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Update: Treasury issues a revenue ruling and revenue procedure regarding PPP forgiveness

11.19.20

If you received PPP funds, read on.

The Treasury has released new information regarding Paycheck Program Protection forgiveness. 

Based on IRS guidance, if you intend to apply for forgiveness and have a reasonable expectation it will be granted, the expenses used to support forgiveness will not be permitted as a deduction in 2020. It is unclear whether this guidance would apply if a taxpayer is undecided with regard to their forgiveness application at year end. Here is what we know so far.

The CARES Act included provisions that stated PPP loan forgiveness would not be considered taxable income under the Internal Revenue Code (“IRC”). The CARES Act specifically provides the forgiveness is not taxable income under IRC Section 61.

However, the IRS has issued the following guidance on this matter, which relates to the expenses paid with the PPP loan funds.

Notice 2020-32, states IRC Section 265(a)(1) applies to disallow expenses that were included on and supported a taxpayer’s successful PPP loan forgiveness application. 

In general, this section states NO deductions are permitted for expenses that are directly attributable to tax exempt income. 

The IRS seems to have concluded, in this Notice, the PPP loan forgiveness is tax exempt income. Therefore, the salary and occupancy costs used to support forgiveness, under current IRS guidance, will not be tax deductible.

Unanswered questions

This notice, while somewhat informative, raises many unanswered questions. For example, what are the tax consequences if a PPP loan is forgiven in 2021 and the expenses supporting the forgiveness were incurred in 2020? Could the forgiveness be construed as something other than tax exempt income?

Revenue Ruling 2020-27 attempts to answer some of these questions and provides additional guidance with regard to IRS expectations. The Ruling seems to indicate there are two possible tax positions relative to expenses that qualify PPP loans for forgiveness:

  • First, the loan forgiveness could be construed as tax exempt income and, pursuant to IRC Section 265 expenses directly attributable to the exempt income are not deductible.
  • Second, loan forgiveness could be construed as the reimbursement of certain expenses, and not as tax exempt income. Under the reimbursement approach the IRS has stated if you intend to apply for forgiveness and reasonably expect to receive forgiveness the reimbursed expenses are not deductible, even if forgiveness is obtained in the following tax year. This position seems to be supported by several tax controversies which were litigated in favor of the IRS. 

Some taxpayers had anticipated using a rule known as the tax benefit rule to deduct expense in 2020 and report a recovery (income) in 2021 when the loan is forgiven. It appears the IRS is not willing to accept this filing position.

We are hoping Congress will revisit this issue and consider statutory changes which allow for the deduction of expenses. Some taxpayers are planning to extend their income tax returns, taking a wait and see approach, with the hopes Congress will amend the statutes and allow for a deduction.

Under current law, it appears the salary, interest, rent used to support a forgiveness application will not be permitted as a tax deduction on your 2020 tax returns. This could result in a significant change in your 2020 taxable income.

Final considerations

For estimated tax payment purposes, we believe it would be reasonable to attribute the lost deductions to the quarter in which you made your final determination to file for forgiveness. This could mitigate any underpayment of estimated income tax penalties. 

If you are making safe harbor quarter estimates and/or have sufficient withholdings any incremental tax would be due with your return on April 15, 2021. Generally, the IRS safe harbor is to pay 110% of prior year tax during the current year to be penalty proof.

If you have questions about your specific situation, please contact us. We’re here to help.

COVID-19 business support

We will continue to post updates as we uncover them. Let us know if you have questions. For more information regarding the Paycheck Protection Program, the CARES Act, or other COVID-19 resources, see our COVID-19 Resource Center.

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It’s that time of year. Kids have gone back to school, the leaves are changing color, the air is getting crisp and… year-end tax planning strategies are front of mind! It’s time to revisit or start tax planning for the coming year-end, and year-end purchase of capital equipment and the associated depreciation expense are often an integral part of that planning.

The Tax Cuts and Jobs Act (TCJA) expanded two prevailing types of accelerated expensing of capital improvements: bonus depreciation and section 179 depreciation. They each have different applications and require planning to determine which is most advantageous for each business situation.

