Posted on Nov 15, 2017

This week, the House Ways and Means Committee approved revised version on 11/9, aiming to bring to a floor vote this week.  On November 11th, the Senate Finance Committee released their tax reform plan, and the senate will begin markup this week.

There are significant differences between the two bills. This article aims to point out the major changes and significant differences that will affect our clients in the future, as well as suggests ways to plan for the new Tax Cuts and Jobs Act Bill.

Business Provisions

House Version Senate Version
C Corp Tax Rate – 20% in 2018 C Corp Tax Rate 20% in 2019
Dividend Received Deduction

80% becomes 65%

70% becomes 50%

Dividend Received Deduction

same as House Version effective 2019

Pass-through Businesses & Sole Prop

70% of income attributable to labor

Taxed at “normal” rate

30% of income taxed at 25%

Personal Service business –100% taxed at “normal” rate

Pass-through Businesses & Sole Prop

17.4% deduction of income

Personal Service business – no deduction

Bonus Depreciation

100% expense of qualified property acquired & placed in service after 9/27/2017 and before 1/1/2023

Replaces original use requirement with taxpayer’s first use requirement

Bonus Depreciation

100% expense of qualified property acquired & placed in service after 9/27/2017 and before 1/1/2023

Section 179

Expense limit $5 million

Phase out limit: $20 million

Section 179

Expense limit $1 million

Phase out limit $2.5 million

Indexed for inflation

Expands definition of qualified real property to include roofs, HVAC, fire and alarm protection systems, and security systems

Non-residential real property depreciable life: 25 years

10 year recovery period for qualified improvement property

Cash Basis of Accounting

C Corps, Partnerships with C Corp partner: Cash basis allowed if average gross receipts for 3 prior periods is less than $25 million.

Indexed to inflation

Cash Basis of Accounting

C Corps, Partnerships with C Corp partner: Cash basis allowed if average gross receipts for 3 prior periods is less than $15 million.

Indexed to inflation

Inventory

If gross receipts are less than $25 million

Treat inventories as materials and supplies

OR

Conforms to financial accounting statements or its books and records

Inventory

If gross receipts are less than $15 million

Treat inventories as materials and supplies

OR

Conforms to financial accounting treatment

Section 263A

Small Biz exception average gross receipts under $25 million

Section 263A

Small Biz exception average gross receipts under $15 million

Construction

Small construction contract average gross receipts under $25 million

Construction

Small construction contract average gross receipts under $15 million

Business Interest Expense

Limited to 30% adjusted taxable income

Determined at the entity level

Excess carried over 5 years

Doesn’t apply if gross receipts < $25 million

Business Interest Expense

Limited to 30% adjusted taxable income

Determined at the entity level

Excess carried over indefinitely

Doesn’t apply if gross receipts < $15 million

Net Operating Losses

No Carryback (1 yr small biz & farm exception)

Carryover can only deduct up to 90% of taxable income

NOL’s generated after 2017 can be increased by an interest factor to preserve its value

Net Operating Losses

No Carryback (2 yr farming exception)

Carryover can only deduct up to 90% of taxable income

NOL’s generated after 2017 are indefinite and can be increased by an interest factor to preserve its value

Like exchanges

Allowed only with respect to real property

Like exchanges

Allowed only with respect to real property

DPAD- repealed DPAD- repealed
  Small life insurance company deduction is repealed
  Sale of Partnership Interest

Character of gain or loss attributable to hypothetical sale of all of partnerships assets allocated to interests in the partnership in the same manner as non-separately stated income

Buyer required to withhold 10% of sales price unless seller certifies seller is not a nonresident alien or foreign corporation

Individual Provisions

House Version Senate Version
Tax Brackets:

Brackets indexed for chained CPI

12% bracket phases out for high income taxpayers

 

Tax Brackets:

Adjusted for chained CPI

“Kiddie tax” – Earned income taxed according to single tax bracket, BUT unearned income taxed according to trust & estate tax brackets.

 

Standard Deduction

$24,000 – MFJ

$12,000 – Single

Standard Deduction

$24,000 – MFJ

$12,000 – Single

$18,000 – Head of Household

Personal Exemptions – Repealed Personal Exemptions – Repealed
Child Credit Expanded

$1,600 per qualifying child

Age limit under 17

$300 credit for other qualifying dependents (including both the spouses on a joint return).

Phase out: $230,000 MFJ, $115,000 Singles

Child Credit Expanded

$1,650 per qualifying child

Age limit under 18

$500 credit for other qualifying dependents.

Phase out: $1 million MFJ, $500,000 all others

 

Itemized Deductions

Overall Limit – repealed

Medical Deductions – repealed

Mortgage Interest – new debt after 11/2/17 – limited $1million limited becomes $500,000

 

Taxes

Income and sales tax deduction eliminated.

Property taxes capped at $10,000

 

Charity

50% limit changed to 60%

Charitable miles adjusted for inflation

 

Miscellaneous Deductions Repealed:

Tax prep fees

Unreimbursed employee business exp.

 

 Exclusion of gain on sale of personal residence

2 out of 5 years becomes 5 out of 8

Able to use once every 5 years

Phased out dollar for dollar when AGI exceeds $500,000  ($250,000 singles)

 

Moving Expenses – Repealed

 

Exclusion of qualified moving expense reimbursement – repealed

 

Deduction for Alimony  – Repealed

Not included in recipient income

 

Itemized Deductions

Overall Limit – repealed

Mortgage Interest – home equity debt interest deduction repealed.

