Meal and entertainment (M&E) expense, a common business expense, has been affected by the new Tax Cuts and Jobs Act (TCJA). Before TCJA, M&E expenses were generally allowed if the taxpayer could establish that the expenses were “directly related to” or “associated with” the active conduct of a trade or business, and were limited to a 50% deduction. 

Under TCJA, for amounts paid or incurred after Dec. 31, expenses generally considered to be for entertainment, amusement or recreation will no longer be deductible. Entertainment expenses that are no longer deductible include, but are not limited to: the cost of tickets to sporting events, stadium license fees, private boxes at sporting events, theater tickets, golf club dues, etc. 

Pre-TCJA a meal expense was not deductible unless (a) the expense is not lavish and extravagant under the circumstances, and (b) the taxpayer (or an employee of the taxpayer) is present at the furnishing of such food or beverages. 

Is a “Business Meal” Deductible under the TCJA?

While the TCJA abolished the “directly related to” or “associated with” language that used to apply to business meals and entertainment (which doesn’t help with clarification), it is the position of the American Institute of Certified Public Accountants (AICPA) that business meals that (1) take place between a business owner or employee and a current or prospective client; (2) are not lavish or extravagant under the circumstances; and (3) where the taxpayer has a reasonable expectation of deriving income or other specific trade or business benefit from the encounter, are not disallowed under Code Sec. 274(k). So it appears that for now, the 50% deduction for meals remains intact.

Employee Meals on Company Premises

Pre-TCJA, expenses for food and beverages (and the facilities serving them) furnished on the business premises of the taxpayer were not subject to the 50% deduction limit if they were excludable from the recipient’s income as a de-minimis fringe benefit where:

  1. Supper (or supper money) is provided occasionally so that the employee can work overtime.
  2. An employer-operated eating facility is located on or near the employer’s business premises, and its revenue normally equals or exceeds its direct operating costs.

Under TCJA, employee meals on company premises are subject to two sets of rules:

  1. Such meals, as described above, are not exempt from the 50% limit on deduction for meals for amounts paid or incurred from 2018-2025.
  2. For amounts paid or incurred after 2025, no deduction will be allowed for: any expense for the operation of an employer-operated eating facility; any expense for food or beverages associated with an employer-operated eating facility; or any expense for meals provided on the employer’s premises.

Other Exempted Expense

A number of expenses were exempt from the 50% deduction phase-out under pre-TCJA law and will continue to be exempt from these restrictions as revised by the TCJA law. 

They are as follows:

  • Recreational, etc., expenses for employees: Christmas party, annual picnic, summer outing, use of swimming pool, baseball diamond, bowling alley, golf course, etc. However, these recreational and social expenses must be made primarily for the benefit of employees other than highly compensated employees.
  • Items made available to the public: expenses for goods, service, and facilities.
  • Entertainment sold to customers
  • Expenses includible in income of persons who are not employees: For example, independent contractors or a director who is not an employee, who receives a benefit for entertainment. It covers expenses for goods, services, or facilities provided to a person who isn’t employed by the taxpayer, but is nevertheless taxed on the value of the entertainment, amusement or recreation as compensation for services.

Two other categories of expenses that are not exempt from the 50% deduction limit are as follows:

  1. Employee, stockholder, etc., business meetings: Expenses incurred by a taxpayer which are directly related to business meetings of his or her employees, stockholders, agents, or directors. Those expenses for meetings that are primarily social or nonbusiness purposes would not be exempt from the 50% rule and would be nondeductible.
  2. Meetings of business leagues, etc.: This exemption covers expenses for entertainment directly related to and necessary to attendance at business meetings or conventions of any organizations such as business leagues, chambers of commerce, real estate boards and boards of trade during the actual meeting.

If you have any specific questions on this topic, or would like to discuss any other issues, please contact us at Bowman & Company, LLP (209) 473-1040.

On December 22, 2017, President Trump signed into law the “Tax Cuts and Jobs Act” bringing about numerous changes to the current tax law. The Act dramatically changes many tax provisions for individual and business taxpayers, including reducing tax rates, reducing or eliminating some deductions, while increasing or adding others, and changes to various credits and the alternative minimum tax (AMT). The following is a recap of some of those changes.

