Category Archive: Blog

HLB International Appoints New Member in Switzerland

 

HLB International, one of the leading global accountancy networks with presence in 140 countries, continues its growth with the recent signing of a new member firm in Switzerland – Veco Group.

Veco Group is based in Lugano, a city in Southern Switzerland’s Italian-speaking Ticino region. Established in 1998, the firm provides Tax and Estate Planning, Establishment and Management of Trusts/Foundations, Incorporation and Administration of Companies and Asset Management.

Antonio Mandra, Managing Partner of Veco Group, commented: “It is a great pleasure to join the HLB International family. With our experience as corporate and tax advisers, we now have the ability to benefit from an international network, as well as local consultants, who have specific knowledge in the jurisdictions our clients do business in. It is very important for us to be able to assist our clients not only with providing relevant advice but also with the execution of this advice. We know that with HLB International we have found a great match for our business. We look forward to sharing with the HLB International colleagues our experience and capacity of structuring, administration and management of companies and banking assets.”

Veco Group will work closely with the other HLB members and makes a great addition to our coverage across Europe.

Valuable Tax Credits for Manufacturers and Distributors

Many Federal and Georgia tax credits are available to manufacturers and distributors, though they are often overlooked and go unused. With proper planning and assessment, these credits can go a long way toward improving the bottom line. Following is a summary of some of the more recognizable credits available. In the coming months we will delve into the details of each type of credit.

Research & Development (“R&D”) Tax Credit
The R&D Tax Credit is a Federal credit introduced in 1981 as a boost of the economy. Usage became so prolific that many states, including Georgia, created their own version of the R&D Tax Credit. In general, the R&D Tax Credit is to help a company offset dollar-for-dollar incremental research expenses. Manufacturers and distributors may be eligible for the credit, for example, if new processes or materials are being used in manufacturing and distribution of products. This credit was made permanent with the passage of the Protecting Americans from Tax Hikes Act of 2015.

Work Opportunity Tax Credit (“WOTC”)
The WOTC is a Federal credit provided to employers hiring persons belonging to specific groups, and there are special guidelines with extended credit for qualified veterans. In general, the credit can be equal to 40% of first-year wages up to $6,000. The Protecting Americans from Tax Hikes Act of 2015 extended the hiring deadline to January 1, 2020, meaning the employee must be hired and start working before that date to be counted as part of this credit.

Georgia Retraining Tax Credit
The Georgia Retraining Tax Credit is only a Georgia credit. The purpose is to encourage employers to continually invest in their employees by upgrading equipment, acquiring new technology, and completing ISO 9000 training. The annual maximum credit is $1,250 per employee. This credit is available to any business that files a Georgia income tax return.

The three credits described above are not an exhaustive list and there may be more Federal and Georgia credits that apply specifically to your business. HLB Gross Collins, P.C. has been serving some of the Southeast’s most prominent manufacturers and distributors for nearly 50 years. Our Manufacturing and Distribution Practice works closely with clients to ensure that they are taking advantage of all available credits and savings opportunities.

IRS Continues to Expand Taxpayer Services with New Account Features

The Internal Revenue Service announced today the addition of several new features to the online account tool first introduced late last year as part of the IRS’s commitment to improve and expand taxpayer services.

The online account allows individual taxpayers to access the latest information available about their federal tax account through a secure and convenient tool on IRS.gov. When it first launched in December 2016, the tool assisted taxpayers with basic account inquiries such as information about their balance due and access to the various IRS payment options. Since then, the IRS has added new features allowing taxpayers to:

  • View up to 18 months of tax payment history
  • View payoff amounts and tax balance due for each tax year
  • Obtain online transcripts of various Form 1040-series through Get Transcript
  • Give feedback on their experience with their online account and make suggestions for improvements

“We are constantly looking for ways to improve taxpayers’ interactions with the IRS and adding these new features to the taxpayer’s online account is an important step in that direction,” said IRS Commissioner John Koskinen. “The IRS is committed to serving taxpayers in multiple ways and now taxpayers who want to interact digitally with us in a secure environment have access to even more helpful features.”

Before accessing the tool, taxpayers must authenticate their identities through the rigorous Secure Access process. This is a two-step authentication process, which means returning users must have their credentials (username and password) plus a security code sent as a text to their mobile phones.

