Gunnip Blog

You are here

Gunnip Blog

Now may be a good time to evaluate the expenses you incur as an employee in connection with your work. While your employer may be reimbursing you for some of these expenses, there may be others for which you are bearing the cost yet not utilizing the tax benefit. Through proper substantiation, it is possible that you may be able to obtain greater reimbursement from your employer. Alternatively, you may be entitled to deduct such expenses as miscellaneous itemized deductions.

In order to be reimbursed and/or deducted, trade or business expenses must be ordinary, necessary, and reasonable. They also must be properly substantiated. Examples of qualifying expenses include:

  • Travel, transportation, meal, or entertainment expenses
  • Safety equipment, small tools, or supplies
  • Uniforms required by your employer that are not suitable for everyday wear
  • Required protective clothing
  • Dues to professional organizations
  • Subscriptions to professional journals
  • Certain job hunting expenses
  • Certain expenses for the business use of your home
  • Computer costs
  • Work-related educational expenses

You may also benefit from a review of the business expenses related to the use of your home. If you qualify for the home office deduction, you may be able to deduct part of your home’s normal operating expenses, such as utilities and insurance. The tax-savings opportunities available to you are dependent not only on the type of work you do at home, but where in your home you perform it.

The rules for deducting these expenses, as well as substantiating your deduction, vary according to the type of expense involved. It is important to retain all records and receipts that document the time, place, and business purpose of each expense. Please call our office at your earliest convenience to schedule an appointment. 

 

Posted in: 

Sec 199 tax deduction, manufacturers deduction, Wilmington Accountant, Delaware CPA

The Section 199 deduction is often overlooked by business owners, perhaps because they’re not sure what it is. You may see it referred to as “the domestic production deduction,” or the “domestic production activities deduction” or “the manufacturers’ deduction.” Here are four more facts about this potentially valuable tax break:

1. It’s a weighty percentage

The deduction is worth as much as 9% of the lesser of qualified production activities income or taxable income. But it’s limited to 50% of W-2 wages paid by the taxpayer that are allocable to domestic production gross receipts.

2. It’s not only for manufacturers

Despite being sometimes called “the manufacturers’ deduction,” many other types of companies can claim the Sec. 199 deduction. Businesses engaged in activities such as construction, engineering, architecture, computer software production and agricultural processing also may be eligible.

3. It has its limits

The deduction isn’t allowed in determining net self-employment earnings and generally can’t reduce net income below zero. It can, however, be used against the alternative minimum tax.

4. It involves math

There’s no denying that calculating the deduction, which involves determining what costs are allocable to domestic production gross receipts, can get complicated. On the bright side, very small businesses can simplify the calculations by using the Small Business Simplified Overall Method. There’s also a Simplified Deduction Method for businesses whose assets are no more than $10 million, or whose average gross receipts don’t exceed $100 million.

Take action

No matter what you call it, the Sec. 199 deduction may be a way for your company to get some tax relief. Please call us for help determining whether your production activities qualify and, if so, how to calculate and claim this tax break on your 2015 return.

Posted in: 

Business Loan Application - Delaware Business Accountant, Corporate Tax CPAFrom afar, the commercial lending process may appear comical. On one side of the desk you have the lenders, who want to manage their risk by loaning money to only successful business owners. On the other side of the desk, you have the business owners — many of whom believe they can’t truly become successful until they get the money!

To avoid this disconnect, you have to approach business financing as a partnership rather than a provider-customer relationship. If you were going into business with someone, you’d want to clearly understand his or her vision for your venture. It’s the same with lenders.

What’s the plan?

For example, say you’re asking for money because your company is so far behind on vendor payments that it needs the working capital to catch up. In this scenario, you’ll need to make a case for how catching up on payments will allow you to get the raw materials needed to make a big push forward on sales.

Or, as another example, you need money to open a new location in a city nearby. Here, you’ll have to produce some solid market analysis that explains to the lender why your business stands a good chance of succeeding in a new locale.

How shall you put it?

Before you ask for a loan, devise a clear plan for what you want to do with the money and how you’ll repay it. You and your top managers should be able to verbally articulate your plan, of course. But craft a written statement as well.

The written statement doesn’t need to be a 50-page proposal bound in embossed leather. It can be one page as long as it clearly describes your strategic challenge, your plan for overcoming it, and where and how the lender’s money plays into this solution.

Need some help?

The lending process can be daunting and, at times, frustrating. We can assist you in gathering and presenting the right financial information to secure the working capital you’re looking for. Call us at 302.225.5000 or email at info@gunnip.com

Posted in: 

Employers claiming the work opportunity credit for workers hired January 1, 2015, through May 31, 2016, have been granted an extension of time to submit Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, to its Designated Local Agency (DLA). Generally, this form needs to be submitted no later than the 28th day after the day an individual who is a member of a targeted group begins work for the employer.

