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“Extender” Legislation Impacts Individuals and Small Businesses

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Image of Businessman hand holding pencil and financing, calculating with calculator and laptop computer on office desk, Business Accountant concept.The federal spending package that was enacted in the waning days of 2019 contains numerous provisions that will impact both businesses and individuals. In addition to repealing three health care taxes and making changes to retirement plan rules, the legislation extends several expired tax provisions. Here is an overview of several of the more important provisions in the Taxpayer Certainty and Disaster Relief Act of 2019.

Deduction for Mortgage Insurance Premiums

Before the Act, mortgage insurance premiums paid or accrued before January 1, 2018, were potentially deductible as qualified residence interest, subject to a phase-out based on the taxpayer’s adjusted gross income (AGI). The Act retroactively extends this treatment through 2020.

Reduction in Medical Expense Deduction Floor

For 2017 and 2018, taxpayers were able to claim an itemized deduction for unreimbursed medical expenses to the extent that such expenses were greater than 7.5% of AGI. The AGI threshold was scheduled to increase to 10% of AGI for 2019 and later tax years. Under the Act, the 7.5% of AGI threshold is extended through 2020.

Qualified Tuition and Related Expenses Deduction

The above-the-line deduction for qualified tuition and related expenses for higher education, which expired at the end of 2017, has been extended through 2020. The deduction is capped at $4,000 for a taxpayer whose modified AGI does not exceed $65,000 ($130,000 for those filing jointly) or $2,000 for a taxpayer whose modified AGI is not greater than $80,000 ($160,000 for joint filers). The deduction is not allowed with modified AGI of more than $80,000 ($160,000 if you are a joint filer).

Credit for Energy-Efficient Home Improvements

The 10% credit for certain qualified energy improvements (windows, doors, roofs, skylights) to a principal residence has been extended through 2020, as have the credits for purchases of energy efficient property (furnaces, boilers, biomass stoves, heat pumps, water heaters, central air conditions, and circulating fans), subject to a lifetime cap of $500.

Empowerment Zone Tax Incentives

Businesses and individual residents within economically depressed areas that are designated as “Empowerment Zones” are eligible for special tax incentives. Empowerment Zone designations, which expired on December 31, 2017, have been extended through December 31, 2020, under the new tax law.

Employer Tax Credit for Paid Family and Medical Leave

A provision in the tax code permits eligible employers to claim an elective general business credit based on eligible wages paid to qualifying employees with respect to family and medical leave. This credit has been extended through 2020.

Work Opportunity Tax Credit

Employers who hire individuals who belong to one or more of 10 targeted groups can receive an elective general business credit under the Work Opportunity Tax Credit program. The recent tax law extends this credit through 2020.

For details about these and other tax breaks included in the recent law, please consult your tax advisor.

Leverage the insights we’ve gained from years of experience working with all types of small business owners, call 626-793-4322 and request a free consultation now.

Social Security: Note the Key Changes for 2020

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Figueroa & CoThe Social Security Administration has released new numbers for those paying Social Security and those collecting it. Check out the new maximum taxable earnings amount as well as COLA and other key adjustments.

Every year, the Social Security Administration takes a fresh look at its numbers and typically makes adjustments. Here are the basics for 2020 — what has changed, and what hasn’t.

First, the basic percentages have not changed:

  • Employees and employers continue to pay 7.65% each, with the self-employed paying both halves.
  • The Medicare portion remains 1.45% on all earnings, with high earners continuing to pay an additional 0.9% in Medicare taxes.
  • The Social Security portion (OASDI) remains 6.20% on earnings up to the applicable taxable maximum amount — and that’s what’s changing:

Starting in 2020, the maximum taxable amount is $137,700, up from the 2019 maximum of $132,900. This actually affects relatively few workers; the Society for Human Resource Management notes in an article that only about 6% of employees earn more than the current taxable maximum.

Also changing is the retirement earnings test exempt amount. Those who have not yet reached normal retirement age but are collecting benefits will find the SSA withholding $1 in benefits for every $2 in earnings above a certain limit. That limit is $17,640 per year for 2019 and will be $18,240 for 2020. (See the SSA for additional information on how this works.)

