October 4, 2016 § Leave a comment
Many companies are unaware that the tax code offers a generous Research and Development Credit for which they may qualify. Even those that are aware often fail to capture the full extent of R&D tax credits to which they are entitled. The R&D credit was made permanent in 2015 and will be allowed to offset AMT for 2016 and beyond.
Qualifying R&D activities take place in many industries in which research is thought of not so much as a separate function, but rather as part of the product and process improvement work that goes on every day. Any company that develops, designs, or improves products, processes, techniques, formulas, inventions, or software may be eligible for the credit.
Production processes that may be eligible for R&D tax incentives include the following:
- Designing and developing cost-effective and innovative operational processes
- Integrating new materials to improve product performance and manufacturing processes
- Determining tooling requirements and optimal placement of equipment
- Evaluating and determining the most efficient flow of material
- Designing and evaluating process alternatives
- Designing, constructing, and testing product prototypes
- Developing processes that would meet increasing regulatory requirements
- Reducing labor costs
- Alternative material testing
- Achieving compliance with changing emissions laws and regulations
- Streamlining manufacturing processes through automation
- Increasing manufacturing capabilities and production capacities
- Developing & Implementing new / improved safety enhancements
- Developing new applications
- Improving product quality
- Implementing new production standards and quality assurance processes
- Improving yields
- Reducing manufacturing times
- Optimizing manufacturing processes
- Increasing operating and economic efficiencies
As you can see, there are many ways to qualify for the R&D Tax Credit. Industries that historically have benefited from the credit in the past are listed below:
- Professional Services – Architects, Engineers, etc.
In addition, the State of Iowa offers an R&D Tax Credit to any company that claims a federal credit. If your company is in the industries above or working to improve processes, you may be eligible for the R&D Tax Credit. Contact MHC&S to discuss the credit further and the benefits the credit may offer you!
Nick Finkenauer, CPA
Senior Manager – McGowen, Hurst, Clark & Smith, P.C.
September 26, 2016 § Leave a comment
Our firm recently put together a wellness committee. As members of the wellness committee, we are tasked with exploring and finding ways to encourage fellow team members to choose a healthy lifestyle. We currently offer reduced membership prices to the YMCA (or gym of your choice if you don’t live by a YMCA) and bring in healthy snacks twice a week during busy season. Some of the ideas we have come up with is to offer a health screening through our partnership with the YMCA, offering rewards for participating in running/walking events, assisting employees with purchasing a fitness tracker, or bring in outside individuals to do presentations on healthy lifestyles and ergonomics. Does your company have a firm wellness plan? What types of benefits does your company offer? We would love to hear your thoughts.
As we primarily sit in our desk chairs for the majority of the day, which we know can cause health problems, I leave you with ten exercises that you can perform at your desk.
- Shoulder Shrugs – Raise shoulder towards your ears, hold and then relax downward to a normal position.
- Neck Tilts – Keep shoulders relaxed and arms down by your side. Tilt head sideways to one side, hold for fives seconds and switch to the other side.
- Neck Stretch – Gently tilt your head forward, keeping shoulders relaxed and downward. Hold for give seconds.
- Wrist/Forearm Stretch – Please your hands palm to palm and rotate palms around until they face downward keeping elbows even. Hold for five to eight seconds and then rotate up.
- Hand/Finger Stretch – Separate and straighten fingers, hold for ten seconds. Bend fingers at your knuckle and hold for ten seconds, then separate and straighten your fingers again.
- Hand Shakes – Shake out both hands for eight to ten seconds.
- Wrist Flexor Stretch – While seated, extend your right arm forward at shoulder height. Keeping your elbow straight, grasp your right hand with your left and slowly bend your wrist backward until you feel a stretch along the bottom of your forearm. Hold for fifteen seconds. Then bend wrist downward until a stretch is felt on the top of the arm, and hold for fifteen second. Switch arms and repeat.
- Back Stretch – Lean forward in your chair, keep your head down and neck relaxed. Hold for ten to twenty seconds and then use your hands to push yourself back up.
