Key Accounting Issues for 2017

4 Key Accounting Issues to Watch in 2017
Terry Sheridan
Jan 11, 2017
accountingweb.com

As if 2017 doesn’t promise enough drama and change already, the accounting profession is poised for a year brimming with expected regulatory issues and scrutiny.

Bloomberg BNA recently released its 2017 Tax & Accounting Outlook report that covers the gamut of legislative, state, international, and tax administration issues. But it also highlights the following four key accounting issues that could impact practitioners and companies in the new year.

1. Banks and credit losses. New rules on the reporting of loans and other credit losses portend one of the biggest changes ever in the financial accounting of banks and other companies, the report states.

Under Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which was issued by the Financial Accounting Standards Board (FASB) last June, banks and other lending institutions will be required to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

The “current expected credit loss model,” the core of the new standard, replaces the long-standing accounting model shaped around incurred losses.

This year “promises to be a period of preparing for the sweeping modifications in accounting for credit impairments,” the report states. “Companies have to assess what information must be assembled to shift to the new standard.”

Companies that file reports with the US Securities and Exchange Commission (SEC) will apply the new rules beginning in January 2020. Smaller and private companies have until 2021.

“Work that led to the credit losses rules of FASB and the International Accounting Standards Board was spurred by the 2008-09 financial crisis,” the report states. “Working in tandem for several years, the two boards sought to remedy the widely seen problem of recording loan losses ‘too little, too late.’”

2. Insurance. Life insurance and annuities are complex as it is, and a FASB proposal to change insurance accounting rules “brings hurdles, because of challenges inherent in the sector as a whole,” the report states.

Overall, the proposed ASU, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, seeks to modernize an accounting model dating back more than 35 years that doesn’t address the newest insurance products, Bloomberg BNA says. FASB contends that better and more consistent information will result.

Companies will need more data, which means more IT, internal controls, and more people in an industry that’s already faced cutbacks.

The proposal, which was issued last September, is expected to most affect traditional life insurance companies that issue long-term care policies and disability income, sell participating contracts, and sell products with market risk benefits, such as variable universal life and variable annuities, the report states.

Trouble spots include financial reporting projecting 30 years outward; how companies account for market risk benefits, like variable annuities; and disclosures.

Look for a FASB public roundtable early this year on the proposal and at least some changes to be made final later in the year.

3. Non-GAAP financial reporting. Will the SEC’s intense scrutiny of non-GAAP financial reporting continue this year? That’s the big question, according to Bloomberg BNA. A “flurry” of cautionary letters is expected, says one SEC staffer in the report.

Proponents of non-GAAP reporting indicate that its use can tell a better corporate story than GAAP, particularly in earnings reports. Whether the FASB will get involved isn’t clear, but at least one industry source in the report indicates that the board might want to begin by considering what issues lead to non-GAAP reporting.

When Bloomberg BNA recently asked SEC Chief Accountant Wesley Bricker whether the commission would continue to aggressively address non-GAAP reporting in 2017, he said, “I am confident that the commission will remain focused, as it always has, on the appropriate administration of the securities laws.”

4. Auditor disclosure rules. New requirements in audit transparency and a revamp of the auditor’s report are coming, courtesy of the Public Company Accounting Oversight Board (PCAOB).

Beginning on Jan. 31, audit firms must disclose the name of the audit engagement partner in the new PCAOB Form AP, Auditor Reporting of Certain Audit Participants. The form also will disclose other accounting firms that participated if they did at least 5 percent of the total audit hours. Foreign countries already require this.

“US auditors have vehemently opposed this requirement for liability reasons,” the report states.

Audit firms will have until June 30 to disclose the other firms’ participation.

A proposed revision to the auditor’s report will require auditors to explain “critical audit matters,” which PCAOB members initially described as “those matters that kept the auditor awake at night,” the Bloomberg BNA report states.

The board also wants experienced or “lead” auditors to supervise inexperienced auditors instead of simply signing off on their work.

The report cites an email from Larry Shover, a member of the PCAOB’s Investor Advisory Group, in which he states that the supervision of other auditors is the most significant of all the board’s projects to investors.