Cost-of-living adjustments

Those collecting Social Security will see a slight increase in their checks: Social Security and Supplemental Security Income beneficiaries will receive a 1.6% COLA for 2020. This is based on the increase in the consumer price index from the third quarter of 2018 through the third quarter of 2019, according to the SSA.

A detailed fact sheet about the changes is available on the SSA site.

How Does QuickBooks Online Handle Mobile Expenses?

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QuickBooks - Figueroa & CoIf you purchase several items and services away from the office, QuickBooks Online can help you record them while you’re out and about.

QuickBooks Online’s mobile app, available at the Apple App Store and Google Play, can do many of the same tasks that it performs on your office desktop. You can, for example:

  • Check account balances.
  • Add and edit estimates, invoices, and sales receipts.
  • Add and edit customers, vendors, products, and services.
  • Record invoice payments.

One of the most common uses of the app, though, is the recording of expenses. Rather than coming home from a trip with your briefcase stuffed full of receipts and notes about purchases you made, you can document them on the road using your mobile device. When you get back to the office and log on to QuickBooks Online, they’ll all be there.

How It Works

You can snap a photo of a receipt with your smartphone and attach it to an expense you record in QuickBooks Online’s mobile app.

Open your QuickBooks Online mobile app and click the plus (+) sign at the bottom, then tap the Expense icon. The New Expense screen will open. If you have a paper receipt, lay it flat on a table in a well-lighted area. Click the camera icon and then the Take Photo link. If you took the picture outside of QuickBooks Online for some reason, you’d select the Choose Existing link. Your device’s camera will open, and you’ll see four squared corners on the edges of the screen.

Hover your device over the receipt. You’ll need to position the camera so the receipt area that you want captured appears within the four corners. QuickBooks Online will provide advice along the way to help you do this. When you’re in the right place, you’ll see the phrase, Great! Snap the pic. Click the shutter icon below, and your device will snap the photo and display it. If you want to use it, click Use this photo (if you want to try again, click the X in the upper left of the screen).

QuickBooks Online will open the New Expense screen. You’ll see a miniature version of your receipt in the upper left corner. Looking at your original version—it will be too small to see here—fill in the blanks with the data from the purchase. Be sure to click the Billable button if you can bill someone else for it. Make any notes you’ll need in order to remind yourself of the transaction, and Add a Split if you need to divide the transaction between categories, customers or vendors, or billable status. Click Save when you’re done.

Automatic Synchronization

Once you’ve entered an expense in QuickBooks Online’s mobile app, it will be synchronized with your desktop, browser-based version.

Of course, no duplicate data entry is required once you’ve entered a receipt in the QuickBooks Online mobile app – the two versions always update each other.

Once you’re back at your desktop, on the browser-based version of QuickBooks Online, click Expenses in the toolbar to open the Expense Transactions screen. You should see the transaction you just created on your mobile device first in line on the list that displays. Click View/Edit at the end of that line to see it. Look toward the bottom under Item Details to see the link to an attachment that contains the photo you snapped of the receipt.

The record of the expense you entered on your mobile device will contain a link to an attachment that contains the photo of your receipt.

Of course, you don’t have to take a picture of your receipt with your mobile device. You can simply enter the details of your expense and Save the record.

QuickBooks Online’s mobile app can help you save time and improve the accuracy of your work done away from the office. As we mentioned earlier, the app is capable of doing much more than simply recording receipts. We’d be happy to run you through its pieces to make sure your remote accounting work is done correctly.

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Have you downloaded and explored QuickBooks Online’s iOS or Android mobile app? There’s a lot you can do away from the office. Let us show you how.

If you come home from trips with a briefcase full of receipts, you should consider entering them quickly and remotely on the QuickBooks Online mobile app.

Collecting a lot of receipts on the road? Snap photos of them using QuickBooks Online’s mobile app. Your expense record will sync with the browser-based version.

Did you know when you take a picture of a receipt using QuickBooks Online’s mobile app, it appears as an attachment in that expense record in your desktop version?

