2017 Q4 tax calendar: Key deadlines for businesses and other employers

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Here are some of the key tax-related deadlines affecting businesses and other employers during the fourth quarter of 2017. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements. 

October 16

  • If a calendar-year C corporation that filed an automatic six-month extension:
  • File a 2016 income tax return (Form 1120) and pay any tax, interest and penalties due.
  • Make contributions for 2016 to certain employer-sponsored retirement plans.

October 31

  • Report income tax withholding and FICA taxes for third quarter 2017 (Form 941) and pay any tax due. (See exception below.)

November 13

  • Report income tax withholding and FICA taxes for third quarter 2017 (Form 941), if you deposited on time and in full all of the associated taxes due.

December 15

  • If a calendar-year C corporation, pay the fourth installment of 2017 estimated income taxes.

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Larger deduction might be available to businesses providing meals to their employees

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When businesses provide meals to their employees, generally their deduction is limited to 50%. But there are exceptions. One is if the meal qualifies as a de minimis fringe benefit under the Internal Revenue Code.

A recent U.S. Tax Court ruling could ultimately mean that more employer-provided meals will be 100% deductible under this exception. The court found that the Boston Bruins hockey team’s pregame meals to players and personnel at out-of-town hotels qualified as a de minimis fringe benefit.

Qualifying requirements

For meals to qualify as a de minimis fringe benefit, generally they must be occasional and have so little value that accounting for them would be unreasonable or administratively impracticable. But meals provided at an employer-operated eating facility for employees can also qualify. For meals at an employer-operated facility, one requirement is that they be provided in a nondiscriminatory manner: Access to the eating facility must be available “on substantially the same terms to each member of a group of employees, which is defined under a reasonable classification set up by the employer that doesn’t discriminate in favor of highly compensated employees.”

Assuming that definition is met, employee meals generally constitute a de minimis fringe benefit if the following conditions also are met:

  1. The eating facility is owned or leased by the employer.
  2. The facility is operated by the employer.
  3. The facility is located on or near the business premises of the employer.
  4. The meals furnished at the facility are provided during, or immediately before or after, the employee’s workday. The meals generally also must be furnished for the convenience of the employer rather than primarily as a form of additional compensation.

On the road

What’s significant about the Bruins case is that the meals were provided at hotels while the team was on the road. The Tax Court determined that the Bruins met all of the de minimis tests related to an employer-operated facility for their away-game team meals. The court’s reasoning included the following: Pregame meals were made available to all Bruins traveling hockey employees (highly compensated, non-highly compensated, players and nonplayers) on substantially the same terms. The Bruins agreements with the hotels were substantively leases.

By engaging in its process with away-city hotels, the Bruins were “contract[ing] with another to operate an eating facility for its employees.” Away-city hotels were part of the Bruins’ business premises, because staying at out-of-town hotels was necessary for the teams to prepare for games, maintain a successful hockey operation and navigate the rigors of an NHL-mandated schedule. For every breakfast and lunch, traveling hockey employees were required to be present in the meal rooms. The meals were furnished for the convenience of the Bruins.

If your business provides meals under similar circumstances, it’s possible you might also be eligible for a 100% deduction. But be aware that the facts of this case are specific and restrictive. Also the IRS could appeal, and an appeals court could rule differently. Questions about deducting meals you’re providing to employees? Contact us.

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TAX PLANNING CRITICAL WHEN BUYING A BUSINESS

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If you acquire a company, your to-do list will be long, which means you can’t devote all of your time to the deal’s potential tax implications. However, if you neglect tax issues during the negotiation process, the negative consequences can be serious. To improve the odds of a successful acquisition, it’s important to devote resources to tax planning before your deal closes.

Complacency can be costly

During deal negotiations, you and the seller should discuss such issues as whether and how much each party can deduct their transaction costs and how much in local, state and federal tax obligations the parties will owe upon signing the deal. Often, deal structures (such as asset sales) that typically benefit buyers have negative tax consequences for sellers and vice versa. So it’s common for the parties to wrangle over taxes at this stage. Just because you seem to have successfully resolved tax issues at the negotiation stage doesn’t mean you can become complacent. With adequate planning, you can spare your company from costly tax-related surprises after the transaction closes and you begin to integrate the acquired business.

