Monthly Archives: January 2018

Business Credit Changes

Tax Cuts and Jobs Act makes changes to the general business credit by adding a new component credit for paid family and medical leave, and changing two current component credits, i.e., the rehabilitation credit and the orphan drug credit.

First, the Tax Cuts and Jobs Act introduces a new component credit for paid family and medical leave, i.e. the paid family and medical leave credit, which is available to eligible employers for wages paid to qualifying employees on family and medical leave. The credit is available as long as the amount paid to employees on leave is at least 50% of their normal wages and the leave payments are made in employer tax years beginning in 2018 and 2019. That is, under the Tax Cuts and Jobs Act, the new credit is temporary and won’t be available for employer tax years beginning in 2020 or later unless Congress extends it further. For leave payments of 50% of normal wage payments, the credit amount is 12.5% of wages paid on leave. If the leave payment is more than 50% of normal wages, then the credit is raised by .25% for each 1% by which the rate is more than 50% of normal wages. So, if the leave payment rate is 100% of the normal rate, i.e. is equal to the normal rate, then the credit is raised to 25% of the on leave payment rate. For purposes of the credit, the maximum leave allowed for any employee for any tax year is 12 weeks.

Eligible employers are those with a written policy in place allowing

  1. Qualifying full-time employees at least two weeks of paid family and medical leave a year, and
  2. Less than full-time employees a pro-rated amount of leave.

Qualifying employees are those who

  1. Have been employed by the employer for one year or more, and
  2. In the preceding year, had compensation not above 60% of the compensation threshold for highly compensated employees under the qualified retirement plan rules.

Paid leave provided as vacation leave, personal leave, or other medical or sick leave is not considered family and medical leave.

Second, the Tax Cuts and Jobs Act changes the rehabilitation credit for qualified rehabilitation expenditures paid or incurred starting in 2018 by eliminating the 10% credit for expenditures for qualified rehabilitation buildings placed in service before 1936, and retaining the 20% credit for expenditures for certified historic structures, but reducing its value by requiring taxpayers to take the credit ratably over five years starting with the date the structure is placed in service. Formerly, a taxpayer could take the entire credit in the year the structure was placed in service. A transition rule is also provided for certain buildings owned or leased at all times on and after Jan. 1, 2018.

Third, the Tax Cuts and Jobs Act also makes significant changes to another component credit of the general business credit, i.e., the orphan drug credit for clinical testing expenses for certain drugs for rare diseases or conditions. For clinical testing expense amounts paid or incurred in tax years beginning in 2018, the former 50% credit is cut in half to 25%. Taxpayers that claim the full 25% credit have to reduce the amount of any otherwise allowable deduction for the expenses regardless of limitations under the general business credit. Similarly, taxpayers that capitalize, rather than deduct, their expenses have to reduce the amount charged to a capital account. However, the Tax Cuts and Jobs Act gives taxpayers the option of taking a reduced orphan drug credit that if elected allows taxpayers to avoid reducing otherwise allowable deductions or charges to their capital account. The election for the reduced credit for any tax year must be made on a tax return no later than the time for filing the return for that year (including extensions) and in a manner prescribed by IRS. Once the reduced credit election is made, it is irrevocable.

I hope this information is helpful. If you wish to discuss any of these credits in more detail and the options you may have for your business, please contact our office.

Changes to Business Meals & Entertainment Expenses

01_23_18-856747332_fntp_560x292_2.jpgThe Tax Cuts and Jobs Act made two changes to business meals and entertainment expenses, effective for amounts incurred or paid after Dec. 31, 2017. The first change disallows deductions for business-related entertainment expenses. (Under prior law, a taxpayer could deduct 50% of such expenses.) In addition, the 50% limit on the deductibility of business meals is expanded to meals provided through an in-house cafeteria or on the employer’s premises. (Previously, they were 100% deductible.) Contact us if you have questions about your business.

We are happy to answer any questions you may have on the Tax Cuts and Jobs Act. Contact us today!

Low Income Filter on Military Retiree Payments

01_23_18-528462035_fntp_560x292_3.jpgA “low-income filter” will be soon applied to military retiree payments. In response to a congressional inquiry, the IRS has agreed to apply the filter to military retiree payments subject to the Federal Payment Levy Program (FPLP). This levy process kicks in after the IRS sends several notices to a taxpayer about a balance due but the taxpayer doesn’t respond. The IRS estimates the filter will be applied this fall. But the IRS stated that, “if a levy causes a hardship” in the interim, the tax agency will work with a military retiree to release it.

For any questions on this topic or other tax related questions, contact us via email or at (919) 662-1001.