4 Areas to Consider When Transitioning Employees to Working From Home

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women running a small business in a officeFor businesses that haven’t traditionally embraced remote employees, it may be difficult to get up to full speed with the current turn of events.  To make the inevitable transition less overwhelming, we assembled a handy checklist of actions to consider while adjusting to the new workplace reality.

Organization

  • Access your staff members and/or roles that are able to work remotely, those that can’t work remotely, and those where remote work may be possible with some modifications.
  • Conduct an employee survey to determine the availability of computers that can be used for working remotely, as well as availability to high-speed internet access.
  • Create company guidelines covering remote employees, including inappropriate use of company assets and security guidelines.
  • Develop and conduct work-at-home- training for using remote access, remote tools, and best practices.
  • Select a video-conferencing platform for services, such as Zoom, Cisco WebEx, or Go To Meeting.
  • Develop a communications plan to involve remote employees in the daily activities of the organization.

 Security

  • Create and implement a company security policy that applies to remote employees, including actions such as locking computers when not in use.
  • Implement two-factor authentication for highly-sensitive portals.
  • If needed, confirm all remote employees have access to and can use a business-grade VPN, and that you have enough licenses for all employees working remotely.

Staff

  • Institute a transparency policy with your staff and communicate frequently.
  • Check in on your staff, daily if possible, to confirm they are comfortable with working from home. Find and address any problems they may be experiencing.
  • Make certain each staff member has reliable voice communications, even if this results in adding a business-quality voice over IP service.
  • Don’t attempt to micro-manage your staff. Remember their working conditions at home won’t be ideal, and they will need to work out their own work patterns and schedules.
  • Create a phone number and email address where staff members can communicate their concerns about the firm, working at home, or even the status of COVID-19.

Infrastructure

  • Ensure that you have ample bandwidth coming in to your company to handle all of the new remote traffic.
  • Make sure you have backups of your services so your staff is able to keep working in the event extra traffic causes your primary service to go down.

You may need to adjust or expand this list to match the specific needs of your firm and the conditions affecting your organization.  Use this list to get you started and to help guide you through the process.

Leverage the insights we’ve gained from years of experience working with all types of small business owners, call 626-793-4322 and request a free consultation now.

Tax Changes: Frequently Asked Questions

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Figueroa & Co -The Tax Cuts and Jobs Act (TCJA) raises many questions for taxpayers looking to plan for the coming year. Below are answers to some of them.

Do I need to adjust my withholding allowances, given that tax brackets have changed?

You may notice a change in your net paycheck as a result of the tax law, which alters tax rates, brackets, and other items that affect how much tax is withheld from your pay. The IRS has already issued new withholding tables, and your employer should adjust its withholding without requiring any action on your part. But you may want to take the opportunity to make sure you are claiming the appropriate number of withholding allowances by filling out IRS Form W-4. This form is used to determine your withholding based on your filing status and other information. The IRS suggests that you consider completing a new Form W-4 each year and when your personal or financial situation changes.

Can I take advantage of the new deduction for pass-through business income?

The new rules for owners of pass-through entities — partnerships, limited liability companies, S corporations, and sole proprietorships — allow them to deduct 20% of their business pass-through income. The 20% deduction is available to owners of almost any type of trade or business whose taxable income does not exceed $315,000 (joint return) or $157,500 (other returns). Above those amounts, the deduction is subject to certain limitations based on business assets and wages. Different deduction restrictions apply to individuals in specified service businesses (e.g., law, medicine, and accounting).

Can I still deduct mortgage interest and real estate taxes paid on a second home?

Yes, but the new rules limit these deductions. The deduction for total mortgage interest is limited to the amount paid on underlying debt of up to $750,000 ($375,000 for married individuals filing separately). Previously, the limit was $1 million. Note that the new restriction will not apply to taxpayers with home acquisition debt incurred on or before December 15, 2017. Additionally, the deduction for interest on home equity loans (new and existing) is suspended and will not be available for tax years 2018-2025.

