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The dawning of 2019 means the 2018 income tax filing season will soon be upon us. After year end, it’s generally too late to take action to reduce 2018 taxes. Business owners may, therefore, want to shift their focus to assessing whether they’ll likely owe taxes or get a refund when they file their returns this spring, so they can plan accordingly.

With the biggest tax law changes in decades — under the Tax Cuts and Jobs Act (TCJA) — generally going into effect beginning in 2018, most businesses and their owners will be significantly impacted. So, refreshing yourself on the major changes is a good idea.

Taxation of pass-through entities

These changes generally affect owners of S corporations, partnerships and limited liability companies (LLCs) treated as partnerships, as well as sole proprietors:

Drops of individual income tax rates ranging from 0 to 4 percentage points (depending on the bracket) to 10%, 12%, 22%, 24%, 32%, 35% and 37%
A new 20% qualified business income deduction for eligible owners (the Section 199A deduction)
Changes to many other tax breaks for individuals that will impact owners’ overall tax liability

Taxation of corporations

These changes generally affect C corporations, personal service corporations (PSCs) and LLCs treated as C corporations:

Replacement of graduated corporate rates ranging from 15% to 35% with a flat corporate rate of 21%
Replacement of the flat PSC rate of 35% with a flat rate of 21%
Repeal of the 20% corporate alternative minimum tax (AMT)

Tax break positives

These changes generally apply to both pass-through entities and corporations:

A new disallowance of deductions for net interest expense in excess of 30% of the business’s adjusted taxable income (exceptions apply)
New limits on net operating loss (NOL) deductions
Elimination of the Section 199 deduction (not to be confused with the new Sec.199A deduction), which was for qualified domestic production activities and commonly referred to as the “manufacturers’ deduction”
A new rule limiting like-kind exchanges to real property that is not held primarily for sale (generally no more like-kind exchanges for personal property)
New limitations on deductions for certain employee fringe benefits, such as entertainment and, in certain circumstances, meals and transportation

Preparing for 2018 filing

Keep in mind that additional rules and limits apply to the rates and breaks covered here. Also, these are only some of the most significant and widely applicable TCJA changes; you and your business could be affected by other changes as well. Contact us to learn precisely how you might be affected and for help preparing for your 2018 tax return filing — and beginning to plan for 2019, too.

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Roth & Company LLP, who this year celebrated 40 years as a top-tier accounting firm, announced the appointments of Rachel Stein and Hershy Donath as new partners to the firm.

As of 2019, Mrs. Stein will be promoted from Senior Manager, the position she currently holds in the firm’s Brooklyn office. Mr. Donath will be transitioning to Partner in Roth&Co’s Lakewood location. He comes from Ernst and Young, where he’s been operating as Executive Director in the firm’s audit practice.

Speaking on behalf of the firm’s existing Partners, Co-Managing Partner Mr. Zacharia Waxler says, ‘we constantly seek to acknowledge the dedication of our team members and reward them when appropriate. We are delighted to promote Rachel to Partner in the firm. She has been a valuable asset to Roth&Co over the last ten years, and continues to demonstrate an outstanding commitment to the firm’s growth and values, as well as consistently excelling in her work with clients.’

Mr. Waxler continues, ‘Hershy is a talented accountant with extensive experience, we are excited to have him on board, and look forward to his future contributions positively impacting the firm and our clients.’

About Rachel
Mrs. Stein is a skilled accountant with extensive experience advising a variety of real estate, hospitality and wholesale distribution clients. She has developed close relationships with leading real estate owners and investors, and has been instrumental in generating effective solutions to critical tax issues in real estate transactions.
Rachel is also the firm’s expert advisor for foreign investors seeking to invest in the US, skillfully guiding them through the complexities of US tax compliance. She is proficient in coordinating US tax laws with foreign tax laws to create an optimal worldwide tax approach. In her role as partner, Rachel will continue to grow this area of the firm, working to extend the expertise and services clients will receive.