Taxes – Repealed

 

Charity

50% limit changed to 60%

 

Miscellaneous Deductions Repealed:

Tax prep fees

Unreimbursed employee business exp.

All other subject to 2% floor

 

Exclusion of gain on sale of personal residence

2 out of 5 years becomes 5 out of 8

Able to use once every 5 years

 

Moving Expenses – repealed

 

Exclusion of qualified moving expense reimbursement – repealed

 

Education Provisions

Enhanced American Opportunity Credit.

American Opportunity Credit, Hope Scholarship Credit, and Lifetime Learning Credit – consolidated into 1 credit.

100% credit for first $2,000

25% credit for next $2,000

Covered expenses = tuition, fees, course materials

Available for a 5th post-secondary year at 50% the rate of the first 4.

 

Education Savings Accounts

New contributions to Coverdell savings accounts prohibited

Tax free rollovers from Coverdell to 529

529 plan qualified expenses expanded:

Elementary & high school expenses up to $10,000 per year

Expenses associated with apprenticeship programs

 

Repeal of other provisions

Student Loan Interest

Above the line deduction for tuition

Exclusion of interest from Savings Bonds

Qualified tuition reductions

Education Provisions

None.

 

AMT  – Repealed

AMT credit may offset regular tax for any year.

AMT credit refundable before 2022 equal to 50 percent of the remaining credit over the credit allowable for regular tax.

Balance of AMT credit refunded in 2022

AMT  – Repealed

AMT credit may offset regular tax for any year.

AMT credit refundable before 2022 equal to 50 percent of the remaining credit over the credit allowable for regular tax.

Balance of AMT credit refunded in 2022

 

Estate Taxes

Exclusion doubled to $10 million (indexed for inflation)

Repealed in 2023

Stepped up basis remains

Gift tax rate lowered to 35%

Estate Taxes

Doubles estate and gift exemption amount.  Indexed for inflation.

 

If you are curious of how this new tax plan will affect your business or personal tax situation, contact our tax team. We are here to help you plan for the plan.

Scott Allen, CPA, joined Cornwell Jackson as a Tax Partner in 2016, bringing his expertise and 25 years of experience in the accounting field. As the Partner in Charge of the Tax practice at Cornwell Jackson, Scott provides proactive tax planning and tax compliance to all Cornwell Jackson tax clients. Contact him at Scott.Allen@cornwelljackson.com or 972-202-8032.

Posted on Nov 7, 2017

Historic Tax Reform Compared to Today

The alternative minimum tax (AMT) arose as part of the Reagan administration’s tax reforms. In addition to simplifying capital gains rates and taxation, the top marginal tax rate dropped from 70 percent to 28 percent. The AMT and passive activity rules were put in place as a way to close “loopholes.”

Lower tax rates sound good until we note the loss of certain itemized deductions that have never returned, such as deducting credit card interest and a dependent’s student loan interest. However, marginal tax rates were raised over and over again through the 90s. Additionally, since that time, more middle class Americans who saw their incomes rise during the industrial and tech booms have been getting caught in the AMT trap.

Therefore, if additional itemized deductions and other “loopholes” are removed or curtailed, history shows that they will not come back even though the federal government still has the option to raise marginal tax rates. This could be really costly to taxpayers in the long run.

Your Tax Planning Prediction

If I were to look into my crystal ball on tax reform, I would predict that the “reform” that eventually passes will look a whole lot different than this initial framework.

My standard guidance to clients is to look at their own individual tax situation and continue to leverage opportunities that range from tax-deferred savings to keeping track of potential itemized deductions. If a major event has occurred or is on the horizon this year, talk to your CPA about its potential tax impact under the current tax code.

For companies, it is too early to tell if a change in business structure is a good move for tax purposes. We recommend that clients sit tight with their current business structure until we have more clarity on how different business structures will be taxed.

Ultimately, consider your business goals and planning for investments or equipment purchases. Consider the current equipment expensing and bonus depreciation rules, the time frame for which your company will need the equipment, and your projected profits when making the decision whether to invest this year or next. The same holds true for estate planning. Planning with the guidance of your trusted advisors keeps you and your family in more control regardless of the next version of federal tax legislation.

As soon as we see some actual legislation from the Hill, there may be more to discuss for you or your company. Think of Cornwell Jackson if you are in need of longer-range planning, reporting support or guidance. And stay tuned!

Download the whitepaper: Tax Reform 2017 – How New Tax Legislation Will Affect Businesses and Individuals

Scott Allen, CPA, joined Cornwell Jackson as a Tax Partner in 2016, bringing his expertise in the Construction and Oil and Gas industries, and 25 years of experience in the accounting field. As the Partner in Charge of the Tax practice at Cornwell Jackson, Scott provides proactive tax planning and tax compliance to all Cornwell Jackson tax clients. Contact him at Scott.Allen@cornwelljackson.com or 972-202-8032.

Posted on Nov 6, 2017

Could your data be hacked? Unfortunately, every organization — including for-profit businesses, not-for-profits and government agencies — is vulnerable to cyberattacks today.

