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USMCA – The New Nafta

Posted on November 14th, 2018

 

Recently the leaders of Canada, Mexico, and the United States gathered to renegotiate a new free trade agreement. Since the 1990’s, the North American Free Trade Agreement (NAFTA) had allowed for tariff free trade between the three countries. This granted benefits to both consumers and producers, as they each had a wider selection of products to buy from and more people to sell to. However, NAFTA wasn’t perfect. A fair number of Americans viewed NAFTA as unfair, claiming that it disproportionately hurt domestic businesses while also encouraged some industries to relocate production to Mexico. Others would say that free trade isn’t zero sum and both Canada and Mexico gave up protective tariffs for their industries too. Although NAFTA worked to strengthen trade bonds between these three countries, it is true that many US automakers took advantage of cheaper wages and beneficial tax breaks in other NAFTA countries, putting some US auto-workers out of business. These setbacks encouraged many in our government to pursue a renegotiation of NAFTA which produced the new deal: the USMCA.

So, what does this mean? Well USMCA stands for the United States Mexico Canada Agreement, a name the President picked because of its similarity to the abbreviation used by the marine corp. Besides semantics, the USMCA prioritizes American interests. It increases regulations on domestic industries operating abroad, broadened protections over intellectual property, expanded labor and environmental rights, and opened up trade within the Canadian milk and pharmaceutical markets. However, the deal may not get done. All three governments need to pass legislation to approve it. NAFTA’s regulations will still be in effect until 2020. Hopefully the USMCA can spur greater economic growth for America while also encouraging the trade of ideas, labor and resources between our neighbors.


The Fun is Over – Entertainment is no Longer Deductible

Posted on November 14th, 2018

 

The recently enacted Tax Cuts and Jobs Act of 2017 (or TCJA) was what many business people have been hoping for. Its most popular portion is a major reduction in the corporate income tax, which economists forecast will increase jobs and boost economic growth. Although much of this new act was well covered by news outlets, there are many lesser known changes. One of the revisions is around deductions for meals and entertainment. Specifically, it limits deductions for meals and entertainment that are not directly connected with business meetings or discussions. In the past, a deduction could be issued for meetings at a sporting event where businesses could talk or schmooze with clients before, during, or after. Today, under the TCJA, this is no longer the case. The TJCA’s new rules also apply to all other events “associated with entertainment.” The only retained deductions include expenses for meals with clients or customers while business is discussed, meal imbursements for business travel, and traditionally paid recreational expenses for employees.

Businesses will have to address this hurdle to retain past deductions. They must adjust business gatherings to be over dinner or during a specific meal, instead of at an entertainment venue. This new tax law makes clear that your meetings will have to be set up for the explicit purpose of business discussion and nothing else.

We are interested to see how this may impact local venues, especially those that rely on white collar foot-traffic. We will also keep in mind how firms will pivot to address this new hurdle, and work to advise those who are affected. Below is a table that explains which deductions were changed and which were retained.

 


My Black Swan

Posted on October 11th, 2018

Unwelcome Surprises in Business

We are all blind to the randomness and inevitability of catastrophic events that occur more frequently than everyday experience suggests.” – Nassim Nicholas Taleb

 

Every couple of years, I find myself working on some type of business side hustle.  The latest idea was by far the most promising.  It was a one-of-kind tax auditing software designed especially for a certain local state.  We planned to license it and help operate it in exchange for a lot of money!

The state’s Secretary of Finance and Director of the Division of Revenue (i.e. big decision makers) were so excited about our idea, that they personally invested dozens of hours and helped us draft the contracts.  We assembled a top-notch software developer and an analytics professional.  Our point person had strong personal relationships with the key players at the state.  All the planning was well defined and crystal clear.  We had a large pool of cash to draw on.  In short, there was no reason to be worried about losing the contract, until our black swan event…

They all resigned!  The Secretary of Finance and the Director of the Division of Revenue decided to retire/move on to greener pastures.  We were dead in the water.  The new replacements had entirely different agendas and weren’t keen on spending money on software (even if the ROI would be >5x).  All our expert planning and years of experience didn’t matter, because no one saw the black swan coming.

 

A “black swan” is an event that is unexpected, like seeing a black swan amongst a group of more typical white swans. 