About Hershy
Mr. Donath is an accomplished accountant with 15 years of public accounting experience. He has most recently been working with large publicly traded REITs and privately held Real Estate Funds. Hershy also has valuable experience across a variety of industries, including, hospitality, media and entertainment, consumer products and alternative energy.

At Ernst and Young, Hershy was a member of the Northeast Region Quality Network, responsible for audit teams across the region. Hershy advised engagement teams on audit methodology and supported quality initiatives in response to the Public Accounting Oversight Board and internal quality reviews.

When asked about joining Roth&Co, Mr. Donath says, ‘I look forward to bringing big firm know-how, experience, and quality to the intimate setting of a community-based firm, providing our clients with the best of both worlds.’

About Roth & Company LLP
Roth & Company was established over 40 years ago in Brooklyn, New York by Mr. Abraham Roth. The firm has since expanded to four locations, with relationships that span more than four decades, and over one hundred fifty specialized employees serving as trusted guides through the financial world.

Roth & Company is proud to be a purpose driven company, providing the personalized services of a small firm with the expertise of a large organization. The firm operates according to its ethos ‘Beyond Business,’ implementing practices that maximize benefit over profit, and putting people before the bottom line.
For more information or to speak with an expert, visit www.rothcocpa.com or call 718-236-1600.

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Do you have investments outside of tax-advantaged retirement plans? If so, you might still have time to shrink your 2018 tax bill by selling some investments ― you just need to carefully select which investments you sell.

Try balancing gains and losses

If you’ve sold investments at a gain this year, consider selling some losing investments to absorb the gains. This is commonly referred to as “harvesting” losses.

If, however, you’ve sold investments at a loss this year, consider selling other investments in your portfolio that have appreciated, to the extent the gains will be absorbed by the losses. If you believe those appreciated investments have peaked in value, essentially you’ll lock in the peak value and avoid tax on your gains.

Review your potential tax rates

At the federal level, long-term capital gains (on investments held more than one year) are taxed at lower rates than short-term capital gains (on investments held one year or less). The Tax Cuts and Jobs Act (TCJA) retains the 0%, 15% and 20% rates on long-term capital gains. But, for 2018 through 2025, these rates have their own brackets, instead of aligning with various ordinary-income brackets.

For example, these are the thresholds for the top long-term gains rate for 2018:

Singles: $425,800
Heads of households: $452,400
Married couples filing jointly: $479,000

But the top ordinary-income rate of 37%, which also applies to short-term capital gains, doesn’t go into effect until income exceeds $500,000 for singles and heads of households or $600,000 for joint filers. The TCJA also retains the 3.8% net investment income tax (NIIT) and its $200,000 and $250,000 thresholds.

Don’t forget the netting rules

Before selling investments, consider the netting rules for gains and losses, which depend on whether gains and losses are long term or short term. To determine your net gain or loss for the year, long-term capital losses offset long-term capital gains before they offset short-term capital gains. In the same way, short-term capital losses offset short-term capital gains before they offset long-term capital gains.

You may use up to $3,000 of total capital losses in excess of total capital gains as a deduction against ordinary income in computing your adjusted gross income. Any remaining net losses are carried forward to future years.

Time is running out

By reviewing your investment activity year-to-date and selling certain investments by year end, you may be able to substantially reduce your 2018 taxes. But act soon, because time is running out.

Keep in mind that tax considerations shouldn’t drive your investment decisions. You also need to consider other factors, such as your risk tolerance and investment goals.

We can help you determine what makes sense for you. Please contact us.

