Many businesses struggle to turn abstract strategic-planning ideas into concrete, actionable plans. One reason why is simple: ineffective meetings. The ideas are there, lurking in the minds of management and key employees, but the process for hashing them out just doesn’t work. Here are a few ways to run your strategic-planning meetings like they really matter — which, of course, they do.

Build buy-in

Meetings often fail because attendees feel more like spectators than participants. They are less likely to zone out if they have some say in the direction and content of the gathering. So, before the session, touch base with those involved and establish a clear agenda of the strategic-planning initiatives you’ll be discussing.

Another common problem with meetings occurs when someone leads the meeting, but no one owns it. As the meeting leader, be sure to speak with conviction and express positivity (if not passion) for the subject matter. (If others are delivering presentations during the proceedings, encourage them to do the same.)

Fight fatigue

To the extent possible, keep meetings short. Cover what needs to be covered, but ensure you’re concentrating only on what’s important. Go in armed with easy-to-follow notes so you’ll stay on track and won’t forget anything. The latter point is particularly important, because overlooked subjects often lead to hasty follow-up meetings that can frustrate employees.

In addition, if the contingent of attendees is large enough, consider having employees break out into smaller groups to focus on specific points. Then call the meeting back to order to discuss each group’s ideas. By mixing it up in such creative ways, you’ll keep employees more engaged.

Tell a story

There’s so much to distract employees in a meeting. If it’s held in the morning, the busy day ahead may preoccupy their thoughts. If it’s an afternoon meeting, they might grow anxious about their commutes home. If the meeting is a Web conference, there are a variety of distractions that may affect them. And there’s no getting around the ease with which participants can sneak peeks at their smartphones (or smart watches) to check emails, texts and the Internet.

How do you break through? People appreciate storytellers. So, think about how you can use this technique to find a more relaxed and engaging way to speak to everyone in the room. Devise a narrative that will grab attendees’ attention and keep them in suspense for a little bit. Then deliver a conclusion that will inspire them to work toward identifying fully realized, feasible strategic goals.

Make ’em great

Grumbling about meetings can be as much a part of working life as burnt coffee in the bottom of the breakroom pot. But don’t let this occasional negativity sway you from doing the critical strategic planning that every business needs to do. Your meetings can be great ones. We can’t help you run them, but we can assist you in assessing the financial feasibility and ramifications of your strategic plans.

© 2019

Fall is in the air and that means it’s time to turn your attention to year-end tax planning. While several clear strategies and tactics emerged during the first tax filing season under the Tax Cuts and Jobs Act (TCJA), 2019 and subsequent years bring potential twists that must be considered, too. Let’s take a closer look at year-end tax planning strategies that can reduce your 2019 income tax liability.

Deferring income and accelerating expenses

Deferring income into the next tax year and accelerating expenses into the current tax year is a time-tested technique for taxpayers who don’t expect to be in a higher tax bracket the following year. Independent contractors and other self-employed individuals can, for example, hold off on sending invoices until late December to push the associated income into 2020. And all taxpayers, regardless of employment status, can defer income by taking capital gains after January 1. Be careful, though, because by waiting to sell you also risk the possibility that your investment might become less valuable.

Bear in mind, also, that there may be other reasons that taking the income this year can be more beneficial. For starters, future tax rates can go up. It’s possible that income tax rates might increase substantially by 2021, especially for those with higher incomes, depending on 2020 election results. In any event, in 2026, the higher tax rates that were in place for 2017 are scheduled to return.

Moreover, taxpayers who qualify for the qualified business income (QBI) deduction for pass-through entities (that is, sole proprietors, partnerships, limited liability companies and S corporations) could end up reducing the size of that deduction if they reduce their income. It might make more sense to maximize the QBI deduction — which is scheduled to end after 2025 — while it’s available.

Timing itemized deductions

The TCJA substantially boosted the standard deduction. For 2019, it’s $24,400 for married couples and $12,200 for single filers. With many of the previously popular itemized deductions eliminated or limited, some taxpayers can find it challenging to claim more in itemized deductions than the standard deduction. Timing, or “bunching,” those deductions may make it easier.

Bunching basically means delaying or accelerating deductions into a tax year to exceed the standard deduction and claim itemized deductions. You could, for example, bunch your charitable contributions if it means you can get a tax break for one tax year. If you normally make your donations at the end of the year, you can bunch donations in alternative years — say, donate in January and December of 2020 and January and December of 2022.

