Kansas Tax Law Changes - Part II

We’re continuing our look at what the passage of Senate Bill 30 does to the Kansas tax landscape going forward.  This bill contained many changes, so we’re breaking it down.  The enactment of SB 30 slowly reverses most of the itemized deduction rollbacks that went into play in tax year 2013.  Taxpayers in Kansas may not have noticed that their itemized deductions were silently slashed a few years ago, as the overall tax rate decreases offset the pain of the lost deductions at that time.  Although SB 30 increases the tax rates retroactive to January 1, 2017, Kansas itemized deductions don’t ramp back up until tax year 2018. 

As with most Kansas tax laws, the State’s calculation for itemized deduction starts with allowable Federal deductions.  The 2017 itemized deductions have the same calculation that was set out in the 2012 law changes.  Going forward, itemized deductions start gaining traction.  The most notable of the comeback kids….. medical expenses.  For federal purposes, taxpayers get a deduction for their medical expenses over 10% of adjusted gross income.  Medical expenses allowed as a Kansas itemized deduction zip from 0% in 2017 to 50% in 2018 of the federally deductible amount.  Medical, mortgage interest, real estate and personal property tax deductions all increase in 25% increments in 2019 and 2020. 

The State hasn’t historically allowed itemized deductions for state income and sales taxes paid, and those expenses will continue to be nondeductible.  Also, conspicuously absent from the changes in SB 30, the reinstatement of miscellaneous itemized deductions (unreimbursed employee expenses, safe deposit box rent, casualty and theft losses, investment fees, gambling losses, tax preparation fees, etc).  Those deductions still lose their power at the state level.  To talk to one of our tax professionals about all the exciting changes wrapped up in SB 30, call us at 785-234-3427 and check back on our blog for updates on the other provisions that changed with this legislation.

Start a Nest Egg Early

If your teenager is working this summer, you should consider teaching them about saving for retirement early!  You and/or your child could contribute up to $5,500 for 2017 to a Roth IRA, but not more than their earnings for the year.  The beauty of a Roth IRA is that the earnings grow tax-free, and by starting early the power of time and compounding can be huge!  In some situations, it’s not necessarily a requirement to keep the account untouched until retirement.  One of the benefits is that if he or she needs the money to help buy his or her first home, $10,000 can be taken out tax-free.

Call us for more information!

46 Years of Making Change

In case you skimmed over the latest issue of the Topeka & Shawnee County Public Library’s Library News and missed the piece on BT & Co.’s long running partnership with the Friends of the Library, we’ve included it below for your reading pleasure.

How do you sell more than 100,000 items in 3 days—you have really good people at checkout!  When the Friends of the Library annual Book Sale began in 1970, William F. Hardesty, the Friends’ first president of the board, volunteered his CPA firm to be the cashiers. Over the years, the CPA firm has undergone several name changes from Hardesty & Batz to the current Berberich Trahan & Co. (BT & Co.).  For the past 46 years, the employees of BT & Co. have continued to cashier at the annual Book Sale. “The Friends book sale is overall a great activity for us as a firm to get out there and be a part of local community activities!” said Kyle George.

Matt Deutsch, said the best part of volunteering is “people's surprise when they find out how little they owe for all the books they got.”

“The look of joy on the children’s face when they get to take home books of their own,” is Cheryl Hayward’s favorite part of the volunteering at the sale.

“I am blown away by the commitment the employees of BT 8C Co. have shown to promoting literacy in our community,” said Mary Campbell, Friends of the Library executive. “They grasp that literacy is a survival skill. We appreciate our relationship with them and are proud to call them friends.”

“We have done this for so long, we can’t imagine not doing it,” said Lisa Kongs.  “It has become a family affair for us.”  She added that sometimes spouses and even their children help at the sale.

While BT & Co. staff spend much of the sale volunteering, they usually find a little time to do some shopping of their own. No one leaves the sale empty handed and at least one BT & Co. staffer often leaves with 15 to 20 books.

“One year there was a pile of short romance novels written in Spanish,” Hayward said. “I bought them all for my daughter to share with her friends in Spanish class to enhance their Spanish reading skills.”

The library book sale is a fun and rewarding event that wouldn’t happen without the time and dedication of the many Friends of the Library volunteers.  We thank the employees of BT & Co. as well as our many community volunteers for their commitment to the library and their hard work every year.

For more information about when to see our friendly faces at checkout, pop over to the 2017 Friends Annual Book Sale webpage.

Kansas Tax Law Changes

A legislative override of Governor Sam Brownback’s veto on Senate Bill 30 earlier this month brought new Kansas income tax rates for individuals.  Under SB 30, changes go into effect July 1, 2017, but the new rates are retroactive to the beginning of the year.  Since the last major tax overhaul in 2012, individual Kansans have lived in the land of two brackets.  The most recent change revives the third bracket and increases overall tax rates.   