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Tax planning is a year-round activity, but there are still some year-end strategies you can use to lower your 2018 tax bill. Here are six last-minute tax moves business owners should consider:

Postpone invoices. If your business uses the cash method of accounting, and it would benefit from deferring income to next year, wait until early 2019 to send invoices. Accrual-basis businesses can defer recognition of certain advance payments for products to be delivered or services to be provided next year.
Prepay expenses. A cash-basis business may be able to reduce its 2018 taxes by prepaying certain expenses — such as lease payments, insurance premiums, utility bills, office supplies and taxes — before the end of the year. Many expenses can be deducted up to 12 months in advance.
Buy equipment. Take advantage of 100% bonus depreciation and Section 179 expensing to deduct the full cost of qualifying equipment or other fixed assets. Under the Tax Cuts and Jobs Act, bonus depreciation, like Sec. 179 expensing, is now available for both new and used assets. Keep in mind that, to deduct the expense on your 2018 return, the assets must be placed in service — not just purchased — by the end of the year.
Use credit cards. What if you’d like to prepay expenses or buy equipment before the end of the year, but you don’t have the cash? Consider using your business credit card. Generally, expenses paid by credit card are deductible when charged, even if you don’t pay the credit card bill until next year.
Use credit cards. What if you’d like to prepay expenses or buy equipment before the end of the year, but you don’t have the cash? Consider using your business credit card. Generally, expenses paid by credit card are deductible when charged, even if you don’t pay the credit card bill until next year.
Contribute to retirement plans. If you’re self-employed or own a pass-through business — such as a partnership, limited liability company or S corporation — one of the best ways to reduce your 2018 tax bill is to increase deductible contributions to retirement plans. Usually, these contributions must be made by year-end. But certain plans — such as SEP IRAs — allow your business to make 2018 contributions up until its tax return due date (including extensions).
Qualify for the pass-through deduction. If your business is a sole proprietorship or pass-through entity, you may qualify for the new pass-through deduction of up to 20% of qualified business income. But if your taxable income exceeds $157,500 ($315,000 for joint filers), certain limitations kick in that can reduce or even eliminate the deduction. One way to avoid these limitations is to reduce your income below the threshold — for example, by having your business increase its retirement plan contributions.

Most of these strategies are subject to various limitations and restrictions beyond what we’ve covered here, so please consult us before you implement them. We can also offer more ideas for reducing your taxes this year and next.

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Roth&Co Partners and staff reflect on the firm’s journey over the last 40 years.

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Churches, synagogues, mosques and other religious congregations aren’t required to file tax returns, so they might not regularly hire independent accountants. But regardless of size, religious organizations often are subject to other requirements, such as paying unrelated business income tax (UBIT) and properly classifying employees.

Without the oversight of tax authorities or outside accountants, religious leaders may not be aware of all requirements to which they’re subject. This can leave their organizations vulnerable to fraud and its trustees and employees subject to liabilities.

Common vulnerabilities

To effectively prevent financial and other critical mistakes, make sure your religious congregation complies with IRS rules and federal and state laws. In particular, pay attention to:

Employee classification. Determine which workers in your organization are full-time employees and which are independent contractors. Depending on many factors, such as the amount of control your organization has over them, their responsibilities, and their form of compensation, individuals you consider independent contractors may need to be reclassified as employees.

Clergy wages. Most clergy should be treated as employees and receive W-2 forms. Typically, they’re exempt from Social Security taxes, Medicare taxes and federal withholding but are subject to self-employment tax on wages. A parsonage (or rental) allowance can reduce income tax, but not self-employment tax.

UBIT. If your organization regularly engages in any type of business activity that’s unrelated to its religious mission, be aware of certain tax and reporting rules. Income from such activities could be subject to UBIT.

Lobbying. Your organization shouldn’t devote a substantial part of its activities in attempting to influence legislation. Otherwise you might risk your tax-exempt status and face potential penalties.

Trust and protect

Faith groups can be particularly vulnerable to fraud because they generally foster an environment of trust. Also, their leaders may be reluctant to punish offenders. Just keep in mind that even the most devout and long-standing members of your congregation are capable of embezzlement when faced with extreme circumstances.

To ensure employees and volunteers can’t help themselves to collections, require that at least two people handle all contributions. They should count cash in a secure area and verify the contents of offering envelopes. Next, they should document their collection activity in a signed report. For greater security, encourage your members to make electronic payments on your website or sign up for automatic bank account deductions.