Examples abound. In September, Equifax reported a data breach that exposed the credit histories and other information of 145.5 million Americans. Shortly thereafter, the Securities and Exchange Commission (SEC) reported a hacking incident that occurred in 2016.

These incidents have raised concerns from individuals and lawmakers about delays in reporting breaches. However, breach response requires a delicate balance. Organizations that are hacked have a responsibility to make a measured, comprehensive assessment of the situation before reporting a breach to the public at large. Here are details of the SEC breach incident and guidance for victim-organizations on how (and when) to report a data breach.

Breach Response Legislation in the Works

Following the SEC and Equifax incidents, the Personal Data Notification and Protection Act was reintroduced in the House. This bill aims to expedite data breach response time. Representative Jim Langevin (D-RI) originally proposed this bill in 2015. He claims that, if the legislation had been in effect when the Equifax breach occurred, Equifax would have had to disclose its breach to the Federal Trade Commission and the Department of Homeland Security within 30 days, not six weeks later.

“This bill will replace the patchwork of 48 state breach notification laws with a single nationwide standard that would clarify and strengthen companies’ obligations to report intrusions that compromise consumers’ personal information,” Langevin said. “Americans put a lot of trust in companies by giving them personal and private information, and they should have confidence that their data is secure. While I do not believe that breach notification is the only legislative response required following Equifax, it is an important first step in building accountability and protecting consumers.”

Under the proposed legislation, companies that fail to meet the requirements would be severely penalized, including fines of up to $1 million per violation. They could also be targeted for civil penalties in lawsuits from states across the country. The legislation doesn’t include any limit on damages in the event a corporation is found to have acted “willfully or intentionally.”

Critics of the bill argue that organizations could be hamstrung by stricter reporting requirements, especially if they are forced to report every isolated incident. Premature or inaccurate reports may cause consumers and other stakeholders to unnecessarily panic or become confused. Some also fear that “data breach fatigue” will eventually lead to public indifference.

We’re monitoring this controversial bill as it works its way through Congress. The recent Equifax and EDGAR breaches are helping it pick up momentum, however.

SEC Announces Breach

In September, SEC Chairman Jay Clayton announced that the agency was expanding a probe into a 2016 data breach of its electronic filing system, known as EDGAR (short for Electronic Data Gathering, Analysis and Retrieval). The investigation will primarily focus on a review of when agency officials learned that the EDGAR system had been hacked. The FBI and U.S. Secret Service have also launched investigations into the breach.

What exactly is EDGAR? It’s the electronic filing system that the SEC created to increase efficiency and accessibility to corporate filings. Most publicly traded companies must submit documents to the SEC using EDGAR. However, some smaller companies may be exempt from these EDGAR mandates if they don’t meet certain thresholds.

Examples of documents that the SEC requires companies to file through EDGAR include annual and quarterly corporate reports and information pertaining to institutional investors. This time-sensitive information is often critical to investors and analysts.

Hackers Exploit Outdated System

EDGAR was launched in the 1990s, and it’s been routinely updated and modified over the last two decades. Like many legacy systems, however, EDGAR has some weaknesses and glitches, and the system will eventually need to be replaced.

In September 2016, the SEC awarded a $6.1 million contract to a firm to collect information needed to completely redesign EDGAR. The SEC anticipates that the information-gathering phase will extend through March 2018. A further extension may be requested to provide additional support for the redesign.

Based on the SEC’s preliminary investigation, it appears that hackers were able to breach EDGAR by using authentic financial data when they were testing the agency’s corporate filing system. The breach occurred in October 2016 and was reportedly detected that month. The cyberattack appears to have been routed through a server in Eastern Europe.

The SEC’s enforcement division discovered the breach as part of an ongoing investigation. Although SEC Chair Clayton was vague on the details, he admitted, “Information they gained caused them to question whether there had been a breach of the system.”

Furthermore, it’s not entirely clear what kind of information was breached. Corporate filings contain detailed financial information about company performance, but such information is usually available to investors in press releases prior to SEC disclosure. According to industry insiders, one potential target could be Forms 8-K. These are unscheduled filings regarding material events that companies are legally required to disclose. These disclosures in EDGAR begin before the official word gets out to the rest of the world.

Media sources say that the FBI’s investigation has homed in on trading activities conducted in connection with the breach. One possibility is that the EDGAR breach is connected to a group of hackers that intercepted electronic corporate press releases in a previous case handled by the FBI team.

SEC Chair Clayton, who took office in May 2017, claims to have first learned of the breach in August 2017. Although he didn’t blame his predecessors, Clayton can’t guarantee that there haven’t been other breaches. “I cannot tell you with 100% certainty that this is the only breach we have had,” Clayton said, reiterating that the investigation was “ongoing.”

Take Control of Breach Response

Public response to the SEC incident, which was announced at roughly the same time as the high-profile Equifax breach, has focused significant attention on the lag between when an organization detects a breach and when it’s announced to the public.

The media and congressional investigations have cast doubt on the intentions of SEC Chair Clayton and the management team at Equifax: Were the delayed responses actually attempts to hide the truth, thereby exposing investors and other stakeholders to even greater potential losses?