100% expensing of selected capital improvementsbonus depreciation

Originating in 2001, bonus depreciation rules allowed for immediate expensing at varying percentages in addition to the “regular” accelerated depreciation expensed over the useful life of a capital improvement. The TCJA allows for 100% expensing of certain capital improvements during 2018. Starting in 2023, the percentage drops to 80% and continues to decrease after 2023. In addition to the increased percentage, used property now qualifies for bonus depreciation. Most new and used construction equipment, office and warehouse equipment, fixtures, and vehicles qualify for 100% bonus depreciation along with certain other longer lived capital improvement assets. Now is the time to take advantage of immediate write-offs on crucial business assets. 

TCJA did not change the no dollar limitations or thresholds, so there isn’t a dollar limitation or threshold on taking bonus depreciation. Additionally, you can use bonus depreciation to create taxable losses. Bonus depreciation is automatic, and a taxpayer may elect out of the bonus depreciation rules.

However, a taxpayer can’t pick and choose bonus depreciation on an asset-by-asset basis because the election out is made by useful life. Another potential drawback is that many states do not allow bonus depreciation. This will generally result in higher state taxable income in the early years that reverses in subsequent years.

Section 179 expensing

Similar to bonus depreciation, section 179 depreciation allows for immediate expensing of certain capital improvements. The TCJA doubled the allowable section 179 deduction from $500,000 to $1,000,000. The overall capital improvement limits also increased from $2,000,000 to $2,500,000. These higher thresholds allow for even higher tax deductions for business that tend to put a lot of money in a given year on capital improvements.

In addition to these limits, section 179 cannot create a loss. Because of these constraints, section 179 is not as flexible as bonus depreciation but can be very useful if the timing purchases are planned to maximize the deduction. Many states allow section 179 expense, which may be an advantage over bonus depreciation.

Bonus Depreciation Section 179
Deduction maximum N/A $1,000,000 for 2018
Total addition phase out N/A $2,500,000 for 2018


Both section 179 and bonus depreciation are crucial tools for all businesses. They can reduce taxable income and defer tax expense by accelerating depreciation deductions. Please contact your tax advisor to determine if your business qualifies for bonus depreciation or section 179 and how to maximize each deduction for 2018.

Section 179 and bonus depreciation: where to go from here

Both section 179 and bonus depreciation are crucial tools for all businesses. They can reduce taxable income and defer tax expense by accelerating depreciation deductions. Please contact your tax advisor to determine if your business qualifies for bonus depreciation or section 179 and how to maximize each deduction for 2018.

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Tax planning strategies for year-end

Read this if your senior living facility is receiving Medicare payments

A year ago the senior living industry was challenged with the transition to the Patient-Driven Payment Model (PDPM). In the months leading up the implementation of PDPM providers prepared for new regulations, conducted employee training, and forecasted financial performance. By all accounts the implementation of PDPM went off with very few glitches. 

That all changed in the beginning of 2020 when the coronavirus (COVID-19) pandemic upended the industry and Medicare occupancy levels diminished. COVID-19 overturned the way providers were providing care at their facilities. Providers have seen a decrease in utilization of therapy services and an increase in medical management cases. Providers anticipated delivering more concurrent physical therapy, which has become impossible with COVID-19. We understand how demanding COVID-19 related change management has been for skilled nursing facilities, and want to help you re-focus your attention on the critical tasks and procedures driving your Medicare reimbursement.

New federal fiscal year, new rates

The Medicare Final Rule for fiscal year 2021 did not contain any major policy changes to PDPM but did contain routine updates to coding and Medicare billing rates effective October 1, 2020. After changing Medicare billing rates, you should test your system by carefully reviewing a remittance advice and the accounts receivable report for October service dates. Look for any balances, big or small, to help ensure billing rates and contractuals are correct for all payers following Medicare rules. Note:

  • Small balances may indicate errors in system configuration, such as PDPM rates, sequestration, or value-based purchasing adjustment.
  • Larger balances may indicate a claim missed in triple-check meeting and billed at an incorrect PDPM rate. View the FFY2021 Medicare Rate Calculator.
  • Providers should review ICD-10 mappings on an annual basis for new and discontinued ICD-10 codes. 

Medicare Advantage plan enrollment is growing. What does it mean for your facility?

With the continuing growth of Medicare Managed Care/Advantage plans, it is important to review your facility’s contracts. 

