Red Spot Design2, Author at The CJ Group

Keep Production Humming in Peak Season

Posted on February 20, 2017 by Red Spot Design2

Peak production season can be a nightmare. It’s the time you need all employees to show up consistently and pull their weight. But reality is often far removed from the ideal.

If that’s the case in your plant, you need to consider some strategies to build resilience into your staffing. Here are six tips that can help ease the strain of production peaks:

Cross-train.

Teach employees to perform various jobs. Cross-training not only ensures coverage when it’s needed, it boosts job satisfaction because staff members feel challenged. Have higher-level employees mentor trainees until they get up to speed.

Offer incentives.

Motivate the performance you want, but don’t overuse incentives. They’re ideal for addressing short-term attendance issues. Offer something in return for perfect attendance — being at work on time every day, with no doctor’s appointments or sick days. One company that goes into mandatory overtime during peak production gives employees gift certificates for dinner and a movie for two month’s perfect attendance. And at the end of the time period, the names of all the people who had perfect attendance are entered into a drawing with the prize being a Saturday off with regular pay.

Hire temps.

You can find good temporary help through staffing agencies. This strategy can be especially powerful if combined with cross-training. For example, full-time pickers who have been cross-trained can run machines or work in receiving while temps do picking. Work with two or three agencies so that you’re not dependent on just one.

Shift into overtime if necessary.

Most employees welcome the extra income from overtime. On a limited basis, overtime may be no more costly than temporary labor when you factor in training expenses.

Seek referrals.

Ask employees to refer friends and relatives. Some companies avoid hiring employees’ friends and relatives, even for temporary positions, but they can be a source of reliable help.

Tap academia.

Technical colleges or universities are often a good source for supervisory help. If your peak production times are predictable, you can arrange to hire management or logistics students as interns to assist supervisors.

Any way you look at it, gearing up for peak production in advance saves your company money, time, hassles and missed deadlines. And those advantages go to your bottom line.

In Your Handbook

Stress the importance of good attendance and punctuality in your employee handbook. Spell out that unexcused absences can result in disciplinary action or even dismissal.

Tighter Control for Purchases Made With FSA Debit Cards

Posted on February 17, 2017July 23, 2024 by Red Spot Design2

Debit card technology has simplified the use of health care flexible spending accounts (FSAs). By accessing the stored value on a debit card when making a health care purchase, an FSA participant avoids having to pay for the expense out-of-pocket and then go through a claims submission process in order to be reimbursed. Debit cards also are used in other types of self-insured medical reimbursement plans, such as health reimbursement arrangements.

As the use of debit cards and the popularity of FSAs continue to grow, some retailers are developing online pharmacies that sell only FSA-eligible products. Consumers pay for the goods using their FSA debit cards and can print a receipt at the time of purchase or wait until later. This makes it easier for FSA users to comply with IRS regulations regarding expense documentation. Internal Revenue Service rules require substantiation of expenses for which an FSA participant seeks reimbursement. For transactions conducted with a debit card, IRS rules and notices define how the basic substantiation requirements can be met without the employee having to submit documentation after the fact. When the health care expense is incurred at a provider or merchant that does not have a health care-related merchant category code — such as a grocery store, discount store or online pharmacy — the Internal Revenue Service now requires that such merchants have in place an inventory information approval system (IIAS) in order for the debit card transaction to be processed.

Most major grocery store chains, discount stores and warehouse clubs now have in-store pharmacies to offer shoppers the convenience of filling prescriptions while doing their regular shopping. Plus, over-the-counter medications and health care supplies — pain relievers, cold remedies, first-aid supplies, contact lens solutions and the like — can be paid for with FSA money. Thus, when filling a prescription or picking up an over-the-counter medication, a shopper at these types of merchants frequently will make purchases that cannot be paid for from the flexible spending account. An IIAS is intended to ensure that, in such situations, the debit card is used to pay for only those items that qualify as Tax Code Section 213 medical expenses.

How Does an IIAS Work?

Basically, such a system collects inventory control information about the items purchased and compares that data to a list of qualified medical expenses. At the time of the transaction, the system approves only the amount of the qualified medical expense for payment with the FSA card and requires the card user to pay for any remaining portion of the purchase in some other way. If an employee purchases over-the-counter medications at a grocery store along with a few food items, the IIAS validates the over-the-counter medications as qualified medical expenses, eligible to be paid from the FSA card. This information is then electronically transmitted to the debit card vendor and the employee need not submit any further substantiation on the expense (though it’s a good idea for the employee to hang on to these receipts).If a non-health care merchant does not use an IIAS, an employee’s attempt to use a debit card to pay for a purchase would be rejected by the debit card vendor. The employee would have to pay for the items out-of-pocket, and go through the FSA’s substantiation/claims submission process to receive reimbursement.

The IIAS requirement became effective beginning in 2008 for merchants such as grocery stores, discount stores, warehouse clubs and convenience stores, and for mail-order and online pharmacies. It became effective in 2009 for stores that have a “Drug Stores and Pharmacies” merchant code, but which also sell a significant number of items that would not qualify as Sec. 213 medical expenses. Drug stores and pharmacies for which 90 percent of the gross receipts in the prior taxable year were for items that would qualify as Section 213 medical expenses — including over-the-counter products that so qualify — need not have an IIAS in place in order to process debit card FSA transactions.

Since the IIAS requirement is relatively new, your employees might be encountering situations where their debit card is being rejected for valid health care purchases from a merchant they’ve successfully used the card at previously. Thus, it could be helpful to let employees know why this is happening or to check with your plan’s debit card vendor to see whether it has any communications prepared on this issue.

