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Category Archives: Tax Services

IRS raises valuation limit for employer-provided vehicles

Erin Mirante0 Comment

One of the most popular fringe benefits for employees at many organizations isn’t an insurance plan or a health club membership; it’s shiny chrome and steel — a vehicle. Providing a car, van or truck that an employee can use for both work and personal purposes can attract better job candidates or just make sense practically. If your organization offers such a fringe benefit, you should know that the IRS recently updated its valuation limit for employer-provided vehicles.

Read the Notice

Generally, you must include the value of an employer-provided vehicle that’s available for personal use in an employee’s income and wages. The personal use may be valued using the cents-per-mile or fleet-average valuation rules for the 2019 calendar year.

Because of tax law changes under the Tax Cuts and Jobs Act (TCJA), the maximum dollar limitations on the depreciation deductions for passenger automobiles significantly increased and the way inflation increases are calculated changed. In Notice 2019-8, issued early this year, the IRS and the U.S. Treasury Department noted their intention to amend regulations to incorporate a higher base value of $50,000 to be adjusted annually.

Sure enough, in May the IRS issued Notice 2019-34. It provides that, for 2019, the maximum fair market value of a vehicle (including cars, vans and trucks) for use with the vehicle cents-per-mile and fleet-average valuation rules is $50,400.

Expect revisions

Because current regulations haven’t yet been updated to reflect the changes under the TCJA, the IRS provides relief to taxpayers in the form of interim guidance for 2019 in the notice. The agency (along with the Treasury Department) intends to revise the rules for the 2018 and 2019 tax years.

One example of the intended revisions addresses what an employer should do if it didn’t qualify to adopt the vehicle cents-per-mile valuation rule on the first day on which a vehicle was used by an employee for personal use because, under the rules in effect before 2018, the vehicle had an FMV more than the maximum permitted. In such cases, the employer will be allowed to first adopt the vehicle cents-per-mile valuation rule for the 2018 or 2019 tax year based on the maximum FMV of a vehicle for purposes of the vehicle cents-per-mile valuation rule.

Another intended revision noted in Notice 2019-34 will permit an employer to adopt the fleet-average valuation rule for the 2018 or 2019 tax year if the employer didn’t qualify to use the fleet-average valuation rule before January 1, 2019, because the maximum value limitation before 2018 couldn’t be met.

Rely on the guidance

Until revised final regulations are published, taxpayers may rely on the interim guidance provided in Notice 2019-34. Our firm can help you fully understand both the interim guidance and any future revisions to the rules for employer-provided vehicles. Contact us today with any questions you may have!

© 2019

Holding on to your nonprofit’s exempt status

Erin Mirante0 Comment

If you think that, once your not-for-profit receives its official tax-exempt status from the IRS, you don’t have to revisit it again, think again. Whether your organization is a Section 501(c)(3), Sec. 501(c)(7) or other type, be careful. The activities you conduct, the ways you generate revenue and how you use that revenue could potentially threaten your exempt status. It’s worth reviewing the IRS’s exempt-status rules to make sure your organization is operating within them.

Hot buttons

There are many categories of tax exemption — each with its own rules. But certain hot-button issues apply to most tax-exempt entities. These include:

Lobbying. Having a Sec. 501(c)(3) status limits the amount of lobbying a charitable organization can undertake. This doesn’t mean lobbying is totally prohibited. But according to the IRS, your organization shouldn’t devote “a substantial part of its activities” trying to influence legislation.

For nonprofits that are exempt under other categories of Sec. 501(c), there are fewer restrictions on lobbying activities. Lobbying activities these groups undertake must relate to the accomplishment of the group’s purpose. For instance, an association of teachers can lobby for education reform without risking its tax exemption.

Campaign activities. The IRS considers lobbying to be different from campaign activities, which are completely off limits to Sec. 501(c)(3) organizations. This means they can’t participate or intervene in any political campaign for or against a candidate for public office. If you’re not a 501(c)(3) organization, campaign restrictions vary.

Excess profit and private inurement. The cardinal rule about profits is that a nonprofit can’t be operated to benefit private interests. If your fundraising is successful and you have extra income, you must put it back into the organization through additional services or by creating a reserve or an endowment. You can’t use extra income to reward an individual or a person’s related entities.

Unrelated revenue. If you’re generating income through a trade or business you conduct regularly and it’s outside the scope of your mission, you may be subject to unrelated business income tax (UBIT). Examples include a university that rents performance halls to nonuniversity users or a charity selling advertising in its newsletter.