  • Most Medicare Advantage programs have adopted PDPM, but have differing requirements for pre-authorizations and payment rates, so be sure you understand how each of these contracts reimburses your facility
  • If there new Medicare Advantage plans in your area, evaluate the need to negotiate a contract to admit patients covered by the new plan. 
  • Update the list of plans your facility contracts with:
     
    • Carefully review contract rates and request rate changes if the payor does not follow the Medicare fee schedule. 
    • To avoid denied claims, update contact information and understand preauthorization requirements and any patient status updates. Distribute the updated list to your admissions and case management teams.

Check on your MDS coordinator

  • With the COVID-related shift in responsibilities, we see an increase in MDS position turnover. We recommend reviewing or developing a backup for your MDS coordinator, as completion of MDS is critical for billing and regulatory compliance. 
  • If your facility has limited resources for backup, evaluate sub-contracting options or reach out to your state’s Health Care Association for available resources. 

Update your consolidated billing resources

Consolidated billing errors could result in significant reductions of your bottom line. CMS updates guidance on consolidated billing regularly. We recommend checking the CMS listing and ensuring your admissions, clinical, and medical records team uses up-to-date information for admission decisions and coordination of care with external health care providers. Get more information.

COVID-19 impact

  • CMS provided a number of flexibilities to help facilities with COVID-related care. Please note, a number of these provisions are temporary, and are only effective during the state of emergency. We recommend at least a monthly review of regulatory guidance to help ensure compliance. Get more information.
  • While COVID-19 diagnosis and codes were not specifically incorporated into PDPM in the 2021 final rule, be sure to appropriately code isolation stays in the nursing component, document additional costs of testing, PPE, and labor and documentation of skilled need to protect against audit risk.

Have questions? Our Senior Living revenue cycle team is here to help. 

Article
Patient Driven Payment Model―A year later

Read this is you are a new renewable energy company looking for accounting solutions.

Setting up a new company in QuickBooks can be challenging enough, but if you are a renewable energy company there are a few additional items to think about. You face unique reporting and tracking requirements for a number of reasons, including tax reporting requirements, potential and existing investors, debt requirements, and grant requirements. Renewable energy companies should take special care in setting up their QuickBooks file. Below is a top 10 list of items to consider when setting up a new company file.

  1. Equity—Have you recorded your initial equity activity?
    Do you have individual capital accounts setup by owner?
    Did some owners contribute items other than cash? Expertise or property? Have you accounted for those properly?
  2. Debt—Do you have all debt financing recorded on the books?
    Debt financing needs to be recorded even if the bank pays some construction vendors directly as part of the agreement.
    Do you have an amortization or payment schedule to assist with recording loan payments properly?
    Does your debt have financial statement reporting requirements or covenant requirements that you must meet annually?
  3. Accounting Basis—Generally Accept Accounting Principles (GAAP) or Tax basis how will you keep your books?
    More and more companies are being required by banks and investors to keep their books on GAAP basis, you should consider future planned investors or financing from the get go as there are some clear distinctions between the two and it may be easier to start with GAAP from the beginning.
    GAAP and tax basis call for some pretty drastic distinctions when it comes to treatment of grant income if they directly relate to a project under development so it’s good to get a handle on this up front.
  4. Construction Costs—Are you capitalizing all construction costs related to your project?
    All costs related to your project must be capitalized on the balance sheet until the project is placed in service at which point you can begin depreciating the value of the project over a period of years.
    Generally, we recommend tracking site work in a separate account as tax and GAAP requirements can call for different treatment of these costs depending on their nature.
    Are you applying for any special grants related to your project? There are a number of federal and state grants available to renewable energy companies which may require breaking your project into cost categories to determine what costs qualify for the grant and what do not? Do you have a mechanism for tracking these costs?
  5. Soft costs―Are you properly capitalizing or expensing soft costs related to your project?  Engineering fees, project management fees and consulting fees if directly related to the project are generally included as part of the capitalized project costs rather than expensed.
    Legal and accounting fees. even if directly related to the project accounting or structuring your project, are generally expensed.
  6. Multiple projects―How are you keeping track of your multiple projects?
    With multiple projects underway at any given time, it is imperative to track these costs by project in QuickBooks and to work with vendors to specify on invoices to what projects costs are related. This is imperative to a lot of grant applications to be able to provide this sort of detail easily and on a consistent basis.
  7. Project details/Contracts details―How are you keeping track of all those details?
    More detail is always good.  In our experience the more detail you have in your files as to cost breakdowns of EPC contracts, etc. the better. Investors and grant evaluators are going to request all this detail and it’s better to have on file than track it down months or even years later.  Vendors are much more cooperative when requesting this documentation up front.
  8. Grant fine print―Have you read the fine print of the grants you’ve received?
    Pay close attention to these green energy grants fine print. Many of the grants have repayment requirements were the project taken out of service within a certain timeframe or have repayment requirements under other circumstances. These are items that may be required to be disclosed in financial statements and are just good business to be aware of.
  9. Organizational costs―Do you know what these are and are you tracking?
    Organization costs are legal, accounting and any other costs related to the actual formation and entity structuring of a company.  In our experience, these costs can be significant with the complex equity structures of many renewable energy companies. Make sure you are tracking these costs as amounts in excess of $5,000 are required to be amortized over 15 years for tax purposes.
  10. Project budgets and overall budgets―Do you have a realistic budget?
    Use QuickBooks budgeting features to track both project budgets as well as your Company’s overall budgets. Projects can go over budget quickly and it’s critical to keep on top of it to ensure the overall mission and sustainability of the company.