6 Tax Deductions Homeowners Won't Want to Miss

Last year was a big year for Richmond's Real Estate Market! If you bought a home, you know how expensive it can become.  Take advantage of all that's afforded you this tax season, and deduct some of those homeownership costs!

6 Tax Deductions Homeowners Won't Want to Miss
By Maurie Backman, January 4, 2017

Though there are plenty of good reasons to buy a home, owning property can be a costly prospect. From maintenance to insurance to real estate taxes, there are numerous costs that come with buying a home. But one major upside to homeownership are the tax benefits that come along with it. If you're a new homeowner, here are six deductions you don't want to miss out on.

1. Mortgage interest deduction
Looking at your mortgage statement can be a demoralizing prospect during the early years of homeownership, especially once it becomes obvious that the majority of your payments are going toward the interest portion of your loan and not its principal. But before you get too down, remember: That interest will serve as a helpful tax deduction when the time comes to file your taxes. You can deduct interest on up to a $500,000 mortgage as a single tax filer or $1 million as a couple filing jointly.

2. Home improvement loan interest deduction
Looking to spruce up your home? You might get a tax break for it. If you borrow money for the purpose of making home improvements, you can deduct whatever interest you pay on that loan with no upper limit. The only thing to keep in mind is that your loan must be used for capital improvements to your home, not repairs. If you borrow money to put up a new fence, finish your basement, or build an addition, you can deduct whatever interest you pay on your taxes. But if you take out a loan to repair a leaky roof, you won't be eligible for a deduction.

3. PMI deduction
Many homeowners aim to make a 20% down payment to avoid getting hit with private mortgage insurance Opens a New Window. , or PMI. But if you're stuck paying PMI, there's some good news: You can deduct your premiums provided you don't make too much money. The PMI deduction starts to phase out when you earn $50,000 a year as a single tax filer or $100,000 as a couple filing jointly. And the deduction goes away completely when you earn more than $54,000 as a single filer or $109,000 as a couple filing a joint return.

4. Mortgage points deduction
Some borrowers pay mortgage points, which are up-front fees, in exchange for a lower long-term interest rate. A point on a mortgage is equal to 1% of the loan amount, so the higher your mortgage, the more you'll pay per point. On the other hand, points can serve as a tax deduction, either immediately or over time. If the points you pay are consistent with what most lenders are charging and you use your loan to buy your primary home, you can typically deduct the entire cost of your points right away. Otherwise, you'll need to spread out that deduction over the life of your loan.

5. Property tax deduction
The average U.S. homeowner pays a little more than $2,000 a year in property taxes, but in some states, that figure can be anywhere from two to five times as much (or more). And while nobody wants to spend a fortune on property taxes, they can serve as a nice tax break. If you're going to claim a property tax deduction, just make certain to do so the year you actually make your payments. Property taxes are often billed quarterly, so it could be that you pay the first part of your 2018 taxes at the end of 2017 -- in which case you'd take the deduction for the 2017 tax year.

6. Home office deduction
If you're self-employed and have a dedicated space in your home that you use for work purposes, you can claim a home office deduction against your income. To calculate your tax benefit, figure out how much you spend annually on costs like water, electricity, internet service, and homeowners' insurance. Next, calculate the amount of space your office takes up relative to your home, and then prorate your expenses to arrive at your deduction. For example, if you spend $3,000 a year on eligible expenses and your office takes up 10% of your home's total square footage, you can claim a $300 deduction.

Whether you're new to homeownership or have carried a mortgage for years, it pays to learn more about the tax deductions available. The more you're able to claim, the more cash you'll manage to pocket and keep away from the IRS.

Original article appeared on foxbusiness.com

New Year's Payroll Resolutions

We want to help you start off the New Year right with your payroll services.  Having served Richmond’s small business community for over 10 years, we have seen a demand for affordable accounting services, including payroll, and have decided to fill it.  Beginning in 2017 we are offering competitively priced, comprehensive payroll services that are tailored specifically to your small businesses’ needs.

