About Padgett Team

Our firm is a leader in outstanding accounting, tax payroll and business services. Our dedication to the 3 dominating business requirements of Professionalism, Timeliness and Excellence dictate the day-to day service we provide equally to each client. No small business is too small.

Expensing Assets Under the Tax Cuts and Jobs Act

Because of the Tax Cuts and Jobs Act (TCJA), taxpayers can now deduct 100% of the cost of most new or used tangible property, other than buildings, acquired and placed in service after Sept 27, 2017. The new law also made Section 179 expensing more favorable by allowing taxpayers to immediately deduct the entire cost of qualified property on an asset-by asset basis up to a maximum of $520,000 annually. This limit is reduced by one dollar for every dollar that the costs of all section 179 property exceeds $2,070,00 for assets placed in service beginning in 2018.

The Act also consolidates various leasehold improvement categories into one category – qualified improvement property. Qualified improvement property consists of improvements made to the interior of nonresidential real property after the building was placed into service. Qualified improvement property is also eligible for Section 179 expensing.

Should you take 100% bonus depreciation or select Section 179 expensing? It depends! Here are several considerations to keep in mind when deciding between Section 179 expensing and 100% bonus depreciation:

  • Neither bonus depreciation nor Section 179 expensing affect Alternative Minimum Tax (AMT).
  • Bonus depreciation must be elected out of by asset class; Section 179 expensing is elected on an asset by asset basis.
  • Section 179 expensing is limited to taxable income; bonus depreciation is not limited by taxable income.
  • Bonus depreciation can create a Net Operating Loss (NOL), which can be carried back and possibly generate a refund from a prior tax year.
  • Section 179 expensing can control taxable income to maximize the new 20% Qualified Business Income (QBI) deduction or limit the new $500,000 business loss limitation.

Selecting between 100% bonus depreciation and Section 179 expensing will not only affect your taxes in the current year but also in a future year when the asset is sold. Contact us to discuss how this can impact you!

4th Quarter 2018 Due Dates

October 1:

  • Businesses: Deadline for establishing a new SIMPLE retirement plan for 2018; Deadline to provide written notice to employees related to Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) plans that begin on January 1, 2019

October 15:

  • Individuals: 2017 return due (Form 1040) if on extension
  • Calendar-year C corporations: 2017 return due (Form 1120) if on extension

October 31:

  • Employers: File Form 941 for 3rd quarter 2018

During November:

  • Employers: Request Form W-4s from employees whose withholding allowances will be different in 2019

December 17:

  • Calendar-year C Corporations: 4th installment of 2018 estimated tax due

Tax Cuts and Jobs Act Update

Changes to Qualified Tuition Plans:
Qualified tuition plans, commonly known as 529 plans, are a popular way to ease the financial burden of paying for college. Before the Tax Cuts and Jobs Act, earnings in a 529 plan could be withdrawn tax-free only when used for qualified higher education at colleges, universities, vocational schools or other post-secondary schools. With the passage of the Tax Cuts and Jobs Act, 529 plans can now be used to pay for tuition at an elementary or secondary public, private or religious school, up to $10,000 per year. Another change came as a result of the 2015 Protecting Americans From Tax Hikes (PATH) Act, which addresses refunds of tuition or other qualified education expenses. If a student withdraws from a class, there is often a refund issued by the institution. As long as the beneficiary recontributes the refund to 529 plan within 60 days, the refund is nontaxable! To discuss these two changes or the overall benefits of 529 plans, give us a call.

Changes to the Meals & Entertainment Deduction:
The Tax Cuts and Jobs Act of 2017 has made many important business tax changes, but one significant change relates to the deductibility of meals and entertainment. Prior to 2018, a business engagement at a local sports venue involving the cost of admission, food, or beverage was eligible for a 50% deduction. With the passage of the Tax Cuts and Jobs Act, entertainment expenses are now entirely nondeductible, regardless of the nature of the meeting. The Tax Cuts and Jobs Act also limits the deductibility of business meals provided for the convenience of the employer to 50%, which had been 100% deductible by the employer. Given these changes, businesses should consider any internal adjustments they need to make for tracking and reporting these costs. If you need guidance on the proper treatment of meals and entertainment expenditures, don’t hesitate to contact us for help!