Once you have looked at these questions, you will be able to to create an effective budget and financials. If you have questions about your financial operations, QuickBooks, or setting up budgets, please contact the team. We’re here to help. 
 

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Top 10 QuickBooks considerations when setting up a new renewable energy company

Read this if you are a financial manager of an ESOP.

Employee Stock Ownership Plans (ESOPs) must generally buy back, or repurchase, participants’ shares when they leave the plan or want to diversify holdings. If the ESOP does not purchase the stock the company is required to purchase the shares from the participant under the “put option” described in Internal Revenue Code (IRS) Section 409(h).These rules require the company to either provide enough cash to the ESOP to fund stock repurchases, if adequate other assets are not available within the ESOP, or to fund the repurchase of shares outside of the ESOP. Anticipating the amount and timing of these repurchases requires a lot of number crunching and assumptions to arrive at an estimated “Repurchase Obligation” at a point in time. In most cases, ESOPs enlist the help of valuation specialists, actuaries, or outsider vendors to prepare a study.

All this is done as a component of ESOP cash flow planning but also begs the question, what do you need to record or disclose in your company’s financial statements related to this obligation?

The Financial Accounting Standards Board’s guidance on the subject is contained in Accounting Standards Codification (ASC) Topic 718, Compensation - Stock Compensation. More specifically, ASC Section 718-40-50 clearly outlines the terms, allocated share and fair value information, compensation and other related disclosure requirements for ESOPs in paragraphs 1a through g. One of these requirements—paragraph f—requires disclosure of “the existence and nature of any repurchase obligation...” While the existence of a potential repurchase obligation is undeniable due to the requirements of IRC Section 409(h), disclosure of the nature of the obligation may require judgement and a careful reread of the plan documents.

Existence of the obligation

What private companies record for redemptions is straightforward. They are required to accrue obligations related to redemption events initiated on or before the balance sheet date and disclose share and obligation balance information related to those transactions of material.

Disclosures must include the number of allocated shares and the fair value of those shares as of the balance sheet date. This sounds like a general disclosure of terms, but the intention is to communicate maximum repurchase obligation exposure. If redemptions subsequent to the balance sheet date require material and imminent use of cash, the company should consider whether it is required to disclose them as a subsequent event (including amounts) under ASC Topic 855, Subsequent Events.

Nature of the obligation

So, what do you need to disclose specific to the nature of your company’s ESOP shares repurchase obligation?

Put options against the ESOP trust (i.e., rights afforded under the ESOP requiring the trust to purchase outstanding stock at given prices within specific time horizons). Plan terms allowing redemption payments in excess of a certain threshold to be made over a defined period of time (e.g., retiring employees with vested balances greater than $5,000 may receive their payments in equal installments over a five-year period, while those with lower balances may receive their benefit in a lump sum).

If your company’s ownership has an ESOP component or you are considering an ESOP as part of your exit strategy, please reach out to Linda Roberts and Estera Ciparyte-McDonald. They can help you better understand the myriad considerations to be taken into account, and the required and potential financial statement impact and disclosures.

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ESOP repurchase obligations―Planning for future pay ups

Read this if you are a business owner.

