Working Capital Blog | RKL LLP - Part 2

Working Capital Blog

Posted on: February 12th, 2018

5 Things You Need to Know About International Tax Reform

5 Things You Need to Know About International Tax ReformWhile tax rate cuts and changes to deductions for individuals and businesses have been a focus of tax reform coverage, a significant shift is underway in the U.S. tax treatment of companies doing business overseas. Here’s a quick roundup of some of the central changes to international tax law that will have a profound impact on businesses with cross-border transactions.

Mandatory Repatriation

The most immediate impact of international tax reform will be a “transition tax” on the mandatory repatriation of accumulated earnings held offshore. This one-time tax is applicable to shareholders who own 10%, directly or indirectly, of a specified foreign corporation (SFC). The base for the tax is deferred income, or the accumulated foreign earnings of the SFC since 1986 that have not previously been taxed in the U.S. Shareholders subject to the tax should work quickly to quantify the earnings and profits (E&P) or deficit in E&P for each relevant foreign corporation.

Two preferential tax rates will be applied to a U.S. shareholder’s allocable share of post-1986 deferred foreign income. A 15.5% rate will be applied to the portion of earnings representing liquid assets such as cash, accounts receivable, certificates of deposit, government securities, etc. An 8% tax rate will be applied to the remainder of the allocated amount.

Since the transition tax will be a substantial sum for many taxpayers, an election is available to pay the tax on an installment basis over eight years or until a triggering event occurs (sale, liquidation, or cessation of the business, failure to pay an installment). The first installment of transition tax is due by the original due date of the shareholder’s return for the last tax year beginning before January 1, 2018. S Corporations are allowed a special election to defer the tax completely until a triggering event occurs or the entity ceases to be an S Corporation. The IRS has not yet specified the method to make these elections.

Territorial Tax System

One of the major talking points surrounding tax reform was a move from the U.S. system of worldwide taxation, whereby all income of U.S. citizens and residents is taxed in the U.S. regardless of the location it was earned, to a territorial system common among our trading partners. A purely territorial system would tax only income sourced to a particular jurisdiction.

To move the U.S. closer to this model, the new tax law uses a “participation exemption” in the form of a 100% dividends received deduction (100% DRD). This deduction is allowed against the foreign-source portion of distributions from specified 10% foreign corporations (those owned at least 10% by a domestic corporation). This DRD is only available to U.S. companies structured as C Corporations, so it will be worthwhile to analyze the entity types in a U.S. group that has ownership in at least one specified 10% foreign corporation.

Expansion of Anti-Deferral Provisions

While the participation exemption effectively excludes foreign-source income from U.S. taxation, provisions of existing law meant to prevent certain types of earnings from being held offshore long-term have been retained under the law and expanded to encompass new categories of income. Specifically, a new category labeled “Global Intangible Low-Taxed Income,” (GILTI) will be taxed currently. GILTI includes not only intangible income, but all income earned by a controlled foreign corporation (CFC) above a 10% return on its depreciable tangible property used to generate the income.

Reduced Tax Rate on High-Margin Exports, Intangibles and Services

Consistent with the goal of bringing profits home to the U.S., the legislation provides for an export incentive in the form of a deduction for foreign-derived intangible income (FDII). Similar to the determination of GILTI income inclusion, income eligible for the FDII deduction is not intangible income in the traditional sense, but income above a 10% return on its depreciable tangible property used to generate the income.

Income eligible for the deduction includes both the sale, lease, license and other disposition of property by a domestic corporation to a foreign person for foreign use and services provided by a domestic corporation to a person outside of the U.S. Through 2025, FDII is 37.5% deductible, with the intention to reduce the effective tax rate on such income to 13.125%. As with the 100% dividends received deduction, the deduction for FDII is only available to C Corporations.

Base Erosion and Anti-Abuse Tax

The base erosion and anti-abuse tax (BEAT) is a new alternative tax computation. A 10% tax rate applies to the modified taxable income of C Corporations, determined by adding back “base-eroding” deductions for payments made to foreign affiliates. BEAT only applies to corporations with a three-year average of at least $500 million in gross receipts and a “base-erosion percentage” of 3% or higher.

