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Tax-Saving Moves

It’s not too late for businesses to implement some 2018 tax-saving moves. One is making the most of the new deduction for qualified business income.

For tax years starting after 2017, taxpayers other than corporations may be entitled to a Sec. 199A deduction of up to 20% of their qualified business income. For 2018, if taxable income exceeds $315,000 for a married couple filing jointly, or $157,500 for all other taxpayers, the deduction may be limited based on whether the taxpayer is engaged in a service-type trade or business. Contact us for more info.

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Financial Institutions and Banking

Growing Pains

5 Tips for Boosting Core Deposits

As interest rates continue to rise, competition among banks for core deposits is heating up. This creates a challenge for community banks striving to grow their core deposits to fund lending activities. On the one hand, banks need to consider paying higher rates to attract deposits. On the other hand, increasing the cost of deposits cuts into their profit margins.

Take the right steps

Here are five tips for attracting core deposits while keeping costs under control:

  1. Avoid short-term fixes. It’s important to recognize that building core deposits is a long-term strategy — there are no quick fixes. Offering above-market interest rates, for example, may attract new customers in the short term, but it’s unlikely to support sustainable deposit growth. That’s because customers who’re attracted to higher rates are more likely to abandon you when a better rate comes along. In the long run, it’s better to focus on customers who value service over interest rates.
  2. Don’t underestimate the importance of branches. A recent J.D. Power banking satisfaction study offers insights into the value of branches. According to the study, although 28% of retail bank customers are now digital-only, they are among the least satisfied. The most satisfied customers are “branch-dependent digital customers” — those who take advantage of online or mobile banking but also visit a branch two or more times during a three-month period.

Interestingly, the satisfaction gap between branch-dependent customers and more “digital-centric” customers was most pronounced among Millennials and Generation Xers. This is a bit surprising, since it’s commonly thought that younger customers eschew branches. It’s still the case that the majority of customers, including younger generations, prefer to open accounts at a branch — with personalized guidance — because they find it confusing to do online.

  1. Focus on service. According to J.D. Power, weaker performance in the areas of communication and advice, new account openings, and products and fees caused lower satisfaction levels among digital-only customers. To attract and retain engaged customers and grow core deposits, banks need to improve communications and provide quality, personalized advice and other services consistently. And it’s key to make these strides across both digital and branch channels.
  2. Specialize. Community banks that specialize in particular industries or types of banking are often able to attract customers who value specialized services over interest rates. The right niche — whether it’s health care, professional services firms, hospitality, agriculture or some other industry — depends on the bank’s history and the needs of the community.
  3. Consider reciprocal deposits. A provision of the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 creates an opportunity for community banks to boost deposits by taking advantage of reciprocal deposits. These are deposits a bank receives through a deposit placement network in exchange for placing matching deposits at other banks in the network. One advantage of these networks is that they enable banks to attract large-dollar, stable, local depositors by offering them insured deposits beyond the $250,000 FDIC threshold. (Insurance coverage is increased by spreading deposits among several network banks.)

The act made it easier for banks to take advantage of reciprocal deposits by providing that these deposits (up to the lesser of 20% of total liabilities or $5 billion) won’t be considered “brokered deposits” if specific requirements are met. Brokered deposits are subject to a variety of rules and restrictions that make them more costly than traditional core deposits.

Develop a strategy

These days, it’s easy for customers to switch banks to obtain a higher interest rate. The key to attracting and retaining stable core deposits is to have a strategy for providing value (apart from interest) that makes customers want to stick around.

© 2018

 

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Now’s the time to review your business expenses

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 your business would benefit from accelerating certain expenses into this year. Be sure to evaluate the impact of the Tax Cuts and Jobs Act (TCJA), which reduces or eliminates many deductions. In some cases, it may be necessary or desirable to change your expense and reimbursement policies.

What’s deductible, anyway?

There’s no master list of deductible business expenses in the Internal Revenue Code (IRC). Although some deductions are expressly authorized or excluded, most are governed by the general rule of IRC Sec. 162, which permits businesses to deduct their “ordinary and necessary” expenses. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your business. (It need not be indispensable.) Even if an expense is ordinary and necessary, it may not be deductible if the IRS considers it lavish or extravagant.

What did the TCJA change?

