How to Protect Yourself From the Equifax Data Breach

If you have not already done so you should immediately check your potential impact from the massive cyber security incident at Equifax which may have affected 143 million people by following the recommended steps from the Federal Trade Commission located at the following link:

https://www.consumer.ftc.gov/blog/2017/09/equifax-data-breach-what-do

Your security is important to us, please contact us at info@cpa-wfy.com if you have any additional questions or concerns.

 

What to Know About ‘Power of Attorney’

A general power of attorney gives broad powers to a person or organization, known as an agent or attorney in fact, to act on your behalf. What powers?

  • Handling financial and business transactions.
  • Buying life insurance.
  • Settling claims.
  • Operating business interests.
  • Making gifts.
  • Employing professional help.

These things make a general power of attorney an effective tool, especially if you’ll be out of the country and need someone to handle certain matters, and obviously if you’re physically or mentally incapable of managing your affairs. Powers of attorney are generally included in estate plans to make sure someone is handling financial matters.

But wait — there are special powers of attorney:

  • Health care power of attorney — This grants your agent authority to make medical decisions for you if you are unconscious, mentally incompetent or in some way unable to make decisions on your own. Although it’s not the same thing as a living will, many states allow you to include your preference about being kept on life support. Several states may let you combine parts of the health care power of attorney and living will into an advanced health care directive.
  • Durable power of attorney — Suppose you become mentally incompetent due to illness or accident while your power of attorney is in effect. Will the power of attorney remain valid? To safeguard against such problems, you can sign a durable power of attorney, which is a general, special or health care power of attorney with a durability provision to keep the current power of attorney in effect.

And what of the agent you choose to have your best interests in mind? Your agent should:

  • Keep accurate records of all transactions done on your behalf.
  • Provide you with periodic updates to keep you or a third party of your choosing informed.
  • Be held responsible only for intentional misconduct, not for unknowingly doing something wrong.
  • Be aware that agents are not customarily compensated.
  • Know that you may decide to appoint multiple agents to act either jointly or separately in making decisions. This ensures more sound decisions, as they act as checks and balances of one another. But the downside? Multiple agents can disagree, and one person’s schedule can potentially delay important transactions or signings of legal documents.
  • Know that you’ve appointed a backup because he or she may become ill, be injured or in some way be unable to serve when the time comes. A successor agent takes over the power of attorney duties from the original agent if needed.

You must sign and notarize your original power of attorney document and certify several copies. Banks and other businesses will not allow your agent to act on your behalf unless they receive a certified copy of the power of attorney. You may revoke a power of attorney at any time — notify your agent in writing and retrieve all copies, letting everyone know that your agent’s power of attorney has been revoked.

It may be wise to consult a professional for advice about the powers being granted, to provide counsel on your candidate agent and to make sure your document meets all legal requirements.

© Copyright 2017. All rights reserved.

Multistate Sales Tax Amnesty for Online Retailers

The Multistate Tax Commission announced that it is working with 13 states to implement a sales tax amnesty program aimed at getting online retailers to register and file sales tax returns.  The main benefit of the amnesty program is that sellers will not be required to report prior period sales, nor be required to pay penalties or interest on any back taxes owed.  As of today, participating states include:

Alabama, Arkansas, Colorado, Connecticut, Kansas, Kentucky, Louisiana, Nebraska, New Jersey, Oklahoma, Texas, Utah, and Vermont.  Eight additional states are considering participation but have not committed, and it is not clear whether these additional states will require back taxes to be reported and paid.  The amnesty covers both sales & use taxes, as well as corporate franchise/income taxes.

The application period is August 17, 2017 to October 17, 2017 and taxpayers that have not been contacted will be able to start remitting taxes on future sales without penalty or liability for unreported past sales.

To be clear, this is a great opportunity for online retailers to clear up past sales tax obligations for pennies on the dollar.  Never before have so many states come together to offer an amnesty program of this scope and size.

If you have any questions regarding this program please contact us at info@cpa-wfy.com.