Tax reform replaces the previous deferral of items of foreign-source income with a system in which foreign-source income will either be taxed currently or not taxed at all. There are a number of incentives in the new law meant to encourage domestic business activity, but many of the new deductions are only allowed to be used by C Corporations.

Contact your RKL advisor for assistance with determining whether these taxes and incentives apply and to map out actions required for elections, planning or restructuring opportunities. Visit RKL’s Tax Reform Resource Center for more information and insights.


David W. Achey, CPA, MST, Manager in RKL’s Tax Services GroupContributed by David W. Achey, CPA, MST, Manager in RKL’s Tax Services Group. Dave specializes in business tax services including combined reporting, multistate and international issues, as well as accounting for income taxes. He has extensive experience working with small and medium-sized businesses as well as multinational companies, serving clients in industries ranging from industrial manufacturing and transportation to consumer electronics and pharmaceuticals.




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Posted on: February 7th, 2018

The Good, the Bad and the Unknown of Gov. Wolf’s 2018-19 Budget Proposal

The Good, the Bad and the Unknown of Gov. Wolf's 2018-19 Budget ProposalThe 2018-19 Fiscal Year budget address delivered by Pennsylvania Governor Tom Wolf yesterday was short and sweet. While recognition of the Philadelphia Eagles’ recent Super Bowl victory opened the proceedings with a unified and celebratory tone, it was not long until partisan differences emerged in this first stage of the annual state budget process. Despite his brevity, Governor Wolf did announce some ideas and proposals that would directly impact Pennsylvania taxpayers in a variety of ways.

The Good: No broad-based tax increases

Pennsylvania residents should be glad to hear that the Governor did not propose any broad-based tax increases. The 2018-19 budget address does not contain the broad-based tax proposals included in recent budget years, such as increases in the personal income tax, sales and use tax rates and possible sales and use tax base expansion on various services. Given how many state officials are up for re-election this year, it is not surprising that tax increases on residents were taken off the table.

In addition to personal taxes remaining at current levels, the proposed budget should also please the education sector with its call for $225 million in additional spending on early childhood, special education, basic education and career/technical training.

The Bad: Proposed natural gas severance tax

Although residents of Pennsylvania avoided possible tax increases, the oil and gas industry was not so lucky. Governor Wolf spent a significant amount of his proposed budget address calling for a severance tax in Pennsylvania. In the post-address commentary, however, it became clear that the Republican leadership will not be lending their support for this proposed tax.

The main concern regarding the severance tax is that increased taxes on the oil and gas industry could lead directly to lesser investment into the Commonwealth and a possible reduction of Pennsylvania jobs. It should also be noted that the industry is contributing to Pennsylvania’s revenues through current impact fees, corporate net income tax, sales and use tax and personal income taxes. Just because Pennsylvania is the only state without a “severance tax” does not mean one should be enacted; in fact, several analysts noted after the address that the absence of such a tax could be a differentiator in attracting more investment and keeping jobs in Pennsylvania.

The Unknown: Conformity with Federal Tax Reform

Governor Wolf’s mention of the possible location of Amazon’s second headquarters in Philadelphia or Pittsburgh was another headline of the address, since attracting an employer the size of Amazon would be a win for the Commonwealth.

Decisions by large companies such as Amazon to relocate and/or expand their footprint within the Commonwealth may be directly related to how Pennsylvania applies and treats the recent federal tax reforms. Pennsylvania already has an uphill battle in attracting corporations into the state based upon its 9.99% corporate tax rate, but this rate coupled with how Pennsylvania reacts to federal tax reforms could turn the uphill battle into a nearly impossible feat.

