Charitable giving can be a powerful tax-saving strategy: Donations to qualified charities are generally fully deductible, and you have complete control over when and how much you give. Here are some important considerations to keep in mind this year to ensure you receive the tax benefits you desire.

Delivery date

To be deductible on your 2017 return, a charitable donation must be made by Dec. 31, 2017. According to the IRS, a donation generally is “made” at the time of its “unconditional delivery.” But what does this mean? Is it the date you, for example, write a check or make an online gift via your credit card? Or is it the date the charity actually receives the funds — or perhaps the date of the charity’s acknowledgment of your gift?

Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2018. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

January 31

• File 2017 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
• Provide copies of 2017 Forms 1099-MISC, “Miscellaneous Income,” to recipients of income from your business where required.
• File 2017 Forms 1099-MISC reporting nonemployee compensation payments in Box 7 with the IRS.
• File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2017. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 12 to file the return.
• File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2017. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 12 to file the return. (Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944,“Employer’s Annual Federal Tax Return.”)
• File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2017 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 12 to file the return.

February 28

• File 2017 Forms 1099-MISC with the IRS if 1) they’re not required to be filed earlier and 2) you’re filing paper copies. (Otherwise, the filing deadline is April 2.)

March 15

• If a calendar-year partnership or S corporation, file or extend your 2017 tax return and pay any tax due. If the return isn’t extended, this is also the last day to make 2017 contributions to pension and profit-sharing plans.

A federal district court will allow several highly-paid commissioned sales representatives to pursue a claim for overtime pay. Under 29 CFR 541.601 of the Fair Labor Standards Act, a highly-compensated employee is deemed exempt from overtime if:

1. The employee earns annual compensation of $100,000 or more, which includes at least $455 per week paid on a salary basis.
2. The employee's primary duty includes performing office or nonmanual work.
3. The employee regularly performs at least one of the duties of an exempt executive, administrative, or professional employee.

29 CFR 541.605 allows the exemption to apply to administrative and professional employees paid on a fee basis, rather than on a salary basis. All of the sales representatives made commissions over $100,000, one earning over $650,000, for the years at issue. However, the court ruled that commissions do not qualify either as "salary basis," defined as a predetermined amount, nor as "fee basis," because the regulations require the fee to be received regardless of results. Nor did the employees perform an exempt duty. Pierce v. Wyndham Vacation Resorts , Docket No. 3:13-CV-641-CCS (DC TN).

Many investors, especially more risk-averse ones, hold much of their portfolios in “income investments” — those that pay interest or dividends, with less emphasis on growth in value. But all income investments aren’t alike when it comes to taxes. So it’s important to be aware of the different tax treatments when managing your income investments.

Varying tax treatment

The tax treatment of investment income varies partly based on whether the income is in the form of dividends or interest. Qualified dividends are taxed at your favorable long-term capital gains tax rate (currently 0%, 15% or 20%, depending on your tax bracket) rather than at your ordinary-income tax rate (which might be as high as 39.6%). Interest income generally is taxed at ordinary-income rates. So stocks that pay dividends might be more attractive tax-wise than interest-paying income investments, such as CDs and bonds.

Business owners may not be able to set aside as much as they’d like in tax-advantaged retirement plans. Typically, they’re older and more highly compensated than their employees, but restrictions on contributions to 401(k) and profit-sharing plans can hamper retirement-planning efforts. One solution may be a cash balance plan.

Defined benefit plan with a twist

The two most popular qualified retirement plans — 401(k) and profit-sharing plans — are defined contribution plans. These plans specify the amount that goes into an employee’s retirement account today, typically a percentage of compensation or a specific dollar amount.

In contrast, a cash balance plan is a defined benefit plan, which specifies the amount a participant will receive in retirement. But unlike traditional defined benefit plans, such as pensions, cash balance plans express those benefits in the form of a 401(k)-style account balance, rather than a formula tied to years of service and salary history.

