Those who run family-owned businesses often underestimate the need for a succession plan. After all, they say, we’re a family business — there will always be a family member here to keep the company going and no one will stand in the way.

Not necessarily. In one all-too-common scenario, two of the owner’s children inherit the business and, while one wants to keep the business in the family, the other is eager to sell. Such conflicts can erupt into open combat between heirs and even destroy the company. So, it’s important for you, as a family business owner, to create a formal succession plan — and to communicate it well before it’s needed.

Talk it out

A good succession plan addresses the death, incapacity or retirement of an owner. It answers questions now about future ownership and any potential sale so that successors don’t have to scramble during what can be an emotionally traumatic time.

The key to making any plan work is to clearly communicate it with all stakeholders. Allow your children to voice their intentions. If there’s an obvious difference between siblings, resolving that conflict needs to be central to your succession plan.

Balancing interests

Perhaps the simplest option, if you have sufficient assets outside your business, is to leave your business only to those heirs who want to be actively involved in running it. You can leave assets such as investment securities, real estate or insurance policies to your other heirs.

Another option is for the heirs who’d like to run the business to buy out the other heirs. But they’ll need capital to do that. You might buy an insurance policy with proceeds that will be paid to the successor on your death. Or, as you near retirement, it may be possible to arrange buyout financing with your company’s current lenders.

If those solutions aren’t viable, hammer out a temporary compromise between your heirs. In a scenario where they are split about selling, the heirs who want to sell might compromise by agreeing to hold off for a specified period. That would give the other heirs time to amass capital to buy their relatives out or find a new co-owner, such as a private equity investor.

Family comes first

For a family-owned business, family should indeed come first. To ensure that your children or other relatives won’t squabble over the company after your death, make a succession plan that will accommodate all your heirs’ wishes. We can provide assistance, including helping you divide your assets fairly and anticipating the applicable income tax and estate tax issues.

© 2018

Working from home has its perks. Not only can you skip the commute, but you also might be eligible to deduct home office expenses on your tax return. Deductions for these expenses can save you a bundle, if you meet the tax law qualifications.

Under the Tax Cuts and Jobs Act, employees can no longer claim the home office deduction. If, however, you run a business from your home or are otherwise self-employed and use part of your home for business purposes, the home office deduction may still be available to you.

If you’re a homeowner and use part of your home for business purposes, you may be entitled to deduct a portion of actual expenses such as mortgage, property taxes, utilities, repairs and insurance, as well as depreciation. Or you might be able to claim the simplified home office deduction of $5 per square foot, up to 300 square feet ($1,500).

Requirements to qualify

To qualify for home office deductions, part of your home must be used “regularly and exclusively” as your principal place of business. This is defined as follows:

1. Regular use. You use a specific area of your home for business on a regular basis. Incidental or occasional business use isn’t considered regular use.

2. Exclusive use. You use a specific area of your home only for business. It’s not required that the space be physically partitioned off. But you don’t meet the requirements if the area is used for both business and personal purposes, such as a home office that you also use as a guest bedroom.

Your home office will qualify as your principal place of business if you 1) use the space exclusively and regularly for administrative or management activities of your business, and 2) don’t have another fixed location where you conduct substantial administrative or management activities.

Examples of activities that meet this requirement include:

• Billing customers, clients or patients,
• Keeping books and records,
• Ordering supplies,
• Setting up appointments, and
• Forwarding orders or writing reports.

Other ways to qualify

If your home isn’t your principal place of business, you may still be able to deduct home office expenses if you physically meet with patients, clients or customers on the premises. The use of your home must be substantial and integral to the business conducted.

Alternatively, you may be able to claim the home office deduction if you have a storage area in your home — or in a separate free-standing structure (such as a studio, workshop, garage or barn) — that’s used exclusively and regularly for your business.

An audit target

Be aware that claiming expenses on your tax return for a home office has long been a red flag for an IRS audit, since many people don’t qualify. But don’t be afraid to take a home office deduction if you’re entitled to it. You just need to pay close attention to the rules to ensure that you’re eligible — and make sure that your recordkeeping is complete.

The home office deduction can provide a valuable tax-saving opportunity for business owners and other self-employed taxpayers who work from home. Keep in mind that, when you sell your house, there can be tax implications if you’ve claimed a home office. Contact us if you have questions or aren’t sure how to proceed in your situation.

© 2019

Does your business market its products or services to other companies? Or might it start doing so in the future? If so, it’s critical to recognize the key differences between marketing to the public — or even certain segments of the public — and business-to-business (B2B) marketing.