Due to the healthy amounts of repatriated cash businesses will experience thanks to federal tax reform, states are going to be incredibly competitive in attracting additional expenditures within their borders. A prime example of this competition is how states will treat 100% bonus depreciation. A recent position implemented by the state Department of Revenue (DOR) places Pennsylvania significantly behind most other states. Not only will the DOR not allow 100% bonus depreciation, the department will not provide for any depreciation for Pennsylvania corporate net income tax purposes until the year of disposition. As feedback to this DOR policy flows in from the business community and the General Assembly considers legislation to address this and other federal tax conformity issues, it is clear that short-term decisions may have long-term effects on the entrepreneurial landscape in Pennsylvania for years to come.

RKL’s State and Local Tax team closely tracks state budget negotiations, along with all proposed legislative efforts, for taxpayer impact. Readers with questions about the Governor’s latest proposal or Pennsylvania tax matters should contact me at

Jason C. Skrinak, CPAContributed by Jason C. Skrinak, CPA, State and Local Taxes (SALT) Practice Leader for RKL’s Tax Services Group. Highly regarded throughout the region for his deep knowledge and expertise in SALT consulting, Jason has significant experience representing taxpayers before Pennsylvania’s Board of Appeals and Board of Finance and Revenue.



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Working Capital blog disclaimer


Posted on: January 17th, 2018

Initial Guidance for 2018 Federal Withholding Now Available

Initial Guidance for 2018 Federal Withholding Now AvailableEmployers now have initial information to proceed with 2018 withholdings. While this information will get you started on 2018 withholdings, final information will not be available until sometime in February.

On January 11, the IRS released Notice 1036, which is an early copy of its percentage method tables for 2018 income tax withholding. The IRS also published Frequently Asked Questions to provide employers with additional information on withholding this year and next. Withholding tables are designed to streamline the process for employers to take out the correct amount of income tax from an employee’s paycheck, as dictated by the Form W-4 on file. There is no action required by employees at this time.

Tax Reform Impact on Withholding

Typically issued before the calendar year end, 2018 withholding information was delayed by the enactment of the Tax Cuts and Jobs Act on December 22, 2017. The withholding information in Notice 1036 is typically included alongside additional information like wage-bracket tables in Publication 15, (Circular E), Employer’s Tax Guide. The IRS is expected to release Publication 15 sometime in February.

Timing and Deadline for New Rate Use

In the meantime, the updated withholding tables show the rates employers should use in 2018. The IRS recommends that employers begin using the 2018 tables as soon as possible, but by February 15, 2018 at the very latest. Until the 2018 tables are implemented into their payroll processing systems ahead of the February 15 deadline, employers may continue to use the 2017 withholding rates.

Supplemental wage and backup withholding for 2018

The Tax Cut and Jobs Act also changes the rates to be used for supplemental or nonregular wages, like bonuses or commissions, and backup withholding for tax years 2018 through 2025.

During this period, the backup withholding rate drops from 28 percent to 24 percent.

The law keeps the two tiers for supplemental withholding:

  • For supplemental wages over $1 million, a mandatory flat rate of 37% applies (down from 39.6% in 2017).
  • For supplemental wages up to and including $1 million, the following options are available:
    • Withhold a flat 22% (down from 25% in 2017), no other percentage is allowed
    • Combine with regular wages and apply to the withholding tables 

Revisions to Withholding Calculator and W-4s Underway

In addition to the new withholding tables, the IRS is also updating other resources and tools used by business owners and payroll processors.

The IRS expects to release an updated withholding tax calculator before the end of February. A revision of Form W-4 is also in the works, and can be used in tandem with the updated calculator by employees starting a new job or existing employees seeking to adjust their withholding in the wake of tax reform or other personal changes in 2018 and beyond. Until the new Form W-4 is issued, however, employers and employees should continue to use the 2017 version.

RKL’s team of professionals dedicated to serving the needs of small business owners is available to answer questions about the federal withholding information and changes in 2018. Contact your RKL advisor or one of our local offices to get started.

Tina Dodson, CPP, EA, of RKL’s Small Business Services Group.Contributed by Tina Dodson, CPP, EA, in RKL’s Small Business Services Group. Tina has two decades of experience helping small business owners and their management teams meet their financial reporting and individual and corporate tax return preparation needs.