Almost all nonprofits are subject to this provision of the tax code, and, if you ignore it, you could risk your exempt status. That said, losing an exempt status from unrelated business income is rare.

Know the rules

IRS Publication 557, Tax-Exempt Status for Your Organization, outlines the rules for all nonprofits that qualify for exempt status. We can help your nonprofit interpret and apply the information based on its specific situation. Contact us today!

© 2019

5 questions can help nonprofits avoid accounting and tax mistakes

Erin Mirante0 Comment

To err is human, but some errors are more consequential — and harder to fix — than others. Most not-for-profit organizations can’t afford to lose precious financial resources, so you need to do whatever possible to minimize accounting and tax mistakes. Get started by considering the following five questions:

  1. Have we formally documented our accounting processes? All aspects of managing your nonprofit’s money should be reflected in a detailed, written accounting manual. This should include how to accept and deposit donations and pay bills.
  2. How much do we rely on our accounting software? These days, accounting software is essential to most nonprofits’ daily functioning. But even with the assistance of technology, mistakes happen. Your staff should always double-check entries and reconcile bank accounts to ensure that transactions entered into accounting software are complete and accurate.
  3. Do we consistently report unrelated business income (UBI)? IRS officials have cited “failing to consider obvious and subtle” UBI tax issues as the biggest tax mistake nonprofits make. Many organizations commonly fail to report UBI — or they underreport this income. Be sure to follow guidance in IRS Publication 598, Tax on Unrelated Business Income of Exempt Organizations. And if you need more help, consult a tax expert with nonprofit expertise.
  4. Have we correctly classified our workers? This is another area where nonprofits commonly make errors in judgment and practice. You’re required to withhold and pay various payroll taxes on employee earnings, but don’t have the same obligation for independent contractors. If the IRS can successfully argue that one or more of your independent contractors meet the criteria for being classified as employees, both you and the contractor possibly face financial consequences.
  5. Do we back up data? If you don’t regularly back up accounting and tax information, it may not be safe in the event of a fire, natural disaster, terrorist attack or other emergency. This data should be backed up automatically and frequently using cloud-based or other offsite storage solutions.

 

If your accounting and tax policies and processes aren’t quite up to snuff and potentially put your organization at risk of making serious errors, don’t despair. We can help you address these shortcomings. Contact Langdon & Company today!

© 2019

Why employers are taking another look at life insurance as a fringe benefit

Rachel Owens1 Comment

In their continuing effort to assemble the most enticing employee benefits package possible, some employers are showing renewed interest in an old favorite: group term life insurance. Although such life insurance coverage had fallen off the radar screens of some employers, it remains an affordable benefit that can pay off for employer and employees alike.

Employer upside

For you, the employer, the upside is considerable. Premiums you pay for group term life insurance are generally tax-deductible and, because claims occur so infrequently, the coverage is typically simple and inexpensive to administer compared with other fringe benefits. When covered employees do pass away, the paperwork is fairly straightforward.

But perhaps the most important reason to consider offering life insurance as a fringe benefit is that employees want it. In fact, almost half of those who responded to MetLife’s 15th Annual U.S. Employee Benefit Trends Study, published in 2017, called life insurance a “must-have” benefit.

With the mounting concern among workers about financial wellness, life insurance is especially appealing to those with children or other dependents. Having it can reduce stress, strengthen organizational loyalty and increase productivity.

Employee costs

For employees, group term life insurance usually isn’t a taxable benefit. More specifically, the cost of the first $50,000 of coverage you provide generally is tax-exempt for the covered employee if you meet certain conditions. But you must include in the employee’s income the cost of coverage exceeding $50,000, less any amounts the employee paid toward the coverage. The amount included in income is also subject to payroll taxes (Medicare and Social Security, or FICA).

What if you provide coverage for an employee’s spouse or dependent? The cost of such group term life insurance coverage is tax-exempt to the employee if the coverage doesn’t exceed $2,000. If it does, the entire cost of coverage generally is taxable.

Note: The cost of coverage for tax purposes is calculated according to an IRS table, not the actual premiums paid.

Eligible participants

Once you decide to offer life insurance, you’ll have to determine which employees will be eligible. The more insured employees, the lower the rates you’ll pay.

Bear in mind that, if you offer the benefit only to key employees or in a way that favors key employees, it probably will be taxable to them because you’ll have trouble satisfying the IRS nondiscrimination requirements. The cost also would be subject to payroll taxes, and you’ll risk alienating the rank and file.