Through our platform, business owners and employees alike can log in through a website to easily view payroll periods, expenses and reports. Employees can download pay stubs and W2s.  Payroll advances, garnishments, and before and after tax deduction reports that any other full-service payroll company can provide, including:

-Year-to-Date Reports
-Check Register
-Taxable Wages
-Cash Requirements Report
-Generate checks
-Worker’s Comp Audits
-Direct Deposit

We are offering flat-fee rates for businesses with 10 or fewer employees and have a variety of flexible solutions for over 10 employees.  We want to save you time, money and headaches by filling your payroll needs.

Diversity Richmond Celebrates

It was a pleasure attending Diversity Richmond Celebrates last night on behalf of the Richmond Business Alliance.  While it has been a trying year for the LGBTQ Community there are many accomplishments that this organization has achieved that deserve to be celebrated and recognized! To read more about this event, and Diversity Richmond's impact on this community, visit here. 

Payroll Complaince Update

As Accounting Works rounds out the rest of the year, we will be turning our focus to offering comprehensive and competitively priced payroll services to our clients in 2017!  With an easy to use platform, we will be offering a flat rate for businesses with 10 or fewer employees and only a small fee for any additional employees! Of course, we'd like to work with any size business, so if you have a larger company we'd be happy to work out a plan that fits your needs.

That being said, it can be hard as a small business owner to keep up with changing regulations, especially if you're doing payroll yourself.  As a reminder, these payroll changes will take effect December 1, 2016!

Final Rule: Overtime
From the Wage and Hour Division (WHD) of the US Dept of Labor

Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees under the Fair Labor Standards Act

On May 18, 2016, President Obama and Secretary Perez announced the publication of the Department of Labor’s final rule updating the overtime regulations, which will automatically extend overtime pay protections to over 4 million workers within the first year of implementation. This long-awaited update will result in a meaningful boost to many workers’ wallets, and will go a long way toward realizing President Obama’s commitment to ensuring every worker is compensated fairly for their hard work.

In 2014, President Obama signed a Presidential Memorandum directing the Department to update the regulations defining which white collar workers are protected by the FLSA's minimum wage and overtime standards. Consistent with the President's goal of ensuring workers are paid a fair day's pay for a hard day's work, the memorandum instructed the Department to look for ways to modernize and simplify the regulations while ensuring that the FLSA's intended overtime protections are fully implemented.

The Department published a Notice of Proposed Rulemaking (NPRM) in the Federal Register on July 6, 2015 (80 FR 38515) and invited interested parties to submit written comments on the proposed rule at www.regulations.gov by September 4, 2015. The Department received over 270,000 comments in response to the NPRM from a variety of interested stakeholders. The feedback the Department received helped shape the Final Rule.

Key Provisions of the Final Rule

The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional workers to be exempt. Specifically, the Final Rule:

1. Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);
2. Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
3. Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.

Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.

The effective date of the final rule is December 1, 2016. The initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on that date. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.

Do You Qualify for the Earned Income Tax Credit?

As a small business owner, you could qualify for the Earned Income Tax Credit!  It's different than itemized deduction and available for those that qualify with or without children.

What is the Earned Income Tax Credit?
By Maurie Backman on Fool.com

Taxes can be a huge burden for low-income Americans who need every penny they can get to pay the bills. Thankfully, there are tax credits available to help lower earners make ends meet. One such credit is the Earned Income Tax Credit. The Earned Income Tax Credit, or EITC, is a federal tax credit that can save eligible low-income Americans money on their taxes. You must meet certain criteria to file for the EITC, but if you qualify, you could receive up to $6,318 for 2017. Best of all, the EITC is refundable, which means that if it reduces your tax liability to $0, you'll actually get a check for the difference.


Tax credits versus deductions

Some people use the terms "tax credit" and "tax deduction" interchangeably, but in reality, they're not the same thing. A tax deduction reduces your taxable income, while a tax credit is a dollar-for-dollar reduction of your tax liability. If you're eligible for a $3,000 tax deduction and your effective tax rate is 25%, that deduction will save you $750 in taxes. But if you get a $3,000 tax credit, it'll save you $3,000 in taxes.

Now many tax credits are non-refundable, which means that if they reduce your tax liability to $0 with money left over, you won't be eligible to receive the difference. The EITC, however, is refundable, which means that it has the potential to put even more money back in your pocket. Let's say you owe $2,000 in taxes but are eligible for an EITC credit in the amount of $3,400. Because the EITC is refundable, you'll actually get a check for $1,400.