What Nonprofits Need to Know About the New Tax Law

The number of taxpayers who itemize deductions on their federal tax return — and, thus, are eligible to deduct charitable contributions — is estimated by the Tax Policy Center to drop from 37% in 2017 to 16% in 2018. That’s because the recently passed Tax Cuts and Jobs Act (TCJA) substantially raises the standard deduction. Many not-for-profit organizations are understandably worried about how this change will affect donations. But this isn’t the only TCJA provision that affects nonprofits.

Donors have fewer incentives

In addition to reducing smaller-scale giving by shrinking the pool of people who itemize, the TCJA might discourage major contributions. The law doubles the estate tax exemption to $10 million (indexed for inflation) through 2025. Some wealthy individuals who make major gifts to shrink their taxable estates won’t need to donate as much to reduce or eliminate their potential estate tax.

UBIT takes a bigger bite

The new law mandates that nonprofits calculate their unrelated business taxable income (UBTI) separately for each unrelated business. As a result, they can’t use a deduction from one unrelated business to offset income from another unrelated business for the same tax year. However, they can generally use one year’s losses on an unrelated business to reduce their taxes for that business in a different year. The TCJA also includes in UBTI expenses used to provide certain transportation-related and other benefits. So, the unrelated business income tax (UBIT) a nonprofit must pay could go up.

High compensation risks new tax

Nonprofits with highly compensated executives may now potentially face a 21% excise tax. The tax applies to the sum of any compensation (including most benefits) in excess of $1 million paid to a covered employee plus certain large payments made to that employee when he or she leaves the organization, known as “parachute” payments. The excise tax applies to the amount of the parachute payment less the average annual compensation.

Bond interest exemption revoked

The TCJA repeals the tax-exempt treatment for interest paid on tax-exempt bonds issued to repay another bond in advance. An advance repayment bond is used to pay principal, interest or redemption price on an earlier bond prior to its redemption date.

Be informed

Note that other rules and limits may apply. We can provide you with a detailed picture of the new tax law and explain how it’s likely to affect your organization. Contact Langdon & Company for more info.

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New Tax Law Impacts Retirement Benefits

As you’re likely aware, Congress passed and the president signed into law a new tax bill in December. The technical name of the act is rather long and unwieldy, so it’s commonly referred to by an earlier and simpler title: the Tax Cuts and Jobs Act (TCJA). Naturally, most of the TCJA’s provisions have to do with income taxes. But it also impacts retirement benefits.

Loan balances

The new law gives a break to plan participants with outstanding loan balances when they leave their employers. Ordinarily, participants with outstanding loans who fail to make timely payments after separation from an employer are deemed to have received a distribution in the amount of that outstanding balance. Under pre-TCJA law, they could, however, roll that amount (assuming they have sufficient funds available) into an IRA without tax penalty if they do so within 60 days.

Under the TCJA, beginning in 2018, former employees in this situation will have until their tax return filing due date (including extensions) to move funds equal to the outstanding loan balance into an IRA or qualified retirement plan without penalty. They’re given the same opportunity if they’re unable to repay a loan because of the plan’s termination.

Roth conversions

The TCJA also restricts individuals’ ability to recharacterize conversion contributions to a Roth IRA as if they were still making contributions to a traditional IRA. In other words, beginning in 2018, individuals can no longer convert a traditional IRA to a Roth IRA and then later recharacterize that Roth IRA contribution back to a traditional IRA contribution to essentially undo the conversion. However, taxpayers can still recharacterize new Roth IRA contributions as traditional contributions as long as they do it by the applicable deadline and meet all other rules.

This provision may portend additional 401(k) restrictions in years to come. Roth 401(k)s are favored by revenue-seekers in Congress, because the after-tax nature of contributions to Roth plans — IRAs or 401(k)s — enables the federal government to collect more tax revenue in the present, pushing off into the future the drain on tax revenue because of the tax-free nature of Roth withdrawals.

Future possibilities

Indeed, the federal government will likely continue to look at changes to retirement plans as a means of generating revenue. One proposed, but eventually eliminated, provision would have required that all contributions to any defined contribution plan sponsored by the same employer (including mandatory employee contributions to a defined benefit plan) be aggregated when determining whether contributions to a participant’s account satisfy IRC Sec. 415(c) limits. This would have raised $1.7 billion over a 10-year period, the Committee’s staff estimated.

Similarly, Congress considered imposing a low ($2,400) cap on pre-tax 401(k) contributions, requiring the balance of the total $18,000 limit on contributions ($18,500 for 2018) to be made on an after-tax basis. Congress could someday revisit this concept and push employers to convert traditional 401(k) plans to Roth plans.

Far beyond

The TCJA goes far beyond tax rate reductions. Let our firm help your organization fully understand how both its tax liability and employee benefits are affected by the new law. Contact Landgon & Company today!