Taxpayers who have registered using Secure Access for Get Transcript Online or Get an IP PIN may use their same username and password. To register for the first time, taxpayers must have their personal and financial information including: Social Security number, specific financial information, such as a credit card number or loan numbers, email address and a text-enabled mobile phone in the user’s name. Taxpayers may review the Secure Access  process prior to starting registration.

As part of the security process to authenticate taxpayers, the IRS will send verification, activation or security codes via email and text. The IRS warns taxpayers that it will not initiate contact via text or email asking for log-in information or personal data. The IRS texts and emails will only contain one-time codes.

In addition to the online account, the IRS continues to provide several self-service tools and helpful resources available on IRS.gov for individuals, businesses and tax professionals.

July/August Dates to Remember

 

July 17

Employers. For Social Security, Medicare, withheld income tax, and nonpayroll withholding, deposit the tax for payments in June if the monthly rule applies.

July 31

Employers. For Social Security, Medicare, and withheld income tax, file Form 941 for the second quarter of 2017. Deposit any undeposited tax. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until August 10 to file the return.

For federal unemployment tax, deposit the tax owed through June if more than $500.

If you maintain an employee benefit plan with a calendar year-end, file Form 5500 or 5500-EZ for calendar year 2016.

August 10

Employers. For Social Security, Medicare, and withheld income tax, file Form 941 for the second quarter of 2017. This due date applies only if you deposited the tax for the quarter in full and on time.

August 15

Employers. For Social Security, Medicare, withheld income tax, and nonpayroll withholding, deposit the tax for payments in July if the monthly rule applies.

Valuable Tax Credits for Restaurants and Franchisors

 

Many Federal and Georgia tax credits are available to restaurants, franchisors, and caterers, though they are often overlooked and go unused. With proper planning and assessment, these credits can go a long way toward improving a business’s bottom line. Below is a summary of some of the more recognizable credits available. In the coming months we will delve into the details of each type of credit.

Work Opportunity Tax Credit (“WOTC”) The WOTC is a Federal credit provided to employers hiring persons belonging to specific groups, including a higher credit for hiring qualified veterans. In general, the credit can be equal to 40% of first-year wages up to $6,000. The Protecting Americans from Tax Hikes Act of 2015 extended the hiring deadline to January 1, 2020, meaning the employee must be hired and start working before that date to be considered for this credit.

Georgia Retraining Tax Credit The Georgia Retraining Tax Credit is only a Georgia credit. The purpose is to encourage employers to continually invest in their employees by upgrading equipment, acquiring new technology, and completing ISO 9000 training. The annual maximum credit is $1,250 per employee. This credit is available to any business that files a Georgia income tax return.

FICA Tip Credit

The FICA Tip Credit is a federal credit provided to employers who pay FICA tax on employees’ tips over the federal minimum wage. To qualify for this credit, employees must earn the federal minimum wage, which can include their hourly wages, meals furnished to them, and tips received. Employees must provide an accurate report of their tips to the employer and the employer must pay the applicable FICA taxes on those tips.

The three credits described above are not an exhaustive list and there may be more Federal and Georgia credits that apply specifically to your business. HLB Gross Collins, P.C. has been serving some of the Southeast’s most prominent restaurant and catering companies for nearly 50 years. Our Service Practice works closely with the clients to ensure that they are taking advantage of all available credits and savings opportunities.

Do Well by Doing Good

 

The federal Small Business Administration reports that about 75% of small business owners donate some portion of their profits to charity each year. The average contribution is around 6% of earnings. Fulfilling philanthropic intentions has emotional rewards, and there can also be tangible benefits for your business. The more you align your charitable intentions with your own passions, the greater the potential payoff.

One possible advantage is that your company’s employees may truly get involved in your charitable activities. Consequently, they may become more productive overall and stay at your firm longer.

Example: Janice Peters is the primary owner of a company that does printing and mailing. She is also heavily committed to animal rescue; she owns multiple dogs and cats that have been rescued from shelters, she temporarily fosters other animals for eventual adoption, and she contributes to animal welfare charities. Janice’s donations come from her business profits and from her personal funds.

