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November 2017
In This Issue
Your BRC Team
Bernard Robinson & Company ranks number one on the list of the Best Employers in North Carolina (small and medium sized companies) by Business North Carolina!

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Click here to learn more about why Bernard Robinson & Company is such a great place to work!

Noteworthy Links
IRS Announces 2018 Pension Plan Limitations; 401(k) Contribution Limit Increases to $18,500 for 2018
IRS: Tax Relief in Disaster Situations
IRS: Tax Calendar for Businesses & Self-Employed
United States Economy / CNBC Updates
IRS: Tax Scams / Consumer Alerts
2018 Health Savings Account Limits Increase Slightly
FASB simplifies accounting for certain financial instruments / Journal of Accountancy
Why lease accounting laggards face serious risks / Journal of Accountancy
Equifax Breach Aftermath: 10 Steps to Take to Protect Yourself Today, by Netgain
Celebrating 70 Years: The Dumbwaiter
By Kevin Witriol, CPA

I am not a native of North Carolina.  I moved to Greensboro from Columbus, Ohio in 2000.  Yes, I am a Buckeye, so I avoid all of the Duke/State/UNC banter that continually emanates from my coworkers' offices.  The only team that ever mattered to me was Ohio State, or THE Ohio State University as it is commonly referred to. The accounting firm I left behind was a local firm that occupied a small space on a single floor of a commercial building.  So when I started working at BRC, I was unprepared for the larger-than-life company perk that awaited me on the second floor of our former space on Muirs Chapel Road: the dumbwaiter.

A dumbwaiter is defined as a small freight elevator or lift intended to carry objects rather than people. Dumbwaiters found within modern structures, including both commercial, public and private buildings, are often connected between multiple floors.

This may seem unimportant to most people, but to me, it was enticing.  You see, a few years earlier I had injured my foot at the office while playing a friendly game of dodgeball with a hacky-sack.  This activity was a common and totally acceptable stress reliever during Busy Season, at least according to the staff.   And if you don't know what a hacky-sack is, Google it.  But I can tell you that it hurts to get hit by it.  Anyway, while trying to avoid being hit by this beanbag projectile, I rolled my ankle and ended up with a Jones fracture, which meant I was on crutches for several weeks during Busy Season.  This was extremely inconvenient because back in the day, a paperless office was nothing but a pipe dream.  We kept all of our client files on paper in large binders (or redwelds, as they were called).  Once a project was finished, you physically carried this bulky redweld to the next person in line to review the file.  Trying to do this while on crutches was tricky, so I purchased a satchel, or as some call it, a man purse.  And because of this, I came to be known as "the Mailboy", delivering redwelds all across the office with my satchel.  Even the Partner-in-Charge's eleven-year-old daughter called me "Mailboy" when she was in the office.

Back to BRC.  The thought of having this wonderful contraption to hoist redwelds up and down between the first and second floors seemed too good to be true.  At five-foot-seven inches, I even entertained the possibility of squeezing inside it and delivering myself like a gift to my colleagues below.   But my dreams were soon shattered.  Although the dumbwaiter was beautiful in appearance, it operated manually, and the effort required to use it was such that you might as well run full speed up and down the stairs instead because you wouldn't perspire as much.

I cannot begin to tell you what a letdown this was.  Almost every day of every month of every year from 2000 - 2005, I walked past this tease of a dumbwaiter wondering what could have been.  Did it need a new pulley?  A new rope?  Less weight? We never did find out what the issue was, but in 2005, we moved to our current location on Highwoods Boulevard, and the dumbwaiter became a distant memory.  To this day, I always wonder if the new tenants of that building ever got it to work correctly.

When I was asked to write an article for Bernard Robinson & Company's 70th anniversary, I thought of many good memories over the years.  I could have written about the great clients, the camaraderie among staff, the challenging and satisfying work, or the free birthday cake that we enjoy every month.  But the dumbwaiter represented something different.  I doubt that any other public accounting firm had one.  And that was totally unique - just like BRC.
Flexibility Required for 2017 Year-End Tax Planning

By Ron Kuyath, CPA

Hoping to craft an article loaded with specific proactive tax strategies as 2017 closes out, I am again reminded that Congress is oblivious to tax planning. In 1981, tax practitioners were shocked when the Economic Recovery Tax Act (ERTA) was signed by President Reagan on August 13th with many provisions retroactive to January 1, 1981!  (I would now prefer August to January of the following year like we have experienced recently.) With that in mind, as daily updates to new legislation bounce around wildly, what I can advise is to review where you stand now and think about the flexibility that you may have regarding income, deductions and gains and losses between now and the end of the year.

In general, when facing the current and following tax year with similar tax rates or lower tax rates in the following year, deferring income and accelerating deductions reduces the present value of the two year tax cost. There are traps to consider regarding Alternative Minimum Tax (AMT), etc., so a projection should be performed by a qualified advisor. Much of the current news would lead many to expect their tax bill to go down. How that may happen depends on many as yet unknown legislative changes that could be utilized. Simply reducing the rates may not result in a reduction of tax if deductions are lost or phased out as many are currently. Until we have legislation, it is impossible to make safe recommendations. Understanding where you are now and considering the flexibility available with respect to the following will prepare you to act if and when we have legislation before December 31st:
  • Capital gains and losses
  • Deferred compensation (non-qualified, year-end bonus)
  • ISOs (Incentive Stock Options, when to exercise)
  • State income and real estate taxes (Remember AMT)
  • Charitable Contributions (Accelerate if rates are reduced for 2018)
  • Retirement Plan Distributions (Required minimum distributions must be met, but carefully look at any others for the best year to receive.)
  • Installment Sales
  • Roth IRA Conversions (Have front end paperwork available to act accordingly.)
This is also a good time to review your income tax withholding and estimated payments to avoid or reduce any penalties for underpayment of income tax. There are three ways to avoid the penalty: 1) having 90% of your current year tax paid ratably through the year, 2) 100% of prior year tax paid ratably if prior year Adjusted Gross Income was equal to or less than $150,000 or 110% of prior year tax paid ratably if prior year Adjusted Gross Income was more than $150,000 or 3) meet the Annualized Income Exception that requires a quarterly computation. Any withholding is treated as being paid ratably regardless of the actual date paid and many people use year-end bonus withholding to catch up if needed.