Whereas wide-scale marketing campaigns generally need to be simple, concise and catchy, effective B2B campaigns are typically more detailed, complex and substantive. Here are three critical points to keep in mind:

1. Solve their problems. You’re not selling a product or service; you’re selling a solution. For example, a company selling aspirin is offering to solve the problem of anyone with a headache. But in B2B marketing, you want to show how your product or service can help a company cure the cause of that headache, not just the symptom.

Think of it from your own perspective. When other companies try to sell to you, you’re not going to pay for anything without an acceptable return on investment. Tell the businesses you’re marketing to precisely how your product or service will solve problems in areas such as productivity, quality, time and costs. Better yet, show them with real-world examples and testimonials.

2. Provide plenty of specifics. When marketing to the public, an abundance of detail can confuse or bore buyers. In B2B marketing, specifics are often what close the deal. Every industry faces myriad challenges that encompass a wide array of technical, technological and regulatory details. Speak their language. Make it clear you understand what they’re up against.

And give yourself plenty of room to do so. Whereas a traditional sales letter or pamphlet sent to an individual is usually best kept short and colorful, B2B marketing materials can be longer and more detailed. Apply the same principle to social media: Posts directed at other companies can go to greater lengths as long as they include current and cogent points.

3. Get to know the people involved. If you tried to get to know every person included in a mass marketing campaign, you’d never get anywhere and probably go out of business. In B2B campaigns, however, specific people — that is, those who make the buying decisions at your targeted accounts — mean everything.

In fact, under an approach called account-based marketing, a company directs its B2B marketing efforts directly at the individual or set of individuals at each targeted account (or certain high-valued accounts). It’s the “personal approach” writ large, with your sales and marketing staff working together to get to know and appeal to the sensibilities and personalities of the people representing the companies that buy from you.

Obviously, any B2B marketing effort will need to go beyond these three points. Nonetheless, they should form a solid foundation in this often-tricky area. Our firm can help you assess the financial impact of your marketing efforts, B2B and otherwise, and come up with strategies for the future.

© 2019

The IRS has released final regulations and another round of proposed regs for the first-year 100% bonus depreciation deduction. The Tax Cuts and Jobs Act (TCJA) expanded the deduction to 100% if the qualified property is placed in service through 2022, with the amount dropping each subsequent year by 20%, until it sunsets in 2027. (The phaseout reductions are delayed a year for certain property with longer production periods.) Of course, Congress could act before that to extend or revise the deduction.

To qualify for 100% bonus depreciation, property generally must 1) fall within the definition of “qualified property,” 2) be new (meaning the property’s original use begins with the business) or acquired used property, and 3) be acquired and placed in service by the taxpayer after September 27, 2017.

The final regs address several critical issues related to these requirements and include some changes from the set of proposed regs issued in August 2018. The newly proposed regs provide guidance on some areas not covered in the final regs.

Eligibility of qualified improvement property

Prior to the TCJA, qualified retail improvement property, qualified restaurant property and qualified leasehold improvement property were depreciated over 15 years under the modified accelerated cost recovery system (MACRS).

The TCJA classifies all of these property types as qualified improvement property (QIP). QIP generally is defined as any improvement to the interior of a nonresidential real property that’s placed in service after the building was placed in service. Although Congress intended QIP placed in service after 2017 to have a 15-year MACRS recovery period and, therefore, qualify for bonus depreciation, a drafting error didn’t make that clear.

In what’s been called “the retail glitch,” the 15-year recovery period didn’t make it into the TCJA’s statutory language. The preamble to the final regs explains that legislative action is required to remedy this problem. Until then, QIP placed in service after 2017 is subject to a 39-year depreciation period and remains ineligible for bonus depreciation.

Used property questions

The TCJA makes bonus depreciation available for qualified used property that wasn’t used by the taxpayer or a predecessor at any time prior to its acquisition. The final regs define the term “predecessor” to include:

• The transferor of an asset to a transferee in a transaction subject to rules for tax attribute carryovers in corporate acquisitions,
• The transferor of an asset to a transferee in a transaction in which the transferee’s basis in the asset is determined by reference to the asset’s basis when it was in the hands of the transferor,
• A partnership that’s considered as continuing,
• The deceased person, in the case of an asset acquired by an estate, or
• The transferor of an asset to a trust.

The regs indicate that the IRS believes the consideration of such parties when determining whether a taxpayer has used a piece of property is necessary to prevent the abusive churning of assets by taxpayers.