Here is some end-of-year tax information we would like to share. While it may vary in your specific situation, we are providing this general information for your review. Please contact us with any questions about your year-end preparations. 

As the world continues to contend with the COVID-19 pandemic and its economic fallout, businesses are doing all they can to mitigate risks and plan for a recovery that’s anything but certain. Here are some tax relief tactics that can help take your business from reacting to the day-to-day challenges to taking advantage of those incentives that are available to help move your business forward.

Tax strategies to generate immediate cash flow

While not exhaustive, here are several tax strategies to consider:

Debt and losses optimization

  • File net operating loss (NOL) carryback refund claims
  • File claim to relieve 2019 tax payments due with the 2019 returns for corporations expecting a 2020 loss 
  • Analyze the tax impact of income resulting from the cancellation of debt in the course of a debt restructuring
  • Consider claiming losses related to worthless, damaged, or abandoned property to generate losses 
  • Decrease estimated tax payments based on lower 2020 income projections, if overpayments are anticipated
  • Consider filing accounting method changes to accelerate deductions and defer income recognition with the goal of increasing a loss in 2020 for expanded loss carryback rules

Making the most of legislation and understand how the CARES Act can provide relief to employers: Defer payment of the employer’s share of Social Security taxes until the earlier of (1) Dec. 31, 2020, or (2) the date the employer’s Paycheck Protection Program (PPP) loan is forgiven

Take advantage of any remaining corporate AMT credit

Consider the Employee Retention Credit

Regardless of which tax strategies you leverage, keeping the focus on generating and retaining cash will help ensure your business can weather an extended period of disruption.

Optimizing operations: Uncover tax relief opportunities

The initial tumult of the pandemic and economic fallout has passed, but significant challenges remain. Although companies that have managed to survive up to this point may have overcome immediate safety and cash flow problems, we still face an uncertain future. No one can predict how long the downturn will last, whether the world will revert into crisis mode or the path towards long-term recovery has begun. 

Despite the uncertainty, savvy companies can position themselves to outperform their competitors by capitalizing on market shifts and strengthening their core business models. To do so, liquidity will continue to be at a premium, but many companies at this stage should be able to spend a bit in order to reap considerable returns. Tax planning is important to do just that. Consider which tax strategies can help you find a competitive edge, including: 

Uncovering missed opportunities for savings: 

  • R&D tax credit studies: The money companies spend on technology and innovation can offset payroll and income taxes via R&D tax credits.
  • Property tax assessment appeals: In the wake of the COVID-19 pandemic, some jurisdictions are reevaluating their property tax processes.
  • Cost segregation studies: Cost segregation studies can help owners of commercial or residential buildings increase cash flow by accelerating federal tax depreciation of certain assets.
  • State and local credits and incentives projects: By taking advantage of existing programs, as well as those implemented as a result of COVID-19, companies can qualify for state tax credits and business incentives. 
  • Opportunity zone program: This federal program is structured to encourage investors to shift capital from existing assets to distressed, low-income areas, and in doing so, deferring and even reducing taxes.

Maintaining compliance: If your business secured any federal funding in the early stages of the pandemic, those funds likely came with certain tax and financial reporting compliance measures attached. 

Continue to grow liquidity: Cash is still key to navigating an uncertain road ahead. Continue to leverage liquidity-generating tactics, such as:

  • Evaluating existing accounting methods and changing to optimal methods for accelerating deductions and deferring income recognition, thereby reducing taxable income and increasing cash flow.
  • Reviewing transfer pricing strategies to identify opportunities to optimize cash flow.
  • Pursuing a tax deduction through charitable donations.
  • Maximizing state NOLs through elections, structural changes, intercompany transactions, and triggering unrealized gains.

Moving forward: Adopt new business strategies to reimagine the future

In the recovery phase, demand for goods and services has returned to pre-pandemic-recession levels. The wisest companies won’t spend this time resting on their laurels but will instead use it to reimagine their futures. 