Individuals – most changes take effect beginning January 1, 2018

  • The tax brackets have been compressed and the top rate is set at 37%, down from 39.6%.

  • Personal exemptions are eliminated.
  • The standard deduction is increased to $24,000 for MFJ taxpayers, $18,000 for HOH and $12,000 for all others.
  • Itemized Deductions have been simplified (i.e. some are limited or outright eliminated).

Simplification of Deductions

2018
SALT Deduction $10,000 maximum deduction for income taxes, property taxes, sales taxes, and DMV fees.
Mortgage Interest Deduction Limited to interest on up to $750,000 for new acquisition indebtedness; Repeals deduction for home equity indebtedness not used to improve your home.
Charitable Contributions Percentage Limit increased from 50% to 60% (for cash).
Personal Casualty Losses Repealed, except for declared disasters.
Medical Expenses Expanded for two years by setting the deduction threshold to 7.5% of AGI for all taxpayers.
Job Expenses & Miscellaneous
Deductions
Miscellaneous itemized deductions repealed, including employee business expenses, union dues, tax preparation fees, investment advisory fees.
Alimony Paid Repealed for any divorce or separate instrument executed after 12/31/18.
Moving Expenses Repealed.
  • The Child Care Credit has been expanded.
  • The AMT exemption increased from $86,200 to $109,400 for MFJ taxpayers, but is subject to phase-out at higher income levels.
  • The Obamacare “shared responsibility payment” is eliminated for taxpayers who do not have health insurance after 2017.
  • For divorce agreements finalized after December 31, 2018, alimony is no longer deductible by the payer or taxable to the recipient.
  • Section 529 Educational Plans may be used for elementary and high school qualifying expenses, including those for homeschool up to $10,000 per year.

Estate and gift taxes

  • The estate and gift tax exclusion is doubled from the original $5,000,000 to $10,000,000, indexed for inflation.

  • The annual gift tax exclusion is raised to $15,000 beginning in 2018. The maximum gift tax rate is 35%.

Other items

  • The Act expands the list of assets not eligible to receive capital gain treatment. These include patents, inventions, models or designs and secret formulas or processes which are held by the taxpayer who created the property.
  • There is a new deduction for non-corporate taxpayers for qualified business income (QBI) related to the “business pass-though deduction”.

Business Pass-Through Deduction

  • Deduction equal to 20% of domestic “qualified business income” (QBI) from a pass-through entity.
  • Basically, provides an effective top marginal rate of 29.6%.
  • Applies to trusts & estates.

  • For those with taxable income in excess of $415,000 (MFJ) the deduction is limited to the greater of:
    • 50% of W-2 Wages.
    • 25% of W-2 Wages plus 2.5% of unadjusted cost basis of assets.
  • Unavailable to Specified Service Business owner’s taxable income in excess of $415,000 (MFJ).
  • Limitations phased-in from $315,000 – $415,000 (MFJ) of taxable income.
  • Specified Service Business – defined in §1202(e)(3)(A):

“any trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees.”

  • The final version includes new statutory language to exclude architects and engineers from the §199A Specified Service Business definition.
  • Farmers receiving income from cooperative can get a deduction of 20% of the total income received from the cooperative, limited in some situations.
  • “Carried interests” (certain partnership interests acquired for service) must now be held for three years to receive long-term capital gain treatment.

 

If you have any specific questions about these provisions of the Act, or any other questions, please contact us at Bowman & Company, LLP (209) 473-1040.

On December 22, 2017, President Trump signed into law the “Tax Cuts and Jobs Act” bringing about numerous changes to the current tax law. The Act dramatically changes many tax provisions for individual and business taxpayers, including reducing tax rates, reducing or eliminating some deductions, while increasing or adding others, and changes to various credits and the alternative minimum tax (AMT). The following is a recap of some of those changes.