Before anyone jumps to conclusions, however, it’s also important to consider the perspective of the victim-organization. It takes time to investigate a breach before announcing it to the public. A knee-jerk response that needs to subsequently be revised can cause major damage to the organization’s reputation with its stakeholders.

What should you do as soon as you suspect that your organization’s data has been breached? First, call your attorney, who will help assemble a team of data response specialists. The preliminary goal is to answer two fundamental questions:

  1. How were the systems breached?
  2. What data did the hackers access?

Once these questions have been answered, forensic experts can help evaluate the extent of the damage. Sometimes, a breach occurs, but the hackers don’t actually steal any data.

A comprehensive data response includes the following services:

  • Legal,
  • Forensic,
  • Information technology (IT),
  • Communications / public relations, and
  • Credit monitoring services.

Whether your organization is small or large, for-profit or not-for-profit, the goal in breach response is essentially the same: to provide accurate, detailed information about the incident as quickly as possible to help minimize losses and preserve trust with customers, employees, investors, creditors and other stakeholders.

Once investigative and response procedures are underway, management needs to take proactive measures to fortify controls. This final step helps minimize the risk that another data breach will occur in the future.

Plan Ahead

Data breaches are an inevitable part of today’s interconnected, technology-driven world. How an organization responds to a breach can set it apart from others and affect its goodwill with stakeholders.

Proactive organizations don’t wait for a breach to strike, however. Work with your legal and forensic accounting professionals to help prevent and detect breaches, as well as to establish policies and procedures for investigating and responding to suspected hacking incidents.

Posted on Nov 6, 2017

There are more interesting proposed tax changes for individuals than on the business level. The proposal calls for seven individual tax brackets to be replaced by just three, potentially 12, 25 and 35 percent.  It also calls for eliminating the so-called “marriage penalty” and expanding the standard deduction. However, some of these proposed changes could end up hurting some taxpayers more than helping them.

According to the Wolters Kluwer report, the math for some taxpayers under the proposed higher standard deduction vs. taking the current standard deduction plus personal exemptions does not seem to add up well.

“Under the inflation adjusted amounts for 2017, a family of four filing a joint return could claim a standard deduction of $12,700, plus $16,200 for four personal exemptions of $4,050. The result reduces adjusted gross income by $28,900. Under the GOP framework, the standard deduction for married filing jointly is only $24,000 with no exemptions. The result would be that the family’s taxable income would be increased by $4,900 as compared to 2017 inflation adjusted amounts.”  

The framework calls for an expansion of the child tax credit.  The amount of the credit would increase and be made available to more income groups.

The framework also proposes significant changes to itemized deductions. Nearly all the itemized deductions will be eliminated except for mortgage interest and charitable deductions. Note that property, sales, and income tax deductions are targeted for elimination.

A significant impact on our clients is the proposed concept of capping itemized deductions. President Trump had called for a cap of $100,000 in itemized deductions for single filers up to a $200,000 cap for married filing jointly. People with high out-of-pocket medical expenses (currently amounts beyond 7.5 percent of adjustable gross income), for example, would lose that option to reduce their taxable income. In addition, the opportunity for large charitable contributions and mortgage interest deductions may be impacted. There was also discussion during President Trump’s campaign that all personal exemptions and head-of-household status would be eliminated, but all of these potential deductions are expected to undergo discussion in committee.

Tax Planning Changes for Individuals

My standard guidance to clients is to look at their own individual tax situation and continue to leverage opportunities that range from tax-deferred savings to keeping track of potential itemized deductions. If a major event has occurred or is on the horizon this year, talk to your CPA about its potential tax impact under the current tax code.

Ultimately, consider your business goals and planning for investments or equipment purchases. Consider the current equipment expensing and bonus depreciation rules, the time frame for which your company will need the equipment, and your projected profits when making the decision whether to invest this year or next. The same holds true for estate planning. Planning with the guidance of your trusted advisors keeps you and your family in more control regardless of the next version of federal tax legislation.

As soon as we see some actual legislation from the Hill, there may be more to discuss for you or your company. Think of Cornwell Jackson if you are in need of longer-range planning, reporting support or guidance. And stay tuned!

Continue Reading: Today’s Reform and Tax Planning Predictions

Scott Allen, CPA, joined Cornwell Jackson as a Tax Partner in 2016, bringing his expertise in the Construction and Oil and Gas industries, and 25 years of experience in the accounting field. As the Partner in Charge of the Tax practice at Cornwell Jackson, Scott provides proactive tax planning and tax compliance to all Cornwell Jackson tax clients. Contact him at Scott.Allen@cornwelljackson.com or 972-202-8032.

Posted on Nov 1, 2017

Corporate Tax Reform

In the new tax reform bill, the framework proposes a 20 percent corporate tax rate, down from 35 percent, as well as a top rate of 25 percent for pass-through income. This change, if passed would particularly benefit small business owners and sole proprietorships, but provisions may be put in place to prevent certain service providers or wealthy business owners from converting compensation income to profits that would be taxed at a lower rate.

One proposed change that makes a lot of sense for business owners is elimination of the estate tax. For anyone who has an estate valued at more than $5.49 million (as of 2017) and wants to leave an inheritance to anyone beyond their spouse, that money is taxed at a fairly steep maximum federal rate of 40%. Fortunately for Texans, there isn’t an additional state inheritance tax, since that tax was eliminated in 2015. Because taxpayers have already paid tax on income gained over their lives, opponents consider the federal estate tax to be double taxation.