Tax management during integration can also help your company capture synergies more quickly and efficiently. You may, for example, have based your purchase price on the assumption that you’ll achieve a certain percentage of cost reductions via postmerger synergies. However, if your taxation projections are flawed or you fail to follow through on earlier tax assumptions, you may not realize such synergies.

Merging accounting functions

One of the most important tax-related tasks is the integration of your seller’s and your own company’s accounting departments. There’s no time to waste: You generally must file federal and state income tax returns — either as a combined entity or as two separate sets — after the first full quarter following your transaction’s close. You also must account for any short-term tax obligations arising from your acquisition.

To ensure the two departments integrate quickly and are ready to prepare the required tax documents, decide well in advance of closing which accounting personnel you’ll retain. If you and your seller use different tax processing software or follow different accounting methods, choose between them as soon as feasible. Understand that, if your acquisition has been using a different accounting method, you’ll need to revise the company’s previous tax filings to align them with your own accounting system.

The tax consequences of M&A decisions may be costly and could haunt your company for years. We can help you ensure you plan properly and minimize any potentially negative tax consequences.

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Team Highlights — Getting to Know Us

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Mike Sgobba

Partner

Mike is another one of our Valley locals - born and raised in Santa Ynez he attended grades K-8 at Los Olivos Elementary School; Class of 2002 at SYV High School; and in 2006 graduated from San Diego State University, university honors program, college of business honors program, and president of honors accounting society Beta Alpha Psi.  Adding to his list of accomplishments, he was recently honored by the PCBT as a member of the 40 Under 40 Class of 2017.

In July of 2006 he married his high school sweetheart Jenn.  They are the fun loving, proud parents of Odin (born 5/13/14) and baby sister Marlow (born 12/6/16).  You will almost always find Mike and his family outside, enjoying some sort of physical activities.  

He almost made it up Mt. Whitney, but unfortunately Jenn became very sick less than a mile from the summit and they had to turn around – Mike 0 / Mountain 1.

Mike completed an Ironman distance triathlon in 2012, as well as a number of half-iron and shorter races.  His favorite race is Escape from Alcatraz in San Francisco (where you literally jump from a boat off Alcatraz island and swim back to SF to start the race).  C&D Profile

Favorite Things

Food:  PIZZA – love it any time of day; love to cook it on the Weber; and anything cooked on my Traeger Grill

Musician – Music:  Grew up playing piano and guitar, still play guitar, love going to concerts, recently went to see Jack Johnson, Ben Harper, The Lumineers

Movies – Books:  Not going to lie, I’ve been trying to read the last Game of Thrones for 2 years now…

Hobbies/Sports:  Men’s softball, Crossfit, snowboarding and everything on the lake, most recently tried wakesurfing

Travel:  Love to travel.  Highlights would be Machu Picchu and Peru, Thailand, backpacked Europe for honeymoon, Costa Rica, driving tour of the South (Georgia, Carolinas, Tennessee, Mississippi, Louisiana)

Bucket List:  Would like to do 1 more full Ironman, to see if I can do it in under 12 hours

Community Involvement:  Relay for Life Team Captain; Treasurer for Santa Barbara Triathlon Club from 2012 – 2016; Organizing C&D Community Service Days, Steering Committee for Santa Ynez Valley High School pool

Special Congratulations!!

Please join us in celebrating our recent staff promotions this month.  

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We're proud to announce our newest Manager is Megan Parr, CPA.  After starting work at C&D in 2013, she was promoted to Senior Associate in 2015. During 2016, Megan attained her CPA accreditation and we're once again very happy to recognize her accomplishments.  C&D Profile

 
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Our Associate, Jena Deming has two reasons to celebrate.  Not only was Jena promoted to Senior Associate this month, she also changed her last name.  On August 12th, Jena celebrated her wedding day and married Austin McCollum, from Santa Ynez. 

Congratulations to both Jena McCollum and Megan Parr!! 

PCBT — 40 Under 40 Award

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Congratulations Mike !!

