Dec. 19, 2017

In This Edition
Sweeping Tax Overhaul Heads to House and Senate
Ensuring Your Year-End Donations Are Tax Deductible
6 Year-End To-Do's
2018 Key Tax Fact Sheet
Could a Cost Segregation Study Save Your Company Taxes?
Hawkins Ash CPAs Announces Rochester Acquisition

Sweeping Tax Overhaul Heads to House and Senate
On December 15, 2017, The House and Senate Tax Cuts and Jobs Act Conference Committee unveiled its tax reform package that blends both the House and Senate versions of the legislation. GOP leaders predict that Congress will pass the bill prior to the holiday recess, and President Trump signaled his support before year-end. The final bill carries a January 1, 2018, effective date for most provisions.
The Conference bill would impact virtually every individual and business on a level not seen in over 30 years. The bill calls for lowering the individual and corporate tax rates, repealing countless tax credits and deductions, enhancing the child tax credit, boosting business expensing, and more. The bill also impacts the Affordable Care Act (ACA), effectively repealing the individual shared responsibility requirement.
This special report provides detail on the following highlights of the bill:
  • 37% top individual tax rate
  • 21% top corporate tax rate
  • New tax regime for pass-throughs
  • Individual AMT retained/modified
  • Federal estate tax retained/modified
  • Corporate AMT repealed
  • More generous expensing
  • International provisions 

Contact: Jeff Dvorachek, CPA
Ensuring Your Year-End Donations Are Tax Deductible
Many people make donations at the end of the year. To be deductible on your 2017 return, a charitable donation must be made by December 31, 2017. According to the IRS, a donation generally is "made" at the time of its "unconditional delivery." But what does this mean?

Is it the date you write a check or charge an online gift to your credit card? Or is it the date the charity actually receives the funds? In practice, the delivery date depends in part on what you donate and how you donate it. Here are a few common examples:
  • Checks. The date you mail it. 
  • Credit cards. The date you make the charge. 
  • Pay-by-phone accounts. The date the financial institution pays the amount.
  • Stock certificates. The date you mail the properly endorsed stock certificate to the charity.
To be deductible, a donation must be made to a "qualified charity" - one that's eligible to receive tax-deductible contributions. The IRS's online search tool, "Exempt Organizations (EO) Select Check," can help you more easily find out whether an organization is eligible to receive tax-deductible charitable contributions. You can access it at Information about organizations eligible to receive deductible contributions is updated monthly.

Many additional rules apply to the charitable donation deduction, so please contact us if you have questions about the deductibility of a gift you've made or are considering making. But act soon! You don't have much time left to make donations that will reduce your 2017 tax bill.

Contact: Boyd Lord, CPA
6 Year-End To-Do's
Keeping your financial records in order is very important to the success of your business and ensures that your financial statements are accurate. Follow these steps to make the close of your fiscal year easy to execute.
1. Review your profit and loss statements in mid-December.
What does your revenue look like now that the year is almost over? Do you anticipate future invoices or expenses to greatly affect your profit? If your profit is large, talk to your tax advisor to see if there are ways to lessen your tax burden.
2. Verify your vendor and lender files.
Review information relating to any current outstanding loans. Verify vendor 1099 information is up-to-date and you have accurate W-9 Forms. Forms 1099 and 1096 are due to the IRS by 1/31/18.
3. Take inventory.
If you sell products, take a physical inventory and compare the results to the QuickBooks Inventory Valuation Report. Make any necessary adjustments in QuickBooks.
4. Reconcile all of your accounts.
Reconcile your credit card and bank accounts.  Verify the statements match your records and investigate any unexplained discrepancies.
5.  Review and update employee info.
  • Run reports for year-end (Employee Details, Payroll Details, Wage and Tax Summary). 
  • Confirm your employees' social security numbers, legal names, and current addresses.
  • Make sure all employee paychecks have been recorded (handwritten, termination, commission, and bonus checks). Verify employee wage and benefits are correct.
  • Review sick and vacation policy settings; confirm sick and vacation hours used. 
  • Review tax rates and settings. 
  • Update state unemployment insurance (SUI) rates effective 1/1/18. 
  • Review and update any federal or state deposit schedules. 
  • Prepare and file payroll tax forms (940, 941, W-2's and W-3) by 1/31/18. 
  • Distribute employee W-2s by 1/31/18.  Wisconsin W-2s are due by 1/31/18 and Minnesota W-2's are due by 2/28/18. 
6. Create a budget for the next year.
Review your financial statements from the current year and create a budget to plan for the next year. By taking stock of your expenditures from the current year, you'll have a better understanding of where to focus your efforts moving forward.