Some of the business owners particularly affected by the estate tax are ranchers and farmers, whose assets are not liquid but tied to the value of their land. It is not difficult to go beyond $5 million in estate value for several thousand acres of land. Families have been forced to sell their land to pay the tax.

There is some mention of the estate tax being replaced by a carryover basis rule as well as elimination of the generation-skipping transfer tax. This is one change that may have bipartisan support.

Business expensing

Many changes to business incentives are proposed in the tax framework, from elimination of the Domestic Production Activities Deduction (DPAD) to modernizing industry-specific tax breaks to reflect economic reality. If a maximum 20% corporate tax rate is attained, it may make sense to eliminate DPAD and any special incentives that allow only certain businesses to reduce their tax impact even further.

There will be considerable planning opportunities for changes to bonus depreciation or first-year expensing. A proposed 100 percent bonus depreciation for five years starting in 2017 may accelerate investments in property or equipment, but such investments should still make logical sense for the business. In addition, if a business elects to deduct or expense investments rather than capitalize and depreciate, this will result in reduced deductions and higher taxable income in future years. On the face, it seems like an easy analysis, but each business situation will be different.

Repatriation of Profits

Within the tax framework, businesses would be encouraged to bring profits back from foreign subsidiaries and reinvest them in U.S. assets as well as reshoring their headquarters. A one-time 10 percent tax on non-repatriated money has also been proposed. Currently, unless they are structured properly, companies with business outside the U.S. are taxed at the normal corporate tax rate. The new framework offers a reduced tax rate for U.S.-based businesses, likely intended to increase U.S. competitiveness with other countries.

Corporate Tax Planning Prediction

For companies, it is too early to tell if a change in business structure is a good move for tax purposes. We recommend that clients sit tight with their current business structure until we have more clarity on how different business structures will be taxed.

Ultimately, consider your business goals and planning for investments or equipment purchases. Consider the current equipment expensing and bonus depreciation rules, the time frame for which your company will need the equipment, and your projected profits when making the decision whether to invest this year or next. The same holds true for estate planning. Planning with the guidance of your trusted advisors keeps you and your family in more control regardless of the next version of federal tax legislation.

As soon as we see some actual legislation from the Hill, there may be more to discuss for you or your company. Think of Cornwell Jackson if you are in need of longer-range planning, reporting support or guidance. And stay tuned!

Continue Reading: Tax Reform 2017 – Changes for Individuals

Scott Allen, CPA, joined Cornwell Jackson as a Tax Partner in 2016, bringing his expertise in the Construction and Oil and Gas industries, and 25 years of experience in the accounting field. As the Partner in Charge of the Tax practice at Cornwell Jackson, Scott provides proactive tax planning and tax compliance to all Cornwell Jackson tax clients. Contact him at Scott.Allen@cornwelljackson.com or 972-202-8032.

Posted on Oct 30, 2017

Tax reform has taken many twists and turns since April. It appears that any iteration of a tax reform bill will be far from business as usual. Simplification of tax rate tiers and nearly doubling the standard deduction have an overall aim of making individual tax filing easier. However, certain provisions for eliminating deductions are a valid concern among both business owners and individuals. There are good ideas that align with historic tax reform, and others that stray far from it. The best course is to look at your own tax situation from the previous year and consider ways to improve it, while sitting tight on tax news from the Hill. It’s only a framework, so far.

What we Know So Far About the New Tax Legislation

Earlier in 2017, our tax experts at Cornwell Jackson were anticipating what to recommend to clients about a possible change in business structure to manage corporate tax impacts. Initially, both the Trump and Republican tax plans proposed a large federal corporate/business tax rate reduction, putting the new rate for C Corps at 15 or 20 percent. It was a key campaign promise, and comments made by President Trump in March regarding a tax reform package emphasized that he wants to lower the overall tax burden on businesses, regardless of business structure.

Moving into the fourth quarter, President Trump is still promising significant tax cuts and simplification of the tax code. The “United Framework for Fixing Our Broken Tax Code” calls for lower individual tax rates under a three-bracket structure, nearly doubling the standard deduction, and a significant reduction in the corporate tax rate. The framework outlines changing the tax treatment of pass-throughs, expanding child and dependent incentives, and eliminating both the alternative minimum tax and the federal estate tax.

According to a report by Wolters Kluwer, a tax reform package moving through Congress under the reconciliation rules would require only a Senate majority. Any tax cuts would likely have to sunset after 10 years. But 10 years is significant to live with any actual changes.

I will attempt to point out proposed impacts to business owners and individuals in this article, along with how such changes align with historical tax reform and what that may represent for the next decade if we see new legislation for the 2017 tax year.

To drill down to a specific area of the tax reform bill, click on a link below.

Ultimately, consider your business goals and planning for investments or equipment purchases. Consider the current equipment expensing and bonus depreciation rules, the time frame for which your company will need the equipment, and your projected profits when making the decision whether to invest this year or next. The same holds true for estate planning. Planning with the guidance of your trusted advisors keeps you and your family in more control regardless of the next version of federal tax legislation.