A Strong Offense Can Ward Off an IRS Audit

Posted on February 15, 2017 by Red Spot Design2

No one likes to be audited by the IRS. It costs time and, thus, money — even if no additional tax, interest or penalties are assessed — and it’s stressful. So, what can your dealership do to avoid an IRS audit in the first place? It’s simple: Don’t attract unfavorable IRS attention. Reviewers can’t audit every return, so they rely on key indicators to narrow the scope.

Plan “A” — Careful Preparation

To reduce your chances of being audited, you need to examine your business practices and your dealership’s return while thinking like an IRS agent. Be accurate and consistent with the information you provide, and pay special attention to:

Compensation.

Because most dealerships are family-run businesses, the IRS keeps an eye out for unreasonable compensation. Align your salaries with industry benchmarks. Accurately record hours worked, unique contributions from high-salaried employees, and any other factors that influence pay spikes to executives or officers.

Cash transactions.

The IRS is much more likely to audit businesses with frequent cash transactions. Most of these occur in your parts department. Report these transactions properly by making sure the transaction is recorded in your accounting records with a proper paper or electronic trail.

The size of business loss deductions.

Large business loss deductions are red flags to an IRS reviewer. Document each loss and keep receipts. Be able to prove your intent to make a profit, even if you’re temporarily losing money.

Travel deductions.

Keep detailed auto expense logs and be able to justify the business-use percentage. Alternatively, you can employ the standard deduction rate of 54 cents per mile driven in 2016.

Nondeductible contributions.

Contributions to political action funds aren’t deductible for income tax purposes, including the portion of your NADA and state auto dealer association dues that fund political action committees (PACs). Give your CPA the annual statements provided by your associations indicating the portion of dues that fund PACs so that the matter can be handled properly on your tax return.

Business credits.

If you think one of your dealership’s credits might come into question, attach an explanation to the documentation. Show the IRS reviewer that you understand the rules.

Meals and entertainment.

Keep receipts for any expense totaling $75 or more. Include the name and location of the meeting facility. To avoid penalties if you are audited, keep detailed descriptions of events, who attended, business relationships and business discussed.

LIFO.

Keep accurate records of your previous years’ LIFO invoices. Despite the three-year statute of limitations for auditing tax returns, your current year’s LIFO reserve can be affected by several years of built-in layers. Thus, LIFO workpapers and calculations should be kept permanently.

Related-party receivables.

Keep documentation of related-party loans. There should be a signed loan agreement between the parties with a stated interest rate. Typically loans greater than $10,000 need to have interest paid between the parties. The minimum interest rate should be the applicable federal rate in effect at the time the loan is made.

Variances.

Do a high-level review of your tax return. If items are grouped differently from the previous year, it could draw IRS attention. An example: You classified your rental vehicles as part of your property and equipment in Year 1. Now, in Year 2, you classify them as “other assets.”

Plan “B” — Professional Assistance

No one wants an IRS audit. If you are conscientious about the records you keep and wise about the tax decisions you make, you can avoid waving the red flags that might trigger one.

But if, despite your best efforts, the IRS requests an audit, enlist the help of your CPA promptly and cooperate with the agency fully. Your CPA can perform a pre-audit, which includes reviewing the more complex areas of your tax return as well as any areas singled out by the IRS.

10 Important Tax Developments for 2016 Filings

Posted on February 13, 2017 by Red Spot Design2

Several significant tax developments happened last year that may affect federal income tax returns that individual and business taxpayers file in 2017. Here’s a quick look at 10 key changes that you should be aware of during this tax season.

Uncertain Fate of Tax Extenders

In 2016, Congress adjourned without addressing numerous temporary tax provisions that were set to expire at the end of the year. Congress generally renews these “tax extenders” when they expire, but there aren’t any guarantees.

For example, Congress extended all 52 provisions that had expired after 2014 in the Protecting Americans from Tax Hikes (PATH) Act of 2015. Unlike previous tax extenders legislation, however, the PATH Act made a number of these provisions permanent. Several others were extended through 2019, while many provisions were temporarily extended for two years, through 2016.

Stay tuned for additional information on the fate of the tax extenders currently in limbo, as well as details of tax reform measures under the Trump administration and the Republican majority in Congress.

1. Stand-Alone HRAs

On December 13, 2016 — just over a month before leaving office — President Obama signed the 21st Century Cures Act into law. In addition to funding cutting-edge medical research, this new legislation allows an employer with fewer than 50 employees and no other group health insurance plan to establish Health Reimbursement Arrangements (HRAs) for its employees.

These standalone HRAs aren’t subject to certain penalties and restrictions imposed by the IRS under the Affordable Care Act (ACA). Plan ahead: The 21st Century Cures Act applies to plan years beginning after 2016.

2. ACA Reporting

Although the ACA might be repealed or modified in 2017, it’s still in effect for 2016. Under the ACA, employers must file information returns with the IRS and provide information to employees and other responsible individuals.

Recently, the IRS offered some consolation: It extended to March 2, 2017, the due date for furnishing to individuals 2016 Form 1095-B, “Health Coverage,” and 2016 Form 1095-C, “Employer-Provided Health Insurance Offer and Coverage.” This gives employers an extra 30 days to get their paperwork in order.

3. Premium Tax Credits

Taxpayers required to acquire health insurance under the ACA may qualify for premium tax credits to offset part of the cost. Although existing regulations include several favorable safe-harbor rules for determining eligibility, those rules don’t apply where an individual, with reckless disregard of the facts, provides incorrect information to a health insurance exchange.

New final regulations clarify that this provision for “reckless disregard of the facts” applies only to the conduct of the individual — not to information provided by any third parties.

