TAX+BUSINESS ALERT
News for your business and your life. | Hawkins Ash CPAs
In this edition
November 19, 2019

New Overtime Rules Effective January 1, 2020

PODCAST: Multi-Level Marketing Company–The Tax Considerations Independent Sales Reps Need to Know

Making Gifts to Loved Ones? Don’t Forget Tax Planning
New Overtime Rules Effective January 1, 2020
The Department of Labor has released new overtime regulations detailed in the Fair Labor Standards Act (FLSA). These new regulations may affect you and your business. Here is a summary of the changes that are effective on January 1, 2020.

The new rule increases the salary threshold for white-collar exemptions from $23,660 ($455 per week or $1,972 per month) to $35,568 ($684 per week or $2,964 per month). The white-collar exemption is also known as the standard salary level or minimum salary to avoid paying overtime. The annual compensation level for highly compensated employees (HCE) increases from $100,000 to $107,432. All employees earning below $35,568 will be eligible for overtime effective January 1, 2020, assuming these employees meet the duties test.

The duties test has not changed. Employees who perform executive, administrative and professional duties are exempt from overtime requirements. So are certain computer professionals. Doctors, lawyers, and teachers aren’t subject to the salary tests as well. Please remember that job titles do not determine exempt status.

The new overtime rules allow employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices.

The implementation options that employers may choose from in order to comply with the new overtime rules are not dictated by the Department of Labor. Some options available to employers include the following:

  • Increase salaries to at least $35,568 annually.
  • Pay overtime above the employee’s set salary for weeks where hours worked exceed 40.
  • Change employees to hourly rates and reduce or eliminate overtime hours by shifting work around or hiring more part-time workers.
  • Adjust base pay and pay over time.

Exemption for Business Owners
This exemption remains unchanged under the new overtime rules. Under a special rule for business owners, an employee who owns at least a bona fide 20 percent interest in the enterprise in which employed, regardless of the type of business organization (e.g. C- Corporation, S-Corporation, or other), and who is actively engaged in its management, is considered a bona fide exempt executive.

For more information and future updates regarding the new Overtime Rules please contact your Hawkins Ash accountant or visit the U.S. Department of Labor Wage and Hour Division website for more information:

Contact: Curt Bach, CPA
Direct: 715.748.1351
Email: cbach@hawkinsashcpas.com
PODCAST:
Multi-Level Marketing Company–The Tax Considerations Independent Sales Reps Need to Know
In this day and age, it’s hard to go a day to not see someone who is selling a product for some type of multi-level marketing company, or what we call MLM. Being part of a MLM can bring some interesting tax misconceptions. Heather Whitten joins Jeff Dvorachek to explain what tax exemptions MLM representatives are eligible for and which one's they're not.
Making Gifts to Loved Ones? Don’t Forget Tax Planning
Many people want to pass assets to the next generation during their lifetimes, whether to reduce the size of their taxable estates, to help family members or simply to see their loved ones enjoy the gifts. If you’re considering lifetime gifts, be aware that the type of assets you give can produce substantially different tax consequences.

Multiple Types of Taxes
Federal gift and estate taxes generally apply at a rate of 40% to transfers in excess of your available gift and estate tax exemption. Under the Tax Cuts and Jobs Act, the exemption has approximately doubled through 2025. For 2019, it’s $11.4 million (twice that for married couples with proper estate planning strategies in place).

Even if your estate isn’t large enough for gift and estate taxes to currently be a concern, there are income tax consequences to consider. Plus, the gift and estate tax exemption is scheduled to drop back to an inflation-adjusted $5 million in 2026.

Estate Tax Impact
If your estate is large enough that federal estate tax is a concern, consider gifting property with the greatest future appreciation potential. You’ll remove that future appreciation from your taxable estate.

If estate tax isn’t a concern, your family may be better off taxwise if you hold on to the property and let it appreciate in your hands. At your death, the property’s value for income tax purposes will be “stepped up” to fair market value. This means that, if your heirs sell the property, they won’t have to pay any income tax on the appreciation that occurred during your life.

Even if estate tax is a concern, you should compare the potential estate tax savings from gifting the property now to the potential income tax savings for your heirs if you hold on to the property.

Income Tax Considerations
You can save income tax for your heirs by gifting property that hasn’t appreciated significantly while you’ve owned it. The beneficiary can sell the property at a minimal income tax cost.

On the other hand, hold on to property that has already appreciated significantly so that your heirs can enjoy the step-up in basis at your death. If they sell the property shortly after your death, before it’s had time to appreciate much more, they’ll owe no or minimal income tax on the sale.

Don’t gift investments that have declined in value. A better option is generally to sell them prior to death, so you can claim the tax loss. You can then gift the sale proceeds.

Capital losses can offset capital gains, and up to $3,000 of net capital losses can offset other types of income, such as from salary, bonuses or retirement plan distributions. Excess capital losses can be carried forward until death.

Choose Wisely
No matter your current net worth, it’s important to choose gifts wisely. Please contact us to discuss the gift, estate and income tax consequences of any substantial gifts you’d like to make.
Contact: Dianna Streed, CPA
Direct: 507.453.5967
Email: dstreed@hawkinsashcpas.com
More Resources from CPA-HQ
Employee Benefit Plan and IRA Quick Reference Table
Plan sponsors should verify that their administrative and payroll systems reflect the appropriate limits for 2020.


Podcast: Roth Strategies and Conversions
Learn how to maximize your Roth IRA benefits by listening to this short podcast or read our dialogue script.

Webinar: Year-End and Payroll Reporting
To ensure a smooth, error-free year and to get the latest information, please join us for our Payroll and Other Year-End Reporting Webinar.
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