Working Capital blog disclaimer

Posted on: January 11th, 2018

Nonprofit Update: PA Raises Audit Requirement Threshold

Nonprofit Update: PA Raises Audit Requirement Threshold Starting in February 2018, Pennsylvania nonprofits must reach higher levels of annual contributions in order to trigger audit requirements.

Act 71 of 2017, which Governor Wolf signed into law in December, increased the annual contribution levels at which a nonprofit must undergo an audit, review or compilation. The new thresholds are:

  • Annual contributions of $750,000 and above: Audit required
  • Annual contributions between $250,000 and $750,000: Review or audit required
  • Annual contributions between $100,000 and $250,000: Compilation, review or audit required
  • Annual contributions below $100,000: Audit, review or compilation optional

Pennsylvania defines annual gross contributions as federated campaign contributions, membership dues (contribution portion only), all income from fundraising and gaming events, contributions from related organizations and general contributions. On Form 990, these categories of annual gross contributions are captured in Part VIII on lines 1a, 1b, 1c, 1d, 1f, 8a and 9a. On Form 990-EZ, annual gross contributions are tallied in lines 1, 6a and 6b, less any government grants.

While these new state thresholds can be a strong indicator of the type of financial statement a nonprofit must prepare, leaders of the organization should consider other circumstances that may also necessitate financial statements before making any changes to routine compliance procedures. Beyond state regulators, there are other entities that use and require financial statements, like grant issuers and financial institutions.

A companion bill simultaneously signed into law by the Governor, Act 72 of 2017, addresses the timeliness of state charitable registration forms. Currently, nonprofits must ensure their forms are received by state regulators before the renewal date to be considered timely. Under Act 72, however, nonprofit forms will be considered timely so long as they are postmarked on or before the date of renewal. Act 72 will also hold the Department of State’s Bureau of Corporations and Charitable Organizations to a standard, 15-day review timeframe for renewal forms.

Acts 71 and 72 take effect February 20, 2018. For financial statement purposes, these means any organization with a fiscal year ending March 31, 2017 or later will follow the new thresholds. For filing purposes, any return due after February 20, 2018 will be considered filed when postmarked.

For more information on these legislative changes or to assess what type of financial statement your nonprofit may require, contact Douglas L. Berman, CPA, RKL’s Not-for-Profit Industry Group Leader.


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.






Working Capital blog disclaimer


Posted on: January 9th, 2018

5 Factors in Valuing the Family Business During a Divorce

5 Factors in Valuing the Family Business During a DivorceGiven the intertwined nature of personal and commercial factors at play in a family owned business, it’s natural for the enterprise to wind up in the center of an owner’s divorce dispute. An equity ownership in a private company often represents the largest component of an owner’s personal net worth. Calculating its overall value for the equitable distribution of marital property plays a significant role in the financial aspect of divorce proceedings. Below, we outline several steps to help owners assess the value of the family owned business during a divorce settlement.

Examine and recast five years of financial data

A sustainable level of profits is one of the biggest factors that drives value. Looking back at five years of financial statements and tax returns provides a good sample size of the business’ activities and trends. From there, income statements may require adjustment, eliminating any unusual and nonrecurring income or expense items. Typical expense adjustments might include changes to officer compensation, fringe benefits and related party rents.

Review normalized profitability

Recasting expenses to a normalized level creates a true economic profit level for the company, exposing the entity’s actual financial performance. Making those adjustments can often be an educational experience for the owners, as the normalized results may look quite different from the financial data reported on income tax returns and year-end financial statements. As a result, the owners may find out their businesses make significantly more or less profits than they realized.

Valuation approaches

To determine value, an asset-based approach, income approach or market approach can be used. In the case of a business with an adequate level of normalized profits, it is most appropriate to use an income-based approach. Under this approach, a normalized profit level can be divided by a risk rate to equate a measure of value. While it may seem simple on paper, it is a complex process to measure those two elements in the formula. Because of the scrutiny and debate around the assumptions made and results obtained during the divorce process, it is best to tap the judgment and expertise of a professional business valuation expert.