4. Standard Mileage Rates

Each year, the IRS adjusts the standard mileage rates that taxpayers may use in lieu of tracking actual driving expenses. Due to lower gas prices, the rates have been reduced for 2017. The IRS recently announced that the flat rate for business driving is 53.5 cents per mile in 2017 (down from 54 cents per mile in 2016). Also, the rates for driving attributable to medical and moving purposes dropped to 17 cents per mile in 2017 (down from 19 cents per mile in 2016). Finally, the rate for charitable driving, which is set statutorily, remains at 14 cents per mile in 2017. In all cases, related tolls and parking fees can be added to the flat rate.

5. Valuations for Vehicles

Employees are taxed on the fair market value (FMV) of their personal use of company-provided vehicles. For convenience, the IRS permits FMV accounting methods based on the cents-per-mile rule (see “Standard Mileage Rates” above), as well as a fleet average value for employers with 20 or more vehicles, with the maximums updated annually.

Under a recent IRS Notice, the cents-per-mile thresholds in 2017 are $15,900 for automobiles (the same as in 2016) and $17,800 for trucks and vans (up from $17,700 for 2016). The thresholds for the fleet average rule in 2017 are $21,100 for a passenger auto (down from $21,200 for 2016) and $23,300 for a truck or van (up from $23,100 for 2016).

6. CPEOs

The IRS has now provided detailed requirements for certified professional employer organizations (CPEOs) — often called leasing companies — to remain certified. The IRS also has established procedures for suspending and revoking certification. Small businesses often contract with CPEOs to ensure compliance with workplace laws and regulations.

Under the Tax Increase Prevention Act of 2014, a CPEO may be treated as the sole employer of employees for purposes of paying and withholding employment taxes. Professional employer organizations can be certified as CPEOs effective as of January 1, 2017.

7. Delayed Refunds

A new tax law change requires the IRS to hold refunds for tax returns claiming the Earned Income tax credit or the additional child credit until at least February 15, 2017. As a result, many early filers still won’t have access to their refunds until the week of February 27 or even later.

Under the new rules, the IRS must delay the entire refund, even the portion that isn’t associated with the Earned Income tax credit or additional child credit. The IRS is advising taxpayers that the fastest way to get a refund is to file electronically and choose the direct deposit method.

8. ABLE Accounts

The Achieving a Better Life Experience (ABLE) Act of 2014 authorized special tax-favored savings accounts for individuals who are disabled before age 26. After the IRS issued regulations on this issue, individual states began rolling out ABLE accounts in 2016.

With an ABLE account, contributions aren’t tax deductible. But the amounts set aside in ABLE accounts are distributed tax-free to recipients if they’re used to pay for qualified disability expenses. Contributions to ABLE accounts may be sheltered by the annual gift tax exclusion of $14,000 for 2017 (the same as in 2016). Note, however, that if the account balance exceeds $100,000 it will impact SSI (Supplemental Security Income) eligibility.

9. Self-Certified Rollover Waivers

In general, an individual has 60 days to complete a tax-free rollover of a distribution from an Individual Retirement Account (IRA) or workplace retirement plan to another eligible retirement program. If you inadvertently miss this deadline, the distribution is usually taxable unless you obtain a waiver from the IRS. Thanks to a new ruling from the IRS in 2016, a taxpayer can self-certify that mitigating circumstances caused the failure.

For this purpose, a waiver may be allowed due to:

A distribution check being misplaced and never cashed,
Severe damage to the taxpayer’s home,
Death of a family member,
A serious illness of the taxpayer or a relative,
The taxpayer’s incarceration, or
Restrictions imposed by a foreign country.

The new rules went into effect on August 24, 2016.

Important note: Don’t forget that qualifying taxpayers may still make contributions, whether deductible or nondeductible, to a traditional IRA until the day taxes are due, without extension. They also have until Tax Day to make a nondeductible contribution to a Roth IRA for 2016. Put simply, the deadline for individuals to contribute to traditional or Roth IRAs for 2016 is April 18, 2017.

10. FBAR Reporting

Generally, a taxpayer who has over $10,000 in foreign bank accounts at any time during the year must file a Report of Financial Bank and Financial Accounts (FBAR). In the past, the filing deadline was June 30 of the following year. Now the FBAR due date has been moved to coincide with federal income tax filings.

Accordingly, 2016 FBARs must be filed electronically with the Financial Crimes Enforcement Network (FinCEN) by April 18, 2017. Also, FinCEN will grant filers missing the April 18, 2017, deadline an automatic extension until October 16, 2017.

Just a Sampling

This brief article covered just a few noteworthy tax developments in 2016. The IRS made many other changes that could affect your tax obligations, depending on your personal situation. Contact your CJ tax advisor if you have any questions.

3D Printing Is Altering Global Manufacturing

Posted on February 13, 2017July 22, 2024 by Red Spot Design2

Technology and automation has brought manufacturing a long way. One of the latest innovations, 3D printing, could make a significant mark of global proportions. Will your firm be at the forefront of this technology or be left in the dust?

The Basics

The process of 3D printing, sometimes known as “additive manufacturing,” involves producing three- dimensional solid objects from a digital file. The basic concept was invented by Chuck Hull in 1986. There are several 3D processes, but what they have in common is that they rely on layer-by-layer fabrication guided by computer code that’s directed to the printer.

The latest strides in 3D printing enable manufacturers to significantly cut production steps and the number of workers needed to complete a project. Rather than using several people at various stages of assembly, the division of work boils down to the designer, the suppliers of raw materials and the 3D printer, a.k.a. the “manufacturer.”

These streamlined manufacturing processes could have lasting ramifications for the global supply chain, possibly reducing capital, warehousing and logistical needs. Ultimately, the changes could affect the economies of countries that plan to create jobs and invest in logistics and warehousing.

But how far can the effects of 3D printing extend?

The Global Outlook

In some circles, the advent of 3D printing has been compared to the Industrial Revolution. Although that might be hyperbole, some people compare 3D technology to Henry Ford’s process innovations more than 100 years ago.