To get her employees involved, Janice provides financial incentives for pet rescue and volunteering in shelters. Selected departments have days for bringing their well-behaved pets to work, and Janice’s company sponsors relevant fundraisers. The result of these efforts, Janice has discovered, has been the ability to hire likeminded people and exceptional retention of valued workers.

Such opportunities to mix business, charity, and advocacy are unlimited. A business owner who is a sports fan might back a youth team, for instance. If the cause you support relates to the environment, you might mention that your company is supporting a sustainability initiative, an idea that will resonate with many people. Yet another approach is to allow employees to have a voice in choosing charities the company will support.

Spreading the word

Business benefits from charitable endeavors can be external as well as internal. Janice highlights her company’s animal rescue activities on its website and through its social media presence, all of which makes her company memorable to potential customers. She also sits on the board of some local animal rescue groups, where the other board members include business owners who share her interest. When they need printing and mailing, Janice’s company often comes to mind.

Tax treatment

Companies may very well reap tax benefits from their donations. C corporations can deduct charitable contributions against business income. Pass-through entities (S corporations, partnerships, LLCs) may pass through such deductions to business owners who itemize deductions on Schedule A of their personal tax returns. Note that if your company receives a direct benefit from its philanthropy—say you support a Little League team that advertises your company’s name on its uniforms—the outlay may be deductible as a business expense rather than as a charitable contribution.

Services provided by you or your employees are not deductible. However, expenses involved while volunteering may count as a charitable contribution. Donations of property might be deductible at fair market value; special rules apply to donations from inventory.

HLB Gross Collins, P.C. can help you determine whether a philanthropic outlay is a business expense or a charitable contribution. We can also explain how to obtain an acceptable valuation for any goods you might be donating. Maximizing the tax benefits will help your business get the most from its efforts to help others.

Taxable Versus Tax-Deferred Accounts

 

Some people do all of their investing in an employer-sponsored retirement plan where earnings are untaxed until withdrawn, and perhaps in an IRA as well. Withdrawals are generally taxed at ordinary income rates, which now go up to 39.6%.

Conversely, others have taxable accounts as well; each year, income tax is due on investment interest, dividends, and net capital gains in these taxable accounts. Some dividends and gains qualify for favorable rates, currently no higher than 20%. (Taxpayers who are subject to the 3.8% surtax on net investment income might actually owe 23.8%.)

Therefore, investors with a foot on both sides of the tax-now-or-tax-later line must make some decisions about their savings and investments. Which types of assets go into tax-deferred territory and which assets work better in taxable accounts? Making informed decisions can help you substantially in long-term results from your investments after tax.

Financial advisers and investment managers may have differing preferences in this area. Stocks inside retirement accounts and bonds outside? Bonds inside and stocks outside? There are no universal rules to follow and there are many factors to consider when making decisions about asset location. The “correct” mix may vary from investor to investor. Nevertheless, some basic principles can help you in this decision.

Liquidity

Emergency funds should be held in taxable accounts where you can reach them if the money is needed. That’s also the case if you’re saving for a major outlay, such as a home purchase or higher education. With the money in a taxable account, you can access the funds without owing ordinary income tax or worrying about a 10% early withdrawal penalty before age 59½.

Historically, liquid dollars were often held in bank accounts and money market funds. Yields on these instruments are so low now that investors may be using short-term bond funds or something similar to get some return on their money. Even so, if you are holding assets for use in emergencies or for an anticipated expense, they probably should be in a taxable account.

Availability

If you’re saving for retirement in a 401(k) or similar plan, you’ll be limited to the menu options presented to plan participants. Therefore, if your investment plan calls for an allocation to precious metals, you may have to use a taxable account for a fund that holds mining stocks, say, or a gold bullion ETF. The same could be true if you want to own an emerging markets bond fund or a small company growth fund, if no acceptable option in these categories is on your plan’s menu.

Note that you can hold virtually anything in an IRA (except for life insurance and certain collectibles). Thus, your IRA could be used for hard-to-find assets.

Tax magnitude

Assuming that liquidity and availability are not concerns, tax treatment will drive the decision about where to hold specific assets. One aspect to consider is the expected return of an investment. The lower that return, the lower the annual tax bill, and the smaller the advantage of deferring that tax. On the other hand, deferring large amounts of tax each year may be a good reason for using a tax-deferred account for a given asset.

