November 2017

Hidden Work Hazard: Sleep Deprivation

Posted on November 29, 2017 by Debra Barcuch

Safety is a major concern for construction firms. Most improvement efforts focus on repairing and maintaining equipment or removing hazards from the job site. But little attention is paid to workers who aren’t getting enough rest.

Sleep deprivation can lead to increased injuries and fatalities. In addition, the risk of chronic health issues — including depression, obesity and even cancer — increases for workers who don’t sleep enough.

Reasons for sleep deprivation include:

Health issues,
Personal problems,
Demands of daily life, and
Job stress

Common Problems

Whatever the cause, the dangers associated with sleep deprivation are real. Here are eight common problems associated with this condition.

Poor performance.Fatigued workers simply don’t perform as well as those who are rested. Workers don’t move and react as fast when they haven’t slept well.
Mistakes, mistakes, mistakes.Tired workers typically react more slowly and make more mistakes on the job. This includes errors of commission (where an act causes damage) and errors of omission (where the worker’s failure to do something ends up harming a person or delaying the job).
Communication issues.When workers are fatigued, they may not enunciate as clearly as usual. In addition, they may pause for long stretches, mumble or mispronounce their words, or distort language in a variety of other ways. This can lead to confusion and injuries when tired workers aren’t understood.
Distractions.Tired workers tend to be easily distracted. They may have trouble following instructions or meeting safety standards because they aren’t wide awake. As a result, they could be injured or cause an injury to someone else.
Impaired driving.It’s well-established how trucker performance is impaired by sleep deprivation. While your workers likely aren’t handling 18-wheelers, there are still legitimate concerns driving back and forth from job sites as well as operating heavy vehicles in the field.
Memory lapses.Fatigue can result in a loss of short-term memory that results in setbacks or long-term memory where a worker fails to react in a way that he or she has been instructed to do.
Mood swings.Sleep deprivation can affect the mood or attitude of workers. They may become surly or irritable, exhibit childish behavior, or even show a lack of regard for usual social conventions. Others may become withdrawn or unwilling to engage in necessary conversation.
Poor decision-making.Sleep deprivation affects judgment. Studies have shown that people are inclined to take greater risks than usual without enough sleep. Risk-taking by tired workers can create hazards.

These problems aren’t independent of one another. Fatigued workers typically will exhibit several of these traits. What’s more, the problems compound over time. One or two nights of sleep deprivation can affect the way a worker functions the next day. If this persists for a week or beyond, the chances of an accident happening will only increase.

Steps to Reduce Worker Fatigue

While you can’t tell your employees when to go to bed and get up, there are certain steps that a construction manager or supervisor can take to improve the likelihood that workers will be rested well enough to perform soundly and safely. Consider the following practical suggestions.

Set sensible hours. Be reasonable about the hours you expect crews to work. When it comes to staying late, weigh all the relevant factors, including the imposition on workers’ personal lives and sleep habits. Constantly requiring workers to put in extra time can result in sleep deprivation or fatigue.

Don’t contact workers after hours. You aren’t helping your workers get the sleep they need by making frantic late-night calls about the next day’s work. Call workers during off-hours only in emergencies and respect their privacy.

Encourage exercise and healthy diets. The better physical shape employees are in, the better they’re likely to perform. You might even set up an exercise plan within the firm or offer incentives for joining a gym. Similarly, stress the importance of healthy eating habits, even though this can be difficult in remote job sites.

Cut down on caffeine. Caffeine can be a contributing factor to a lack of sleep and should be monitored. If you’re constantly getting coffee for the crew, especially in the late afternoon, you may be part of the problem, not the solution. Drinking coffee or caffeinated soft drinks can impair sleep even if they’re consumed hours before bedtime. Offer water, juice or other beverages instead.

Allow frequent breaks. We’re not talking about the bare minimum required by law. When it’s appropriate, provide workers with extra breaks, or a longer break than usual, to offset difficult working conditions, especially in inclement weather. By energizing workers in this manner, you can expect better results.

Take Control

There are many reasons for sleep deprivation you have no control over, but you should address the areas where you can help. This is for the good of everyone concerned — your firm, your customers and your workers. And don’t turn a blind eye to potential problems: If you see workers struggling with fatigue, act swiftly and decisively to get them out of harm’s way.

Has Sleep Deprivation Become an Epidemic?

“Sleep is the most under-appreciated health crisis in America,” states TV host Dr. Mehmet Oz.

He helped commission an extensive new sleep study of 20,000 individuals in conjunction with ResMed, a firm producing sleep-related products. According to the study, a staggering 79% of Americans get less than the recommended seven to eight hours of sleep each night.

In addition, more than 30% of survey respondents have a SleepScore of 55 or less (out of 100), a new statistic developed by Oz and ResMed. The average American SleepScore is 77.

The SleepScore is based on several factors, including gender, weight and height, age, and estimated hours of sleep a night.

Some of the causes cited for low SleepScores are:

Taking too long to fall asleep,
Waking up in the middle of the night,
Being excessively tired during the day,
Waking up early and not being able to go back to sleep,
Snoring,
Moving during sleep,
Amount of caffeine consumed late in the day, and
Amount of exercise in a week.

What is a R&D Study?

Posted on November 27, 2017July 23, 2024 by Debra Barcuch

R&D Credit Qualification

R&D Study

If it is determined in the course of our tax consulting that your firm could qualify for a substantial R&D tax credit, we may suggest a third-party expert to conduct a more extensive R&D study. Our team has experience with initial discovery and phase two project review and qualification for low to medium R&D activities, but we align with experienced tax credit project partners when considering complex or high R&D activities.

For architecture and engineering firms, most use some type of project accounting data that can help R&D experts analyze Qualifying Research Expenses (QREs). The most significant qualifiers or data fields to review include:

Contract type
Line of business or discipline
Project type
Phases, sub-phases or tasks
Employee hours, titles and departments
Subcontractors
Project location

This data should be reviewed prior to interviews with leaders or project managers. It will help the R&D expert determine the right questions to ask about each project. You may allow the expert to export the data or provide the expert with templates that include this information and other data requested.

