Mark Korte Recognized as a “Best Accountant in St. Louis”

We are excited to share that our very own Mark Korte was recognized in St. Louis Small Business Monthly’s Best in Business List as one of the “Best Accountants in St. Louis”. The annual feature will be in the October issue and honors 26 St. Louis-area accountants. The magazine received well over 200 nominations from its readers for the list this year.

Mark is a Principal in our Highland office and the leader of the firm’s Construction niche. He has been with Scheffel Boyle since 1993, is a Certified Public Accountant (CPA), and a Certified Construction Industry Financial Professional (CCIFP). Mark is a valuable member of both our firm and his local community. Congratulations, Mark!

Click here for a full list of this year’s honorees!

 

Fourth Quarter Tax Deadlines

October 15 — Personal federal income tax returns that received an automatic six-month extension must be filed today and any tax, interest and penalties due must be paid.
  • The Financial Crimes Enforcement Network (FinCEN) Report 114, “Report of Foreign Bank and Financial Accounts” (FBAR), must be filed by today, if not filed already, for offshore bank account reporting. (This report received an automatic extension to today if not filed by the original due date of April 17.)
  • If a six-month extension was obtained, calendar-year C corporations should file their 2017 Form 1120 by this date.
  • If the monthly deposit rule applies, employers must deposit the tax for payments in September for Social Security, Medicare, withheld income tax and nonpayroll withholding.

October 31 — The third quarter Form 941 (“Employer’s Quarterly Federal Tax Return”) is due today and any undeposited tax must be deposited. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until November 13 to file the return.

  • If you have employees, a federal unemployment tax (FUTA) deposit is due if the FUTA liability through September exceeds $500.

November 15 — If the monthly deposit rule applies, employers must deposit the tax for payments in October for Social Security, Medicare, withheld income tax, and nonpayroll withholding.

December 17 — Calendar-year corporations must deposit the fourth installment of estimated income tax for 2018.

  • If the monthly deposit rule applies, employers must deposit the tax for payments in November for Social Security, Medicare, withheld income tax, and nonpayroll withholding.

Catching Up With the Home Mortgage Interest Deduction

A home is the most valuable asset many people own. So, it’s important to remain aware of the tax impact of homeownership and to carefully track the debt you incur to buy, build or improve your home — known as “acquisition indebtedness.”

Among the biggest tax perks of buying a home is the ability to deduct your mortgage interest payments. But this deduction has undergone some changes recently, so you may need to do some catching up.

Before the passage of the Tax Cuts and Jobs Act (TCJA) late last year, a taxpayer could deduct the interest on up to $1 million in acquisition indebtedness on a principal residence and a second home. And this still holds true for mortgage debt incurred before December 15, 2017. But the TCJA tightens limits on the itemized deduction otherwise.

Specifically, for 2018 to 2025, it generally allows a taxpayer to deduct interest only on mortgage debt of up to $750,000. The new law also generally suspends the deduction for interest on home equity debt: For 2018 to 2025, taxpayers can’t claim deductions for such interest, unless the proceeds are used to buy, build or substantially improve the taxpayer’s principal or second home.

Step carefully if you own a second residence and use it as a rental. For a home to qualify as a second home for tax purposes, its owner(s) must use it for more than 14 days or greater than 10% of the number of days it’s rented out at fair market value (whichever is more). Failure to meet these qualifications means the home is subject to different tax rules.

Please contact us for assistance in properly deducting mortgage interest, as well as fully understanding how the TCJA has impacted other aspects of personal tax planning.

DOL Has Increased Scrutiny of Defined Benefit Plans

Sponsors of defined benefit plans — commonly known as pensions — might be facing tighter scrutiny from the U.S. Department of Labor. Just last year, at an ERISA Advisory Council meeting, the agency’s Employee Benefits Security Administration (EBSA) announced that it had ramped up pension audit operations in its Philadelphia office and later decided to do so elsewhere. If your organization offers its employees a defined benefit plan, here’s what you should know.


Required Statement

The focus of the audits is on pension plan sponsors’ efforts to deliver benefits to terminated vested participants. According to EBSA’s Reporting and Disclosure Guide for Employee Benefit Plans, plan administrators must provide a “Statement of Accrued and Nonforfeitable Benefits” to participants on request, on termination of service with the employer or after the participant has a one-year break in service. However, only one statement is required in any 12-month period for statements provided on request.

Best Practices

Timothy Hauser, EBSA’s Deputy Assistant Secretary for Program Operations, offered some best practices for satisfying the agency’s notification requirements. He advised, first and foremost, that plan sponsors keep good records on how to reach plan participants and relay those records to other corporate entities in a merger or acquisition.