Seek expertise

Although your congregation is subject to less IRS scrutiny than even your fellow nonprofit organizations, that doesn’t mean you can afford to ignore financial best practices. Contact us for help.

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As the year winds to a close, most businesses see employees taking a lot of vacation time. After all, it’s the holiday season, and workers want to enjoy it. Some businesses, however, find themselves particularly short-staffed in December because they don’t allow unused paid time off (PTO) to be rolled over to the new year, or they allow only very limited rollovers.

There are good business reasons to limit PTO rollovers. Fortunately, there’s a way to reduce the year-end PTO vortex without having to allow unlimited rollovers: a PTO contribution arrangement.

Retirement saving with a twist

A PTO contribution arrangement allows employees with unused vacation hours to elect to convert them to retirement plan contributions. If the plan has a 401(k) feature, it can treat these amounts as a pretax benefit, similar to normal employee deferrals. Alternatively, the plan can treat the amounts as employer profit sharing, converting excess PTO amounts to employer contributions.

This can be appealing to any employees who end up with a lot of PTO left at the end of the year and don’t want to lose it. But it can be especially valued by employees who are concerned about their level of retirement saving or who simply value money more than time off of work.

Good for the business

Of course the biggest benefit to your business may simply be that it’s easier to ensure you have sufficient staffing at the end of the year. But you could reap that same benefit by allowing PTO rollovers (or, if you allow some rollover, increasing the rollover limit).

A PTO contribution arrangement can be a better option than increasing the number of days employees can roll over. Why? Larger rollover limits can result in employees building up large balances that create a significant liability on your books.

Also, a PTO contribution arrangement might help you improve recruiting and retention, because of its appeal to employees who want to save more for retirement or don’t care about having a lot of PTO.

Set-up is simple

To offer a PTO contribution arrangement, simply amend your retirement plan. However, you must still follow the plan document’s eligibility, vesting, rollover, distribution and loan terms. Additional rules apply.

Have questions about PTO contribution arrangements? Contact us. We can help you assess whether such an arrangement would make sense for your business.

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Businesses of all sizes, across all industries, have been impacted by the monumental changes to the federal tax code. To maximize tax savings and ensure compliance with the new rules, businesses need to engage in year-end planning conversations now. Certain tax savings opportunities may apply regardless of how your business is structured, while others may apply only to a particular type of business organization. No matter the type of business entity you operate, year-end tax planning should consider all possibilities to effectively lower your total tax liability.

To support year-end tax planning and help you plan for the year ahead, Roth&Co offers you a guide to 2018 Year-End Tax Planning for Businesses. The guide provides valuable information about the new changes to the tax laws while providing corresponding planning tips.

Please download our complimentary year end tax planning guide for businesses

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The holiday season is a great time for businesses to show their appreciation for employees and customers by giving them gifts or hosting holiday parties. Before you begin shopping or sending out invitations, though, it’s a good idea to find out whether the expense is tax deductible and whether it’s taxable to the recipient. Here’s a brief review of the rules.

Gifts to customers

When you make gifts to customers, the gifts are deductible up to $25 per recipient per year. For purposes of the $25 limit, you need not include “incidental” costs that don’t substantially add to the gift’s value, such as engraving, gift-wrapping, packaging or shipping. Also excluded from the $25 limit is branded marketing collateral — such as pens or stress balls imprinted with your company’s name and logo — provided they’re widely distributed and cost less than $4.

The $25 limit is for gifts to individuals. There’s no set limit on gifts to a company (a gift basket for all to share, for example) as long as they’re “reasonable.”

Gifts to employees

Generally anything of value that you transfer to an employee is included in the employee’s taxable income (and, therefore, subject to income and payroll taxes) and deductible by you. But there’s an exception for noncash gifts that constitute “de minimis fringe benefits.”

These are items so small in value and given so infrequently that it would be administratively impracticable to account for them. Common examples include holiday turkeys or hams, gift baskets, occasional sports or theater tickets (but not season tickets), and other low-cost merchandise.