Note that the law also establishes a $10,000 limit on the combined total deduction for state and local income (or sales) taxes, real estate taxes, and personal property taxes. As a result, your ability to deduct real estate taxes may be limited.

Are there any changes to capital gains rates and rules that I should know about?

The rules concerning how capital gains are determined and taxed remain essentially unchanged. But since short-term gains (for assets held one year or less) are taxed as ordinary income, they will be taxed at the new ordinary income rates and brackets. Net long-term gains will still be taxed at rates of 0%, 15%, or 20%, depending on your taxable income. And the 3.8% net investment income tax that applies to certain high earners will still apply for both types of capital gains.

 Long-Term Capital Gains Breakpoints (from 2018)
Rate Single Filers Joint Filers Head of Household Married Filing Separately
0% Below $38,600 Below $77,000 Below $51,700 Below $38,600
15% $38,600 $77,200-$478,999 $51,700-$452,399 $38,600-$239,499
20% $425,800 and above $479,000 and above $452,400 and above $239,500 and above

 

Can I still deduct my student loan interest?

Yes. Although some earlier versions of the tax bill disallowed the deduction, the final law left it intact. That means that student loan borrowers will still be able to deduct up to $2,500 of the interest they paid during the year on a qualified student loan. The deduction is gradually reduced and eventually eliminated when modified adjusted gross income reaches $80,000 for those whose filing status is single or head of household and over $165,000 for those filing a joint return.

I have a large family and formerly got to take an exemption for each member. Is there anything in the new law that compensates for the loss of these exemptions?

The new law suspends exemptions for you, your spouse, and dependents. In 2017, each full exemption translated into a $4,050 deduction from taxable income which, for large families, added up. Compensating for this loss, the new law almost doubles the standard deduction to $12,000 for single filers and $24,000 for joint filers. Additionally, the child tax credit is doubled to $2,000 per child, and the income levels at which the credit phases out are significantly increased. Depending on your situation, these new provisions could potentially offset the suspension of personal exemptions.

This communication is not intended to be tax advice and should not be treated as such. Each individual’s tax circumstances are different. You should contact your tax professional to discuss your personal situation.

Call us now at 626-793-4322 to learn more or request your free consultation online to get started.

Take Advantage of Your Financial Statements

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Figueroa & Co - Take Advantage of Your Financial StatementsFinancial statement information is most useful if owners and managers can use it to improve their company’s profitability, cash flow, and value. Getting the most mileage from financial statement data requires some analysis.

Ratio analysis looks at the relationships between key numbers on a company’s financial statements. After the ratios are calculated, they can be compared to industry standards — and the company’s past results, projections, and goals — to highlight trends and identify strengths and weaknesses.

The hypothetical situations that follow illustrate how ratio analysis can give company decision-makers valuable feedback.

Rising Sales, Rising Profits?

The recent increases in Company A’s sales figures have been impressive. But the owners aren’t certain that the additional revenues are being translated into profits. Net profit margin measures the proportion of each sales dollar that represents a profit after taking into account all expenses. If Company A’s margins aren’t holding up during growth periods, a hard look at overhead expenses may be in order.

Getting Paid

Company B extends credit to the majority of its customers. The firm keeps a close watch on outstanding accounts so that slow payers can be contacted. From a broader perspective, knowing the company’s average collection period would be useful. In general, the faster Company B can collect money from its customers, the better its cash flow will be. But Company B’s management should also be aware that if credit and collection policies are too restrictive, potential customers may decide to take their business elsewhere.

Inventory Management

Company C has several product lines. Inventory turnover measures the speed at which inventories are sold. A slow turnover ratio relative to industry standards may indicate that stock levels are excessive. The excess money tied up in inventories could be used for other purposes. Or it could be that inventories simply aren’t moving, and that could lead to cash problems. In contrast, a high turnover ratio is usually a good sign — unless quantities aren’t sufficient to fulfill customer orders in a timely way.

These are just examples of ratios that may be meaningful. Once key ratios are identified, they can be tracked on a regular basis.

Call us at 626-793-4322 or request a free consultation online and we’ll put together a complete package of accounting and tax services designed to match your needs.