If you have a donor-advised fund (DAF), you can make multiple contributions to it in a single year, accelerating the deduction. You then decide when the funds are distributed to the charity. If, for instance, your objective is to give annually in equal increments, doing so will allow your chosen charities to receive a reliable stream of yearly donations (something that’s critical to their financial stability), and you can deduct the total amount in a single tax year.

If you donate appreciated assets that you’ve held for more than one year to a DAF or a nonprofit, you’ll avoid long-term capital gains taxes that you’d have to pay if you sold the property and (subject to certain restrictions) also obtain a deduction for the assets’ fair market value. This tactic pays off even more if you’re subject to the 3.8% net investment income tax or the top long-term capital gains tax rate (20% for 2019).

What if you’re looking to divest yourself of assets on which you have a loss? Rather than donate the asset, the better move from a tax perspective is more likely going to be to sell it to take advantage of the loss and then donate the proceeds.

Timing also comes into play with medical expenses. The TCJA lowered the threshold for deducting unreimbursed medical expenses to 7.5% of adjusted gross income (AGI) for 2017 and 2018, but it bounces back to 10% of AGI for 2019. Bunching qualified medical expenses into one year could make you eligible for the deduction.

You also could bunch property tax payments (assuming local law permits you to pay in advance). This approach might, however, bring your total state and local tax deduction over the $10,000 limit, which means that you’d effectively forfeit the deduction on the excess.

As with income deferral and expense acceleration, you need to consider your tax bracket status when timing deductions. Itemized deductions are worth more when you’re in a higher tax bracket. If you expect to land in a higher bracket in 2020, you’ll save more by timing your deductions for that year.

Loss harvesting against capital gains

2019 has been a turbulent year for some investments. Thus, your portfolio may be ripe for loss harvesting — that is, selling underperforming investments before year end to realize losses you can use to offset taxable gains you also realized this year, on a dollar-for-dollar basis. If your losses exceed your gains, you generally can apply up to $3,000 of the excess to offset ordinary income. Any unused losses, however, may be carried forward indefinitely throughout your lifetime, providing the opportunity for you to use the losses in a subsequent year.

Maximizing your retirement contributions

As always, individual taxpayers should consider making their maximum allowable contributions for the year to their IRAs, 401(k) plans, deferred annuities and other tax-advantaged retirement accounts. For 2019, you can contribute up to $19,000 to 401(k)s and $6,000 for IRAs. Those age 50 or older are eligible to make an additional catch-up contribution of $1,000 to an IRA and, so long as the plan allows, $6,000 for 401(k)s and other employer-sponsored plans.

Accounting for 2019 TCJA changes

Most — but not all — provisions of the TCJA took effect in 2018. The repeal of the individual mandate penalty for those without qualified health insurance, for example, isn’t effective until this year. In addition, the TCJA eliminates the deduction for alimony payments for couples divorced in 2019 or later, and alimony recipients are no longer required to include the payments in their taxable income.

Act now

The future of tax planning is uncertain — even without dramatic change in Washington, D.C., many of the most significant TCJA provisions are set to expire within six years. Contact us for help with your year-end tax planning.

© 2019

The U.S. Department of Labor (DOL) has released the finalized rule on overtime exemptions for white-collar workers under the Fair Labor Standards Act. The rule updates the standard salary levels for the first time since 2004. While it is expected to expand the pool of nonexempt workers by more than 1 million, it’s also more favorable to employers than a rule proposed by the Obama administration in 2016. That rule would have expanded the pool by more than 4 million but was blocked by a federal district court judge.

The new rule is scheduled to take effect on January 1, 2020. Affected employers need to take prompt action to reduce the impact to their bottom lines.

The current rule

Under the existing regulations regarding overtime exemptions for executive, administrative and professional employees, an employer generally can’t classify an employee as exempt from overtime obligations unless the employee satisfies three tests:

1. Salary basis test. The employee is paid a predetermined and fixed salary that isn’t subject to reduction because of variations in the quality or quantity of the work performed.
2. Salary level test. The employee is paid at least $455 per week or $23,660 annually.
3. Duties test. The employee primarily performs executive, administrative or professional duties.

Be aware that job title or salary alone doesn’t support an exemption — the employee’s specific job duties and earnings also must meet applicable requirements.