A valuable tool

All in all, group term life insurance is a worthwhile benefit to consider adding to the mix. Structured properly and combined with other desirable benefits, it can prove a valuable tool to boost recruitment and retention. We can provide you with more information on the tax impact and advantages of life insurance, as well as other fringe benefits to consider.

© 2018

Business Credit Changes

Pam Williams0 Comment

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.

2017 Tax Season Update/Reminders

Pam Williams0 Comment

by Tony Pandiscia

Updates to Important 2016 Income Tax Return Filing Deadlines:

  • Individuals                  Tuesday, April 18, 2017
  • C Corporations           Tuesday, April 18, 2017
  • Trust/Estates              Tuesday, April 18, 2017
  • Partnerships       Wednesday, March 15, 2017
  • S-Corporations   Wednesday, March 15, 2017

HIGHLIGHTS OF FEDERAL TAX CHANGES

  • The Standard Deduction amount for Married Filing Joint couples has increased by $100 for 2017 to $12,700; all other filing status standard deductions have increased by $50.
  • The maximum annual “profit sharing” contribution limit for certain retirement plans has increased to $54,000 for 2017.
  • The annual compensation limit for certain retirement plans has increased to $270,000 for 2017.
  • The Social Security maximum earnings base for application of FICA tax has increased to $127,200 for 2017.
  • The thresholds for each of the Individual Income Tax Brackets for 2017 have been increased slightly due to annual Cost of Living Adjustments.
  • The gross income levels for which a 2017 income tax return is required have been increased to $ $20,800 (Married Filing Joint filers) and $10,400 (Single filers).
  • Effective January 1, 2017, Business-related travel expense “standard mileage rate” has been revised to 53.5 cent per mile for business miles driven. The “standard mileage rates” for medical or moving expense purposes is now 17 cents per mile, but the rate for charitable activities remains unchanged at 14 cents per mile.
  • Tax Exempt Organizations can now receive an automatic six-month extension of time to file using Form 8868 prior to the initial due date for their 2016 tax returns.

HIGHLIGHTS OF NORTH CAROLINA TAX CHANGES

  • The standard deduction has been increased by $1,000 for married individuals who file jointly (or as “head of household”) and $500 for all other individuals.
  • Effective January 1, 2017, many service businesses will now be subject to Sales & Use Tax collection and reporting when providing “repair, maintenance, or installation” services that are not “Capital Improvements.” In addition, a new exemption form has been issued for service businesses to qualify for a “Capital Improvement” exemption.

HELPFUL REMINDERS

  • Charitable Contribution:
    • Tax deductible contributions can be made in the form of cash or noncash but not “service” to a qualified 501(c)(3) organization. Out-of-pocket costs and travel expenses incurred may be subject to deduction.
  • Any single donation larger than $250 to a “qualified organization” requires acknowledgement (or receipt). For noncash donations, fair market value assessment is the responsibility of the donor and if over $5,000, a certified appraisal is required.
  • Reporting of Foreign Bank and Financial Accounts (FBAR):
    • If you have a financial interest in or signature authority over a foreign financial account with overall value exceeding $10,000 at any time during the calendar year, you are required to file an FBAR. (As a protective measure, many of our clients file this report regardless of the threshold in order to run the statute of limitations for audit.)
    • The annual due date for filing has been revised to April 18, 2017. All taxpayers will be granted an automatic six-month extension to October 15.

This is a summary of 2017 tax changes.  If you have any questions regarding the details of the changes and how they may affect your specific situation, please feel free to contact us to discuss.

Tony ([email protected]) is the Tax Partner with Langdon & Company LLP.  He is a CPA and also an attorney, advocating for clients on many levels-including with the State and the IRS.

Gift Tax Exemptions and Avoidance Strategies

Pam Williams0 Comment

by Eric Murphy

Under current IRS regulations, when a donor makes a gift in excess of $14,000, they must file Form 709 to report the gift and pay tax on the excess above $14,000.  This exemption is applicable to each donee the donor makes a gift to in 2016, so they can make one gift for $11,000 to one person and another gift of $12,000 to a different person and they won’t be subject to the tax liability or filing requirement.  Under IRC Sec. 2513, this threshold is increased for married couples to $28,000 per donee, with the donor and spouse having the option of making “Split Gifts”, which essentially result in each of them making half of a gift to a particular donee.  An example of this is a donor giving his friend $26,000 in cash to buy a car.  Under the rule of “Split Gifts”, the donor and his spouse each made a gift of $13,000 to the taxpayer’s friend, therefore neither exceeds the exemption threshold.  However, a gift tax return would need to be filed indicating the gift split option was utilized, even though no tax would be due.

