May 23, 2018 § Leave a comment
“I just bought a new car for business. How much of the cost can I deduct?” As a CPA, this is by far one of the most frequent questions I am asked. Unfortunately, there is no easy answer. But under the right circumstances it can be a sizeable deduction and with the Tax Cuts and Jobs Act (TCJA) that passed in December last year, it just got more beneficial.
Luxury autos purchased after December 31, 2017 and that are used over 50% for business have dramatically increased depreciation limits. The information below shows the substantial increase allowed for new and used passenger vehicles acquired in 2018.
$10,000 for Year 1, under previous law $3,160.
$16,000 for Year 2, previously $5,100.
$9,600 for Year 3, previously $3,050.
$5,760 for Year 4 and thereafter until fully depreciated, previously $1,875.
If bonus depreciation is taken in the first year, then up to $18,000 could be deducted. Under prior law, bonus depreciation could only be taken on new vehicles and the maximum was $11,160.
As you can see this is a substantial increase. However, keep in mind that this deduction is only for the business use of the vehicle. If the business usage of the vehicle is less than 100%, than the above deductions will decrease based on business use. If the use is less than 50%, the taxpayer is required to use a much slower straight-line depreciation method over 6 years.
Heavy vehicles such as SUV’s, pickups and vans are not subject to the luxury auto rules stated above. To be considered a “heavy” vehicle the Gross Vehicle Weight Rating (GVWR) must be over 6,000 pounds. The vehicle will usually have a manufacturer’s label on the inside edge of the driver’s door so that you can verify the GVWR of the vehicle.
Heavy vehicles are eligible for the Section 179 deduction that allows a taxpayer to expense the full amount of the purchase price in the year of purchase. Heavy SUV’s are limited to $25,000 of Section 179 deduction whereas the other heavy vehicles can take up to $1 million in Section 179 expense. However, Section 179 can be limited since there has to be taxable business income in order to take the deduction.
The really good news from the TCJA is that heavy vehicles are also eligible to take 100% bonus depreciation in the first year making the Section 179 rules irrelevant. Bonus depreciation is now eligible to be taken for new and used assets which includes heavy SUVs, pickups, and vans that are used over 50% for business.
One caveat to watch for with vehicles owned by a taxpayer’s Corporation, is if the vehicle is used by a shareholder-employee that owns 5% or more of the company, the vehicle has to be used over 50% in business activities. No personal use of the vehicle can count toward the 50% business amount even if the personal use is charged back to the employee as compensation.
Another caveat is that vehicles are considered listed property and as such are subject to stricter reporting requirements to prove business use. Each vehicle should have a mileage log. The log should show beginning and ending mileage to determine the total miles driven during the year as well as having a contemporaneous recording of miles driven during the year for business so that the business use percentage can be calculated.
As shown, deductions for a vehicle can get rather complicated and each situation is different. However, for nearly anyone in business who owns a vehicle there are deductions that can be taken. Be sure to consult your tax advisor on your personal situation to see how to maximize your deductions.
If you have recently purchased a vehicle or are thinking of buying one soon, keep these rules in mind to possibly “drive” your vehicle deductions up and slow down your tax liability.
May 16, 2018 § Leave a comment
The business world is full of individuals indicating they are leaders. There is a multitude of various leadership styles ranging from coercive; leaders which demand compliance to servant; leaders which focus on meeting the needs of their team.
A true leader, in my mind, is someone who has the interest of their team as a main concern. True leaders know their team members and themselves well. Sometimes this is difficult. However, a true leader takes the time to show interest, concern, and attempts to understand each team member. With this knowledge, the true leader is better equipped to assist the team members to be motivated and successful.
The true leader is focused on building the next generation of leaders. This is how a sustainable business operation is built. A true leader supports team members; allowing them to make decisions. A true leader walks beside and trains team members through their failures providing growth opportunities.
