitable Giving The combination of the holiday spirit and the approaching calendar year end make now a popular and busy time for charitable solicitations and donation requests. Individual taxpayers seeking to support a cause close to their hearts can not only make a positive philanthropic impact, but also receive tax benefits for their donations. Here are some helpful reminders as you look to take advantage of charitable tax benefits this year.

Research organizations before donating

Make sure the organization soliciting support is legitimate by conducting online research. A good place to start is the Internal Revenue Service’s Exempt Organizations Select Check, the Pennsylvania Bureau of Corporations and Charitable Organizations Online Database or similar sites in other states. These tools allow potential donors to verify tax-exempt status, deductibility of charitable contributions and proper registration status before giving. Guidestar.org is another good resource that makes available copies of organizations’ tax returns and important information about the operations of the nonprofit and what percentage of donations are directed to its mission.

Properly document donations  

Different types and amounts of giving trigger different documentation requirements for tax purposes. For cash donations, most charities will send a letter to the donor confirming the donation amount and specifying whether all or part of it is considered a charitable contribution. Retain that letter with tax records to substantiate the donation. These types of letters are required for donations of $75 or more. For donations under that threshold not supported by a letter, a copy of a cancelled check will suffice.

Noncash donations under $250 (think food given to the local soup kitchen or clothes donated to Goodwill) are legitimate charitable donations, but for tax purposes a receipt or letter from the organization is required. The receipt or letter must state the date of the donation and describe the property contributed. The determination of the donation value is up to the donor, not the organization. To determine the value of donated clothing and household goods, the Goodwill Valuation Guide is a useful tool. For food and perishable goods, original purchase receipts combined with the donation confirmation letter from the charity can be used for tax substantiation purposes.

In the case of noncash donations over $250, good faith estimates are required for gifts between $250 and $5,000, and appraisals are required for gifts of $5,000 or more. The receiving charity will likely be familiar with the valuation and substantiation requirements, but it is always best to consult with a professional tax advisor before the donation is made, so correct documentation can be gained in real time instead of scrambling back to the organization later to obtain the required proof for tax filings.

Donations of stock allow taxpayers to support causes important to them without affecting personal cash flow. Generally speaking, the most tax-advantaged approach is to donate stock held for more than one year that has appreciated in value. This provides for a larger charitable contribution and avoids tax on the capital gain. For losing stock, sell it first and then donate the cash. This approach allows you to report the benefit of the capital loss and the cash value of the contribution.

Publicly traded stocks do not require a valuation at any dollar value; however, non-publicly traded stock requires a qualified appraisal if the fair market value is greater than $10,000. Stock donations are more involved than cash or tangible items, so be sure to consult a tax or financial advisor before making this type of donation.

Consider making a qualified charitable distribution from an IRA

Making a direct transfer from an IRA allows individuals age 70½ or over to avoid a tax hit on the annual required minimum distribution from their accounts and support a cause important to them. In this case, the charitable contribution must go directly to the recipient organization, not the taxpayer first. This option requires some advance planning, so individuals considering it should consult with their tax or financial advisor.

Pledge or giving commitment does not equal a charitable donation

Individual taxpayers are permitted to take a deduction only for the actual amounts paid out to charities during a calendar year. Keep in mind that commitments made in December 2017 to make a donation in January 2018 cannot be claimed on a 2017 tax return.

Year-end charitable giving can make a big difference to community benefit organizations. Through proper research and documentation, it can also provide tax benefits to the donor. Individuals seeking more information or assistance with the best practices outlined above should contact their RKL advisor or one of our local offices.

Stephanie E. Kane, CPAContributed by Stephanie E. Kane, CPA, Manager in RKL’s Tax Services Group. Her client responsibilities include serving clients in a wide variety of industries with a focus on not-for-profit entities.

 

 

 

 

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