Contact: Beth Kirchner

2018 Key Tax Fact Sheet
Download our 2018 Key Tax Fact Sheet to ensure you're up to date. Rates included:
  • Social Security, Medicare and Federal Unemployment Rates
  • WI and MN Unemployment Rates
  • Federal Minimum Wage
  • Mileage Rates
  • Retirement and IRA Contribution Limits
  • Health Savings Accounts Contribution Limits
Click here to download>>>
Could a Cost Segregation Study Save Your Company Taxes?
If your business has acquired, constructed or substantially improved a building recently, consider a cost segregation study. One of these studies can enable you to identify building costs that are properly allocable to tangible personal property rather than real property. And this may allow you to accelerate depreciation deductions, reducing taxes and boosting cash flow.

Overlooked Opportunities
IRS rules generally allow you to depreciate commercial buildings over 39 years (27½ years for residential properties). Often, businesses will depreciate structural components (such as walls, windows, HVAC systems, elevators, plumbing and wiring) along with the building.  

Personal property - such as equipment, machinery, furniture and fixtures - is eligible for accelerated depreciation, usually over five or seven years. And land improvements - fences, outdoor lighting and parking lots, for example - are depreciable over 15 years.

Too often, companies allocate all or most of a building's acquisition or construction costs to real property, overlooking opportunities to allocate costs to shorter-lived personal property or land improvements. Items that appear to be part of a building may in fact be personal property. Examples include:
  • Removable wall and floor coverings
  • Detachable partitions
  • Awnings and canopies
  • Window treatments
  • Signage
  • Decorative lighting
In addition, certain items that otherwise would be treated as real property may qualify as personal property if they serve more of a business function than a structural purpose. Examples include reinforced flooring to support heavy manufacturing equipment, electrical or plumbing installations, and dedicated cooling systems for server rooms.

A Study in Action
Let's say you acquired a nonresidential commercial building for $5 million on January 1. If the entire purchase price is allocated to 39-year real property, you're entitled to claim $123,050 (2.461% of $5 million) in depreciation deductions the first year.  

A cost segregation study may reveal that you can allocate $1 million in costs to five-year property eligible for accelerated depreciation. Reallocating the purchase price increases your first-year depreciation deductions to $298,440 ($4 million × 2.461%, plus $1 million × 20%).

Impact of Tax Law Changes
Bear in mind that tax law changes may occur this year that could significantly affect current depreciation and expensing rules. This in turn could alter the outcome and importance of a cost segregation study. Contact our firm for the latest details.

On the other hand, any forthcoming tax law changes likely won't affect your ability to claim deductions you may have missed in previous tax years. (For more on this concept, see "It may not be too late: Look-back studies.")

Worthy Effort
As you might suspect, a cost segregation study will entail some effort in analyzing your building's structural components and making your case to the IRS. But you'll likely find it a worthy effort.

Contact: Jeff Tillema, CPA

Hawkins Ash CPAs Announces Rochester Acquisition 
Hawkins Ash CPAs has acquired the Rochester tax and audit practice of Thomas Cummings, CPA. The acquisition was effective December 1, 2017.

Thomas Cummings, CPA, has joined Hawkins Ash CPAs as a Senior Manager and will continue to work with his clients, ensuring a successful transition.

"This acquisition is beneficial for all parties involved, the clients of Thomas Cummings will benefit from access to expanded services," said Abe Leis, Managing Partner at Hawkins Ash CPAs. "This acquisition increases our presence in the southeastern Minnesota market and will allow us to grow at a rapid pace."

Thomas Cummings will work from the Rochester office of Hawkins Ash CPAs at 3720 Nottingham Dr. NW, Rochester, MN 55901, and he can be reached at 507.424.1233.