Tax Simplification – Are the Days of Itemizing Over?

February 26, 2019 § Leave a comment

Now that the calendar has turned to February, taxpayers have likely received most of their W-2s, 1098s, 1099s, and other tax reporting documents from their employers, mortgage company, banks, brokers, etc.  

Next on the list for many people this time of year is to summarize information related to other common expenses that they have become accustomed to deducting on their tax returns so they can provide it to their CPA or tax preparer in a well-organized, presentable manner (hint, hint). Medical expenses, charitable contributions, mortgage interest, real estate taxes, state income taxes, car license fees, investment fees, and employee business expenses are the most common of these types of expense deductions.

But wait! Didn’t the Tax Cut and Jobs Act (TCJA) simplify things for a lot of people this year, by increasing the standard deduction and eliminating a lot of these typical deduction items?  

Yes….and No.

Prior to the TCJA, the standard deduction for a married couple was $12,700. If a married couple had itemized deductions (such as those listed above) totaling more than this, they benefitted from using the higher itemized deduction amount on their return rather than taking the standard deduction.

The TCJA increased the standard deduction for a married couple to $24,000 for 2018. In addition, the TCJA eliminated some of the typical itemized deductions that taxpayers were used to taking – home equity loan/line of credit interest, investment fees, employee business expenses (including unreimbursed travel/mileage and home office expenses), job search expenses, and casualty and theft losses.  Also, the overall deduction for state and local income, real estate, and personal property taxes is limited to $10,000 per tax return.

With these new restrictions on itemized deductions and the nearly- doubled standard deduction, tax filing (and the agony of totaling receipts and ledgers for an entire weekend or more) for a lot of people will be A LOT simpler this year because their itemized deductions will not exceed the $24,000 standard deduction, meaning they can kick back, rest easy, and simply take the standard deduction on their federal Form 1040s.

Federal 1040s? What about their Iowa tax returns? I’m glad you asked…but many people may not be quite as happy or see it the same as tax guru like me. You see, Iowa’s standard deduction for a married couple for 2018 is a mere $5,000. Also, Iowa did not reduce or eliminate the list of deductions above that were affected by the TCJA.  

What does this mean? It means that many taxpayers who will now take the standard deduction on their federal returns will still benefit from itemizing on their Iowa returns. While this is good news for the most part, it does mean you will still need to set aside some indoor/desk time over the next few weekends, sharpen your pencils, and start organizing those documents and receipts! With the Iowa winter we’ve been having lately, along with the short-term forecast, that shouldn’t be a problem.

View More: http://alexandbrenda.pass.us/mhcs

Mike Brinker, CPA, Partner
MBrinker@MHCScpa.com

Revenue Recognition for Construction and Engineering Companies

February 25, 2019 § Leave a comment

Wendy Moran, Assurance Partner, strives to help clients in all industries understand the new Revenue Recognition Guidance that is required for all non-public companies with years beginning after December 15, 2018.  Check out this video as she breaks down #RevRec for #Construction and #EngineeringCompanies. #Assurance #LeadingTheWay #MHCScpa

Budget Planning for Your Business

February 21, 2019 § Leave a comment

Whether you are a well established business or just getting started, a budget is an important tool for managing a successful business. In this video, Brian Newton, Partner, shares how our Business Advisory team can help you create a strategic budget for your business’ success.

Iowa Ruling Addresses State Apportionment for Transportation Brokerage Companies

February 20, 2019 § Leave a comment

The Iowa Department of Revenue issued a declaratory order on how transportation brokerage companies and other similar transportation service providers allocate revenues for state income tax apportionment. In this recent case, the taxpayer was a transportation brokerage specialist who connected clients needing goods transported with transportation providers. The taxpayer did not physically transport any goods, however it apportioned its revenues using the specific allocation rules allowed for transportation service companies, which based the allocation on miles in a state compared to total miles. The Director of the Iowa Department of Revenue concluded that since the taxpayer did not physically move the goods, the allocation should be based on the service provider rules. Under these rules, the revenue should be allocated based on where the benefit of the service was received, which in this case was the location of where the delivery was received. For example, if the delivery of goods the brokerage company coordinated was made to an Iowa location, the revenue from that delivery would be allocated to Iowa and therefore be considered Iowa revenue for the brokerage company.

This is an important ruling because often times transportation companies automatically use the transportation service company rules, apportioning revenues based on mileage in a state even though they are not actually moving goods. For the 2018 tax year, transportation companies providing brokerage services should revisit how revenue is apportioned and determine whether the mileage apportionment rules apply, or if, like the case of the transportation brokerage company, the service provider apportionment rules apply. It should be noted that this does not impact the apportionment for transportation companies who physically haul goods.

Our experienced transportation team along with our knowledgeable state and local tax team are closely watching this development. Please reach out to us to discuss how this new ruling may apply to your specific situation.

How to Implement Functional Expense Requirements?

February 19, 2019 § Leave a comment

There have been many questions about implementing Accounting Standards Update 2016-14 Preparation of Financial Statement of Not-for-Profit Entities (ASU 2016-14). One question that has come up is the new requirement for functional expenses. Under old guidance only voluntary health and welfare organizations were require to provide information on their functional expenses. Now, all not-for-profit entities are required to provide information about their operating expenses.