C&D is very pleased to announce that Partner Mike Sgobba was recently honored by the Pacific Coast Business Times and inducted into the 40 Under 40 Class of 2017 as being part of the new generation reshaping the leadership ranks and economy of the Tri-Counties.  All honorees will be recognized at the awards dinner on Monday, September 18th at the Topa Tower Club in Oxnard. LIST of Honorees

MATERIAL PARTICIPATION KEY TO DEDUCTING LLC AND LLP LOSSES

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If your business is a limited liability company (LLC) or a limited liability partnership (LLP), you know that these structures offer liability protection and flexibility as well as tax advantages. But they once also had a significant tax disadvantage: The IRS used to treat all LLC and LLP owners as limited partners for purposes of the passive activity loss (PAL) rules, which can result in negative tax consequences. Fortunately, these days LLC and LLP owners can be treated as general partners, which means they can meet any one of seven “material participation” tests to avoid passive treatment.

The PAL rules

The PAL rules prohibit taxpayers from offsetting losses from passive business activities (such as limited partnerships or rental properties) against nonpassive income (such as wages, interest, dividends and capital gains). Disallowed losses may be carried forward to future years and deducted from passive income or recovered when the passive business interest is sold.

There are two types of passive activities:

  1. Trade or business activities in which you don’t materially participate during the year; and
  2. Rental activities, even if you do materially participate (unless you qualify as a “real estate professional” for federal tax purposes).

The 7 tests Material participation in this context means participation on a “regular, continuous and substantial” basis. Unless you’re a limited partner, you’re deemed to materially participate in a business activity if you meet just one of seven tests:

  1. You participate in the activity at least 500 hours during the year.
  2. Your participation constitutes substantially all of the participation for the year by anyone, including nonowners.
  3. You participate more than 100 hours and as much or more than any other person.
  4. The activity is a “significant participation activity” — that is, you participate more than 100 hours — but you participate less than one or more other people yet your participation in all of your significant participation activities for the year totals more than 500 hours.
  5. You materially participated in the activity for any five of the preceding 10 tax years.
  6. The activity is a personal service activity in which you materially participated in any three previous tax years.
  7. Regardless of the number of hours, based on all the facts and circumstances, you participate in the activity on a regular, continuous and substantial basis.

The rules are more restrictive for limited partners, who can establish material participation only by satisfying tests 1, 5 or 6. In many cases, meeting one of the material participation tests will require diligently tracking every hour spent on your activities associated with that business. Questions about the material participation tests? Contact us.

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Three midyear tax planning strategies for business

Tax reform has been a major topic of discussion in Washington, but it’s still unclear exactly what such legislation will include and whether it will be signed into law this year. However, the last major tax legislation that was signed into law — back in December of 2015 — still has a significant impact on tax planning for businesses.

Let’s look at three midyear tax strategies inspired by the Protecting Americans from Tax Hikes (PATH) Act:

  1. Buy equipment. The PATH Act preserved both the generous limits for the Section 179 expensing election and the availability of bonus depreciation. These breaks generally apply to qualified fixed assets, including equipment or machinery, placed in service during the year. For 2017, the maximum Sec. 179 deduction is $510,000, subject to a $2,030,000 phaseout threshold. Without the PATH Act, the 2017 limits would have been $25,000 and $200,000, respectively. Higher limits are now permanent and subject to inflation indexing. Additionally, for 2017, your business may be able to claim 50% bonus depreciation for qualified costs in excess of what you expense under Sec. 179. Bonus depreciation is scheduled to be reduced to 40% in 2018 and 30% in 2019 before it’s set to expire on December 31, 2019.
  2. Ramp up research. After years of uncertainty, the PATH Act made the research credit permanent. For qualified research expenses, the credit is generally equal to 20% of expenses over a base amount that’s essentially determined using a historical average of research expenses as a percentage of revenues. There’s also an alternative computation for companies that haven’t increased their research expenses substantially over their historical base amounts. In addition, a small business with $50 million or less in gross receipts may claim the credit against its alternative minimum tax (AMT) liability. And, a start-up company with less than $5 million in gross receipts may claim the credit against up to $250,000 in employer Federal Insurance Contributions Act (FICA) taxes.
  3. Hire workers from “target groups.” Your business may claim the Work Opportunity credit for hiring a worker from one of several “target groups,” such as food stamp recipients and certain veterans. The PATH Act extended the credit through 2019. It also added a new target group: long-term unemployment recipients. Generally, the maximum Work Opportunity credit is $2,400 per worker. But it’s higher for workers from certain target groups, such as disabled veterans.