A good starting point, according to Hauser, is for plan sponsors to send participants a certified letter using the participant’s last known address. If mail is returned from the former employee’s last known address, he suggested trying to contact the participant by phone. It’s possible the phone number on record is a mobile phone that wouldn’t be pinned to a previous mailing address.

When other methods fail, Hauser recommended reaching out to former co-workers of the separated participant who might have remained in contact. With so much information available through social media, employers should also consider using the Internet to help find terminated missing participants.

Up to Speed

Pension plans may not be as widely used as they used to be, but the compliance rules related to them remain strict. Make sure you stay up to speed on everything that’s required.

Avoid Penalties by Abiding by the NQDC Tax Rules

Nonqualified deferred compensation (NQDC) plans pay executives at some time in the future for services to be currently performed. If you participate in such a plan, or your business offers one as an employee benefit, it’s critical for everyone involved to abide by the applicable tax rules. Of course, in the hectic course of the average exec’s schedule, keeping up with the details isn’t always easy.


How They Differ

NQDC plans differ from qualified plans, such as 401(k)s, in a variety of ways. First, these plans can favor certain highly compensated employees. And though the executive’s tax liability on the deferred income also may be deferred, the employer can’t deduct the NQDC until the executive recognizes it as income. What’s more, any NQDC plan funding isn’t protected from the employer’s creditors.

What You Need to Know

NQDC plans also differ in terms of some of the rules that apply to them. Internal Revenue Code (IRC) Section 409A and related IRS guidance have tightened and clarified some of these rules. Specifics to study up on include:

Timing of initial deferral elections. Executives must make the initial deferral election before the year they perform the services for which the compensation is earned. So, for instance, if you wish to defer part of your 2019 compensation to 2020 or beyond, you generally must make the election by the end of 2018.

Timing of distributions. Benefits must be paid on a specified date, according to a fixed payment schedule or after the occurrence of a specified event — such as death, disability, separation from service, change in ownership or control of the employer, or an unforeseeable emergency.

Elections to change timing or form. The timing of benefits can be delayed but not accelerated. Elections to change the timing or form of a payment must be made at least 12 months in advance. Also, new payment dates must be at least five years after the date the payment would otherwise have been made.

Employment Tax Issues

Another important NQDC tax issue is that FICA taxes are generally due when services are performed or when there’s no longer a substantial risk of forfeiture, whichever is later. This is true even if the compensation isn’t paid or recognized for income tax purposes until later years.

So, if you’re the plan participant, your employer may withhold your portion of the tax from your salary, or ask you to write a check for the liability. An employer may also pay your portion, in which case you’ll have additional taxable income.

Consequences of Noncompliance

The penalties for noncompliance with NQDC plan rules can be severe. Plan participants may be taxed on plan benefits at the time of vesting, and a 20% penalty and potential interest charges also will apply. So, if you’re receiving NQDC, check with your employer to make sure it’s addressing any compliance issues.

Putting It All Together

Whether you’re a busy exec who participates in an NQDC plan or an employer offering one, please contact us. We can help incorporate your plan or other executive compensation into your year-end tax planning.

Are You a Member of the Sandwich Generation?

If you’re currently taking care of your children and elderly parents, count yourself among those in the “Sandwich Generation.” Although it may be personally gratifying to help your parents, it can be a financial burden and affect your own estate plan. Here are some critical steps to take to better manage the situation.


Identify Key Contacts

Just like you’ve done for yourself, compile the names and addresses of professionals important to your parents’ finances and medical conditions. These may include stockbrokers, financial advisors, attorneys, CPAs, insurance agents and physicians.

List and Value Their Assets

If you’re going to be able to manage the financial affairs of your parents, having knowledge of their assets is vital. Keep a list of their investment holdings, IRA and retirement plan accounts, and life insurance policies, including current balances and account numbers. Be sure to add in projections for Social Security benefits.

Open the Lines of Communication

Before going any further, have a frank and honest discussion with your elderly relatives, as well as other family members who may be involved, such as your siblings. Make sure you understand your parents’ wishes and explain the objectives you hope to accomplish. Understandably, they may be hesitant or too proud to accept your help initially.

Execute the Proper Documents

Assuming you can agree on how to move forward, develop a plan incorporating several legal documents. If your parents have already created one or more of these documents, they may need to be revised or coordinated with new ones. Some elements commonly included in an estate plan are:

Wills. Your parents’ wills control the disposition of their possessions, such as cars, and tie up other loose ends. (Of course, jointly owned property with rights of survivorship automatically pass to the survivor.) Notably, a will also establishes the executor of your parents’ estates. If you’re the one providing financial assistance, you may be the optimal choice.

Living trusts. A living trust can supplement a will by providing for the disposition of selected assets. Unlike a will, a living trust doesn’t have to go through probate, so this might save time and money, while avoiding public disclosure.