The second phase of an R&D study is the Communications or Project Review Phase. The R&D expert will walk through the four-part test and discuss product development lifecycle to help the project team identify and qualify R&D activities. This phase may take some time to educate firms that are new to R&D QRE qualification, but mentioning the potential tax savings can support participation. Any qualifying activities will be identified by project and phases of development.

The third phase of an R&D study is the calculation of QREs. The R&D expert will review the ratio of each employee’s qualified research hours to total hours worked. Those possible taxable wages will help the expert determine wage expenditures linked to R&D. The same calculations will be made regarding supply costs, subcontractors and contract or agreement expenses.

The final phase of the R&D study is documentation. The QREs calculation will need to be documented to note the QREs by phases/tasks performed on qualifying projects. This level of detail will support a credit claim to the IRS for the current or previous tax years.

Documentation is Critical for R&D Study

According to Barry Devine, an R&D study expert at Corporate Tax Incentives, with offices in California, Denver, Atlanta and Houston, documentation is critical to achieving a successful IRS R&D credit claim. Documentation needs to happen during the normal course of business as a sort of data map to prove R&D activities. The documentation process should not overly burden the firm — once it’s set up, of course.

By following the firm’s standard project set-up guide, you should be able to locate documents consistently under the following categories or standard practices:

Document name
Location of document
Frequency document is generated
Document owner or author
Instructions to find and access the document
Testing results
Project timelines
Meeting minutes

Your firm may have the documentation in your system, but a consistent process for project documentation will make it easier to claim R&D credits now and in the future.

Talk to the tax team at Cornwell Jackson about your potential R&D qualifying activities. We can review your data to discover qualifying research expenses and help you decide if an R&D study would be financially valuable for your firm.

Continue Reading: Common Qualifying Activities and Case Examples of R&D Credit Qualifications

Gary Jackson, CPA, is a tax partner at Cornwell Jackson. Gary has built businesses, managed them, developed leadership teams and sold divisions of his business, and he utilizes this real world practical experience in both managing Cornwell Jackson and in providing tax planning to individuals and business leaders across North Texas. Contact him at gary.jackson@cornwelljackson.com.

The Basic Rules of Wage Garnishment for Child Support

Posted on November 27, 2017 by Debra Barcuch

Employers are often prohibited from interfering in the lives of their employers under various privacy laws. But it’s a different matter when employees fail to pay court-ordered child support.

In cases like that, an employer may be required to garnish child support from an employee’s wages. This isn’t uncommon. Employer withholdings account for about 75% of child support payments each year. In addition, wages may be garnished for unpaid taxes and defaulted student loans, among other debts.

With that in mind, here’s a primer on the basic rules of garnishment.

Under the federal Consumer Credit Protection Act (CCPA), employers may be required to withhold child support (or certain other debts) as payroll deductions. But it’s not up to the employer to decide to do this.

Elements of a Withholding Order

Employers are notified by an Income Withholding Order (IWO) from the U.S. Department of Health and Human Services (HHS), which administers the law. The employer must comply with a legally valid IWO, which:

Is for one of your employees or independent contractor,
Is an order for payment or has such an order attached, and
Is a direction for you to submit payments to the state disbursement unit.

However, you can’t fire or otherwise punish the employee simply because of the IWO. This is strictly prohibited by law.

Calculating the amount to be withheld is complex. Initially, the amount is based on “disposable income.” This is the amount remaining after mandatory deductions — federal, state and local taxes, unemployment insurance, workers’ compensation insurance, state employee retirement deductions and other deductions under state law. Generally, federal benefits such as Social Security, veterans’ benefits, and student assistance, among others are exempt from garnishment.

Disposable income and “net pay” aren’t necessarily the same. Net pay might include other deductions (for example, 401(k) plan deferrals) that aren’t figured into disposable income. Tip income, however, isn’t included in wages when calculating disposable income, but service charges are included.

Allowable Disposable Income

The maximum amount available for child support withholding is the “allowable disposable income.” The amount in the IWO may be higher, but the allowable amount is disposable income multiplied by a CCPA limit. Leave the details to your payroll advisors.

If you receive an IWO from a state that is different from the one where the employee works, you must take into account the laws for each jurisdiction. Generally, the employer follows the laws of the state issuing the IWO with regard to:

The amount of the child support payments,
Payment of fees and other charges, and
The state disbursement unit where payments are directed.

Conversely, you generally follow the laws of the state where the employee works with regard to:

The time to begin withholding,
The time to begin payments,
The maximum allowable disposable income limit,
Limits on administrative fees, and
Other terms and conditions.

FAQs About Child Support Withholding

Besides the basics of garnishments, other questions often come up. Here are some of the ones addressed on the HHS website.

When does withholding of child support begin?
An employer must start child support withholding no later than the pay period beginning 14 days after the IWO is mailed.
Can an employer charge its employees for this withholding responsibility?
Yes. Most states allow employers to charge an administrative fee, subject to a maximum set by the state. However, the fee must come from the employee’s allowable disposable income, not the child support payment.
Where does an employer submit the withholding?
Typically, it is sent to the state disbursement unit, unless otherwise notified. The appropriate unit will be listed on the IWO. Payment may be made electronically or by check.
When does an employer have to send the payment?
An employer must remit the payment within seven business days of the date when wages are paid. Note that some states impose a due date that is even sooner.
What is the length of time for the payments?
Employers must continue to withhold child support until they are officially ordered to stop. If the employee terminates employment for any reason, such as quitting or being fired, the employer should notify the child support enforcement agency. Other rules may apply under state law.
Can withholding be increased if requested by the employee?
Yes. An employer may withhold amounts above the CCPA limit, depending on company policy and state law. Alternatively, an employee may send additional payments to the child support agency for arrears or to avoid accrual of overdue payments.
What happens if a company acquires another company that has IWOs for its employees?
An acquiring company assumes the same legal obligations as the acquired company. It should continue to honor the IWOs, but notify the issuing child support agency as soon as possible about the acquisition and its intent to continue the withholding. Depending on state law, new IWOs may be required.
What happens if an employer fails to withhold the required child support?
If an employer doesn’t properly withhold and remit mandated child support, it is subject to penalties. These may include repayment of the amount of the child support plus penalties and fines. In addition, the state may impose certain fees on the employer.