A true leader maintains a positive attitude; holding their emotions in check especially in tough situations. They do this without pride standing in the way. The true leader has the confidence to know when they are wrong and move past failures. Identifying problems and providing solutions is a great trait of a true leader. Other qualities, which I believe, a true leader must possess are:
- ability to listen
- being a team player
- willing to change
- inspires others
- focused on important items
Having these qualities assists in developing a better workplace. The true leader trusts their team members to perform efficiently and independently. They build a positive culture allowing team members to be more confident and more willing to share ideas.
If you build and display these qualities each of us can be true leaders in how we relate with clients and other team members. Show your leadership talents! Step up and “Be a True Leader!”
May 9, 2018 § Leave a comment
Randomly, I received a shirt from my favorite brand in the mail the other day and I didn’t place any orders. Come to find out it was from my mother. She wanted to give me something for helping her with their taxes this year, but she knew I wouldn’t accept money. So, after working with my wife, she ordered a shirt to say thank you and surprised me with it.
When opening the package, I started to think of all the reasons why this particular brand is my favorite. Yes, it checks off all of my required boxes for proper fit, my desired style, necessary color and appropriate price, but when I was taking the shirt tags off and reading through all the details they shared with me, I experienced why I will remain loyal to this company.
Not only does this company understand and excel in client experience that I enjoy with every order and delivery (or random surprise), they make the user feel unique with a twist of wit. The tag indicates I am the 147th owner of this one of kind shirt and it’s made for me. There are only 146 others roaming around with my shirt. That’s not even three people per state. The tag continues to inform me that this style of a shirt was first made on 12.18.2017. That’s an interesting and fun fact. The other tag provides washing instructions. It says not to wear the shirt, and that only people who want to dress unlike any others should put this on. On the other side, it tells me when washing to use my brain, and to love thy neighbor but for heaven’s sake, do not dress like him. All those little efforts create a bond with me, makes me feel special to own this shirt and privileged the get to wear it, even though there may be 100 other brands that can make the same shirt with similar fit, style, color and price.
As a firm, we have established committees of different experts to constantly evaluate our services, people, processes, procedures, and technologies to always be a step ahead for our clients and their experience with us. We know that we offer similar services like many CPAs across the country. We also know that our culture, people, and prices aren’t a match for everyone but for the ones that we serve today and the days to come, our goal is to ensure that you feel one of a kind, as special as I do wearing my shirt, and to feel privileged to be our client.
May 1, 2018 § Leave a comment
Another exciting tax season is in the books. Undoubtedly, your credits matched your debits, you had your information in to your tax advisor weeks in advance, and there were no last-minute snafus. No? At McGowen, Hurst, Clark, & Smith, P.C. (MHC&S), we realize things come up, and recognize that taxes are probably not your favorite thing to do. However, income taxes are a fact of life that can seriously impact your success, so here are three tips to make next year a little less taxing.
1. Pay Attention to Your Paystub:
As we wrap up the 2017 tax season, it is the perfect time to review your paystub. New changes to the tax law make it especially important to know how much federal and state income tax is being withheld from your paychecks. The IRS has a handy Withholding Calculator that can be used to estimate 2018 income tax. To use the calculator, you will need a copy of your 2017 tax return and most recent paystub. The calculator takes the new tax law into account and can help you decide if you need to adjust your Federal and State W4.
2. Prepare Your Finances for the Future:
If you are a business owner, making real-time decisions are a must. At a minimum, you should be ensuring that your bank and credit card accounts are reconciled monthly, and that your accounts receivable and accounts payable are current. This will give you a better picture of your profitability throughout the year and help identify potentially fraudulent activities. Keeping accurate and updated accounting records allows businesses to make better projections and pay accurate quarterly tax estimates accordingly. While these bookkeeping functions can be time consuming and tedious, technology can help. Utilizing applications, or “apps,” can make your life a lot easier. Apps can assist in streamlining your data and increase efficiency. While it can be daunting to know which app to use – a myriad exists for managing inventory, payables, receivables, payroll, and budgeting, etc. – they can cut down on the time you spend on accounting and let you focus on what’s important; running your business. At MHC&S, we can help you navigate the sea of options (bill.com and Webgility are a couple of our favorites) and help you combine your processes with the right technology. It’s okay to rid yourself of redundancies and cut out the clutter!