At its core, the Ford assembly line exemplified economy of scale. It was based on the premise that producing large quantities of a specific product provides a lower cost per unit. It didn’t need workers with specialized training, only those who could make repetitive steps in sequence on partially finished cars as the units moved from workstation to workstation. Standardizing parts and improving assembly line efficiency translated into bigger profits and more jobs.

As the concept evolved and took hold overseas, consumption grew and supply chain networks expanded. After World War II, growth spurted in Japan and Germany. This was followed by other economies, notably Southeast Asia, Korea, Taiwan, Singapore and Hong Kong. Eventually, China joined the trend.

That success prompted some countries to boost manufacturing output. In 2014, India launched its Make in India program, making it a top global destination for foreign direct investment. But 3D printing could throw a monkey wrench into the mix.

A 3D Revolution

3D printing improves on the assembly line by further simplifying the processes. It reduces the number of parts, components, steps and costs. Because 3D printing needs less space than traditional manufacturing, there are additional cost savings from reduced needs for warehousing and transportation, which in some cases aren’t required at all. In addition, 3D designs can be quickly revised, even at late stages.

In a nutshell, a product that would need a month to go through three or four design changes in the prototyping phase now takes a week when 3D printing is used. Products that use this technology get to market faster, and 3D manufacturers can save significant time and money.

Consider Ford: The automaker uses 3D printing to quickly produce prototype parts, shaving months off the development time for individual components, such as cylinder heads, intake manifolds and air vents, that are used in all of its vehicles.

With traditional methods, an engineer would create a computer model of an intake manifold — the most complicated engine part — and wait about four months for one prototype at an estimated cost of roughly $500,000. With 3D printing, Ford can print the same part in four days, including multiple iterations and with no tooling limits, at a cost of $3,000.

With 3D technology, engineers are no longer bound by the constraints of the old industrial process, allowing them to explore dozens of variations and rigorously test them to fine-tune engine performance.

This creates economies of scale and shortens the global supply chain. Producing and shipping goods across long distances is inefficient. So much so that UPS is investing heavily in 3D printing centers across the United States that can produce items ranging from robotic arms to custom figurines for local delivery.

Among the potential implications of this revolution are:

1. Widespread economies of scale. Reduced fixed costs affect per unit production costs, thereby transforming global supply chains.

2. Reassessment of zoning policies. Because 3D printing will reduce the need for large-area manufacturing plants, more small-scale facilities could be developed. As a result, the lines between industrial zones and non-industrial zones could become blurred and force governments to reconsider zoning laws and future plans for manufacturing plants.

3. Redistribution of domestic and foreign jobs. China and other countries known for using inexpensive labor may lose jobs to 3D printing. The reach of 3D printing will likely extend well beyond the manufacturing sector. Consider the potential impact on:

City planning to show how projects would work and how new buildings might affect the city,
Surgeries using precise anatomical models based on CT scans or MRI,
Medical training using printed cadavers,
Custom orthopedic implants and prosthetics,
Custom toys, jewelry, games, home decorations and other products, as well as spare or replacement parts for automobiles or home repair,
The advent of complex geometry and shapes not possible with traditional manufacturing, and
The design of custom protective gear for better fit and safety.

In the coming years, economic and financial ripples will be felt around the world, all tracing back to the 3D printing revolution. Now’s the time to consider ways to position your business for these coming changes and challenges.

Challenges Faced in 3D Printing

Although the benefits of 3D printing are clearly evident, don’t think that the changes come without challenges. Some of the potential drawbacks are:

There’s a learning curve. So, entry-level 3D printers may produce goods that are subpar compared to those produced through traditional methods
Producing large quantities can take longer than traditional manufacturing methods, depending on the type of 3D printer.
3D printers often can’t handle extremely large products, such as oil pipelines.
Producing large volumes of certain products through 3D printers can be cost prohibitive compared to traditional manufacturing methods.

It’s likely that these obstacles can be overcome in time, but a seamless transition can’t be assumed. Expect some bumps along the way.

The Real Cost Savings You Should Look For in a Fixed Price Environment

Posted on February 9, 2017July 23, 2024 by Red Spot Design2

construction accounting, construction CPA, accounting for construction company, accounting for construction companies

Construction companies experience unique accounting structures due to expenses driving revenue as projects move through various stages of completion. By managing a variety of costs, maintaining safety for employees and hiring the right people, owners and project managers can improve cash flow and bid smarter on fixed price contracts.

In my role as the fractional CFO/controller for a rapidly growing construction company earlier in my career, I experienced the tough reality of out-of-control costs in a fixed contract price environment. Costs were out of control partially because the company’s rapid growth was surreptitiously changing the company’s underlying cost structure and partially because economic conditions had changed. The net result was a squeeze on profit margins and cash flows that placed the company in danger of marching down the primrose path. The squeeze resulted in a snowball effect on cash management. The accelerated growth had outpaced the company’s ability to increase the bank line of credit capacity, which meant that any increased demand for cash had to be satisfied through cash flow generated by the jobs. We had to navigate complicated lien rules in order to collect receivables. We had to re-evaluate billing policies and increase the company’s overbilled positions. When bidding new work, we had to be disciplined in the size of projects the company chased or risk the company’s bonding capacity. Meanwhile, we saw general liability and worker’s compensation insurance rate increases due to changes in the market. We could only hope that materials costs would not follow suit.

Once it became clear that we were dealing with something more systemic than a bad job or two, the owner and I went to work understanding what had happened and trying to correct the underlying issues. Within two years, the company accomplished a true turnaround. Starting with a company that was losing $400,000 a year, we ended up with a company that produced a gross profit margin of more than 15 percent annually.

Just one of the interesting lessons learned through this experience was that few construction companies, if any, spend the necessary time each year to comb through their budgets and question the true costs of each line item. Whether it’s the company cell phone plan or fuel and maintenance costs for fleet vehicles, no budget item is too small to scrutinize for long-term savings to the bottom line.