© Copyright 2017. All rights reserved.

Wondering About a 1031 Exchange

Perhaps you’ve heard of 1031 exchanges or like-kind exchanges, but you’re unsure of the benefits or whether you even qualify. The Internal Revenue Code 1031 is available to those who hold a property that qualifies as productive use in business or investments. If you have a piece of investment property, a 1031 exchange allows you to swap it for a similar property.

What is a 1031 exchange?

This type of exchange happens when an investor trades his or her real property for a similar or “like-kind” property. Investment properties such as shopping malls, residential buildings, stadiums and more can all be traded among themselves — like-kind merely refers to the type of investment and not the physical form. However, certain types of properties, such as those considered stock in trade, are excluded from 1031 exchanges.

Benefits of a 1031 exchange

The primary benefit of a 1031 exchange is that the investor can trade in their property and defer any capital gains or losses due at the time of sale, as well as any capital gains taxes. There is also no limit on how many times you can exchange property. From an investor’s standpoint, this means that you can continue to make a profit on each additional swap, but you won’t pay any tax on it until you finally sell it off down the road.

What does like-kind exchange mean?

Investors can exchange a single-family home for a beauty salon, a recreation center for an apartment building, and so forth — the physicality of the property is not associated with the term like-kind. Although the guidelines for like-kind may seem open-ended, there are some restrictions that you don’t want to fall prey to, so make sure to hire a professional to assist you with the process.

What are the deadlines?

Once the sale closes on your first property, your facilitator will receive the cash from the sale and you must submit, in writing, the property you are exchanging it for to your facilitator within 45 days. You have 180 days, starting on the day of sale of your first property, to close on the second.

How to choose a facilitator

There are many restrictions when choosing a facilitator, mainly because the facilitator cannot also function as an agent. Attorneys, Realtors or CPAs are all unsuitable as a facilitator; however, you can ask them for recommendations for a facilitator.

These are just the basics; there are a lot of details and exceptions in the fine print of the tax code. Give us a call or email a WFY advisor at info@cpa-wfy.com so we can help you decide when and how a 1031 exchange might be right for you.

© Copyright 2017. All rights reserved.

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Understanding the Components of a Buy-Sell Agreement

You want to protect your company against disruptive, harmful, and nonproductive owners, which may include divorced spouses, competitors, and disgruntled former employees. And you’re also thinking that your estate needs protection. You decide to enter into a buy-sell agreement while the interests of the parties—your partners and yourself—are aligned or at least not sufficiently misaligned that it would be impossible to discuss the business and valuation aspects of these agreements.

You know that when a trigger event occurs, the interests of the parties—buyers and sellers—may diverge and agreement over pricing and terms can become difficult or impossible to achieve. The following list includes features you should examine when devising your own agreement:

  1. Agree before trigger events and other dissension occurs. You need to agree on possible future occurrences so that the agreement can be written, signed, and dated in advance of these events.
  2. Identify which future events need to be considered. Many things can happen that may trigger the usefulness of a buy-sell agreement: owners may quit, be fired, retire, pass away, become divorced, or go bankrupt. Decide which future potential triggers you want to include in the buy-sell agreement. It’s important that all owners think seriously about these issues. If the buy-sell agreement operates satisfactorily, it will kick in when an applicable event occurs.
  3. Define the trigger events. Firings can be with or without cause, so agreements need to specify what happens in each circumstance. You and your partners should try to anticipate what could happen and document the occurrence in the agreement.
  4. Determine the price at which the identified triggers will occur. This is one of the hardest parts of establishing an effective buy-sell agreement. It’s also why many appraisers and other advisers recommend appraisal with a predetermined appraiser as a generally preferred pricing mechanism. These buy-sell agreements have fixed prices and they are ticking time bombs because they’re seldom updated.
  5. Determine the terms under which the price will be paid. In this regard, important factors to consider include down payment, payment schedule, interest-rate schedule, and fixed or floating interest rate.