- Upper Body Stretch – Interlace fingers, turn palms upward and straighten arms above head. Elongate arms to stretch through upper sides of your rib cage. Hold for ten to fifteen seconds.
- Hamstring Stretch – Sitting, hold onto your upper left leg just above and behind the knee. Gently pull bent knee toward chest. Hold for fifteen to twenty seconds and then repeat on the right leg.
Nicole Loux, CPA
Manager – McGowen, Hurst, Clark & Smith, P.C.
September 13, 2016 § Leave a comment
What About Bob?
Change in Leadership at MHC&S
Bob McGowen Passes the Managing Partner Baton but Remains on as a Partner
Bob McGowen, who has been our Managing Partner for the past 23 years and affiliated with the McGowen, Hurst, Clark & Smith, P.C. firm for the past 46 years, has passed the Managing Partner baton to Co-Managing Partners Dave Farnsworth and Dan Schwarz. Bob will continue to remain as a partner in the firm, servicing clients and helping our firm grow. Needless to say, we have all benefited from having Bob as our role model and leader. Following are some of the thoughts we team members shared regarding Bob and the impact that he has had in our lives. We invite you to read our comments:
“Bob has taught me to have compassion for people. Whether it is clients, team members or just people you encounter during your day, having a positive attitude and compassion towards people is key in building relationships.”
“Bob is one of the hardest working men I’ve known, yet he always has a positive attitude, time to help someone or pass on an encouraging word. He has been the quintessential partner, always involved in whatever the Firm is doing, whether it be a softball game, fundraiser or just a fun activity at work. I thank him for all he has done for McGowen, Hurst, Clark & Smith and hope he will enjoy some time now for himself.”
“Bob has been a great example of demonstrating the impact that a positive attitude can have on creating a positive culture. Bob is always willing to offer advice, provide assistance or catch up on one’s personal life in a warm and friendly manner. He clearly is a reason that MHC&S is a top place to work.”
“It is no secret among Bob’s partners, employees, clients, and colleagues the commitment and level of dedication he has to the profession and to each of these groups of people. This is evidenced by the (almost legendary status) number of hours he works on an annual basis to make sure everyone’s needs are met.”
“The life lesson I learned from Bob is this – no matter how busy he is, or the number of simultaneous things he has going on at a particular time on any given day, he never gives anyone the impression that he is too busy to help them. Bob is one of the most generous people with his time that you will ever meet. He truly cares for each and every person that he know, and shows it every day by his actions.”
“Three life lessons have been learned from Bob all because he empties the dishwasher each morning: 1. Be humble, regardless of your position. 2. Be positive, no matter how trivial a task may seem. 3. Be consistent, as it indicates loyalty.”
“The thing that has always amazed me the most about Bob is that he always makes the time to talk to others. No matter how swamped Bob is or how many different things he is juggling, I know that I can walk into Bob’s office at any time and that I will receive his full attention. Not only does he never turn anyone away because he is “too busy”, he is always happy to help and never makes me feel “rushed”. Bob truly cares about employees, his clients and the firm.”
“There isn’t a specific life lesson I’ve learned from Bob, but there is a saying that I think Bob is the perfect example of, “A smile on your face and a song in your heart”. This was a previous employer’s motto that has stuck with me over the years. Bob, no matter what, always has a smile on his face and from his actions it is obvious he has a song in his heart. He is a wonderful person and it is an honor to be able to work with him and be inspired by his personality and management of MHCS.”
“I have had the opportunity and pleasure of working with Bob for more than 30 years. Over those years he has helped me as a mentor, trainer, coach, and partner. I have never known anyone else to always be as positive and upbeat as Bob. He always sees the best in any situation, and in each person he comes in contact with.”
“Bob is always quick to greet everyone with a smile and a positive comment. While Bob puts in more hours at work than seems to be physically possible, he has always found time to join in many other activities as well. He has participated in softball leagues, volleyball leagues, kickball tournaments, happy hour get-togethers, weddings and funerals involving many team members and clients. Somehow he has always made time for others.”