 

What’s your black swan?

You can’t protect against every risk, but good preparation can safeguard against most.  The best defense against an unwelcome surprise is information.  The right CPA advisor can draw on their experience working with many businesses.  This real-world experience is a valuable tool to help identify risks that aren’t on your radar.

 


Tax Benefits for Tech Companies in DC – Profiling QHTC

Posted on September 4th, 2018

Today, SoftwareCPAs will take a deeper dive into the Washington, DC, Qualified High Technology Companies and Tax Benefits code. It’s complex, but by better understanding its nuances, we’ll all be better able to pull out benefits as we see them.

First, a bit of history: It was the year 2000, and Washington, DC, was coming into its own as a technology hub. As the years passed, Washington, DC, has become the center of both cosmopolitan life and technology companies. I took a deeper look into the Washington, DC, Qualified High Technology publication, established in 2000, to determine the benefits for our clients and those looking to take further advantage of what the publication has to offer. You can read the full publication at

According to the Office for the Deputy Mayor for Planning and Economic Development, Washington, DC, is a world-class city that boasts tremendous assets and opportunities for startups looking to solve the world’s challenges in innovative ways. DC is the #3 tech city in America and ranks in the Top 5 for startup success. DC is not only one of the best tech ecosystems; it is one of the most inclusive as well: DC is the #1 city for women in tech and is home to one of the most diverse, tech-related workforces in the nation. (For more information, see the Pathways to Inclusion report (2016) for Mayor Bowser’s vision for becoming the nation’s premier hub for technology inclusion.

What is a Qualified High Technology Company (QHTC)?

A QHTC is an individual or entity organized for profit that maintains an office, headquarters, or base of operations in Washington, DC. It has two or more employees in Washington, DC, and is registered to do business in the District. It remains current with all tax filing requirements and payment obligations to the District. Additionally, it receives 51 percent or more of its gross revenue from one or more of the following permitted activities:

  • Internet-related services and sales;
  • Internet related training, consulting, advertising, or promotion services, or the involvement of other internet related services, including e-commerce;
  • Information and communication technologies;
  • Advanced materials and processing technologies;
  • Engineering, production, biotechnology and defense technologies;
  • Electronic and photonic devices and components.

What tax benefits are available if we become a QHTC? 

Various tax credits and other tax benefits exist for the QHTC and include:

  • Tax Credits:
    1. Costs of re-training qualified disadvantaged employees;
    2. Wages paid to qualified disadvantaged employees;
    3. Wages paid to qualified employees; and
    4. QHTC payments for employee relocation costs.

A qualified disadvantaged employee is a District resident who is a recipient of Temporary Assistance for Needy Families (TANF), or a person released from incarceration within 24 months before employment, or an employee for whom a QHTC is eligible to claim the Welfare to Work Tax Credit, or the Work Opportunity Tax Credit under IRC section 51.

The benefit for District QHTC businesses who hire employees falling under the Work Opportunity Tax Credit—which allows employees of targeted groups to become eligible—is that various credits are available, but limits do apply. Targeted groups include qualified veterans and designated community residents. A designated community resident is a DC resident living in an Empowerment Zone, Enterprise, or Renewal Communities. Find out more on Qualified Disadvantaged Employees as it relates to the Work Opportunity Tax Credit under IRC section 51 at https://www.irs.gov/businesses/small-businesses-self-employed/work-opportunity-tax-credit.

Empowerment Zones, Enterprise, and Renewal Communities in the District

https://www.hud.gov/program_offices/comm_planning/economicdevelopment/programs/rc/tour/dc/washingtonEZ/

Concerning wages paid to qualified employees, a QHTC may claim a credit against its District corporate franchise tax in an amount equal to 10 percent of wages paid to qualified employees employed in the District. In this case, the credit may not exceed $5,000 for each qualified employee in a taxable year. Also, a credit applies for each dollar used to reimburse or be paid on behalf of a qualified employee for the cost of relocating to the District.

A qualified employee is a person employed in the District by a QHTC for 35 hours or more per week in any of the QHTC-permitted activities listed as related to QHTC eligibility. But, various limitations apply. For example, the credit does not kick in until the QHTC relocates at least two qualified employees from employment outside the District to inside the District; and until the QHTC has employed the qualified employee for at least six months in the District.