The TCJA contains many provisions that affect the deductibility of business expenses. Significant changes include these deductions:

Meals and entertainment. The act eliminates most deductions for entertainment expenses, but retains the 50% deduction for business meals. What about business meals provided in connection with nondeductible entertainment? In a recent notice, the IRS clarified that such meals continue to be 50% deductible, provided they’re purchased separately from the entertainment or their cost is separately stated on invoices or receipts.

Transportation. The act eliminates most deductions for qualified transportation fringe benefits, such as parking, vanpooling and transit passes. This change may lead some employers to discontinue these benefits, although others will continue to provide them because 1) they’re a valuable employee benefit (they’re still tax-free to employees) or 2) they’re required by local law.

Employee expenses. The act suspends employee deductions for unreimbursed job expenses — previously treated as miscellaneous itemized deductions — through 2025. Some businesses may want to implement a reimbursement plan for these expenses. So long as the plan meets IRS requirements, reimbursements are deductible by the business and tax-free to employees. Need help? The deductibility of certain expenses, such as employee wages or office supplies, is obvious. In other cases, it may be necessary to consult IRS rulings or court cases for guidance.

For assistance, please contact us. 731.427.8571 © 2018

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Tax

Tax Update

Meals & Entertainment Deductions

The Tax Cuts and Jobs Act made changes to the rules governing the destructibility of meals and entertainment expenses for businesses.  Essentially, entertainment expenses incurred or paid after December 31, 2017 are no longer deductible (previously deductible at 50% of the amount of the entertainment expenses incurred).  Whether and to what extent business meals remain deductible has been the subject of a lot of speculation absent any IRS guidance in this area.
Below are both the  IRS Information Release IR-2018-195 and Notice 2018-76 that sets forth guidance on the deduction for meals and entertainment following the new law changes. These informational releases are effective until the IRS issues proposed regulations clarifying when business meal expenses are deductible and what constitutes entertainment.  Please contact your trusted ATA advisor with questions. Your success is our mission. http://bit.ly/2PVODr6

IRS Information Release IR-2018-195 and Notice 2018-76

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Tax-free fringe benefits

Tax-free fringe benefits help small businesses and their employees

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. Benefits that are tax-free are especially attractive to employees. Let’s take a quick look at some popular options.
Insurance
Businesses can provide their employees with various types of insurance on a tax-free basis. Here are some of the most common:
  • Health insurance. If you maintain a health care plan for employees, coverage under the plan isn’t taxable to them. Employee contributions are excluded from income if pretax coverage is elected under a cafeteria plan. Otherwise, such amounts are included in their wages, but may be deductible on a limited basis as an itemized deduction.
  • Disability insurance. Your premium payments aren’t included in employees’ income, nor are your contributions to a trust providing disability benefits. Employees’ premium payments (or other contributions to the plan) generally aren’t deductible by them or excludable from their income. However, they can make pretax contributions to a cafeteria plan for disability benefits, which are excludable from their income.
  • Long-term care insurance. Your premium payments aren’t taxable to employees. However, long-term care insurance can’t be provided through a cafeteria plan.
  • Life insurance. Your employees generally can exclude from gross income premiums you pay on up to $50,000 of qualified group term life insurance coverage. Premiums you pay for qualified coverage exceeding $50,000 are taxable to the extent they exceed the employee’s coverage contributions.
Other types of tax-advantaged benefits
Insurance isn’t the only type of tax-free benefit you can provide ― but the tax treatment of certain benefits has changed under the Tax Cuts and Jobs Act:
  • Dependent care assistance. You can provide employees with tax-free dependent care assistance up to $5,000 for 2018 through a dependent care Flexible Spending Account (FSA), also known as a Dependent Care Assistance Program (DCAP).
  • Adoption assistance. For employees who’re adopting children, you can offer an employee adoption assistance program. Employees can exclude from their taxable income up to $13,810 of adoption benefits in 2018.
  • Educational assistance. You can help employees on a tax-free basis through educational assistance plans (up to $5,250 per year), job-related educational assistance and qualified scholarships.
  • Moving expense reimbursement. Before the TCJA, if you reimbursed employees for qualifying job-related moving expenses, the reimbursement could be excluded from the employee’s income. The TCJA suspends this break for 2018 through 2025. However, such reimbursements may still be deductible by your business.
  • Transportation benefits. Qualified employee transportation fringe benefits, such as parking allowances, mass transit passes and van pooling, are tax-free to recipient employees. However, the TCJA suspends through 2025 the business deduction for providing such benefits. It also suspends the tax-free benefit of up to $20 a month for bicycle commuting.
Varying tax treatment
As you can see, the tax treatment of fringe benefits varies. Contact us for more information.

