Each year, your auditor will conduct a fresh risk assessment. Audit risk is a function of three components: 1) control risk, 2) inherent risk, and 3) detection risk. The first two risks stem from a company’s industry and actions. The last one can be managed by the audit team through substantive audit procedures. Before the start of fieldwork, let’s discuss changes to your risk factors. We’ll adjust our audit programs accordingly to ensure that your financial statements are prepared with the highest level of quality and efficiency.
As we approach the end of the year, it’s a good idea to review your business’s expenses for deductibility. At the same time, consider whether you’d benefit from accelerating certain expenses into this year. There’s no master list of deductible business expenses in the Internal Revenue Code (IRC). Some deductions are expressly authorized or excluded, but most are governed by the general rule of IRC Sec. 162, which permits businesses to deduct their “ordinary and necessary” expenses. Also, the TCJA reduces or eliminates many deductions. Contact us to learn more.
Many people choose to pass assets to the next generation during life, whether to reduce the size of their taxable estate, to help out family members or simply to see their loved ones enjoy the gifts. If you’re considering lifetime gifts, be aware that which assets you give can affect the tax consequences. For example, to minimize your heir’s income tax, gift property that hasn’t appreciated significantly while you’ve owned it. The heir can sell the property at a minimal income tax cost. Contact us to discuss the tax consequences of any gifts you’d like to make.
In today’s tightening job market, to attract and retain the best employees, small businesses need to offer not only competitive pay, but also appealing fringe benefits. Those that are tax-free are especially attractive to employees. Examples include many types of insurance (health, disability, long-term care, life) and assistance plans (dependent care, adoption and educational), subject to certain limits. The tax treatment of some benefits, such as moving expense reimbursements and transportation benefits, has changed under the TCJA. Contact us to learn more.
If you’re age 70 1/2 or older, you can make direct contributions (up to $100,000 annually) from your IRA to a qualified charity without owing any income tax on the distributions. This break may be especially beneficial now because of TCJA changes that affect who can benefit from the itemized deduction for charitable donations. While you might be able to achieve a similar result from taking the RMD, contributing that amount to charity and taking an itemized deduction for the donation, fewer taxpayers benefit from itemizing under the TCJA. Contact us for details.
Businesses that acquire, construct or substantially improve a building should consider a cost segregation study. It combines accounting and engineering techniques to identify building costs that are properly allocable to tangible personal property rather than real property. This may allow you to accelerate depreciation deductions, thus reducing taxes and boosting cash flow. And the potential benefits are now even greater due to enhancements to certain depreciation-related breaks under the TCJA. Contact us for help assessing the potential tax savings.
The main difference between the cash and accrual methods of accounting is timing: Income is generally reported earlier under the accrual method. Two provisions of the Tax Cuts and Jobs Act could affect your choice of accounting method. First, starting in 2018, the gross-receipts threshold for using the cash method has been increased to $25 million. Second, you must now report revenue for tax purposes no later than for financial reporting purposes. These changes could prompt more companies to use the cash method. Contact us to discuss the pros and cons.
Does your company license intellectual property to others? If so, an external audit can help ensure you’re receiving the correct amount of royalty payments. After reviewing the scope of your agreement, the auditor reviews how the licensee determines royalties and compares the payments you’ve received to the licensor’s sales, inventory and production records. Periodic audits can prevent small, but honest, mistakes from spiraling out of control and reduce the temptation for dishonest licensees to commit fraud. Contact us to schedule your next royalty audit.
For investors, fall is a good time to review year-to-date gains and losses. Doing so can help you determine whether to buy or sell investments before year end to save taxes. You also need to consider the TCJA. While it didn’t change long-term capital gains rates, it did change the tax brackets. For 2018 through 2025, these brackets are no longer linked to the ordinary-income tax brackets for individuals. So, for example, you could be subject to the top long-term capital gains rate even if you aren’t subject to the top ordinary-income rate. Questions? Contact us.