As soon as we see some actual legislation from the Hill, there may be more to discuss for you or your company. Think of Cornwell Jackson if you are in need of longer-range planning, reporting support or guidance. And stay tuned!

Download the whitepaper: Tax Reform 2017 – How New Tax Legislation Will Affect Businesses and Individuals

Scott Allen, CPA, joined Cornwell Jackson as a Tax Partner in 2016, bringing his expertise in the Construction and Oil and Gas industries, and 25 years of experience in the accounting field. As the Partner in Charge of the Tax practice at Cornwell Jackson, Scott provides proactive tax planning and tax compliance to all Cornwell Jackson tax clients. Contact him at Scott.Allen@cornwelljackson.com or 972-202-8032.

 

Posted on Sep 27, 2017

Federal law and regulations, and, often, those at the state level, try to guide employers on the question of paying nonexempt workers for being on call. Sometimes your own judgment needs to be exercised as well.

The most straightforward example of a standby situation is when you ask employees to stay at the job site even when they’re off duty. “An employee who is required to remain on call on the employer’s premises is ‘working while on call,'” according to the Department of Labor’s (DOL’s) Wage and Hour Division. It’s also sometimes called “being engaged to wait.” A more precise definition of this type of work is when you require employees to stay so close by that they aren’t free to use the time as they choose.

Overtime Pay Requirement

The Fair Labor Standards Act doesn’t dictate how much employees who are “engaged to wait” should be paid, though of course you must meet minimum wage and overtime requirements. As always, remember that your state or local laws might be more restrictive. California law, for example, has plenty to say on this topic, and some municipalities are also weighing in with local ordinances.

But consider this possibility: suppose you have an employee who is normally paid $18 an hour, or a salary equivalent to that based on a 40-hour workweek. You could drop that employee’s pay rate when he or she is in “working on call” status. After all, many employees who are pinned down at your worksite but not actually working might not think it’s such a bad deal to be paid below their normal wage rate while not working, even though it means they’re not free to leave. However, from your perspective, that could be more trouble than it’s worth from a recordkeeping standpoint, particularly if the time periods are short.

Also, keep in mind that those same “working while on call” hours count toward the calculation of overtime pay. If employees are pursuing activities, such as reading novels or playing cards or video games, for a few hours and those hours push them over the 40-hour workweek overtime threshold, time-and-a-half pay is due.

Ambiguous Situation

Where things get trickier is when an employee is on call, but doesn’t need to be at your worksite. If the employee is deemed to be “waiting to be engaged” (as opposed to being “engaged to wait”), compensation isn’t mandatory. But, just because you don’t require the employee to stay at your worksite doesn’t guarantee he or she has “waiting to be engaged” status. “Additional constraints on the employee’s freedom could require this time to be compensated,” according to the DOL.

Some of those “additional constraints” were laid out in a landmark federal appeals court case in 1994 (Berry v. County of Sonoma). They include the following:

  • Whether there are excessive geographical restrictions on employees’ movements,
  • Whether the frequency of calls to work or return to work is unduly restrictive,
  • Whether a required response time is unduly restrictive,
  • Whether the on-call employee can easily trade his or her on-call responsibilities with another employee, and
  • The extent of personal activities engaged in during on-call time.

Even this additional detail leaves room for interpretation, because terms such as “excessive” and “unduly” are in the eye of the beholder, and sometimes the beholder is a judge. For example, in a recent class action case, one retailer sensed that an appellate court would side with employees (despite being successful at the trial court level) on a matter of interpretation and has tentatively settled with about 36,000 employees at a cost of $12 million. (Casas v. Victoria’s Secret Stores LLC)

Facts of the Case

The issue was the retailer’s on-call shift scheduling policy, which the company abandoned even before the case was settled. In California, home to many of the retailer’s employees, if employees are required to report to work only to be told they aren’t needed that day, the employer must pay them two to four hours at their regular pay rate.

The question being addressed in this case was whether employees who had to only phone in to determine whether they had to report to work, were also entitled to such pay. The argument was that since those employees had to be prepared to go to work (for example, by making child care arrangements) and put other possible plans on hold (such as working at a second job), they too should be entitled to that pay.

As with so many murky labor legal issues, an ounce of prevention is worth a pound of cure. Without giving away the store, establish policies (and make them clear in your employee handbook) that employees will consider fair, rather than test the limits of the law. The following policies should help:

  • Pay them something for being on standby when it’s unclear how a judge would rule if you end up in court.
  • When possible, rotate on-call duty between exempt and nonexempt employees, so that nonexempt employees won’t feel they’re being singled out, and
  • Maximize the amount of time they would have to report to work in an on-call situation, so that they can make arrangements and wrap up other activities they may have been engaged in.

As always, it’s prudent to consult with a labor law attorney before implementing any new policy.

Posted on Sep 26, 2017

A survey of veterans by Syracuse University’s Institute for Veterans and Military Families found that half of the respondents left their first civilian jobs within a year, and 65% left within two years. A commonly cited reason was culture shock. Employers that make a point of hiring veterans — and those that don’t — owe it to themselves and the vets to prevent rapid turnover.