You can find the full list of FAQs here and more information is available here.

Rely on your payroll advisors to provide the necessary guidance in this area and to fully comply with federal and state laws.

Additive Manufacturing Is on Its Way to Being Mainstream

Posted on November 22, 2017 by Debra Barcuch

Additive manufacturing (AM) might become synonymous with manufacturing itself sooner than you think.

AM already is no longer a small segment of the manufacturing industry and, as we head into a new year, it will be moving even further into the foreground.

Often used interchangeably with 3-D printing, AM is a process where digitally designed data is used to create a three-dimensional object. Controlled by a computer, either a print head sprays tiny particles layer by layer to build up an object, or a laser is directed at a liquid or other material to create a solid form.

The process uses a range of materials in powder form, including metal, plastics and other composites.

Tech-driven firms can create a distinctive presence in the marketplace with AM. The process has been especially successful in situations where design determines production, rather than the opposite. Furthermore, AM allows highly complex structures to remain extremely light and stable. Among its other advantages, it

Provides a high degree of design freedom, and
Allows mass manufacturing of small batches at reasonable costs and a high degree of customization.

In many cases, AM has led to improved consumer goods at reduced costs, a combination that’s hard to beat. Among the products developed are knee replacements, pulley mechanisms in automobiles and fuel nozzles.

Trends Continuing for 2018

AM has already made inroads, but you can expect the following trends in 2018 and beyond.

Increased industrialization. One of the main developments involving AM is a shift from design to production of arts. Improvements in processes and materials are making additive manufacturing more efficient, less costly and more productive.

To assist in this sea change, robots are more commonly being added to the mix. Robotic arms are helping to accelerate the move to more automation. They can, for example, transfer detachable print beds to additive printers and, once an item is complete, move it to post-processing stations and put another print bed into place.

Flexibility in materials. Great strides have been made in machines printing metal products as the processes become more affordable.

Typically, metal is deposited along with a catalyst substrate material — it could be a wax, gel or other material — that goes through a sintering or heating process. This removes the substrate so the metal can solidify.

Previously, AM of metal products was expensive for prototyping or mass production. As prices go down and availability goes up, more companies are expected to join in these efforts. For now, the automotive industry seems to be leading the charge.

Similarly, there is an upswing in application-specific materials. When creating a customized solution for one part of a product, manufacturers previously had to rely on off-the-shelf materials. Now specific materials are being developed for jobs. Ceramics also are becoming a major factor, particularly in small parts that can be manufactured rapidly and cost-effectively.

The Road to the Halfway Point

Tooling. In manufacturing, technology applications are often based on the duration of products. For some industries (for example the automotive sector), the life cycle can be ten years or more. So manufacturers will take their cue and use AM as needed.

As we look toward 2018, a car maker isn’t likely to start printing new cars — at least not yet. However, it can implement tooling at various stages. As an example, a new car model that is coming out in three years may have just a few parts produced with AM. When the next generation debuts in ten years, half of the car might be produced through the additive process.

We aren’t at the point where complete products will be produced additively, but tooling is likely to gradually increase over time. Experts suggest that it won’t be long before the halfway mark is reached.

Specialized products. Generally, manufacturers have relied on AM mainly for stages in the production of larger products produced in bulk, such as cars. But the broader adoption of tooling may result in firms seeking solutions for smaller products, some of which are highly complex and intricate. Until now, these endeavors may have been cost-prohibitive.

Notably, this trend toward specialized products could be significant in the medical and dental professions, ranging from complicated hearing aids to crowns to invisible braces. Size will no longer be a detriment.

The creation of complex parts will help bridge the gap for many manufacturers from traditional processes to AM. Over the short term, producing intricate parts may remain relatively expensive, but prices can be expected to decrease as access to mass production increases. Furthermore, being able to quickly deliver specialized products in a multitude of sizes, colors and shapes can develop into a competitive advantage for firms willing to make the leap.

Need for More Software

Coordination with software. In order for AM to take root fully, hardware and materials must work hand-in-hand with software. Much of current software often doesn’t encourage additive processes for designers. But new products that can address these needs are appearing regularly.

For example, the latest version of Autodesk’s Netfabb software optimizes additive processes for machine and material combinations. This software encompasses all the tools to ready files for 3D printing, including design optimization, build simulation and printer prep. Autodesk is a member of a consortium developing the format along with 3D Systems, GE, Microsoft and others.

It’s clear that AM is taking off in a big way, if not in 2018, then in the not-so-distant future. Investigate the opportunities for your firm in this tech-driven marketplace.

Learn More at a Conference

If you want to know more about AM, conferences and similar events are taking place both in the United States and at locations around the world. Search online for additive manufacturing conferences to find opportunities convenient for you to attend.

Retirement Account Catch-Up Contributions Can Add Up

Posted on November 20, 2017 by Debra Barcuch

Are you age 50 or older? If so, you can currently make extra “catch-up” contributions to certain types of tax-favored retirement accounts. Over time, these contributions can make a significant difference in your retirement-age wealth.

What about tax reform? After President Trump and other lawmakers stated that they wouldn’t tinker with retirement plan contribution tax breaks, the U.S. Senate has proposed limits to catch-up contributions. These are just proposals. For now, the rules in this article are current law.

Unfortunately, many people are unaware of this retirement savings bonus. Here’s what you need to know to reap the benefits.

The Basics

Eligible taxpayers can make catch-up contributions to a traditional IRA or a Roth IRA. In addition, some employer-sponsored retirement plans allow participants to make catch-up contributions.

IRA catch-up contributions. Once you reach age 50, you can make extra catch-up contributions of up to $1,000 annually to your traditional IRA or Roth IRA. If you’ll be 50 or older as of December 31, 2017, you can still make a catch-up contribution for the 2017 tax year. You have until April 16, 2018, to make your contribution.

Tax-deductible contributions to traditional IRAs create tax savings, but your income may be too high to qualify. Contributions to Roth IRAs don’t generate any upfront tax savings, but you can take federal-income-tax-free withdrawals after age 59 1/2 (assuming you’ve had at least one Roth account open for over five years).