The plan allocates annual “pay credits” and “interest credits” to hypothetical employee accounts. This allows participants to earn benefits more uniformly over their careers, and provides a clearer picture of benefits than a traditional pension plan.

If you own a profitable, unincorporated business with your spouse, you probably find the high self-employment (SE) tax bills burdensome. An unincorporated business in which both spouses are active is typically treated by the IRS as a partnership owned 50/50 by the spouses. (For simplicity, when we refer to “partnerships,” we’ll include in our definition limited liability companies that are treated as partnerships for federal tax purposes.)

For 2017, that means you’ll each pay the maximum 15.3% SE tax rate on the first $127,200 of your respective shares of net SE income from the business. Those bills can mount up if your business is profitable. To illustrate: Suppose your business generates $250,000 of net SE income in 2017. Each of you will owe $19,125 ($125,000 × 15.3%), for a combined total of $38,250.

With kids back in school, it’s a good time for parents (and grandparents) to think about college funding. One option, which can be especially beneficial if the children in question still have many years until they’ll be starting their higher education, is a Section 529 plan.

Tax-deferred compounding

529 plans are generally state-sponsored, and the savings-plan option offers the opportunity to potentially build up a significant college nest egg because of tax-deferred compounding. So these plans can be particularly powerful if contributions begin when the child is quite young. Although contributions aren’t deductible for federal purposes, plan assets can grow tax-deferred. In addition, some states offer tax incentives for contributing.

Distributions used to pay qualified expenses (such as tuition, mandatory fees, books, supplies, computer equipment, software, Internet service and, generally, room and board) are income-tax-free for federal purposes and typically for state purposes as well, thus making the tax deferral a permanent savings.

If you acquire a company, your to-do list will be long, which means you can’t devote all of your time to the deal’s potential tax implications. However, if you neglect tax issues during the negotiation process, the negative consequences can be serious. To improve the odds of a successful acquisition, it’s important to devote resources to tax planning before your deal closes.

Complacency can be costly

During deal negotiations, you and the seller should discuss such issues as whether and how much each party can deduct their transaction costs and how much in local, state and federal tax obligations the parties will owe upon signing the deal. Often, deal structures (such as asset sales) that typically benefit buyers have negative tax consequences for sellers and vice versa. So it’s common for the parties to wrangle over taxes at this stage.

Charitable giving allows you to help an organization you care about and, in most cases, enjoy a valuable income tax deduction. If you’re considering a large gift, a noncash donation such as appreciated real estate can provide additional benefits. For example, if you’ve held the property for more than one year, you generally will be able to deduct its full fair market value and avoid any capital gains tax you’d owe if you sold the property. There are, however, potential tax pitfalls you must watch out for:

Donation to a private foundation. While real estate donations to a public charity generally can be deducted at the property’s fair market value, your deduction for such a donation to a private foundation is limited to the lower of fair market value or your cost basis in the property.

On Aug. 29, 2017, the IRS warned taxpayers about “possible fake charity scams emerging due to Hurricane Harvey.” Taxpayers should select recognized charitable groups as the recipients of their donations, the agency said. “People should be aware of criminals who look to take advantage of [the generosity that has been forthcoming] by impersonating charities to get money or private information from well-meaning taxpayers,” IRS said. Scammers may contact potential donors by telephone, social media, email or in-person solicitations, it added.

The agency recommended that people utilize a search feature on the IRS website, Exempt Organizations Select Check, which can be found at https://www.irs.gov/charities-non-profits/exempt-organizations-select-check. IRS also recommended that taxpayers consult Publication 526, Charitable Contributions, which is located at https://www.irs.gov/publications/p526/index.html.

Most of the talk about possible tax legislation this year has focused on either wide-sweeping tax reform or taxes that are part of the Affordable Care Act. But there are a few other potential tax developments for individuals to keep an eye on.