© 2018

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Now Available – 2018 Income Tax Withholding Tables

01_12_18_106439659_ftnp_560x292_1.jpgEmployers and employees: Withholding tables reflecting Tax Cuts and Jobs Act (TCJA) changes are now available, and employees could see paycheck changes by February. The IRS has issued new income tax withholding tables for 2018 and advised employers to begin using them as soon as possible, but no later than Feb. 15. Find the IRS’s information release at http://bit.ly/2D2ihJn and the percentage method tables themselves in IRS Notice 1036 at http://bit.ly/1Ne91he Answers to frequently asked questions about using the new tables can be found at http://bit.ly/2D5iWJm

Out tax department is happy to answer any questions you may have regarding the new tax laws. Please contact us at (919) 662-1001 or send us an email here.

How the New Tax Law Affects State Income Taxes

01_05_18_139882791_ftnp_560x292_1.jpgHow will the new tax law affect state income taxes? The Tax Cuts and Jobs Act, signed into law on Dec. 22, 2017, is a major revamping of federal taxes but it also could have sweeping effects on your state taxes. To name a few, most states use the federal system to calculate state taxable income, so you may see your state income tax liability change. New limits on the federal state and local tax deduction may indirectly impact individuals at the state level, especially in high tax areas. States will have to decide whether to conform with new federal tax rules.

If you have additional questions, please contact our office.  We will be happy to help you!

Don’t let donor fatigue erode support for your nonprofit

After a flurry of year-end fundraising, you and your not-for-profit’s staff are probably ready for a little break. Your supporters may be tired, too. At some point, even the most philanthropic individuals experience donor fatigue and start saying “no” — even to their favorite charities.
Here’s how to remain engaged with donors and yet keep your fundraising efforts from eroding relationships.

Stagger your attention

When you do a mass mailing for donations, do you blanket your entire donor base each time? Doing so can lead to donor fatigue. To avoid this, stagger your solicitations. Solicit your most significant donors in person, for example, but contact the next tier of donors with a personal letter or email. Follow up both communications with a phone call. Solicit all other donors by mass mailing.

Also consider scaling back the number of donation requests you make. Donors may be annoyed by monthly appeals (especially in the form of mass mailings). But if they know you only ask once or twice a year — or in the event of emergencies — they’re more likely to be there when you need them.

Think of alternatives

Also consider forgoing soliciting your major donors for money every year. A corporate sponsor’s nonmonetary donation — such as use of a venue for an event — may be just as valuable. Or, instead of returning to the same event sponsor every year, seek new sponsors, but keep the established sponsor engaged by asking for support in another form. For example, request the donation of an auction item or gift basket.

The same holds true for individual donors. While you’d hate to miss out on a donation by simply not asking, consider requesting that significant donors contribute in ways besides writing a check. Chances are your biggest supporters are well established in the community and have friends and colleagues who are charitably inclined. Ask major donors to donate their time by chairing a committee, emceeing an event or hosting a fundraising function on your nonprofit’s behalf. As a result, they’ll likely introduce your organization to others.

Be sensitive

A dedicated donor base is critical to your nonprofit’s continuing operation. To avoid alienating your biggest fans, be sensitive to possible donor fatigue and know when to use a lighter touch.

Langdon & Company has over 25 years of expertise and experience working in the nonprofit industry. Contact us today for more info.

© 2018

Upcoming Deadline for Wage Statements and Independent Contractor Forms

01_04_18_810117502_ftnp_560x292_2.jpgBusinesses: Don’t forget the upcoming deadline for wage statements and independent contractor forms. Employers are required to file their copies of Form W-2 and Form W-3 with the Social Security Administration by Jan. 31. This deadline also applies to certain Forms 1099-MISC filed with the IRS to report nonemployee payments to independent contractors. An extension of time to file is no longer automatic, and the IRS will only grant extensions for very specific reasons. “Failure to file these forms correctly and timely may result in penalties,” the IRS stated.

If you have any questions on how to file these forms, contact Langdon & Company today!

2018 Tax Filing Deadlines

The 2018 tax filing season will begin on Jan. 29, the IRS announced. That’s the date the IRS will begin accepting electronic and paper returns (though many tax professionals and software companies will accept returns earlier). Processing returns will begin in mid-Feb. The earliest that refunds claiming the earned income credit or additional child tax credit will be available will be Feb. 27. The IRS expects over 90% of refunds to be issued within 21 days. The last date to file without an extension is April 17, 2018.

For additional information on this year’s tax deadlines, check out the official news release on the IRS website.

If you have questions or need assistance filing your taxes, contact us for more info.

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