November 26, 2019
2019 Year-End Business Planning Checklist
Summarized below are some items to consider before year-end:
• Maximizing Section 199A Qualified Business Income Deduction (QBID) – QBID was introduced with the TCJA and applies to tax years 2018-2025. The rules for the QBID are complex and subject to phase-outs and limits. Generally speaking, taxpayers may deduct up to 20% of their ‘qualified business income’ (QBI) from pass-through entities, sole proprietorships and most Schedule E rental properties. While QBI is calculated at the entity level, the QBID is claimed on the taxpayer’s personal income tax return. For S-Corporation shareholders, one must balance paying reasonable shareholder compensation, especially in relation to shareholder distributions, while also maximizing QBI. If you would like to do some tax planning in this area, please contact Jennifer.
• Section 179 Expensing - The Section 179 deduction annual limit remains unchanged at $1,000,000 for both federal and MA tax purposes. Section 179 allows taxpayers to expense certain tangible personal property in the year placed in service rather than depreciating over the asset's useful life. Additionally, the TCJA expanded the definition of eligible Section 179 property to include ‘qualified real property’. Qualified real property includes ‘qualified improvement property’ as well as the following improvements made to nonresidential real property after the property was first placed in service: roofs, HVAC systems, fire protection, alarm and security systems. ‘Qualified improvement property’ includes improvements made to the interior portion of a nonresidential building where the improvement was made after the property was first placed in service.
• Asset Capitalization Regulations – The IRS de minimis safe harbor limit remains unchanged at $2,500 for 2019. Generally speaking, all privately owned companies without audited financial statements can expense asset purchases less than or equal to $2,500 rather than capitalizing and depreciating. Please review your company's asset purchases for 2019 and make sure that only amounts greater than $2,500, on a per item basis, are capitalized and those less than or equal to $2,500 are expensed.
• Research Tax Credit - This popular federal tax credit was made permanent by the PATH Act of 2015. Generally the federal research tax credit is calculated as 20% of qualified research and experimental expenditures. Many states including MA and CA also offer a research tax credit. If your company is involved in research activities and we haven't previously claimed this credit, please contact Jennifer to discuss in more detail to determine whether your business might qualify for this credit.
• W-2 Reporting - As a business owner, certain items must be included in your W-2 as other compensation not subject to Social Security or Medicare taxes. If your business is an S-Corporation, the cost of employer paid health and dental insurance premiums must be included in the W-2s of all > 2% S-Corp shareholders/employees. The personal use of a company owned automobile is a taxable fringe benefit, for both C- and S-Corporations, that must be included in an employee's W-2 as well. It's expensive to correct W-2s, so check with your payroll service provider to find out their reporting deadline (many are mid-December). If you have specific questions regarding what items may need to be included in your company's W-2s or need assistance with the taxable personal use of company automobile calculation, please contact us.
• Form 1099-MISC Reporting - Do you have all of the necessary information in your accounting system to complete Forms 1099-MISC? These forms must be issued to all individuals or unincorporated entities (such as LLCs) your business pays $600 or more for services during a calendar year. Additionally, a 1099-MISC must be issued when a company pays $600 or more for rent or legal services, regardless of the payee's tax classification. Note, however, that payments made with a credit or debit card are NOT subject to reporting on Form 1099-MISC as such payments are reported by the payment settlement entity on Form 1099-K. For all vendors that meet these criteria, make sure the vendor profile is complete with name, address and SSN/EIN. If not, gather this information before year end by requesting the vendor to complete a Form W-9 - Request for Taxpayer Identification Number and Certification. Sechrest & Bloom is available to prepare 1099-MISC forms on your behalf but will need all information no later than January 15th. The Form 1099-MISC filing deadline in January 31st for recipients, the IRS and the MA DOR. The penalties for late/non-filing of Forms 1099-MISC are SIGNIFICANT so make sure you have the necessary vendor information before year-end.