The specifics of the duties test vary depending on the exemption. For the executive exemption, for example, the employee’s primary duties must be managing the organization or a department. He or she also must customarily direct the work of at least two employees, with some say in the hiring or firing of workers.

An exempt administrative employee must primarily perform office work that’s directly related to the management or general business operations of the employer or its customers. He or she also must exercise discretion and independent judgment on significant matters. The professional exemption generally can apply only if the employee’s main duty is work that requires advanced knowledge in a field that’s generally acquired by prolonged and specialized instruction and study.

Neither the salary basis nor the salary level test applies to certain employees (for example, doctors, teachers and lawyers). And the current rules provide a more relaxed duties test for certain highly compensated employees (HCEs) who are paid total annual compensation of at least $100,000 (including commissions, nondiscretionary bonuses and other nondiscretionary compensation) and at least $455 salary per week. They need only regularly perform one of the primary duties required for the executive, administrative or professional exemption.

The new rule

The DOL’s final rule changes the salary level test, but not the salary basis or duties tests. It raises the standard salary level test threshold to $684 per week or $35,568 per year (compared with $913 and $47,476 under the 2016 rule). Thus, if an employee’s salary exceeds this level, the employee will be ineligible for overtime if he or she primarily performs executive, administrative or professional duties. If his or her salary falls below it, the employee is nonexempt, regardless of duties.

Employers can use nondiscretionary bonuses and incentive payments (including commissions) that are paid annually or more frequently to satisfy up to 10% of the standard salary level test. If an employee doesn’t earn enough in such bonuses or payments in a given year to remain exempt, the employer can make a catch-up payment within one pay period of the end of the year. The payment will count only toward the prior year’s salary amount, though.

The rule increases the total annual compensation requirement for HCEs to $107,432, which is less than the Obama rule’s $134,004 threshold but could still prove difficult for small businesses to satisfy. HCEs also must make at least $684 per week on a salary or fee basis. In contrast to the proposed rule, the final rule sets the total annual compensation threshold at the 80th percentile of weekly earnings of full-time salaried employees nationally. (The proposed rule set it at the 90th percentile.) The final rule also uses three years of pooled data to estimate the HCE compensation level, rather than the proposed rule’s one year.

Like the proposed rule, the final rule drops the 2016 rule’s automatic adjustments to the salary thresholds every three years. But the DOL also opted against the proposal to consider updates every four years. Instead, the final rule simply indicates the department’s intent to update the earnings thresholds “more regularly in the future,” following the notice-and-comment rulemaking process.

Preparation tips

At this point, employers may feel like they’re stuck in the movie “Groundhog Day,” repeatedly preparing for impending changes to the overtime rules. And it’s likely that the latest round of changes also will face court challenges. Nonetheless, employers should begin taking measures to achieve compliance — and minimize the hit to their finances — when the final rule takes effect. You may have a leg up if you’ve already gone through this process, but you shouldn’t rely on your past findings, as circumstances may have shifted.

To begin with, check your employees’ salary levels against the new thresholds. It may be advisable to give raises to employees who fall just under a threshold and routinely work more than 40 hours per week. Or you might want to redistribute workloads or scheduled hours to prevent newly nonexempt employees from working overtime.

This also is a good time to review your employees’ job duties against the tests for the various exemptions. You should check duties on a regular basis, as this is a ripe area of litigation for employees who contend that they deserve overtime despite their job titles. Courts and the DOL agree that actual duties, not job title or even job description, are what matters.

If you’ll be reclassifying currently exempt workers as nonexempt, you must establish procedures for accurately tracking their time to ensure proper overtime compensation is paid. Reclassified employees may require some training on timekeeping procedures. They also might need some reassurance that they’re not being demoted.

Plan accordingly

Some employers may find that the new overtime rule substantially increases their compensation costs, including their payroll tax liability. We can help ensure that your company is in compliance with the new rule, as well as all payroll tax obligations.

© 2019

Earlier this year, the IRS published a proposed safe harbor giving owners of certain rental real estate interests the opportunity to take advantage of the qualified business income (QBI) deduction. The QBI write-off was created by the Tax Cuts and Jobs Act (TCJA) for pass-through entities. The IRS has now released final guidance (Revenue Procedure 2019-38) on the safe harbor that clearly lays out the requirements that taxpayers must satisfy to benefit.