Consider the following characteristics of the military culture and work environment, and think about any contrasts to your own. In the military, generally speaking:

  • Employees know precisely where they stand in the pecking order due to the clear gradations of the ranking system,
  • Steps required for promotion are well-defined,
  • Communication is clear and direct,
  • Punctuality is demanded,
  • Respect for those of superior rank is expected and received,
  • Mutual trust is the norm, and
  • Whining and excuses for nonperformance are not tolerated.

Fish out of Water?

Unless all of the above characteristics precisely describe your workplace culture, you may be able to understand how an employee just returning from military duty might feel like a fish out of water. While a veteran might find a more unstructured and informal working environment a welcome change from the military, a period of adjustment will likely be needed.

According to BelKat Solutions, LLC, a consulting company that helps civilian employers to integrate veterans successfully into their workforce, a “veteran-informed” organization:

  1. Creates a plan to integrate veterans, and informs all of its employees about that plan,
  2. Puts in place activities that support that plan for all stages of employees’ careers, and
  3. Offers solutions to some of the transition issues vets may encounter upon entering civilian life.

In other words, integrating veterans for the long term isn’t a “one-and-done” proposition.

Employers need to be aware that what seems to be attitude problems on the part of vets might really indicate a bumpy transition to civilian work life. “Behavior that an employer or fellow employees may perceive as arrogance, entitlement, or aggressiveness or as being judgmental, frustrated, or apathetic may in fact be a transitional response that can be successfully addressed in an informed environment,” said Belkat.

Four-Step Program

Whether or not you have made a special effort to recruit veterans, once they’re on board, a long-term strategy for keeping them there and flourishing has four basic components, some of which also apply to any other kind of new-hire. The first is assimilation.

The assimilation phase can include such activities as:

  • Explaining job goals and how performance is measured and rewarded,
  • Reviewing the organization’s structure and how leadership communicates with employees,
  • Explaining administrative processes, and
  • Facilitating team-building exercises.

The needs of veterans with recent combat experience might require extra attention, after an assessment of any special sensitivities. Such an assessment might have implications, for example, for the noise level or degree of privacy in the new hire’s immediate work environment.

Beyond basic assimilation, a tailored training and development initiative can serve to identify and address any skill or other gaps in the veteran’s professional development that need to be filled. For example, a veteran who didn’t have a “desk job” in the military (nor in any previous setting) might lack familiarity with basic or the latest versions of desktop computer software.

The two remaining components of a long-term veteran transition strategy recommended by Belkat involve career growth and compensation. About the former, it’s important to understand that in the military, the stairways to the top for non-commissioned and commissioned officers are generally well-defined. Identifying those routes in your organization, to the extent they can be described, is very important to vets. But if a particular job doesn’t lead to career growth, that must be made clear as well.

More than a Rank

Keep in mind that in the military, people are often first defined by their rank, instead of by the nature of their job. A computer specialist with the rank of sergeant would more likely be described as a sergeant than a programmer, if a one word description were required.

Compensation, including intangible rewards such as special recognition, is no less important to vets than any other employees. Keep in mind, however, that in the military opportunities for special monetary awards are more limited. Recognition for service members has more commonly taken the form of medals and commendations, so take time to go over the pay system. If it’s been a while since they’ve worked in civilian jobs, they may have unrealistic expectations of what kind of salaries and raises are possible.

Plenty of resources are available that delve more deeply into the topic of helping veterans transition to a successful civilian career. This includes talking to professional acquaintances who have already been down this road. Unless you’re a veteran yourself, chances are the insights you will gain will carry you and your newly transitioned vets far.

Posted on Sep 19, 2017

Equifax, one of the nation’s three major credit reporting agencies, recently reported a massive data breach. Are you among the 143 million U.S. consumers whose personal information was hacked? Here’s how to find out — and how to help protect yourself against future breaches.

What Went Wrong?

On July 29, Equifax discovered that, starting in mid-May, criminals had exploited a vulnerability in a website application. Although management took immediate action to stop the attack, hackers had already gained unauthorized access to millions of consumers’ names, Social Security numbers, birth dates and addresses, along with thousands of credit card numbers and credit dispute documents that contained sensitive personal information. The attack affected individuals in the United States, Canada and the United Kingdom.

Equifax immediately launched a forensic investigation and began working with law enforcement officials to discover the source and scope of the breach. Equifax has also responded by offering a free year of identity theft protection and credit file monitoring to all U.S. consumers.

Has Your Personal Data Been Breached?

Go to Equifax’s website and click on the “Potential Impact” tab to find out if your personal information has been compromised. The website also allows you to sign up for free data protection and credit monitoring services — regardless of whether you were affected by this particular incident.

Important note: The link requires you to enter personal information. So, access it using only a secure computer and an encrypted network connection.

After you request to enroll in the free service, the website will provide you with an enrollment date. Write down the date and come back to the site and click “Enroll” on that date. You have until November 21, 2017, to enroll for the free services. In addition to the website, Equifax plans to send direct mail notices to consumers whose credit card numbers or dispute documents were breached.

“This is clearly a disappointing event for our company, and one that strikes at the heart of who we are and what we do. I apologize to consumers and our business customers for the concern and frustration this causes,” said Chairman and Chief Executive Officer, Richard F. Smith, in a recent statement. He added, “I’ve told our entire team that our goal can’t be simply to fix the problem and move on. Confronting cybersecurity risks is a daily fight. While we’ve made significant investments in data security, we recognize we must do more. And we will.”