Like in any relationship, communication is vital, and not communicating with your tax advisor could cost you, literally! Purchases, sales, births, deaths, moving, or a change in employment all have an impact on your tax liability. In the tax world, planning for change is much easier than reacting to it, and having the right plan is crucial. MHC&S is there to help you plan for whatever comes next in your particular situation, and strong communication is essential to ensuring you make an informed decision. Whether it’s keeping an eye on your income tax withholdings, restructuring your business’ accounting processes, helping with some basic accounting transactions, or planning for the next tax season, MHC&S wants to help.
We recognize not everyone thinks taxes are fun. But, by using these tips and our expertise, you can feel confident knowing that whatever the year may bring, you can stay balanced.
March 27, 2018 § Leave a comment
The Tax Cuts and Jobs Act (TCJA) signed into law in late December created major tax changes for both individual and business taxpayers. Companies have already started deciphering the TCJA and are planning for how the new changes will affect their tax situation in 2018 and beyond.
An additional consideration for businesses is how will the TCJA affect the overall value of the business. A general principle of valuing a business discounts projected after-tax cash flows from the business back to a present value. Higher after-tax projected cash flows lead to higher business valuations. On the surface, companies should expect some reduction in tax, which should correspondingly increase business value.
It is a highly recommended best practice that business owners annually review the value of their company for various planning purposes. Closely held businesses are often the largest asset a business owner holds and it is important for owners to know value fluctuations from year to year. The TCJA provides another opportunity to review the value with the projected value increases for businesses.
Business owners should take this opportunity to review their buy/sell agreements and determine if any changes should be included in the buy/sell based on the updated business value following the TCJA. It is also a good reminder that closely held businesses need buy/sell agreements if they do not have one in place currently.
As a follow-up to buy/sell agreements, business owners should review the funding arrangements if a buy/sell is triggered. Some businesses hold company owned life insurance policies that are intended to fund the buy/sell agreement if needed. With the increase in business values, companies should review if these life insurance policies or other intended funding sources are still adequate to cover the new business values when an ownership transfer occurs.
Estate planning and wealth transfer strategies should be reviewed to factor in the new business values as well. The increase in value of a closely held business may require a shift in wealth planning strategies.
In general, businesses will see reduced taxes and increased cash flows that will increase value with changes enacted under TCJA but each situation will be unique depending on each company’s set of circumstances. These changes provide a great opportunity to review the impacts of your business. We recommend you contact us if you are interested in exploring in greater detail what the effects of the TCJA will have on your situation.
March 12, 2018 § Leave a comment
Take a moment, and think to yourself, who in your life is a great listener?
For some, this may be a hard question to answer. We live in a world where a vast quantity of conversations are two peers taking turns exchanging words with each other, and not actually comprehending what they are saying to one another. Frequently, while the other person is talking, we’re in our own heads crafting our next response. How could we possibly be fully engaged in what our peer is saying, if we’re thinking about what we’re going to say next?
Ultimately, our goal in conversations should be to listen to understand, rather than to listen to respond. I have been reading Rowena Crosbie and Deborah Rinner’s book “Your Invisible Toolbox,” and they discuss how the key to building strong relationships is listening effectively. When reading this, I thought to myself how accurate that point was from my past experiences. I’d like for you to think back to the person (or people) you thought of when you considered who in your life is a great listener – how do you feel about that person/people? I would venture to say that you likely are very fond of that person, and like being around them.
How can we become better listeners?
A good place to start would be to focus on understanding the speaker, before being understood. If the speaker feels understood, they will reciprocate the same courtesy to you when you’re speaking. While understanding the speaker, you will find yourself empathizing or seeing the speaker’s point of view. When this occurs, conversations are more productive, because both speakers feel heard and understood, rather than both speakers being talked at, and thus fostering better relationships. Everyone wins in this situation, then, right?
An additional way to be a good listener is to not interrupt. This one may seem obvious, but it happens a lot in day to day conversations without hesitation. Frequently, we interrupt someone because we’re excited about what they have to say, and want to contribute, or, we’re wanting to share our own experience. Regardless of the reason why, it’s disrespectful. Interrupting gives off the idea that your thoughts and ideas are more important than theirs.