Examples of Common Types of Meals & Entertainment Expenditures (Before & After the Act)
meals and expenditures after tax cuts and jobs act

Outsourcing Payroll? Payroll Taxes are Still YOUR Responsibility!

pay statement

Padgett has long encouraged clients to use reputable vendors, particularly when it comes to payroll. However, did you know that YOU are ultimately responsible for the payment of withheld taxes, even if you use a payroll service provider? Although outsourcing payroll to a third party can help ensure that filing deadlines and deposit requirements are met and greatly streamline business operations, it's your ultimate responsibility to pay these taxes, even if the failure to pay is entirely due to the payroll service provider's negligence or fraud.

Best Business Practices:

  1. Don’t change the address on file with the IRS to that of the payroll service provider. Changing the address may prevent your being informed a problem in time to do anything about it.
  2. Ask the payroll service provider if they have a fiduciary bond. This could protect you in the event of default. Padgett Payroll offers this.
  3. Ensure that your service provider is using the Electronic Federal Tax Payment System (EFTPS) as Padgett Payroll does. Payment history is tracked and can be viewed on-line, allowing you to easily confirm payments. A red flag should go up the first time a payroll service provider misses or makes a late payment. Once you have an EFTPS account, you’ll also be able to make tax payments that your payroll service provider typically doesn’t make for you (e.g., estimated tax payments).
  4. If you’re not using Padgett Payroll Service as your outsourced provider, ensure that your provider is listed as having passed the IRS Assurance Testing System (ATS) and/or Business Acceptance Testing (BATS) requirements.

Outsourcing your complete payroll needs can save you time, help you run your business better, and protect you from payroll tax penalties. We suggest you consider a payroll service, such as Padgett Payroll Services, that’s designed specifically for small businesses like yours. For additional information, please contact our office for an appointment. We will be happy to discuss your options.

Are Your Earnings Subject to Self-Employment Tax?

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Self-employed persons are subject to a special tax to fund social security benefits under the Self- Employment Contributions Act. All self-employed persons, regardless of age, must file Schedule SE to compute the tax. For sole proprietors, SE tax is assessed on net earnings from self-employment, which is defined as gross income less allowable deductions from a taxpayer’s trade or business.

Trade or Business Requirement. To be engaged in a trade or business generally requires your continuous and regular involvement in the activity and the intent of making a profit. Thus, earned income received from an isolated or sporadic activity that differs from your regular trade or business is generally not subject to SE tax because it does not rise to the level of a trade or business. If your side work is in the same line as your regular job, you probably have income subject to SE tax. Side work does not necessarily need to be in the same line of work to constitute a trade or business. All facts and circumstances should be carefully reviewed considering the potential risks of taking a position contrary to that of the IRS.

Small Business Financing

finances

Financing can be one of the biggest obstacles small business owners face. Proper financing can help your business survive, grow or expand and increase profits. The alternative can be as severe as business failure.

A small business' primary use of a commercial finance company is to borrow money for the purchase of inventory and equipment, and to meet seasonal cash flow needs. A trustworthy financier can be an asset to any small business. While right now may be the perfect time to apply for a loan to purchase more equipment, finding a good lender may prove to be challenging. When shopping for a commercial finance company, look for the following qualities:

  • Doesn’t sell or broker loans to third parties. You shouldn’t have to worry whether the people you deal with today will be there tomorrow.
  • Provides prompt service. A good lender is available to address your issues, problems and concerns, and then respond promptly to your needs.
  • Understands the unique needs of small business. The lender should work with you throughout the business cycle by offering such options as seasonal financing.
  • Does not require outside collateral. Instead of pledging your home or other assets to secure financing, look for a lender that will apply judgment, not rules, in special circumstances.
  • Has competitive rates. Compare rates but understand that the lowest rate will not guarantee you the best service. Weigh the two carefully before making your decision.

Not sure if you need financing or if you found a good lender? Contact us for advice!

Physical Presence No Longer Required!