Powers of attorney for health and finances. These documents authorize someone to legally act on behalf of another person. With a durable power of attorney, the most common version, the authorization continues after the person is disabled. This enables you to better handle your parents’ affairs.

Living wills or advance medical directives. These documents provide guidance for end-of-life decisions. Make sure that your parents’ physicians have copies so they can act according to their wishes.

Beneficiary designations. Undoubtedly, your parents have completed beneficiary designations for retirement plans, IRAs and life insurance policies. These designations supersede references in a will, so it’s important to keep them up to date.

Spread the Wealth

If you decide the best approach for helping your parents is to give them monetary gifts, it’s relatively easy to avoid gift tax liability. Under the annual gift tax exclusion, you can give each recipient up to $15,000 (for 2018) without paying any gift tax. Plus, payments to medical providers aren’t considered gifts, so you may make such payments on your parents’ behalf without using any of your annual exclusion or lifetime exemption amount.

Mind Your Needs

If you’re part of the Sandwich Generation, you already have a lot on your plate. But don’t overlook your own financial needs. Contact us to discuss the matter further.

When is Bartering Taxable?

The notion of bartering may conjure an image of a crowded, bustling medieval bazaar. Dusty travelers, farmers perchance, haggle with merchants over textiles or metal tools. Live chickens are exchanged for handspun cloth and, eventually, everyone goes home happy.

Although usually less dusty, these types of transactions continue to occur in today’s high-tech modern world. In fact, it’s not unusual for small businesses — especially start-ups that are short on capital — to exchange goods or services instead of cash.

For example, a microbrewery might ask the graphic designer across the street to design its logo in exchange for several cases of beer. Contrary to popular belief, these bartering transactions are taxable. In this case, the graphic design company would be required to include the fair market value of the beer in its gross income.

Granted, an informal transaction like this may fly under the IRS’s radar. But business owners who engage in bartering should know that the value of products or services involved in these kinds of deals is generally considered taxable income. (And this is true even if you’re not a business.)

Companies involved in bartering may be required to file Form 1099-MISC. The penalties for failure to file can be harsh. Also, if you use a barter exchange to broker trades with other businesses, the exchange is required to report the proceeds on Form 1099-B. Contact us for further details.

How Spouse-Owned Businesses Can Reduce Self-Employment Taxes

If you own a profitable, unincorporated business with your spouse, you probably find the high self-employment (SE) tax bills burdensome. An unincorporated business in which both spouses are active is typically treated by the IRS as a partnership owned 50/50 by the spouses. (For simplicity, when we refer to “partnerships,” we’ll include in our definition limited liability companies that are treated as partnerships for federal tax purposes.)

For 2018, that means you’ll each pay the maximum 15.3% SE tax rate on the first $128,400 of your respective shares of net SE income from the business. Those bills can mount up if your business is profitable. To illustrate: Suppose your business generates $250,000 of net SE income in 2018. Each of you will owe $19,125 ($125,000 × 15.3%), for a combined total of $38,250. Fortunately, there may be ways your spouse-owned business can lower your combined SE tax hit.

Divorce Yourself From the Concept

While the IRS creates the impression that involvement by both spouses in an unincorporated business automatically creates a partnership for federal tax purposes, in many cases it will have a tough time making the argument — especially when the spouses have no discernible partnership agreement and the business hasn’t been represented as a partnership to third parties (such as banks and customers).

If you can establish that your business is a sole proprietorship (or a single-member LLC treated as a sole proprietorship for tax purposes), only the spouse who is considered the proprietor owes SE tax. So, let’s assume the same facts as in the previous example, except that your business is a sole proprietorship operated by one spouse. Now you have to calculate SE tax for only that spouse. For 2018, the SE tax bill is $23,172 [($128,400 × 15.3%) + ($121,600 × 2.9% Medicare tax)]. That’s much less than the combined SE tax bill from the first example ($38,250).

Show a Lopsided Ownership Percentage

Even if you do have a spouse-owned partnership, it’s not a given that it’s a 50/50 one. Your business might more properly be characterized as owned, say, 80% by one spouse and 20% by the other spouse, because one spouse does much more work than the other.

Let’s assume the same facts as in the first example, except that your business is an 80/20 spouse-owned partnership. In this scenario, the 80% spouse has net SE income of $200,000, and the 20% spouse has net SE income of $50,000. For 2018, the SE tax bill for the 80% spouse is $21,722 [($128,400 × 15.3%) + ($71,600 × 2.9%)], and the SE tax bill for the 20% spouse is $7,650 ($50,000 × 15.3%). The combined total SE tax bill is only $29,372 ($21,722 + $7,650).

Explore All Strategies

More-complicated strategies are also available. Contact us to learn more about how you can reduce your spouse-owned business’s SE taxes.