Business – most changes take effect beginning January 1, 2018

    • Beginning in 2018 the corporate tax rate for C-corporations is a flat 21% rate, down from an effective top rate of 35%.
    • The ‘dividends-received-deduction’ for dividends from another corporation is reduced to 50% (from 70%) and 65% (from 80%) when the receiving corporation owns at least 20% of the paying corporation.
    • The corporation alternative minimum tax is repealed.
    • There is a new deduction for non-corporate taxpayers for qualified business income (QBI). Known as the “pass-through deduction”, the deduction is generally 20% of QBI, but there are thresholds that may limit the 20% deduction, as well as additional calculations to arrive at QBI.
    • Farmers receiving income from a cooperative can get a deduction of 20% of the total income received from the cooperative, limited in some situations.
    • The Section 179 deduction for purchased business assets is increased from $500,000 to $1,000,000 (and the threshold for phase out is increased to $2,500,000). Property eligible for this deduction is expanded to include certain rental property previously excluded from eligibility for deduction under Section 179, as well as certain additions to existing commercial properties.
    • 100% bonus depreciation is allowed for qualifying business assets purchased after Sep. 27, 2017. Qualifying assets are expanded to include used property. The 100% deduction is scheduled to phase out over a four year period beginning in 2023. Taxpayers can elect to use 50% as a deduction in lieu of the 100% deduction.
    • Annual depreciation deduction limits for so-called “luxury” automobiles have been increased.
    • For most new farm equipment, the depreciation life has been shortened from 7 years to 5 years, and calculated using the 200% declining balance method as opposed to the previous 150% declining balance method.
    • For property placed in service after Dec. 31, 2017, the separate definitions of qualified leasehold improvement, qualified restaurant, and qualified retail improvement property are eliminated. A general 15-year recovery period and straight-line depreciation method are provided for qualified improvement property, and a 20-year ADS recovery period is provided for such property. Thus, qualified improvement property placed in service after Dec. 31, 2017, is generally depreciable over 15 years using the straight-line method and half-year convention, without regard to whether the improvements are property subject to a lease, placed in service more than three years after the date the building was first placed in service, or made to a restaurant building.
    • There is a new limitation on the deduction of business interest expense.

Business Interest Deduction

  • Businesses with average gross receipts that do not exceed $25,000,000 are exempt (test on a affiliated basis).
  • The proposal would disallow interest expense in excess of 30% of a business’s “adjusted taxable income”.
  • “Adjusted taxable income” is computed without regard to deductions allowable for depreciation, amortization, or depletion.
  • Any interest disallowed would be carried forward indefinitely.
  • Determined at the tax-filer level (e.g. the partnership not the partners would be subject to testing), but it is determined at the consolidated return level for affiliated corporations.
  • At the taxpayer’s election, certain real property and construction businesses and farms are exempt (but must use ADS).
  • The cash basis of accounting is expanded for taxpayers with gross receipts under $25,000,000 that were previously excluded from utilizing the cash method of accounting due to having inventories as a significant part of their business.
  • Generally, non-farm net operating losses will only be carried forward and can be applied to reduce only 80% of the current year taxable income. Farm NOLs can be carried back 2 years.
  • The domestic production activities deduction is repealed.
  • Like-kind (Section 1031) exchanges will only apply to real property.
  • Deductions for entertainment expenses are disallowed, but 50% of business meals expense is retained.
  • The law adds that no deduction is allowed for any settlement, payout, or attorney fees related to a sexual harassment or sexual abuse matter that is subject to a nondisclosure agreement.
  • A new tax credit is created for an employer’s payment of family and medical leave.
  • “Carried interests” (certain partnership interests acquired for services) must now be held for three years to receive long-term capital gain treatment.
  • The application of the uniform capitalization rules has been eliminated for producers and resellers that have less than $25,000,000 in gross receipts.

 

If you have any specific questions about these provisions of the Act, or any other questions, please contact us at Bowman & Company, LLP (209) 473-1040.