Buy-sell agreements are based on different business situations and are formed by unique parties—you and your partners. For more on the components of buy-sell agreements and how they can work for your firm, give us a call today.

Wondering if You’re Eligible for R&D Credits

If you’re a business owner who wants to eliminate the uncertainty in developing a new product or improving an existing one, you’re probably engaging in research and development. Unfortunately for them, many business owners don’t realize that in some cases, R&D expenditures are tax-deductible. Or perhaps they think that some expenses are deductible when they’re not.

The IRS notes that “R&D expenditures generally include all expenditures incident to the development or improvement of a product.” The term “product” has a wide range in this context and can include:

  • Formula
  • Invention
  • Patent
  • Pilot Model
  • Process
  • Technique
  • Similar Property

Other examples of IRS-sanctioned R&D expenses include:

  • Obtaining a patent.
  • Attorney’s fees that help perfect a patent application.

R&D expenses you cannot deduct include:

  • Quality control testing.
  • Advertising or promotions.
  • Consumer surveys.
  • Efficiency surveys.
  • Management studies.
  • Research in connection with literary or historical or similar projects.
  • The acquisition of another’s patent, model, production or process.

You can deduct R&D expenses in one of three ways:

  • Current year deduction.
  • Amortization of deduction over a period of not less than 60 months.
  • If you choose to amortize, you can opt for the Optional Write-Off Method by deducting R&D expenses ratably over a 10-year period beginning with the tax year in which those expenses were incurred.

The IRS explains that you must charge to a capital account any R&D expenditures that you do not deduct currently, nor defer and amortize. You are allowed to claim the R&D credit against tax for certain qualified R&D expenditures, and combine the credit as one of the components of the general business credit. It also notes that the R&D credit is a nonrefundable tax credit.

Of course, rules are changing all the time, and there’s a lot of fine print. Give us a call or email a WFY advisor at info@cpa-wfy.com and we’ll help you make sure you get everything coming to you, without falling afoul of IRS regulations.

 

© Copyright 2017. All rights reserved.

Tax Calendar for the Rest of 2017

September 15

Individuals: If you are not paying your 2017 income tax through withholding (or you will not pay enough tax during the year that way), pay the third installment of your 2017 estimated tax. Use Form 1040-ES (Estimated Tax for Individuals). For more information, see IRS Publication 505 (Tax Withholding and Estimated Tax).

Partnerships: If a six-month tax extension was requested/obtained, file a 2016 tax return (Form 1065), and pay any tax due. Provide shareholders with a copy their final or amended or substitute Schedule K-1 (Form 1065).

S Corporations: If a six-month tax extension was requested/obtained, file a 2016 tax return (Form 1120S), and pay any tax due. Provide each shareholder with a copy of his or her final or amended or substitute Schedule K-1 (Form 1120S).

Electing Large Partnerships: If a six-month tax extension was requested/obtained, file a 2016 tax return (Form 1065-B), and pay any tax due. If required, provide each partner with a copy of his or her final, amended or substitute Schedule K-1 (Form 1065-B).

Corporations: Deposit the third installment payment for 2017 estimated income tax. Form 1120-W (Estimated Tax for Corporations) is a worksheet that can be used to estimate your tax for the year.

October 16

Individuals: If you requested/obtained a six-month tax extension, file your 2016 income tax return (Form 1040, 1040A or 1040EZ), and pay any tax due.

Corporations: If a six-month tax extension was requested/obtained, file a 2016 tax return (Form 1120), and pay any tax due.

December 15

Corporations: Deposit the fourth installment payment for 2017 estimated income tax. Form 1120-W (Estimated Tax for Corporations) is a worksheet that can be used to estimate your tax.

 

Fiscal Year Taxpayers – Deadlines for 2017

 

Individuals

Form 1040: Due by the 15th day of the fourth month following the close of your tax year. If you need more time to file Form 1040, use Form 4868 to request a tax extension.