There are income restrictions on Roth contributions, too. Worst case, you can make extra nondeductible traditional IRA contributions and benefit from the account’s tax-deferred earnings advantage.

Catch-up contributions to employer-sponsored plans. If your employer’s retirement plan allows extra salary reduction contributions and you’ll be age 50 or older at the end of next year, you can contribute up to $6,000 in added savings for 2018 to your 401(k), 403(b) or 457 account.

Salary reduction contributions are subtracted from your taxable wages, so you effectively get a federal income tax deduction. If your state has a personal income tax, you’ll generally get a state income tax deduction, too.

You can use the resulting tax savings to help pay for part of your catch-up contributions. Or you can set the tax savings aside in a taxable retirement savings account to further increase your retirement-age wealth.

Having trouble deciding which tax-favored account to make extra contributions to? In a nutshell, making deductible catch-up contributions to a traditional IRA or to an employer-sponsored retirement plan will lower your tax bills. Contributing extra to a Roth IRA won’t lower your taxes, but you can take more tax-free withdrawals later in life.

Retirement Savings Bonus

How much extra could you accumulate just by making catch-up contributions? The extra savings quickly add up, because maximum catch-up contributions are considerably larger than they once were.

For example, the maximum catch-up contribution to a 401(k) account was only $1,000 in 2002 vs. $6,000 for 2018. The maximum catch-up contribution to an IRA was only $500 in 2002 vs. $1,000 for 2017 and 2018.

To illustrate how much catch-up contributions can add to a retirement nest egg, suppose Beth, who’s currently 50, decides to contribute an extra $1,000 to her IRA in 2017. She contributes an extra $1,000 each year through 2032. By age 65, Beth will have accumulated roughly $30,000 more in savings (assuming an 8% annual return).

Alternatively, let’s suppose that Beth decides to contribute an extra $6,000 to her 401(k) plan each year through age 65, starting in 2018. In that case, by age 65, she’ll accumulate roughly $182,000 in additional savings (assuming an 8% annual return).

To maximize your savings, you can make catch-up contributions to both your IRAs and employer-provided retirement plans in the same year. In the hypothetical example, Beth’s combined savings could add up to $212,000 by age 65 (assuming an 8% annual return), if she contributed to $1,000 extra to her IRA annually (starting in 2017) and $6,000 to her 401(k) annually (starting in 2018).

Deadlines

There’s still plenty of time to make an extra catch-up contribution of up to $1,000 to your IRA for the 2017 tax year. The 2017 IRA contribution deadline is April 16, 2018. Then you can make another IRA catch-up contribution for your 2018 tax year anytime between January 1, 2018, and April 15, 2019.

If you are an employee and your employer-sponsored qualified retirement plan allows catch-up contributions, you can sign up to make them for 2018 year during this year’s open enrollment period that is probably already underway at your job. Or your employer may allow you to modify your contributions any time during the year, which means you might still be able to do it for this year. Check with your benefits department to see what your options are.

Contact your tax advisor if you have questions or want more information about retirement account catch-up contributions.

Consider a Phased Retirement Program for Your Employees

Posted on November 17, 2017 by Debra Barcuch

Most employers believe their employees expect to work past age 65. A recent survey by the Transamerica Center for Retirement Studies states that one reason for staying on the job longer is that so many older workers experience a shortfall of retirement savings. Another is that many employees don’t want to go cold turkey on the social interaction, stimulation, and sense of accomplishment they get from work.

More than 80% of surveyed employers say they support the idea of employees working past 65. But only about a third of them allow staff members to downshift from full- to part-time status ― also known as “phased retirement.” This may change as employers recognize the need to keep experienced workers on board longer.

Employees who welcome the opportunity to switch to part-time work may be even more productive after the change. And employers can benefit greatly by having these seasoned employees available to transfer their skills and job knowledge to the younger workers who come after them.

Labor Shortages

Labor shortages in certain fields and geographic regions also play a role in the changing retirement landscape. The Government Accountability Office (GAO) recently issued a study on phased retirement programs, noting that “Industries with skilled workers or labor shortages are motivated to offer phased retirement because their workers are hard to replace.”

The GAO study also cited data from the Society for Human Resource Executives (SHRM). A member survey stated that phased retirement programs are common among employers with technical and professional workforces. Overall, 5% of SHRM members offer such programs.

And while some employers examined by the GAO had to clear a few regulatory hurdles — specifically structuring benefits in a way that doesn’t violate ERISA anti-discrimination regulations — employers “were able to address various design and operational challenges,” according to the report.

Variety of Models

The study found an assortment of approaches that employers are taking. Here are examples of phased retirement programs used by four unidentified companies:

Example 1: Workers work 80% of full-time for 80% of full-time pay.

Primary advantages: Retention of workers and development of future leaders and the ability of the employer to do workforce planning.

Who is eligible: U.S. employees at least 55 years old with 10 or more years of service who have achieved or exceeded performance expectations and have management’s permission.

Hours reduction allowed: 20%.

Length of phased retirement: Any length of time is permissible assuming program standards are met and the manager approves.

Knowledge transfer: Workers spend time transferring knowledge, skills and expertise. For each year the worker participates, he or she creates a proposal that includes a knowledge transfer plan with recommendations on how it will ensure business continuity.

Effect on health benefits: None.

Effect on 401(k) plan: The employer contribution is based on a worker’s full-time salary.

Example 2: Workers and managers develop a structured plan to transfer knowledge and transition to retirement within two years.

Primary advantages: Helping the company with workforce planning by encouraging workers to inform the company about their retirement plans and to help transfer their knowledge before they retire.

Who is eligible: All workers at least 60 years old who have been employed by the company for five years or more and have permission from their managers and the human resources department.

Hours reduction allowed: Automatic approval to reduce work hours by 20% to 50%. Those wishing to work less than 50% may submit a request to do so, though they would lose eligibility for health benefits.

Length of phased retirement: From six months to two years.

Knowledge transfer: This is a large program component, with many tools and guidelines.

Effect on health benefits: Benefits remain the same as for full-time employees (with the caveat above for those wishing to work less than 50% of full-time).