Back in December of 2015, Congress passed the PATH Act, which made a multitude of tax breaks permanent. However, there were a few valuable breaks for individuals that it extended only through 2016. The question now is whether Congress will extend them for 2017.

In the quest to reduce your tax bill, year end planning can only go so far. Tax-saving strategies take time to implement, so review your options now. Here are three strategies that can be more effective if you begin executing them midyear:

1. Consider your bracket

The top income tax rate is 39.6% for taxpayers with taxable income over $418,400 (singles), $444,550 (heads of households) and $470,700 (married filing jointly; half that amount for married filing separately). If you expect this year’s income to be near the threshold, consider strategies for reducing your taxable income and staying out of the top bracket. For example, you could take steps to defer income and accelerate deductible expenses. (This strategy can save tax even if you’re not at risk for the 39.6% bracket or you can’t avoid the bracket.)

You could also shift income to family members in lower tax brackets by giving them income-producing assets. This strategy won’t work, however, if the recipient is subject to the “kiddie tax.” Generally, this tax applies the parents’ marginal rate to unearned income (including investment income) received by a dependent child under the age of 19 (24 for full-time students) in excess of a specified threshold ($2,100 for 2017).

Your compensation may take several forms, including salary, fringe benefits and bonuses. If you work for a corporation, you might also receive stock-based compensation, such as stock options. These come in two varieties: nonqualified (NQSOs) and incentive (ISOs). With both NQSOs and ISOs, if the stock appreciates beyond your exercise price, you can buy shares at a price below what they’re trading for.

The tax consequences of these types of compensation can be complex. So smart tax planning is critical. Let’s take a closer look at the tax treatment of NQSOs, and how it differs from that of the perhaps better known ISOs.

It’s common for a business to own not only typical business assets, such as equipment, inventory and furnishings, but also the building where the business operates — and possibly other real estate as well. There can, however, be negative consequences when a business’s real estate is included in its general corporate assets. By holding real estate in a separate entity, owners can save tax and enjoy other benefits, too.

Capturing tax savings

Many businesses operate as C corporations so they can buy and hold real estate just as they do equipment, inventory and other assets. The expenses of owning the property are treated as ordinary expenses on the company’s income statement. However, if the real estate is sold, any profit is subject to double taxation: first at the corporate level and then at the owner’s individual level when a distribution is made. As a result, putting real estate in a C corporation can be a costly mistake.

If your employees incur work-related travel expenses, you can better attract and retain the best talent by reimbursing these expenses. But to secure tax-advantaged treatment for your business and your employees, it’s critical to comply with IRS rules.

Reasons to reimburse

While unreimbursed work-related travel expenses generally are deductible on a taxpayer’s individual tax return (subject to a 50% limit for meals and entertainment) as a miscellaneous itemized deduction, many employees won’t be able to benefit from the deduction. Why?

It’s likely that some of your employees don’t itemize. Even those who do may not have enough miscellaneous itemized expenses to exceed the 2% of adjusted gross income floor. And only expenses in excess of the floor can actually be deducted.

On the other hand, reimbursements can provide tax benefits to both your business and the employee. Your business can deduct the reimbursements (also subject to a 50% limit for meals and entertainment), and they’re excluded from the employee’s taxable income — provided that the expenses are legitimate business expenses and the reimbursements comply with IRS rules. Compliance can be accomplished by using either the per diem method or an accountable plan.

A federal judge has blocked the implementation of the new Department of Labor overtime rules with just over a week before it was scheduled to take place. This injunction means that the new rule will not go in effect on December 1 as previously planned.  Although it is uncertain at this time when and if these rules will go into place it is important as business owners and employees to be aware of the potential impact these new rules could have on you and your business.

New rules related to salaried employees, overtime pay, and comp time where scheduled to go into effect under the Fair Labor Standards Act (FLSA) on December 1, 2016. FLSA covers employers whose annual sales total $500,000 or more or employers who are engaged in interstate commerce. The new rules increase the minimum compensation level required for an employee to be exempt from overtime. These salary thresholds will be automatically updated every three years under the new regulations.  Further, the new regulations add requirements related to the percentage of a salaried employees’ pay and the related timing thereof that can be the result of commissions and nondiscretionary bonuses.