“Over the last 20+ years that Bob has been our Managing Partner, the Firm has almost tripled in size, and grown substantially in reputation and stature in the Des Moines Metro area. Nicely done, Bob! Thank you for all you do.”
“Bob is a true leader in the sense that he models the way. People follow and work hard for him because they want to, not because they have to. He doesn’t ask anyone to do things that he himself wouldn’t do and he tackles every task with a positive and humble attitude. His humility in leadership affects his relationships with not only firm members but clients as well. He is always willing to put others before himself and I think that is a big part of his success in maintaining his clients for such a long time. They know that he truly cares about them just as firm members know that Bob cares about them as well.”
“Bob is the most genuine and hardworking person I have ever met and am so fortunate to be part of his MHC&S family. On a daily basis, Bob lives and breathes the values of sincerity, kindness, integrity and dedication to others. Bob is an inspiration to whomever has the joy of knowing him and is a testament to the importance of kindness and honesty.”
“When you tell people you work at McGowen, Hurst, Clark & Smith, you feel a sense of pride, especially when you say that Bob McGowen is your boss.”
“Bob has been a great teacher and leader. A couple of leadership traits I learned from Bob are:
- The ability to listen. Bob always takes the time to truly listen and then helps you find a solution.
- A good leader stretches their people, possibly giving them more than they think they can handle, but letting them learn and grow through their experience.
Thank you, Bob, for your great leadership and giving us the opportunity to stretch and grow.”
“I have read many times that the tone of a business/firm is started at the top and filters down to the others. This can be seen clearly at our firm when you look at the actions of Bob. Here are a few of the values that Bob has lived through his actions.
- Respect and compassion for each other. Bob is respectful of each of us. He is one of the first to congratulate a firm member on accomplishments, to be present at special occasions such as the 40 under 40, CPA recognition dinners (from the old days) or the ISCPA recognition events. He always can be seen at weddings, funerals, and other special events on a personal level.
- No job is beneath any of us. It is not unusual to see Bob making coffee, cleaning something up in the kitchen, removing a spot from the carpet or scrubbing the entry way to the building.
- Supporting the community and having fun. You can catch Bob playing baseball, bowling for Big Brothers/Big Sisters, pulling a plane for Special Olympics and along the way, making others laugh with his shenanigans.”
“What I like best about working with Bob is that you always know what kind of mood he will be in. He never has a bad day and always greets you with a huge smile.”
“Although Bob is no longer working in the role of Managing Partner, his life lessons will continue to teach the team members at MHC&S. I am just glad we still get to see him every day as he continues on as partner.”
“Bob McGowen leads by example, is passionate about client services and firm members. Bob regards clients and firm members as friends and has remarked, “You work harder for your friends.” He exemplifies MHC&S firm core values of integrity, excellence, respect teamwork, family and fun. Bob is an all-around nice guy.”
While the list and comments go on and on, we all want to say how much we appreciate everything that Bob has done for the firm and for we team members. You are an amazing role model in both business and life. Thank you for the many contributions you have made at McGowen, Hurst, Clark & Smith. We are all very proud and privileged to work with you.
Your MHC&S Team Members
August 11, 2016 § Leave a comment
The conventions are over and now the fun begins. Not! I’m afraid we are in for a nasty three months of campaigning. Both sides have put forth their proposals for tax reform. I thought it would be interesting to see what a neutral party has to say about tax reform.