Plans made prior to spring 2020 may no longer make sense in a post-COVID world. Companies need to not only recover from COVID-19, but also integrate the lasting forces of change brought on by the pandemic to emerge more resilient and more agile than before it began. It’s time to reset vision and strategy—and tax needs to be an integral part of that process. Here are some tax considerations that can align with new business strategies: 

Workforce

During recovery, businesses have likely confirmed near-term strategies around where employees will work. While these plans need to balance employee safety and operational efficiency, they also come with important tax impacts. Tax considerations: 

  • Assess the tax implications of your mid- to long-term workforce strategy, whether you take an on-site, fully remote, or a hybrid approach
  • Ensure tax compliance with state or local tax withholding for employees working remotely 
  • Consider the tax implications of outsourcing any business functions

Finances

As demand for products and services increases, it’s likely profits will also grow, meaning many companies that may have been incurring losses may find themselves with taxable income again. At this point, tax strategies should focus on lowering the organization’s total tax liability. Tax considerations: 

  • Optimize the use of any available credits, incentives, deductions, exemptions, or other tax breaks 
  • Maximize the benefit of changes to the net operating loss rules included in the CARES Act 
  • Consider the foreign-derived intangible income (FDII) deduction, if applicable (i.e., companies that earn income from export activities)

Transactions

Many businesses may be considering strategic transactions, such as acquiring another company, merging with a peer, selling certain assets, or purchasing new resources. Each of these actions can have multiple tax consequences. Tax considerations: 

  • Assess potential tax benefits or liabilities of strategic transactions before they take place as a part of the due diligence process
  • Identify loss companies and plan around utilizing losses and credits
  • Structure acquisitions and divestitures in a tax-efficient manner to increase after-tax cash flow

Innovation

As companies reconfigure their businesses to adapt to COVID-19 changes—from greater shifts to e-commerce to outsourced back office functions to partially remote work arrangements—they should determine how to use tax strategies to offset the costs of these investments. Tax considerations:  

  • Consider using federal, state, or even other countries’ R&D tax credits to offset costs of new products, processes, software, and other innovations
  • Explore whether previously undertaken activities may also qualify for these credits 

Regulations and legislation

As the economy improves, regulatory oversight likely will also increase. Noncompliance can be costly and can reverse much of the progress a business has made in its recovery. At the same time, additional tax law changes are likely on the horizon, and companies will need to be able to act quickly when they appear. Tax considerations

  • Ensure compliance with rules around federal funding received during the pandemic
  • Monitor tax regulatory and legislative developments at all levels, especially in the area of digital taxation, post-election tax reform, and federal, state, and local policy changes 
  • Scenario plan to outline the potential impact of future tax legislation on the company’s overall tax liabilities

Transformation

Staying ahead in the “new normal” means accelerating efforts around digital transformation to build a business with agility and resilience at its core. This should always include evolving the tax function. Businesses must strive to fully integrate processes, people, technology, and data to understand total tax liability and forecast how decisions and changes will impact their tax standing. Tax considerations

  • Collaborate with leadership and other areas of the business on a company-wide approach to digital transformation efforts
  • Establish a clear, shared vision of the future state of the tax department
  • Develop the business case for transformation efforts

Whatever pivots your business takes once the worst has passed, tax strategy needs to be an integral part of the plan to move forward. Evolving your tax strategy alongside business strategy will help prevent unforeseen costs and maximize potential savings.
 

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Tax relief strategies for resilience

Read this if you are a small business owner. 

We are living in an age of information overload. A quick Google search produces millions of results and a scroll through social media offers hundreds of views. We are able to access this endless data around the clock using these tiny devices, which we spend more time in our hands than not on most days. Unending technological advancements increase the ability of business stakeholders to consume data, and that amplified ability fuels a bigger demand for more data. It is widely claimed that financial reporting has become far too burdensome and often provides more confusion than information to end-users. While each item in the reporting package may very well help users to better appreciate the financial statements, the worth is being lost due to the volume of data in its entirety. 

Financial statement simplification

So, what does this information overload mean to business owners today, and can you really achieve financial statement simplification while still providing effective and relevant information to your stakeholders? Our answer is ‘YES!’ You can add immediate value to an entity’s financial statements, without a substantial investment of time, money, and resources. By creating a month-end checklist, defining stakeholders' needs, considering materiality, and automating the reporting process, your organization can not only simplify its financial reporting, but also add immense value.