Effect on retirement benefits: No plan contribution formula change, but pay upon which the employer contribution is based changes in proportion to the worker’s reduced salary.

Other: The employer maintains a group of standby workers to fill in throughout the company if a spike in work demand occurs.

Example 3: Phased retirement program is available to workers in units that have implemented the program.

Primary advantages: Worker retention and knowledge transfer, training and mentoring of remaining staff.

Who is eligible: At management’s discretion. Can begin at any age.

Hours reduction allowed: Participants typically work 60% of full-time.

Knowledge transfer: An expectation that participants will mentor or train staff, but there’s no formal program to ensure that this happens.

Effect on health benefits: If employee works more than 60% of full-time, no reduction in benefits. Health benefits stop at age 65 for all workers.

·Effect on retirement benefits: None.

Example 4: Workers must transition into full retirement within three years.

Primary advantages: Participants gain the ability to adjust to full retirement by reducing their workloads gradually while still contributing to their business units.

Who is eligible: Certain workers who are age 57 or older and have completed at least 10 years of service.

Hours reduction allowed: 25% to 50%.

Length of phased retirement: A maximum of three years.

Knowledge transfer: No such requirement.

Effect on health benefits: None.

Effect on retirement plans: Employer contributions are proportionally reduced during phase-out period.

These examples illustrate some of the diversity of existing phased retirement programs. If you’re not sure how beneficial such a program would be for your business, perhaps launch one on a trial basis and then assess the results. Also, keep in mind that navigating the legal and regulatory implications of implementing such a program ― particularly with respect to employee benefits ― requires guidance from a qualified attorney.

Tax Cuts & Jobs Act – Comparing the House vs Senate Bills

Posted on November 15, 2017 by Debra Barcuch

This week, the House Ways and Means Committee approved revised version on 11/9, aiming to bring to a floor vote this week. On November 11th, the Senate Finance Committee released their tax reform plan, and the senate will begin markup this week.

There are significant differences between the two bills. This article aims to point out the major changes and significant differences that will affect our clients in the future, as well as suggests ways to plan for the new Tax Cuts and Jobs Act Bill.

Business Provisions

House Version

Senate Version

C Corp Tax Rate – 20% in 2018

C Corp Tax Rate 20% in 2019

Dividend Received Deduction

80% becomes 65%

70% becomes 50%

Dividend Received Deduction

same as House Version effective 2019

Pass-through Businesses & Sole Prop

70% of income attributable to labor

Taxed at “normal” rate

30% of income taxed at 25%

Personal Service business –100% taxed at “normal” rate

Pass-through Businesses & Sole Prop

17.4% deduction of income

Personal Service business – no deduction

Bonus Depreciation

100% expense of qualified property acquired & placed in service after 9/27/2017 and before 1/1/2023

Replaces original use requirement with taxpayer’s first use requirement

Bonus Depreciation

100% expense of qualified property acquired & placed in service after 9/27/2017 and before 1/1/2023

Section 179

Expense limit $5 million

Phase out limit: $20 million

Section 179

Expense limit $1 million

Phase out limit $2.5 million

Indexed for inflation

Expands definition of qualified real property to include roofs, HVAC, fire and alarm protection systems, and security systems

Non-residential real property depreciable life: 25 years

10 year recovery period for qualified improvement property

Cash Basis of Accounting

C Corps, Partnerships with C Corp partner: Cash basis allowed if average gross receipts for 3 prior periods is less than $25 million.

Indexed to inflation

Cash Basis of Accounting

C Corps, Partnerships with C Corp partner: Cash basis allowed if average gross receipts for 3 prior periods is less than $15 million.

Indexed to inflation

Inventory

If gross receipts are less than $25 million

Treat inventories as materials and supplies

Conforms to financial accounting statements or its books and records

Inventory

If gross receipts are less than $15 million

Treat inventories as materials and supplies

Conforms to financial accounting treatment

Section 263A

Small Biz exception average gross receipts under $25 million

Section 263A

Small Biz exception average gross receipts under $15 million

Construction

Small construction contract average gross receipts under $25 million

Construction

Small construction contract average gross receipts under $15 million

Business Interest Expense

Limited to 30% adjusted taxable income

Determined at the entity level

Excess carried over 5 years

Doesn’t apply if gross receipts < $25 million

Business Interest Expense

Limited to 30% adjusted taxable income

Determined at the entity level

Excess carried over indefinitely

Doesn’t apply if gross receipts < $15 million

Net Operating Losses

No Carryback (1 yr small biz & farm exception)

Carryover can only deduct up to 90% of taxable income

NOL’s generated after 2017 can be increased by an interest factor to preserve its value

Net Operating Losses

No Carryback (2 yr farming exception)

Carryover can only deduct up to 90% of taxable income

NOL’s generated after 2017 are indefinite and can be increased by an interest factor to preserve its value

Like exchanges

Allowed only with respect to real property

Like exchanges

Allowed only with respect to real property

DPAD- repealed

Small life insurance company deduction is repealed

Sale of Partnership Interest

Character of gain or loss attributable to hypothetical sale of all of partnerships assets allocated to interests in the partnership in the same manner as non-separately stated income

Buyer required to withhold 10% of sales price unless seller certifies seller is not a nonresident alien or foreign corporation

Individual Provisions

House Version

Senate Version

Tax Brackets:

Brackets indexed for chained CPI

12% bracket phases out for high income taxpayers

Tax Brackets:

Adjusted for chained CPI

“Kiddie tax” – Earned income taxed according to single tax bracket, BUT unearned income taxed according to trust & estate tax brackets.

Standard Deduction

$24,000 – MFJ

$12,000 – Single

Standard Deduction

$24,000 – MFJ

$12,000 – Single

$18,000 – Head of Household

Personal Exemptions – Repealed

Child Credit Expanded

$1,600 per qualifying child

Age limit under 17

$300 credit for other qualifying dependents (including both the spouses on a joint return).

Phase out: $230,000 MFJ, $115,000 Singles

Child Credit Expanded

$1,650 per qualifying child

Age limit under 18

$500 credit for other qualifying dependents.

