Month: November 2018

Businesses often need to hire workers on a seasonal or part-time basis. For example, some businesses may need seasonal help for holidays, harvest seasons, commercial fishing, or sporting events. Whether you are getting paid or paying someone else, questions often arise over whether these seasonal workers affect employers with regard to the Affordable Care Act (ACA).

For the purposes of the Affordable Care Act the size of an employer is determined by the number of employees. As such, employer-offered benefits, opportunities, and requirements are dependent upon your organization’s size and the applicable rules. For instance, if you have at least 50 full-time employees, including full-time equivalent employees, on average during the prior year, you are an ALE (Applicable Large Employer) for the current calendar year.

If you hire seasonal or holiday workers, you should know how these employees are counted under the health care law:

Seasonal worker. A seasonal worker is generally defined for this purpose as an employee who performs labor or services on a seasonal basis, generally for not more than four months (or 120 days). Retail workers employed exclusively during holiday seasons, for example, are seasonal workers.

Seasonal employee. In contrast, a seasonal employee is an employee who is hired into a position for which the customary annual employment is six months or less, where the term “customary employment” refers to an employee who typically works each calendar year in approximately the same part of the year, such as summer or winter.

The terms seasonal worker and seasonal employee are both used in the employer shared responsibility provisions but in two different contexts. Only the term seasonal worker is relevant for determining whether an employer is an applicable large employer subject to the employer shared responsibility provisions; however, there is an exception for seasonal workers:

Exception: If your workforce exceeds 50 full-time employees for 120 days or fewer during a calendar year, and the employees in excess of 50 during that period were seasonal workers, your organization is not considered an ALE.

For additional information on hiring seasonal workers and how it affects the employer shared responsibility provisions please call.

• By Leon Clinton
• November 24, 2018

As the end of year approaches, taxpayers should be reminded that business expense deduction for meals and entertainment have changed due to tax law changes in the Tax Cuts and Jobs Act (TCJA). Until proposed regulations clarifying when business meal expenses are deductible and what constitutes entertainment are in effect, taxpayers should rely on transitional guidance that was recently issued by the IRS.

Prior to 2018, a business could deduct up to 50 percent of entertainment expenses directly related to the active conduct of a trade or business or, if incurred immediately before or after a bona fide business discussion, associated with the active conduct of a trade or business. However, the 2017 TCJA eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation.

Taxpayers may continue to deduct 50 percent of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant or similar business contact.

Please note that food and beverages that are provided during entertainment events will not be considered entertainment if purchased separately from the event.

• By Leon Clinton
• November 19, 2018

Thanks to tax reform legislation passed in December 2017, eligible taxpayers may now deduct up to 20 percent of certain business income from qualified domestic businesses, as well as certain dividends. Eligible taxpayers can claim the deduction for the first time on the 2018 federal income tax return they file in 2019.

Note: Although the final regulations have not yet been published in the Federal Register, taxpayers who wish to become familiar with the rules may review the proposed regulations issued by visiting the IRS website or calling the office.

The Qualified Business Income Deduction (QBID) often referred to as the 20 percent deduction for pass-through entities, is officially known as the Section 199A deduction after Section 199A of the Internal Revenue Code.

Here are six key facts about the qualified business income deduction:

1. The deduction applies to qualified business income from a qualified business (i.e. pass-through entities) such as:

• a sole proprietorship
• S-corporation
• Partnership
• LLC treated as a sole proprietorship or partnership for tax purposes
• Non-corporate taxpayers such as trusts and estates
• REITs
• Publicly traded partnerships

2. Qualified business income is the net amount of qualified items of income, gain, deduction, and loss connected to a qualified U.S. trade or business. Only items included in taxable income are counted. Qualified business income does not include income from performing services as an employee. Capital gains and losses, shareholders wages, certain dividends, and interest income are excluded as well.

3. The deduction is available to eligible taxpayers, whether they itemize their deductions on Schedule A or take the standard deduction.

The deduction can be taken in addition to the standard or itemized deductions and is subject to limitations based on the type of trade or business, the taxpayer’s taxable income, the amount of W-2 wages paid with respect to the qualified trade or business, and the unadjusted basis of qualified property held by the trade or business.

4. The deduction is generally equal to the lesser of these two amounts:

• Twenty percent of qualified business income plus 20 percent of qualified real estate investment trust dividends and qualified publicly traded partnership income.
• Twenty percent of taxable income computed before the qualified business income deduction minus net capital gains.

5. For taxpayers with taxable income computed before the qualified business income deduction that exceeds $315,000 for a married couple filing a joint return, or $157,500 for all other taxpayers, the deduction may be subject to additional limitations or exceptions. These are based on the type of trade or business (see below), the taxpayer’s taxable income, the amount of W-2 wages paid by the qualified trade or business, and the unadjusted basis immediately after acquisition of qualified property held by the trade or business.

6. Income earned through a C corporation is not eligible for the deduction.

7. Qualified Trade or Business. A qualified trade or business is any trade or business except one involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, investing and investment management, trading, dealing in certain assets or any trade or business where the principal asset is the reputation or skill of one or more of its employees. This exclusion only applies, however, if a taxpayer’s taxable income exceeds $315,000 for a married couple filing a joint return, or $157,500 for all other taxpayers.

While relatively straightforward for most businesses, those with more complicated tax structures or multiple businesses or trades, consulting a tax professional is advised. As always, don’t hesitate to call if you have any questions.

• By Leon Clinton
• November 16, 2018