  • Other Tax Benefits:
    1. Exemption from sales and use tax;
      1. Sales within the District by a QHTC of intangible property or services otherwise taxable as a retail sale are exempt from District Sales Tax. Sales to a QHTC of various technology used in the operation of the QHTC are not subject to District sales tax.
    2. Reduction in Corporate Franchise Tax rate;
      1. A QHTC filing a District corporate franchise tax return is subject to a reduced franchise tax rate of six percent. If the QHTC is in a high-technology development zone, there is no franchise tax imposed for five years after the QHTC begins business in that zone. See https://octo.dc.gov/service/dc-zoning-map or, for the boundaries of these zones, please call 202-442-6500
    3. Partial exemption from personal property tax;
      1. A QHTC is exempt from District personal property tax for 10 years beginning with the year of purchase.
    4. Increased deduction for IRS Section 179 Property;
      1. A QHTC can deduct the lesser of $40K or the actual cost of personal property described in IRC Section 179(d)(1).
    5. Unincorporated Business Tax Exemption;
      1. A QHTC that is not a corporation is exempt from the unincorporated business franchise tax.
    6. Exclusion of capital gains from taxation for qualified assets held for more than five years; and
    7. Rollover (deferral) of certain capital gains.

What do we need to do to claim the QHTC Tax Benefit?

It’s quite simple. The eligible business must attach to its District corporate franchise tax return (Form D-20) a QHTC-CERT (or FP-31 Personal Property or FR-800A, FR-800M Sales and Use Tax where appropriate), certifying that it meets all the conditions required of a QHTC. If you need assistance moving forward with the QHTC process, please let us know at www.softwarecpas.com or email directly at jmiller@softwarecpas.com.

Our review of the QHTC designation shows its many benefits to the DC-based technology industry. The largest challenge is tracking all the details as they relate to claiming the credits. Overall, the return on investment (ROI) for this qualification is well worth the effort and time.


Internet Sales Tax – What Businesses Can Learn from South Dakota vs Wayfair, Inc.

Posted on August 7th, 2018

 

Until this year, the answers relating to state sales and use tax on items purchased from online retailers and delivered in any state were quite subjective.

In the 1990s, anyone could find the teenage Jason Miller on his family furniture truck delivering sofas, mattresses, and dining room tables, while listening to newly found rap music on his yellow Sony Walkman. Everyone knew the furniture was purchased at the furniture store, the exchange of funds occurred, and State sales tax paid. It was a simple time. Then the internet—and online sales—started to boom, and those hard-line rules of state sales and use tax liabilities became clouded. For the customer, the online purchasing was a more affordable and tax-free way to purchase goods, which essentially impacted retail as we knew it in the 1990s. As internet retail sales continued to grow, we began throwing around the word “nexus ” – a term meaning a company’s requirement to collect and pay sales taxes within the state they do business. In 1967, when mail order catalogs were still popular, the Supreme Court ruled that state sales and use tax was due when nexus existed. For a business to pass the nexus test for sales and use tax purposes, the business had to have a physical presence—stores, warehouses, property, employees—in a state. This nexus test included online retailers where nexus may have existed in only the state of incorporation, so state sales and use tax was avoidable in all other 49 states, giving online retailers a competitive advantage.

As online retail purchases expanded to record levels, it became more difficult for the states to ignore this missed state revenue generator. As customers flocked to the internet for purchases, a little company—Wayfair, Inc., founded in 2002—took off, selling home furnishings across the U.S. while avoiding state tax on larger, more expensive items (such as furniture) in states where Wayfair did not have nexus.

On June 21, 2018, the U.S. Supreme Court case, South Dakota v. Wayfair, Inc., et al. (No.17-494, 06/21/2018) changed the way online retailers considered state sales and use tax. The Court rejected the “nexus” test when determining when businesses must collect state and local sales tax, which opens the opportunity for states to collect from all online retailers shipping products within the United States. State sales and use tax is now required for both brick-and-mortar stores, as well as online retail outlets. The losers in this ruling include the customer and online retailers. For the customer, their online purchases are most likely to become more expensive as state and local taxes are applied. For the online retailers, they now have new challenges as they consider how to handle this new rule.