If your company exists in a fixed-price contract environment — as most construction companies do — expenses drive revenue. Especially with a Post-Recession mindset, profitable construction companies must have the discipline to look at their work–in-process reports every month and identify any expenses that are trending above budget.

There are, of course, other factors that can impact cash flow and profits in any given year. Let’s look at the key drivers for real cost savings in the life of a construction company — both short-term and long-term.

Continue Reading: Defining True Job Costs for Construction Bids

Cornwell Jackson’s Tax team can provide guidance on reigning in costs by reviewing your profit and loss statements, work in process and general accounting ledgers. Contact our team with your questions.

Scott Allen - Construction Industry Expert

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.

IRS Sets 2017 Company Car Valuations

Posted on February 8, 2017July 22, 2024 by Red Spot Design2

The perk of a company car isn’t entirely “free” for employees.

Generally, employees are taxed on the personal value of this fringe benefit, subject to certain special rules and annual limits. Significantly, the IRS recently announced the 2017 thresholds applicable for valuations of vehicles.

Background Information

An employer that provides taxable fringe benefits to employees is responsible for withholding taxes from employees based on the fair market value (FMV) of the benefits. The FMV may be reduced by amounts excluded from taxable compensation by statute and payments by employees for the fringe benefit.

Because personal use of an employer-provided vehicle is a non-cash fringe benefit, the FMV must be determined at least once a year for withholding purposes. However, an employer may choose to determine FMV on a monthly or quarterly basis.

To simplify tax reporting involving monthly valuations, the employer may use a special accounting rule that includes the value of a fringe benefit for the last two months of the calendar year with the value for the first ten months of the following year.

If an employer uses this safe-harbor rule for one type of fringe benefit for one employee, it must use it for all employees. Furthermore, employees must be notified of the use of the special rule. Typically, the monthly valuation of personal use of a vehicle will depend on employee travel logs.

Sometimes, an employer may provide company-owned vehicles to employees without requiring documentation of personal use. As a result, the entire FMV of the vehicle is included in the employee’s taxable income. In this case, the employee has the option of deducting costs attributable to business use of the vehicle on his or her Form 1040, subject to other limitations.

Three Valuation Methods

The IRS has established three primary methods determining the FMV of the vehicle:

Commuting rule. If the sole personal use of an employer-provided vehicle is commuting back and forth from work, the value of each one-way commute is $1.50. This amount, which hasn’t changed in years, is either included in the employee’s taxable compensation or the employer can be reimbursed for it by the employee.

The commuting rule method is the easiest one to administer because it doesn’t require employees to keep mileage logs of vehicle use, but it’s not always available (see “Easy Does It, if You Can Use this Method” below).

Cents-per-mile rule. This method is based on the annual IRS standard mileage rate. For 2017, the rate is 53.5 cents per business mile (down from 54 cents per mile in 2016). Employees must either reimburse the employer at this rate for all personal miles driven in an employer-provided vehicle or add the value to the employee’s taxable income. If the employer doesn’t provide gasoline for the car, the rate may be reduced by 5.5 cents per mile.This rule has certain restrictions:

The value of the vehicle at the time it is made available to employees cannot exceed the maximum value established by the IRS each year.

The vehicle must be used for business reasons for at least 50% of the annual mileage.

The vehicle must actually be driven at least 10,000 miles during the year (or proportionately fewer miles if the vehicle is used less than a full year).

The vehicle must be used primarily by employees.

The method generally must be used in subsequent years (absent any special circumstances). Note: The cents-per-mile rate includes the value of maintenance and insurance. If the employee pays for these expenses, the value of the personal use is reduced based on receipts provided by the employee.

Annual lease value rule. This rule requires the employer to determine how much of the vehicle’s FMV can be excluded from the employee’s income as a working condition fringe benefit. In other words, the employer must calculate the FMV of the vehicle and the lease value of the business use of the vehicle to establish the difference as the amount of the taxable fringe benefit.

The FMV is based on IRS tables and must be determined on the first date a vehicle is available for use by an employee. Once the annual lease value is set, the employer must determine the percentage of the vehicle’s use that is personal, based on mileage logs.

Note: The annual lease value doesn’t include the cost of gasoline. An employer can either determine the value of personal use based on the fair market value of gasoline (if it provides it at a rate of 5.5 cents per mile). If an employee doesn’t keep mileage records, the entire lease value, plus gasoline costs, is taxable to the employee.

New Valuation Thresholds

The IRS recently announced the maximum FMVs for employer-provided cars, trucks and vans using the mileage allowance of 53.5 cents per mile and the maximum fleet-average vehicle FMVs for autos, trucks and vans for purposes of the annual lease value method.

Cents-per-mile method. This method may be used only if the auto’s FMV doesn’t exceed $12,800, adjusted for inflation. The thresholds for vehicles first made available to employees for personal use in 2017 are $15,900 for automobiles (unchanged from 2016) and $17,800 for trucks and vans (up from $17,700 for 2016).

Fleet average method. This rule can’t be used to determine the average lease value of any vehicle if its FMV on the date it is first made available in 2017 for employee personal use exceeds $21,100 for a passenger auto (down from $21,200 for 2016) or $23,300 for a truck or van (up from $23,100 for 2016). If all other requirements are met, an employer with a fleet of 20 or more vehicles consisting of passenger autos, trucks and vans may use the fleet-average valuation rule as long as the respective maximum allowable values aren’t exceeded.

Useful Lure

A company car is still used as a fringe benefit for attracting and retaining key employees. But it’s important to address all the payroll tax complexities relating to the personal use of a vehicle. Consult with your tax advisor to help ensure you meet the requirements.