The Bowman & Company tradition of Fun Friday 2017 was celebrated on April 7.  The theme for this year’s festivities, a child’s birthday party, was inspired by the recent birth of Cedric to  Shin (Sr. Accountant)  and Jerry Liu. The games had to be moved inside due to weather, but enthusiasm for the yearly event was definitely not dampened by the weather.

The first activity was creating a birthday card for Cedric. Staff taped, stickered and colored in order to produce the most creative card in the through the first activity.0I7A0118

Next up were the competitions: a classic game of Pin the Tail on the Donkey and a yo-yo contest.  A cadre of judges made sure blindfolds were on and that contestants were appropriately spun around (translate completely dizzy) before pointing them toward the donkey.  Should you ever need an accountant with yo-yo skills, you can be assured Bowman has them!

Dan Phelps shows us all how to pin the tail on the donkey.

What would a party be without entertainment? Bowman spared no expense to supply employees to deliver jokes, play air guitar and a put on a dancing exhibition.  Team Blue had some awesome dance moves!

Team Blue had some awesome dance moves!

While the judges debated scores for each team, a lunch from Chick-fil-A was enjoyed by all. When the points were tallied (and all the penalty points deducted) the “official” winner was declared to be the Team Yellow, consisting of Yoni, Colleen, Dan, Susan and Nick.

Team Yellow were declared the "winners" of Fun Friday 2017.

This 13th year of competition brought a well-deserved and much appreciated break to the staff who are all back in their offices focusing on getting to this year’s tax deadline. Pretty sure we heard “wait til next year!” as everyone headed back to work after a very Fun Friday!

Selfie time!

We  were privileged to celebrate Pam Pichi’s 14,600 days of employment (40 years) at Bowman & Company last Friday night. Pam refers to Bowman as her “forever work home”, and we’re truly thankful it has been!  The partners and staff shared stories and examples of what makes Pam the invaluable lynch pin at Bowman.  The pics of the younger staff raising their hands were those who weren’t even born when Pam began working at Bowman – about half the room of 50+ employees.

Thank you Pam for not only all you do (and have done), but for the kindness and professionalism you exhibit in everything you do. This firm is made better by your presence!

In an effort to assist individual taxpayers in getting timely information to help them prepare their tax returns, Congress has enactdreamstime_xs_29543309ed legislation which accelerates the due dates of certain tax forms.  Starting this year, businesses which file Form 1099-MISC to report nonemployee compensation will need to send those 1099s to both the recipients AND the IRS by January 31, 2017.  Late filers could face penalties ranging from $50 to $530 per 1099.

In another significant change, partnerships which formerly were required to file tax returns by April 15 have had their filing due date moved up to March 15.  The change is intended to allow partners a full month to have their K-1s to file their individual tax returns by April 15.

Bowman is prepared to help our business clients meet these accelerated due dates!  Our client service teams are working hard to ensure that all of our clients meet their obligations without filing extensions except when absolutely necessary.   If you need help in meeting your filing obligations, please contact us for assistance.

For businesses or investors that acquire, construct, or substantially improve depreciable real estate, cost segregation studies can provide significant financial benefits. These studies apply engineering and cost accounting principles to identify costs that can be reallocated to asset classes with shorter depreciable lives. A cost segregation study can also enhance the benefits of bonus depreciation and Sec. 179 expensing.

Generally, commercial buildings are depreciable over 39 years, while residential rental buildings are depreciable over 27.5 years. A cost segregation study identifies building components — such as equipment, machinery, fixtures, and land improvements — that dreamstime_xs_42247694are eligible for accelerated depreciation, typically over five, seven, or 15 years. The result:

  • Accelerated depreciation deductions,
  • An immediate reduction in tax liability, and
  • Improved cash flow.

Keep in mind that a cost segregation study doesn’t increase your depreciation deductions, it merely accelerates them. After year two, your deduction amounts will gradually decline and eventually drop below the straight-line depreciation level. But the tax and cash-flow benefits of accelerated depreciation in the early years can be substantial.