What Should You Do If a Breach Occurs?

If you suspect a data breach, help protect your identity from thieves and minimize losses by taking these steps:

Call the relevant companies if you suspect that a breach has occurred. Ask for the fraud department and explain the incident. Then change log-ins, passwords and PINs to minimize your losses.

Consider freezing your credit. A credit freeze makes it harder for someone to open a new account in your name. Keep in mind that a credit freeze won’t prevent a thief from making charges to your existing accounts, however. Alternatively, consider placing a fraud alert to warn  creditors that you may be a victim of ID theft. Fraud alerts are free from all three major credit reporting agencies and last for 90 days. After the 90-day window, you can renew a fraud alert, if necessary.

Obtain free annual credit reports from Equifax, Experian and TransUnion. Identity theft usually results in accounts or activity that you won’t recognize.

Ongoing Protection

ID theft often happens long after your personal information has been stolen, so don’t allow yourself to be lulled into a false sense of security after your initial response. Ongoing credit monitoring is essential. Proactive consumers continue to watch credit card and bank accounts closely for unusual activity. They also file their taxes as early as possible — before a scammer can.

If your personal data was exposed in the Equifax attack or it’s affected by another breach, contact your financial and legal advisors to guide you through the recovery process.

Posted on Sep 14, 2017

If you watch much financial news, by now you’ve probably been exposed to the Bitcoin craze. Bitcoin has experienced an astounding increase in value in 2017 – from $967 to $4,627 at the time of writing – a rise of 378%. Worth just $358 at its 2016 low point, Bitcoin makes even the most unruly equity markets look relatively steady.

Invented in 2008 by an anonymous programmer and developed by an open-source team, Bitcoin is the largest of many cryptocurrencies that exist today, with a market cap of $160 billion. Unlike dollar bills that are printed and regulated by a Central Bank and Treasury Department, Bitcoin has no centralized control. It can be used on certain websites to make purchases and can be traded on online exchanges. Using Bitcoin ATMs installed across the US, it can be exchanged directly for cash.

Despite Bitcoin’s label and features, it has a long way to go to be considered a real currency.

Standard economic theory states that money has three functions: a medium of exchange, a store of value, and a unit of account. As a medium of exchange, while hundreds of online vendors accept Bitcoin, only three of the top 500 online retailers do. As a unit of account, businesspeople must be able to attribute a Bitcoin value to their good and services. With low adoption among retailers, they are not inclined to take on that risk. As a store of value, Bitcoin again fails, with average monthly price moves in excess of 10% in either direction. Given this knowledge, we consider Bitcoin more of a speculative asset than a real currency.

One questionable aspect of Bitcoin it that it is unregulated and anonymous, making it an attractive tool for money launderers. We cannot foresee the US or EU legitimizing cryptocurrencies with these protocols. In fact, a new EU Draft Law proposed in March seeks to end the anonymity of cryptocurrency users. Confronting the governance issue may cause the value of Bitcoin to decrease or stagnate. Of course, on the other side it may increase its notoriety, making it more attractive to users with that desire.

Another concern about Bitcoin is the threat of hacking. A cryptoexchange called Mt. Gox lost bitcoin worth nearly $500 million to thieves. The Hong Kong cryptoexchange Bitfinex lost bitcoin worth $72 million in 2016. While programmers learn from these mistakes, the risks are still great. Unlike a bank account where there is a paper trail, Bitcoin transactions are anonymous and irreversible, making it almost impossible to recover stolen funds.

Due to their volatility and speculative, get-rich-quick nature, we would not advise clients to bet the ranch on Bitcoin or other cryptocurrencies. In other words, don’t consider investing anything in Bitcoin that you cannot afford to lose.

That said, an aspect of Bitcoin that has real potential is blockchain, the underpinning technology that records and verifies secure transactions on a public ledger. With no need for central recordkeeping, blockchain presents a more efficient way of record keeping and decentralizing markets.

Blockchain technology has the potential to be useful across many industries and transform business operating models in the long term.

Using energy as an example, a Goldman Sachs report from 2016 says, “With the advent of rooftop solar and high-capacity battery technology, individuals can potentially act as distributed power providers. We think blockchain could be used to facilitate secure transactions of power between individuals on a distributed network who do not have an existing relationship.” Start-ups like TransActive Grid in Brooklyn and Grid Singularity in Austria are doing just that.

The secure, tamper-proof blockchain system also offers enhancements for administrators and their record-keeping. This efficiency boost could help in a variety of industries. SWIFT, the secure global financial messaging system, has started utilizing blockchain. Airbnb is exploring using it to manage digital credentials for guests and hosts. For technology as young as blockchain is, it is remarkable seeing how widely it is being applied.

What began as a small experiment is now a rapidly expanding ecosystem. We’re seeing people placing trust in systems and network protocols, as opposed to people and businesses. And that shouldn’t matter, as long as it’s cheaper, faster, more secure and more efficient.

Will Bitcoin become the ubiquitous currency of the future? It’s doubtful, at least under the current status quo. But we do believe the underlying technology is cementing itself as a future-builder. And we aren’t yanking your blockchain when we say that.

Learn more at: http://www.slaughterinvest.com/insight/market-and-economic-commentary/understanding-bitcoin