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In the recent U.S. Supreme Court case South Dakota v. Wayfair, the court determined that the mere “economic presence” in a state can be used to establish nexus for sales tax, even when the vendor has no physical presence. This decision overturned the long-standing law under the famous case of Quill Corp. v. North Dakota stating that “the physical presence rule of Quill is unsound and incorrect.” Economic presence can be met by surpassing an established threshold such as a certain number of transactions or an amount of sales in that state. Each state will have the ability to set their own thresholds and it may take some states longer to respond to this court ruling than others. Contact us to determine if your business will be impacted.

Postcard-Size Form 1040

mailboxes

The Internal Revenue Service and the Treasury Department unveiled a draft version of the postcard-size Form 1040 that was promised from last year’s tax reform effort. For the 2019 tax season, the shorter Form 1040 will replace current Forms 1040, 1040A and 1040EZ so that all 150 million taxpayers can use the same form. The new form uses a “building block” approach, in which the tax return is reduced to a simple form and supplemented with additional schedules if needed. Taxpayers with straightforward tax situations will only need to file this new 1040 with no additional schedules.

Padgett was represented by Roger Harris, COO, on a call with the IRS Commissioner as he explained the new form and solicited feedback. The IRS plans to continue working with the professional tax community to finalize the streamlined Form 1040 over the summer. Stay tuned as we update you on this new tax filing opportunity!

Face-To-Face Networking

networking

When it comes to any small business, networking is the key to success. With the explosion of online marketing and social media, business owners can easily replace face-to-face networking with more time online. Although online is still important for business growth, person-to-person networking will build solid relationships that every entrepreneur can benefit from.

Many business owners avoid networking because they’re tired of hearing the same sales pitch, they don’t see the benefit, or they don’t know where to find networking events. If you find yourself falling into one of the above categories, there is no need to worry. Below are some suggestions for types of networking groups and why you should consider participating.

Organizations & events for networking. Small Business owners can benefit from either attending person-to-person networking events or joining a networking group. Below is a list of different places that you can network and promote your brand:

  • Expos, exhibitions & trade shows. These events are a good place to begin. You can go as an attendee or by purchasing a booth space at the event.
  • Local chamber of commerce. The goal of a chamber of commerce is to advance the interests of area businesses, so these meetings are a great place to meet other local business owners and find resources to help your business grow.
  • Networking group. Here, you can conduct person-to-person networking and build your contacts. These groups consist of different business owners or people of different trades and services. Some network groups may have a fee to join.
  • Job & career fairs. Here, you can find people that could potentially work for you in the near future or take on freelance work.
  • Community gatherings. A great way to network, community gatherings help you build relationships with other business owners and people in your community.

Networking is more than face-to-face sales. Many people avoid networking groups because they see it as one big sales pitch. Although this may hold some truth, networking events are far more than just sales and handshakes. You can build bonds with other businesses, potential employees, possible clients and people in the community. Face-to-face networking will expand your business in more ways than just making more sales.

Where to find face-to-face networking events. One place where you can start to look is in your local community paper for advertised events. Many business newspapers also have a calendar or list of events for the month. Social media sites are another outlet that can be utilized. Facebook will let you check out events that your friends or people you may know are attending or hosting. There are also popular event websites such that many business owners find useful.

Simplifying the Tax Code Causes More Complexities!

taxes

While the Tax Cuts and Jobs Act (TCJA) sought to simplify the tax code, it also brought new complexity. For example, a new deduction provides substantial tax savings to people with “qualified business income” (QBI) from their pass-through business but calculating the deduction and limitations is complicated.

Generally, the QBI deduction is 20% of qualified income from a partnership, S corporation, or sole proprietorship. QBI, in a nutshell, is the net amount of income, gain, deduction, and loss with respect to your trade or business. Although we have a framework for the QBI calculation, we still await IRS guidance and clarification. This deduction will benefit many business owners, while phase-in and phase-out rules will reduce or eliminate the deduction for some taxpayers.

Complexities surrounding the new law can be daunting. Give us a call, and we can help you determine the impact that this deduction or other parts of the TCJA may have on your tax situation

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