De minimis fringe benefits are not included in an employee’s taxable income yet are still deductible by you. Unlike gifts to customers, there’s no specific dollar threshold for de minimis gifts. However, many businesses use an informal cutoff of $75.

Keep in mind that cash gifts — as well as cash equivalents, such as gift cards — are included in an employee’s income and subject to payroll tax withholding regardless of how small and infrequent.

Holiday parties

The Tax Cuts and Jobs Act reduced certain deductions for business-related meals and eliminated the deduction for business entertainment altogether. There’s an exception, however, for certain recreational activities, including holiday parties.

Holiday parties are fully deductible (and excludible from recipients’ income) provided they’re primarily for the benefit of non-highly-compensated employees and their families. If customers also attend, holiday parties may be partially deductible.

Gifts that give back

If you’re thinking about giving holiday gifts to employees or customers or throwing a holiday party, contact us. With a little tax planning, you may receive a gift of your own from Uncle Sam.

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The marketing playbook is being rewritten by the explosion of direct to consumer businesses, like Warby Parker, who have inspired expansion in this new market trend.

Warby encouraged customers to post photos of themselves wearing their trial frames on social media and get style advice from friends, which then gets liked, shared and commented on. Warby Parker found a veritable army of brand advocates lining up to share content on their behalf.

Welcome beauty brand Glossier, whose President and COO, Henry Davis, “doesn’t go by the rules.” The old rules.

Over the past four years, Glossier has carved out a niche in the billion-dollar global beauty market with an e-commerce operation selling its range of 26 skincare and make-up products and retail stores in key locations across the US.

“The company is considered innovative,” said Davis, “because it owns the bottom part of the sales funnel.” Unlike traditional beauty brands that rely on third party sellers, it doesn’t rely on any other players to make the sale to customers on its behalf.

The importance of influencer marketing has steadily increased over the past few years in online markets. In a new report out of the UK, based on the responses of 385 marketing specialists, 80% of respondents agree or strongly agree that influencers are critical to engaging younger consumers and encouraging them to buy.

Still, rather than working with influencers, Glossier reports having much more success engaging its hardcore fans directly, in the style of Warby Parker. In its most successful launch to date the brand deliberately did not send any products to influencers. Instead the company chose to gift the products to 500 super-fans who had bought the most products or were the most engaged.

Engagement is the key factor in developing the essential one-to-one relationships that fuel direct to consumer brands’ loyal customer base. Brands and companies of all sizes can learn from upstarts changing the game. By pivoting their marketing strategy and building sharing seamlessly into their products, controlling brand content and taking ownership of critical first-party data, any brand can learn to thrive in today’s digitized world.
“Customer is at the heart of product development, customer is at the heart of strategy and customer is at the heart of the sale,” Davis says, and to the brands that can’t keep up, “good riddance.”

To start up or stay relevant… Roth&Co.

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When you purchase property, such as furniture or machinery for business uses, you may be eligible for a tax deduction for the purchase and use of the property. Here’s how Section 179 deduction works.

Section 179 Deduction Explained

The Section 179 deduction allows businesses to deduct the full cost of qualified business assets in the year that the assets are purchased. The new Tax Cuts and Jobs Act has increased the assets that qualify under the Section 179 Deduction, and removed some limitations. The deduction was generally used for tangible personal property, such as equipment, furniture and fixtures, and computer software. As of the start of the 2018 tax year the following improvements made to nonresidential real property are also eligible for the deduction.

• Qualified improvement property, referring to any improvement to a building’s interior. Improvements do not qualify if they are attributable to:
o the enlargement of the building,
o any elevator or escalator or
o the internal structural framework of the building
• Roofs, HVAC, fire protection systems, alarm systems and security systems.

In the past, businesses were unable to use the deduction for personal property used in residential real estate businesses. This restriction was removed for tax years beginning in 2018, so landlords can now use the Section 179 deduction.