An Added Bonus

In addition to accelerating depreciation, a cost segregation study can enhance the benefits of bonus depreciation or Sec. 179 expensing. Bonus depreciation allows you to immediately deduct 50 percent of the cost of qualifying assets, including certain depreciable assets with a recovery period of 20 years or less and certain leasehold and other improvements to nonresidential buildings. Sec. 179 of the tax code allows you to immediately deduct the entire cost of qualifying equipment or other fixed assets up to specified thresholds.

By identifying property that qualifies for these tax breaks, a cost segregation study can boost your deductions and generate substantial present value tax savings. Note that bonus depreciation is scheduled to be phased out, beginning in 2018.

Is It Right for You?

It doesn’t pay to conduct a cost segregation study if you pay little or no income tax or if you plan to sell the building within the next five years or so. But in most other situations, the benefits of a study should far outweigh its costs.

Even if you acquired, constructed, or substantially improved a building in a previous year, it still may be possible to reap the benefits of a cost segregation study. Using a “look-back” study, you can claim missed depreciation from previous years by filing Form 3115 — Application for Change in Accounting Method — and taking a one-time “catch-up” deduction on your tax return for this year.

Join with us, clean out a closet and help keep someone warm this winter! We are collecting new and gently-used coats for those who are in need during this chilly season of the year. We have high expectations and hope you’ll help us meet our goal of filling (at least) this donation box; as you can see, the donation box isn’t even close to filled so we have plenty of room to add YOUR donation.

The coat drive is being done in cooperation with Quick’s Glass Service and Stockton Auto Glass in Stockton. Coats can be dropped by our office at 10100 Trinity Parkway, Suite 310 before December 16.  If you have a large donation and need help getting it brought in, give us a call at 473-1040 so we can help.

All coats will be donated through St. Mary’s Dining Room.coat-drive

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One of the hallmarks of Bowman & Company is its’ participation and leadership in the Central Valley. That’s why receiving the Community Foundation of San Joaquin’s Community Partner Award was such an honor.

The award, given at an annual dinner hosted by the Community Foundation of San Joaquin (CFOSJ), recognized both the firm’s work in accounting, auditing and consulting services as well as our philanthropic participation in the community.

Specifically named in the resolution was the firm’s sponsorship of, and participation in, the Community Philanthropy Summit, an annual event to provide leadership, promote a culture of giving and creating resources that address the needs of our community.  Daryl Petrick, CPA and Partner, was recognized for his contributions as a member of the Summit Steering Committee.

Congratulations to the Bowman & Company team on receiving this award!

 

 

top 100 2011   2016_Best-of-the-Best_WEB

The newsletter of the accounting profession, INSIDE Public Accounting (IPA), has announced that a Stockton CPA firm, Bowman & Company, LLP, has received two national designations. They have been recognized as one of 2016 Best of the Best Accounting Firms, and ranked amongst the nation’s 300 largest accounting firms.

“Bowman & Company is honored to be listed among the nation’s best accounting firms,” said Daryl Petrick, partner.  “We have worked hard to develop a talented team of professionals who are responsive to the needs of our clients.  When you’re working with clients who are as accomplished as ours, we think it’s important to build an organization of great people who are as loyal and talented as they are professional.”

The Best of the Best recognition honors 50 CPA firms across the country for their overall superior financial and operational performance on more than 70 criteria.  The right combination of planning, strategy and execution distinguish the Best of the Best firms from amongst more than 540 firms. IPA consider a wide variety of metrics to evaluate who is a Best of the Best firm.  Bowman has achieved this distinction in both 2015 and 2016.

Bowman is also ranked in the nation’s 300 largest accounting firms again in 2016.  The IPA 300 is well known as one of the most thorough, complete and accurate sets of rankings and trends in the profession.  The rankings and accompanying analysis create a comprehensive picture of the state of the accounting profession today.

Bowman & Company has been serving a diverse group of clients over its long history, which began in 1949.  The firm has seven partners and employs 35 accountants and support staff.  Acknowledged as experts in a number of fields, many of their clients have long histories with the firm.  They work with family-owned businesses, high net worth individuals, agricultural interests, wineries, vineyard owners, real estate owners, affordable housing developers, construction contractors, nonprofit organizations and employee benefit plans.