QBI in a nutshell

The TCJA added Section 199A to the Internal Revenue Code. It generally allows partnerships, limited liability companies (LLCs), S corporations and sole proprietorships to deduct as much as 20% of QBI received. QBI equals the net amount of income, gains, deductions and losses — excluding reasonable compensation, certain investment items and payments to partners for services rendered. The deduction is subject to several significant limitations.

Many taxpayers involved in rental real estate activities were uncertain whether they would qualify for the deduction, which prompted the proposed safe harbor. The final guidance leaves no doubt that individuals and entities that own rental real estate directly or through disregarded entities (entities that aren’t considered separate from their owners for income tax purposes, such as single-member LLCs) may be eligible.

Covered interests

The safe harbor applies to qualified “rental real estate enterprises.” For purposes of the safe harbor only, the term refers to a directly held interest in real property held for the production of rents. It may consist of an interest in a single property or multiple properties.

You can treat each interest in a similar property type as a separate rental real estate enterprise or treat interests in all similar properties as a single enterprise. Properties are “similar” if they’re part of the same rental real estate category (that is, residential or commercial). In other words, you can only hold commercial real estate in the same enterprise with other commercial real estate. The same applies for residential properties.

Bear in mind that, if you opt to treat interests in similar properties as a single enterprise, you must continue to treat interests in all properties of that category — including newly acquired properties — as a single enterprise as long as you use the safe harbor. If, however, you choose to treat your interests in each property as a separate enterprise, you can later decide to treat your interests in all similar commercial or all similar residential properties as a single enterprise.

Notably, the guidance provides that an interest in mixed-use property may be treated as a single rental real estate enterprise or bifurcated into separate residential and commercial interests.

Safe harbor requirements

The final guidance clarifies the requirements you must fulfill during the tax year in which you wish to claim the safe harbor. Requirements include:

Keeping separate books and records. You must maintain separate books and records reflecting income and expenses for each rental real estate enterprise. If the enterprise includes multiple properties, you can meet this requirement by keeping separate income and expense information statements for each property and consolidating them.

Performing rental services. For enterprises in existence less than four years, at least 250 hours of rental services must be performed each year. For those in existence at least four years, the safe harbor requires at least 250 hours of rental services per year in any three of the five consecutive tax years that end with the tax year of the safe harbor.

The rental services may be performed by owners or by employees, agents or contractors of the owners. Rental services include:

• Advertising to rent or lease the property,
• Negotiating and executing leases,
• Verifying tenant application information,
• Collecting rent,
• Performing daily operation, maintenance and repair of the property, including the purchase of materials and supplies,
• Managing the property, and
• Supervising employees and independent contractors.

Financial or investment management activities, studying or reviewing financial statements or reports, improving property, and traveling to and from the property don’t qualify as rental services.

Maintaining contemporaneous records. For all rental services performed, you must keep contemporaneous records that describe the service, associated hours, dates and the individuals who performed the service. If services are performed by employees or contractors, you can provide a description of them, the amount of time employees or contractors generally spent performing those services, and time, wage or payment records for the individuals.

This requirement doesn’t apply to tax years beginning before January 1, 2020. The IRS cautions, though, that taxpayers still must establish their right to any claimed deductions in all tax years, so be prepared to document your QBI deduction.

Providing a tax return statement. You must attach a statement to your original tax return (or, for the 2018 tax year only, on an amended return) for each year you rely on the safe harbor. If you have multiple rental real estate enterprises, you can submit a single statement listing the requisite information separately for each.

Excluded real estate arrangements

The safe harbor isn’t available for all rental real estate arrangements. The guidance excludes:

• Real estate used as a residence by the taxpayer (including an owner or beneficiary of a pass-through entity),
• Real estate rented or leased under a triple net lease that requires the tenant or lessee to pay taxes, fees, insurance and maintenance expenses, in addition to rent and utilities,
• Real estate rented to a commonly controlled business, or
• The entire rental real estate interest if any part of it is treated as a specified service trade or business (SSTB) for purposes of the QBI deduction. (SSTBs with taxable income above a threshold amount don’t qualify for the deduction.)

The guidance states that taxpayers that don’t qualify for the safe harbor may still be able to establish that an interest in rental real estate is a business for purposes of the deduction.

Next steps

The final safe harbor rules apply to tax years ending after December 31, 2017, and you have the option of instead relying on the earlier proposed safe harbor for the 2018 tax year. Plus, you must determine annually whether to use the safe harbor. We can help you determine whether you’re eligible for this and other valuable tax breaks.

© 2019