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Why are so many businesses moving their accounting operations to the cloud? Should you make the switch too?

For many, “the cloud†and “cloud computing†are mysterious and confusing concepts, which can lead to a severe misunderstanding of all the efficiencies and opportunities cloud-based financial management platforms can offer you and your business.

Over the last several years, the world of cloud computing has made its way into our everyday lives, and you may not have even noticed it. When you fire off an email or post to your social media accounts, you are taking advantage of cloud computing. Checking into your flight online? You are in the cloud again. Odds are, your business is already taking advantage of several cloud-based software systems which have streamlined and improved your previous business practices. So why not do the same with your accounting software?

Here are four signs you and your business are ready to take the leap from your own server to the cloud:

1. You need access to your data, anytime and anywhere.

When your accounting software is in the cloud, all you need is a device and an internet connection, and voila, you are at work! Cloud-based accounting software enables you and your employees to be productive from any location on any device, at any time. This kind of agility and accessibility is a leg-up in today’s busy and bustling business landscape, and can give your business a real advantage over competitors with less flexibility.

2. You want to save money.

With an on-premises solution, the upfront software and implementation fees can add up fairly quickly, not to mention the capital outlay needed to cover the equipment, hardware, and IT costs associated with hosting your own system. Cloud-based platforms provide a predictable subscription-based payment structure, meaning you pay as you go, with no unforeseen costs to upgrade, update, or maintain your software.

3. You are ready for hassle-free updates and maintenance.

Speaking of updates and maintenance, say goodbye to them! When you are in the cloud, the software provider takes care of maintaining the software and rolling out the updates for you, so you don’t have to spend time doing it yourself (or spend money hiring someone else to do it for you). This leaves you and your team free to focus your efforts on the projects that really matter.

4. Data security is your priority.

The issue of data privacy and safety is always a primary concern for consumers who are considering a move to the cloud. However, cloud service providers continue to prove they are experts in offering advanced levels of security to keep your sensitive data safe. They are equipped with specialized staff, developers, and programmers who exist solely to maintain the integrity of your system, and provide routine backups of your data.

Whether the idea of the cloud is completely foreign to your business, or you have been considering making the move for a while, now is a good time to investigate whether cloud accounting could make your operation more efficient. It’s a business decision that might make sense. To discuss the potential benefits for your business, please contact Lyric Morrison, 505.998.3494 or Christine Reeders, 505.998.3297.

What does the Tax Cuts and Jobs Act have to do with divorces and alimony payments? It turns out—a lot. In fact, the new law eliminates tax deductions for alimony payments related to post 2018 divorce agreements. Alimony for divorces pre-2019 that met the tax-law definition of alimony will continue to be deductible.

According to a survey of the American Academy of Matrimonial Lawyers, 95 percent of members anticipate changes in divorce settlements due to the new tax plan. Therefore, all of the parties involved in a divorce (e.g., spouses, attorneys) should have a solid understanding of its effect on alimony awards.

Divorce Agreements Finalized Prior to January 1, 2019:

Paying Party: Alimony payments made by the payer are tax-deductible.
Receiving Party: Alimony payments received by the recipient are included in taxable income. Note that the TCJA only affects alimony payments in connection with divorce agreements executed on or after January 1, 2019. Therefore, for taxpayers with alimony requirements in place before 2019, alimony payers will continue to be able to claim a tax deduction and alimony recipients will report the payments received as taxable income.

Divorce Agreements Finalized On or After January 1, 2019:

Paying Party: Alimony payments made by the payer are not tax-deductible.
Receiving Party: Alimony payments received by the recipient are not included in taxable income.

Understanding the Impact

For divorces finalized on or after January 1, 2019, the tax treatment for alimony is similar to child support. The paying party will not be allowed to deduct their payments for tax purposes, and the recipient will not need to pay tax on the payments received. This new treatment is likely to result in fewer after-tax dollars being available to both parties due to the alimony amount being subject to the higher tax rates of the paying party.

As displayed in the example below, if Spouse #1 makes $400,000 and Spouse #2 makes $35,000, a much higher tax rate will be applied to the alimony payments under the new tax law. Therefore, the $100,000 of alimony payments paid to Spouse #2 will be taxed at Spouse #1’s higher tax rate.

Alimony Comparison

In the first scenario (deductible alimony payments, which are applicable for divorces finalized prior to January 1, 2019), Spouse #1’s taxable income includes a deduction for the alimony payments, which leads to a total cash flow of $205,810. When compared to the non-deductible alimony payments scenario (assuming there is no change in the required amount of alimony), there is a reduction in Spouse #1’s total cash flow of approximately $39,500.

As for Spouse #2, under the new tax rulings the alimony payments received will not be included in taxable income. When you compare the two scenarios for Spouse #2, this results in an increased cash flow of $27,180 if the alimony received is not taxable (again assuming that there is no change in the required amount of alimony between the two scenarios).

As you can see in the example above, there is an overall reduction in total cash flow of $12,320 if the alimony payments are not deductible by the payer and not taxable to the recipient. This means there will be fewer after-tax dollars for the former spouses to divvy up under the TCJA ruling. Additionally, because the recipient will not have to pay tax on the alimony received, less alimony will be necessary to produce the same after-tax cash flow for the recipient. As a result, this may lead to lower alimony payments compared to divorces finalized prior to 2019.

Do you have questions about alimony or other valuation-related matters? Please contact Ryan Hart in our Tax Department at (602) 730-3673.

The Tax Cuts and Jobs Act of 2017 affected businesses and employees in any number of ways, and parking expenses were no exception. Before the close of 2018, the IRS issued highly anticipated guidance that will help determine the amount of qualified parking expenses that are subject to disallowance or inclusion in income.