South Dakota has set the standard on state sales and use tax, opening the opportunity for other states to follow their lead.

Here’s what retailers can begin doing now:

– Become informed of State sales and use tax rules and monitor the state sales and use tax changes. It’s important to know each state requirement if your business is shipping to states outside your home state and to track and monitor the products’ destination. Doing so allows you to collect the sales and use tax due from the customer. It’s also important to keep on top of the state sales and use tax changes occurring in each state where you’re shipping product, so you can appropriately react to such changes.

– Budget appropriately for the purchase of new software and systems to allow you to better track tax collections, payments and shipments levels. South Dakota established a limit of $100,000 in shipped goods, or 200 transactions. Consider this the threshold. If your business ships $100,000 or greater in merchandise or incurs more than 200 transactions to the state , then the South Dakota State sales and use tax applies. We’re seeing many states adopting the South Dakota threshold, but of course each state can establish its own rules.

– Consider the reporting requirements. Unfortunately, each state’s reporting requirements are different, so it’s important to make sure you’re filing the appropriate reports on or prior to the due dates and as required by each state. This requires manpower, reporting systems, calling state tax offices with questions, and dealing with state tax notices.

– Review your current financial statements. If you’re a smaller retailer and shipping to states who require state sales and use tax, make sure you’ve mitigated against the risk of increased filing fees and state tax remittance procedures, system purchases, and the headache of dealing with it.

In the beginning, the internet was a place that made life easier. As the internet matured, regulations caused greater heartburn for online retail business owners. This latest Supreme Court ruling is the latest regulation to hit online retailers. The one shining spot is if you’re a brick-and-mortar business, then you could see increased desire to purchase in your local community as sales and use tax is now required wherever the purchase is made. On the other hand, many may believe that the ease of shopping from the comfort of home and clicking a button could still outweigh the hurdle of in-store shopping.

For more information regarding the new Supreme Court ruling, please contact your accountant or reach out to us for more details. www.softwarecpas.com


Blockchain: A Revolution in the Making

Posted on July 18th, 2018

 

Above: A cryptocurrency farm in Eastern Europe.

 

 

Last year’s cryptocurrency market surge proved to the world that the future is Bitcoin and its underlying technology, Blockchain. Reaching a peak value greater than $20,000 USD, Bitcoin is now speculated by the mainstream financial market. Although some in this sector criticize the decentralized currency, Blockchain, the software system that has contributed to Bitcoin’s success, is far more respected. In fact, the company’s service scope goes far beyond merely recording Bitcoin transfers; it has the potential for revolutionizing the way we conduct business.  

 

Blockchain is already being hailed as one of the forefront industries in tech communities. According to an article written by Jason Bloomberg in Forbes magazine, there are several potential areas that Blockchain tech can be used outside of cryptocurrency, which could allow the new industry to graduate past its “proof of concept phase.” For example, the article outlines how Blockchain could combat product counterfeiting through electronic authentication. Product identification tags would be verified by the decentralized database, making fakes much more recognizable. And, it would be relatively simple; besides the database, all that would be required would be identification chips and a simple encryption system.

 

Another possible application is in the real estate market: Blockchain could provide a network of enforceable contracts for those involved in international real estate deals, completely circumnavigating government bureaucracy and international hurdles while ensuring that everyone involved gets what they want.

 

There seems to be limitless potential for this emerging industry. Blockchain technology can help companies of all shapes and sizes record and share information across many sources, while protecting companies’ data and information from corruption. We are convinced that Blockchain could be a major player in the future of the internet.

 

Source Material:

https://www.forbes.com/sites/jasonbloomberg/2018/04/23/how-to-make-money-with-blockchain-despite-the-hype/#6db21fdb4f60


Google’s AI and Its Potential for Business

Posted on June 20th, 2018

 

It’s no secret that AI is revolutionizing every industry it touches. It seems that every day there’s a new application of the technology, and a new opportunity for it to transform the way we do business. Recently at Google, their team of AI programmers developed a program entitled Duplex, which aims to make an automated voice assistant more personable and realistic. Through their aptly named Google AI Blog, the company claims that such developments are indeed possible, “thanks to advances in understanding, interacting, timing, and speaking.” Duplex has the capacity to better meet the needs of the consumer by being able to actually carry out real world conversations over the phone. Not only will a scripted AI be able to place orders, but they could also take messages from clients or engage in a constructive conversation with them. The blog stresses that the automated voices have been improved to sound humanistic, with pauses in their speech and colloquial word choices. Their audio samples even sound like an actual conversation between two human beings, and not one person attempting to talk to an obvious robot frequently used at call centers.