The Tax Foundation is an independent tax policy research organization that was founded in 1937. Their mission is to educate taxpayers and show how tax policy impacts taxpayers, the government, and the economy at large. The Tax Foundation’s economists have measured the economic effects of 86 changes to the Internal Revenue Code. In their opinion, here are the top ten pro-growth business and individual tax reforms (ranked in the order of their projected effect on generating economic growth):
Top Ten Pro-Growth Business Tax Reforms
- Reduce the corporate rate to 25% and allow full expensing
- Replace the corporate income tax with a 5% value added tax (VAT)
- Allow full expensing of capital investments
- Lower the top corporate rate to 15%
- Lower the top corporate rate to 20%
- Allow corporations to deduct dividends paid, thus integrating the corporate and individual tax systems
- Lower the top corporate rate to 25%
- Lower the top rate on pass-through business income to 25%
- Cut corporate rate to 28% while eliminating most tax expenditures, except cost recovery
- Eliminate estate and gift taxes
Top Ten Pro-Growth Individual Tax Reforms
- Lower marginal income tax rates across the board by 20%
- Lower marginal income tax rates across the board by 10%
- Lower the top marginal tax rate to 25%
- Lower the top marginal tax rate to 28%
- Consolidate current bracks into three: 10%, 25%, 35%
- Move to a flat rate of 20%
- Eliminate taxes on long-term capital gains and dividends
- Cut top rate to 27% while eliminating all itemized deductions, except charitable and mortgage
- Repeal the Net Investment Income Tax
- Cut all rates by 10% while eliminating all itemized deductions, except charitable and mortgage
Naturally, lawmakers will have to weigh the desired economic gains against the policy’s impact on the federal deficit, absent any cuts in the federal spending.
Not surprisingly, the “experts” don’t expect much to happen in tax legislation this election year. However, depending on the election results we may see major tax reform next year. Or, we may be in for the same old gridlock we have experienced for the last several years.
Dave Hurst, CPA
Partner – McGowen, Hurst, Clark & Smith, P.C.
July 18, 2016 § Leave a comment
If you’re like me, you are probably wondering where the summer has gone. Baseball season is over for many of our kids, we’re past the 4th of July celebrations and back-to-school preparations are in the near future. As business owners, many of us are half way through our fiscal year operations. This is good news in many cases as we can reflect on the past 6 months of operations and look forward to what’s ahead. Planning is a key to any business success, and focusing on planning all year long can provide many opportunities to review and refine your annual goals.
On the minds of most business owners is planning for taxes. Most people get a sick feeling in their stomach when the word “taxes” is even brought up, but planning can ease their pain or at least help them understand and plan for this business expense. Uncertainty has always played a role in tax planning for individuals and businesses as they look to the future. Typically, taxpayers are scrambling to see what Congress is going to do in late December that impacts them for that entire year.
On December 18, 2015, Congress passed the PATH Act, which retroactively extended many expired tax provisions back to the beginning of 2015 along with making over 20 key tax provisions permanent into the future. The history by Congress to give taxpayers 2 weeks to plan for an entire year has been difficult to put it mildly. This unexpected certainty in the tax law (although never guaranteed) is welcoming and comforting for taxpayers as they plan for 2016 and know their options.
Individual Tax Update
The PATH Act permanently extends the following for individuals:
- State and Local Sales Tax Deduction – this provision allows you to claim an itemized deduction for state and local general sales taxes, but only in place of deducting state and local income taxes as an itemized deduction. Unfortunately, for most Iowa residents, the sales tax deduction is generally smaller than the state and local income tax deduction, but always worth looking into when major purchases are done during the year.
- American Opportunity Tax Credit – making this extender permanent has been great news for all those parents with college age students. The credit allows for up to $2,500 against your federal tax liability if your AGI is below certain thresholds.
- Teachers’ Deduction – this $250 deduction has been around for some time, but now is permanently extended. New for 2016, the deduction includes professional development expenses incurred by teachers, such as courses related to the curriculum taught by the teacher. Now if we can just work on that $250 amount as I speak for most teachers out there, that expense typically doesn’t even touch the surface of expenses paid by them for their profession.
- Charitable Distributions from IRAs – individuals age 70 ½ and older can continue to take advantage of making tax-free distributions from their IRA to a qualified charity and counting it towards their RMD up to $100,000 per taxpayer each year.