One last thing to keep in mind

In terms of tax breaks, “permanent” only means that there’s no scheduled expiration date. Congress could still pass legislation that changes or eliminates “permanent” breaks. But it’s unlikely any of the breaks discussed here would be eliminated or reduced for 2017. To keep up to date on tax law changes and get a jump start on your 2017 tax planning, contact us.

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Team Highlights — Getting to Know Us

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Steve Palmer

 

Partner

You may already know Steve, and his wife Lisa, since they’ve lived in the area for over 25 years working and raising their family of three boys - Andrew, Brenden and Ian.  The newest member of their family is Remy – a 1-year old rescue dog (Heinz 57 variety).

When Steve takes time to get away – that’s exactly what he does.  Over the next few months, you’ll find him hiking a little higher than the rest of us.  On August 21st he’ll be at Thompson Peak, the highest peak in the Sawtooth Mountain Range of Central Idaho, observing the total solar eclipse.  Quite the adventure for 2 minutes of a “not to be missed, something to see moment”.  During September, Steve plans to make his third summit of Mt. Whitney in the Eastern Sierras – the highest mountain in the Continental US.  After that, he'll be enjoying the Pilgrimage Music Festival in Nashville. C&D Profile

Favorite Things

Activities:  Being outside, running, swimming, boating, travel

Sports:  Softball, volleyball, golf

Hobbies:  Hiking, camping, nature, education, wine tasting, music

Community:  A founding director of Los Olivos School Foundation and NatureTrack Foundation and member of Solvang Rotary Club.

ESOPs Offer businesses tax and other benefits

With an employee stock ownership plan (ESOP), employee participants take part ownership of the business through a retirement savings arrangement. Meanwhile, the business and its existing owner(s) can benefit from some potential tax breaks, an extra-motivated workforce and potentially a smoother path for succession planning.

How ESOPs work

To implement an ESOP, you establish a trust fund and either: Contribute shares of stock or money to buy the stock (an “unleveraged” ESOP), or Borrow funds to initially buy the stock, and then contribute cash to the plan to enable it to repay the loan (a “leveraged” ESOP). The shares in the trust are allocated to individual employees’ accounts, often using a formula based on their respective compensation. The business has to formally adopt the plan and submit plan documents to the IRS, along with certain forms.

Tax impact

Among the biggest benefits of an ESOP is that contributions to qualified retirement plans such as ESOPs typically are tax-deductible for employers. However, employer contributions to all defined contribution plans, including ESOPs, are generally limited to 25% of covered payroll. In addition, C corporations with leveraged ESOPs can deduct contributions used to pay interest on the loan. That is, the interest isn’t counted toward the 25% limit. Dividends paid on ESOP stock passed through to employees or used to repay an ESOP loan, so long as they’re reasonable, may be tax-deductible for C corporations. Dividends voluntarily reinvested by employees in company stock in the ESOP also are usually deductible by the business. (Employees, however, should review the tax implications of dividends.)

In another potential benefit, shareholders in some closely held C corporations can sell stock to the ESOP and defer federal income taxes on any gains from the sale, with several stipulations. One is that the ESOP must own at least 30% of the company’s stock immediately after the sale. In addition, the sellers must reinvest the proceeds (or an equivalent amount) in qualified replacement property securities of domestic operation corporations within a set period of time. Finally, when a business owner is ready to retire or otherwise depart the company, the business can make tax-deductible contributions to the ESOP to buy out the departing owner’s shares or have the ESOP borrow money to buy the shares.

More tax considerations

There are tax benefits for employees, too. Employees don’t pay tax on stock allocated to their ESOP accounts until they receive distributions. But, as with most retirement plans, if they take a distribution before they turn 59½ (or 55, if they’ve terminated employment), they may have to pay taxes and penalties — unless they roll the proceeds into an IRA or another qualified retirement plan. Also be aware that an ESOP’s tax impact for entity types other than C corporations varies somewhat from what we’ve discussed here. And while an ESOP offers many potential benefits, it also presents risks.

For help determining whether an ESOP makes sense for your business, contact us.

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