Radix Accounting

A strong accounting core is the root of a successful business foundation. Radix exists to allow our clients to build the best business possible and we provide expertise in two industries: craft beverage and creative services. We offer integrated accounting service - one point of contact for bookkeeping, payroll, contract CFO service, and tax preparation and planning. 

Year-End Tax Stratgies

The tax landscape is ever-changing, and those changes affect you and your business. Following, we’ve highlighted some of the bigger recent changes to tax law that may affect you. As budgeting and tax planning season quickly approaches, it’s good to think about changes to the law as well as changes to your business. We’d love to see you to take a look at your 2017 budget, 2016 tax planning, and discuss how these changes might affect you specifically.

De Minimus Safe Harbor Expense Policy

In 2014, the IRS approved final regulations on repairs. Small businesses were impacted two ways by this: the definition of repairs and maintenance were standardized and the IRS provided a hard and fast rule for expensing large purchases. Businesses can automatically expense items with a cost of $500 or less, even if the life of the item is expected to be one year or more. Previously, all items with a life expectancy over one year had to be capitalized. This created large headaches for business owners as their accountants and bookkeepers asked them about every purchase at office supply stores and other vendors with a high likelihood of these items being purchased.

In 2016, the IRS updated the $500 rule to a $2,500 safe harbor. The $500 rule still applies, however, small businesses who set and follow an accounting policy of expensing items costing $2,500 or less do not have to capitalize these items. The safe harbor also follows a per item/per invoice rule, so, an invoice totaling to more than the $500 (or up to $2,500 with an accounting policy in place) with individual items under the threshold may still be fully deductible as an expense in the current year.

What this means for you:

Expensing items directly on your P&L creates less administrative burden and helps to keep your financial statements more in line with your tax return. It also effectively increases your ability to take Section 179 on assets purchased in a year, as Section 179 isn’t being utilized on relatively small dollar items that would otherwise have to be capitalized and depreciated.

These Safe Harbor rules may not always be advantageous, particularly if you are looking at a loss in a particular year. Keep in mind, if you set an accounting policy to expense items over $500, you have to keep to that policy for the entire year. Budgeting and tax planning season, which starts in Q4, is a great opportunity to determine if setting a policy like this is right for you in 2017.

Bonus Depreciation

Currently, the IRS allows 50% bonus depreciation on purchases of new items in a given tax year. This bonus depreciation is outside of Section 179, and reduces the depreciable basis of the asset. Depreciation is taken on this reduced basis as per the normal depreciation schedule for the life of the asset. Bonus depreciation is only allowed on items that are purchased new, and can be elected out of in any given tax year. However, if the election not to take bonus depreciation is made, the election has to be for all assets of a given life and class (for example, all 5 year assets must elect out of bonus depreciation in a given tax year).

This bonus depreciation has been especially helpful for retailer and restauranter, as leasehold improvements made for these business have been able to extend a 15 year life instead of the 39 year life normally applicable to commercial real estate. With the shortened asset life, bonus depreciation becomes applicable.

Current & Upcoming Changes

Beginning in 2016, improvements made to the interior, non-residential building is considered qualified improvement property, and bonus depreciation is allowed on this property. This makes the 15 year life on commercial improvements available to all businesses in a commercial building, not just retailers and restauranteurs. 2017, however, is the last year full bonus depreciation will be available. Beginning in tax year 2018, the bonus deprecation will scale down to 40%, and 2019 will be the final year bonus depreciation is available at a rate of 30%.

What this means for you:

If you’ve been thinking about making a large purchase, especially if you expect to be in a tax loss situation and cannot take Section 179. Now is also a good time to consider a remodel for the same reasons. The large costs associated with large asset purchases as well as remodels may produce the best possible tax result in 2016 and 2017.