Easy Does It, If You Can Use this Method

To use the simplified commuting method, the easiest of all, the following requirements must be met:

The employer provides the vehicle to the employee for use in the employer’s trade or business.
The employer has a written policy that doesn’t allow the employee to use the vehicle for personal purposes, other than for commuting or “de minimis” personal use, such as a trip to the dry cleaner between a business stop and home.
The employee in actuality doesn’t use the vehicle for personal purposes.
The employee isn’t a “control employee.”

For 2017, the definition of a “control employee” generally includes:

A board or shareholder-appointed, confirmed or elected officer whose pay is $105,000 or more,
A director,
An employee whose pay is $215,000 or more, and
An employee who owns a 1% or more in the business. (The dollar figures are unchanged from 2016.)

Automating Accounting is a Long-term Strategy

Posted on February 7, 2017 by Red Spot Design2

Outsourcing Combines with Automation

Most outsourced services employ some type of online or automated product to perform the work and make data easily accessible. In 2016, the top billing and invoicing software for business included FreshBooks, QuickBooks and Zoho Invoice. These solutions were chosen for their ease of use, expense tracking, automated invoicing, online payment options, customized reports and customer support. Zoho is also integrated with a larger suite of business software, including CRM and accounting software.

There are programs designed specifically for an industry such as Clio, a time and billing software for law firms that is cloud-based and purchased by subscription. However, decisions about automation and outsourcing shouldn’t be made according to the features of a software package alone. They should be made foremost from the perspective of being efficient. If you won’t have time to train staff properly on a new software solution, the move toward outsourcing may be more cost-effective in the long run.

We addressed this in an earlier article, but it bears repeating. Key considerations for outsourcing accounting and payroll are as follows:

How much experience does the outsourcing provider have in payroll administration or accounting — and is there a dedicated team?
Will the team walk you through data collection and set-up or are you on your own?
Who is your go-to contact to ask questions about liabilities or deadlines?
Is the provider NACHA compliant for ACH direct deposits?
Can you arrange for tax payments on a schedule that supports cash flow along with compliance?

This last question is an important business consideration that most companies don’t know about. Some payroll services withdraw all funds from the business account for payroll transfers and taxes all at once, even if taxes aren’t due for a few weeks. If your receivables come in the first week of the month and payroll taxes are due on the 15^th of the month, you can schedule payments in a way that supports cash flow while still being compliant. Some payroll services may not provide guidance on industry-specific issues like law firm shareholder bonuses, for example. Consider carefully the level of industry expertise before selecting a provider.

Automating Finance is a Long-term Strategy

Determining the right automation solutions for your firm can’t be done overnight. It seems that new providers and products are coming to the market all the time, and it’s hard to compare apples to apples beyond price.

Successful transitions to outsourced and automated processes and solutions have three things in common:

There must be a clear business case for the automation.

Before selecting a solution, firms should review their current accounting and payroll processes to cut out any redundant or outdated steps. It doesn’t make sense to automate a process if it’s outdated. A CPA can help you review accounting processes and procedures to identify best practices before seeking automation.

Integration with existing systems makes adoption easier.

You may already have some solutions in place that are working well. Future automation should integrate with those solutions for efficient management and reporting. For example, you may already use a time and billing or workflow system you really like. New accounting or payroll tools should play well with those solutions. Your goal is an end-to-end process that reduces manual work and errors while improving the sophisticated of data.

IT staff should meet with operations and finance staff to understand the goals.

Whether you have internal or outsourced IT staff, one of the biggest mistakes with technology adoption is that IT doesn’t speak enough to operations to make sure the solution is actually going to solve problems and enhance the business. In the same way, IT needs to be in the business loop to determine if a chosen solution can be easily supported and maintained. In the industry, this collaboration is called “DevOps,” and it’s not yet foolproof. Some experts predict that movement toward cloud-based technologies will make developers happier because they can update solutions without having to check in with Ops. Meanwhile, the operations staff can get what they need without worrying about costs or slow adoption by staff.

If we just look at automating the invoicing process, firms could improve efficiency dramatically. About 84 percent of invoices enter processing in formats that include paper, fax and email attachments, according to a study by Paystream Advisors. We’ve seen estimates that the average cost of automated invoice processing is $4 versus $20 for manual processing.

Automated payroll processing reduces costs even further. The American Payroll Association (APA) estimates that automation reduces payroll processing costs by as much as 80 percent, much of that from reducing errors in invoices and paychecks…which also reduces the risk of payroll penalties.

Cornwell Jackson’s Business Services Department offers a wide range of outsourced financial services to serve professional services — including outsourced payroll processing and solutions to improve cash flow and productivity. Contact us for a consultation.

Download the Whitepaper: Be More Billable: How to Add More Automation to Professional Service Accounting

Mike Rizkal, CPA is a partner in Cornwell Jackson’s Audit and Attest Service Group. In addition to providing advisory services to privately held, middle-market businesses, Mike oversees the firm’s assurance practice and works directly with many professional services firms in the metroplex. Contact him at mike.rizkal@cornwelljackson.com or 972-202-8031.

Focusing on the Construction Needs of an Aging Population

Posted on February 2, 2017 by Red Spot Design2

The graying of America is well documented. With the leading edge of the Baby Boomer generation already past the age of 70, the next two decades will see a 90% surge in the number of people in this segment of the population.

As the ranks of Baby Boomers residing with their children or remaining independent continue to swell, housing demands are changing. There is a growing need for existing home renovations and new housing that accommodate the needs of this aging population. Where expectant parents baby-proof their homes, many residences now may need to be “senior proofed.” This poses challenges and opportunities for the construction industry.