Ladoska Keeter is leading an effort to bring needed supplies to hurricane victims in Eastern North Carolina, especially in the Robeson County area which has been tremendously devastated. Ladoska will be loading her trailer and personally taking these supplies to the affected area. We are inviting, friends and clients to drop donations off at our office in the next week or so to support this effort.

Supplies Needed

Toiletries
Toothbrushes, toothpaste, dental floss, soap, shampoo, conditioner, lip balm, deodorant, razors, shave gel, hand sanitizer, feminine hygiene

Baby Items
Formula, diapers, wipes, jar food, snacks, pull ups

Food and Beverages
Non perishable food items such as canned goods, crackers, chips, soups, bottled water, drink mixes, condiments (mayo, ketchup, mustard, salt, and pepper)

Elder Care Needs
Adult diapers, denture adhesive, denture cleaner

Paper Products
Napkins, paper towels, toilet tissue, paper plates, plastic utensils

Linens
Bath towels, washcloths, blankets, sheets, pillows

Cleaning Products
Spray cleaners, powder cleaners, cleaning cloths, laundry detergent

Entertainment
Cards, board games, crosswords, dice

Miscellaneous
Batteries, school supplies, light bulbs

Keeping your finances in order isn’t always the easiest thing to do, even if you’re not a business owner. But when you tack on the extra responsibility that comes with accounting for the assets of your own company, the process of maintaining good standing finances gets a bit trickier.

Are you looking for ways to save on business taxes this year? Here are five ways to reduce business taxes in 2016.

1. Reimburse Eligible Expenses
Employees and business owners should make sure they are reimbursed for all out of pocket expenses prior to year-end. Reimbursement of expenses to an individual under an accountable plan results in a tax deduction for the business and the reimbursement is non-taxable to the employee. The most common types of reimbursements include mileage, cell phone, meals and entertainment and home office expenses. Under an accountable plan, the individual must have adequate documentation supporting the reimbursement, such as a mileage log or receipts. Any amounts reimbursed or paid under a non-accountable plan could be subject to income taxes on the individual’s tax return.     

Businesses and individuals with business type activities, such as certain rental activities, are required to issue 1099s to unincorporated vendors who provided services to them during the year.  If you paid another individual, a partnership or an LLC for providing services to your business, you are required to issue them a 1099 by January 31st of each year.  Copies of the 1099s and a transmittal are due to be mailed to the IRS by February 28th each year.  The most common types of 1099s issued are for cleaning services, repairs and maintenance, landscaping, contract labor, rent, interest and professional services provided by unincorporated entities (such as IT companies and accounting firms). 

2016 Tax Season Opens on January 19, 2016

The IRS recently announced that individual tax returns will be accepted starting on Tuesday, January 19, 2016.  They will begin processing paper tax returns at the same time.

“We look forward to opening the 2016 tax season on time,” IRS Commissioner John Koskinen said.  “Our employees have been working hard throughout this year to make this happen.  We also appreciate the help from the nation’s tax professionals and the software community, who are critical to helping taxpayers during the filing season” (IRS.gov).

In December 2015, Congress passed a law extending many provisions that had expired at the end of 2014.  Many of these provisions were made permanent, while others will require further Congressional action in the future.