Example 1: Martin Miller’s asset allocation includes a high-quality corporate bond fund, now yielding around 2%. The fund seldom distributes capital gains to investors, so Martin expects to owe tax on that 2% payout this year and in succeeding years. In his 25% tax bracket, Martin would save 0.5% of his investment (25% bracket times the 2% yield) per year. That much tax deferral might not be enough to warrant holding the fund in a tax-deferred plan, so a taxable account could be the better choice.

Suppose that Martin’s asset allocation also includes a high-yield corporate bond fund, now yielding 5%, which has a history of distributing taxable gains to shareholders. In his 25% tax bracket, Martin can expect to save 1.25% or more in tax each year. This fund could be a better choice for his tax-deferred retirement account.

Tax efficiency

As mentioned, municipal bonds and muni funds often generate no income tax, so they are very tax efficient, whereas high-yield bond funds might generate steep annual tax bills, making them tax inefficient. As a general rule, you should try to hold assets with the least tax efficiency in your tax-deferred retirement plan.

Example 2: Phil Grant has an asset allocation that includes stock market index funds and funds that hold real estate investment trusts (REITs). Equity index funds tend to be tax efficient because they may have modest dividend payouts and seldom generate taxable gains, so Phil holds these funds in his taxable account. REIT funds may be tax inefficient, with relatively high dividends that might be fully taxable, as ordinary income. Phil puts his REIT funds into his tax-deferred account to avoid the annual tax bite.

Tracking Tax Efficiency

  • An investment’s tax efficiency can be measured by its tax efficiency ratio. This shows how much of an investment return the investor keeps after taxes: after-tax return divided by pre-tax return.
  • Say Jim Jones invests $100,000 in ABC Corp. stock. The stock produces an annual return of $10,000 and generates $2,000 in tax.
  • ABC has a tax efficiency ratio of 80% ($8,000 after-tax divided by $10,000 pre-tax).

HLB Gross Collins, P.C. can go over the tax efficiency of investments you’re considering to help you decide on the best location. As the saying goes, you shouldn’t let the tax tail wag the investment dog. If you have a plan regarding which investments will help you attain your goals, you can get an added return when you know where to hold them.

Calculating Retirement Needs

 

A staple in retirement planning is the search for “your number.” That is, how much money do you need to accumulate in savings and investment accounts so you can afford to stop working? Life expectancy is increasing, so the amount you have when you retire might have to last for decades.

To find the number, you can start with a target for cash flow in retirement. Then determine how much you can expect from all anticipated sources of income: Social Security, a pension, rental income from investment property, and so on. The gap will probably be filled from your financial resources.

Example 1: Linda Morgan, age 52, hopes to retire at 65. Linda expects to need about $75,000 a year for a comfortable retirement, with approximately $25,000–$30,000 coming from Social Security. She will not receive a pension from any employer and has no other obvious source of retirement income. Therefore, Linda will need about $45,000–$50,000 a year from her savings and investment accounts.

Doing the math

How can Linda find “her number,” the amount of financial assets she’ll need to generate $45,000–$50,000 a year in retirement? One tactic is to go online, where she’ll find many retirement calculators to crunch the numbers. Social Security, for instance, has a “Quick Calculator” at ssa.gov/OACT/quickcalc/ to help you estimate future payouts from that source.

Many other websites offer more comprehensive retirement calculators. Frequently, they allow people to enter their personal information, then make various adjustments to future plans to see what methods might increase their chances for financial security after the paychecks stop.

Example 2: Linda uses a retirement calculator provided by the AICPA at www.360financialliteracy.org/Calculators/Retirement-Planner.

She enters the information from example 1 and other requested data into the calculator. In this hypothetical illustration, Linda is single, earning $100,000 a year, and saving 15% of her earnings for retirement. Her future expectations include salary increases (2% a year), investment returns (6%), inflation (3%), and living until age 95. Linda has $300,000 in current retirement savings.

Changing plans

The good news for Linda is that, with the inputs listed in example 2, her retirement savings will top $880,000 by the time she retires at age 65. The not-so-good news is that Linda’s retirement savings will run out at age 83 if all of those expectations are met.