The August 2018 proposed regs explained that a business has used a piece of property if it or a predecessor had a depreciable interest in the property at any time before acquisition, regardless of whether the taxpayer or predecessor claimed depreciation deductions. However, the regs also requested comments on whether the IRS should provide a safe harbor as to how many taxable years a taxpayer or predecessor must look back to determine if a depreciable interest existed.

The final regs include a safe harbor look-back period that considers only the five calendar years immediately prior to the taxpayer’s current placed-in-service year for the property. If the taxpayer and a predecessor haven’t been around that long, only the number of calendar years they’ve existed is taken into account.

In addition, the final regs provide that “substantially renovated property” can qualify for bonus depreciation even if the taxpayer had a prior depreciable interest in it before the renovation. A property is substantially renovated if the cost of the used parts is less than or equal to 20% of the total cost of renovated property, whether the property is acquired or self-constructed.

Date of acquisition issues

Under the TCJA, eligible property must be acquired after September 27, 2017, or acquired according to a written binding contract entered into by the taxpayer after September 27, 2017. The final regs provide that the acquisition date of property acquired according to a written binding contract is the later of:

• The date on which the contract was entered into,
• The date on which the contract is enforceable under state law,
• The date on which all cancellation periods end, if the contract has one or more cancellation periods, or
• The date on which all conditions subject to such clauses are satisfied, if the contract has one or more contingency clauses.

The August 2018 proposed regs provided that property manufactured, constructed or produced for the taxpayer for use in its business by another person under a written binding contract that was entered into prior to the manufacture, construction or production is acquired according to a written binding contract. Many commenters disagreed with this position, prompting the IRS to reconsider.

Thus, the final regs provide that such property is self-constructed property. This property type isn’t subject to the written binding contract rule and is eligible for bonus depreciation if the taxpayer began manufacturing, constructing or producing it after September 27, 2017.

The ADS factor

Property that must be depreciated under the alternative depreciation system (ADS) generally isn’t eligible for bonus depreciation. As the final regs note, some tax code provisions require the use of the ADS to determine aggregate basis for the purposes of the respective provision — but not for purposes of calculating Section 168 depreciation deductions.

The final regs state that such requirements to use the ADS generally don’t render property ineligible for bonus depreciation. They also clarify that using the ADS to determine the adjusted basis of a taxpayer’s tangible assets for purposes of allocating business interest expense between excepted and nonexcepted businesses generally doesn’t make the property ineligible.

Effective dates

The final regs are effective for qualified property placed in service during tax years that include September 24, 2019. You can elect to apply the regs to qualified property acquired and placed in service after September 27, 2017, or during tax years ending on or after September 28, 2017, as long as all of the rules in the final regs are consistently applied. Alternatively, you can rely on the August 2018 proposed regs for qualified property acquired and placed in service after September 27, 2017, during tax years ending on or after September 28, 2017, and ending on September 24, 2019.

Proposed regulations

The proposed regs contain additional rules regarding the definition of qualified property, consolidated groups, the treatment of components of self-constructed property and the application of the midquarter convention. They also propose exceptions to some of the final regs.

For example, the proposed regs include an exception to the depreciable interest rule for used property when the taxpayer disposes of the property within 90 days of placing it in service. If certain requirements are satisfied, the taxpayer’s depreciable interest in the property during that period isn’t taken into account when determining whether the property was used by the taxpayer or a predecessor at any time before the taxpayer’s reacquisition of it.

Taxpayers generally can rely on the proposed regs for qualified property acquired and placed in service after September 27, 2017, during tax years ending on or after September 28, 2017, and ending before the taxable year that includes September 24, 2019.

Maximize your depreciation deduction

The final and proposed first-year 100% bonus depreciation deduction regs may provide you with some unexpected opportunities to claim bonus depreciation. In some cases, it might be worth amending your 2017 and 2018 tax return filings (or, in the event that you filed an extension, adjust your returns prior to filing). Contact us to maximize depreciation deductions for your business.

© 2019

Here are some of the key tax-related deadlines affecting businesses and other employers during the fourth quarter of 2019. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

October 15

• If a calendar-year C corporation that filed an automatic six-month extension:
  • File a 2018 income tax return (Form 1120) and pay any tax, interest and penalties due.
  • Make contributions for 2018 to certain employer-sponsored retirement plans.

October 31

• Report income tax withholding and FICA taxes for third quarter 2019 (Form 941) and pay any tax due. (See exception below under “November 12.”)

November 12

• Report income tax withholding and FICA taxes for third quarter 2019 (Form 941), if you deposited on time (and in full) all of the associated taxes due.

December 16

• If a calendar-year C corporation, pay the fourth installment of 2019 estimated income taxes.

© 2019