Choosing the right accounting method for tax purposes
The Tax Cuts and Jobs Act (TCJA) liberalized the eligibility rules for using the cash method of accounting, making this method (which is simpler than the accrual method) available to more businesses. Now the IRS has provided procedures for obtaining automatic consent to change accounting method under the TCJA. If you’re eligible for both methods, consider whether switching would be beneficial. The cash method is typically preferable, but in some cases the accrual method is advantageous. We can help you make this decision and execute the change if appropriate.
Contemplating compensation increases and pay for performance
Once a business establishes its compensation structure, it must then contemplate the efficacy of linking pay raises to performance. Some believe you shouldn’t use compensation to motivate employees because workers might focus only on money, not quality. Nonetheless, the pay-for-performance model is still widely used. To help prevent employees from perceiving merit increases as an entitlement, communicate clearly about what contributes to pay increases and refine your performance review process so it’s transparent and understandable. Contact us for more info.
The TCJA prohibits undoing 2018 Roth IRA conversions, but 2017 conversions are still eligible
Converting a traditional IRA to a Roth IRA can provide tax-free growth and tax-free withdrawals in retirement. But conversions are subject to income tax. Before the TCJA, if you discovered a conversion would be too costly tax-wise, you could undo it using a “recharacterization” and avoid the tax hit. Effective with 2018 conversions, the TCJA prohibits recharacterizations. If, however, you converted to a Roth IRA in 2017, you have until Oct. 15, 2018, to undo it. We can help you assess whether to recharacterize a 2017 conversion or execute a 2018 conversion.
An FLP can save tax in a family business succession
A family limited partnership (FLP) can help you enjoy the tax benefits of transferring ownership in your business to the next generation yet allow you to retain control. The value of transferred interests is removed from your taxable estate. Discounts might reduce the value for tax purposes, and you can apply your $15,000 annual gift tax exclusion or $11.18 million lifetime gift tax exemption. There also may be income tax benefits. But to withstand IRS scrutiny, FLPs must, among other things, have a business purpose beyond tax savings. Contact us to learn more.
Is there a weak link in your supply chain?
Every company should watch out for weak links in its supply chain. Examples include: 1) legal risks; a supplier could be embroiled in a lawsuit or violation, 2) political risks; a supplier may operate in a politically unstable region (even nationally), and 3) transportation risks; weather or other disasters could compromise a supplier’s shipping routes. To cope, consider strategies such as diversifying your suppliers to avoid overreliance on one. Also, perhaps renegotiate contracts for less risky terms and access to better technology. Contact us for more info.
Do you still need to worry about the AMT?
Do you still need to worry about the individual alternative minimum tax (AMT)? A repeal had been proposed, but it wasn’t included in the final version of the Tax Cuts and Jobs Act (TCJA). The act will, however, reduce the number of taxpayers subject to the AMT. Now is a good time to familiarize yourself with the changes and see if there are any steps you can take during the last several months of the year to avoid the AMT or at least minimize any negative consequences. To learn about the TCJA’s impact on the AMT and assessing your AMT risk for 2018, contact us.
Do you qualify for the home office deduction?
Under the TCJA, employees can no longer claim the home office deduction. But if you run a business from your home or are otherwise self-employed, this deduction may still be available to you. You might qualify if part of your home is used exclusively and regularly for administrative or management activities and you don’t have another fixed location where you conduct these activities. You also might qualify if you physically meet with clients/customers there or you use a storage area in your home exclusively and regularly for business. Contact us for details.
Get SMART when it comes to setting strategic goals
Many businesses struggle to reach the various goals they’ve set to accomplish their overall strategic plans. One solution to consider: the SMART approach. “S” is for “specific”; identify the who, what, where, when and why of each goal. “M” is for “measurable”; select metrics to track progress. “A” is for “achievable”; choose goals that are neither too hard nor too easy. “R” is for “relevant”; every goal must support a stated strategic plan. Last, “T” is for “timely”; apply feasible timelines to each goal. We’d be happy to explain further and offer other ideas.
Why the “kiddie tax” is more dangerous than ever
Once upon a time, some parents attempted to save tax by putting investments in the names of their young children. To discourage such strategies, Congress created the “kiddie” tax, which has gradually become more far-reaching. Now, under the TCJA, the big, bad kiddie tax is more dangerous than ever. For 2018, an affected child’s unearned income beyond $2,100 generally will be taxed according to the brackets for trusts and estates. As a result, in many cases, children’s unearned income will be taxed at higher rates than their parents’ income. Contact us for details.
Business deductions for meal, vehicle and travel expenses: Document, document, document
Some common deductions for businesses are meal (generally 50%), vehicle and travel expenses. Deductibility depends on a variety of factors, but proper documentation is one of the most critical. Following some simple steps can help ensure your deductions will pass muster with the IRS. First, keep receipts, canceled checks or similar documentation. Also, track the business purpose of each expense (and don’t wait until year end or an IRS audit). Finally, if you reimburse employees, require them to provide such documentation. Contact us for more information.