Form 1040-ES (Estimated Tax): Quarterly payments are due in equal installments on the 15th day of the fourth, sixth and ninth months of your tax year, as well as on the 15th day of the first month after your tax year ends.

Partnerships

Form 1065: Due by the 15th day of the third month following the close of the partnership’s tax year. Provide each partner with a copy of his or her Schedule K-1 or its substitute. If you need more time to file Form 1065, use Form 7004 to request a six-month tax extension.

Form 1065-B (Electing Large Partnerships): Due by the 15th day of the third month following the close of the partnership’s tax year. Provide each partner with a copy of his or her Schedule K-1 or substitute Schedule K-1 (Form 1065-B) by the March 15 following the end of the partnership’s tax year. If more time is needed to file Form 1065-B, use Form 7004 to request a six-month tax extension.

Corporations and S Corporations

Form 1120 (or Form 7004): Due by the 15th day of the fourth month following the close of the corporation’s tax year. However, a corporation with a fiscal tax year ending on June 30 must file by the 15th day of the third month after the end of its tax year. A corporation with a short tax year ending any time in June will be treated as if the short year ended on June 30, and must file by the 15th day of the third month after the end of its tax year. If more time is needed to file Form 1120, use Form 7004 to request a tax extension.

Form 1120S (or Form 7004): Due by the 15th day of the third month following the close of the corporation’s tax year. S corporations must provide each shareholder with a copy of their Schedule K-1 (Form 1120S) or substitute Schedule K-1. If more time is needed to file Form 1120S, use Form 7004 to request a six-month tax extension.

Estimated Tax Payments: Quarterly payments are due in equal installments on the 15th day of the fourth, sixth, ninth and 12th months of the corporation’s tax year.

Form 2553 (Election by a Small Business Corporation): This form is used to select S corporation treatment. It is due within two months and 15 days after the beginning of the tax year the election is to take effect, or at any time during the preceding tax year.

The above is just a summary and your particular situation may be different. There can be a lot of subtleties about which deadlines may apply in your situation. Keep in touch with us  at info@cpa-wfy.com so we can help make sure you pay the right taxes on the right dates.

Weighing the Decision to Buy or to Lease

After paying rent for several years, many business owners are not thrilled about helping their landlord build equity in the building and ultimately they regret not purchasing the property from the outset.

The principals at Beckner & Associates, a real estate firm in Lenexa, Kansas believe most businesses should own their own property.  The hard questions are when and how.  This is why it’s critical for small-business owners to consider the advantages of owning their property as well as understand the issues accompanying purchase.

Advantages

Tax deductions such as mortgage interest, property taxes and depreciation can help a small-business reduce the blow to the expenditures when owning a property themselves.  By owning the property:

  • The business pays market rents and can move money to the owner which reduces the tax obligation.
  • Company owners are now landlords allowing the stabilization of lease rates for as long as they like to avoid paying rate increases.
  • The building can be owned by a limited liability company to provide additional tax benefits not found in corporate ownership.

In sum, company owners benefit from control of rental rates and real estate investors can make money by cash-flow appreciation and reduction of debt. Property ownership offers other advantages, too, such as control of operating expenses and careful management of maintenance issues.

Disadvantages

As for most things in life, one size doesn’t fit all such as the relationship with small-business owners and purchasing property.  Here are some considerations to think about to why property ownership may not work for a small-business:

  • Significant funds that would be available to fund business growth may have to be utilized for a required down payment to buy a property (typically 10-20 percent down payment).
  • A small-business anticipating significant growth can outgrow a building in a small amount of time and should postpone purchasing until growth has stabilized.  Or, they can buy a larger building and lease part of it to other companies.

We’ve only touched the surface. As you can see, the decision to buy rather than lease a property is not as clear-cut as many business owners might think.  Why risk making a bad decision? Give us a call or e-mail a WFY adviser at info@cpa-wfy.com to point out both advantages and disadvantages that weigh into this important business decision.

© Copyright 2017. All rights reserved.