© 2018

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Business Meals

Is that still deductible? The Tax Cuts and Jobs Act generally eliminated the business deduction for entertainment expenses but not meal expenses. As long as certain conditions are met, taxpayers can still deduct 50% of the cost of business meals.
The IRS issued Notice 2018-76 spelling out the five conditions. The expense must be “ordinary and necessary;” the taxpayer (or an employee) must be present at the meal; the meal can’t be lavish; it must be provided to current or potential customers, and the meal cost must be separately stated from the entertainment cost.
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Tax planning for investments gets more complicated

For investors, fall is a good time to review year-to-date gains and losses. Not only can it help you assess your financial health, but it also can help you determine whether to buy or sell investments before year-end to save taxes. This year, you also need to keep in mind the impact of the Tax Cuts and Jobs Act (TCJA). While the TCJA didn’t change long-term capital gains rates, it did change the tax brackets for long-term capital gains and qualified dividends. 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 tax rate.
Old rules
For the last several years, individual taxpayers faced three federal income tax rates on long-term capital gains and qualified dividends: 0%, 15% and 20%. The rate brackets were tied to the ordinary-income rate brackets. Specifically, if the long-term capital gains and/or dividends fell within the 10% or 15% ordinary-income brackets, no federal income tax was owed. If they fell within the 25%, 28%, 33% or 35% ordinary-income brackets, they were taxed at 15%. And, if they fell within the maximum 39.6% ordinary-income bracket, they were taxed at the maximum 20% rate.
In addition, higher-income individuals with long-term capital gains and dividends were also hit with the 3.8% net investment income tax (NIIT). It kicked in when modified adjusted gross income exceeded $200,000 for singles and heads of households and $250,000 for married couples filing jointly. So, many people actually paid 18.8% (15% + 3.8%) or 23.8% (20% + 3.8%) on their long-term capital gains and qualified dividends. New rules The TCJA retains the 0%, 15% and 20% rates on long-term capital gains and qualified dividends for individual taxpayers. However, for 2018 through 2025, these rates have their own brackets.
Here are the 2018 brackets:
Singles: 0%: $0 – $38,600 15%: $38,601 – $425,800 20%: $425,801 and up
Heads of households: 0%: $0 – $51,700 15%: $51,701 – $452,400 20%: $452,401 and up
Married couples filing jointly: 0%: $0 – $77,200 15%: $77,201 – $479,000 20%: $479,001 and up
For 2018, the top ordinary-income rate of 37%, which also applies to short-term capital gains and nonqualified dividends, doesn’t go into effect until income exceeds $500,000 for singles and heads of households or $600,000 for joint filers. (Both the long-term capital gains brackets and the ordinary-income brackets will be indexed for inflation for 2019 through 2025.) The new tax law also retains the 3.8% NIIT and its $200,000 and $250,000 thresholds. More thresholds, more complexity With more tax rate thresholds to keep in mind, year-end tax planning for investments is especially complicated in 2018. If you have questions, please contact us. © 2018
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2 tax law changes that may affect your business’s 401(k) plan