Selected “Business” provisions made permanent are as follows: 

• Increased Section 179 deduction
• Research and Experimentation Credit
• 5 year waiting period for Built-In Gains Tax
• Qualified Small Business Stock 100% gain exclusion

Year-end tax planning provides taxpayers with an opportunity to evaluate potential tax saving measures that can be acted on before it’s too late.   You should consider the following items:

• General planning considerations that affect most taxpayers
  • Postpone income until 2016 and accelerate deductions into 2015 to reduce current year income taxes.  However, if this is a down year you may want to consider the reverse so you can take advantage of lower tax rates this year.
  • Consider selling investment assets (stocks, mutual funds) at a loss to offset current year capital gains.
  • If you typically take the standard deduction you may want to consider bunching deductions in one year so you can itemize your deductions every other year.
  • Make charitable contributions by 12/31/15.  Donating appreciated stock is a very tax efficient way to make these contributions.  Make sure your contribution is to a qualifying charity (not individuals) and you obtain a valid receipt.
    
    

What is a Cost Segregation Study?  A cost segregation study, is a study performed by a qualified engineering firm to determine what portions of a building are eligible for shorter depreciable lives and accelerated depreciation, thereby deferring income taxes.  IRS regulations require commercial and residential buildings to be depreciated over 39 and 27.5 years respectively.  When real estate is acquired or constructed, absent any other data, the non-depreciable cost of the land is separated from the building and the building is depreciated.

Client Testimonial: "This year, Gordon, Keeter & Co. recommended we have a cost segregation study performed on our new veterinary clinic.  For the first time in years, we are excited about filing our income tax return and taking advantage of the tax savings from the study." - Dr. Melanie Moore, Animal Care Clinic of Concord (pictured at right)

A cost segregation study can be extremely beneficial by accelerating the depreciation expense.  The study determines what portion of the cost of the building is considered personal property to be depreciated between 5 and 15 years.  Amounts determined to be personal property may be eligible for special depreciation allowances, such as bonus deprecation and Section 179.

We often are asked if investment real estate should be acquired personally, through a limited liability company (LLC), partnership or corporation.  Our answer always depends on the facts and circumstances of the situation.  Below we have detailed some of the pros and cons related to owning investment real estate personally or through a business entity.  However, in order to answer the question we must define and insure we are dealing with what is truly considered investment real estate.

Investment real estate is real estate acquired with the intention of holding for long term appreciation in value and/or rental real estate.  Real estate acquired for the purpose of resale or development is not considered investment real estate.   

Because LLCs and partnerships are treated the same for income tax purposes, we will generically refer to LLCs below.  LLCs and corporations can provide limited liability protection.  However, in order to maintain the liability shield, certain formalities need to be followed, such as a separate checking account and annual minutes.  Also certain states have specific requirements.  In North Carolina an annual report and fee is required.  

If you’re a small business owner, retirement might be the furthest thing from your mind as you manage the everyday details of your business. However, retirement planning is extremely important to your future and the sooner you begin the easier it is to reach your goals.

There are several options for small business owners, but in this article we will focus on the four most common options we see used by our small business clients: The SIMPLE IRA, SEP IRA, solo 401K and Safe-Harbor 401(k).  

The SIMPLE IRA:
The Savings Incentive Match Plan for Employees IRA (SIMPLE IRA) works for employers with less than 100 employees who earn at least $5,000 annually. This plan is easy and affordable to set up and maintain, and allows for higher contributions than traditional or ROTH IRAs. For 2015, employees can contribute $12,500 for the year, or $15,500 if age 50 or older.  Employers have two contribution options: 1) Match employee elective deferrals dollar for dollar up to 3% of wages (can be reduced to as low as 1% in any two out of five years) or 2) Contribute 2% of wages (up to $260,000) for all employees (including nonparticipants). Contributions by the employer are mandatory, regardless of profitability of the business.   

It is important to remember, if you would like to open a SIMPLE IRA account, it needs to be done by October 1st of the current tax year in order to make a tax-free contribution for that tax year.  One potential downside is early withdrawal penalties could be as high as 25% of the accounts balance if taken within the first two years of participation in the plan, and 10% thereafter.