• Review your company's YTD financial statements - Is your bookkeeping and accounting up to date? Do the results make sense in relation to the prior year and your current business environment? Have transactions been recorded to the proper accounts? Need help with this process? Sechrest & Bloom is available to assist you as needed. If we typically perform bookkeeping services for your company and you have not already communicated with us regarding the nature of services to be performed for 2019, please contact our office as soon as possible to discuss. We have the capacity to provide bookkeeping services through December but cannot guarantee availability come January. We are only able to provide proactive recommendations if the accounting records for your business are current.
• Check the YTD Net Income on your P&L - Where do you stand for the year? If you have a larger than expected profit, consider making a major purchase that can be expensed this year with the Section 179 deduction. If your business is a cash basis tax filer, where possible consider deferring income to 2020 by delaying invoicing to customers. Also, consider accelerating expenditures to 2019 rather than deferring to next year. Of course, these strategies should only be utilized if they also make sense from a business perspective. Keep in mind that an expense is deductible at the time charged to a corporate credit card, even for cash basis filers.
• Year-end Bonuses & Retirement Plan Contributions - Year-end bonuses are a great way to reward employees for a job well done. Please remember that such amounts must be included in an employee's W-2 so be sure to carefully report the information to your payroll service provider. Retirement plan contributions (profit sharing, pension, SEP, employer 401(K) and SIMPLE plan matching contributions) are a great way to save for retirement on a tax deferred basis and can also be an effective tool for managing your company's taxable income. Did you know that retirement plan contributions (excluding employee deferrals) do not need to be funded until your tax return is filed or due, even for a cash basis filer? If you'd like Sechrest & Bloom's assistance in calculating a year-end bonus and associated federal and state withholdings for an S-Corporation shareholder, please contact Jennifer soon to coordinate.
• Inventory - If your company has inventory, take a physical inventory count as close to year end as possible and make any necessary adjustments for book to physical count differences in your accounting system before year end.
• Website - Check all of the links on your company website and be sure they are active. Also, review your website content and update as appropriate.
• For your reference, the table below summarizes some important figures for 2019 and 2020.
|Limitation||2019||2020 (changes in bold)|
|Social Security wage base||$132,900||$137,700|
|401K elective deferral||$19,000||$19,500|
|401K catch-up deferral >= 50 years old||$6,000||$6,000|
|SIMPLE plan elective deferral||$13,000||$13,500|
|SIMPLE plan catch-up deferral >= 50 years old||$3,000||$3,000|
|Defined benefit plan contribution||$225,000||$230,000|
|Business mileage reimbursement rate||$.58/mile||not yet released|
The following items apply solely for businesses operating in Massachusetts:
• MA Paid Family Medical Leave Act (PFML) – As we previously communicated in a firm newsletter dated September 19th, the PFML program took effect on October 1, 2019. For those looking for in depth information regarding benefits and employer obligations under this program, the link to the PFML website is included below.
We are not going to reiterate PFML program details here. Rather we wanted to remind employers that they must register for PFML contributions on their MassTax Connect account before the end of the year. We’ve included a link below with step-by-step instructions provided by the MA DOR.
Unfortunately, Sechrest & Bloom, as a registered third party, cannot perform this task on behalf of our clients as we do not have the necessary access rights within MassTax Connect.
• Complete annual Health Insurance Responsibility Disclosure (HIRD) by December 15, 2019 – All employers in MA with 6 or more employees must annually submit a HIRD form which collects information about your employer-sponsored health insurance offerings. To file your HIRD form, login to your MassTax Connect withholding account and select the ‘File health insurance responsibility disclosure’ hyperlink under the ‘I Want To’ section. Then, follow the prompts to complete and submit the HIRD form online.
Call us for help if you need more information or guidance on completing the steps above.
Year-end tax packages will be emailed in mid-December. Please be on the lookout and review prior to year-end. A little advanced planning could save your company money by reducing your tax liability and/or tax preparation costs.
We wish you an enjoyable Thanksgiving holiday spent with family and friends!
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