In response, Kansas Department of Revenue released updated payroll tax withholding tables earlier this week.  KDOR recognizes this midyear change complicates most individuals tax situations.  Since the tax rates were lower for January through June, many employees will not have enough tax withheld for the year.  Although tax rates are set to increase again in 2018, KDOR structured the new tax tables to help employees “catch-up” on their withholding for 2017 and will allow the Department to avoid reissuing updated tax tables in another six months.  Employers should start using the new payroll tax tables as soon as possible.  Many payroll providers were pushing down tax table updates for their software within 24-hours of the Department publishing them.  As every taxpayer’s situation is different, individuals should evaluate whether they will want to adjust Kansas withholding by filing an updated KW-4 with employers or if they will rectify any underpayment at the time of filing your 2017 return.  Normally, penalties apply for underpayment of taxes.  However, this legislation specifically provides that penalties will not be imposed if all the tax, that was underpaid as a result of the rate increases, is paid by April 17, 2018, the due date of calendar year 2017 income tax returns.  If you have specific questions regarding how the law change will impact your situation, please contact us.   

Kansas Tax Law Changes

Late night hours from the Kansas legislature has left us with new tax law in the state.  Senate Bill 30 was passed on June 5, 2017 and was vetoed by Governor Brownback the morning of June 6, 2017. The Legislature overrode the Governor’s veto on the evening of June 6th with a vote of 27-13 in the Senate and 88-31 in the House. Several provisions are effective January 1, 2017. A summary of the bill is below:

Non-Wage Business Income

· 100% repeal of the non-wage business income tax exemption, effective January 1, 2017

· Reinstatement of the federal loss carryover

Individual Income Tax Rates for 2017

· The current two-bracket system will be replaced with a three-bracket system of 2.9%, 4.9% and 5.2% beginning tax year 2017

Individual Income Tax Rates for 2018

· Low income exclusion threshold is reduced to $5,000 for married filers and $2,500 for single filers

·  Three-bracket income tax system continues with rates increasing to 3.1%, 5.25% and 5.7%

Itemized Deductions and Credits and Other Provisions

· 50% of federally deductible medical expenses, mortgage interest and property taxes paid in 2018; increased to 75% in 2019 and 100% in 2020 and thereafter.

· Dependent care tax credit will be set at 12.5%of allowable federal amount in 2018, 18.75% in 2019 and 25% in 2020

· Subtraction modification provision relating to net gains from certain livestock and Christmas tree sales is repealed in 2017

 

Check back later for in depth information.

 

Smart Plans. Big Wins. Lunch and Learn Training Sessions

  • WEDNESDAY, MARCH 8, 2017
  • 11:45AM - 1:00PM
  • 3626 SW Wanamaker Road, Topeka, KS 66614

FACT: Lunch tastes better if you're getting smarter while eating. Ok, maybe not, but it would be a good use of your time to lunch and learn about Financial Mastery for Business Decision Making Wednesday March 8. Free food. Free knowledge. What's not to like? Reserve your spot now.

 http://www.brownpapertickets.com/event/2844216

We also have sessions on June 7 and September 6, so mark your calendars now.

 

Reversal of Overtime Rules

After organizations have been gearing up for months to implement the new overtime rules by December 1st, a federal judge in Texas has put a nationwide block on the regulation.   Last week, U.S. District Judge Amos L. Mazzant, III issued a preliminary injunction stopping the new overtime salary limit less than two weeks before its intended enactment.  As this law was set to affect both governmental and private sector employees Kansas joined 20 other states in filing a lawsuit against the US Department of Labor in September.  The states’ suit is based on the legislation committing “an ever-increasing amount of State funds to [pay] State employees salaries or overtime … [which could] unilaterally deplete State resources,” per the complaint. 

Small businesses have rallied behind the National Retail Federation and National Federation of Independent Business, which have also filed suit against the increased salary threshold and, potentially, salary and overtime expense. 

Given that President-Elect Donald Trump has called the legislation “over-regulation,” it is possible that the salary thresholds for overtime pay that were set to go into effect on December 1st, may never see the light of day, at least not in their current form. 

The injunction leaves many employers in limbo, as many employers had already made preparations to implement the overtime rules by the quickly approaching original deadline.  Now, with the blocked regulations, employers have some decisions to make.  If an employer has already reclassified employees and increased salaries to meet the expected change, the employer may prefer to keep those plans in place.  However, if an employer has not yet to reclassified employees, the employer can postpone that decision while closely watching the developments as we move towards a new US Congress and president for 2017. 