When it comes to month-end close, your team may have a very clear understanding of what needs to be done and who is responsible for each task. However, documenting the process is crucial to provide clarity and simplification. Your month-end checklist can be used as a tool to keep everyone organized, outline due dates, and define roles and responsibilities. A month-end checklist would include tasks such as reviewing outstanding accounts receivable (AR) and accounts payable (AP), booking depreciation, adjusting prepaids and accruals, bank reconciliations and posting loan interest. This outline should serve as a forecasting guide to quantify resources needed for the month-end close.

Relevant and specific financial reporting

Whether it is your banking institution, investors, auditors, or management, it is important to identify which reports (and what targeted and specific information) each set of users will need and in what frequency they want it. Your organization may be producing excellent financial reporting that is too extensive and too frequent for your stakeholders' needs. Once you gather what each audience requires, it makes the process more efficient and the information for each audience more valuable.

The methods of accounting your company uses can have a material effect on the financial statements and their usefulness to end users. Materiality refers to the impact that a misstatement or omission of information can have on a company’s financial statements. Materiality varies based on the size of an entity; therefore, it is crucial that every member of your accounting team is aware of the materiality your organization has decided on using. It is important to note that when the cost of a method of accounting outweighs the benefit of doing so, you are able to depart from this accounting principle. Your company should revisit materiality on a regular basis, since eliminating some transactions can significantly reduce the amount of time required to issue financial statements.

Automation options for improved accuracy

Lastly, there are countless options available for not only automating your reporting process but minimizing time spent during the month on various accounting functions. These tools are not only effective in reducing labor and administrative costs but also improving accuracy by mitigating human error. Accounts payable tools like Bill.com and Expensify streamline your payments and approvals process and can save an average of 50% of time spent on AP, this is nearly 36 business days per year. 

Our team at BerryDunn is available to discuss your specific needs and help to recommend the best tools, processes, and procedures to simplify your financial reporting and month-end close process. 

Article
Simplify financial reporting with an expert at your doorstep

Read this if you are an employer. 

On March 13th, 2020, the President issued a national emergency declaration due to the novel Coronavirus pandemic (COVID-19). As a result, the COVID-19 pandemic was designated as a federal disaster under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. This designation allows employers to make tax-free payments or reimbursements to employees as “qualified disaster payments” under Section 139 of the Internal Revenue Code (Section 139). 

Overview

Under Section 139, employers can reimburse or directly pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster expenses incurred by the employee as a result of COVID-19 that are not otherwise reimbursed by insurance. The Internal Revenue Service has not provided guidance on what constitutes “reasonable and necessary” expenses with respect to COVID-19; however, such expenses could potentially include:

  • Medical expenses not covered by insurance (e.g., over-the-counter medication and cleaning supplies)
  • Expenses related to child care or tutoring
  • Expenses incurred to allow the employee to work from home (e.g., costs to set up a home office and increased utilities)
  • Lodging if the employee or a family member has to stay at a location besides his/her home to avoid a family member who has been diagnosed with COVID-19
  • Commuting expenses
  • Funeral expenses
  • Caregiver expenses
  • Legal and accounting expenses

Payments not eligible for relief under Section 139 include the following:

  • Non-essential, decorative, or luxury items or services
  • Wage replacement (e.g., paid sick or other leave)
  • Expenses compensated by insurance 

There are no limits on the dollar amount or frequency of qualified disaster payments. However, the payment(s) must be reasonably expected to be commensurate with the amount of unreimbursed reasonable and necessary COVID-19-related expenses. Employers may also provide assistance to any individual employee or to all employees with no discrimination restrictions.

Recordkeeping

Under Section 139, there are no administrative or substantiation requirements for the employee or the employer. While the IRS does not provide guidance on administering a program under Section 139, it is recommended that employers adopt a written policy that specifies the following:

  • The employees eligible under the plan
  • The administrative process and restrictions
  • Start and end date of the program
  • Types of expenses that will be paid or reimbursed on behalf of the employees
  • Amount of expenses that will be paid or reimbursed on behalf of the employees with a defined maximum amount per employee
  • How and when payments will be made

Tax implications―tax-free and fully deductible

The qualified disaster payments are tax-free to the employee and fully deductible to the employer. Additionally, payments are not subject to federal income or payroll tax withholding, and there are no federal disclosure or reporting requirements. While many states follow the federal treatment of qualified disaster payments, employers should determine any income tax or payroll tax withholding requirements on a state-by-state basis with their tax advisor.

Article
COVID-19 and Section 139: Tax-free payments or reimbursements to employees