Impact of valuation discounts

The privately owned business is not readily marketable like a publicly traded stock. This marketability factor may result in a significant investment in time and transaction costs before the owner can receive any cash from the sale of their business. In addition, the value of an ownership interest in a closely held business is seldom equal to a proportionate share of the total value determined from the various valuation approaches. If the owner is not the majority shareholder (ownership of greater than 50 percent), the stock may be treated as a non-controlling interest. Estimating the valuation discounts associated with a lack of marketability or lack of control is a process best left up to a professional valuation expert, particularly since these factors can be frequently disputed as the underlying value of the marital asset is determined.

Other factors in measuring a business’ marital value

If the business was started before the marriage occurred, then its value at the date of the marriage is considered non-marital. And, if any business interest was received through an inheritance or gift, that value at the date of receipt is considered non-marital. In these cases, only the appreciation that occurs during the marriage would be considered marital property.

Often a small business owner represents a significant portion of the enterprise value, maintaining most of the critical relationships or operational skills. Continued success can be dependent on the owner’s unique attributes. Where these skills cannot easily transfer to another owner is referred to as personal goodwill. Under Pennsylvania law, personal goodwill is not considered martial property. The difficulties in measuring the business owner’s personal attributes and quantifying personal goodwill presents an additional challenge to the valuation process.

Determining the value of a family business is a critical step in completing the property settlement phase in a divorce. There are many factors to consider, and, with the high degree of professional judgment required, it is important to address the business value issue early in the process. This allows both parties and their respective advisers time to gain a good understanding of the overall property value of the marital estate.

Given the complexity of the factors outlined above and the high degree of professional judgment required, family business owners should rely on an expert to gain a thorough and comprehensive assessment of the overall property value of the marital estate. RKL’s team of business consultants has deep experience in a variety of valuation circumstances – contact us today to learn how we can serve your valuation needs. 


Francis D. Morris, CPA, ABV, CFF, a Manager in RKL’s Business Consulting Services GroupContributed by Francis D. Morris, CPA, ABV, CFF, a Manager in RKL’s Business Consulting Services Group. Frank has experience conducting valuations and financial analysis for a variety of transactions, including divorce proceedings and business sales.




Working Capital blog disclaimer

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 visit our Tax Reform Resource Center.

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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Working Capital blog disclaimer

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 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 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. 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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Posted on: November 29th, 2017

How New Revenue Recognition Clarification Will Impact Nonprofit Accounting for Grants and Contracts

nonprofit grants and contract revenue recognitionNonprofits will soon have clearer guidelines by which to recognize and classify revenue from grants, contracts and contributions, thanks to a new standard proposed this summer by the Financial Accounting Standards Board (FASB).

Proposed by FASB in August 2017, the Accounting Standards Update (ASU), Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made, is intended to improve and clarify existing guidance of revenue recognition of grants and contracts by not-for-profit entities.

Impact on nonprofit finance function

Nonprofit leaders and finance teams should consider this proposed ASU in conjunction with Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers. Together, these documents can help organizations determine whether a revenue transaction is a contribution (nonreciprocal transaction) or an exchange (reciprocal) transaction. For transactions considered contributions, the guidance clarifies the definition of conditional and unconditional contributions.

It is possible under the proposed guidance that more grants and contracts could be accounted for as contributions, or nonreciprocal transactions. With a proposed effective date of fiscal years beginning after December 15, 2018 for most entities, not-for-profits should begin evaluating their revenue transactions now under this guidance.

Define transaction as a contribution or an exchange

For those transactions supported by grant agreements or contracts, each individual agreement or contract should be evaluated. A grant transaction would be considered an exchange transaction if the resource provider receives commensurate value in return for the resources provided.

In defining commensurate value, it is important to note that if the general public is receiving the primary benefit, then the transaction is considered to be a contribution. In addition, the execution of a resource provider’s mission or the positive sentiment from acting as a donor does not constitute commensurate value. For the transactions that are considered exchange transactions, the organization should then follow other revenue recognition guidance, such as ASC Topic 606.