Fortunately, online calculators allow you to modify the data you enter and view the projected results. Some options for Linda include the following:

  • Increase her savings rate from 15% to 20%. That would extend her retirement savings to age 86.
  • Decrease her desired retirement income from 75% to 70% of current income. Again, her retirement savings would last until age 86.
  • Delay retirement from age 65 to 67. This would allow her savings to last until age 90 because Linda would have two more years of earnings, boosting her nest egg over $1 million and taking away two years of relying on her portfolio for support. (Annual Social Security payouts would also increase.)

What if Linda were to do all of the above? Work until age 67, save 20% of her income, and live on 70% of her current earnings in retirement? Now the calculator shows Linda retiring with nearly $1.15 million, tapping her portfolio until age 95, and having nearly $475,000 of portfolio assets remaining.

Fine tuning

With such calculators, there are countless modifications you can make to wind up with a satisfactory plan, at least on paper. In addition, you can go back to the calculator every year or two and update the data to see your current status, as well as make any indicated changes in your retirement plans. As you can see, retirement calculators provide a valuable service, enabling pre-retirees to make informed decisions about working, saving, and spending.

Nevertheless, these calculators may not be able to pinpoint your specific situation, including any plans to work part-time or tap home equity. HLB Gross Collins, P.C. can go over retirement calculator results with you and suggest possible changes to enhance accuracy. We can also look at your plans in terms of pre-tax and after-tax cash flows, which may provide an even clearer picture of your retirement finances.

HLB International Appoints New Member in Equatorial Guinea

 

HLB International, one of the leading global accountancy networks with presence in 140 countries, continues its growth with the recent signing of a new member firm in Equatorial Guinea – BER Chartered Accountants.

BER Chartered Accountants is based in Malabo, the capital of Equatorial Guinea. Established in 2010, the firm provides Tax Management Consulting Services, Internal Audit Services, Audit and Assurance Services, Global Legal Services, Financial Accounting & Reporting Framework Services and Employment Services.

Ana Maria Ebong Uwah Galimah, Managing Partner, of BER Chartered Accountants, commented: “We are very excited to part of HLB International. As Equatorial Guinea’s first national accounting firm, we truly believe that an international presence will contribute immensely to the growth of our firm in terms of getting new clients, career development for our professionals and networking opportunities with other HLB International member firms.”

BER Chartered Accountants will work closely with other HLB members and makes a great addition to our coverage across Africa.

Valuable Tax Credits for Software and Technology Companies

 

Many Federal and Georgia tax credits are available to software and technology companies, though they are often overlooked and go unused. With proper planning and assessment, these credits can go a long way toward improving a company’s bottom line. Below is a summary of some of the more recognizable credits available. In the coming months we will delve into the details of each type of credit.

Research & Development (“R&D”) Tax Credit The R&D Tax Credit is a Federal credit introduced in 1981 to boost the economy. Usage became so prolific that many states, including Georgia, created their own version of the R&D Tax Credit. In general, the R&D Tax Credit helps a company offset dollar-for-dollar incremental research expenses. Companies may be eligible for the credit, for example, if they use new processes or materials in the design and implementation of new software or systems. The Protecting Americans from Tax Hikes Act of 2015 made the federal credit permanent.

Work Opportunity Tax Credit (“WOTC”) The WOTC is a Federal credit provided to employers hiring persons belonging to specific groups, and there are special guidelines with extended credit for qualified veterans. In general, the credit can be equal to 40% of first-year wages up to $6,000. The Protecting Americans from Tax Hikes Act of 2015 extended the hiring deadline to January 1, 2020, meaning the company must hire the employee and the employee must start working before that date to be counted as part of this credit.

Georgia Retraining Tax Credit The Georgia Retraining Tax Credit is only a Georgia credit. The purpose is to encourage employers to continually invest in their employees by upgrading equipment, acquiring new technology, and completing ISO 9000 training. The annual maximum credit is $1,250 per employee. This credit is available to any business that files a Georgia income tax return.

The three credits described above are not an exhaustive list and there may be more Federal and Georgia credits that apply specifically to your business. HLB Gross Collins, P.C. has been serving some of the Southeast’s most prominent software and technology companies for nearly 50 years. Our Technology Practice works closely with the clients to ensure that they are taking advantage of all available credits and savings opportunities.