Due to the retroactive extension of the work opportunity credit to apply to targeted group members hired in 2015 by the Protecting Americans from Tax Hikes Act of 2015, the IRS will allow an employer that hired a member of a targeted group to begin work on or after January 1, 2015, and on or before May 31, 2016, to submit Form 8850 to its DLA no later than June 29, 2016. The credit will expire for employees hired after December 31, 2019.

The PATH Act added qualified long-term unemployment recipients to the list of targeted groups effective for individuals hired on or after January 1, 2016. The extension to file Form 8850 through June 29, 2016 applies to such individuals if hired on or after January 1, 2016, and on or before May 31, 2016.

It appears that the reason that the extension will apply to targeted group members hired in the first half of 2016, in addition to those hired during 2015, is that Form 8850 is being revised to reflect the addition of qualified long-term unemployment recipients as targeted group members. The IRS guidance, however, does not prohibit a taxpayer from using the current Form 8850 during the period that the form is under revision. Nevertheless, if an employer is certifying a qualified long-term unemployment recipient then the best practice is to delay filing until Form 8850 is updated.

According to the IRS guidance, the revised version of Form 8850 will require the long-term unemployment recipient to supply the information that must be provided on the forms for the employer to receive certification from the DLA that the individual is a qualified long-term unemployment recipient. The IRS anticipates that the modified form will include a requirement that the individual signing the form attest that he or she meets the requirements to be a qualified long-term unemployment recipient and a requirement that the individual attest to the period(s) during which the individual was unemployed and the period the individual received unemployment compensation.

An employer must submit a Department of Labor Employment and Training Administration (ETA) Form 9061, Individual Characteristics Form, or Form 9062, Conditional Certification, to the DLA as part of the certification process. Most employers choose to submit these forms as part of the Form 8850 submission. The IRS guidance indicates that Forms 9061 and 9062 are also being revised to reflect the addition of qualified long-term unemployment recipient to the list of targeted group members.

If you have any questions related to the work opportunity tax credit and this extension, please call our office. We are here to assist you.

 

Posted in: 

Our own Jim Selsor, is speaking on the pros and cons of business structures at the SBDC Delaware's Entrepreneurship Series. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Posted in: 

Stack of Tax Planning books, AMT

As you know, the alternative minimum tax (AMT) system was originally enacted to ensure that all taxpayers, particularly higher-income taxpayers, pay at least a minimum amount of federal income tax. The AMT generally imposes a minimum tax on taxpayers who have substantially lowered their regular tax liability by taking advantage of tax-favored and preference items, including deductions, exemptions, and credits.

In recent years, a growing number of middle income taxpayers were affected by the AMT. However, since the AMT exemption amounts are now indexed for inflation, many middle-income taxpayers are no longer impacted. For those taxpayers who remain subject to the AMT, the permanent indexing provides some certainty for planning purposes.

Depending on the amount of your “taxable excess,” AMT rates ranging from 26 to 28 percent may be imposed on tax preference and adjustment items. In view of the serious risk of AMT exposure, careful planning to reduce your overall tax bill is critical.

Although the AMT is a significant concern, tax planning should not focus solely on eliminating AMT liability. Due to the complexity of the interrelationship of the AMT and regular tax systems, concentration on lowering minimum tax liability alone could easily result in an unwanted increase in your regular income tax liability.

In general, the best way to handle AMT liability is careful planning involving the coordination of future regular income tax and AMT, using accurate projections of income, expenses, and deductions over multiple years with several alternative scenarios. An overall plan must then be devised to manage your AMT liability without raising regular tax liability.

We believe that a thorough analysis of your current and projected tax situation could minimize or eliminate your exposure to AMT liability. Please contact our office to make an appointment to discuss this important tax planning opportunity.

 

Posted in: 

Kathi Silicato CPA

Gunnip & Company CPAs is proud to announce that Katherine L. Silicato, CPA, Partner is the newest member of the Wilmington chapter of the Women Presidents' Organization (WPO), a peer advisory group for women entrepreneurs of privately held, multimillion-dollar companies.

“I am very pleased to welcome Kathi to the WPO,” said Marsha Firestone, Ph.D., President and Founder of the WPO “As a peer advisory organization for women business leaders of multi-million dollar companies, WPO membership is highly selective. Kathi’s membership in the WPO is a testament to her incredible success in business.”

Kathi has been with Gunnip & Company since 1994 and is a partner in the firm’s assurance practice, focusing on audit services for companies, employee benefit plans, nonprofits and government organizations.

"We could not be more excited to have Kathi join the Wilmington Chapter of the WPO," said Chapter Chair Lesley Mallow Wendell, president of the Rosewood Consulting Group. "Through confidential and collaborative peer learning groups, WPO members learn new strategies for taking their businesses to the next level."