 

This new technology could be easily applied throughout many different industries, especially those that deal with extensive customer support, or those that wish to automate a mundane or otherwise inefficient process. This sort of technology is most likely to be seen in use with companies that engage heavily with people, especially over the phone. The most obvious use for it is in call centers, but it could be rolled out to replace present automated telemarketing operations, as it could afford marketers the personal touch potential customers need from a sales representative. We could even see this take off in logistics, as the robot could place orders for items in abundance that don’t require an expert’s assistance, such as raw materials.

 

When Google Duplex hits the market, we expect it to significantly disrupt these industries, and provide many companies with a new asset with the potential to improve efficiency and productivity. Such products like this could revolutionize how businesses communicate to their customers or partners. We are excited to see what new innovations Google Duplex and other AI developments will lead to.

 

https://ai.googleblog.com/2018/05/duplex-ai-system-for-natural-conversation.html


It Pays To Be In Delaware: New Tax Credit for Angels that Invest in Tech

Posted on June 13th, 2018

 

“The Angel Investor Job Creation and Innovation Act for Small Technology Companies, creates an incentive for qualified angel investors to invest capital in qualified Delaware small technology companies.” – Delaware General Assembly

 

Signed into law by Governor Carney on 5/24/18, the Angel Investor Job Creation and Innovation Act offers a tremendous opportunity for emerging technology companies in the State of Delaware. In short, the law provides $5,000,000 in tax credits with a max $500,000 in potential credits for qualified investments in growing technology small businesses. This bipartisan resolution was constructed to give Delaware’s small businesses a leg up in this emerging market. As Governor John Carney puts it, “We should do everything we can to support Delaware’s innovators and entrepreneurs who are leading Delaware’s new economy.” This tax credit should help to alleviate some of the anxieties that many start-up and small business owners might have, allowing for these new leaders to focus on growing their firms. We are very excited to see the growth throughout Delaware’s tech economy and the new opportunities that it may bring the region. The new law takes effect for qualified investments made in calendar years beginning after December 31, 2018, and claimed on returns filed after December 31, 2019.

 

Click the link below to see the law in full.

Angel Investor Job Creation and Innovation Act


Tariffs

Posted on March 13th, 2018

Tariffs have been in the news a lot lately, after President Trump announced a new, 25% tariff on steel imported into the U.S. and a 10% tariff on imported aluminum. But what are tariffs, and are we for them or against them?

 

First, a tariff is simply a tax on specific goods, and I’ve heard plenty of pro and con arguments for them. Currently, the focus is on steel and aluminum tariffs; prior to President Trump’s announcement, both steel and aluminum were purchased by U.S. manufacturers at a lower cost from other countries (specifically, from U.S. allies) to build everything from tractors to beer cans (both of which we export). China supplies only two percent of the total U.S. annual steel consumed, while our allies produce the majority for our use. Canada, our largest producer, is exempt from Trump’s tariff for now. So, if a manufacturer uses steel and/or aluminum in production, then the cost of the product is either raised by the tariff, or the manufacturer resets the supply chain and purchases from U.S. metal manufacturers at a higher rate.

 

Yes, this move could revive the U.S. steel and aluminum industry, but at what cost? The industry that uses these metals will now have an increased Cost of Goods Sold and could therefore be forced to lay off employees in order to maintain the bottom line. (In contrast, the labor force set to gain from this move—steel and aluminum workers—is a fraction of the overall labor force.) The move also hurts our standing with other countries, as it affects and upsets global trade relationships. Our allies also may feel that it’s a ‘hit below the belt’ to add tariffs out of supposed national security concerns, since, well, we would hope that our allies would be there for us in the event the U.S. needed more tanks and ships! Time will tell if this move is a bang or a bust, but with the economy humming along, one should ask: Why continue to poke at it?