ASU 2016-14 requires a not-for-profit entity to report information about expenses in one location, either on the face of the statement of activities, as a separate statement (statement of functional expenses) or in the notes to the financial statements. ASU 2016-14 also requires enhanced disclosures about the methods used to allocate cost among activities and to disaggregate their expenses by nature and by major class services.

What does that exactly mean? It means not-for-profits are required to break down expenses by their type, such as salaries and benefits, utilities, insurance, depreciation, etc. and by major class, program, fundraising and/or management and general. Some of the natural classes of expenses will be driven 100% by either program activities, fundraising activities and/or management and general activities.  Other expenses, such as salaries and depreciation expense, will need to be allocated to the various activities. Here are some examples of how the expense can be allocated.

Depreciation Expense:
Depreciation expense could be allocated to the various activities by determining what portion of the building is used for each activity. A way to determine what portion of the building is used by each activity is to determine what space each activity uses and allocate it based on square feet. Another way depreciation expense can be allocated is if there is specific equipment that is used only for one activity, the depreciation for that equipment can be 100% allocated to that specific program.

Salaries:
In salary expense, most likely there will be individuals who are 100% dedicated to one type of activity and then have several individuals who are dedicated to several different activities. To allocate the salary of individuals who work on different activities, estimate the percentage of time the individual spends on the different activities. If a time recording system is used, those records could be reviewed to determine what percentage should be allocated to each activity. Time studies could also be performed for a period to time to determine the allocation. If neither of those options are available, management should work with the employee to develop an estimate of time they spend on the different activities.

The important thing to remember is that these allocations are managements estimates and that means they do not need to be 100% accurate. Remember to document how you came up with your allocations as that information will be used to develop the enhanced footnote disclosure that is required under ASU 2016-14.

ASU 2016-14 requires that the changes be applied on a retrospective basis in the year of adoption, however, if presenting comparative financial statements, the not-for-profit has the option to omit the functional expense information for any periods presented before the period of application. Which means in the year ASU 2016-14 is adopted you only need to determine and disclose the functional expense information for that year (example you adopt ASU 2016-14 for the year-ended December 31, 2018 you are only required to report on functional expenses for 2018). You will need to disclose that you elected not to present the prior year information as allowed under ASU 2016-14. 

ASU 2016-14 is effective for annual financial statements issued for fiscal years beginning after December 15, 2017 (calendar year 2018 and fiscal year 2019). 

Please feel free to contact us if you have any questions, thoughts, or comments. 

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Nicole Loux, CPA, Manager
NLoux@MHCScpa.com

Pass Through Taxation

February 13, 2019 § Leave a comment

As a result of tax reform, pass-though entities will face changes with their qualified business income (QBI) deduction. This video from Nick Finkenauer, Tax Director, covers the standard deduction and also highlights the one-part and two-part tests for pass through taxation. #QBIDeduction #LeadingTheWay #MHCScpa

5 Tips for an Organized Business

February 11, 2019 § Leave a comment

As boring as it may sound, my husband and I spend our New Year’s Eve tidying up and purging things from our home. It feels great to start a new year off fresh and organized. With a growing family, I have made it my goal to make my life – at home and at work – a little more organized this year. This seems to be the trend, especially if you are a Netflix lover.  Marie Kondo’s show, Tidying Up, has quite the hype and is inspiring many people to get organized. So, I thought I would share five (5) tips to get your business organized in 2019:

Start a Filing System: If you feel overwhelmed by a desk covered in paper, an online filing system can help remove the clutter. Upgrade to a cloud based system. This will tidy up the office and give you access to your important documents, no matter where you are.

However, if online isn’t an option for you, start by organizing your paper documents logically.  Keep the most important documents close for easy access. Anything you no longer need should be purged. Be sure to shred all sensitive information. MHCS hosts an annual shred event on May Day. There will be more information on this as the date approaches but it’s a great way to safely dispose of your confidential information if you do not have a regular shredding service.

Clean up Your Email: An overflowing inbox can be frustrating and unproductive. Make it a goal to clean out your inbox daily. If you’ve already responded, file the email in a folder. If you don’t need it; delete it. It feels great and then you can focus on the important tasks of each day.

Use a Cloud Based Accounting Software: Month-end and year-end causes additional stress and work for business owners. What if closing out the month took only a few minutes? By integrating your monthly financial activity online, you can sync business banking and credit card activity. You can review, classify, and enter transactions from your browser or mobile phone with a click of a button. At MHCS, we help our clients convert their accounting software from outdated systems to QuickBooks Online (QBO) and then teach them how to use the platform effectively.

Start Using Apps that Simplify Your Processes: If you are already using QBO, you’re off to a great start! Now take it another step further. Pick an app, you can integrate QBO to streamline your payroll, accounts payable, expense tracking solutions processes, just to name a few.  At MHCS, we have worked with Gusto, Bill.com, Expensify, and many others to help make your life easier. The apps save time and create efficiencies so you can focus on what you do best.

Tidy Up Before Going Home:  A small, simple task you can do is tidying up your desk before you leave each day. Get rid of the empty coffee mugs and organize your mail.  It’s a small gesture that goes a long way to starting each morning fresh and organized. 

At MHCS, we can partner with you to create accounting processes that work best for your business.  We, with today’s technology, can tidy up your office and declutter your desk, so you can focus on your business, not the paperwork. I hope 2019 brings organization to your business and your life, whether it be big or small. 

View More: http://alexandbrenda.pass.us/mhcs

Tabetha Albrecht, CPA Supervisor
TAlbrecht@MHCScpa.com

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