Improving upon your listening skills can assist in your personal development skills as well. As Larry King has said before, “…nothing I say this day will teach me anything. So, if I’m going to learn, I must do it by listening.”
Working on improving your listening can impact many aspects of your life. Listening to your clients and understanding their needs, is vital in today’s competitive marketplace. Additionally, your spouse/partner could feel better after telling you about their day and you actively listening. I suppose there is indeed a reason we were given two ears and only one mouth…
March 2, 2018 § Leave a comment
After an unusually calm 2017, volatility has returned to the stock market and it’s expected to stay. If riding the roller coaster of the stock market makes you nauseous, here’s a couple things to keep in mind.
- Market volatility and market corrections are normal. The unprecedented stability & run we saw in the market from mid-November 2016 thru January 2018, while nice, was highly unusual. In fact, from 1980 – 2017, the average intra-year decline in the S&P 500 was 13%.1
When the market is volatile, it may be best to resist the urge to frequently check your portfolio’s performance. Seeing daily performance can lead to rash decisions, that could end up hurting your portfolio in the long run. Remember, performance should be measured over longer periods of time. You may, instead, want to focus on reviewing your investment objections, asset allocation (further described below), and your long-term goals.
- The media loves to sensationalize market corrections. Headlines screaming “Dow Plunges 1,175 Points” garner more attention than headlines announcing that “S&P Slides 4% During Normal and Overdue Correction.” It is important to look past the headlines and try to see what actual data is being reported.
If you have questions about the headlines and reports in the media, don’t hesitate to reach out to your financial advisor. They should be more than happy to help you understand the data behind the headlines, and more importantly, how your portfolio and financial plan, are or could be, affected.
It’s also important to note, that the same can be said when looking at your own portfolio. Focus on the percentages and benchmarks as opposed to the dollar figure. A $25,000 decrease may seem like a lot, but it would only be a 5% decrease on a $500,000 portfolio.
- There are several investing principals that, by their very nature, help take some of the edge off volatile markets. Whether you realize it or not, these investment principals are likely already in play in your portfolio. The trick is to make sure they’re at play at a level of risk that you’re comfortable with.
Diversification: The whole purpose of diversification is to help reduce risk and the majority of financial advisors preach its importance. Having a diversified portfolio among different companies and asset classes should help lessen your portfolio’s exposure to any one company or asset class and smooth out performance.
Asset Allocation: Allocating your investments between stocks and fixed income (bonds and cash) is a way to help balance risk. Most people aren’t invested in a 100% stock portfolio as they aren’t comfortable with that amount of risk. However, whatever your allocation is, it’s important that you are comfortable with the amount of risk your allocation correlates to. Since stock market drops of 10% are not an unusual occurrence, someone who has a portfolio allocation of 80% stocks and 20% fixed income, should be comfortable with and expect to experience drops of 8% (stock exposure of 80% times 10% market drop) in their portfolio. If you’re not comfortable with the level of risk your portfolio is taking, you may need to reevaluate your asset allocation.
Dollar Cost Averaging: If you are making regular, reoccurring contributions to your investment portfolio, you are dollar cost averaging. Dips in the market are great for people who dollar cost average as it allows your contributions to purchase more shares when the market/prices are lower.
While expecting volatility, seeing past the noise, and having an investment approach and plan that you’re comfortable with can’t prevent market volatility, it can help make the wild ride of the stock market easier to stomach.
As you can see, there are several reasons why it’s important to take a step back during market volatility and really evaluate the big picture before making changes to your long-term plans. If you’d like to discuss the recent return of volatility to the stock market or any other personal financial planning questions you have, please reach out. I’d be happy to meet with you.
This material has been prepared for informational and education purposes only, and is not intended to provide, and should not be relied on for, investment advice.
Advisory Services offered through Wealth Advisors of Iowa, LLC, a State of Iowa Registered Investment Advisor, and an affiliate of McGowen, Hurst, Clark & Smith, P.C. Certified Public Accountants and Business Advisors