Provisions that are currently set to expire at the end of 2016 include:
- Qualified Tuition Deduction
- Mortgage Debt Exclusion
- Mortgage Insurance Premium Deduction
Business Tax Update
The PATH Act permanently extends the following for businesses:
- Section 179 Deduction – One of the most significant impacts to small businesses, the permanent setting of the 179 deduction provides a major benefit to those industries that make significant equipment purchases. The law permanently sets the 179 limit at $500,000 with a $2 million purchase limit before it begins to phase-out. For real estate owners, the 179 expense for qualified real property was made permanent and the previous limit of $250,000 was removed beginning in 2016.
- R&D Tax Credit – Finally the R&D credit, which has a history of expiring and being retroactively extended is now made permanent. As an added bonus, qualified small businesses can claim the credit against AMT, and qualified startups can claim a portion of the credit against their employer FICA payroll tax liability.
- S Corp Built-In Gains Tax – Those owners of C Corporations who are looking to sell their business in the next 6-10 years may be able to take advantage of converting their C Corporation to an S Corporation and avoid the double taxation. The built-in gains tax was a deterrent to converting and used to be a 10 year recognition period. That period is now made permanent at 5 years.
- 15 Year Depreciation – Qualified leasehold improvements, restaurant property and retail improvements can continue to enjoy the reduced 15 year write-off of these costs if they qualify.
Tax Provisions that were extended for 5 years and are available through 2019:
- Bonus Depreciation – Bonus depreciation has been around for many years in various forms and applies to new (not used) qualifying assets placed in service during the year. For tax years 2016-2017, the amount is 50% of the asset cost, then reduces to 40% in 2018 and 30% in 2019. In addition beginning in 2016, an added “Bonus” to real estate, qualified improvement property is 39 year depreciable property but eligible for bonus depreciation. Qualified Improvement Property is any building improvement to an interior portion of the building that is nonresidential property if the improvement is placed in service after the date the building was first placed in service. It does not include expenses attributable to the enlargement of a building, any elevator or escalator or the internal structural framework of a building.
- Work Opportunity Tax Credit – this provision was enhanced for employers that hire certain long-term unemployed individuals. Be aware there are specific time limits on when credits can be applied for. It’s always good practice to have these procedures in place as part of your hiring process.
There were several other items that were impacted by the tax update, including energy incentives, ACA updates and more. One important item to consider as you develop your tax strategy is the impact of state income taxes. Currently, the above extenders are not adopted in Iowa for 2016. This can have a significant impact to taxpayers as they plan for the year. Iowa delayed their adoption of the 2015 IRS tax changes until late March of 2016, which did not include bonus depreciation. There is concern that Iowa will not continue to adopt these changes that the federal government has implemented, so careful consideration should be done when analyzing your options.
Taxpayers should take advantage of the current laws in place and begin implementing specific tax strategies now to maximize benefits, rather than waiting until the end of the year. Taxpayers should consider several “what if” scenarios over a number of tax years to determine any benefits that can be used based on the above items. Careful consideration to cash flow planning needs to be reviewed and incorporated in the planning process. Businesses and individuals need to plan out their tax strategy so that it is in line with their business goals. These types of decisions need to be reviewed by business owners, with their MHC&S trusted advisor, for pros and cons to determine the best approach for their company. Contact MHC&S to get started on developing and implementing your tax strategy today!
David Farnsworth, CPA
Co-Managing Partner – McGowen, Hurst, Clark & Smith, P.C.
June 13, 2016 § Leave a comment
Small business marketing is no small feat. With the digital world growing every day, marketing is becoming a confusing cluster of social media, email newsletters, websites, blogs, ads – the list goes on and on. With limited resources compared to large corporations, small businesses can have a difficult time coming up with marketing ideas and content.
The two no-brainers in the digital marketing world right now are a solid website and active social media platforms. (If you need help with either or both of these, give us a call for some references.) But a very important and often overlooked opportunity in e-marketing is business blogging, of which there are some great benefits. You might think, “I don’t have the time,” “My industry can’t sustain an interesting blog, and I don’t know what to write,” or “I don’t have the writing skills to blog.” Well, buckle up for another few minutes, because if I can write a blog, so can you!