The deduction is limited to one million dollars a year. That means that only equipment of up to $1 million can be deducted in any given year. It is also limited to $2.5 million of asset purchases per year. Following that, there is a dollar for dollar limitation on the deduction.
This means that if a business purchased $3 million of tangible personal property in 2018, their section 179 deduction will only be $500,000. Since the business went over the limit of $2.5 million by $500,000, the section 179 deduction was reduced by that amount ($1,000,000 – $500,000). Therefore, if a business purchases $3.5 of assets in 2018 they will not be eligible to take the deduction. Another limit on the deduction is that it can only be used in an entity that does not have a net loss for the year.

Bonus Depreciation Explained

Bonus depreciation allows business owners to deduct a certain percentage of the cost of qualified assets in the year of purchase. Under the TCJA the percentage for all assets purchased from September 27, 2017 – December 31, 2022 is 100%. Qualified property includes tangible property depreciated under MACRS with a recovery period of 20 years or less. This deduction does not have any dollar limitations, and can lower income to a net loss.

Why would a business elect to use the section 179 deduction instead of bonus depreciation?

1. Since the definition of qualifying property was expanded to include certain improvements to real property, these assets are not eligible for bonus depreciation.
2. Bonus depreciation is usually an add back on state returns, while the section 179 deduction is allowable in NY.

One final consideration to keep in mind is that trusts cannot take the section 179 deduction. Therefore, if a trust is going to be receiving a K‐1 from a partnership they will not be able to make use of the 179 deduction.

For more information on how Section 179 deduction pertains to your business, consult with your trusted Roth&Co advisor.

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Many factors go into the success of a company. You’ve got to offer high-quality products or services, provide outstanding customer service, and manage your inventory or supply chain. But there’s at least one other success factor that many business owners often overlook: internal leadership training and development.

Even if all your executive and management positions are filled with seasoned leaders right now, there’s still a major benefit to continually training, coaching and mentoring employees for leadership responsibilities. After all, even someone who doesn’t work in management can champion a given initiative or project that brings in revenue or elevates the company’s public image.

Ideas to consider

Internal leadership development is practiced when owners and executives devote time to helping current managers as well as employees who might one day be promoted to positions of leadership.

To do this, shift your mindset from being only “the boss” to being someone who holds an important responsibility to share leadership knowledge with others. Here are a few tips to consider:

Contribute to performance development. Most employees’ performance reviews will reveal both strengths and weaknesses. Sit down with current and potential leaders and generously share your knowledge and experience to bolster strong points and shore up shortcomings.

Invite current and potential leaders to meetings. Give them the opportunity to participate in important meetings they might not otherwise attend, and solicit their input during these gatherings. This includes both internal meetings and interactions with external vendors, customers and prospects. Again, look to reinforce positive behaviors and offer guidance on areas of growth.

Introduce them to the wider community. Get current and potential leaders involved with an industry trade association or a local chamber of commerce. By meeting and networking with others in your industry, these individuals can get a broader perspective on the challenges that your company faces — as well as its opportunities.

Give them real decision-making authority. Probably not right away but, at some point, put a new leader to the test. Give them control of a project and then step back and observe the results. Don’t be afraid to let them fail if their decisions don’t pan out. This can help your most promising employees learn real-world lessons now that can prove invaluable in the future.

Benefits beyond

Dedicating some time and energy to internal leadership development can pay off in ways beyond having well-trained managers. You’ll likely boost retention by strengthening relationships with your best employees. Furthermore, you may discover potential problems and avail yourself of new ideas that, otherwise, may have never reached you. Our firm can provide further information and other ideas.

A refresher on major tax law changes for small-business owners

Top 300 Accounting Firm Roth & Company Announces Two New Partners

Act soon to save 2018 taxes on your investments

6 last-minute tax moves for your business

Roth&Co Celebrates 40 Years of Excellence

Financial best practices for religious congregations

Can a PTO contribution arrangement help your employees and your business?

2018 Year-End Tax Planning for Businesses

When holiday gifts and parties are deductible or taxable

In One To One Relationships – Engagement is the Key

What is a Section 179 Deduction?

Devote some time to internal leadership development

2018 Year-End Tax Planning for Individuals