When you think about recent tax law changes and your business, you’re probably thinking about the new 20% pass-through deduction for qualified business income or the enhancements to depreciation-related breaks. Or you may be contemplating the reduction or elimination of certain business expense deductions. But there are also a couple of recent tax law changes that you need to be aware of if your business sponsors a 401(k) plan.
1. Plan loan repayment extension
The Tax Cuts and Jobs Act (TCJA) gives a break to 401(k) plan participants with outstanding loan balances when they leave their employers. While plan sponsors aren’t required to allow loans, many do. Before 2018, if an employee with an outstanding plan loan left the company sponsoring the plan, he or she would have to repay the loan (or contribute the outstanding balance to an IRA or his or her new employer’s plan) within 60 days to avoid having the loan balance deemed a taxable distribution (and be subject to a 10% early distribution penalty if the employee was under age 59-1/2). Under the TCJA, beginning in 2018, former employees in this situation have until their tax return filing due date — including extensions — to repay the loan (or contribute the outstanding balance to an IRA or qualified retirement plan) and avoid taxes and penalties.
2. Hardship withdrawal limit increase
Beginning in 2019, the Bipartisan Budget Act (BBA) eases restrictions on employee 401(k) hardship withdrawals. Most 401(k) plans permit hardship withdrawals, though plan sponsors aren’t required to allow them. Hardship withdrawals are subject to income tax and the 10% early distribution tax penalty. Currently, hardship withdrawals are limited to the funds employees contributed to the accounts. (Such withdrawals are allowed only if the employee has first taken a loan from the same account.) Under the BBA, the withdrawal limit will also include accumulated employer matching contributions plus earnings on contributions. If an employee has been participating in your 401(k) for several years, this modification could add substantially to the amount of funds available for withdrawal.
Nest egg harm
These changes might sound beneficial to employees, but in the long run they could actually hurt those who take advantage of them. Most Americans aren’t saving enough for retirement, and taking longer to pay back a plan loan (and thus missing out on potential tax-deferred growth during that time) or taking larger hardship withdrawals can result in a smaller, perhaps much smaller, nest egg at retirement. So consider educating your employees on the importance of letting their 401(k) accounts grow undisturbed and the potential negative tax consequences of loans and early withdrawals. Please contact us if you have questions. © 2018
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Press Releases

Alexander Thompson Arnold PLLC Hires Experienced Principal

Alexander Thompson Arnold PLLC (ATA), a certified public accounting firm, is pleased to announce the return of Tommy Legins, CPA, CGMA, MBA to the firm.

Legins is an accomplished financial and tax accountant with more than 28 years of experience serving a variety of business, individual, and agricultural clients. Legins worked with the firm for five years from 2007 to 2012, where he reached the level of Partner. Legins has been working the past six years as the CFO/EVP for Savant Learning Systems, Inc.

“We are delighted to admit Tommy as a Principal of the firm,” says ATA Partner, David Hart.  “Tommy was an integral part of the growth in the Martin office during his tenure.  He will be an important asset to our firm and all the clients he will serve.  We feel hiring Tommy will position our firm for growth and help us to better serve our clients in the West Tennessee community.”

“I’m very proud to return to Alexander Thompson Arnold, PLLC.  I am excited to reconnect with the clients I served for so many years and continue the friendships I formed with them.  I look forward to cultivating new clients and creating new friendships.  I am very thankful ATA has given me this opportunity to return to the business I know and love,” said Legins.

Legins is a member of the American Institute of Certified Public Accountants (AICPA) and the Tennessee Society of Certified Public Accountants (TSCPA).  He received his undergraduate accounting degree from the University of Tennessee at Martin and his MBA degree from Bethel University. Legins is an active member of the Rotary Club of Martin and serves on several non-profit boards.  Tommy and his wife Camille reside in Martin with his son Spencer.

Founded in 1940, ATA is a full-service public accounting firm with over 250 staff, and has 17 office locations in Tennessee, Indiana, Kentucky and Mississippi. ATA is an IPA Top 200 regional accounting firm who provides a wide array of accounting, auditing, tax and consulting services for clients ranging from small family-owned businesses to publicly traded companies, and international corporations.  ATA is also an alliance member of BDO USA LLP, which allows it to utilize the resources and expertise for its clients of a top five global accounting firm. For more information, visit www.ata.net or call 731.587.5145.

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For more information, contact:

Alexis Long, Marketing Director

731-427-8571

along@atacpa.net

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Tax

Deadline is Approaching

An important deadline is coming up fast. The IRS wants to remind taxpayers that the 3rd installment of estimated tax payments is due 9/17/18. This may affect small businesses, self-employed individuals, retirees, investors, and anyone who pays their federal taxes quarterly. The Tax Cuts and Jobs Act of 2017 changed the way tax is calculated for many taxpayers, so it’s important to make sure you’repaying the right amount of taxes, through withholding or estimated tax payments. Here are the details, including a withholding calculator: https://bit.ly/2x6orDr