In these times of uncertainty regarding the future of the tax code, it is important to stay on top of changes in regulations and maintain some flexibility to ensure the most advantageous tax treatments.  Between now and the end of the year, you should plan to have several discussions with your tax professional to ensure the actions you take before December 31 will not cause unnecessary tax burdens for 2017 and 2018.
Clearing Up the Cash Flows Statement
By Allison Mills, CPA  
ASU 2016-15, Statement of Cash Flows, explains certain cash payments and receipts for how they should be presented on the statement of cash flows to clear up some differences on current presentation in the accounting practice.  The update clarifies eight parts of existing guidance on cash flow statement presentation and classification.

The eight changes targeted to clarify how cash receipts and cash payments are presented and classified in the statement of cash flows are:
  1. Debt prepayment or debt extinguishment - these costs should be cash outflows under financing activities.
  2. Payments on zero-coupon or similar debt instruments - at settlement of this debt, the issuer separates the interest portions of the payments (which should be classified as cash outflows under operating activities) and the principle portion of the payments (which should be cash outflows from financing activities).
  3. Payments made for settlement of contingent consideration in a business combination - settlement payments made soon after a business combination should be classified as outflows under investing activities.
  4. Insurance settlement proceeds - proceeds should be based on the nature of the loss, therefore proceeds from business interruption insurance should be operating activities and damage proceeds to property and equipment should be investing activities.
  5. Corporate owned life insurance policies - proceeds should be classified as cash inflows from investing activities, and premium payments can be classified as outflows from either operating or investing activities or a combination of both.
  6. Distributions from equity method investees - this clarifies that you must elect to account for your distributions by either the cumulative earnings approach or the nature of distribution approach.  Generally that means return on investment is an inflow from operating activities and return of investment is an inflow from investing activities.
  7. Beneficial interest in securitization transactions - the transferor beneficial interest obtained is classified as a non cash activity.  Cash receipts from payments on the interest should be classified as cash inflows from investing activities. 
  8. Separately identifiable cash flows - if the cash inflows or outflows have characteristics of more than one of the three cash flow classes, then the entity should determine each separately identifiable source or use and classify each as financing, investing or operating activities based on the underlying nature of the cash flows activity.
ASU 2016-15 is effective for public entities for fiscal years beginning after December 15, 2017, and interim periods within those years.  For all other entities it is effective for fiscal years beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019.  Early adoption is permitted, but all amendments must be adopted in the same period.
Net Assets Are A-Changin'
By Eric Bregman, CPA

It seems in the accounting world that, once we finally have an understanding of a concept, the standard makers like to turn everything upside down. In the case of Not-for-Profit entities, this is happening sooner rather than later with the new standard update, ASU 2016-14, Presentation of Financial Statements of Not-for-Profit Entities. This update, which is effective for periods beginning after December 15, 2017, contains many key changes to financial statement presentation. One of these changes is a change in terminology that we have been accustomed to for many years.

Currently, net assets are presented as unrestricted, temporarily restricted, and permanently restricted on both the statement of net position and statement of activities, and related footnote disclosures. Additionally, footnote disclosures for endowment net assets are presented in the same manner.

Under ASU 2016-14, net assets will be presented on the statement of net position and statement of activities, and endowment disclosures, in two categories: net assets without donor restrictions and net assets with donor restrictions:
  1. Net assets without donor restrictions (formerly unrestricted net assets) consist of all revenue not restricted by donors, unrestricted contributions designated by the board and donor restricted contributions whose restrictions are met in the same period in which they are received.
  2. Net assets with donor restrictions (formally temporarily and permanently restricted net assets) consist of all revenues restricted by donors as to either timing or purpose of the related expenditures or required to be maintained in perpetuity as a source of investment income are accounted for in donor restricted net assets. The investment income arising from endowment funds, if any, is accounted for in accordance with donor stipulations. When a donor restriction expires - when a stipulated time restriction ends or purpose restriction is accomplished - net assets with donor restrictions are reclassified to net assets without donor restrictions. Those resources for which the restrictions are met in the same fiscal year they are received are included in net assets without donor restrictions.
Along with this change, disclosures regarding the makeup of net assets will be enhanced. These enhanced disclosures include but are not limited to:
  1. Purpose and amounts of board designations and related policies regarding board designations as well as relevant qualitative and quantitative information.
  2. Composition of net assets with donor restrictions at year end and how these restrictions affect the use of resources. For example, an organization would present this with categories such as subject to expenditure for specific purpose, subject to passage of time, or subject to spending policy and appropriation.
While you may read this and wonder what exactly the implications are for your organization, keep in mind that this change is for presentation only and will not have an impact on day to day operations, programs and services provided, and the organization's bottom line.  If you have any questions about this or any other change the new standard will bring, please contact your accounting service provider for additional information.  

Bernard Robinson & Company, LLP | (336) 294-4494 |  [email protected] |
1501 Highwoods Blvd, Ste 300
Greensboro, NC 27410
BRC Strategy is designed to provide information of a general nature and is not intended as a substitute for professional consultation and advice.  The opinions and interpretations expressed should not be construed or used as legal or tax advice, written or otherwise, and cannot be used for the purpose of avoiding any penalties that may be imposed under federal, state or local law.