Quotes from the book Essentialism, by Greg McKeown

Posted on September 11th, 2017

 

“Remember that if you don’t prioritize your life someone else will.”

“Essentialism is not about how to get more things done; it’s about how to get the right things done. It doesn’t mean just doing less for the sake of less either. It is about making the wisest possible investment of your time and energy in order to operate at our highest point of contribution by doing only what is essential.”

“You cannot overestimate the unimportance of practically everything.”

“The word priority came into the English language in the 1400s. It was singular. It meant the very first or prior thing. It stayed singular for the next five hundred years.”

“Essentialists see trade-offs as an inherent part of life, not as an inherently negative part of life. Instead of asking, “What do I have to give up?” they ask, “What do I want to go big on?”

“What if we stopped celebrating being busy as a measurement of importance? What if instead we celebrated how much time we had spent listening, pondering, meditating, and enjoying time with the most important people in our lives?”

“We overvalue nonessentials like a nicer car or house, or even intangibles like the number of our followers on Twitter or the way we look in our Facebook photos. As a result, we neglect activities that are truly essential, like spending time with our loved ones, or nurturing our spirit, or taking care of our health.”

“The way of the Essentialist means living by design, not by default. Instead of making choices reactively, the Essentialist deliberately distinguishes the vital few from the trivial many, eliminates the nonessentials, and then removes obstacles so the essential things have clear, smooth passage. In other words, Essentialism is a disciplined, systematic approach for determining where our highest point of contribution lies, then making execution of those things almost effortless.”

“Today, technology has lowered the barrier for others to share their opinion about what we should be focusing on. It is not just information overload; it is opinion overload.”

“There should be no shame in admitting to a mistake; after all, we really are only admitting that we are now wiser than we once were.”

“Just because I was invited didn’t seem a good enough reason to attend.”

“What do I feel deeply inspired by?” and “What am I particularly talented at?” and “What meets a significant need in the world?”

“We can either make our choices deliberately or allow other people’s agendas to control our lives.”

“A popular idea in Silicon Valley is “Done is better than perfect.”

“the pursuit of success can be a catalyst for failure. Put another way, success can distract us from focusing on the essential things that produce success in the first place.”

“We often think of choice as a thing. But a choice is not a thing. Our options may be things, but a choice—a choice is an action. It is not just something we have but something we do.”

“Sleep will enhance your ability to explore, make connections, and do less but better throughout your waking hours.”

“NO IS A COMPLETE SENTENCE. —Anne Lamott”

“Essentialism: only once you give yourself permission to stop trying to do it all, to stop saying yes to everyone, can you make your highest contribution towards the things that really matter.”

“the killer question: “If I didn’t already own this, how much would I spend to buy it?”

“EVERY DAY DO SOMETHING THAT WILL INCH YOU CLOSER TO A BETTER TOMORROW. —Doug Firebaugh”

“If it isn’t a clear yes, then it’s a clear no.”

“The word priority came into the English language in the 1400s. It was singular. It meant the very first or prior thing. It stayed singular for the next five hundred years. Only in the 1900s did we pluralize the term and start talking about priorities.”

“Once an Australian nurse named Bronnie Ware, who cared for people in the last twelve weeks of their lives, recorded their most often discussed regrets. At the top of the list: “I wish I’d had the courage to live a life true to myself, not the life others expected of me.”6 This requires, not just haphazardly saying no, but purposefully, deliberately, and strategically eliminating the nonessentials, and not just getting rid of the obvious time wasters, but cutting out some really good opportunities as well.”

“Sometimes what you don’t do is just as important as what you do.”

“What if society stopped telling us to buy more stuff and instead allowed us to create more space to breathe and think? What if society encouraged us to reject what has been accurately described as doing things we detest, to buy things we don’t need, with money we don’t have, to impress people we don’t like?”

“It is about making the wisest possible investment of your time and energy in order to operate at our highest point of contribution by doing only what is essential.”

“The reality is, saying yes to any opportunity by definition requires saying no to several others.”

“In a reverse pilot you test whether removing an initiative or activity will have any negative consequences.”

“As John Maxwell has written, “You cannot overestimate the unimportance of practically everything.”




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