Phase out: $1 million MFJ, $500,000 all others

Itemized Deductions

Overall Limit – repealed

Medical Deductions – repealed

Mortgage Interest – new debt after 11/2/17 – limited $1million limited becomes $500,000

Taxes

Income and sales tax deduction eliminated.

Property taxes capped at $10,000

Charity

50% limit changed to 60%

Charitable miles adjusted for inflation

Miscellaneous Deductions Repealed:

Tax prep fees

Unreimbursed employee business exp.

Exclusion of gain on sale of personal residence

2 out of 5 years becomes 5 out of 8

Able to use once every 5 years

Phased out dollar for dollar when AGI exceeds $500,000 ($250,000 singles)

Moving Expenses – Repealed

Exclusion of qualified moving expense reimbursement – repealed

Deduction for Alimony – Repealed

Not included in recipient income

Itemized Deductions

Overall Limit – repealed

Mortgage Interest – home equity debt interest deduction repealed.

Taxes – Repealed

Charity

50% limit changed to 60%

Miscellaneous Deductions Repealed:

Tax prep fees

Unreimbursed employee business exp.

All other subject to 2% floor

Exclusion of gain on sale of personal residence

2 out of 5 years becomes 5 out of 8

Able to use once every 5 years

Moving Expenses – repealed

Exclusion of qualified moving expense reimbursement – repealed

Education Provisions

Enhanced American Opportunity Credit.

American Opportunity Credit, Hope Scholarship Credit, and Lifetime Learning Credit – consolidated into 1 credit.

100% credit for first $2,000

25% credit for next $2,000

Covered expenses = tuition, fees, course materials

Available for a 5^th post-secondary year at 50% the rate of the first 4.

Education Savings Accounts

New contributions to Coverdell savings accounts prohibited

Tax free rollovers from Coverdell to 529

529 plan qualified expenses expanded:

Elementary & high school expenses up to $10,000 per year

Expenses associated with apprenticeship programs

Repeal of other provisions

Student Loan Interest

Above the line deduction for tuition

Exclusion of interest from Savings Bonds

Qualified tuition reductions

Education Provisions

None.

AMT – Repealed

AMT credit may offset regular tax for any year.

AMT credit refundable before 2022 equal to 50 percent of the remaining credit over the credit allowable for regular tax.

Balance of AMT credit refunded in 2022

AMT – Repealed

AMT credit may offset regular tax for any year.

AMT credit refundable before 2022 equal to 50 percent of the remaining credit over the credit allowable for regular tax.

Balance of AMT credit refunded in 2022

Estate Taxes

Exclusion doubled to $10 million (indexed for inflation)

Repealed in 2023

Stepped up basis remains

Gift tax rate lowered to 35%

Estate Taxes

Doubles estate and gift exemption amount. Indexed for inflation.

If you are curious of how this new tax plan will affect your business or personal tax situation, contact our tax team. We are here to help you plan for the plan.

Scott Allen, CPA, joined Cornwell Jackson as a Tax Partner in 2016, bringing his expertise and 25 years of experience in the accounting field. As the Partner in Charge of the Tax practice at Cornwell Jackson, Scott provides proactive tax planning and tax compliance to all Cornwell Jackson tax clients. Contact him at Scott.Allen@cornwelljackson.com or 972-202-8032.

A/E/C Firms Should Take a Second (or Third) Look at R&D Credit Qualification

Posted on November 14, 2017July 23, 2024 by Debra Barcuch

It may not be as easy for architecture and engineering firms to qualify for R&D credits, but that doesn’t mean it’s impossible. Now that tax reform may result in lower corporate tax rates, it’s a good time to investigate any R&D activities that occurred for the 2015, 2016 or 2017 tax years. Resulting credits could offset higher federal tax in previous years as well as state franchise or business tax collected in Texas. The first step is an R&D study.

R&D Credit Qualification

Sustainability has been a trend in architecture and engineering for many years. As professional service firms develop new processes and methodologies for making buildings stronger, more environmentally friendly or flexible for users, they may not be thinking about how this innovation could reduce their tax impact.

Once the primary realm of manufacturing or product developers, we know that research and development is happening in service-based industries, too. Due to some changes to federal tax law, options have expanded for more firms to access R&D tax credits. In addition, the digital solutions that companies use to track project costs and processes may make it easier than in the past to collect data and determine eligibility.

A recent case study of one engineering firm that underwent an R&D study found enough quantitative data on R&D costs to support refunding most of the firm’s federal tax liability for the three prior tax years. There was also enough carry-forward remaining to provide the estimated equivalent of an additional four years’ worth of credit. When the firm was audited, according to R&D study expert SourceHOV|Tax, the IRS audit was clean.

The data to support the credit came from the engineering firm’s experience with large government and corporate clients that would request sustainable structures and require new designs to accomplish it. The firm’s historical preservation projects also require new processes and methodologies to strengthen buildings and support longevity without compromising historical integrity.

If you have even the slightest sense that an R&D study could benefit your engineering, design or architectural firm, know that there are different levels of studies that can accomplish your goal. Most importantly, current discussions around tax reform make this 2017 tax year the best time to look into it.

Here’s why:

Tax Reform Encourages Closer Look at R&D Credits

Two years ago, federal legislation made the R&D Tax Credit a permanent business credit, which meant that business owners could now plan ahead for future tax years rather than guessing whether or not it would be available and for which types of businesses. The credit was expanded to offset the Alternative Minimum Tax for private, Eligible Small Businesses (ESBs) with gross receipts of less than $50 million. There is also a payroll tax offset up to $250,000 available to Qualified Small Businesses (QSBs) with less than $5 million in gross receipts that were started up to five years ago.

If they qualify, businesses can receive a credit for qualifying R&D expenses that may include the following:

Salaries and wages – mainly W2 (Box 1)
Supply costs – used or consumed during research and experimentation
Contractor costs – up to 65 percent of qualifying costs, including paying for rights and risks of R&D, which means assuming the risks of experimentation without any funding for it and having substantial rights to the research results

In order to quality for the credit, businesses must pass a four-part test related to their research and development activities in a given tax year.