Remodel-Refresh Rules

The IRS passed final regulations on a new safe-harbor for remodels for retailers and restauranteurs in 2016. Under these new safe-harbor rules, certain businesses may decide to expense 75% of the cost of a remodel in the year the remodel is completed. The remaining 25% of the cost of the remodel is then depreciated as if the safe-harbor wasn’t being used.

What this means for you:

While this safe-harbor may produce a better tax result in the year of the remodel, the depreciation remaining will be greatly reduced. Further, any asset that was disposed as a result of the remodel (i.e., old lighting) has to be grouped with the original cost of the building and will need to continue to be depreciated.

1099 Filing Deadlines

For the last several years, 1099s and W2s have had an extended filing deadline to the IRS and Social Security. Beginning in tax year 2016, those extended deadlines are no longer allowed. 1099s with amounts in Box 7, non-employee compensation, and W2s must be filed with the reporting agencies on January 31, 2017. This is the same date the forms are due to recipients.

What this means for you:

Planning for this earlier deadline will ensure all deadlines are met with ease. If you know you will or expect to have to file 1099s for 2016, you can do a couple of things before year-end to front-load the work:

·         Identify the accounts with vendors who need to receive 1099s. These are usually accounts such as casual labor, professional services, and rent.

·         Review your vendor list and ensure you have a W9 on file for each vendor so you have a current W9 on file for each. The W9 will show the vendor’s tax ID number and address.

NIIT & W2 income

If your wages are over $200,000 for the year, your employer should withhold additional Medicare tax on the amount over $200,000 at 3.8%. This is to ensure you’ve paid in the “surcharge,” created with the Affordable Care Act. Keep in mind this tax may be owed if you have multiple W2s that add up to $200,000 in the year, but are under $200,000 by themselves (for example, if you change jobs or have multiple employers).


S-corp Shareholders & Health Insurance

This is always a good time of year to remind S-corp shareholders that W2s need to show the total amount of health insurance paid for by the corporation on the shareholder’s W2 as both wages and as other information. The IRS requires shareholder health insurance be treated in this manner in order for it to be deductible on your tax return. Note that this applies only to shareholders who own more than 2% of the company.

What this means for you:

Report the amount of any greater than 2% shareholder’s health insurance paid by the corporation to your payroll processor.

Health Insurance Tax Credit

Did you cover at least 50% of the health insurance for your employees through a qualified health plan in 2016? If so, you have fewer than 25 full-time employees, and those employees are paid an average of $50,000 or less per year, you may be eligible for a tax credit. This credit is only available for the first two years you offer health insurance. Be sure to mention this during your tax planning so we can help you prepare for the documentation necessary to claim the credit.

OR Special PTE tax rate

Did you know Oregon has a special, lower tax rate for pass-through entity income? You may qualify for this special tax rate on the income received from an Oregon partnership or corporation with employees other than owner-employees. If you don’t have any employees but are thinking about hiring one, this is a good thing to keep in mind for budgeting next year. In order to qualify for this special, lower tax rate, your employee needs to work at least 1,200 hours in the year, and, only weeks in which the employee works over 30 in a week count toward that 1,200.

Individual Income Tax

Last year saw several extensions on individual income tax concerns as well. Elementary and secondary school teachers may permanently deduct classroom expenses. As of 2016, these include professional development expenses paid out of pocket by the teacher. The 2016 maximum deduction is $250.

Unless extended again, 2016 is the last year qualified tuition and fees for college/university will be allowed as a deduction. The Hope and Life Time Learning Credits aren’t going anywhere though. While credits generally provide a bigger benefit than deductions, in certain situations the deduction will produce a better tax effect. You can be sure that, for at least 2016, we’ll be making that comparison for you when we prepare your tax return.

Fourth quarter estimated tax payments aren’t due until January of 2017. However, it may be more advantageous to make your final 2016 estimated tax payment in 2016, especially your state estimated tax payment. This will allow you to include the deduction on your federal return in 2016. We’ll start calculating and sending out estimated tax vouchers at the beginning of December.

Here’s to a successful Q4!