Check our blog for updates as they become available.

IRS announces 2017 pension plan limits

 

The IRS has announced the 2017 pension plan limits, including the following:

·       401(k), 403(b) and most 457 plans Deferral Limit - $18,000—This remains unchanged from the 2016 limits.

·       Annual Additions Limit - $54,000—This is a $1,000 increase from the 2016 threshold.

·       Maximum Compensation Limit - $270,000—This is a $5,000 increase from the 2016 limit.

·       Catch-Up Contribution Limit - $6,000—This also remains unchanged from 2016.

·       Highly Compensated Employee - $120,000—This also remains unchanged from 2016.

·       The annual benefit under a defined benefit plan under Section 415(b)(1)(A) - $215,000.—This is an increase of $5,000 from the 2016 limit.

·       ESOP 5-Year Distribution Threshold - $1,080,000—This is a $10,000 increase from the 2016 limit.

·       ESOP Additional Year Threshold - $215,000—This is a $5,000 increase from the 2016 limit.

·       The dollar limitation under § 416(i)(1)(A)(i) concerning the definition of “key employee” in a top-heavy plan is increased from $170,000 to $175,000.

Here is the link to the full announcement which includes additional details:

https://www.irs.gov/pub/irs-drop/n-16-62.pdf

If you have any questions about the information above, or have anything other questions related to your employee benefit plan audit, send us an email at info@btandcocpa.com or give Stacey Hammond or Dusty Wagoner a call at (785) 234-3427.

What is an Outsourced CFO?

Let’s start with the typical responsibilities of the Chief Financial Officer (CFO) - the CFO of a business is the right hand man (or woman) to the business owner, managing the finances and financial systems of the company and providing financial data to help make strategic long-term and day-to-day decisions.

Some business owners turn to CFOs to establish proper bookkeeping systems, billing and collecting processes and bill paying processes. Now, the CFO has a different role than a bookkeeper or accountant who mainly keeps track of the company’s books. While this is a MUST for any business, it is not the CFO’s job. The CFO uses that historical information from the accountant to plan for future cash needs, analyze current business financial performance so decisions and improvements can be made, and to help the business owner proactively manage the business.

Sounds great, huh? It really is! The CFO can make a huge impact on profitability and cash flow of a business. However, a lot of small businesses cannot justify making the leap and hiring a full-time CFO for their business. We’re numbers people. We get it. Typical CFO compensation ranges from $90,000 - $140,000 (not including benefits, taxes, etc.).

That’s why we have officially launched our outsourced CFO program – it’s a CFO at the right time, when you aren’t ready for full-time. Many businesses don’t have the need for a full-time CFO, but can benefit tremendously from having a financial executive on the team. If this sounds like you, give us a call (785-234-3427)! Not sure if it’s for you? Take the CFO quiz at http://www.btandcocpa.com/new-index and see how you score.

New Overtime Rules

For all employers, the new overtime rules go into effect December 1, 2016. Here is a quick video from our friends at the Department of Labor that summarizes the rules nicely through multiple examples.

https://www.youtube.com/watch?v=D84T6z9Njpg

Here is a summary form of another example that hopefully makes it easier to understand.

Employee X works a consistent 50 hour week, and they earn $40,000 per year. There are 3 options that could happen with the new overtime rule.

1.      For those hours in excess of 40 for the week, they are to be paid overtime for those hours worked at time and a half.

2.      The employer could choose not to pay overtime and raise the employee’s salary to $47,476 per year, which is the new threshold.

3.      Cut the employees hours back to 40 hours per week so that they don’t earn any overtime. Thus offloading the employees burden, giving them more free time and a new work life balance.

The old salary threshold was $23,660 per year so it has a little more than doubled. If someone works say 2200 hours per year at $40,000 per year, the employer would have to choose the best method on whether or not to raise the salary to $47,476 or pay the overtime. Here is the math on this possible scenario.

$40,000 per year / 2080 hours (40 hours per week) is $ 19.23 per hour.

Time and a half is $ 28.85 per hour. ($19.23 x 1.5)

120 extra over time hours (based on 2200 hours worked) at $ 28.85 per hour is an additional $3,462 in salary for the employee.

The employee now gets $43,462 and is under the threshold of $47,476. In this scenario, the employee is rewarded for the overtime they have worked, and the employer is compliant with the new overtime rules. Employers are going to need to be cognizant of the new rules to make sure that they are compliant and to determine what is the best option for them and their employees.

If you have any questions about the information above, or have any other questions related to you becoming our valued payroll client, send us an email at info@btandcocpa.com or give us a call at (785) 234-3427.