Define contribution as conditional or unconditional

Once a revenue transaction is determined to be a contribution transaction, the next step is determining whether it is considered conditional or unconditional. FASB’s proposed guidance clarifies the definition of conditional to require these two factors:

  • A donor-imposed stipulation that represents a barrier that must be overcome; and
  • A provision that provides the grantor the right of return of assets transferred or the right of release of the grantor from its obligation to transfer assets. The right of return of the assets transferred or the right of release of the grantor from its obligation to transfer assets must be determinable from the agreement (or another document referenced in the agreement).

The proposed ASU includes a table with a list of indicators that could be helpful in determining possible barriers. Beyond the two factors listed above, there are a variety of indicators that play into defining a contribution as conditional, with a varying degree of impact and significance, including:

  • The agreement includes measurable, performance-related goals such as achievement of a certain level of service, an identified number of units of output or a specific outcome.
  • The agreement includes a non-administrative or non-trivial stipulation that is related to the purpose of the agreement.
  • The agreement includes a stipulation that limits the discretion by the recipient on how the funds should be spent. This would not include when the only requirement is that the transferred assets be used for a general operating purpose or restricted for ongoing programs or activities.
  • The agreement requires additional actions that would be required by the recipient outside of the recipient’s normal activities.

The presence of both a barrier and a right of return or a right of release indicates that the organization would not be entitled to the transferred assets and the nonreciprocal transaction would be considered conditional. If the agreement does not have both, the transaction would be unconditional. If a contribution contains stipulations that are ambiguous and not clearly defined, the proposed ASU presumes that the contribution should be considered conditional. A conditional contribution would not be recognized as revenue until the barrier is overcome and the recipient organization is entitled to the transferred assets.

Once a contribution has been deemed unconditional, the organization would determine whether the contribution is restricted as a result of either a donor-imposed restriction or the passage of time, consistent with current generally accepted accounting principles.

Effective dates and action items for transition

The effective date for the proposed ASU for public business entities or not-for-profit entities that have issued, or are conduit bond obligors for securities that are traded, listed or quoted on an exchange or over-the-counter market, is annual periods beginning after December 15, 2017. For all other entities, the effective date is annual periods beginning after December 15, 2018.

The amendments in this ASU should be applied on a modified prospective basis in the first set of financial statements issued following the effective date to agreements that are either not yet completed as of the effective date or entered into after the effective date. A completed agreement for which revenue and/or expense has been recognized in accordance with current guidance would not be impacted by these amendments.

Additionally, for those agreements not yet completed, the amendments would be applied only to the portion of revenue or expense that has not yet been recognized before the effective date. No prior period results or activities would be restated and there would be no cumulative-effect adjustment to the opening balance of net assets or retained earnings at the beginning of the adoption year.

FASB accepted comments on this proposed ASU through November 1, 2017. Many of the comments included a request for FASB to consider adding a framework and specific examples to address the evaluation of a single transaction that is in part an exchange and in part a contribution for both the resource provider and the recipient organization.

Considering that many not-for-profit organizations are already focused on implementing other standards, such as ASU 2014-09, Revenue from Contracts With Customers, and ASU 2016-14, Not-for-Profit Entities: Presentation of Financial Statements of Not-for-Profit Entities, the effective date and required implementation of this proposed ASU could prove difficult. Nonprofits are encouraged to review these changes with their internal finance teams and external practitioners now in order to avoid potential implementation issues.

RKL’s team of advisors focused on serving nonprofits are available to answer any questions or help nonprofits prepare. Contact Douglas L. Berman, CPA, RKL’s Not-for-Profit Industry Group Leader, to get started.


Andrew D. Kehl, CPA, Manager in RKL's Audit Services GroupContributed by Andrew D. Kehl, CPA, Manager in RKL’s Audit Services Group. Andrew has accounting and auditing experience serving clients in a wide variety of industries including nonprofit, healthcare and government.





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