In monthly WPO meetings across the world, women from diverse industries invest time and energy in themselves and their businesses to drive their corporations to the next level. Local WPO chapters meet monthly to share business expertise and experience in a noncompetitive, confidential setting.

Posted in: 

You’ve probably heard the song, “Love is a many-splendored thing.” Well, your company’s accounting software should be, too. That is, you’ve got to make sure your system does all of the bigand little things necessary to efficiently and accurately track your financials.

It’s not only about revenue

Annual revenue doesn’t always dictate what software you should acquire. Some $50 million a year businesses will do just fine using a less expensive accounting software package, while some $5 million businesses will require a much higher end product. The key is to thoroughly review your accounting processes, tax-reporting requirements, transaction volumes, staff’s abilities and management reporting needs.

The future matters as much as the present

Another important factor: your company’s growth rate. If you’re growing 20% or more per year, you must have an accounting package that can grow with you. Otherwise, converting to a new accounting system every couple of years will be a painful and expensive process.

Your users matter the most

You’ll never get maximum value out of accounting software that your employees can’t fully use. Better systems provide on-screen tutorials that walk users through a sample company’s transactions and offer prompts for completing certain tasks. Extensive help should be available on-screen as well as via a 24-7 phone number. Some providers even provide support through instant messaging.

You’re not just tracking, you’re analyzing

The system should allow you to readily generate monthly and annual accounting reports. This means being able to easily record and access bank reconciliations, recurring transactions, and aging of accounts payable and scheduling of payments. A better package will customize reports that include instant unadjusted trial balances, income statements, balance sheets, cash flow statements, statements of retained earnings and more.

A second opinion is always helpful

So do you love your current accounting system? If you can’t say “yes” unequivocally, give us a call. We can review your existing functionalities and make recommendations regarding whether and how you should upgrade.

Posted in: 

Track Employee Expenses

Many companies start out, and get pretty far down the road, using the “per diem” approach when reimbursing employees for lodging, meals and incidental expenses. Doing so involves the use of either IRS tables or a simplified high-low method to reimburse workers up to specified limits.

The per diem approach is relatively simple and doesn’t involve too much record keeping. But it also puts businesses at risk if they exceed the per diem limits, exposing them to IRS penalties and employees to higher tax liability. For this reason, companies often reach a point where they create an “accountable plan” for handling employee expense reimbursements.

Reaping the tax advantages

An accountable plan is a formal arrangement to advance, reimburse or provide allowances for business expenses. The primary advantage is that your business can deduct expenses (subject to a 50% limit for meals and entertainment), and employees can usually exclude 100% of advances or reimbursements from their incomes. Workers whose jobs involve frequent travel may realize significant tax savings.

Qualifying for eligibility

To qualify as “accountable” under IRS rules, your plan must meet the following criteria:

  • It must pay expenses that would otherwise be deductible by the employee.
  • Payments must be for “ordinary and necessary” business expenses such as airfare and lodging charges.
  • Employees must substantiate these expenses — including amounts, times and places — ideally at least monthly.
  • Employees must return any advances or allowances they can’t substantiate within a reasonable time, typically 120 days.

If you fail to meet these conditions, the IRS will treat your plan as nonaccountable, transforming all reimbursements into wages taxable to the employee, subject to income and employment taxes — though potentially deductible by the employee.

Getting some help

Accountable plans take time to establish and require meticulous record keeping. Let us help. We’d be happy to assist you in setting up your accountable plan and regularly reviewing its compliance with IRS rules.

Posted in: 

Tax Alternative for Divorced Parents

If you are a parent who is (or was) involved in a separation or divorce, you’re aware that many important issues can be overshadowed by emotional concerns during this often contentious process. We would like to offer our family tax expertise to help you maximize the benefits of various child-related tax alternatives. In some instances, the value of these benefits can be quantified in order to offer them as a concession in your divorce or separation agreement. Even if your divorce is finalized, there may be issues that were not adequately addressed during your financial negotiations that can be revisited.

Raising children with an ex-spouse or partner can be very complicated. There are many interrelated tax issues that should be considered, such as:

  • Who gets to claim the dependency exemption for the children?
  • How does the tie-breaking rule work?
  • How does a multiple support agreement affect the dependency exemption?
  • How does a taxpayer qualify for head-of-household filing status?
  • When are children treated as a dependent of both parents?
  • How does a taxpayer qualify for the various child-related tax credits?
  • When can tax-favored education incentives be utilized by divorced or separated parents for their children?
  • How is the “kiddie tax” calculated for children of unmarried parents?
  • How do the tax consequences of child support differ from alimony or maintenance payments?

Taking advantage of the child-related tax benefits available to you can lower your taxable income significantly. By gathering and analyzing pertinent data, we can provide a tax plan tailored to your unique circumstances. Please call our office at your earliest convenience to arrange an appointment.

 

Posted in: 

Pages