I don’t have the time. The beauty of business blogging is that the topics are things in which you already have expertise. When you sit down to write a blog, knowledge will flow from your brain right through your fingertips onto your computer screen. In fact, maybe you sent an email about a new industry policy to your team members earlier today. With a little polishing, you have yourself some content. To save yourself even more time, engage your team members in writing blogs, and re-publish some of your most successful blogs.
My industry can’t sustain an interesting blog, and I don’t know what to write. Let’s be real; are there many industries that are so interesting that we could all read news blogs about them every day or every week? Personally, I think not. This is where some creativity comes in. That may sound daunting, but actually, it can make business blogging much easier for you. As we talked about in the former paragraph, industry blogging is a great thing; share news with your customers. However, sometimes, there is only so much news to be shared. Your readers aren’t robots, and they want to know about your company, your life and your ideas. Share your pride in your team members on the latest company-wide award; after your summer vacation, blog about the beauty of taking time to unwind from work; if a family members graduates from school, share your excitement about the future of the next working generation. The key is to make your blog relatable to your readers in some way. Sometimes, that means telling them about the newest company development; other times, it’s simply saying, “I’m a human, too, and here’s what’s on my mind.”
I don’t have the writing skills to blog. Every single person out there has the potential to be a great writer. Perhaps you aren’t right now, but practice makes perfect. You don’t have to get a perfect blog written in your very first draft. In fact, that’s nearly impossible no matter your skill level. Think about what you want your main points to be, and write an outline if necessary to create a map for yourself. Then, type out that first draft. It might be horrible, but luckily, it’s not permanent. Read through for errors and self-edit your blog. After just a few times, this will be a lot easier than you think. I would also encourage you to purchase an AP Stylebook (or something similar) as a reference for when you just aren’t sure whether to use “effect” or “affect.”
When it comes to business blogging, I want you to remember:
You are the expert. By blogging, you are positioning yourself as the expert in your field. If your competitor down the street isn’t blogging and you have the latest information, I’m choosing you and your company for my project.
Content is king. For the foreseeable future, content is what drives marketing. By blogging, you are creating original content for your company that you can share on your website and your social media outlets. And guess what? That increases your search engine optimization, meaning when people search for “[your industry] in [your region],” there you are – a glistening beacon at the top of the search results.
A strong business blogging culture doesn’t happen overnight. But without a push, it never will at all. Sit down with your team and map out ways you can post at least one blog per month, increase it to every other week, and if you can, every single week. The more, the merrier. Now get out there and take the blogging world by storm!
Marketing Assistant – McGowen, Hurst, Clark & Smith, P.C.
June 2, 2016 § Leave a comment
As the weather changes and it’s sunny and warm, I can’t help but think about vacations. Studies show that employees who use their vacation days are happier and more productive in the workplace. Whether it’s a vacation or a long weekend it’s great to get away and come back refreshed.
My family has already scheduled our big vacation for the year. Our vacation will include my parents, my sister and her boyfriend, another sister and her husband and nieces and nephews, and a grandma and aunt. Some may cringe, but we love going and spending time together and making memories. This year we are going to drive to Orlando over Christmas. YES, I said drive to Orlando, Florida. Two years ago we went on a similar vacation; my husband, I and our one-and-a-half year old flew to Florida. On our return trip we got stuck in Chicago with weather delays – or the normal Midwest snow storm. Some members of my family drove back to Iowa faster than we flew with the delays. The memories of the hours in a packed airport with a one-and-a-half year old are still fresh, and we paid money for that fun experience!
Some vacations are a lot of work, but you are making memories with your family or friends that you will never forget. In fact, you may feel like you need a vacation after the vacation. We have all been on one of those trips. Other vacations are relaxing like a beach in a tropical destination.
Have you started to schedule your vacation or time off? Is it a long weekend going to Omaha, Kansas City, or the lake? Does it include any extended family? Do you plan vacations with children and without children?
Ashley Mowery, CPA
Manager – McGowen, Hurst, Clark & Smith, P.C.