Permitted Purpose – Is the activity intended to improve a business component’s functionality, performance, reliability or quality?

Technological in Nature – The activity performed must not rely on social sciences, but on the principles of physical, biological and computer sciences or engineering

Elimination of Uncertainty – The activity is intended to discover information to eliminate technical uncertainty regarding the capability or method for developing or improving a product or process, or the appropriateness of the business components’ design

Process of Experimentation – With the result being uncertain, the activities involved in trying to achieve the result must be experimental in nature, and include actual experiments and evaluation of one or more alternatives

A few of the qualifying research expenses (QREs) for architectural and engineering firms could happen during the Pre-Design and Bidding process when professionals may experiment with initial design and concepting. But the most significant QREs occur during the Schematic Design and Design Development phases. Professionals may need to evaluate, analyze and test concepts more heavily and also produce mock-ups of innovative or untried processes and methodologies for the client.

Your firm may have already conducted qualifying R&D in previous years and not realized that expenses related to that R&D could make your firm eligible for a tax credit. Fear not. R&D Tax Credit studies can look back three tax years to identify qualifying research expenses. The reason this may be significant for your business now is that tax reform may reduce corporate tax rates going forward. The potential for high tax savings through an R&D tax study won’t get any better than now if corporate tax rates drop for 2018.

The current R&D credit allows firms to offset federal taxation as well as state franchise or business taxes in Texas for tax years 2015, 2016 and 2017. For qualifying businesses, the resulting tax credits often outweigh the costs of an R&D study when you factor in the potential federal and state tax savings.

If your firm provides any of the following services, it is worth considering an R&D Credit Qualification tax study:

Architecture
Geotechnical services
Civil engineering
Structural engineering
Mechanical engineering
Electrical Engineering
Surveying

There are exceptions to R&D conducted in these disciplines, the main one having to do with funded research. If your firm is under contract and paid to conduct research or if you have received a grant to conduct the research, it may be hard to prove that your expenses qualify for a tax credit. A tax expert experienced with R&D tax credit feasibility like Cornwell Jackson can usually determine this factor early in the discovery process.

Continue Reading: What is an R&D Study?

Tax Reform Framework: Major Effect on Manufacturers

Posted on November 9, 2017July 23, 2024 by Debra Barcuch

The drumbeats for tax reform are growing louder.

The Trump administration, in conjunction with the president’s hand-picked “Big Six”¹ group of GOP leaders, has released a nine-page outline of tax reform proposals. Not only would the plan overhaul numerous individual provisions, it would have a major impact on corporations and pass-through business entities, including significant changes for the manufacturing sector.

Manufacturers are likely to look favorably on the tax plan’s provisions. The quarterly survey by the National Association of Manufacturers released at the end of September 2017 found that a strong majority of small and large manufacturers said the promise of tax reform will spur growth and create jobs. The survey found that 64% of manufacturers would expand, 57% would hire more workers and 52% would raise wages and benefits if the GOP proposals are passed.

Generally, the tax reform provisions don’t include any effective dates, nor is enactment assured, with or without modifications. Here is an overview of the key proposals and their expected impact.

Corporate Tax Proposals

These key changes for C corporations, including incorporated manufacturing firms, are designed to stimulate business growth:

Reduce the top corporate tax rate from 35% to 25%. Trump’s initial proposal lowered the rate to 15%.
Allow immediate “expensing” for at least five years of new investments in depreciable assets, other than buildings, purchased after September 27, 2017.
Partially limit interest deductions for C corporations (details weren’t provided).
Repeal the corporate alternative minimum tax (AMT).
Preserve the research credit (Congress would review most other business credits).
Repeal the Section 199 deduction for domestic production activities. This deduction is currently available to all business entities.

The list of corporations that might profit from these proposed changes is long. Larger corporations would benefit from a reduction in the top corporate tax rate and businesses of all sizes could use the expensing allowance.

However, partially limiting interest expense deductions will likely play a significant role in C corporations’ investing and financing decisions and affect corporations carrying significant debt. It’s unclear how Congress will handle carryforwards of any credits that are eliminated. Many manufacturing firms would miss the Section 199 deduction.

Pass-Through Tax Proposals

The tax outlook for pass-through business entities — including partnerships, S Corporations and Limited Liability Companies (LLCs) — will be very different if the new tax reform plan is approved. It proposes that:

Business income received by pass-through entities be taxed at a maximum rate of 25%. Currently, this income is taxed at ordinary income rates for individuals, which can be as high as 39.6%. It isn’t clear if personal services firms would qualify for the tax break.
The lower rate on income for pass-through entities be coordinated with tax law provisions that don’t permit wages to be treated as business profits.
Congress be required to determine the ramifications for pass-through entities and sole proprietorships of the partial limits on interest expense deductions.

This series of tax reforms could change the thinking of business owners. In theory, the shift away from the current tax format is designed to align C Corporations and pass-through entities. However, some experts fear that this could lead to an unfair tax advantage for wealthier business owners.

With the top tax rate now set at 39.6% and a proposed maximum 35% rate, owners may have an opportunity to slash their tax bills. Restricting these changes to qualified small businesses has been discussed and could be put into effect.

International Tax Proposals

The Trump campaign pledged to bring business back from overseas. In support of that objective, the tax reform plans proposes several changes relating to manufacturing:

Impose a one-time repatriation levy on offshore profits to encourage a return of U.S. multinational corporations from so-called tax havens. However, the proposals don’t specify a rate or time period for this change.
Adopt a territorial method of international taxation that would include an exemption for dividends from foreign subsidiaries if the U.S. company owns at least 10% of the subsidiary.
Authorize a global minimum tax on foreign profits of U.S. multinational corporations. Congress would be directed to “even the playing field” between companies headquartered in the United States and those based in foreign jurisdictions.

If these proposals have their desired effect, certain multinational corporations would be encouraged to shift more business operations to the United States. This would represent an historic shift in the way that companies are taxed. But the proposed guidelines leave as many questions as they provide answers, including how foreign tax credits would be used against repatriated earnings.