There are also some othgift moneyer ways a donor can make gifts in excess of the exemption without being subject to the filing requirement and liability on the excess, under IRS Publication 950.  Some of these include:

  • Paying the medical expenses for anyone, as long as the payments are made directly to a third party medical institution or physician. The gift can’t be given to the donee directly or else it’s subject to the exemption limit.
  • Paying the tuition expenses for anyone, as long as the payments are made directly to a third party educational institution. Similar to a gift for a donees’ medical expenses, the gift can’t be given to the donee directly or else it’s subject to the exemption limit.
  • Donors can make unlimited gifts to their spouses.
  • Donors can make gifts to qualified Political Organizations for their objectives. However, these gifts don’t qualify for a charitable contribution deduction on their personal Tax Return.  Gifts to qualified charitable organizations formed under IRC 501(c)(3) are allowed as deductible contributions on the donor’s return and are exempt from the limitation.

The preceding information is a summary of some basics of gift taxation.  If you are in the process of estate planning or want to help out someone in need, please contact Langdon & Company, LLP.  Our tax professionals can discuss your goals with you and develop a strategy that insures that you’ll have more to give to those you care for.

Eric ([email protected]) is a Tax Senior with Langdon & Company LLP.  He works primarily on medical practices, real estate holding companies, and multi-state corporations.

New Overtime Rule – What you need to know

Pam Williams0 Comment

by Meagan Bulloch

On May 18, 2016, the US Department of Labor (DOL) published the Final Rule on overtime, which amended the Fair Labor Standards Act (FLSA).  This change is expected to affect approximately 4 million workers across the United States.

Beginning December 1, 2016, the salary threshold for non-exempt workers increases from $455/weekly ($23,660 annually) to $913/weekly ($47,476 annually).  Under this new rule, any worker regardless of their role or title who earns less than that amount will have to track their hours and will be entitled to overtime pay which equates to time and a half for any hours over 40 in a week.

How does this compare to the old rule?  Check out this comparison table.

What are my Options?

  1. Raise salaries for non-exempt “white collar” employees above the $47,476 threshold so that they will be exempt from overtime
  2. Limit the hours worked by these employees to 40 or fewer per week
  3. Hire additional workers to perform the extra hours
  4. Pay non-exempt employees overtime for any hours worked beyond 40 per week

What else should I consider?

  • Determine whether your organization is entitled to minimum wage and overtime pay protections on an enterprise or individual basis.
  • Review personnel records, job descriptions and worker classifications to make sure their actual job duties (not titles) are used to determine exempt or non-exempt status.
  • Review employee workload to evaluate current staff capacity considering weekend or seasonal workload fluctuations.
  • Review terms of any grant agreements or contracts and identify staffing needs. Keeping in mind that the organization may be contractually obligated to maintain services at a predetermined level.
  • Consider “what if” scenarios and estimate budget and cash flow impacts.
  • Revisit organizational policies and procedures including timekeeping, compensation and overtime to make sure they are in line with the new rule requirements.

Is anyone excluded?

The DOL has a non-enforcement policy for providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities with 15 or fewer beds.  From December 1, 2016 through March 17, 2019, the DOL will not enforce the updated salary threshold of $913 per week for the subset of employers covered by this non-enforcement policy.

Be sure to give Langdon & Company LLP a call if you have questions on how this affects your organization.

Meagan ([email protected]) is an Audit Partner at Langdon & Company LLP.  She works on various clients from associations to healthcare.

The New Overtime Rule: Q&A

Pam Williams0 Comment

by Kendall Tyson

If you are an employer, you should get ready for the new overtime and worker classification changes to the Fair Labor Standards Act (FLSA) that was recently published by the Department of Labor (DOL).  According the DOL, the rule, which goes into effect December 1st 2016, will:

  • Raise the salary threshold indicating eligibility from $455/week to $913 ($47,476 per year), ensuring protections to 4.2 million workers.
  • Automatically update the salary threshold every three years, based on wage growth over time, increasing predictability.
  • Strengthen overtime protections for salaried workers already entitled to overtime.
  • Provide greater clarity for workers and employers.

Please visit the DOL’s Question and Answers section of their website for more detailed information.

Langdon & Company LLP is also available to assist business owners and help determine the impacts for their businesses.

Kendall ([email protected]) is a Manager in our tax practice.  She works with various types of clients according to professional standards and tax laws.