Harvard University’s Joint Center for Housing Studies (JCHS) issued a report late last year that highlights the issues. The report, Projections and Implications for Housing a Growing Population: Older Adults 2015-2035, indicates that during the next two decades, the number of households headed by a person aged 65 or over will increase by roughly 41% to 41.2 million in 2025 and 60% to 49.6 million by 2035. At that point, 33.3% of U.S. households will be headed by someone aged 65 or older.

From 2015 through 2025, the most rapid growth will occur among households aged 70 to 79. From 2025 to 2035, the fastest growth will occur among households headed by someone who is aged 80 or over. In total, in 2035, the number of households headed by someone aged 70 or older will grow 90%, while those headed by a person 80 or older will more than double to 16.2 million.

Continued advances in medical care may further increase those numbers.

Implications for the Housing Market

Of course not all older adults live, or want to live, independently. Some reside with their adult children, others with relatives or roommates, and still others in group quarters, including nursing homes or similar facilities.

The expansion of older households offers significant opportunities for construction firms to provide the new and modified housing that this group will need. Even for the large share of older adults who plan to stay in place, their housing often isn’t well suited to their needs. By 2035, substantial growth in the need for modifications and technology is expected to enhance safety to allow for greater independence in the home.

Although the share of older adults who move each year is low, the JHCS projects more than “825,000 older households moving into owned homes and 1.6 million older households moving into rented homes in 2035.” Some will want to downsize while others will be looking for more space.

A recent survey by Demand Institute shows that 42% of respondents aged 50 to 69 who plan to move will want smaller homes and 32% will try to upsize. The survey by the independent consumer demand think tank found that the inclination to stay close to family and friends is clear, and most don’t expect to move far from their current neighborhood. That finding reinforced the results of an AARP survey in 2014 that showed that being near friends and family ranked as the top choice of housing preferences for those aged 45 and older.

Keeping Disabilities in Mind

Disabilities that occur more frequently with age can present a housing challenge for older adults, especially for those who want to grow old in their current homes. For example, most U.S. homes are poorly equipped to accommodate extra space for walkers or wheelchairs, require stairs to reach a bath or bedroom or have door and faucet handles that are difficult to manipulate for those with arthritis.

By 2035, 17 million older-adult households will have at least one person with a mobility disability who could be restricted by stairs, narrow corridors, doorways and traditional bathroom layouts. This will mean modifications and new construction will have to meet higher standards of accessibility.

Some individuals may resist modifications if they don’t have disabilities, particularly if they have financial concerns or they anticipate moving to another place as they get older. However, given that disability increases dramatically later in life, planning ahead can make eventual changes easier. For example, homeowners may be encouraged to add accessibility features during a remodel, such as a walk-in showers or bathroom walls reinforced for future installation of grab bars.

Develop Your Plans

It may be time for your firm to develop plans to take advantage of this rapidly growing segment of residential construction. Becoming a go-to contractor for seniors’ needs will likely give your company a competitive edge that may help expand your business. Visit the Certified Aging-in-Place Specialist (CAPS) program https://www.nahb.org/en/learn/designations/certified-aging-in-place-specialist.aspx at the National Association of Home Builders (NAHB) website for guidance on the business management and customer service skills you will need.

The CAPS designation offers potential clients what they desire the most: assurances that your business can help with accommodations that will allow them to safely and securely remain in their homes. In addition, the CAPS designation makes homes more “visitable.” Even if homeowners don’t think they need additional task lighting, grab bars and other modifications for their own use, family members and others might. CAPS can help your company thrive in this growing remodeling market niche.

IRS Updates FAQs on Certain ACA Provisions

Posted on February 1, 2017July 22, 2024 by Red Spot Design2

The Trump Administration and the Republican majority in Congress plan to repeal and replace the Affordable Care Act (ACA) in the coming months. In the meantime, however, employers must continue to comply with the existing rules for 2016, including the information reporting requirements and shared responsibility provisions.

The IRS previously issued three sets of FAQs that provide guidance on employer responsibilities under the Affordable Care Act (ACA). This guidance was recently updated to include significant clarifications and help employers ensure that they’re in compliance with the rules. Here, we highlight the extensive updates that were issued in December 2016 and that you may find useful in fulfilling your information-reporting obligations for 2016, if you’re subject to the requirements.

Background

The employer shared responsibility provisions of the ACA require an applicable large employer (ALE) to pay a penalty if it doesn’t offer minimum essential health coverage (or doesn’t offer coverage that is affordable and provides minimum value) to its full-time employees and at least one full-time employee purchases coverage through a health insurance marketplace and receives a premium tax credit. Full-time employees are generally those who average at least 30 hours of service per week during a given month.

An ALE for a calendar year is an employer that employed an average of at least 50 full-time employees or the equivalent on business days during the preceding calendar year. To determine the number of full-time equivalent employees (FTEs), the overall hours worked by part-time employees during a month are added up, and the total is divided by 120 hours (equal to four weeks multiplied by 30 hours per week) and added to the number of full-time employees. However, the actual penalty is applicable solely to the health coverage status of full-time employees, not FTEs.

FAQs on Information Reporting

There are various reporting requirements associated with the employer shared responsibility provisions that apply to both coverage providers and employers. In general, every health insurance issuer, sponsor of a self-insured health plan, government agency that administers government-sponsored health insurance programs and other entity that provides “minimum essential coverage” must file annual returns reporting information for each individual for whom such coverage is provided. They also must furnish a written statement to each individual listed on the return showing the information that must be reported to IRS for that individual.

The information reported on Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, is used to determine whether an employer may be liable for a penalty under the employer shared responsibility provisions of the ACA, as well as the amount of any penalty. Form 1095-C is also used by the IRS and the employee in determining the eligibility of the employee (and his or her family members) for the premium tax credit.

The FAQs provide additional information about completing these forms for the 2016 calendar year (for filing in 2017). Here’s what’s been revised under the updated guidance:

Question 9. Do ALE members that are combined to form a single employer (an “aggregated ALE group”) file one authoritative transmittal reporting summary information for all ALE members in the aggregated ALE group?