The most common off the shelf accounting software used today is QuickBooks.  Many of our clients use QuickBooks to record their business’s income and expenses.  QuickBooks was designed to be user friendly and allow users with little or no experience to summarize accounting data.  We honestly feel QuickBooks can be a wonderful tool in assisting business owners with their accounting needs.  However, many users are not realizing the true benefits and capabilities of QuickBooks because it has not been set up properly. 

QuickBooks has a desktop version that allows a lot of customization and reporting options and while online versions may not allow for all of the flexibility, it will allow you to login from any internet connection and have immediate access to all of your accounting data.  The online version requires a monthly fee while the desktop version, once purchased is good for a number of years unless you are using the payroll module and need to update your payroll tables annually.  QuickBooks also allows for single users on a single machine or a multi-user license can be acquired.  Each user can have a unique login and password limiting their access to certain functions and reports within the software.     Some of the things QuickBooks can help you with are:

• Business Management – Profit and loss statements, balance sheets, budget vs. actual reports, historical data, etc., allow you to monitor how your business is doing on a timely basis.
• Customers and Receivables – QuickBooks will allow you to set up all of your customers’ information within the software. You then have the ability to set your billing preferences on a customer by customer basis, such as payment terms, billing method (printed invoice, emailed invoice), and sales tax rate charged based on the customer’s sales tax district.

One of the most common questions from our clients is:  How should I keep track of the income and expenses for my business?

Every business is unique and the accounting system for your business should be appropriate for your size and operations.  A small business that has a limited number of transactions each month may not need any formal type of accounting system.  All of their needs may be accomplished simply by recording all of the transactions in a check register during the year to be periodically or annually summarized.  We always recommend that a business have a separate checking account for all business transactions.  When separate accounts are maintained, it makes summarizing business transactions easier and more efficient because personal transactions have not been combined with business transactions, reducing the potential for inaccurate reporting.

Many of our clients depend on us to assist them in selecting an accounting system that is efficient and cost effective while meeting their accounting, tax preparation and reporting needs.  Often clients want or need a computerized accounting package.

The Affordable Care Act (more commonly referred to as Obama Care) has been and continues to be a big challenge to understand and implement.  Therefore, many employers are not in compliance. The IRS has recently issued some guidance and transition relief as it relates to certain types of HRA’s, for employers with fewer than 50 full-time equivalent employees. 

HRA’s covered under this transition relief are plans in which the employer either 1) reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy or 2) directly pays a premium for an individual health insurance policy covering the employee.

The IRS has agreed to waive the $100 per day excise tax for these types of arrangements from 1/1/14 – 6/30/15 for employers with fewer than 50 full-time equivalent employees. Beginning 7/1/15, employers who continue with these types of arrangements may be liable for the $100 per day excise tax for non-compliance. Please note, this transition relief does not apply to stand-alone HRAs or other arrangements to reimburse employees for medical expenses other than insurance premiums and therefore the excise tax may already apply.

If you have questions regarding these types of arrangements and would like to discuss further please contact us.

Over the past several years, the IRS has been updating rules related to accounting for and the tax treatment of amounts paid for materials and supplies, capital expenditures, and repairs and maintenance, referred to as the "tangible property regulations". Although we feel the new regulations, that became effective January 1, 2014, are more favorable for most taxpayers, additional work may be required to complete your 2014 tax return. The IRS is requiring taxpayers be in compliance with the revised tax laws beginning with the 2014 tax year. Thus, you are likely required to change your method of accounting to be in compliance. Also, there are several annual elections that may need to be made with your tax return.
 
Whenever a taxpayer changes their method of calculating taxable income, the IRS deems they have a "change in accounting method" and must request the IRS approve their change by filing Form 3115. Form 3115 explains the reason for the change, the previous method used versus the new method, and reports the cumulative effect of the change on taxable income. If the adjustment is a negative income adjustment, the taxpayer takes the additional deduction on the current year return. If the adjustment results in a positive income adjustment, you are allowed to report the additional income over a four year period to minimize the tax burden. Form 3115 is required even if the change is due to change in the tax law.