Background

Qualified transportation fringe benefits (QTFs) are employer-provided voluntary benefit programs that for years have allowed employees to reduce their monthly commuting expenses for transit, carpooling, bicycling, and work-related parking costs. From a tax standpoint, QTFs have enabled many employers to save on payroll-related taxes while providing federal income tax savings to employees, since QTFs are not categorized as taxable income.

Prior to the passage of the new tax reform, taxpaying and tax-exempt employers could provide each employee up to $260 each month in QTFs. In turn, employers were allowed to deduct this expense in its entirety, and that amount was excluded from the employee’s gross income. All that changed after December 31, 2017, when the Act eliminated the deduction allowance for QTFs, unless employers taxed their employees for the QTF amounts. However, the Act did not settle the matter of how taxpayers should determine the expenses that were subject to the deduction disallowance for qualified parking provided by a taxpayer to its employees.

New Guidance

The IRS hopes to clarify the issue with Notice 2018-99, which offers transitional guidance on determining the specific amount of qualified parking expenses subject to disallowance or inclusion in income.

Notice 2018-99 provides that taxpayers may rely on the interim guidance relating to the deduction disallowance, pending publication of proposed regulations. Simply put, rely on Notice 2018-99 until additional formal guidance is issued via regulations.

What do QTFs include?

• Transportation in a commuter highway vehicle between an employee’s residence and place of employment
• Transit passes
• Qualified parking

Section 274(a)(4) of the Act stipulates that no deduction is allowed for any QTF provided to a taxpayer’s employee. If the amount is not taxable to the employee, the employer cannot take the deduction.

Today, as it was before the Act, QTFs continue to be excludable from an employee’s income, except for bicycle commuting reimbursements for tax years beginning after December 31, 2017, and before January 1, 2026.

Qualified parking is defined as parking provided to an employee on or near the business premises of the employer or on or near a location from which the employee commutes to work by mass transit, carpool or commuter highway vehicle. This does not include parking on or near property an employee uses for residential purposes. The amount of the monthly exclusion for qualified parking expenses for 2018 is $260.

Expenses Subject to Disallowance by Notice 2018-99

Notice 2018-99 itemizes parking expenses that are subject to disallowance. They include, but are not limited to:

• Repairs
• Maintenance
• Utility costs
• Insurance
• Property taxes
• Interest
• Trash removal
• Cleaning
• Landscape costs
• Parking lot attendant expenses
• Security
• Rent or lease payments (or a portion of a rent or lease payment, if not broken out separately)

Additionally, while elimination of the deduction allowance impacts taxable employers, tax-exempt organizations must treat these expenses as unrelated business taxable income as well.

The adjustment employers must make often goes unnoticed, and the calculation is still subject to question by the IRS. Determining the adjustment will depend if a taxpayer pays a third party for employee parking, or if the parking lot is owned by the employer. The notice includes a four-step method that the IRS will consider reasonable in determining the expenses allocable to employee parking. This adjustment is difficult to calculate, and it has caught many taxpayers off-guard as it includes all of the various expenses above.

Do you have questions about qualified parking expense fringe benefits or other tax issues? Please contact Ryan Hart in our Tax Department at (602) 730-3673.

IRS Grants Some Penalty Relief

The last thing taxpayers expected following sweeping tax reform was to receive lower refunds than they had in the past. In fact, some are discovering that instead of a refund they owe the federal government. So what went wrong?

After all, the intent of the Tax Cuts and Jobs Act (TCJA) was to cut taxes for most taxpayers. Many taxpayers are seeing modest increases in their paychecks, but that brings little comfort this time of year. Based on data provided by the IRS, the number of tax refunds issued from the start of tax filing season on January 28 through February 14 declined from 13.5 million for the same time period last year to 11.4 million, a drop-off of 16 percent. What’s more, the average amount of the refunds issued so far this year is only $1,949, as compared to $2,135 in 2018.

Part of the issue is that along with increasing the standard deduction, the TCJA also eliminated critical tax breaks, such as deductions for state and local taxes, and deductions for non-reimbursed business expenses, while creating new benefits for other taxpayers, including business owners.

Another factor is that shifting tax brackets changed the amount of money taxpayers need to have withheld from their paychecks. The Government Accountability Office study estimates that 30 million Americans, or 21 percent of taxpayers, didn’t have enough taken out of their pay. Confusion among taxpayers wasn’t helped when the IRS updated calculations for withholding, but the tables didn’t translate precisely from the old law. The new tables failed to factor in changes, such as exemptions for dependents and reduced itemized deductions.

Not surprisingly, many taxpayers are up in arms, especially those who have received big refunds in the past and had already earmarked tax refund money for specific purposes. Some are blaming the shortfall on the new tax law. Taking a glass is half full approach, the Treasury Department has communicated that smaller refunds mean that taxpayers are having the appropriate amount withheld from their paychecks.

Still, as a concession to the many changes put into effect by the TCJA, the IRS won’t expect those who owe money to pay the entire liability if they can’t. In fact, the agency has offered payment plan options and is even waiving penalties for those who did not have enough withheld from their paychecks. Penalties will be waived for taxpayers who paid at least 85 percent of their total liability through withholding, quarterly estimated payments or a combination.

Still, the IRS is urging taxpayers to adjust withholding for 2019 now to avoid future penalties and any other tax surprises when filing tax returns next year.

Questions about this blog or other Tax Planning and Preparation questions? Please contact Jamie Fridley in our Tax Department at (505) 998-3214.