How do I get the Earned Income Tax Credit?

There are certain criteria you must meet to be eligible for the EITC. To qualify, you must have earned income from a job or business that you own. Furthermore, your tax filing status must be single, married filing jointly, head of household, or qualifying widow. Additionally, for 2017, your investment income for the year can't exceed $3,450.

There are also income limits that determine your eligibility to receive the Earned Income Tax Credit, and they depend on the number of qualifying children you have in your household. The following table shows what the 2017 EITC income limits are based on your tax filing status and number of qualifying children:

How much can I get from the Earned Income Tax Credit?

The amount of money you get from the EITC depends on your income and number of qualifying children. For 2017, the maximum you'll receive from the EITC is:

• $6,318 if you have three or more qualifying children
• $5,616 if you have two qualifying children
• $3,400 if you have one qualifying child
• $510 if you don't have any qualifying children

Don't pass up free money

To benefit from the Earned Income Tax Credit, all you need to do is claim it on your tax return. Surprisingly, an estimated 20% of eligible tax filers fail to claim the EITC and lose out on much-needed money each year as a result. If you're a low earner, it pays to see whether the Earned Income Tax Credit could lower your taxes or, better yet, put extra cash back in your pocket this year.

The $15,834 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $15,834 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after.

Charitable Donations for Small Business

As the year comes to a close, many small business owners and individuals look for ways to make deductions on their taxes.  Contributing to your favorite cause is a great way to minimize your bottom line.  Here's how to make those charitable donations count!

Small Business Guide to Deducting Charitable Donations
By Bonnie Lee

Businesses can make tax deductible donations to bona fide nonprofit organizations. But you may be surprised to learn how it is deducted on your tax return. In fact, the only entity able to deduct a cash charitable contribution as a business expense is a C Corporation.

If you are a sole proprietor and you make a donation of $100 to a dog rescue society which is registered as a 501(c)(3) with the Internal Revenue Service – all bona charities must be registered as such for your gift to be tax-deductible – and your business received no goods or services in return, the deduction is listed as an itemized deduction on Schedule A of your tax return. This provides a tax benefit only if you are able to itemize deductions.

You cannot deduct this contribution on Schedule C. It is not a business expense; it will not reduce your self-employment tax. The IRS views it as a personal expense paid from business funds.

But now let’s say you want to support young athletes and therefore donate $100 from business funds as a sole proprietor to the local soccer league. In exchange, they run a small display ad for your business on their program. This is no longer a donation. This is an advertising expense; you received something in return which can be classified as an “ordinary and necessary business expense,” and therefore the cost is deductible as such on Schedule C.

If as a sole proprietor you donate your services to a bona fide 501(c)(3), you have no deduction whatsoever. Doesn’t seem fair, does it? But the IRS places no value on your time or expertise. A manicurist donated her time to do nails for women clients at a shelter who were preparing for job interviews. While she was not allowed to deduct the $35 per manicure she would normally charge, she was able to deduct her mileage to and from the shelter, and the cost of all supplies and materials used in the performance of the manicures. She gave away bottles of nail polish to be distributed by the nonprofit to their clients. These were a write off for her as well.

By the same token, if this manicurist were to give away a nail care set of polish and files and other products to a poor individual who needs help, she would not be able to write off the donation. This is simply because the IRS does not allow the deduction of gifts to individuals, or for that matter to political organizations or candidates.

If your business is incorporated as an S Corporation or formalized as a partnership filing Form 1065, the same rules apply. In fact, any donations made at the S Corporate or partnership level flow out as a special line item on your Schedule K-1 and end up on Schedule A of your individual income tax return. Again, this is a tax benefit only if you are able to itemize deductions.

A C Corporation may take the deduction on Form 1120 but must follow all of the IRS rules regarding donations.

Remember to acquire and retain the acknowledgment letter from the nonprofit for your donation. Your canceled check is not enough documentation and the IRS may disallow the deduction if you cannot provide this document. It must be obtained before filing your tax return. You cannot request it later during an IRS audit.

To view the original article, click here.