The revisions clarify that an aggregated ALE group may not file one authoritative transmittal reporting summary information for all members in the group. Rather, the reporting requirements apply separately to each member.

Question 26. Should an ALE member report coverage under a Health Reimbursement Arrangement (HRA) for an individual who’s enrolled in both the HRA and the employer’s other self-insured major medical group health plan?

Under the updated guidance, enrollment in an HRA must generally be reported in the same manner as enrollment in other minimum essential coverage, unless an exception applies. One such exception is that if an individual is covered by two or more plans that provide minimum essential coverage and that are provided by the same reporting entity, reporting is required for only one of them for that month.

Question 27. Should an ALE member report coverage under an HRA for an individual who’s eligible for the HRA because the individual is enrolled in the employer’s insured group health plan?

The revised guidance states that if an individual is eligible for an HRA because the individual is enrolled in an employer’s insured group health plan for which reporting is required, reporting generally isn’t required for the HRA.

However, an ALE member must report HRA coverage for an employee who’s enrolled in the HRA but not enrolled in another group health plan of the employer.

FAQs on Offers of Health Insurance Coverage

Certain employers are required to report to the IRS information about whether they offered health coverage to their employees and, if so, information about the coverage offered. This information also must be provided to employees. With respect to reporting offers of health insurance coverage, the FAQs provide that:

Question 23. For purposes of reporting, including reporting facilitated by a third party, may an ALE member file more than one Form 1094-C?

The revisions explain that an ALE member may file more than one Form 1094-C, provided that one (and only one) of those transmittals is an “authoritative transmittal” reporting aggregate employer-level data for the ALE member.

Question 24. May an ALE member satisfy its reporting requirements for an employee by filing and furnishing more than one Form 1095-C that together provide the necessary information?

Under the updated guidance, an ALE member may not satisfy its reporting requirements for an employee by filing and furnishing more than one Form 1095-C that together provide the necessary information. There must be only one Form 1095-C for each full-time employee for that full-time employee’s employment with the ALE member.

FAQs on the Shared Responsibility Rules

If you still have questions about whether you’re considered an ALE for 2016 and whether you’ve complied with the shared-responsibility requirements, you may find the revised FAQs regarding the employer shared responsibility provisions helpful:

Question 8. If an employer hires additional employees, including some part-time employees, how does it determine if the entity has become large enough to be an ALE?

The revisions clarify that if an employer hires additional employees, including some part-time employees, during the current calendar year, the employer must take those employees into account when determining if it’s an ALE for the next calendar year.

Question 9. Do the employer shared responsibility provisions apply only to large employers that are for-profit businesses or to other large employers as well?

The revisions clarify that all employers that are ALEs are subject to the employer shared responsibility provisions. This includes for-profit, government and nonprofit employers, regardless of whether the entity is a tax-exempt organization.

Question 20. Is a full-time equivalent employee different than a full-time employee?

According to the revised answer to this question, the number of an employer’s FTEs is relevant only for purposes of determining whether the employer is an ALE.

Question 24. How does an employer count a particular employee’s hours of service if that employee works for two employers that are treated as one employer under the employer shared responsibility provisions (for example, different subsidiaries under a parent corporation that together form an aggregated ALE group)?

The rules for combining employers that have a certain level of common, or related, ownership, apply for purposes of determining whether an employer employs at least 50 FTEs.

Question 28. What counts as an “offer of coverage” under the employer shared responsibility provisions?

The updated guidance stipulates that an ALE makes an “offer of coverage” to an employee if it provides the employee an effective opportunity to enroll in the coverage (or to decline coverage) at least once for each plan year. Coverage refers to minimum essential health coverage under an eligible employer-sponsored plan.

Question 34. For purposes of the employer shared responsibility provisions, in determining what counts as an offer of coverage to at least 95% of an employer’s full-time employees (and their dependents), does an employer have to take into account full-time employees (and their dependents) that are eligible for coverage through another source?

Under the revisions, the determination of what counts as an offer of coverage to at least 95% of an ALE’s full-time employees applies regardless of whether any full-time employees have coverage from another source, such as Medicare, Medicaid or a spouse’s employer.

Question 43. Who’s an employee’s dependent for purposes of the employer shared responsibility provisions?

The revisions explain that a dependent is an employee’s child, including a child who has been legally adopted, or legally placed for adoption with the employee, who has not reached age 26. A dependent doesn’t include:

A spouse, or
A stepchild, foster child or child who doesn’t reside in the United States (or a country contiguous to the United States) and who isn’t a U.S. citizen or national.

Question 44. If an ALE is made up of multiple employers (called ALE members), is each separate ALE member liable for its own employer shared responsibility payment, if any?

According to the updated answer, if an ALE is made up of multiple ALE members, each separate ALE member is liable for its own employer shared responsibility payment.

Still Got Questions?

The rules for providing health care benefits can be overwhelming to employers. These FAQs offer some guidance, but tax and financial professionals can help explain the shared responsibility provisions and the related reporting requirements using plain English. Contact your advisors for additional guidance.

Also be aware that the deadlines for filing ACA information forms are fast approaching. The due date for filing 2016 Forms 1094-B, Transmittal of Health Coverage Information Returns; 1095-B, Health Coverage, 1094-C and 1095-C with the IRS are February 28, 2017, if not filing electronically, or March 31, 2017, if filing electronically. However, the IRS extended the information reporting deadlines until March 2, 2017, for furnishing 2016 Forms 1095-B and 1095-C to individuals.

In the meantime, stay tuned for changes to health care coverage requirements. Health care reform has been made a top priority during President Trump’s first 100 days in office and Congress has already begun to pass related legislation.

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