Individual Tax Proposals

The new tax plan features a wide variety of changes that would affect individuals, including:

Consolidating the current seven income tax brackets into three brackets of 12%, 25% and 35%. There are no details about the potential bracket thresholds. An add-on tax for the wealthiest taxpayers was discussed, but not finalized.
Increasing the standard deduction from $6,500 to $12,000 for single filers and from $13,000 to $24,000 for married couples filing jointly. All personal exemptions would be repealed.
Repealing most itemized deductions other than those for charitable contributions and mortgage interest.
Eliminating the AMT.
Condensing several tax breaks for families. Along with the repeal of dependency exemptions, the new plan features a proposed $500 credit for non-child dependents.

Again, the experts are divided as to whether these changes would mostly benefit the low-to-middle or upper-income classes. In many cases, it makes sense for individuals to accelerate deductions into 2017, unless there are special circumstances that prevent that.

Expect Some Modifications

Although the tax reform plan has some momentum, there’s still a long way to go before it becomes law. Even if key tax reforms are enacted, some modifications can be expected.

What about the Estate Tax?

The tax reform plan would repeal the federal estate tax. This would include elimination of the generation-skipping tax (GST), which applies to most direct transfers from grandparents to grandchildren, even those made through a trust. However, if the proposed legislation is passed as a reconciliation bill, as many believe it will be, the estate tax could reappear in ten years when Congress would have to address it again.

The tax reform plan doesn’t call for the repeal of gift taxes.

¹The Big Six: Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, Senate Majority Leader Mitch McConnell (R, KY), Senate Finance Committee Chair Orrin Hatch (R, UT), Speaker of the House of Representative Paul Ryan (R, WI) and House Ways and Means Committee Chair Kevin Brady (R, TX).

Simplifying Medical Office Accounts Receivable

Posted on November 8, 2017July 23, 2024 by Debra Barcuch

Simplifying accounts receivable can only happen after you know the current status of your accounts receivable. There are a couple of numbers or KPIs you can consider when setting a benchmark to accelerate receipt of payment for services and then improve the processes to support that goal.

Compare the status of your current accounts receivable to national benchmarks by the Medical Group Management Association. This can help determine how extensively this accounts receivable is limiting cash flow. A good accounts receivable process may reduce accounts receivable lag time of more than three months old to below the national MGMA benchmarks. According to data from the MGMA, family practices have a median of 1.19 months in A/R, but general surgeons have a median of 1.52 months in A/R. In other words, setting a goal of receiving payment within two months of providing medical services is a reasonable goal for half of practices in the U.S. But you do need to consider your geographic area as well as your payor mix and type of practice. Those factors could shorten or lengthen days in A/R.

Calculating Days in A/R

To calculate the number of days that claims sit in A/R before being paid (e.g. “days in A/R”), you can take your total accounts receivable and divide that by your monthly charges. Then multiply the resulting number by the number of days in a particular month.

Calculating Accounts Receivable Turnover Ratio

Another KPI is your accounts receivable turnover ratio. You can use this to monitor your rate of debt collection and conversion of A/R into cash in a given accounting period. Divide your net credit sales by your average net accounts receivable (the sum of your net A/R at the beginning of the period and at the end of the period, divided by 2).

Compare this figure with past accounting periods to note if you are maintaining collection rates or if collection is lagging. One rule of thumb is that your accounts receivable should never exceed 1.5 times your monthly charges, but this is just a baseline. Accounts receivable of 0 to 30 days is considered current A/R while anything 30 to 60 days out from the date of service should be the list of accounts worked by your staff or billing company. The billing department should either work on collecting payments or setting up payment plans. However, if you notice Medicare claims showing up in the 30 to 60 day mark, that is a red flag to look at resolving payor denial issues.

According to three years of results from the American Medical Association’s Physician’s Practice Benchmark Survey (2012, 2014, 2016), a post-residency physician today is much more likely to work in a small practice. More than 57% of the 3,500 physicians surveyed in 2016 work for practices with 10 or fewer physicians. Only 13% work in practices with 50 or more. Even more interesting, most physicians work for other physicians rather than for a hospital system. In the last two years, hospital acquisitions of practices have flatlined as those systems work to better manage what they have acquired.

Physicians in small practices today are in a great position to innovate on the standards of patient care, use of technology and practice efficiency. The small practice model may even entice more young people to the medical profession once again as they consider the autonomy and equity from owning a practice. By looking at the fundamental systems that support a productive practice — and the tools and specialists available for your success — your practice can be a critical part of this health care renaissance.

Download the Whitepaper: Tips to Simplify Medical Practice Accounting at Small to Mid-sized Practices

Cornwell Jackson’s Business Services Department offers a wide range of outsourced financial services to serve small to mid-sized medical and dental practices — including payroll outsourcing and solutions to improve cash flow and productivity. While you focus on care outcomes of your patients, we can address the business side of a healthy practice. Contact us for a consultation or click here to view our whitepaper on medical practice KPIs.

Scott Bates, CPA, is a partner in the audit practice and leads Cornwell Jackson’s Business Services Department, which includes a dedicated team for outsourced accounting, bookkeeping and payroll services. He provides consulting to clients in auto, healthcare, real estate, transportation, technology, service, retail and manufacturing and distribution.

Contact Scott at scott.bates@cornwelljackson.com or 972-202-8000.

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R&D Study

Documentation is Critical for R&D Study

Continue Reading: Common Qualifying Activities and Case Examples of R&D Credit Qualifications

Elements of a Withholding Order

Allowable Disposable Income

FAQs About Child Support Withholding

Trends Continuing for 2018

The Road to the Halfway Point

Need for More Software

Learn More at a Conference

The Basics

Retirement Savings Bonus

Deadlines

Labor Shortages

Variety of Models

Business Provisions

Individual Provisions

R&D Credit Qualification

Tax Reform Encourages Closer Look at R&D Credits

If your firm provides any of the following services, it is worth considering an R&D Credit Qualification tax study:

Continue Reading: What is an R&D Study?

Corporate Tax Proposals

Pass-Through Tax Proposals

International Tax Proposals

Individual Tax Proposals

Expect Some Modifications

What about the Estate Tax?

Calculating Days in A/R

Calculating Accounts Receivable Turnover Ratio

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